With the exit of the Bush Adminisration and the near collapse of the US economy, perhaps we can ring the death knell for laissez faire capitalism once and for all.
The Wall St. geniuses, in all their wisdom, told us, the unwashed public, that greed is good and the competing forces of greed will hold each other in check. Let's examine what unfettered capitalism hath wrought.
#1. The Home Mortage Collapse: Wall St. and the investment banks had an abundance of investors with a large pool of cash. The Treasury was paying one per cent--not an enticing prospect for that money. Meanwhile, the average home mortage was generating 5 to 7 per cent--a much more desirable return for the investor. The geniuses devised a method of making the home mortages available to "the large pool of money." From the local bamks around the country, they bought up home mortages, combined them, and sold parts of the resulting whole around the world. Great. Investors had a good, steady return on their money, and as more money became available, more and more people could find low-interest and no down payment loans. This created a demand for more home construction. And the rest is history. Once the house of cards started to fall, the whole structure collapsed and the investment community was holding stacks of "toxic" paper.
The Bush Administration, meanwhile, did not want government regulators interferring. One of their cheif economic advisers said: free markets will regulate themselves; the best thing government can do is to get out of the way.
#2. The Credit Crisis & Collapse of Financial Institutions: Even during the actual implosion of the housing market, free-market capitalists both inside and outside the administration were telling us that the economy is sound. Candidate John McCain was still reassuring us in the summer of 2008 as investment banks and brokerage firms were in melt-down mode. As a result, banks could not trust each other because no one could be certain as to any bank's level of toxicity. Needless to say, the credit sources locked their vaults.
#3. The Inflated Cost of Gasoline: Not surprisingly, when the cost of gasoline went over $4 a gallon, the cost of everything from food to airline tickets increased. When congress questioned the big-oil company executives and Wall St. geniuses to explain this unrealistic spike, they were told that it was the result of "supply and demand"--a natural phenomenon in free markets. But now we know that they were throwing up a smoke screen. In fact, prices were increasing at the same time demand was decreasing and supply was increasing. So what was causing this unrealistic increase? We now have learned it was speculation in the futures market--another sector of the economy that had been deregulated!
#4. The Bernard Madoff Scandal: As we have learned, he was able to operate a 50 billion-dollar scam right under the nose of the SEC which investigated him on two occasions and found no problem. When investors and charities lose 50 billion dollars, most of us wonder how this can happen in 2008 in the United States--this is not the wild west in gold-rush days or some former USSR country struggling with getting democracy right. You would have thought that the deregulators in the Bush administraton and the Wall St. gurus would have been embarrassed by this rip-off. No, not at all. It was the investor's fault; they should have been more vigilant! (It's the "Cheney Defense." Rember the time he was hunting with a friend and shot him in the face with his shotgun. It was not Cheney's fault; it was the fault of the victim. He was standing too close to "Quick Draw" Cheney). The deregulators in the administration and the SEC apparently found it inappropriate to examine how he was able to pay returns significantly above those of legitimate companies.
Perhaps when Presidents Carter and Reagan began the era of deregulation, it was appropriate; but it is now quite clear that it has gone too far. Unregulated capitalism does not work. When the Europeans pointed this out to us, we scoffed. Let's hope with a new administration, our country get's it right and strikes "a happy balance."
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