Testimony, House Financial Services Committee

Last year the New York Times ran several articles about the end of capitalism. Others picked up the theme and reinforced it with claims that greedy bankers and deregulated financial markets had brought the world to the brink of another Great Depression. Allegedly we were saved by timely, forceful, and intelligent government actions. And the next phase had to be more government regulation of financial and economic life.

Unbelievable! Certainly there were many mistakes in the financial sector and a massive response by the Federal Reserve. Left out is the government’s disastrous mortgage and housing policy. Without the policies followed by Fannie Mae, Freddie Mac, and the destructive changes in government housing and mortgage policies, the crisis would not have happened. Also, without warning, a 30-year policy changed when Lehman Brothers failed, followed by a hesitant and uncertain lead from Treasury Secretary Paulson. These actions converted a garden-variety recession into a world-wide crisis. The Federal Reserve acted forcefully and determinedly to lessen the fallout from its Lehman error, but much damage was done. Let’s not overlook government failure. Let’s try to prevent more of the same.