Forgot the link:) http://www.washingtonpost.com/wp-dyn/content/article/2008/10/19/AR2008101901416.html
On Mon, Oct 20, 2008 at 4:21 PM, Sam <[EMAIL PROTECTED]> wrote: > Is Capitalism Dead? > The market that failed was not exactly free. > > IS THIS the end of American capitalism? As financial panic spread > across the globe and governments scrambled to contain the damage, > reality seemed to announce the doom of U.S.-style free markets and > President Bush's ideology. But this is wrong in two ways. The > deregulation of U.S. financial markets did not reflect only the narrow > ideology of a particular party or administration. And the problem with > the U.S. economy, more than lack of regulation, has been government's > failure to control systemic risks that government itself helped to > create. We are not witnessing a crisis of the free market but a crisis > of distorted markets. > This Story > > It's true that the Bush administration has stood for light regulation > of capital markets. But it did not invent this approach. By the middle > of the last decade, experts across the spectrum believed that U.S. > financial institutions faced outmoded restraints on their ability to > innovate. Thus, the Clinton administration, supported by then-Federal > Reserve Chairman Alan Greenspan, refused to tighten regulations on > financial derivatives, memorably dubbed "financial weapons of mass > destruction" by Warren Buffett. The 1999 repeal of the Glass-Steagall > Act, a Depression-era law separating commercial banking and investment > banking, passed with overwhelming bipartisan support in Congress and > was signed into law by President Bill Clinton. > > We'll never know how this newly liberated financial sector might have > performed on a playing field designed by Adam Smith. That's because > government interventions of all kinds, from the defense budget to farm > supports, shaped the business environment. No subsidy would prove more > fateful than the massive federal commitment to residential real estate > -- from the mortgage interest tax deduction to Fannie Mae and Freddie > Mac to the Federal Reserve's low interest rates under Mr. Greenspan. > Unregulated derivatives known as credit-default swaps did accentuate > the boom in mortgage-based investments, by allowing investors to > transfer risk rather than setting aside cash reserves. But government > helped make mortgages a purportedly sure thing in the first place. > Home prices seemed to stand on a solid floor built by Washington. > > Government support for housing was well-intentioned: Homeownership is > a worthy goal. But when government favors a particular economic > activity, however validly, it must seek countervailing control to > ensure the sustainable use of public resources. This is why banks must > meet capital requirements in return for federal deposit insurance. > Congress did not apply this sound principle to Fannie Mae and Freddie > Mac; they were allowed to engage in profitable but increasingly risky > activities with an implicit government guarantee. The result was that > taxpayers had to assume more than $5 trillion of their obligations. > Contrast U.S. experience with that of Canada, where there is no > mortgage interest deduction and the law requires insurance on any > mortgage over 80 percent of a home's purchase price. Delinquency rates > at Canada's seven largest banks are near historic lows. > > The new capitalist model that emerges from this crisis must operate > according to more consistent principles. The Fed should set interest > rates with the long-run value of the dollar in mind. Government must > be more selective about manipulating markets; over the long term, > business works best when it is subject to market discipline alone. In > those cases -- and there will and should be some -- in which > government intervenes on behalf of social goals, its support must be > counterbalanced with taxpayer protections and regulation. > Government-sponsored, upside-only capitalism is the kind that's in > crisis today, and we say: Good riddance. > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;207172674;29440083;f Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:275690 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5
