Socialism for the Rich!
Free Market Apostates -
By BINOY KAMPMARK /
We have heard it for some time now: the market is divine, lending its
magical corrective qualities to sort out the good from the bad. A
character ****trait of George Bush by a former teacher of his,
Professor Yo**** Tsurumi (1 March 2004), recalled a pupil's suspicion
of such monitoring bodies as the Federal Trade Commission and
Securities Exchange Commission. These bodies were 'unnecessary
hindrances to "free market competition".' The New Deal received
characteristic opprobrium =AD it was 'socialism'. As for poverty: it was
the simple result of a poor work ethic.
Someone supposedly more qualified to *****s the levers of the market,
Alan Greenspan, added a few pointers to this bald-faced view of market
forces. In the late 1990s, when the hedge fund Long-Term Capital
Management was registering losses in the billions, Greenspan, as
Federal Reserve chairman, attempted to initiate a rescue package that
would still keep the free marketeers happy. After all, the economy
would, in time, re-order itself.
But not even Greenspan was willing to let things float. As he put it
in his testimony to the House Committee on Banking and Financial
Services (1 October, 1998), the Federal Reserve had taken some
measures to facilitate 'private-sector refinancing' of LTCM. With
characteristic opaqueness, he argued that the Reserve's measures 'were
designed solely to enhance the probability of an orderly private-
sector readjustment, not to dictate the path that adjustment would
take.' Despite some tinkering, free-market orthodoxy would remain.
As Professor of political economy at Harvard, Benjamin M. Friedman
notes (New York Review of Books, 20 March) various attempts at
regulating heated economic activity in this decade were rebuffed. The
US Treasury suggestion in 2001 that subprime lenders subject
themselves to monitoring, with a 'best practices' code, and the
Department of Housing and Urban Developments attempt to control real
estate transactions, all came to nought.
A suspicion of regulating agencies on the part of the Bush
administration (by no means the only one) and a system of buccaneering
capitalism has led to one sad truth: the private sector is inviolable
when it produces; and a needy cripple when it doesn't. When it
performs, there is a rush to praise executives and line their wallets
=AD they made the right decisions, and did the company good. Company
profits are a result of business a***en, the genius of market
capitalism.
When the company fails, we must all fail with it. Cor****ate success is
the success of the few; cor****ate failure, a collective one. This is
the underlying message of salvaging measures by governments and their
regulatory bodies. The global subprime crisis has triggered bailout
strategies across several countries. This suggests a grand admission:
the market is not magical in its self-corrective wisdom, and its
harmful effects must be neutralised.
The list of free market apostates is growing. Governments, after
peddling the wonders of robust competition, are now viewing it with
fear, even panic. Previously feted market ideologues are either
shedding their skin or going into hiding.
Consider the most recent example of apostasy: the Federal Reserve's
actions regarding Bear Stearns. With the demise of the mortgage
securities specialist, Ben S. Bernanke and his fellow governors
decided to ditch the policy of non-interventionism. Bloomberg
correspondent Craig Torres provided a pr=E9cis of the action: treasury
notes would effectively be swapped for 'privately issued mortgage-
backed securities held by Wall Street firms' (15 March). Willem
Buiter, economics professor at the London School of economics
shuddered at the policy ****ft. This was 'socialism for the rich, which
is both inefficient and morally objectionable.'
The Reserve had become creditors of the otherwise doomed enterprise.
In the words of Vincent Reinhart, former director of the Division of
Monetary Affairs, such actions were 're-drawing the relation****p of
the Federal reserve with the rest of the financial system' (15 March).
In Britain, Gordon Brown, with Chancellor Alistair Darling at the helm
of the Exchequer, took a pseudo-socialist path An ailing Northern
Rock, the Newcastle-based lender, has been, for all intents and
purposes, nationalised. Offers by such giants as Virgin were dismissed
as providing insufficient 'value for money to the taxpayer' (BBC News,
17 February).
Darling attempted to minimise the significance of the move, hoping to
hide the British government's new love for market control. 'The bank
will be run at arm's length and on a commercial basis.' With inverted
logic, the protection of Northern Rock has now become a collective
duty =AD tax payers are to foot the bill of failed private speculations
because it's in their best interest to do so.
Some banks on the continent have faced similar problems, with now
familar government responses. The German banking system suffered the
jitters last summer when IKB Deutsche Industriebank fell on the sword
of American subprime speculation. A third bailout of the dying beast
was assured in February this year by German finance minister, Peer
Steinbr=FCck. While private banks were expected to foot some of the
bill, the government would provide two-thirds of the $2.2 billion
dollars. The list of bank welfare recipients continues to grow.
The consequences of such bailouts are gradually coming to the fore.
The Federal Reserve is finding its resources depleted. Numerous
governments, despite a previously pathological aversion to regulation,
are suddenly nervous by unfettered competition. While the Free Market
deity is far from dead, it is expiring.
Greenspan, amidst the economic carnage, is unrepentant. Writing in his
memoir The Age of Turbulence, he argues that 'the benefits of
broadened home owner****p are worth the risk.' Given the current
crisis, with a shrinking base of homeowners, Greenspan may have been a
little too optimistic. For that, we are left with a socialism tailored
for the wealthy.
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Binoy Kampmark was a Commonwealth Scholar at Selwyn College,
University of Cambridge. He can be reached at: bkampmark@[EMAIL PROTECTED]
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