October 27, 2008

The right intention but for the wrong intervention

Sir Johnny Munkhammar and Dick Kling tell us the “World needs less government intervention” October 27 and, in general, I agree. That said when they say that “The US, government, on a massive scale subsidized home loans to people who could not afford it” they are dead wrong, and they should be able to see that those incurred losses doing so were mostly private investors, who are now paying the costs and perhaps receiving themselves, as investors, a massive subsidy from the government.

And so if we are going to do well with less government intervention, let us get rid of the worst, namely the minimum capital requirements for banks based on vaguely defined risks and the risk information oligopoly awarded to the credit rating agencies.