I began to ask myself: how will I be able to defend capitalism from those who seek to destroy it when actual capitalists are behaving so indefensibly? This is a question that free-market conservatives are now forced to grapple with on a much larger scale in the wake of the collapse of the financial markets.
... a raft of government policies, some dating back decades, helped create the current economic crisis. The Community Reinvestment Act, which was originated during the Carter administration and updated by President Clinton, encouraged more lending to those with patchy credit histories. Fannie Mae and Freddie Mac were able to use their government backing to borrow money cheaply, allowing them to absorb trillions of dollars in mortgages. And under the leadership of Chairman Alan Greenspan, the Federal Reserve Board pursued one of the most aggressive rate-cutting campaigns in history, which helped drive mortgage rates down to the lowest levels since the Eisenhower administration—yet the Fed resisted jacking up interest rates despite mounting evidence that housing prices were inflating to unsustainable levels.
While all of this is true, the causes of the current financial collapse, as with any economic calamity of this magnitude, are complex. The government may have helped create an environment that made us susceptible to a housing bubble, but at the end of the day private banks took advantage of that environment. They threw prudent risk management out the window, they pushed mortgages on un-creditworthy borrowers, they financed those mortgages with complicated financial instruments that few—if any—understood, and they escaped with millions as their companies begged for taxpayer dollars.
At a time when the nation is rushing toward socialism, there's an obvious temptation among conservatives to rally around the market and lay all of the blame for the financial crisis on big government. But any full accounting of the current mess requires us to reconcile our belief in capitalism with the fact that this is a case in which actual capitalists behaved recklessly. Their behavior, and the public outrage that it generates, presents more of a threat to capitalism than an army of Paul Krugmans.
(Emphasis mine)
ATSRTWT
2 comments:
Long as heck...reminds me of that old saying, Never wrestle with a pig. You'll get muddy and the pig will love it. Or something like that....
Anyway, there are some good thoughts in this. It is hard to defend capitalism sometimes. Not the concept but the people, the pigs, so to speak. But, the thing I have finally realized is that these "capitalists" who have helped ruin this economy were acting like liberals! Acting like politicians! Acting like they knew the someone would bail them out all along.
They left capitalism. It did not leave them.
While I agree with the proposition entirely, I think this article makes an important mistake that I wish more economists would speak up about. In the highlighted paragraph, the author confuses the identity of management & owners. When talking about "banks", we're really talking about owners. The executives who walked away with big salaries & bonuses during & after they drove the businesses into the ground are an entirely different animal. For the most part, the owners have been left with nothing or next to nothing. The owners have definitely not "escaped with millions". (There may be shareholders of bondholding companies that are lined up at the trough now, indirectly, via TARP, but that's also a different issue.)
When the story gets told in this confusing way, it leaves the general public with the idea that this country has 2 types of people - the rich who never lose, and the poor who suffer at their hand. The public is all too happy to hold this view. But, nobody has been hurt worse than shareholders, and outside of the CEO class, the wealthy have lost a decade of gains, or in the case of bank shareholders, a lifetime's worth.
I am surprised that you would highlight the very passage where this mistake has been made.
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