Quote of the Day: Rampant Capitalism ?
From Canada, who may end up being more Capitalist then us Socialists in the USA:
Two major related threats loom over the world economy: credit crises and rising inflation. What do these two menaces have in common? Bankers, hedge-fund managers, speculators and capitalism in general have been taking the hit for the economic turmoil, both for credit risk and inflation. But the looming collapse of Fannie Mae and Freddie Macin the United States should help change the focus a little. We are now getting down to the heart of the matter, which turns out not to be rampant capitalism but out of control back-door socialism.
- Terence Corcoran, The culprits behind credit, inflation risks
>
Source:
The culprits behind credit, inflation risks
Terence Corcoran
National Post, July 16, 2008
http://www.nationalpost.com/story.html?id=cf306bf6-4d57-4f21-8fca-442268368aff
Wednesday, July 23, 2008 | 03:00 PM | Permalink
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Amen! Capitalism has been getting a bad rap lately. The truth is that all these banking problems have nothing to do with free-market capitalism. The banking system in America is a government sponsored club, one which inflicts far too much pain on the real economy.
Posted by: Mike M | Jul 23, 2008 3:15:57 PM
Wouldn't this be capatilizing on socialism?
I like how the end of this article also talks about monetary policies. The scary thing is that the bank of canada is warning of inflation.
Posted by: GB | Jul 23, 2008 3:24:05 PM
Amen to this.
Posted by: Robert | Jul 23, 2008 3:47:20 PM
In case you missed this one from the Globe and Mail today:
"Marx has nothing on these people"
Wall Street's laughing all the way to the bank
FABRICE TAYLOR
06:29 EST Wednesday, Jul 23, 2008
Posted by: D. | Jul 23, 2008 3:51:34 PM
They're half right:
Rampant Malthusian capitalism for the middle classes and below, but rampant socialism and welfare for upper classes and corporations.
Goodness knows if 51% of the voting populace could vote themselves a debt jubilee/amnesty...
Posted by: Dr. Kenneth Noisewater | Jul 23, 2008 3:52:11 PM
Oh puleeese!
The backdoor welfare for these corps is the symptom of, not the cause of, this disease. The culprit here is short sighted corporate lawbreaking being enforced by a government filled with people whose life philosophy is that government can't work and are out to prove it. The culprit here is not socialism OR capitalism. The problem is that there is no accountability for this theft (whether it be by the CEO of a private company or a quasi-public institution), so there is no deterrent for the unscrupulous individuals who run these shows. Add on top of that a lack of oversight that lets things get way out of control before any action is taken. What a shameless plug for his ideals this quote is. He couldn't be farther from the "heart of the matter."
Posted by: Brendan | Jul 23, 2008 3:57:22 PM
That quote makes no sense. The problem in the credit markets was not caused in any way by socialism. It was caused by under-regulated financial companies trying to maximize short-term profits. That is one of the problems with pure capitalism, and the reason that only idealists think regulation is a bad thing.
The easiest way to make sure that this won't happen again is to take back all the bonuses that the CEOs got from taking unreasonable risks. That will also help pay for whatever bailouts are necessary to prevent the banking system from collapsing. Does that sound more like capitalism or socialism to you?
However, we can't retroactively raise taxes and we can't retroactively make what they did illegal. It's unlikely that anyone could win a lawsuit against the investment banks or anyone else based on poor risk management practices. So the people who caused this mess are going to get away rich and unpunished. And there's no reason to think they wouldn't do it all over again. After all, our economic system has rewarded them for causing all this trouble.
Posted by: jkw | Jul 23, 2008 4:00:16 PM
JKW,
The quote makes perfect sense in the context of the article. Further on, the author says "In Washington, Moral Hazard is a dead country singer". That, in essence, defines the debate.
Absent the discipline of failure, regulation is the natural replacement. As the author sums up, "It would be some paradox if central banks and their governments, having created a financial crises through their monopoly control over money, should now use that crisis to expand their power."
Reasonable people can argue that regulation is unavoidable and necessary now that the moral hazard problem has been put in play, but let's call it what it is; socialism.
Posted by: Estragon | Jul 23, 2008 4:17:45 PM
It's now clear that the financial system is unsound and likely to fail. The manner of the failure remains up to us by way of Congress, the Administration and the Fed.
Right now Congress is voting to stick taxpayers with an enormous, open-ended bill for the portion of this that will fall upon Fannie and Freddie. And the bill enables the mortgage lenders to dump their most toxic stuff onto the government. We are about to reward thousands of people for making outrageously stupid financial decisions - not to mention thousands who engaged in outright fraud! This is just plain wrong. Morally wrong. Pitchforks and torches wrong.
Those of you who think this will solve itself need to realize that it is past time for talking and time to take action! Sign the petition, contact your elected officials, and if you can, get to Washington DC for a protest on July 31!
http://fedupusa.org
If you don't think this is necessary, read the Wall Street Journal editorial today and recognize the tactics being used against your country by the gang of looters at Fannie/Freddie.
http://online.wsj.com/article/SB121677050160675397.html?mod=opinion_main_commentaries
"Banks: Take your losses, not our taxes!"
Posted by: Wisdom-seeker | Jul 23, 2008 4:21:30 PM
jkw:
"The problem in the credit markets was not caused in any way by socialism. It was caused by under-regulated financial companies trying to maximize short-term profits."
And provided with cheap credit by the Fed to enable them to do it. Throw in huge tax cuts and increases in public spending, rationalization of the current account and budget deficits as manageable as percentages of GDP (the WSJ ed page is particularly fond of this excuse) and we see the consequences.
The fact that it make no sense is irrelevant. What's going on now is an attempt to shift the blame onto other for what is basically a complete failure of Republican economic management. So it was all caused by socialism, or backdoor socialism. A lovely abstract term that, guaranteed to make the flesh creep more than a Freddy Krueger movie. I suppose some will believe it because they have to justify their own beliefs.
Posted by: John | Jul 23, 2008 4:30:06 PM
One of the reasons why I switched political parties and started my blog against CNBC is my recognition of the fallacy that the US is a capitalist nation. I should probably thank Larry Kudlow for this recognition, for only when you hear his "free markets" mantra the 17th time in an hour do you begin to suspect that someone is trying to brainwash you (OK, some of you are faster than me). As Barry does above, people like to use Canada as an example of a socialist state, but here is a fact. US federal spending as a percent of GDP is about 20%. Canada's federal spending as a percent of GDP has been around 15 - 16%, and declining. [You may find or conjure up different numbers, but challenge these numbers only if they make a material difference against my argument.] You tell me which is the socialist state. When you have that much public spending, SOMEBODY is getting subsidized, directly or indirectly, whether it's Wall Street, the petroleum industry, the coal industry, whatever nuclear industry we have, the defense industry, any industry that is favored by the political party in power. Just because we lack a national health system does not make us less socialistic. Just because we have lower taxes does not make us less socialistic, when we borrow so much against the future. In reality, unless you vote for Bob Barr and the Libertarians, you have a choice of two socialist political parties and it's only a matter of resource allocation and cash flow structuring preferences that should determine your vote in November. I personally believe the Republican energy program is more risky and more costly than the Democrats', and I will make a posting on this sometime on my blog ( http://cnbcsucks.wordpress.com ). But you are a fool to think you live in a true capitalist, free market society anymore.
Posted by: CNBC Sucks | Jul 23, 2008 4:32:26 PM
I'm starting to wonder if anybody even knows what socialism is. It seems like people use the term for anytime that the government is using money to provide assistance to anyone. It would be helpful if people could bother to educate themselves on basic economic concepts before trying to have an economic discussion (or write articles about economics).
Posted by: jkw | Jul 23, 2008 4:34:48 PM
best line that I heard today is "Privatize profits, Socialize losses" America, America...
Posted by: Ecklebob | Jul 23, 2008 4:37:40 PM
Socialism? Come on now. When the government starts redistributing the assets of big banks to the people (instead of their debts) we can talk "socialism." Until then it's corporatism, plain and simple.
Posted by: Halfdan | Jul 23, 2008 4:39:45 PM
jkw, This is from Wikipedia "Socialism refers to any of various economic and political concepts of state or collective (i.e. public) ownership and administration of the means of production and distribution of goods and services." WHY DON"T YOU GO OVER THERE AND EDUCATE THEM? It would be helpful IF PEOPLE COULD BOTHER TO EDUCATE THEMSELVES...
Posted by: Ecklebob | Jul 23, 2008 4:45:44 PM
Wisdom Seeker:
Put your pitchfork away. The story in the WSJ today was highly tendentious and full of holes as you'd expect from Mr Gigot who has been trying to tear down F/F for years. There is simply no alternative to propping these two up because otherwise two rather unpleasant things are going to happen;
1.Housing finance which lubricates the whole US home market is going to dry up for months.
2.US credit is going to collapse causing dollar runs and an increased cost to finance the current account and budget deficits.
None of this is going to happen nor is the financial system likely to fail although it sounds as if you'd like it to. Paulson and the rest of the govt not having your enthusiasm for self immolation are doing exactly the right thing. Personally I believe that most ie. 90%+ of F/F paper is probably ok and certainly not toxic to the same extent as that held by many of the banks because they weren't allowed to take sub prime and only recently Alt B. I have some money in Bill Gross fund because basically I think he's right.
The whole F/F mess which is just one part of a period of failed economic management. Sorting it out requires pragmatism not hyperventilating.
Posted by: John | Jul 23, 2008 4:52:35 PM
11 reasons America's a new socialist economy
How free market ideology backfired, sabotaging capitalistic democracy
Posted by: Murray | Jul 23, 2008 5:06:16 PM
Halfdan,
I don't really want to get into a debate on semantics, but corporatism isn't really defined by flows of funds. It's defined by the structure of control, and not only by corporations (in the common legal sense) but control by groups of people (who could be trade guilds, unions, clergy, etc.), as opposed to control by individuals directly.
Socialism is, as Ecklebob points out, typically defined by control of the means of production and redistribution of wealth by the state.
You could (and arguably do) have both operating to some extent at the same time, with social control exercised largely through special interest groups, and economic control exercised largely through the state.
Posted by: Estragon | Jul 23, 2008 5:07:08 PM
Estragon, it's NOT socialism, that's both jkw and my point! Fascism, maybe; corporatism, sure. But it sure as hell isn't socialism. I know that socialism is a boogy-man word and makes people quiver in fear, but it doesn't describe the problem described in the story at all. So why does this author choose to use it? Look it up in the dictionary. Why not call it terrorism or racism; I mean, those are culturally unacceptable things that have nothing to do with this, too. So let's call it what it is: SEXISM! Seriously, it's 2008, we're not fighting the reds anymore, so let's stop using the word "socialism" for political points and only use it where appropriate; we all see through the thinly veiled "lefties are bad" meme every time that word is used, even incorrectly. It's too bad, because this piece make some good points, but loses credibility by doing this.
The idea behind Freddie and Fannie could be described as a socialist idea, but besides perhaps one sentence, article isn't attacking that; it's primarily attacking the "shareholder bailout" by the feds. If the government is passing a bill to bail out homeowners, then that could be described as socialism, but bailing out shareholders is corporatism, not socialism. The idea behind making mortgage credit more obtainable isn't bad, within limits, but some people think so. The administration of it has been terrible, and now this is a golden opportunity for opponents, like perhaps the author, to throw out the baby with the bath water. It's clear that the small government crowd is going to try to use this as an opportunity to kill the program, rather than fixing it. Best I can tell, this article is intentionally confusing the two issues to make a political statement.
Posted by: Brendan | Jul 23, 2008 5:08:55 PM
Brendan,
Your point about the use of the word "socialism" as inflammatory is well taken. As I recall, the National Post is quite "right-wing" by Canadian standards, and the choice of words likely was intended as you suspect.
That said, I don't agree with the notion that the government bailing out homeowners is socialist, but bailing out shareholders isn't. Who they're bailing out isn't the point. That they're redistributing wealth from any group to another is what defines it as socialist.
Posted by: Estragon | Jul 23, 2008 5:20:13 PM
Barry,
I'm noticing fewer and fewer comments the last several days as the market has rallied. You've pointed out spikes in blog traffic as nice bottoming indicator. I wonder if you can observe complacency by decreasing blog traffic?
- AT
Posted by: Andy Tabbo | Jul 23, 2008 5:43:55 PM
"redistributing wealth from any group to another is what defines it as socialist."
uh.. not quite. Is wealth redistribution from serfs to the nobility 'socialist'? Is redistribution of regressive consumption taxes to the benefit of the well-to-do 'socialist'?
Socialism is when the state controls the means of production (on behalf of the larger 'community'). If the 'production' of 80+% of home financing is state-controlled and taxpayer funded, I'd say that's pretty socialist. And I like some aspects of socialism.. I live in socialist Italy and the socialist health care keeps me here (I could never afford to return 'home' and hope to be insured).
Posted by: lidia | Jul 23, 2008 5:49:53 PM
Just because we lack a national health system does not make us less socialistic
-------------
US governement pays over 5000$ per capita for health care, Canada 2500$ and everybody is covered.
Posted by: D. | Jul 23, 2008 6:01:40 PM
Fannie's been around for generations without causing problems, only when a bunch of people went outside their "conforming" rules did we get the current problems.
American is a system that makes things illegal, not legal. There's wide scope for slippery lobbyists and lawyers to plan and execute the next scam. While the money flows, they can afford to keep the game going until it collapses.
They find their Scooter Libby er... a... fall guy, he takes it, and then move they on to the next scam.
Posted by: VennData | Jul 23, 2008 6:01:44 PM
@Brendan: You make the fine differentiation between socialism and fascism, but if I recall correctly, Nazism is shorthand for National Socialism.
@Ecklebob: I saw the Wikipedia definition. Does the concept of "public ownership" in socialism include partial ownership? I would argue that you do not need complete ownership and control to reach a level of socialism. How about those cases where government invests a significant level of public funds but takes NO ownership? I didn't want to bring up the Nazis again, but Krups, Braun, Siemens, and Mercedes Benz were not quite nationalized, yet they were, shall we say, heavily "partnered" with the German government of the 1930s and early 40s.
We have definitely gotten into a semantic debate, but I don't want to lose this point that I think Barry was making implicitly: Whether it results in full, partial, or no actual ownership or control, the huge levels of government spending and intervention that benefit some parts of the private sector but not others is a corruption of free enterprise. Whether you call it socialist, corporatist, or fascist, can we all agree that we no longer have truly free markets in the US and probably not for a long time?
Posted by: CNBC Sucks | Jul 23, 2008 6:05:19 PM
