Consider the fate of mortgage lenders and homeowners. The markets became wise to the fact that loose credit led to a fantastic bubble and that trillions in traded mortgages might not be serviceable in an environment of downward price pressure. Companies that once were seen as valuable and liquid are suddenly seen as unstable and wasteful. Their stocks are shorted by sellers. Their price crashes. Reality is revealed.
This is not an attack. It is not a result of malign "rumor mongering." It is not even regrettable from an economic point of view. Truth is a precondition for economic recovery. Bad investments need to be avoided. Good ones need to replace them. That is the very core of what all this economic activity is about. If the informed guesses of traders turn out to be wrong, there is a profitable opportunity for other traders to guess more accurately. To dampen this spirit is to do nothing but prop up illusions and perpetuate error.
What can the State contribute to this cause? It can get out of the way. It is not necessary to somehow demonstrate the superiority of markets over state planning. This is demonstrated every single second of every day. The politicians blather while the markets act with confidence and wisdom to achieve real results. The only positive contribution that politicians can make is to make the market a freer environment for resources to travel to their most profitable production lines.
~ Lew Rockwell, "The Greatness of the Market in a Crisis," LewRockwell.com, July 18, 2008