Why are Capitalism and Socialism Holding Hands?
Posted on September 25, 2008
Filed Under Business, Capitalism, Fannie Mae, Freddie Mac, Government Sponsored Entities, International, Lehman Brothers, United States, arrogance, business trends, economics, economy, financial markets, government bailouts, governmental organizations, goverrnment bailout, home buyers, housing, housing market, insurance, investment, investors, mortgage loans, mortgages, political corruption, politicians, taxes, taxpayers | 2 Comments
The United States government has pumped hundreds of billions of dollars into private banks and insurance companies to essentially save the United States and world economies from complete meltdown. It’s the worst crisis since the great depression the experts tell us and no end seems to be in sight
Some experts claim that there is no choice but to intervene in a massive way. Who has enough money for such an intervention? Uncle Sam of course! He does not have a problem. He just prints new money. Its been a very long time since paper money was backed up by gold. The gold in Fort Knox for a long time hasn’t had a real connection to the paper bills printed. Now the money is only backed up by a waning confidence in the dollar. Given the case it defies fiscal prudence that the biggest most powerful free market economy in the world would intervene in such a massive manner to help completely privately held companies. The entire concept seems counter intuitive and smacks of a completely different type of economic theory, one that the US has been fighting ideologically from a long time.
It boggles the mind that US taxpayers are now being forced to pay for the salaries of greedy money hungry executives of private companies whose mismanagement may have been aggravated by some government regulation induced greed. Anti-Tax, anarchistic groups may have seemed a bit wacko until now will suddenly start becoming more mainstream. But, is it ethical and should it be legal to do almost anything with taxpayers money? Did the same taxpayer whose pocket is being picked now share in the wealth of the company in its heyday. The opposite may be true as lower income borrowers were forced to pay exorbitant interest rates for prime loans that they could not procure anywhere else. The same individual who may have lost his home and sanity because he was convinced to borrow too much money he could never repay now needs to fund those very same institutions that were a great part of his misery. Is it fair?
The Fed claims all this is justified. Without these measures the rich and poor will be mired in an almost unprecedented financial meltdown. Besides, tax money is not being used they will say “we will just print new money”. That my friends is even crazier as the more money there is in circulation the less the collective money is worth. This is not complicated economic theory just simple supply and demand economic reality. As the worth of the dollar plunges and oil skyrockets $25 in one day making more money available becomes very dangerous.
It comes down to the lack of accountability on the part of corporations and CEOs who made and are continuing to make hundreds of millions of dollars in salaries and bonuses despite destroying their companies with high risk wrong decisions. The tax payer is paying for those as well. Somebody needs to pay the price for the mess the world economy is in. Those CEOs should at least be forced to forfeit the huge salaries, bonuses and especially the retirement golden parachutes they have provided for themselves.
It’s only fair.
Tip O’Neill, a former Speaker of the House of Representatives, famously said, “a billion here, a billion there and pretty soon you are talking real money.” O’Neill was not joking as he mouthed those words, though he was complaining about excessive spending, his callous remark reflected his real attitude towards easy taxpayer money. His fiscal philosophy still reverberates in Congress and within the hollowed walls of the Treasury Department.
What are some of the reasons for the current economic mess? Experts, real experts, rather than “experts” with an agenda agree, among other things, on four basic reasons for this debacle:
a) Central banks in the US, Japan and Europe, kept interest rates low in an effort to prop up the global economy. Money was cheap and easy to come by and it the short run this actually accomplished what it intended.
b) Banks and mortgage companies offered cheap credit to everyone, even to some very unqualified buyers. How did the manage to mask the sub-prime loans? They mixed them in with high-grade loans to sell to investors. As a precaution underwriters bought insurance policies guaranteeing that the loans would be repaid. With insurance on the loans, credit-rating agencies stamped such paper as triple-A-rated debt.
c) Lulled into a false sense of security by their deep greed and the false triple A-rating, major financial institutions jumped into the unsafe waters with both feet. The result was a portfolio riddled with bad debt.
d)When the unqualified home buyers, started defaulting, at first the insurers covered it. When the defaults suddenly took on epic proportions and the “creative accounting” at Congress created GSEs Fannie Mae and Freddie Mac hit home, the domino effect was devastating.
In a true capitalist society – the government having already messed when it created these GSEs and protected them because of the gifts received from them – should have stayed out and let the market recover on its own. In the short run, that would undoubtedly have brought on quite a bit of misery. The market would soon straighten itself out and come back stronger, having learned its lesson and becoming more fiscally prudent. In fact, when a mom and pop company makes mistakes and must close down the government does not step in, it allows the free market forces to shake out the weaker elements.
In this case, the bailout is no more than socialism at its worst… except the immediate beneficiaries are the financial elite… And to the taxpayer footing the bill 700 billion is very real money!!!
David Waldman
[Mr. Waldman is Managing Director of Gogimon Advanced Search Channel, an Israeli search startup]
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2 Responses to “Why are Capitalism and Socialism Holding Hands?”
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Webrings
What is amazing about this situation is that Americans on both ends of the spectrum have been reacting so violently against the idea. Nobody likes this except the politicians. Unfortunately, it seems that no one is being truly represented except the rich.
http://eladthegreat.wordpress.com
Why are Capitalism and Socialism Holding Hands? | Freedom…
When capitalism and socialism have an incestuous relationship the result is a horribly misbegotten monster…