In Times of Crisis, Trust Capitalism by Joseph Calhoun The biggest bank failure in the history of the United States happened last Thursday night and by Friday morning, it was business as usual. The only difference was the name on the door and the losses suffered by those unfortunate enough to invest in Washington Mutual bonds or stock. The taxpayers didn’t lose anything and depositors didn’t lose anything, only investors. That is how capitalism works in case everyone has forgotten. complete article: RealClearMarkets - Articles - In Times of Crisis, Trust Capitalism this just about sums it up for me and my attitude on all this. very well-written article.
This isn't just about the stock and housing markets, it's about the stucture and integrity of the financial system as a whole. I'm not quite sure where capitalism has not been or will not be, "trusted". Institutions that made bad decisions have failed: CFC, WM, BS, LEH etc.. The ones who made better (not great but not destructive) decisions rose to the tip top: BAC, JPM, C barely hung on, Wells, GS etc.. I'm not one to over-dramitize "capitalism" and call it some panacea. I love it but I'm not going to pretend it doesn't have its flaws. I'm not going to pretend that there should be no government intervention because its, gasp, "capitalism". That just screams naivety to me especially in this case since gov't and the Fed were so integral in creating/propegating this mess. It's not a time to say that the Fed shouldn't have done this or that, it's a time to provide leadership, correct wrongs and provide oversight. I do think that the way I view it is essentially the way it's going to end up playing out. You can't just stick your fingers in your ears and sing "trust in capitalism, capitalism will get us out of this" while essentially ignoring the problem.. It's too big and its too much money. Something needs to be done. You have to have an open mind and I believe that the country will have an open mind about it, it just won't be done in a panic.
you make a good overall point, FiRI, but you are operating too idealistically in your logic. the reason the institutions failed that you mentioned wasn't because of "capitalism" or "trust" as you so put it, but due to the changing regulatory environment created by the SEC & the Fed. not too long ago those major insititutions were lobbying for increased leverage capability to increase their profits. The laws regarding leveraging were set a LONG time ago and were just fine. Because of federal government stepping in and creating "exceptions" for all these firms, they were allowed to blow themselves up. even if you argue that the government (in some way or another) set these rules a long time ago in the first place, if capitalism were allowed to run free, money would only flow to the quality investments... instead you have the Fed pumping money into so many companies where it doesn't belong... as such the markets aren't acting rationally because you take the individual investor out of the equation. quality and demand are no longer dictating the market. rather, it comes down to strictly emotions and media.... thank you, government. there does need to be some level of policing, for sure (to protect against collusion, insider info, etc), but the government has gotten too involved for its own good, and i believe that is what is the single largest contributor to all this mess.
The point is that the government needs to help get us out of the mess they helped propagate throughout the market. I think that the author is too closed minded to think that the market and the free market alone will allow dig us out. Right or wrong there was always and always will be government intervention of the free market in this Democracy. And look, if capitalism were allowed to run unfettered, there would still be risk and greed, companies would still fail.
The major flaw of capitalism was corrected by the anti trust laws of two generations ago. Capitalism allowed to run amok will have ever larger and larger companies that eventually gain control of fundamental commodities or services or products. When a monopoly is allowed to exist it no longer needs to abide by market rules. It can sell its product at a loss to destroy smaller competitors and when the competitors disappear it can raise prices past the natural point if the product is something that cant be replaced or gone without. I am for that intervention. The others are basically needed to fix the problems of previous interventions. Lol, intervention guarantees that you will need intervention in the future to correct the unnatural swings
