The real story of the financial panic of 2008 is worlds apart from the conventional wisdon.
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To be clear, it did not end when TARP and Quantitative Easing One (QE1) were started in October 2008. It ended when mark-to-market accounting was changed. Only then could banks raise private capital. Only then did the viscous downward spiral of bankruptcies stop. And since then, the economy has grown for nine consecutive quarters, the stock market has doubled, bond yields and spreads have come down sharply, and default rates have plummeted. Consumption and investment have returned to pre-crisis levels.
Pessimists, short-sellers, and liberal politicians will tell you that the only reason the economy Bbegan growing again is that the government saved it, and many wish we had spent more. But the reality is that if government had done nothing — except get rid of mark-to-market accounting — the recovery would have been stronger, the recession shallower, and the aftershocks less severe.
Ben Bernanke says quantitative easing lifted stock prices. But, if this were true, then price-earnings ratios would have risen in the past two years because equity prices would have been lifted on a wave of liquidity regardless of earnings growth. Instead, earnings growth has soared and P-E ratios have fallen. The two areas that the government has targeted the most — housing and employment — are the worst performing sectors of the economy. The more the government interferes, the more damage is done to the sectors it in which interferes.
THE REAL STORY, the free market narrative, is so far removed these days from the conventional wisdom that very few find it easy to believe. And because Republicans were in power during the crisis — passing TARP and supporting quantitative easing — it’s hard for them to admit they made a mistake. As a result, every time the stock market goes into a correction mode or economic data get a little dicey, the pessimistic soothsayers are given lots of airtime and investors run for the hills.
This is a mistake. The economy was never as bad as they said, Wall Street was never as corrupt or stupid as they think, and the analysts who were predicting calamity are not as smart and all-knowing as many people seem to believe. Just like in the Great Depression, the economy is recovering more slowly than it should because government has done too much, not because it always recovers slowly after a financial crisis.
The narrative of the past that you believe in determines how you see the future. If you think government saved us from the abyss and had nothing to do with the crisis to begin with, then Whitney and Roubini are your guides. If you can hear what the giants of free market thought — Friedman, Mises, Smith, Bastiat, and Hayek — are saying from the grave, then the other narrative — the real story — suggests that having faith in markets and those who build successful businesses is the much better alternative.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?