Some on the Left are proclaiming the failure of libertarian ideas, in the wake of the current financial malaise.
Nonsense, says Richard Epstein in his latest Forbes column:
[T]he financial rot started in the underlying home-mortgage market, with the government decision
to subsidize home mortgages generally through low interest rates, and
compounds the problem by offering special Fannie and Freddie guarantees
at the low end of the market.These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness.
…
Private markets magnify government errors. But in light of this history, it is plain foolish to treat the current failures solely as the result of an unregulated market. The hard question is what kind of regulation is appropriate, and why.
…
[W]e recognize that the specter of bank runs, illiquidity and credit freezes might justify some regulation. In dealing with the current crisis, we have to accept some role for the Federal Reserve
as a lender of last resort under our current institutional
arrangements. But we are equally adamant that bad regulation can wreck
credit markets. And we insist that governments must mend their lending
habits to reduce the odds of credit trains going off the rails yet
again. We also strenuously oppose using the credit crisis as a lever
for introducing all sorts of senseless gimmicks to disrupt labor and
product markets.
