(Original post by FDR)
What is nonsense is exactly what I quoted that 'free markets are not to be blamed for the great recession' and that the crisis actually stems from 'central bank and government intervention within the economy'.
The first point, that 'free markets are not to blame' is wrong because most aspects of the financial system failed in the run up to the crises; the lenders made risky ('subprime') loans in the knowledge that they could sell these on at a profit, the Investment Banks bought these loans and sliced them up into CDOs and sold them on, the ratings agencies Moody's and S&Ps failed to asses the risk of these mortgages, giving them triple A ratings, which exacerbated the problem, and the insurance firms, famously AIG, insured these risky loans for nothing. These are all, private firms that were deeply involved.
Private firms like Bear Stearns and Lehman Brothers, not to mention many others failed not because of too much government, but because they were poorly regulated. Therefore, I cannot see how free markets can be viewed as blameless in anyway, as they played the key role in this crisis. I presume you will point to the CRA, an act passed in the 70s, and say that this forced banks to lend to the poor, and therefore resulted in the subprime crisis, but it didn't because banks weren't required to take on any more risk than they needed to, they didn't need to make bad loans abroad (which they did) and most importantly, around 80%, a massive majority of subprime loans, were made either by institutions not supervised by the act, or were loans that the act didn't cover, and therein lies the problem. Let's not forget the ratings agencies here (private firms remember) - they had no obligation to give toxic loans the best rating, but they did anyway. The financial market failed. Big time.
As for the mistaken belief that the crisis stems from 'central bank and government intervention within the economy, well we know that there is no relationship between the role of government within the economy and how much it has suffered; in the EU, countries with high social expenditure such as Germany, France and Finland have fared far better than the PIIGS.
Also the fact that there was stimulus in the UK and US prevented a much deeper recession (as this Fitch/Oxford Economics research shows: http://economistsview.typepad.com/ec...-stimulus.html
As for central bank intervention, well over the past decade, in the US, UK and EU, central banks have fulfilled their mandate of low inflation well
, wouldn't you agree? In the UK, the BoE has acted admirably, cutting rates to 0.5% and injecting nearly £400bn into the economy, acts which prevented a much deeper recession, boosting GDP by around 2%. Likewise, the Federal Reserve has done a lot. The problem has been in the EU, where the central Bank has been reluctant to do anything; if it bought government debt the crisis would be much smaller.