While reading your recent article (‘The novelist who is to blame’, November 14), I noticed that you used the phrase ‘laissez-faire’ to describe Greenspan’s attitude toward interest rates. In a laissez-faire capitalist society, interest rates would be set by the market, not a Federal Reserve or any other government body. In addition, there would be no Freddie Mac, Fannie Mae, Community Reinvestment Act, Federal Deposit Insurance Corporation, or any of the myriad of federal regulatory bodies dictating what is good business in America and what is not.
The recent financial crisis in America was not caused by capitalism; it was caused by government control of the mortgage banking industry.
First, the government replaced hard money with fiat currency, tied to government debt instead of gold and silver.
Second, it set up quasi-government organisations who were able to borrow at below-market rates, and avoid federal taxes, provided they purchased residential mortgages.
Third, it encouraged lenders to make loans to people with poor credit, by accusing lenders of racial discrimination if they didn’t loan into bad neighborhoods, and later by allowing banks to expand only if they were able to prove that they gave loans to people who weren’t normally considered credit-worthy.
Fourth, the US government offered tax breaks to people who purchased residential real estate, but taxed people who invested in other areas.
Fifth, Alan Greenspan cut interest rates below the rate of inflation.
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This latter point you mentioned, but you didn’t mention the previous encroaches into the market system. To suggest that the USA was laissez-faire is ludicrous. America hasn’t been close to laissez-faire since 1913, when the Federal Reserve was founded.
While Alan Greenspan was a believer in Ayn Rand’s Objectivism, including laissez-faire capitalism, at some point in the past, his actions as a federal regulator indicate that he eschewed that philosophy quite some time ago.
Tedd Potts,
Leawood, Kansas USA