"In reality, our atrocious metrics for success have caused us to spend the past couple of decades slinging fantastic financial rewards at those who have inadvertently sabotaged our economy in their hunt for ever-greater returns."
This is exactly true, but it is also why these parables are relevant. The "atrocious metrics" you refer to were not created by the free market, but by the very same people who created them in the parable-- commissars.
For instance, in 2001-2002, after the dotcom crash, I knew there was going to be a housing boom because the federal reserve made the cost of money lower than the rate of monetary inflation. (I didn't figure this out myself, though, but learned it from some wise economists.) Banks were incentivized to lend as much as possible, because a housing boom is what the commissars wanted (Paul Krugman wrote about it, for instance.) This created a lot of jobs and while it also created the real estate bubble and consequential crash, it was good for the Bush administration.
The interest rates, the regulations on banks, and the inflation rate are all metrics created by the government. The low rates and high inflation are metrics that created a carry trade. The Clinton era changes in regulations[1] incentivized loaning money to people who could not repay it. Of course the FDIC, Fannie Mae and Freddie Mac are all government entities that distorted the market and created moral hazard.
Simply eliminating the FDIC (but requiring banks to have deposit insurance) would have mitigated a lot of damage- the banks who were way over levered would have seen their deposit insurance rates go up, and thus be incentivized to not be over levered.
It is not that our economy is immune to the impact of commissars. Our economy is ruled by commissars... we just pretend it isn't.
If we want to eliminate arbitrary formulas like the ones in the parable, balancing the federal government (removing much of the need for inflation) and letting interest rates float in the market (rather than be controlled by the privately owned Federal Reserve corporation) would help.
However, just like the situation in Communist era Poland in the parable, there are major political movements who think this is crazy talk and would like to spin these economic failings as proof that we need more commissars, not less. I can point to many members of both political parties in the USA who feel this way.
[1] Early in the Clinton era there was a lot of muckraking about how banks were not loaning to ethnic minorities. This produced changes in the regulations. Later an independant study was done that controlled for the ability of the applicants to repay and found no bias. Bank weren't "greedily" refusing to loan to minorities, they were greedily loaning to everyone who could repay. The regulations, however, incentivized loaning even to people who couldn't repay, hence the boom & bust.
"the banks who were way over levered would have seen their deposit insurance rates go up, and thus be incentivized to not be over levered."
That relies on the people selling insurance to be rational. Unfortunately, markets can act irrationally for long enough that disaster still strikes when they come to their senses. For example, it took way too long for CDS rates (i.e. insurance on loans) to rise on Greek debt. In the 19th century - before the creation of the Fed - banking crises and depressions were a dime a dozen in the US: http://en.wikipedia.org/wiki/List_of_banking_crises#19th_cen...
Our economy is ruled by people, like our governments are run by people. The higher up you go, the more scope there is for mistakes, and IMO the less likely you'll see good quality market mechanics. Instead, you see power games, financial hostage taking, threats and counter-threats, etc.
Eliminating regulatory agencies and regulations? The repeal of Glass-Stengal had some repercussions, after all.
Or are you looking to lodge blame with one or the other of the political parties? (There's more than enough muck to rake, of course.)
Or might you be interested in looking at the data, and at details such as the "robo-signing" mess and the questionable legality of the MERS assignments underneath the mortgage securitization (with various mortgage transfers which don't look to have been legally registered) and at the data around the melt-down?
And with the recent proposed banking settlement that's underway between various Attorneys General and financial entities, the behaviors probably would have landed any individual in the dock on fraud charges could well turn into a reasonable investment and a write-off for some entities, too.
There's more than enough of a mess here. Look at the data. And look at what folks are telling you, and at their motivations for telling you want they're positing. (And while you're at it, have a look at the wealth distribution in the US, too, and what the trends look like for that.)
Follow the money, in simplest terms. And that doesn't point to CRA.
I'm curious what specific regulation you believe is responsible. Subprime loans are by definition those which do not qualify for federal guarantees. Banks never had a financial incentive from the government to make subprime loans since they would have been unable to offload those loans to Fannie Mae.
The problem was risk-assessment on the market-level (purchasers of securitized products who were willfully blind or were misled about the levels of risk involved), mortgage providers who were under pressure to create mortgages at scale, and banks which profited from being in a middle-man position bundling and selling mortgage-based products onto private markets.
This is exactly true, but it is also why these parables are relevant. The "atrocious metrics" you refer to were not created by the free market, but by the very same people who created them in the parable-- commissars.
For instance, in 2001-2002, after the dotcom crash, I knew there was going to be a housing boom because the federal reserve made the cost of money lower than the rate of monetary inflation. (I didn't figure this out myself, though, but learned it from some wise economists.) Banks were incentivized to lend as much as possible, because a housing boom is what the commissars wanted (Paul Krugman wrote about it, for instance.) This created a lot of jobs and while it also created the real estate bubble and consequential crash, it was good for the Bush administration.
The interest rates, the regulations on banks, and the inflation rate are all metrics created by the government. The low rates and high inflation are metrics that created a carry trade. The Clinton era changes in regulations[1] incentivized loaning money to people who could not repay it. Of course the FDIC, Fannie Mae and Freddie Mac are all government entities that distorted the market and created moral hazard.
Simply eliminating the FDIC (but requiring banks to have deposit insurance) would have mitigated a lot of damage- the banks who were way over levered would have seen their deposit insurance rates go up, and thus be incentivized to not be over levered.
It is not that our economy is immune to the impact of commissars. Our economy is ruled by commissars... we just pretend it isn't.
If we want to eliminate arbitrary formulas like the ones in the parable, balancing the federal government (removing much of the need for inflation) and letting interest rates float in the market (rather than be controlled by the privately owned Federal Reserve corporation) would help.
However, just like the situation in Communist era Poland in the parable, there are major political movements who think this is crazy talk and would like to spin these economic failings as proof that we need more commissars, not less. I can point to many members of both political parties in the USA who feel this way.
[1] Early in the Clinton era there was a lot of muckraking about how banks were not loaning to ethnic minorities. This produced changes in the regulations. Later an independant study was done that controlled for the ability of the applicants to repay and found no bias. Bank weren't "greedily" refusing to loan to minorities, they were greedily loaning to everyone who could repay. The regulations, however, incentivized loaning even to people who couldn't repay, hence the boom & bust.