Libertarian Author Discusses Financial Crisis, Warns Against More Government Regulation

Many financial experts have predicted the economy will get worse before it turns around, but a noted Libertarian author who visited Fordham on Sept. 3 sees something a bit more worrisome.

“I’m afraid it will get better before it gets worse down the road,” said Johan Norberg, a senior fellow at the Cato Institute, in a speech at Fordham’s Rose Hill campus in the Bronx. “I think we should start wondering if we are ready for an encore already.”

Norberg, author of Financial Fiasco: How America´s Infatuation with Home Ownership and Easy Money Created the Economic Crisis(Cato Institute, 2009), said signs point to a repeat of what led to this recession in the first place – “too low interest rates, too much indebtedness and too much money going into bad investments.”

“When you add these stimulus packages and bailing out the automotive industry, we’re building up unsustainable debt for the future and I have no idea how this is going to be paid back in the future,” he said.

But it’s not just the cost taxpayers should be worried about, Norberg added.

“Some people take comfort in the fact that some banks have posted very impressive profits,” he said. “This makes me terrified because they were just bailed out by the taxpayers and now suddenly just half a year later they take on enormous risks to make new profits? I guess that’s the rational thing to do if you know there’s a government guarantee out there.”

Those who say a relaxed attitude in banking industry led to this economic maelstrom are mistaken, Norberg said.

“It wasn’t Laissez-faire that failed, because the ‘invisible hand’ was nowhere to be seen,” he said. “We have 39,000 people who work full-time regulating the financial markets in the U.S., 12,190 of whom work in Washington, D.C., so what did they do when the bubble was inflating? They inflated it even further. The government’s fingerprints are all over the crime scene.”

Shortly after the dot com bubble burst and the Sept. 11, 2001, attacks on the World Trade Center, the whole world looked to the Federal Reserve System to take action and ward off a recession, Norberg said.

But a combination of lax monetary policies, over promotion of homeownership by the government and the transformation of the mortgage loan industry into an issuer of securities backed by a pool of mortgages of varying quality led to the economic crisis of today, he added.

“So before we ever say, ‘Let’s make sure this never happens again by regulating the financial markets,’ we have to look at what the regulations did,” Norberg said. “The courses of this financial crisis were previous attempts to make sure this never happens again. Well this might, as Alan Greenspan once put it, ‘encourage an inflationary bubble of some sort later on, but we’ll have to address that at some point subsequently.’ Well we’re addressing it now and it comes with a lot of costs.”

Norberg advised the young taxpayers in the audience to take action.

“There has been a potential movement against these bailouts and that creates a good pressure in the other direction,” he said. “I’d like to see a young taxpayers revolt saying, ‘We’re not going to pay any of this debt.’”

Norberg’s appearance was sponsored by the College Republicans and the newly formed chapter of the Young Americans for Liberty. The event was held at Tognino Hall, in the Duane Library.