No Laissez Faire

Laissez faire had nothing to do with 2008. The government prodded the banks to use loan writers of questionable ethics to push mortgages on people with questionable incomes. The Fed fed them the cheap money to lend. Frannie and Freddie stepped in to backstop these risky mortgages. This government stamp of approval was the thin justification used by the ratings agencies to call these securitized bundles AAA.

Government played crucial, pivotal roles every step of the way. Rubin and Summers and Greenspan were among those who promoted the OTC derivatives wound around the bad bundles.

This was not a failure of laissez faire, this was a prime example of government intervention into markets distorting prices and risk equations.