Student Blog: Law, Markets, & The Role Of The State
THE FAILURE OF MARKETS AND THE POLITICS THAT FOLLOW
The stock market crash of 1929 and the recent housing market crash are strikingly similar in respect to their causes and the government’s subsequent responses. In “the 1920s, banks began to loan money to stock-buyers since stocks were the hottest commodity in the marketplace. Banks allowed Wall Street investors to use the stocks themselves as collateral. If the stocks dropped in value, and investors could not repay the banks, the banks would be left holding near-worthless collateral. Banks would then go broke, pulling productive businesses down with them as they called in loans and foreclosed mortgages in a desperate attempt to stay afloat.” The cause of the recent housing market crash parallels that of the crash of the stock market in 1929. The housing bubble was fueled by unrealistic optimism of the real estate market like that of the stock market in the 1920s. American banks began loaning heavily for housing purchases to unqualified borrows with little to no money down because it was believed that housing prices could not decline. But when falling real estate values caused borrowers to default on their mortgages, this effect rippled throughout the economy.
Another interesting parallel between the crash of 1929 and the current housing bust is how government intervention played a role. There are two competing viewpoints on government intervention. Conservatives believe small government means maximum freedom and government intervention means the beginning of an irresponsible and over-regulatory welfare state. Whereas liberals assert that democratic governments must be responsive to the social needs of the people and government intervention is necessary to empower the previously powerless and oppressed groups.
In 1929, “President Herbert Hoover resisted calls for government intervention on behalf of individuals. He reiterated his belief that if left alone the economy would right itself.” Similarly to Hoover, President George W. Bush was a conservative Republican who placed a high value on market efficiency theory; if left alone, the market would correct itself. This philosophy was apparent in many of President Bush’s policy decisions during his term. Both President Hoover and President Bush were succeeded by Democrats promising that the government would act decisively to end the country’s struggles. President Franklin D. Roosevelt introduced the New Deal, which was a complex package of economic programs aimed at providing relief, reform, and recovery for the county. Likewise, President Obama has begun economic reform since he took office. For example, President Obama’s administration is attempting to intervene and rescue giant financial companies on the brink of failure. “These companies are deemed ‘too big to fail’ because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.” But has the government exceeded its role? How much government intervention is too much? The answer lies in whether you believe in market efficiency or believe government intervention is necessary.
1 http://iws.ccccd.edu/kwilkison/Online1302home/20th%20Century/DepressionNewDeal.html
2 Id.
3 Id.
4 Id.
5 http://www.nytimes.com/2008/07/20/weekinreview/20goodman.html
COMMENTS
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You need to be sensitive to changes outside the business. Business doesnt always revolve around itself. It has connection with politics. And since Obama is our president, we should have known how he help the market condition to be alleviated from crisis. Based on combined attendance numbers, television viewership and Internet traffic, it was among the most observed events ever by the global audience.The inauguration, which set a record attendance for any event held in Washington, D.C., marked the commencement of the four-year term of Barack Obama as President and Joseph (Joe) Biden as Vice President. The veteran news anchor and interviewer of a veritable cornucopia of famous people, and equally famous interviews with them where she asks some tough questions, covered the Presidential Inauguration of President Obama through the night and into the morning, and the videos, especially those on YouTube, features what appears to be Diane Sawyer drunk on Good Morning America. There have been some viral videos, of sorts, floating around that seem to feature Diane Sawyer drunk.In all fairness, she could have just been tired – but she does not look tired, she looked and sounded WASTED. Perhaps after filming the <a rev="vote for" title="Get Instant Cash When You Need It" href="http://personalmoneystore.com/Payday-Loans/instant-Payday-Loans/instant-Cash/ ">Diane Sawyer drunk</a> footage, she threw some instant cash into some Denny's and Gatorade.