New banking regulations being considered by Congress will only make the national’s financial crisis worse, the Libertarian Party executive director said.
“Instead of removing harmful regulations that reduce competition, create winners and losers, and stifle the choices of consumers and financial firms, this legislation merely adds to that heap of regulations,” said Wes Benedict.
Dr. Michael Munger, an economist and chair of Duke University’s political science department, agreed.
“Given that government had a substantial role in causing the current financial crisis through misguided regulation, there is no reason to believe that new regulatory policies being proposed in Congress will help,” said the 2008 Libertarian candidate for governor.
Libertarians favor free-market banking, with unrestricted competition among banks and depository institutions.
Benedict said this is the familiar cycle of government regulation. Politicians add more regulation, watch the rules fail, the blame the “free market,” then repeat step one.
He said that he though is was “remarkable” that so many people blame the free market for these problesm, since our financial systems “doesn’t remotely resemble a free market, and that’s been true for many decades.”
“The American finance industry is probably the most regulated industry in human history,” Benedict said. “It doesn’t remotely resemble a free market, and that’s been true for many decades.”
Munger said that the genesis of the financial crisis was a trap set by federal government officials and regulators. The trap was “baited with four kinds of tasty cheese,” including down payment subsidies which encouraged to buy houses more expensive than they could actually afford and looser rules for packaging and reselling loans made under Fannie Mae and Freddy Mac.
Artificially low interest rates helped inflate “an asset bubble in housing and commercial real estate,” Munger said. This was coupled with “an implicit guarantee, made by all of the last four Treasury secretaries, that any decline in housing prices would be treated as a market failure, prompting government action to prop up prices.”
“While it is clearly true that private investors behaved both greedily and in some cases foolishly, these four factors ensured that the financial disaster would be larger, and last longer, much longer, than would have happened if government had just left housing markets alone.” Munger said.
Overly protective government regulation gives consumers a false sense of security and lure them into complacency. As a result, consumers don’t take personal responsibility for their investments or check out the businesses they deal with.
“Then, when the government regulators fail in their job (as the SEC has repeatedly, for example), consumers get hurt much worse than they would if they had never been told the government was taking care of them,” Benedict said.
“The problem isn’t too little regulation, but too much,” he said. “Banks, insurance companies, and other financial companies must be allowed to operate freely in a free market, and they must be allowed to fail.”
“Heaping more regulations on top of the already enormous financial regulation pile will only lead to new problems,” Benedict said.