An open letter to Chairman Phil Angelides and The Financial Crisis Inquiry Commission.
The popular belief seems to favor blaming some persons or organizations for the collapse of the financial markets in 2008. Numerous accounts already have taken that position and The Financial Crisis Inquiry Commission have directed their attention to evidence that will support that conclusion.
The unhealthy boom, however, resulted from the structure of the system, which includes the interventionist elements of the government. To point The Financial Crisis Inquiry Commission and other interested parties in the right direction I have prepared a paper that describes the relationship between the systemic structure and the “crisis” of 2008.
I posted the following open letter on the FCIC website:
Chairman Angelides and Commissioners,
Having lived in the mountains of Colorado for over six decades, it seems obvious to me why rivers run as fast as they do. The structural elements of the width of the river channel, the slope of the stream bed, and the quantity of water, combine to make a systemic structure that determines how rapidly the water flows. The same combinations of elements will always produce the same results. If you understand the structure of any system, you can understand its behavior.
The causes of the financial crisis of 2008 seem just as obvious to me.
Similar to understanding the structure that influences the flow rate of a river, if you understand the structure of the economic system, you can see the source of crises—which actually happen during the booms (much like the floods.) Studying market processes without considering the systemic structure leads to flawed conclusions.
The government has added three elements to the market structure that make financial catastrophes inevitable. First, the government has created a structure of regulations that interferes with normally effective market processes. Second, the government has created a structure of entrenched spending that redistributes economic resources to less-efficient uses. Third, the government has created a banking system that generates artificial monetary expansion, which sends false price signals to the market. The various market interventions resulting from these unnecessary structural elements distort the effective, efficient and adaptable resource allocation processes of the market. These distortions cause unhealthy booms followed by corrective crashes.
I have prepared a paper, “The Roots of a Financial Crisis,” that explains the influence of systemic structure and describes how, by understanding that influence, to determine the root causes of the financial crash of 2008. You will find the summary and conclusion excerpted from that paper along with a link to the full text in PDF format at http://www.freemarketcenter.com/crisis_2008/.
The approach that I suggest leads to a single conclusion: the elements of intervention— artificial money changes, government spending, and government regulation—make the U.S. economic structure unsustainable. As long as these structural elements remain, unhealthy economic cycles of boom and bust will continue to occur.
Good luck in your research. I hope you recommend to the president and congress to eliminate the violent intervention of government from the markets, before time runs out.
James B. Berger
Please read this piece and relay the link to anyone you think might have an interest.