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Strident And Wrong
...No fair and balanced account of the current meltdown can dwell exclusively on the failure of government to regulate credit-market derivatives. It must ask deeper questions about the antecedent events that brought credit markets to their knees.

Weisberg offers no such account. Alas, the financial rot started in the underlying home-mortgage market, with the government decision to subsidize home mortgages generally through low interest rates, and compounds the problem by offering special Fannie and Freddie guarantees at the low end of the market.

These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness. Savvy lenders looked less to the creditworthiness of their borrowers and more to unwise government guarantees that insulated them from risk. A high-risk loan of $1,000, without that guarantee, could be worth half that sum before the ink was dry. But who cares, if a government agency will pick up the slack?

Similarly, self-interested borrowers eagerly grasped at cheap-money loans, thereby driving up the price of underlying assets. But once these subsidies became too expensive to sustain, the capital markets raised the price of interest, which killed off refinancing for persons living beyond their means.

At this point, securitization, which diversified some risks, accentuated others by spreading the bad paper throughout the entire system. Now the high default rates on mortgages introduced massive uncertainty for valuing these financial instruments, which triggered government mark-to-market re-evaluations--which in turn forced a premature liquidation of assets. And presto, the failure of the Wall Street investment banks mushroomed into a larger financial crisis.

Weisberg is so intent on attacking libertarians as "intellectually immature" that he overlooks the point of this cautionary tale. Private markets magnify government errors....