30 October 2008

We need a little more of it…

(Come to think of it, Congress is morally bankrupt. Too bad that won’t stop them wasting billions of our tax dollars!)

I forcefully reject the thesis that “unrestrained capitalism” caused this fiasco. It has been unrestrained government meddling which laid the foundations for the meltdown. The extremely loose monetary policy established under Greenspan’s Federal Reserve left banks feeling giddy with liquidity. Bush cheerleading riskier mortgages and loan terms certainly exacerbated the problem.  So then how is it due exclusively to the “eeeeeeeevils of capitalism?” Intelligent, cautious investors like Buffett and Soros wouldn’t have touched the SIVs, CDSs, and other sundry repackaged garbage with a ten-foot pole. Are they not also representatives of the capitalist system? Bank of America is another example of a corporation that has largely stayed out of trouble. It recently purchased Merrill Lynch for a song and is now the largest bank and brokerage in the world.

This article in MoneyWeek, from two years ago, points out that all of this was not inevitable. Unfortunately, living beyond our means has become the norm in the US. The article states that if the US had the savings rate of most European countries, it would be in a depression. Just because the government makes available the rope to strangle ourselves doesn’t mean we have to avail ourselves of it. The most damning statement of the Fed: “…the Fed kept the banking system liquid enough to continue an aggressive credit expansion.” Stated another way, the Fed enables the rich to get richer on the backs of the poor. Frankly.

Lew Rockwell says it much better than I can: “[I]nterventionism doesn’t accomplish its stated ends. Instead it distorts the market. That distortion cries out for a fix. The fix can consist in pulling back and freeing the market or taking further steps toward intervention. The State nearly always chooses the latter course, unless forced to do otherwise. The result is more distortion, leading eventually, by small steps, toward ever more nationalization and its attendant stagnation and bankruptcy.