An anonymous commenter claims "greedy, dishonest capitalists are destroying capitalism." This has obvious relevance to this week's presidential debate where, as Betsy Newmark says:
we just learned that McCain wants to buy everyone a house and Obama wants to provide everyone health care. And we're a country that's broke.I responded to "Anony" as follows:
This isn't about fraud--which, in some ways, makes it more troubling.And that's what's wrong with both Obama's and McCain's answers: the current crisis was not caused by evil captains of industry ripping off the little people; nor was it created (though it may have been eased) by sleepy or over-ideological or bribed regulators; nor is the flaw Gramm-Leach-Bliley, the Community Reinvestment Act, deregulation, mark-to-market, or even those nasty speculators. Rather, it was a failure of risk takers and their private managers.
This is vastly worse, especially for part-time economists and full-time free marketers like me. The masters-of-the-universe are presumed wise enough to establish value and cover risks. Derivatives, and securitization-of-everything-not-nailed-to-the-floor,-plus-some-things-that-are, are supposed to spread risk and flow profits to the smart. IT DIDN'T WORK. And the obvious (though not necessarily proper) response will be: socialism and over-regulation, perhaps on a global scale.
If that's the solution, how much faith in Adam Smith will be discarded? If that remedy is right, how much of trusting trade to David Ricardo is misplaced? As I said in comments, this line of thought--considering killing a system that still could produce spectacular wealth--is far more frightening than fraud.
Right-leaning Italian Prime Minister Silvio Berlusconi distanced himself from free markets Friday, "when he suggested global financial markets should be shut down while policy makers "rewrite the rules of international finance.'" And Assistant Village Idiot has similar thoughts--read his excellent analysis.
MORE & MORE:
Anthony Faiola in the Washington Post predicts "the end of American capitalism."
(via MaxedOutMama, The Corner, twice)