On Dec. 14, 2009, Dennis Prager interviewed Steve Forbes about his new book, “How Capitalism Will Save Us.”
Steve: “When you look at economic disasters, it wasn’t some sudden failure of free people and free markets that caused the disasters, it was a government disaster that brought on the economic disaster. When free people and free markets with sensible rules of the road are allowed to operate, it a benign system that encourages trust because the only way you succeed in the free market is if you provide something that someone else wants.”
Dennis: “You attribute this to whom overwhelmingly?”
Steve: “The Federal Reserve, an institution that’s enormously powerful but gets little oversight in Washington. Congressman Ron Paul has introduced a bill to have an audit of the Fed, not to take its independence away, but to find out what it has done with the hundreds of billions it has shoveled out, what criteria they use in these massive bailouts…
“The Federal Reserve several years ago, then under Alan Greenspan, decided they had to print a lot of money and keep interest rates at artificially low levels to keep America from suffering the fate of Japan in the 1990s. Japan had a recession for a decade.
“When you shovel out a lot of money, the first place it goes into is commodities. That’s why we had gas prices go up. Then it went into the housing market. The housing bubble could not have happened if the Fed had not created the money for the bubble. If the Fed had done what is should’ve done, the fuel for the bubble would not have been there.
“Not to mention two other government creations – Fannie Mae and Freddie Mac. With the implicit guarantee of the U.S. government, they went on their own borrowing binge that no private lender could’ve done on that scale, and guaranteed $1.5 trillion in junk mortgages. They encouraged people to make no down payments, no principal payments, no interest payments. They figured housing prices would keep going up. Liars loans. You weren’t supposed to examine people’s claims on how much money they made.
“They created this huge wave of liquidity. Think of it as you would an automobile. You can have a magnificent vehicle but if you don’t have sufficient fuel, you’ll stall. Too much fuel, you’ll flood the engine. Just the right amount, you have the chance to move forward. Same with the economy. Greenspan flooded the engine.”
Dennis: “There’s no need of authorization from Congress for the Fed to print more money?”
Dennis: “Did the credit rating agencies do a lousy job?”
Steve: “They did. That’s part of the problem. The [three] credit rating agencies are part of a government-sanctioned cartel. They have to be sanctioned by the SEC. If the rating agencies give a high rating, then a pension fund is covered legally.
“To give a comparison, a lot of publications rate colleges. The SEC doesn’t say only certain people can rate colleges. Anyone can rate a stock. But rating bonds? You have to go through these government-sanctioned rating agencies. So get rid of the cartel and let people decide whose ratings they will take seriously.”
“Wall Street was culpable but Wall Street would not have been in a position to do what it did if the Fed hadn’t created this inflated housing bubble. In terms of packaging this paper, if you didn’t have Fannie and Freddie giving its imprimatur to this stuff, there wouldn’t have been a market for it.”
Dennis: “You can’t bundle bad loans if there aren’t bad loans to be bundled.”
Steve: “It was the ultimate form of alchemy.”
“We need sensible rules of the road. We need disclosure, transparency, enforcement of contracts, rules against frauds, you can’t sell adulterated food, when you drive a car, you don’t go 90mph in a school zone, or when you get a new technology, you need patent law. What is fair use? The government should not tell you where to drive, and what to drive…”