Saturday, September 08, 2007

Why Oh Why Oh Why...

...did all of these American Investment Banks, filled with some of the smartest people I've ever met, waste so much money on subprime mortgages, wrapped up in some of the stupidest derivative contracts ever devised?

This was a question that was puzzling me the other day. Yes, fractional reserve fiat money banking leads to terrible dislocations, misallocations, booms, busts, recessions, depressions, and other gargantuan assortments of perennial state thievery, but surely it hadn't also infected the brains of all these bright ambitious people too, in the Investment Banks, and simply stopped them thinking and plunged the rest of us into such financial turmoil? (And if you don't think you've personally been affected by what's happened in the last month, on Wall Street and in the City, then I'm afraid you need to break out the Cod Liver Oil pills to boost up your own thinking.)

Why had these smart hard-working millionaire bankers invested so much of their investors' money in subprime mortgages? I tried to think up some Austro-economic paradigm to explain it, but nothing fitted. However, this was because I was too stupid myself to realise the answer to the problem was much simpler. It was straightforward government planning and controls that had led all of these bankers to soberly choose an intelligent path of wasting wealth on legions of hopeless cases. Because of the way government had framed the market, this centrally directed wastage became the only rational choice available to Wall Street. How so?

The magnificent Thomas DiLorenzo, explains. Thank you, Professor. I shall break out my own Cod Liver Oil pills, immediately! :-)

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