A distorted cause

I’d recommend to everyone today’s editorial in the Washington Post. I’ve posted a couple of key extracts below but if you have a couple of minutes it really is worth reading the whole thing, it is a fantastic corrective to the current narrative about the causes of the crisis:

“[T]he problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

…

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr.