The global financial crisis is not an argument for statism
Whilst it is right to criticise the role played by greedy and irresponsible bankers and speculators, the roots of the current global crisis lie in the misuse of state power, both in the United States and elsewhere. As Dennis Sewell has just pointed out in his detailed and revealing Spectator article, ‘Clinton Democrats are to blame for the credit crunch’ (1 October 2008), the Clinton Administration used its legal and political muscle to pressurise American banks and mortgage lenders into lowering their traditional lending standards during the 1990s, in order to encourage home ownership amongst poor minority groups. As a result, a mountain of toxic subprime debt was created and distributed throughout the global financial system, with the consequences we all know about. This failure and abuse of state regulation is eerily reminiscent of the way in which the Federal Reserve and other central banks encouraged an inflationary expansion of money and credit during the 1920s, provoking the Great Crash of 1929. The subsequent spread of trade protectionism, price controls, and state-organised cartels and monopolies during the 1930s, plunged the world into the Great Depression – the ultimate monument not to the ‘failure of capitalism,’ but to that of big government.