Capitalism is not a religion, or science, or even a set of rules. But, it is a reality. Capitalism governs the flow of money between makers, consumers, governments, countries, etc. as elequountly as the laws of nature control rain, and water moving between rivers, streams, oceans, the sky and even underground streams. If you disrupt the flow of a steam, say with a damn, the water builds up and for awhile you can deny water access to the river and even the ocean. But, it is all temporary.
By the first level of the laws of capitalism, a lot of banks should have failed. They performed poorly and under free market principles they should have been allowed to fail. But, we decided that we could throw a damn in the river and prevent the natural course of things. Yes, and we have prevented the banks from failing, even though they did a crumpy job at managing risk. In fact, we have reinforced bad behavior. Our children have spat on the floor and have been reward with money from the government. They can do nothing to deserve failure, we will prope them up and guarantee they can fail. The cost, trillions of dollars, for this "no lesson learned" lesson.
How exactly will this play out. I don't know. I know we were afraid to let it play out. We did not trust the basic principals behind capitalism. We decided we could stop the natural order of things, stop those that have been stupid from failing. But, all we have done is dealing with the problem. We think we can write new regulations to keep the same problems from happening again. But, these are secondary laws, much less than the primary laws that says when you take excessive risk and fail you die. Our new regulations will try to make taking excessive risk illegal, but our actions say if you do, we will take care of you, we will hock the American people to take care of you.
An alternative would have been to kick the owners of the bank out, sell their assets to other banks, and insure the accounts of those that used the bank. In other words, take care of those that were harmed and punish those that were stupid and took excessive risks. I suspect those at the top of the banks were really good buddies with a lot of the government officals, in short, they were all part of the good old boy's club.
How will it all come out. I don't know. What I think will happen is the value of our dollar will fall, we will suffer inflation similar to 1974, and we will repeat the same mistakes somewhere in the future, because we avoided the lessons that capitalism was trying to teach us.
Do you believe everyone on our planet is our brother? If so, how do we make laws and policies that help our brother? How do we need to change our thinking to lift the boats of all brothers?
2 comments:
The recession, like 9 of 10 others since WWII, was begun by the spike in oil prices. It started earlier in most parts of the world than in the U.S. But, once the downturn was underway, it revealed the weakness of the housing markets and financial markets in Europe and the U.S. Housing prices had long been artificially high in many areas due to home-building restrictions often owing to "green policies." Policies making homes expensive on mostly the local government level brought calls for less expensive housing to Congress and the President. They had long encouraged and even required risky loans so voters could buy homes, especially in places like CA which were terribly expensive. Repackaged home mortgages as investment grade securities were encouraged and produced by Fannie Mae and Freddy Mac. Wall Street bought into them and sold them vigorously. Unfortunately, once the economy came under strain and home values started to fall, the new investment grade home mortgage securities did not prove to be as secure as expected. This was not a failure of Capitalism, though some businessmen played a substantial role in the problem. It was a serious failure of government taking on too large a role in housing and in the financial industry, as well as in land use and home building.
I agree that inflation is coming in a big way. The printing presses will cause that, but so will a marked increase in government regulations by causing huge inefficiencies in industries producing ever more reports for government and being told to use inefficient business practices. Government wants industry to function largely as government does. That means everything is to move with no more self-initiative and motivation than governments show. Everything is to be tied up in red tape. Individuals will lose the incentive to take risk and will face increased censor for failure.
Charles,
I agree with most of what you say. Capitalism has not existed in America for a long time. Small business is all that is left of capitalism, most big business and the government pretty much work together to insure their own survival as this financial crisis has demonstrated. Washington and big business are part of the same club. A club that middle class America lost their membership to a long time ago. See my next post.
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