Are Free Markets Really Free?

Some people are demanding free markets to help the economy recover from the Great Recession.  Republicans and Libertarians maintain there needs to be less government regulation.  Free markets helped started the Great Recession and it has not ended!

The banking industry got their free market wish granted when Bill Clinton signed the Gramm–Leach–Bliley Act, AKA the Financial Services Modernization Act of 1999, into law.  This removed regulation that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.  The Financial Crisis Inquiry Commission concluded that

  1. the financial crisis was avoidable;
  2. the widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets;
  3. the dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis;
  4. a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis;
  5. collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis;
  6. over-the-counter derivatives contributed significantly to this crisis;
  7. the failures of credit rating agencies were essential cogs in the wheel of financial destruction.

To read the details of the report, download the official government PDF and make up your own mind.  My opinion is that laws and regulations that had protected us since 1933 were removed to create a free market.  This market crisis was not free and we are still paying for it! Laws and regulations are made to protect citizens’ lives and fortunes. Removing the laws that are working to that end allows people (and certain large corporations) to rob us blind.

As early as 1999 I was wondering how “mortgage companies” could loan out big sums of money to people that only had to show a drivers license.  When I heard about credit default swaps in 2007 and how they eliminated risk in risky mortgages, I could not see that could be the case in all situations.  When I tried to talk about these issues and my concerns, I was told to just refinance and keep quiet.  What I did not realize is that all that risk was being transferred to the citizens of the world and the biggest financial crisis in my lifetime was about to begin.  I doubt that the organizations that benefited from this crisis will every be held fully accountable, but I will not be silent when I see pending doom in the future.

Update 11/24/2014

It appears that the economy is recovering, but slowly.  Of course the conservatives are blaming President Obama because politically they cannot do anything else except to act defensively.  Big business leaders are blaming the federal government when they were the ones that gutted the middle class by moving middle class jobs off shore.  That has helped them to capture a greater share of overall income from the middle and lower income levels since 1967!