Slapped by the invisible hand
Under the "leadership" of Alan Greenspan (and I use that word loosely), the Federal Reserve refused to enforce the terms of the Truth in Lending Act and thereby explicitly permitted the explosion of sub-prime mortgages, marketed by predatory lenders to consumers acting on imperfect information and under a cloud of deceptive lending practices. His doctrinaire refusal to enforce any kind of oversight on the mortgage lending industry has directly resulted in the inevitable and predictable collapse of that sector, and it has engendered a cascade of horrendous tremors which are still shaking the financial world. The sub-prime crisis and its aftershocks are Greenspan's children, whether he publicly admits it or not.
The consequences of Greenspan's slavish devotion to the depraved ramblings of Ayn Rand continue to unfold; after the government takeover of Fannie Mae and Freddie Mac, the collapses of Countrywide and Bear Stearns, the failures of Lehman Brothers and Merrill Lynch, and today's bailout of AIG, it should be self-evident that the libertarian phobia of oversight is toxic to a functioning, sustainable, and equitable economy.
The plan to rescue AIG is particularly instructive:
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
In any other country in the world, the government's takeover and rescue of Fannie Mae, Freddie Mac, and AIG would be called "nationalization."
How telling it is that the abject failure of the bankrupt and corrupt libertarian mindset requires what amounts to socialism to bail it out when its superficial, simplistic, and naive world view inevitably collapses.