The alternative to an interesting life in the big city with a degree of personal opportunity was bare subsistence. Most people in the countryside were either servants or slaves; or they scratched a living from the dirt, suffering from rickets and leading stunted, miserable lives; or they joined the army; or they resorted to banditry. That was about it back then.”

To your first point; my view is not necessarily that people are basically “irresponsible and lazy”, but rather that if you give someone something for free, they will usually take it. Why wouldn’t they? And if you give someone a LOT of things for free, consistently, they will BECOME irresponsible and lazy, because after a while they come to EXPECT to receive things for free. And more, Rome’s experience at least seems to indicate that if you ever stop giving people free stuff once you’ve started, they tend to become violent about it.

Your second point; “the world just wasn’t there yet.”
Hmm. . . then, um, where’d the big city come from? It didn’t spring full-formed from the ground.

Oh, right. Somebody – some entrepreneur – built himself a house, and started farming. And some others built nearby, and then more came, and then they put a wall around it, and then people started trading with them from other towns. . .

To say that the opportunity for entrepreneurial action didn’t exist in the ancient world is, honestly, absurd. The ancient world was BUILT by entrepreneurial action.

“And the Roman development model was just like our own: the economy either continually expanded or it began to die. Whereas the model you fellows want to replace it with is one of stasis: instead of expanding or contracting dynamically, it’s always half dead.
Which is not necessarily that bad. But it takes getting used to. Americans, for instance, would never accept it because they’d have to get used to so much more chronic poverty. We would no longer have a culture of abundance.”

You misunderstand us. We don’t want a “culture of stasis”. Rather, we claim that absent government intervention, the economy would expand both faster and with more stability. We would have a TRUE “culture of abundance”, as opposed to the profligacy of today, which we fund by stealing from our children. Or actually, it’s looking more and more like the past has funded it by stealing from us. I anticipate significant economic crumbling in my lifetime.

Chronic poverty? Why? In a free, capitalistic economy, a man with two hands and a good work ethic has all he needs to earn himself a living. Yes, people who wouldn’t work would starve. That would be their choice. But I think there would be very few such people, because in general people are perfectly willing to work for their bread. It’s only if someone gives it to them gratis that they won’t.

“It wasn’t the system that was defective. Everything depended on the capabilities of the man in charge.”

I say that a system which depends entirely on the man in charge IS defective. That’s the whole point of ABCT; A free, capitalistic economy doesn’t HAVE a “man in charge”, and it doesn’t need one. Or, rather, it would have (in America) 300 million men and women in charge. The system we propose essentially boils down to the assertion that in a large group of people, at any given time, more will make good decisions than will make bad ones, and the ones who make good decisions will gain while the ones who make bad decisions will lose. Thus, good decisions are promoted and spread across society while bad ones are marginalized and forgotten. THAT is what we want. And no State – not the American government, not the Roman state socialism, nothing – can replace it.

Eventually you get a bad man in charge, and usually he does a lot of damage to a lot of people. The solution is not to put a man in charge in the first place.

This is consonant with the view that people are basically irresponsible and lazy, just looking for the public teat so they can suckle on it. But your comment presumes they had options– that anyone who wanted to work hard could become his own entrepreneur and prosper. And the world just wasn’t there yet.

The alternative to an interesting life in the big city with a degree of personal opportunity was bare subsistence. Most people in the countryside were either servants or slaves; or they scratched a living from the dirt, suffering from rickets and leading stunted, miserable lives; or they joined the army; or they resorted to banditry. That was about it back then.

And the Roman development model was just like our own: the economy either continually expanded or it began to die. Whereas the model you fellows want to replace it with is one of stasis: instead of expanding or contracting dynamically, it’s always half dead.

Which is not necessarily that bad. But it takes getting used to. Americans, for instance, would never accept it because they’d have to get used to so much more chronic poverty. We would no longer have a culture of abundance.

“And I WILL argue that the bread-and-circuses model was a primary cause of the decline of the Urbs Roma itself; the Imperial court moved out of Rome centuries before it was sacked, precisely because it had become such a dangerous and uncontrollable place.”

Like any management system, the bread & circuses model requires competent management. (I note, as a manager, the tendency here to elevate or destroy models without inquiring into the nuts and bolts that make them hold together.) New York City, our modern Rome, was by the 1970s a cesspool of failed social policies. Everything only went from bad to worse until Rudy Giuliani showed up. Then the city began to work again, the way it did much earlier under LaGuardia.

It wasn’t the system that was defective. Everything depended on the capabilities of the man in charge.

My argument is that the Roman model didn’t fail because the Romans were “not good statesmen”; there were certainly bad and incompetent people in the upper echelons of Roman society, but there were also large numbers of competent and effective ones. Rather, the model failed because it must NECESSARILY fail. I assert that state socialism inevitably creates a class of people dependent on the state, and that class inevitably grows and becomes more demanding. Eventually, it becomes to large and bellicose for the state to support any longer, and the system crumbles.

A primary cause? Probably not, but as you said, being chronically broke didn’t help the Empire’s stability at all. And I WILL argue that the bread-and-circuses model was a primary cause of the decline of the Urbs Roma itself; the Imperial court moved out of Rome centuries before it was sacked, precisely because it had become such a dangerous and uncontrollable place.

You are correct, Russ. When you’re in business you either guess right every time, and get by, or you guess wrong once, and fail. What can I say? I got by.

“This is why I serious doubt whether you are a businessman at all. You’ve already claimed to have lived through the Great Depression, and understood the economic situation at the time, which would put you at about 75, which I also seriously doubt.”

In this you would be wrong. It was my father who went through both the Big Ones (the Depression and the War), and who described them in some close detail to me. My early first-hand familiarity was with the 1940s and 50s. So I’m Truman Era, a bit younger than your guesstimate. The 1947 postwar economy was really the first year that was vivid to me, with its boom times, plentiful money, stores full of all new products and one scary bout of price inflation. It was the Atomic Age, a miracle economy. Everything cheap was plastic or acrylic, easily breakable but with a shiny, colorful finish. ’47 was the year the old painted store signs got replaced with neon.

What’s not to like, right? It was a big step up for people. Rome was, in its day, quite a popular destination for aspiring peasants.

You are correct that it ultimately bred in the lower classes a sense of entitlement, and that the model was a budget-buster, requiring a constantly expanding circle of conquest to make ends meet. I think it’s a slight stretch to say it’s a primal cause of the collapse of Rome (the Empire was unsustainable in many ways)… but chronic budgetary imbalances certainly led into the whole complex of problems leading to the State’s internal rot.

Rome simply outgrew its model. For the latifundia to remain profitable you needed such a bloated military that they came to overpower every other force in the Roman world. And they were not good statesmen– in fact were mostly uneducated thugs finding themselves with a tottering civilization to be managed.

” The only thing you might be able to do with his desire would be to consider opening up a financing arm, to lend him your money to buy your product with. (Note: Ford and GM have done very well with this approach.) ”

You forget (rather conveniently) that someone had to have already produced the money that Ford and GM loaned out to their customers.

In 1921 and 1922 the inflation rate was a negative, (10.85%) and (6.2%) respectively. Unemployment was high. Yet in mid-1926 we saw the beginning of a very protracted mildly deflationary period (zero to minus 2-3%), and unemployment didn’t rise steeply until 1930.

Once deflation dropped below that point, down from -4% to staggering numbers around negative 10, we were in the trough of the Great Depression.

In 1935, 36 and 37 the economy was recovering, and employment started to also recover. There was mild inflation.

The in 1938 and 39 Congress imposed disastrous attempts to balance the budget prematurely. The Depression returned, as did higher unemployment and the reappearance of deflation. It’s this phase of the failed recovery that has the most relevance to us today.

1942 and 1947 were both highly inflationary years. But there was also low unemployment.

Then we get to 1949 and 50, years in which there was mild deflation. And here I’ll have to say, I don’t recall any problem with unemployment. So in this instance the general pattern isn’t followed.

In the late fifties, early sixties there was a happy combination of low inflation and full employment.

In the 1970s there were unemployment peaks in 1971, 1975 and 1982. !974, 1975 and 1979-81, on the other hand, were the years of peak (double-digit) inflation. So here I have to go with you. No positive correlation between unemployment and deflation, in fact a negative one.

The short deflationary period of 2007 immediately preceded the sharp rise in unemployment we still have with us. We call these things economic contractions.

Sources:
http://eh.net/encyclopedia/article/Smiley.1920s.final
http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=7
http://www.ofm.wa.gov/trends/tables/fig105.asp

So in terms of the serious recessionary-depressionary periods, I’ll have to go with my brief encapsulation. But I do note there was an anomalous period of stagflation in the 1973-82 era that didn’t follow the pattern. You’re partly right, in that it’s a general rule with occasional exceptions.

I’d be interested in such evidence as you can uncover.

As always, you are unable to realise that Kid’s point is simply that production drives the economy and not demand. Only those who produce can demand. So, the way to understand the working of an economy is by understanding what drives production and not what drives demand.

“in my business production DID NOT precede demand”

I’m pointing out that your production – the “seen” production from your point of view – may not have preceded the demand of your customers, but someone else’se production – the “unseen” – most certainly did. So it is ok to say production did not precede demand for one isolated person or exchange, but extrapolating this to the economy as a whole is simply incorrect – economy wide, production most certainly does precede demand.

You now appear to agree with this. So, let me ask you – what was the “utility” of your statement “in my business production DID NOT precede demand”?

So a formula like “total demand equals total production” is of no practical use (at least outside the field of macroeconomics). If you have a product or service to sell, you’re only interested in finding out how much your market segment is prepared to spend. My impression is that you’re taking the hard way around the block to figure out something that’s very obvious and easy to see.

“Desire” plays no part in my calculations. Many people sell something for which there is no lust in anyone’s heart. How badly do you desire the services of an accountant, or a gastroenterologist? Such people only consider how much the market will bear when calculating their rates.

And if someone is broke, and has his nose pressed against your showroom window glass, how useful is his desire to you? The only thing you might be able to do with his desire would be to consider opening up a financing arm, to lend him your money to buy your product with. (Note: Ford and GM have done very well with this approach.)

So the total demand is limited by the total production. This demand could be, relative to the amount produced, “high” if everything produced was desired by a consumer at the planned for price (meaning that the resouces were most efficiently allocated).

Or could be, relatively, “low” if many producers produced stuff that it turned out no’one actually wanted – like, say, there was some economy wide reason that the information available to producers was distorted and people built/made/trained for/invested in the wrong stuff. I wonder if there are any historical examples of such economy wide folly?

You should introduce a new word into your vocab, “desire”. If you make ferraris , then everyone has a “desire” for them. Only those who have at their disposal a sufficient amount of property to obtain one in exchange can be said to have a “demand” for them though.

The Roman model fed a sense of entitlement, drained the treasury, created a powerful and violent political group of “plebes” who rioted whenever their trough wasn’t refilled quickly enough, burning down significant parts of the city on a few occasions, and arguably contributed significantly to the downfall of the Roman Empire. Quoting the Roman experience in support of your ideas does not help you.

When Mises refers to inflation, he means monetary inflation. (I assumed you would understand that to be my definition of inflation since I referred to Mises in my previous post.) There is no need to discern between the two types (monetary and price). In Austrian economics, there is no such thing as price inflation/deflation. Inflation can only be derived through monetary policies-deflation as a result.

What you describe in one paragraph using words like “endogenous and exogenous” (really… wouldn’t the words internal and external be more efficient?)…I can say in one sentence:

“Deflation occurs as consequence of inflation…”

A person with a 6th grade vocabulary can understand this sentence…not so with your explanation. We say the same thing. I just do it with fewer words and can capsulize the essence of the idea in a single sentence.

I come from the anti-intellectual corner of the world. In other words, I believe that the communication of ideas is more important than the convolution of ideas and the details implicit to them.

Don’t get me wrong, it is necessary that there be an intellectual foundation for any revolution to take place. Mises, Rothbard, Hayek, Rand, etc, but in the end it’s the Thomas Paines and Bastiats of the world that create change (along with many of the writers here at mises.org.) – those who can communicate, teach, and show practical application.

So, as I said earlier…

“Deflation values work…inflation values speculation…it’s really that simple.”

Thanks for the dialogue:)

That’s factually incorrect.

Russ, may I submit that the principle has only been discredited by the austrians? And that that’s far from being a conclusive damnation?

Also I believe the concept has been very thoroughly baked. The Romans, early on, started baking bread to offer cheaply to the public. It allowed business to expand without unduly requiring that payment for labor be raised. It was a publicly funded subsidy designed to benefit the poor (that is, almost everyone in the capital) as well as anyone who wanted to employ free labor for pay. It prefigured modern state capitalism as well as state socialism.

They also sponsored circuses at state expanse, to keep the plebes amused and content. Thus the phrase “bread and circuses”. It still works well, although sponsorship of sporting events has since become a private endeavor.

Moscow used to do much the same thing. Most ordinary goods were dirt cheap and either not very good or in short supply. The Romans were really much better at it.

…You allege a specific: that Hoover made a nonbinding appeal to the business community that they hold wages at current levels, and that some of them complied. I’ll want to check that out, by examining wage erosion between December, 1929 and March, 1933. If such never happened, you’ve scored a point.

“With June 1929=100 we find that RAHE stood at 100.7 in June 1929, 99.8 in December, rising to 102.7 by June 1930 and to 105.3 in December 1930. June 1931 saw them peak at 111 falling to 108.3 by March 1933. Yet this period saw real payrolls fall by more than 60 per cent, real weekly earnings by about 30 per cent, factory employment fell by 42 per cent, unemployment rose to 25 per cent and production crashed. ”

Source: http://www.brookesnews.com/053101depression1.html

All the while, actual incomes fell and unemployment rose. Put simply, at Hoover’s suggestion (and we can’t know just what he might have threatened or promised), employers held wages up, but found that their labor costs were too high, so they had to cut back hours or fire workers. It was truly the worst possible action they could have taken at that point, with sales falling and downward pressure on prices.

2. Smoot-Hawley. This was a ridiculous move, and certainly nothing a Keynesian, a socialist or a New dealer would have endorsed. It was a Republican initiative, and matched efforts on the part of every developed nation to erect trade barriers in a futile attempt to shore up domestic economies.

Yes, some interventions are transparently, ludicrously harmful. Others are less obviously so.That doesn’t change the fact that this was an intervention, Hoover’s personal baby, in fact, and part of a host of interventions that he thought would boost the US economy. And, Republican or not, Hoover was a progressive, not a conservative. If the government of Hoover’s term had made it illegal to buy or sell on any day of the week but Tuesday, we would not call this Keynsian, but we would certainly call it interventionist and harmful. Only the most disingenuous would call it “laissez-faire” and subsequently blame a lack of government action for the tremendous hardship that followed.

3. The RFC. An example of too little being spent on too great a problem… although the $2 billion given to the states came in very handy. It was a decent model, but was applied only tentatively.

This is where Austrian and Keynsian economics will never meet. “Not enough” is thrown out apologetically after a massive and unprecedented intervention occurs, or occasionally, “it would have been even worse without it.” Such statements are often red herrings, and especially here. The RFC supports my point that Hoover pushed interventionist policies and was demonstrably not laissez-faire. I feel that this goes a very long way towards weakening the argument that the Great Depression was the result of doing nothing.

Four years. No results.

No positive results, anyway. Austrian economics tells us that the very policies Hoover supported would have been, on net, negative for the economy. I think that there would have been a recession, no matter what Hoover did, but the massive extent of the Great Depression, coinciding as it did with untried new Keynsian economic policies and idiotic actions like Smoot-Hawley, seems just a bit suspect.

I would be more interested in looking at 1907, the details of which I don’t recall right now.

I’ll see what I can dig up on the Panic of 1907. I’ve never been satisfied with the usual narrative that JP Morgan single-handedly saved everyone. Too pat.

And as a parting shot, here is another wonderful quote from Hoover in his December State of the Union address:

“It was recalled that past storms of similar character had resulted in retrenchment of construction, reduction of wages, and laying off of workers…I have, therefore, instituted systematic, voluntary measures of cooperation with the business institutions and with State and municipal authorities to make certain that fundamental businesses of the country shall continue as usual, that wages and therefore consuming power shall not be reduced, and that a special effort shall be made to expand construction work in order to assist in equalizing other deficits in employment.”

” So you also would agree that the business cycle stems from malinvestments. ”

No. We say that malinvestments are caused during the boom phase of the business cycle by the excessive pumping of cheap credit into to system of production. This credit is pumped into the production system by the banking system consisting of banks and central banks. In order to make this credit expansion possible, the banking system does 2 things
1. It depresses the interest rate way below what it would have been on a free market
2. It creates massive amounts of money out of thin air – You could say monetary inflation is the counterpart of credit expansion. For every $1 of credit expanded above what a free-market would allow, $1 needs to be added to the money supply

Why do we call these “malinvestments”? Simply because these projects were earlier rejected by the free market. That is signalled by the fact that they did not receive credit from the free-market. Considering that on the free-market, a lender’s primary job is to evaluate the credit-worthiness of a borrower, rejected borrowers must (in general) be of poor creditworthiness and rejected projects must be poorer investments than the free-market would like them to be.

Why should banks depress the interest rates? Simply because it is profitable to expand credit by creating money at no cost and lending it out at an interest. For a given (downward sloping) demand curve, a right-ward shift in the supply curve (that is what has to happen to the supply of credit in the case of credit expansion) means that prices have to fall.

Why should they create the money out of thin air? Simply because they do not have the money to lend out.

What are the effects of this massive credit expansion backed by equally massive monetary inflation?
1. It causes the structure of production to become longer, i.e., more capitalistic. This is what would happen in a free-market too when genuine savings enter the production system as credit. However, the reason such lengthening of the production system through credit expansion is unsustainable is on account of the simple fact that such lengthening essentially means that production is now happening to meet consumption requirements at a date further in the future. In simple terms, it assumes that investors have postponed consumption to a future date. However, under credit expansion, no such postponement of consumption (also known as saving) has happened. Hence, when the goods hit the market, the consumers are not going to be in a position to buy them. In this manner, credit expansion causes a serious rift between production and consumption. Producers who have invested in producing for the future find that their products have far fewer takers.
2. Simultaneously, the monetary inflation that occurred in the early stages of credit expansion now causes the prices of consumer goods to rise. This further reduces consumption. Rising prices of intermediates also eats into the profits of producers.

Thus, producers face a double whammy. On the one hand, people are buying less because they do not have the money to buy that which is being produced and because the goods have become expensive. On the other, costs of production are rising whittling down profits even more.

This causes a rash of failures forcing a series of credit contractions on the banking system. This in turn forces the banking system to raise interest rates further increasing the number of failures resulting in the phenomenon that we know as the depression.

This is why Austrians would not agree with your statement

” So you also would agree that the business cycle stems from malinvestments. ”

They would say that they business cycle stems from the artificial depression of interest rates in order to make credit expansion possible. The unsustainable nature of the boom caused through credit expansion is an inherent characteristic of that boom. The price inflation that follows and the raising of interest rates in the future is an inevitable part of this process. This is why Austrians say that a boom fuelled by credit expansion has to necessarily end in a massive bust also known as a depression.

” But it would appear that you feel the money in the speculator’s pocket gets there from his excessive borrowing from available credit. ”

What makes the excessive credit available and profitable?

” Low interest rates tend to stimulate borrowing from the banking system. ”

You need to learn about the gratuitous nature of credit in a system of fractional reserve banking.

” This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. ”

Correct so far.

” It is asserted that this leads to an unsustainable credit-sourced boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. ”

Not asserted – Explained in great detail.

” Are you sure about this? ”

Pretty sure.

” Don’t investor/speculators normally buy their chips with their own money? ”

Not when the can borrow from a banking system that is desperate to extend credit to all and sundry.

” How do loans extended by the banks wind up in bad investments? ”

When banks are desperate to extend credit by depressing interest rates, there is a lot of scope to make poor lending decisions. Aggressive lending policies have to lead to loans being made to customers of progressively poorer creditworthiness.

” I will grant that there are tons of money floating around generally, from policies that expand credit. But I don’t see that we can lay all malinvestment at the feet of the Federal Reserve. ”

Because the Federal Reserve is the base of the pyramiding scheme that we call the banking system. As Rothbard showed in “The Mystery of Banking”, every $1 of money created by the Fed gives the entire banking system the power to create upto $29 in new money and extend an equal amount of credit.

Further, but for the Fed, armed with its monopoly powers, being ready to save them, banks would not be able to be as reckless as they have been in the last (nearly) 100 years.

” It comes from free investors making their best guesses. ”

Yes. But it is made possible by a pyramiding scheme with the Fed at its base.

” And that can’t be cured by shrinking the money supply. ”

If excessive credit expansion fuelled by equal monetary inflation is the cause of the boom-bust cycle, stopping it is the only cure.

” The only thing that approach will do is to induce prolonged recession. ”

Monetary contraction is only a necessary step to bring the recession to an early end, as it happened in the Depression of 1920-21. The recession itself was caused by loose money and credit policies. It is in the boom that the seeds of the bust are sowed. Fighting the contraction is what will prolong the depression, as it happened during the Great Depression.

Strawman. Equities are also available in bundles that distribute the risk. A savvy businessman like you hasn’t heard of “mutual funds” before? Hint: Go for the “no-load” ones.

“But the fact is, in a market totally free from distorting influence, investors will continue to over-speculate in a high-flying market and flee a sinking one.”

No, they will not “over-speculate”; they will speculate. Over-speculation will not occur without distorting influences that encourage excessive risk-taking; at least not in any significant amount. And speculation in good markets and lack of same in bad markets is not a bad thing. Investing in bad investments is just a waste (mis-allocation) of capital.

“How do loans extended by the banks wind up in bad investments?”

When money is artificially cheap, businessmen will take out loans for excessively risky ventures; ventures that wouldn’t be deemed worth the risk if money were at a reasonable price. Witness the dot-com bubble. Many people invested in ventures, the business plans of which were similar to a popular cartoon: Step 1) Put up a flashy web site. Step 2) (A vague cloud…) Step 3) Profit! Now assume that some of this risky investment is in the manufacturing arena. Manufacturing capital needs labor to make it profitable. So these shaky ventures hire people. When the market shakes out for whatever reason, it is noticed that all that capital is (mal-)invested in ventures that produce things that people don’t really want in the non-bubble market. Then capital has to be re-allocated to produce what people do want. When that happens, the labor that worked the mis-allocated capital find out that they were mis-allocated, too. They lose their jobs, and have to wait out the capital re-allocation before they can re-allocate themselves to a new employer.

“I will grant that there are tons of money floating around generally, from policies that expand credit. But I don’t see that we can lay all malinvestment at the feet of the Federal Reserve. It comes from free investors making their best guesses.”

Yes, investors can make mistakes. They won’t always guess right. But easy money, as I said earlier, actively encourages investors to take chances on excessively risky ventures. In short, easy money encourages investors to make mistakes. It’s like a casino giving a gambler hookers and free drinks.

“I’m trying to see this the way you do. All you need to do is a better job explaining it.”

Maybe you need to do a better job trying understand it. Here are some helpful clues:

1) Develop a real interest in learning the laws by which economies work. This involves the assumption that economies do indeed follow certain laws, at least in general, and that we cannot simply make economies work however we want through sheer willpower. If you refuse to provisionally accept this assumption, you are wasting your time.

2) Try to think with your head, not your heart. I’m not saying you shouldn’t have a heart. Provisionally accept that the policies that your heart favors are possibly not, in fact, the best policies to further your goal of reducing human suffering. If you cannot do this, you are also wasting your time.

Ok, Michael; You’re asking, essentially, why a bajillion individual investors all guessed wrong at the same time. Now we’re getting to the heart of the matter.

Normally, that kind of thing just can’t happen, because investors go through a rigorous process of natural selection. If you guess wrong, you lose all your money, and then you can’t invest anymore. The investors who succeed are the ones who can reliably guess RIGHT.

So why’d all these guys who reliably guess right suddenly guess wrong, all at the same time? Well, for a few reasons.

1). Those mortgage-backed securities? All guaranteed AAA, no risk, solid gold, by a few credit rating agencies. Who have a total monopoly on their market. Who are backed by the government. Who explicitly have no liability, whatsoever, if their ratings are wrong.

2). Those bad mortgages? Made by banks, using Federal money that they got essentially for free due to the policies of the Federal Reserve under Bush, which policies also gave low-income people MASSIVE incentives to buy houses, which they honestly couldn’t afford. In short, only enormous amounts of government intervention made it POSSIBLE for so many bad mortgages to be made in such a short time. And then, of course, when the banks realized they were about to get jacked over by their own stupid practices, the government stepped in to rescue them, just like they counted on, meaning they suffered NO CONSEQUENCES for their criminal idiocy.

In a free market, this kind of thing simply would not happen. If rating agencies actually competed with each other, an AAA rating from one, contrasted with a CCC from another, would ring warning bells. If homeowning didn’t get a huge subsidy, people who couldn’t afford payments on homes wouldn’t buy them en masse. And if banks weren’t bailed out by the government, so they had to suffer the full consequences of their actions, they’d be a lot more leery of taking insane risks with their depositor’s money.