From a congressional hearing, March 24, 2009:
Paul: The question really comes out, who should allocate capital? Is it the free market, or should it be government? And I think that we had a system where the free market wasn't working, and we didn't have capitalism. The allocation of capital came from the direction of the Federal Reserve and a lot of rules and regulations by the Congress.
We had essentially no savings, and capital's supposed to come from savings; and we had artificially low interest rates. So look at all that, and this means we'd have to look differently at what our solutions should be. Everybody loves the boom. That was great. Nobody questions all this. But when the bust comes, everybody hates it.....
So where do you put the blame, on the market or on crony capitalism that we've been living with probably for three decades?
Federal Reserve Chairman Ben Bernanke: Congressman, I certainly do not reject capitalism. I don't think this was a failure of capitalism per se.... It is nevertheless the case that we've seen over the decades and the centuries that financial systems can be prone to panics, runs, booms, busts. And for better or worse, we have developed mechanisms like deposit insurance and lender of last resort to try to avert those things. Those protections, in turn, require some oversight to avoid the build-up of risk....
Paul: Isn't that what creates the moral hazard, though? Isn't that the problem, rather than the solution?
