Feb 19, 2009

Peter Schiff on the free market's ability to self-regulate and moral hazard created by government attempts to limit risk

The free markets regulate themselves. Everybody is greedy, right? But everybody is afraid of losing. There's always risk and there's a tradeoff. And in the free market the risk of loss always counter-balances the greed for profit, and they check each other. But what happens is the government enters into the equation and tries to remove the element of risk. They create a moral hazard, whether it's by Freddie and Fannie guaranteeing mortgages. And now loans are going to be made then in a free market wouldn't be made - because the borrower isn't creditworthy. But when the government steps in and guarantees the loan all the sudden there's no reason to worry about the risk of loss. And when the Federal Reserve makes borrowing money very inexpensive, borrowing is cheap, so the speculation on leverage is a lot cheaper. And so it encourages more of it. And so government's come in and they remove the barriers that would exist in a free market. And then there's all these problems that get created and now the government is about to blame the free market. They're able to say, "well, there wasn't enough regulation," which is nonsense!

~ Peter Schiff, podcast with Lew Rockwell, Nobember 20, 2008

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