The End of Capitalism

[T-Bor]

Recent events in the USA indicate that the type of Capitalism practiced there in the last few years has ended. The idea of little or no regulations, that the market will look after the economy, that greed is good and prosperity will trickle down to the poor have all proved to be wrong.

The USA government has nationalizes several companies, forced others to merge and wanting one of its most powerful banks to be propped up by a Communist Chinese sovereign wealth fund.

It has introduce regulations to the banking and insurance companies. It has banned such functions as future trading and now is preparing to take all the debts of these companies to avoid recession.

Surely if this is not a socialist solution it does mean the end of the unrestrained capitalist solution and a movement towards a mixed economy.

Sorry, but capitalism is doing just fine for me and my business...Your an idiot to see such things..So I guess no one can open their own business anymore right? No one can create their own wealth anymore right? The taxes are just going to be so great that we can't get ahead right? You guys are fucking idiots.

 

[Turboswede]

Despite the fact that we didn't operate under the free market? How does that work?

Ok, here is the deal.

There is a constant battle in the financial sphere between players in the financial sector and government regulators. Figuring out new ways to circumventing federal rules pays the mortgages for a lot of folks in the financial sector.

This is how the game is played. The SEC or the IRS comes up with a new set of rules that will prevent whatever financial catastrophe happened from ever happening again. Some whiz kid in the financial sector figures out a way to have an instrument/transaction/practice that will pass muster with the IRS and SEC but has the same effect as the instrument/transaction/practice that has been banned. No one at the time looks too far into the new instrument/transaction/practice because people are realizing a 10%+ return, until…There is another crash and the whole process starts over again.

This is not a new cycle; it’s been going on ever since Capitalism replaced Mercantilism as the primary economic system in the 18th Century. At the most basic level Capitalism will always require some regulation in order to prevent fraud and theft. That’s all regulation does in US markets, it prevents the abuse of the system through curtailing ever more ingenious methods of defrauding shareholders.

After the S&L disaster the Real estate Investment Trust (REIT) became the hot investment ticket, with the collapse of Real estate market the financial markets were destined to feel the impact through the REITs.

 

[Turboswede]

Surely if this is not a socialist solution it does mean the end of the unrestrained capitalist solution and a movement towards a mixed economy.

This is not the first time the US has bailed out a failing industry, I am thinking about how Regan bailed out Chrysler and Harley Davidson in the 80’s and I don’t think he would have considered it creating a “mixed” economy.

I still think that the U.S. is about as far from a mixed economy as you can find, government ownership and control of industry is (by far) the least in the developed world. In addition, when the U.S. invests in a private business it is temporary and not in order to gain control of the business but rather serve as the creditor of last resort.

 

[dilloduck]

The White male capitalist Pig, is on his way out. Now, these White male Pigs, won't all
become extinct all at once. But eventually , they will be all gone in a few more years.

The will now become Asian male capitalist pigs.

 

[Kevin_Kennedy]

Ok, here is the deal.

There is a constant battle in the financial sphere between players in the financial sector and government regulators. Figuring out new ways to circumventing federal rules pays the mortgages for a lot of folks in the financial sector.

This is how the game is played. The SEC or the IRS comes up with a new set of rules that will prevent whatever financial catastrophe happened from ever happening again. Some whiz kid in the financial sector figures out a way to have an instrument/transaction/practice that will pass muster with the IRS and SEC but has the same effect as the instrument/transaction/practice that has been banned. No one at the time looks too far into the new instrument/transaction/practice because people are realizing a 10%+ return, until…There is another crash and the whole process starts over again.

This is not a new cycle; it’s been going on ever since Capitalism replaced Mercantilism as the primary economic system in the 18th Century. At the most basic level Capitalism will always require some regulation in order to prevent fraud and theft. That’s all regulation does in US markets, it prevents the abuse of the system through curtailing ever more ingenious methods of defrauding shareholders.

After the S&L disaster the Real estate Investment Trust (REIT) became the hot investment ticket, with the collapse of Real estate market the financial markets were destined to feel the impact through the REITs.

This doesn't really explain how the free market, a system that we don't use now and didn't use before this crisis, caused the financial crisis. It's more or less a rationalization of government regulation. You're wrong, however, in saying that the only regulation is attempting to prevent fraud and theft. You're forgetting the Federal Reserve inflating the money and creating perpetual boom and bust cycles, and you're also forgetting that the U.S. government just robbed it's citizens of $850 billion to help the people that committed the fraud in the first place.

The government's job in the market place should only be to enforce contracts, and prosecute fraud and theft. Anything else is a recipe for disaster.

 

[Toro]

Despite the fact that we didn't operate under the free market? How does that work?

Waiting for a free market is like waiting for pure communism. It exists only in textbooks and believed only by True Believers.

However, markets are usually the dominant source of resource allocation, and occasionally markets fail. In this case, markets failed.

 

[Kevin_Kennedy]

Waiting for a free market is like waiting for pure communism. It exists only in textbooks and believed only by True Believers.

However, markets are usually the dominant source of resource allocation, and occasionally markets fail. In this case, markets failed.

Since you believe a free market is impossible I will ask my question again, how did the free market cause this crisis? Market's don't just fail for no reason, there is always a cause.

 

[Turboswede]

This doesn't really explain how the free market, a system that we don't use now and didn't use before this crisis, caused the financial crisis. It's more or less a rationalization of government regulation. You're wrong, however, in saying that the only regulation is attempting to prevent fraud and theft. You're forgetting the Federal Reserve inflating the money and creating perpetual boom and bust cycles, and you're also forgetting that the U.S. government just robbed it's citizens of $850 billion to help the people that committed the fraud in the first place.

The government's job in the market place should only be to enforce contracts, and prosecute fraud and theft. Anything else is a recipe for disaster.

1.
The Federal Reserve does not print money that the U.S. Mint’s job.
2.
The Federal Reserve employs overnight lending to member banks to cool the economy if it is overheating and free up credit markets when the economy starts to recede.
3.
The U.S. people as represented by the U.S. government put $850 back into the financial sector to prevent credit markets from shutting down and killing any potential growth.
4.
The American people will receive a dividend from this investment in the form of a returned stability to financial markets and renewed economic growth.
5.
I agree on your opinion of the government's roll in the market place but I think our definitions of theft and fraud would differ.

 

[Kevin_Kennedy]

1.
The Federal Reserve does not print money that the U.S. Mint’s job.
2.
The Federal Reserve employs overnight lending to member banks to cool the economy if it is overheating and free up credit markets when the economy starts to recede.
3.
The U.S. people as represented by the U.S. government put $850 back into the financial sector to prevent credit markets from shutting down and killing any potential growth.
4.
The American people will receive a dividend from this investment in the form of a returned stability to financial markets and renewed economic growth.
5.
I agree on your opinion of the government's roll in the market place but I think our definitions of theft and fraud would differ.

1. "Print money out of thin air is a euphemism for the effect of the money multiplier and the creation of money from bank credit into existence. The Treasury sells debt to the federal reserve in order to increase the monetary base which raises reserve ratios and encourages bank to lend money which increases the total money supply by 10 times the initial amount of debt the Federal Reserve monetized." (Taken from another message board, couldn't have put it better.)

2. Which would not need to be done if we had sound money, and banks were forced to keep 100% of their customers money on hand at all times.

3. The U.S. people made it known to their Senators and Representatives that they did not support a bailout in any form for wall-street. They were betrayed.

4. When is this stability supposed to come? We were all led to believe it would happen immediately. The truth is that Paulson, Bernanke, and Bush had no idea if this would work, and it hasn't.

5. Then we'll agree to disagree, or something to that effect, on this point?

 

[Turboswede]

1. "Print money out of thin air is a euphemism for the effect of the money multiplier and the creation of money from bank credit into existence. The Treasury sells debt to the federal reserve in order to increase the monetary base which raises reserve ratios and encourages bank to lend money which increases the total money supply by 10 times the initial amount of debt the Federal Reserve monetized." (Taken from another message board, couldn't have put it better.)

2. Which would not need to be done if we had sound money, and banks were forced to keep 100% of their customers money on hand at all times.

3. The U.S. people made it known to their Senators and Representatives that they did not support a bailout in any form for wall-street. They were betrayed.

4. When is this stability supposed to come? We were all led to believe it would happen immediately. The truth is that Paulson, Bernanke, and Bush had no idea if this would work, and it hasn't.

5. Then we'll agree to disagree, or something to that effect, on this point?

1.
As you are pulling this from another post I get the feeling that your grasp of monetary policy leaves something to be desired as supported by your 2nd response. There is nothing wrong with increasing the monetary base in a time of economic expansion. The down side is potential inflation which we have not experienced since the late 70’s. The primary cause (monetary policy wise) of the great depression was deflation of the dollar due to contraction of the monetary base. One of my old econ profs. (who hated FDR) said they should have canned the whole new deal and just tossed bushels of dollar bills from train cars. It would have been more efficient and would have achieved the same results.

2.
If banks are forced to keep 100% of their customers money on hand at all times, they cannot make loans, or pay interest. In fact, without the ability to loan customer’s money out to debtors they would need to charge depositors a deposit fee.

3.
Did they? Betrayed seems a little harsh, I supported the bailout.

4.
Stability in the 2010-2012 horizon is what I think the bailout will provide

 

[Toro]

Since you believe a free market is impossible I will ask my question again, how did the free market cause this crisis? Market's don't just fail for no reason, there is always a cause.

Yes, actually they do just fail.

To assume that markets never fail is to assume that markets are always efficient. To assume that markets are always efficient is to assume that all market participants have enough information to make a rational decision. But we know that this is not true. We know that people do not always have all the information they need and we know that people are not always rational.

Markets create the most wealth for the most people most of the time. But it is sheer fallacy to assume that they create all the wealth for all the people all of the time. One has to make assumptions about human behavior that are simply not true, i.e. that individuals maximize utility over infinite utility curves. Any psychology 101 student will tell you this is not the case.

 

[sealybobo]

1.
As you are pulling this from another post I get the feeling that your grasp of monetary policy leaves something to be desired as supported by your 2nd response. There is nothing wrong with increasing the monetary base in a time of economic expansion. The down side is potential inflation which we have not experienced since the late 70’s. The primary cause (monetary policy wise) of the great depression was deflation of the dollar due to contraction of the monetary base. One of my old econ profs. (who hated FDR) said they should have canned the whole new deal and just tossed bushels of dollar bills from train cars. It would have been more efficient and would have achieved the same results.

2.
If banks are forced to keep 100% of their customers money on hand at all times, they cannot make loans, or pay interest. In fact, without the ability to loan customer’s money out to debtors they would need to charge depositors a deposit fee.

3.
Did they? Betrayed seems a little harsh, I supported the bailout.

4.
Stability in the 2010-2012 horizon is what I think the bailout will provide

Just like communism was a nice concept if they actually stuck to its principles, I think capitalism has run amuck and needs to be reigned in. Corporations own our politicians and they get them to spend our money on them. Enough waste.

Anyways, free markets have allowed corporations to empty the treasury. War for profit.

The gop can't run the government because they don't believe in government.

 

[Turboswede]

Just like communism was a nice concept if they actually stuck to its principles, I think capitalism has run amuck and needs to be reigned in. Corporations own our politicians and they get them to spend our money on them. Enough waste.

Anyways, free markets have allowed corporations to empty the treasury. War for profit.

The gop can't run the government because they don't believe in government.

Capitalism ran amok in the 19th Century; I mean the ability to actually “own” labor is the strict capitalist’s dream. Ever since then we have been reigning in pure Capitalism through child labor restrictions, federally mandated wages, and a federally funded social insurance plan.

From Lincoln on our administrations have been moving us away from “pure” capitalism as they understand that capitalism has few protections for the poor. Unbridled capitalism is at least as dangerous as “pure democracy” (i.e. where 51% of the people can decide to off the other 49%). There need to be safeguards against the tyranny of Capitalism just as there are safeguards against the tyranny of the majority (that’s the bill of rights).

One thing, remember that a “corporation” is just a legal entity and only carries out the will of its shareholders. So when a “corporation” empty’s the treasury, it’s really the shareholders who are running away with the cash. Corporations only exist to provide profit to shareholders.

 

[dilloduck]

Capitalism ran amok in the 19th Century; I mean the ability to actually “own” labor is the strict capitalist’s dream. Ever since then we have been reigning in pure Capitalism through child labor restrictions, federally mandated wages, and a federally funded social insurance plan.

From Lincoln on our administrations have been moving us away from “pure” capitalism as they understand that capitalism has few protections for the poor. Unbridled capitalism is at least as dangerous as “pure democracy” (i.e. where 51% of the people can decide to off the other 49%). There need to be safeguards against the tyranny of Capitalism just as there are safeguards against the tyranny of the majority (that’s the bill of rights).

One thing, remember that a “corporation” is just a legal entity and only carries out the will of its shareholders. So when a “corporation” empty’s the treasury, it’s really the shareholders who are running away with the cash. Corporations only exist to provide profit to shareholders.

oh cmon---it's so much easier to hate a company when you pretend they are liek a machine that doesn't help anyone .

 

[Turboswede]

oh cmon---it's so much easier to hate a company when you pretend they are liek a machine that doesn't help anyone .

I have seen a bumper sticker that says “Love your country, fear your government”. I would like to see one that says “Love your corporation, fear your board of directors”.

Thing is, with a corporation there is no “us and them” there is no point in taxing a corporation if we tax the income that corporation provides to its shareholders sufficiently. All a corporate tax does is encourage corporate boards to focus on getting money out of the corporation to satisfy shareholders.

 

[dilloduck]

I have seen a bumper sticker that says “Love your country, fear your government”. I would like to see one that says “Love your corporation, fear your board of directors”.

Thing is, with a corporation there is no “us and them” there is no point in taxing a corporation if we tax the income that corporation provides to its shareholders sufficiently. All a corporate tax does is encourage corporate boards to focus on getting money out of the corporation to satisfy shareholders.

You're singing to the choir.

 

[sealybobo]

Capitalism ran amok in the 19th Century; I mean the ability to actually “own” labor is the strict capitalist’s dream. Ever since then we have been reigning in pure Capitalism through child labor restrictions, federally mandated wages, and a federally funded social insurance plan.

From Lincoln on our administrations have been moving us away from “pure” capitalism as they understand that capitalism has few protections for the poor. Unbridled capitalism is at least as dangerous as “pure democracy” (i.e. where 51% of the people can decide to off the other 49%). There need to be safeguards against the tyranny of Capitalism just as there are safeguards against the tyranny of the majority (that’s the bill of rights).

One thing, remember that a “corporation” is just a legal entity and only carries out the will of its shareholders. So when a “corporation” empty’s the treasury, it’s really the shareholders who are running away with the cash. Corporations only exist to provide profit to shareholders.

Great post. Went right over Dilli's head.