Thursday, April 9, 2009

Fascism, Not Capitalism

The information on what has caused the current (and previous) economic calamity is readily available, with or without the existence of the internet. Yet it appears to me that, despite the wealth of information, much of which is provided by individuals far more educated and qualified to speak on the subject than I, there can never be enough explanations of how there is nothing "free market", "capitalist", or "laissez fair" about our financial system, and therefore such institutions (one and the same, for the most part) cannot possibly be to blame. The propaganda being spewed by the faux media, particularly the print mouthpieces of the State (The NY Times, Washington Post, etc), and of course by those most responsible (GREENSPAN!!), tow the State line, that it was the free market and lack of regulation that is responsible for this mess, not the government, and that only massive and unprecedented government intervention can save us from complete financial armageddon. Unfortunately the opposite is true, but the power elite who created and facilitated this disaster have the luxury of knowing most Americans think economics is some mystical science that only one trained in the Jedi arts can comprehend - another fallacy (hey, if I can grasp it, so can you. All you have to do is care enough to bother).

Free market, laissez fair capitalism is, at its core, about finding a balance between risk and reward. We are all greedy, to a certain extent - we all want to maximize our profit potential in any enterprise we undertake. This is human nature, and there's nothing wrong with it. In the free market, your greed is checked by the fear of failure; if you're too greedy and you take too great a risk, your enterprise could fail and of course you will suffer zero or negative profits; and of course if you commit outright fraud, your profit potential is eliminated and you go to prison. This is how markets regulate themselves. Risk vs reward. No government interference is necessary. Some would argue that the risk/reward factor doesn't stop people from committing fraud in the way Bernie Madoff, et al, did. But neither did any law or regulation already on the books. No regulation can check runaway greed; and some would argue that had people not relied so heavily on government to ferret out ponzi schemes like Madoff's the free market would've exposed him long before he had a chance to rip so many people off. And regardless, in the end, Madoff is in prison where he belongs.

Not only is no regulation necessary in a truly free market, but the argument that the Fed had too much faith in the markets to regulate themselves and that more regulation is needed is an insult to anyone with knowledge of the financial industries, for they are in fact the most heavily regulated industries in our economy. Timothy Geithner himself recognized this, under questioning from Ron Paul, telling him that the market is "overwhelmed by regulation," and that, "It was not the absence of regulation but despite regulation," that this meltdown occured.

In fact, it is many of these very regulations that, rather than prevent excess greed and fraud, actually facilitate them. Recalling the risk/reward factor of a truly free market, many of these regulations sought to remove the risk from the equation, so that all there was, for any corporation in question, was reward. When the government bailed out Chrysler in the early 1980's, it set a moral hazard into motion that told certain companies and industries that they were so big that the government would do everything in its power to keep them from failing. How can there be a truly free market when certain, government favored enterprises, have a 100% guarantee from the government that no matter what happens they will not be allowed to fail? Is that capitalism? In fact, a government-business partnership such as now runs rampant throughout our economy, where profits are privatized but losses are socialized, is a textbook example of economic fascism. Should anyone have been surprised, after the company posted losses unprecedented in the history of the world, that, after giving them $180 BILLION, AIG executives used an infinitesimal portion of that money to enrich themselves further? The free market mentality asks, Why wasn't that company allowed to go into bankruptcy; why wasn't their business model restructured and why weren't the individuals responsible for this unprecedented and catastrophic collapse shown the door? This is where the populist anger should be focused, that the free market wasn't allowed to work, and that government rewarded AIG for complete and utter failure. That is not capitalism!

The current economic system, which began with the inception of fractional reserve banking and which the complete and total collapse of that system became inevitable in 1913, is centered on the central bank which was forced down our throats that year - The Federal Reserve. There were other factors in play that helped bring this crisis about, but at the root of it all was the Fed; all other factors could not have been possible without Fed meddling in the market. Fed actions and monetary policies spanning many administrations, not just Obama or Bush and even through and before Clinton's presidency, distorted the market and facilitated actions by both businesses and individuals that would not have been possible otherwise. In the housing meltdown, lenders would not have made the loans they made without the backing and cheap credit of the Fed; and consumers would not have bought cars and houses and other goods they could not afford without the loose, cheap credit encouraged by Fed policies. This became a self-perpetuating cycle of doom, as low interest rates created an artificial demand for housing, which pushed prices into the stratosphere. Had interest rates been determined by the market, through savings (which is now practically non-existent), and not through Fed meddling, people would never have bought homes at those prices. But with historically low interest rates, despite the teasers and the gimmicks, people simply felt they had to take advantage of them, and paid little attention to the risk factors involved, like whether their income could support their mortgages and car payments. This is not to say these consumers do not share the blame, but again, without the Fed creating this environment of cheap, loose credit, many of them would simply have been unable or unwilling to buy a home at real market rates. And now the TARP bailout and the recent purchase, by the Fed, with newly printed money, of toxic assets, has rewarded this reckless behavior and people who live within their means, save their money, and are responsible with their credit are made fools out of. Even the individuals who entered into these reckless contracts are being bought out. The message from the government is clear: Do not pay your mortgage.

The day will soon come when this phony consumer economy will crumble to dust, our currency will be worthless, and we will be left to pick up the pieces. I can only hope that, by then, we will have all realized that it wasn't the market that did this to us, it was government recklessness, cronyism, and incompetence - the daily bread of the State - and that the only way we'll ever truly be free and prosperous is within a truly capitalist financial structure. And wouldn't you know, our founders (with the exception of Hamilton) knew this all too well. Their wisdom is timeless; we should've listened to them.