Recently Newsweek interviewed Yaron Brook of the Ayn Rand institute. He said a number of interesting things, only a few of which I’ll quote here.
For the first time I’m aware of, Brook laid primary responsibility of the current crises at the feet of the Federal Reserve. He’s claimed the Fed was a major cause; here he says:
The current crisis was caused by the housing bubble, and the primary cause of the housing bubble was the Federal Reserve keeping interest rates at 1 percent in 2003. They were asking people to borrow money, basically begging them. The financial problem we face today was a problem of overleverage, of too much debt — but that’s exactly what Federal Reserve policy encouraged.
Newsweek claimed that “AIG’s downfall was due largely to credit-default swaps.” Brook replied, “There’s nothing wrong with credit-default swaps. If they’d let AIG fold, we would have discovered that. There’s been no problem with the credit-default swap-market to date.”
Citing the CFA Institute’s 2008 Derivatives and Alternative Investments, Wikipedia explains:
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default or on the occurrence of a specified credit event (for example bankruptcy or restructuring).
I haven’t looked into why Newsweek thinks this was a key to AIG’s downfall, or what role it actually played. It is clear, though, that the issue is peripheral to the mortgage meltdown.
Brook predicted renewed interest in Rand’s novel Atlas Shrugged:
I think it’s going to go up dramatically. I think it already has. [People] are saying, “We’re heading toward socialism, we’re heading toward more regulation.” “Atlas Shrugged” is coming true. How do we get out? How do we escape?
Indeed, there’s still plenty of time to put Atlas under the tree…