THE financial crisis that's engulfing the world has become the occasion for plenty of ideological point scoring, especially by the left. The capitalist system has failed, we are told, and the hour of government is at hand. Would that it were so simple.
In fact, what is happening is the fault of the markets, government, and to a lesser extent, ourselves.
There are no winners in this, only losers, and no ideology emerges smelling of roses.
The simplistic black and white take on the current crisis is that Wall Street greed is to blame.
Fat Cats, driven by the prospect of yet another huge bonus, had their eye only on this year's profits and kept expanding their loan book until eventually they began loaning money to people who could never afford to repay, which is to say, to the so-called 'subprime market'.
Is Wall Street to blame for the mess? Are their equivalents in Ireland, England, France and Belgium to blame? You bet they are. But are they solely to blame?
No, they are not.
One reason Wall Street is being made the sole scapegoat in this debacle is that a presidential election is looming, and the mainstream media in the US is completely in the Democratic camp and is absolutely determined to pull Barack Obama over the finish line.
On its own, the economy is in such a mess that it would probably do that anyway, and comfortably, but the likes of NBC, CBS, ABC and 'The New York Times' are leaving nothing to chance.
They are determined that the blame be laid wholly at the feet of Wall Street and their supposed enablers in the Republican party.
What they ignore is the fact that the Democrats and their philosophy of Big Government are also to blame.
For evidence, look no further than Freddie Mae and Fannie Mac. These terrible twins were founded by the US Government to oversee expansion of the mortgage market and to make housing more affordable for poorer people.
Both were later privatised but in practice remained very close to the Government and especially to the Democratic party.
The people in charge of Freddie and Fannie during this grisly period were Clinton-era apparatchiks. From the mid-1990s on, they gave massive encouragement to subprime lending, again so that poorer people could buy a home.
In 1994, subprime lending amounted to around $35bn (€25bn) but by last year it was almost $1 trillion (€724bn).
This explosion in bad credit happened in part because the markets knew that if Freddie and Fannie got into trouble the US Government would bail them out, which is in fact what happened.
Caution was thrown to the wind. Moral hazard went out the window. A massive distortion of the market was created.
To put this in the clearest possible terms, if Freddie and Fannie didn't exist and didn't have a de facto government guarantee, the current crisis wouldn't be as bad as it is.
Three years ago, John McCain was among those drawing attention to what Freddie and Fannie were doing and warned of big trouble ahead. He and others called for their reform.
The Democrats slapped him down, among them Barack Obama. Some of those who slapped them down receive campaign funding directly from Freddie and/or Fannie. To put it in the mildest possible terms, that seems a tad . . . cosy.
What's to blame for the mess we're in isn't capitalism as such, but crony capitalism -- that is, capitalism in an unholy alliance of mutual convenience with government.
Much the same kind of thing was going on here. People wanted the property boom. The Government knew they wanted the property boom and so it irresponsibly turned a blind eye as the Irish banks abandoned common-sense practices such as requiring people to put money down for a house and ensuring they had a genuine ability to repay the loan, in bad times as well as good.
In the period that is now coming to a shuddering, bone-jarring end, we all became the victims of a collective delusion -- namely big investors, small investors, banks and governments alike.
We convinced ourselves that the good times would last forever, that there was no tomorrow and that the normal rules of the game no longer applied. There would never be a hangover.
In the property-market, all would be winners; and old-fashioned virtues like prudence, which is to say good judgment, were for losers.
Now we face the mother of all hangovers.
The answer to it isn't socialism per se or capitalism per se. It isn't more government or less government. Governments can be run badly and so can the markets. What we need is good corporate governance, good governance by the State, and good governance by each of us of our own domestic economies. Bad governance at all levels is what got us into this mess and good governance is what will get us out.
dquinn@independent.ie
- David Quinn
http://samotalis.blogspot.com/
No comments:
Post a Comment