Thursday, March 26, 2009

Stalin's tactic used to justify additional regulation


After the death of Lenin, one of Stalin’s rivals for power was the mayor of Leningrad. Stalin had the man murdered, and used the investigation of the murder to pin the killing on other rivals, who were then liquidated. Stalin blamed others for his own misdeeds to justify drastically increasing his power.

The tactics of those responsible for the current murder of the financial system bear an uncanny resemblance to the tactic used by Stalin.

The ultimate cause of the financial disaster was the fact that Federal law (namely the Community Reinvestment Act passed under Carter) and regulation (implemented under the Clinton administration by, among others, current AG Eric Holder) forced Fannie Mae, Freddie Mac, and the banks to make subprime mortgage loans. When the danger of these regulations was pointed out to Democratic lawmakers, they scoffed at the possibility that their actions might be jeopardizing the financial system.

These facts are well documented. The undermining of the value of mortgage backed securities was caused by regulatory action. These securities formed one of the primary foundations of the entire financial system. The collapse of securities firms and insurance companies like AIG were downstream problems caused by the undermining of this financial foundation.

Yet, as soon as the extent of the disaster became clear, politicians and bureaucrats have used the damage caused by their own regulatory misdeeds to justify massive additional regulation. And most people have bought the con. Even many of those who know that regulation was the root of the problem support additional regulation.

Stalin would have been proud that his tactic is still working so well today.

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