Editor 's note : Ron Paul is a Republican congressman from Texas who ran for his party 's nomination for president this year . He is a doctor who specializes in obstetrics/gynecology and says he has delivered more than 4,000 babies . He served in Congress in the late 1970s and early 1980s and was elected again to Congress in 1996 . Rep. Paul serves on the House Financial Services Committee . Rep. Ron Paul says the government 's solution to the crisis is the same as the cause of it -- too much government . ( CNN ) -- Many Americans today are asking themselves how the economy got to be in such a bad spot . For years they thought the economy was booming , growth was up , job numbers and productivity were increasing . Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression . Unfortunately , the government 's preferred solution to the crisis is the very thing that got us into this mess in the first place : government intervention . Ever since the 1930s , the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership . Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market , especially the mortgage-backed securities market , because of the advantages bestowed upon them by the federal government . Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities , thus forcing banks to lend to people who normally would be rejected as bad credit risks . These governmental measures , combined with the Federal Reserve 's loose monetary policy , led to an unsustainable housing boom . The key measure by which the Fed caused this boom was through the manipulation of interest rates , and the open market operations that accompany this lowering . When interest rates are lowered to below what the market rate would normally be , as the Federal Reserve has done numerous times throughout this decade , it becomes much cheaper to borrow money . Longer-term and more capital-intensive projects , projects that would be unprofitable at a high interest rate , suddenly become profitable . Because the boom comes about from an increase in the supply of money and not from demand from consumers , the result is malinvestment , a misallocation of resources into sectors in which there is insufficient demand . In this case , this manifested itself in overbuilding in real estate . When builders realize they have overbuilt and have too many houses to sell , too many apartments to rent , or too much commercial real estate to lease , they seek to recoup as much of their money as possible , even if it means lowering prices drastically . This lowering of prices brings the economy back into balance , equalizing supply and demand . This economic adjustment means , however that there are some winners -- in this case , those who can again find affordable housing without the need for creative mortgage products , and some losers -- builders and other sectors connected to real estate that suffer setbacks . The government does n't like this , however , and undertakes measures to keep prices artificially inflated . This was why the Great Depression was as long and drawn out in this country as it was . I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality . The bailout of Fannie and Freddie , the purchase of AIG , and the latest multi-hundred billion dollar Treasury scheme all have one thing in common : They seek to prevent the liquidation of bad debt and worthless assets at market prices , and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay . Additionally , the government 's actions encourage moral hazard of the worst sort . Now that the precedent has been set , the likelihood of financial institutions to engage in riskier investment schemes is increased , because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless , illiquid assets . Using trillions of dollars of taxpayer money to purchase illusory short-term security , the government is actually ensuring even greater instability in the financial system in the long term . The solution to the problem is to end government meddling in the market . Government intervention leads to distortions in the market , and government reacts to each distortion by enacting new laws and regulations , which create their own distortions , and so on ad infinitum . It is time this process is put to an end . But the government can not just sit back idly and let the bust occur . It must actively roll back stifling laws and regulations that allowed the boom to form in the first place . The government must divorce itself of the albatross of Fannie and Freddie , balance and drastically decrease the size of the federal budget , and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector . Until the big-government apologists realize the error of their ways , and until vocal free-market advocates act in a manner which buttresses their rhetoric , I am afraid we are headed for a rough ride . The opinions expressed in this commentary are solely those of the writer .
John Paul : Too much government intervention in economy caused crisis . Paul says the banks are another example of excessive intervention in economy . The government is n't letting the banks adjust prices to lower levels , Paul says . Paul : This will only increase financial instability in the long run .