The Solution
Mish reacts to today’s testimony from Greenspan and Cox:
Only the free market can judge risks. The failures are not of the free market, the failures happened because we did not have a free market.
Instead we had governments sponsorship of the GSEs, government sponsorship of the ratings agencies, micro management of interest rates by the Fed, fractional reserve lending compounded by Greenspan himself authorizing sweeps of checking accounts.
Sweeps permitted nearly every penny of money that is supposed to be available on demand to be lent out. Money that you think is in your checking account is simply not there. It has been lent out.
The solution is not more regulation. The solution to this financial crisis is a return to free market principles, abandonment of GSEs, rating agencies that get paid by buyers of bonds rather than sellers of bonds, the phasing out of fractional reserve lending, and a return to a strong currency backed by gold.
The biggest irony of all in this mess is that gold is the only regulator we have ever needed, a position once held by Greenspan himself, before he became Fed chairman, decades ago.
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