The following article has been taken from “The Lew Rockwell Column”, a Libertarian Forum in the USA which I subscribe to through RSS feeds.
Agreed, it is all about the USA but it equally applies to the UK, and probably many other countries in the Western World. I have highlighted the most important bit in red bold.
No, the Free Market Did Not Cause the Financial Crisis
by Thomas E. Woods, Jr.
In March 2007 then-Treasury secretary Henry Paulson told Americans that the global economy was “as strong as I’ve seen it in my business career.” “Our financial institutions are strong,” he added in March 2008. “Our investment banks are strong. Our banks are strong. They’re going to be strong for many, many years.”
Federal Reserve chairman Ben Bernanke said in May 2007, “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” In August 2008, Paulson and Bernanke assured the country that other than perhaps $25 billion in bailout money for Fannie and Freddie, the fundamentals of the economy were sound.
Then, all of a sudden, things were so bad that without a $700 billion congressional appropriation, the whole thing would collapse.
In the wake of this change of heart on the part of our leaders, Americans found themselves bombarded with a predictable and relentless refrain: the free market economy has failed. The alleged remedies were equally predictable: more regulation, more government intervention, more spending, more money creation, and more debt.
To add insult to injury, the very people who had been responsible for the policies that created the mess were posing as the wise public servants who would show us the way out. And following a now-familiar pattern, government failure would not only be blamed on anyone and everyone but the government itself, but it would also be used to justify additional grants of government power.
The truth of the matter is that intervention in the market, rather than the market economy itself, was the driving factor behind the bust.
F.A. Hayek won the Nobel Prize for his work showing how the central bank’s intervention into the economy gives rise to the boom-bust cycle, making us feel prosperous until we suffer the inevitable crash.
Most Americans know nothing about Hayek’s theory (known as the Austrian theory of the business cycle), and are therefore easy prey for the quacks who blame the market for problems caused by the manipulation of money and credit.
The artificial booms the Fed provokes, wrote economist Henry Hazlitt decades ago, must end “in a crisis and a slump, and…worse than the slump itself may be the public delusion that the slump has been caused, not by the previous inflation, but by the inherent defects of ‘capitalism.’”
May 8, 2009
Thomas E. Woods, Jr. is senior fellow in American history at the Ludwig von Mises Institute. He is the author of nine books, including two New York Times bestsellers: The Politically Incorrect Guide to American History and the just-released Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Visit his new website.