Capitalism is not to blame for the current financial crisis.
The economy of the United States is not a pure capitalist system. We operate economically under what economists like to call a “mixed system”. This is a system that combines elements of a market economy with elements of a planned economy. It is because of this mixed economic approach that Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke determined that it was within their authority to nationalize Freddie, Fannie, and AIG in the name of stabilizing the financial markets. In a purely capitalist system, these bailouts would have been impossible. Quite frankly, the crisis that caused those bailouts to happen in the first place would not have happened if we were a pure capitalist country.…
Article comments
26 - Homeless
Tut tut tut..OMG, Homeless. Things got worse than was expected.So you make up things as you go along ...just like Paulson and gang....how convenient.
There have been a few people who had sounded out these warnings a few years before the US financial system headed for the cliff in the week preceding September 19.They gave very specific reasons as to why such a dire situation would play itself out...unlike your blithe assertions to the contrary.You know zilch Nalle.You and your type only sneer at the people who are taking the big hits.
Note the last two sentences. Those things did nothappen,
the dollar staged a small sucker rally recently...but for how long?As foreign governments and traders weigh the consequences of a more than TRILLION dollar bailout of the scamsters and campaign contributors from Wall Street they will know that the US will never repay its debts.Look at the long term futures on the forex market.Its ugly for the dollar.
As we get to the other side of this, the dollar will get crushed
Want to make a prediction on the dollar Nalle?...just like the "housing bubble not bursting" prediction?
27 - troll
clear presentation Les - good to read you again
28 - bliffle
Looks like Clavos is signing up for my plan:
"Identify and compensate the victims directly, jail the perps, and let the banks go under; the best form of regulation is failure allowed to be carried to its inevitable conclusion."
29 - Dave Nalle
I think there has been some misidentification of the 'vicims' here. The real victims are the taxpayers who will be paying for the irresponsibility of unqualified borrowers and greedy lenders.
Dave
30 - bliffle
Good comment Les (#25).
31 - Clavos
You must be so embarrassed, bliffle...
32 - Zedd
Since the state will have some administrative oversight of these most important financial institutions, does this mean that we are now a socialist state?
33 - Cannonshop
It's worse, Clav, 'cause I'm also agreeing with Bliffle on this one, and we NEVER agree. I do believe without my coffee and cigarettes, my poor head would explode at the mere THOUGHT of agreeing with Bliffle on anything related to the economy.
34 - jamminsue
Posted on the CBS Website is a transcript of the interview between Scott Pelley and John McCain:
McCain: I think they should be deeply concerned about the fact that innocent Americans that don't work on Wall Street and don't work in Washington are the victims of the greed, the excess, and, yes, in some cases, corruption. There's a social contract that Adam Smith talked about between capitalism and the people. That contract has been broken. It's been broken by greed and access, aided and abetted by a government in Washington that's dominated by special interests and corruption.
The social contract he refers to is over 200 years old; and has been debunked more than once in that time, and belongs in la-la land. Look up Adam Smith if you don't know who he was. Wikipedia has an article that does some justice to the guy.
So, greed is a major contributor according to this very conservative Senator that has had a seat and been charman on the Commerce Committee for some time.
So, there's the real tell.
35 - Les Slater
Jamminsue,
It's interesting to see John McCain going from chumming with some dim wit talking 'mental recession' to what he is saying now.
Les
36 - Cannonshop
'taint' more than what he was saying two years ago when Democrats loved him, and Republicans hated him.
37 - jamminsue
Les,
Truly I found it surprising that John McCain knew who Adam Smith was, he seems to exude lack of such education....Earlier he was accusing Obama of being too intellectual, yet here he is citing this economic guy who is an old dead white guy....go figure.
I'm an accountant and a moderate liberal, making me an odd duck, I imagine.
I am going to College after a long absence - and am sadly excluded from taking a class (the class is for grad students) where they are doing a deconstruction of the rhetoric on both sides. I would so love to be in that class right now. I have an issue with rhetoric, finding it hard to see through it all in a dispassionate way...but can anyone?
38 - Cannonshop
jamminsue, you should know enough to study the actions of your adversary at the very LEAST- rhetoric be damned, one of the best tricks professional pols use, is pretending to be dumber than they really are. Clinton was a master of this, and managed to keep his opponents constantly off-balance and distracted. What someone SAYS says far less-especially about themselves-than what they DO. A good, non-presidential example being those pols who "Talk" union, but "Vote" Free Trade/Most Favoured Nation Status. Rhetoric, especially kept to Glittering Generalities and Straw Man Fallacies, is cheap-you can write novel-length pronouncements that on the surface look detailed without ever saying a gods-damned thing.
39 - bliffle
Capitalism IS at fault!
Capitalism has no tools to prevent this kind of takeover by the most aggressive and ruthless. At least the new kind of crackpot Frankenstein neo-capitalism championed by shallow thinkers such as the dim bulb rightists on BC.
The old capitalism of, say, TR and Ike, which realized that ANY human institution, if allowed to run amuck, would result in chaos and oppression. That regulation of enterprise was as necessary as a police force in a civil society. That enterprises could become overgrown, not thru their merit, but because of their mere size and domination, and should be broken up when necessary.
Meanwhile the idiot Bush, unable to acknowledge the wreck at the end of his nose, once again goes on obliviously spouting the archaic propaganda of his juvenile years. As unable to comprehend his own frailty and venality as he was when confronted by the failure of Iraq. So unable to compose an original thought in his own head that he must bow to the ideas of vested interests like Paulson and co.
40 - cuervodeluna
The OP is right.
Capitalism is NOT to blame.
Capitalists ARE.
Greedy gringos.
When I said a year ago during one of my trips to gringolandia that what's happening now and what is yet to come would put Gringolandia in the financial toilet within a year to 18 months, everybody's eyes glazed over and then they looked at me as if I had just pooped on the living room carpet....
Who's pooping now?
41 - Jordan Richardson
Who's pooping now?
Isn't that the name of a children's book?
42 - Christopher Rose
Isn't it a tad ironic that cuervo and ruvy, who don't agree about much, are the ones continually predicting the fall of the USA?
I find myself in disagreement with both of them on that point.
43 - cuervodeluna
I think what is more significant, CR, is that neither of us LIVE in Gringolandia.
I even dread flying to Tucson tomorrow to congratulate my uncle on making it to 85.
Smart guy, my uncle, took his Boeing retirement and his patent royalities and went back to teaching folks how to make warbonnets.
44 - cuervodeluna
Jordan,
I believe the original question was Who's Crying Now?
Connie Francis or somebody like that....
45 - bliffle
Time to call BS on this crooked idea that the author barfed out:
"In a purely capitalist system, these bailouts would have been impossible. Quite frankly, the crisis that caused those bailouts to happen in the first place would not have happened if we were a pure capitalist country."
The crisis would have happened sooner and the unholy combination of Big Business and Paid for Government (the very definition of Fascism) would long ago have enslaved US citizens and removed ALL civil rights. We would be struggling along on treadmills designed by Corrporations and political whores.
Long ago.
By now we wouldn't even be able to discuss these matters because "discussion may upset the precious DOW!"
46 - Les Slater
“In a purely capitalist system…”
There never was a pure capitalist system and there never will be.
Kenn is defending an abstraction. What he criticizes, as an aberration, or an ‘impure’ mixture, is actually, the real capitalism. The governments he criticizes are the governments of the capitalist class. It is incredulous presently to claim these governments to be anything other than the governments of a small minority, that of the capitalist class.
Historically, the real capitalism was progressive, even with all its faults, for a period. This period is long behind us. It now is nothing but an obstacle to human progress.
47 - troll
bliffle- you have suggested on a number of threads that the better band aid for the present situation is to inject 100 billion at 'the bottom' rather than 1 trillion 'at the top'
how does your proposal solve the problem for investors who need to believe that they will realize at least some minimum rate of profit on future investments to make them in them first place - ?
if they cannot find 'profitable' investment opportunities for the 100 billion how's it going to help hold up the house of cards - ?
(please explain your notion in a way that folks armed only with a high school education and common sense can understand - thanks)
48 - Cannonshop
Troll, people were investing BEFORE deregulation started forty years ago. I see thus: One trillion at the top and you're rewarding Investor Fraud-because that's what the whole sub-prime mess was really about.
Here's how it worked: Mortgage Lender goes to Appraiser, says, "You'll Appraise this house at X+25%."
Appraiser says "But it's only worth X"
Mortgage lender fires appraiser, goes to the next one, says the same thing. This continues until the Lender finds a guy who'll play ball.
Why?
BEcause the Mortgage lender can then sell the Mortgage with the Appraisal to Commercial Bank Y, for the amount on the paper. He makes his money NOW, plus profit. Commercial Bank Y, trusting the accredited Appraiser's appraisal (and because they'd have to hire someone local to check it) thinks they have an asset worth X+25%, when its actual value is X, or even X-5%.
Now here's where it gets fun. Local property taxes are based on home sales prices, and reselling mortgages in an unregulated and unsupervised way encourages Mortgage Lenders to loan money-even to people who wouldn't qualify for a loan. Add in a regulation applied to a GSE like FNMA that tells them they have to do a certain amount of "Low income" lending, with the implication that because it's a government-sponsored-enterprise, that Mortgage paper's 'safe'. Localities therefore start encouraging their Appraisers to pump the values a bit, to appraise it "off the sheet" instead of "In Person" for tax purposes. This in turn pumps the values of the properties as stated by the private appraisers for the Mortgage companies.
Can you see where this is going yet? Okay, now, Commercial Bank Y realizes after-the fact that the collateral on the loan isn't actually worth what the stated value is, but wait! they can also shop for an Appraiser that will increase the value, and sell it to Larger Bank Z with a tidy profit. Larger Bank Z, let's say, is in Qatar, or maybe Tokyo, they certainly don't have eyes-on-the-ground to tell them they're being bamboozled.
They buy the twice-or-more-times inflated paper.
Here's the deal, though- the original borrowers default on the loan. the paper holder tries to auction the foreclosed property for what's remaining on the paper-and discover, far after the fact, that the property's not worth what the paper says it's worth. To make their OWN balance payments, they sell some stock. Because they sold some stock, all the hedge funds that use automated trading systems sell stock TOO.
That's all phase one. Phase two, is where we're at now- as the ACTUAL value of these "Ninja" mortgages, the Interest-only balloon-payment mortgages, and the mortgages that were taken out by people honestly who just shouldn't have gotten the loan for that much (or refinanced under all these positive terms multiple times until badly endebted and upside down on the loan) turns up, and what looked like, say, ten billion in assets is really fifty million (because the Mortgage boom went on, and on, and on for well over a decade), well, somebody's going to be insolvent.
Most likely the banks that bought the loans at the third or fourth sale. That's a lot of financial pressure, and it's going to go straight at the first "liquid" asset the commercial banks can reach-which is the Stock Market. Now, as the Stock, bond, and T-bill markets are suddenly flooded with "Sell" orders (because that money has to be made up somewhere) other asset-management outfits are going to get in on the sell-off, this results in tightening capital supplies, but worse, it results in loss of confidence in the market. business loans get hit, so businesses get hit, businesses get hit, guys get laid off, the consumer market, already in a crunch because of Oil and Gas prices, starts dropping-people who aren't getting paid don't buy things or spend for things. Everyone's overextended on credit, which makes the situation WORSE.
Property values drop like a stone, so all that equity is erased, because a lot of it was based not on actual value, but on fraudulently inflated values. Banks don't loan money because they're suddenly cautious in the manner of a hangover after a three day drunk. American Citizens don't have a habit of savings, so their major financial asset is now worth...not much. Without the ability to get MORE money, mortgage lending houses suddenly have to tighten up.
We've seen this before. 1987 to 1989, the S&L scandal/bailout ran much the same way, but on a smaller scale and over a shorter period between "Hey, let's defraud the investors" to "Ah Shit, it's Worthless". THAT situation created the economic doldrums that killed the first Bush administration ("It's the Economy, Stupid").
THAT one wasn't on a Global scale influenced by E-trade, and there were MORE regulations in place than there are currently. (our stock market's been deregulated to pre-1925 levels, you know, the kind of rules that created the Great Depression? yah.)
The elimination of the Uptick rule helped drive the stocks down, down, down across the board, because short-selling with borrowed stocks and after-hours-trading provided a means to help DRIVE it down-making losses for long-term investors, and exacerbating the problem. (think: Gasoline on an electrical fire).
At this point, bailing out the banks isn't going to restore investor confidence, it's going to embolden the confidence men that caused the problem in the first place. The reason is, that nothing that was done to create this was, in fact, by strict definitions, illegal. It was fraud, but a million-dollar attorney could get the case thrown out in a heartbeat. (Means nobody's going to jail for it).
I think (and I'm only guessing) that Bliffle's plan is derived from a natural urge to wish there was some sort of way to punish the bastards who enabled and did this, since none of them are going to be tried or convicted because what they did is not, strictly speaking, against the law. There's also the desire to prevent it from happening again. (with most of the commercial banks gone under, it wouldn't...for a while. Whereas just bailing them out would be a guarantee that it DOES happen again, and soon, and fails to address the problem at the level of the ordinary citizens who've been screwed by this, or the Taxpayers who're going to be stuck with the bill.)
49 - troll
Cannonshop - thanks for the rehash but that's not my question: I am not proposing that the trillion at the top will work to hold up the structure...I'm questioning how 100 billion at the bottom will prevent a general contraction
50 - Les Slater
“…please explain … in a way that folks armed only with a high school education and common sense can understand”
For all practical purposes much of the mortgage debt is being nationalized. We should fully nationalize all mortgage debt and take it totally out of the hands of the banks. End all foreclosures and compensate for those that have taken place since this crisis began.
Most housing bought in recent years is not really worth anywhere near its market price. Re-price by some formula what the occupants of those homes should pay for rent or mortgage payments. The nationalization of mortgage debt should include all loans collateralized by rental property and strict rules as to rental prices instituted.
Profits, and there would be profits, from payments by households should be used to build affordable housing on a massive scale.
51 - troll
how would being in debt to the State differ from being in debt to a Bank - ?
52 - troll
how would removing the housing industry from the private sector insure profitability for capitalists in other industries - ?
53 - Les Slater
"how would being in debt to the State differ from being in debt to a Bank - ?"
From my first paragraph: "End all foreclosures..."
From second paragraph: "Re-price by some formula what the occupants of those homes should pay for rent or mortgage payments."
54 - Les Slater
troll,
It seems from your 52 that you understand my 50 more than was apparent in your 51.
You can see from my 25 that I do not see a lot of hope for the capitalists making much profit from any real production. But that's not my concern.
We see clearly that their fun and games with housing have cost us all dearly and it should be taken out of their hands.
55 - troll
"End all foreclosures...".....so if a worker loses his job over in the private sector and is unable to make payments on his government owned property what is the solution - ?
56 - Les Slater
re 55,
"Re-price by some formula what the occupants of those homes should pay for rent or mortgage payments."
That formula should include income.
All that have read my remarks on BC over the years know that I have stated on many occasions that the 'the capitalist system is in a deep crisis and that crisis is deepening'.
I don't think working people, even if unemployed, should pay for that crisis.
57 - troll
if this contraction is a 'general crisis' as predicted by Marx (and the possibility of which was admitted by Keynes) then I don't see half measures preventing some pretty intense social dislocation/pain/suffering - 'should' has little to do with it
the pressing question is whether can we keep the crisis deepening for now rather than hitting the wall with massive unemployment and if so how
58 - Jerry
Well let’s see…if we give the Treasury, which is an arm of the Presidency, a blank check this means they can spend any amount they want….I thought Congress was to responsible for deciding appropriations…Is Congress giving away their responsiblity and if so wouldn’t this require a change in our Constitution…Wouldn’t this change the USA from a representative demoncracy to dictatorship or what? Are there any constitional lawyers out there????
59 - Les Slater
"I don't see half measures preventing some pretty intense social dislocation/pain/suffering"
Very true. But we must defend ourselves the best we can. Nationalizing the bank's portion of the ownership of housing is an important start. It will have ramifications beyond housing.
For one thing it would make it harder for for employers to intimidate workers trying to organize. Eviction in some form or another has often been in the boss's toolbox.
60 - Les Slater
'should' has plenty to do with it.
“the pressing question is whether can we keep the crisis deepening for now rather than hitting the wall with massive unemployment and if so how”
We don’t have a whole lot of control over it. Further using our resources to prop up the system is not going to solve the problem. That’s what their plan is, to make us pay for the crisis. It’s pouring good after bad.
The housing crisis is not the whole, or the end, of this crisis. We will learn from this and it will make us stronger as we confront the further deepening. We need time absorb, to think, and to further organize.
I am optimistic. Even the fact that this thread is entitled ‘In Defense of Capitalism’ is heartening. It shows they are on the defensive. We will be able to discuss things that would be impossible to discuss seriously even a few months ago. Proposals for action will not be so easily dismissed.
‘Should’ the capitalist get away with taking us all down? That ‘should’ is our moral high ground and it can resonate with millions.
61 - Jerry
The greatest wealth transfer in recent history happened when taxpayer money was used to liquidate S&L properties which were then “sold” to well-connected insiders in transactions immune from criminal prosecution for literally pennies on the dollar.
The soon-to-be owned bank assets under Paulson's plan will not be sold to the highest bidders in an open and fair auction, they will be disposed of again to pools of the wealthy and well-connected at highly discounted insider valuations. The people will pay, the rich will profit.
62 - Don Jarrett
One source of funding that should be considered in helping those whose assets have been diminished through no fault of their own is to take back obscene profits from those on Wall Street who benefited from their obscene behavior during the past six years...
We can start with King Henry Paulson and his ill-gotten $500 million...
63 - Don Jarrett
This 2007 video explains everything...
"It's your pension funds that will suffer."
64 - Aka Akapelwa
This is the product of greed, and fear. The greed of bureaucrats, and fear by 'lending giants"(i.e. Mortgage Houses) that they may not be able to compete in the market, if they do not supply loans to bad creditors.
This sounds very much like the FED who have been spending what they do not have. The question must be raised, because of easy money, can the government fail (just as the two Mortgage giants did)...that gold standard must be looking good now!!