Sorry folks, but I told you!

[BUngaro]

The End Of American Capitalism?

By Anthony Faiola
Washington Post Staff Writer
Friday, October 10, 2008; A01

The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.

Since the 1930s, U.S. banks were the flagships of American economic might, and emulation by other nations of the fiercely free-market financial system in the United States was expected and encouraged. But the market turmoil that is draining the nation's wealth and has upended Wall Street now threatens to put the banks at the heart of the U.S. financial system at least partly in the hands of the government.

The Bush administration is considering a partial nationalization of some banks, buying up a portion of their shares to shore them up and restore confidence as part of the $700 billion government bailout. The notion of government ownership in the financial sector, even as a minority stakeholder, goes against what market purists say they see as the foundation of the American system.

Yet the administration may feel it has no choice. Credit, the lifeblood of capitalism, ceased to flow. An economy based on the free market cannot function that way.

The government's about-face goes beyond the banking industry. It is reasserting itself in the lives of citizens in ways that were unthinkable in the era of market-knows-best thinking. With the recent takeovers of major lenders Fannie Mae and Freddie Mac and the bailout of AIG, the U.S. government is now effectively responsible for providing home mortgages and life insurance to tens of millions of Americans. Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system.

Given that the United States has held itself up as a global economic model, the change could shift the balance of how governments around the globe conduct free enterprise. Over the past three decades, the United States led the crusade to persuade much of the world, especially developing countries, to lift the heavy hand of government from finance and industry.

But the hands-off brand of capitalism in the United States is now being blamed for the easy credit that sickened the housing market and allowed a freewheeling Wall Street to create a pool of toxic investments that has infected the global financial system. Heavy intervention by the government, critics say, is further robbing Washington of the moral authority to spread the gospel of laissez-faire capitalism.

The government could launch a targeted program in which it takes a minority stake in troubled banks, or a broader program aimed at the larger banking system. In either case, however, the move could be seen as evidence that Washington remains a slave to Wall Street. The plan, for instance, may not compel participating firms to give their chief executives the salary haircuts that some in Congress intended. But if the plan didn't work, the government might have to take bigger stakes.

"People around the world once admired us for our economy, and we told them if you wanted to be like us, here's what you have to do -- hand over power to the market," said Joseph Stiglitz, the Nobel Prize-winning economist at Columbia University. "The point now is that no one has respect for that kind of model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us."

In Seoul, many see American excess as a warning. At the same time, anger is mounting over the global spillover effect of the U.S. crisis. The Korean currency, the won, has fallen sharply in recent days as corporations there struggle to find dollars in the heat of a global credit crunch.

"Derivatives and hedge funds are like casino gambling," said South Korean Finance Minister Kang Man-soo. "A lot of Koreans are asking, how can the United States be so weak?"

Other than a few fringe heads of state and quixotic headlines, no one is talking about the death of capitalism. The embrace of free-market theories, particularly in Asia, has helped lift hundreds of millions out of poverty in recent decades. But resentment is growing over America's brand of capitalism, which in contrast to, say, Germany's, spurns regulations and venerates risk.

In South Korea, rising criticism that the government is sticking too close to the U.S. model has roused opposition to privatizing the massive, state-owned Korea Development Bank. South Korea is among those countries that have benefited the most from adopting free-market principles, emerging from the ashes of the Korean War to become one of the world's biggest economies. It has distinguished itself from North Korea, an impoverished country hobbled by an outdated communist system and authoritarian leadership.

But the repercussions of crisis that began in the United States are global. In Britain, where Prime Minister Margaret Thatcher joined with President Ronald Reagan in the 1980s to herald capitalism's promise, the government this week moved to partly nationalize the ailing banking system. Across the English Channel, European leaders who are no strangers to regulation are piling on Washington for gradually pulling the government watchdogs off the world's largest financial sector. Led by French President Nicolas Sarkozy, they are calling for broad new international codes to impose scrutiny on global finance.

To some degree, those calls are even being echoed by the International Monetary Fund, an institution charged with the promotion of free markets overseas and that preached that less government was good government during the economic crises in Asia and Latin America in the 1990s. Now, it is talking about the need for regulation and oversight.

"Obviously the crisis comes from an important regulatory and supervisory failure in advanced countries . . . and a failure in market discipline mechanisms," Dominique Strauss-Kahn, the IMF's managing director, said yesterday before the fund's annual meeting in Washington.

In a slideshow presentation, Strauss-Kahn illustrated the global impact of the financial crisis. Countries in Africa, including many of those with some of the lowest levels of market and financial integration and openness, are now set to weather the crisis with the least amount of turbulence.

Shortly afterward, World Bank President Robert Zoellick was questioned by reporters about the "confusion" in the developing world over whether to continue embracing the free-market model. He replied, "I think people have been confused not only in developing countries, but in developed countries, by these shocking events."

In much of the developing world, financial systems still remain far more governed by the state, despite pressure from the United States for those countries to shift power to the private sector and create freer financial markets. They may stay that way for some time.

China had been resisting calls from Washington and Wall Street to introduce a broad range of exotic investments, including many of the once-red-hot derivatives now being blamed for magnifying the crisis in the West. In recent weeks, Beijing has made that position more clear, saying it would not permit an expansion of complex financial instruments.

With the U.S. government's current push toward intervention and the soul-searching over the role of deregulation in the crisis, the stage appears to be at least temporarily set for a more restrained model of free enterprise, particularly in financial markets.

"If you look around the world, China is doing pretty good right now, and the U.S. isn't," said C. Fred Bergsten, director of the Peterson Institute for International Economics. "You may see a push back from globalization in the financial markets."

Staff writers Blaine Harden in Seoul and Ariana Cha in Washington contributed to this report

[speaktothesky]

Qui Bono?

As much as this article gets wrong, they certainly get the peception right though.

Unrestricted "free markets" should not include government created corporations.

[Orin]

What have you told us? You do not even know what capitalism and free enterprise mean. How can you tell us anything that isn't wrong?

[Orin]

American Capitalism? But Komrade, you said that there is just plain old capitalism. You mean there are different kinds of capitalism? Say it isn't so. You mean there are other countries out there with blood sucking exploitative capitalism, too? We are doooooooooooooooooooooooooooommmmmmed!! We must eradicate it!!!!!! "Expodite" its downfall!!!!!!!!!!!!!!!!1

[boedark]

I see your still not citing your sources Komrade. How about a dissenting opinion?

The End of American Capitalism? Please
October 10, 2008 10:55 AM ET

Source

I was just on MSNBC, and the anchor asked whether all this turmoil marks the end of American capitalism. Pretty sure it doesn't. As I wrote the other day:

More evidence of the truth of this analogy comes from the World Economic Forum—the Davos people—who for the second straight year judged the United States as possessing the most competitive economy in the world. (Then came Switzerland, Denmark, Sweden, and Singapore.) Among America's strengths: innovation, flexible labor markets, and higher education. Not surprisingly, though, our institutions ranked a dismal 29th. (Thanks, Wall Street.)

The WEF also listed what our biggest problems are. Check out these top three, in descending order: tax rates, tax regulation, and inefficient government bureaucracy. That's right. The horrible handiwork of Uncle Sam is our big "problemo."...

And remember, the core U.S. economy is in far better shape than it was in the 1970s. Productivity, the key measure of an economy's strength, consistently grew at less than 2 percent in the 1970s and stayed weak until the tax cuts, deregulation, inflation fighting, and corporate restructuring of the 1980s blossomed into the tech and productivity boom on the 1990s and beyond. Productivity has averaged about 2½ percent since 1995 and is now running closer to 3 percent year over year, including 4.3 percent in the second quarter. So, yeah, the Main Street fundamentals are sound. It's Wall Street and Washington that are the problems.

[boedark]

Check this out Komrade.

Friday, October 10, 2008

On "Panic," Recovery and Dynamic Capitalism
Posted by: Hugh Hewitt at 8:58 AM
Jonah has this interesting quote:

Source

"I've never seen a panic like this," said David Wyss, chief economist at Standard & Poor's. "I've seen stock market drops, but not an overall panic."

If everyone knows it is a "panic" and not a correction based upon looming recession, then the panic-driven selling must be close to an end as rational investors assess the basic facts that companies like IBM posted great numbers, companies like Apple keep unveiling amazing new products at very attractive prices and American innovation keeps throwing up new goods and services. The Washington Post can put out nonsense stories like "The End of American Capitalism," but even an enormous loss of wealth gained over five years is only that and not a repudiation of laws of supply and demand or the marvelous effects of liberty on markets, and of course the eventual and widely expected rebound will erase some of that loss. There's an enormous amount of cash on the sidelines waiting to enter at the perceived "bottom," and not eager to miss the expected dramatic move up, and that will be just the beginning of a recovery in share price for most of the companies that are still doing in October what they were doing in August. As Victor Davis Hanson noted this morning: "Sometime in the next few days, wiser investors should see that trillions of global dollars are now piling up and could begin to prime the economy — and that still valuable stocks, for a brief period, are up for sale at once-in-a-lifetime bargains."

These basic truths are hard to keep at the front of mind when expectations are shattered, but this is the fourth time I have watched this in 20 years --1987, the dot.com meltdown, after 9/11 and now this. Each time American capitalism came roaring back. There are lots of bank failures out there, but lots of banks are very, very strong as well. The Fed and the Treasury are flooding the zone with credit and will continue to do so. Inflation may be a problem down the road, but deflation doesn't look like a realistic possibility.

There is also a new economy humming along powered by millions of highly connected Millennials doing business in new and very different ways. I know a number of them, and most of you do as well. They are outside of old structures and busy designing an economic future. For them, the collapse of stock prices is the greatest investment opportunity of their young lives since they can buy their first shares at these ridiculously low prices. Those of us who invest every month are in fact going to get some greatly discounted shares for a bit, and when the market recovers, please remember that.

Finally, if you haven't yet read Walter Russell Mead's "God and Gold: Britain, America and the Making of the Modern World," now would be a great time to do so. If you have read it, reread it. Here is one key paragraph from Mead's opus:

This Promethean drive to acquire all the power that can be acquired, to do everything it is possible for humanity to do, to learn what can be learned, to build what can be built, and to change what can be changed is the force that impelled the three maritime powers to their global position. Societies that grasp this dynamic and embrace it become wealthier and more powerful; those that reject it or fail to handle its challenges become weaker. Within societies something similar happens: the more dynamically oriented individuals, regions, institutions, and industries tend to gain power at the expense of those who prefer a slower and safer path. The unique hold role of the Anglo-Americans in modern times stems in part from the way in which these societies have come to believe that dynamism is their tradition: that they honor the past and acknowledge their roots by pressing on into the future.


Not many Americans are thinking about "pressing on into the future" today, but they will be next week or next month. (In fact, enough of them might so carefully consider the future to give Obama a huge shock at the polls.) A NASCAR nation loves its fast economy, but as with fast cars, there are some spectacular wrecks along the way. We are watching one right now. At its conclusion --which may have already arrived, we just can't know-- a shaken crowd will exhale, fret a bit and mourn the real damage, and then look forward to the next race. "Gentlemen, start your engines" will mark all of 2009, no matter who is president.

I wonder how many web star-ups launched this week? LawStudentCafe.com did, and probably a few thousand others. More will follow next week, and in ten thousand industries many hundreds of thousands of engineers will continue to innovate and design. Yes, the Christmas sales season will be slow, and car sales awful, but one thing is certain --Americans will be buying cars for a long long time. There are lots and lots of newly unemployed investment bankers, and most of them are enormously talented folks who will now take that talent away from banking and into the American economy at some other point. Think of the seeding that is going on in front of us.

The underlying American commitment to building and growth isn't going anywhere, and even if Obama wins and the Democratic majorities expand, the government can only hinder not ruin the deeply rooted American desire to grow and improve. If the fanatics among our enemies think to strike at America or its allies, they will be quickly be reminded that stock prices have very little connection to the ability to project American military power. In short, the Greatest Generation did much more than win World War II. It rebuilt a country capable of absorbing very hard hits and recovering quickly with a dynamism that astonishes every time.

We saw that in 2002 and 2003, and we will see it again in 2009 and 2010.

And perhaps even in the closing months of 2008. Perhaps even in the closing weeks of this election.

[speaktothesky]

And yet we prop up those who messed things up, how very democrat of us...