The Berlin Wall of Laissez-Faire has Fallen

[Universe Prince]

In fairness UP, he is likely writing in hyperbole but you cannot deny that neoliberalism sold the free-market as snake oil. I can go hunt down quotes from Maggie Thatcher or Ronnie Reagan if you like.

I'm sure you can. But the fact remains that we never got a free market.

And on the flipside, yes there are folks who have attacked the bailout plan (me included, but for different reasons), but the mainstream political parties have endorsed it.

I know they have, and it disgusts me. I did not like politicians much before this, but now, as I watch nearly all of them scramble to insist the government must do something, I find myself close to loathing.

And whether you are willing to admit it or not, this is a failure of deregulation to an extent. Is that the only variable? Of course not. But it most certainly played a role and you'd be hard-pressed to find many investors who disagreed.

It is nothing of the sort. I know you and I agree on a number of things, but on this we do not agree.

So while Beresford is playing up his argument (and certainly using hyperbole), there was certainly an inherent push to burn the idea into people's mind that "government=bad, market=good."

You say "inherent push". Inherent in what? This has been a debate that has been around since well before Reagan or Thatcher or Ayn Rand. And in the meantime, we've hardly seen anything close to an actual free market.

In many ways neoliberalism is a refining of Fascism. Fascism was a triangular relationship between Government - Private Sector - Unions. All the neo-liberals did was remove the unions and make it a two-way relationship. So I agree that it wasn't truly laissez-faire anarchism, but it is the market that has been preached by the likes of Thatcher, Reagan, Friedman, Pinochet, and others.

Not being students of theirs, I don't know exactly what they preached. (I have a fair idea of Friedman's ideas, but not of the rest) But as for not "truly laissez-faire anarchism", that is a severe understatement. It's not even in the same gorram ballpark. And while Peter Beresford might be using hyperbole, he is using it to mislead. Again, there was no "Berlin Wall" between business and government. So suggest there was is either completely ignorant or completely deceitful. "Are we really going to pretend that all this hasn't happened, carrying on as before as if the market hasn't now faced its equivalent of the fall of the Berlin Wall?" Are we really going to pretend that something which did not happen really did not happen? Are we going to pretend that Ross Perot didn't get elected President of the U.S.? Are we going to pretend that the New York Yankees didn't win last year's World Series? Since it did not actually occur, seems to me there is no reason to pretend. The only reasons to ask the question in the first place are either ignorance or to mislead others about what actually did happen. I doubt Beresford got to where he is by being ignorant, so I can only conclude he is being deceitful. It is, at the very least, propaganda. It is certainly not a reasonable representation of the facts.

Did people in the private sector do bad things? Yep, they did. The notion that they did so as a result of too much economic liberty and too few regulations is so much bunk.

Let me put this another way, in a free market, sans government regulations and interference, the Federal Reserve chairman would not have been keeping interest rates artificially low, there would have been no push from the federal government for subprime lending for the sake of pushing up home-ownership numbers, and no bailouts large or small from the federal government to give any company the notion that it was too important or too big to fail. In reality, we have had all three. And this isn't just neoliberals or conservatives that have responsibility for this; liberals in government have been helping all this along.

So quote Thatcher and Reagan all you like, but this isn't some neoliberal or neofascist policy failure. This is a failure of the idea that government will make everything better. The government was going to ensure "affordable housing". Thus we have Fannie Mae and Freddie Mac buying up and offering subprime loans. The government now is going to save us all from economic doom, so it will spend likely trillions of dollars in bailouts and other "fixes", perpetuating the notion that businesses can take as much risk as they please with other people's money because the government will bail them out, setting us all up for further problems down the road.

Like the FEMA fiasco in New Orleans after Hurricane Katrina, this is a failure of government. And like the FEMA fiasco, nearly everyone seems to be saying, "but we just need more government to fix this." It is almost literally saying if we just keep doing what got us into the problem, we'll fix it. One might as well argue the pedophile Catholic priests scandal could have been solved by having the pedophile priests hang out more with young boys. Or that drinking more beer and whiskey is the solution to alcoholism. Or that fatty foods, pasta by the bucketful and no exercise will solve obesity.

[Religious Dick]

And whether you are willing to admit it or not, this is a failure of deregulation to an extent. Is that the only variable? Of course not. But it most certainly played a role and you'd be hard-pressed to find many investors who disagreed.

I like these articles that blame the free-market, but never get into any specifics as to what actually happened. For a start, what was ever deregulated? The only deregulation I can think of was a relaxation of some of the provisions of the Glass-Steagall act in 1999. Other than that, regulation has come thick and fast. You can have Glass-Steagall back if we can get rid of Sarbanes-Oxley. As someone who's had to implement some it's provisions, I can assure you it's taking a hell of chunk out of the economy in it's own right.

[Michael Tee]

<<The interference of government carries as much or more blame than that of individuals in the private sector. There was no "Berlin Wall" to fall. As a post by Brassmask correctly pointed out, "the Wall Street hotshots didn't have and don't want a free market [...] have no interest in a free market." If there is anything we have to pretend, it would be to pretend that this somehow a failure of a laissez-faire free market.>>

Three questions for Prince:
1.  What specific acts of government interference do you think caused or contributed to what specific aspects of the current crisis?
2.  Would you at least accept in principle that different acts of government interference could have had a more beneficial effect?
3.  what would you say to the argument that without whatever "government interference" was in fact applied to the markets, the crash would have been worse in one or more ways (i.e., deeper, broader, longer, less salvageable?)

[Michael Tee]

plane sez:  <<Perhaps , [fascism was a triangular relationship between Government - Private Sector – Unions,] but if so it was not this feature of Facism that made it objectionable or deserveing of the contempt it earned?>>

What do you have against triangular relationships? 

I think the most repellent aspect of fascism is the brutality that seems to always accompany it, and the inequality that inevitably results.  Whatever harshness was found under communism was always done in the pursuit of abolishing forever the exploitation of man by man, and undeniable material progress often followed, to the great benefit of the masses.  But fascism even in its purest form always seemed to be involved heavily in the grinding down of the poor (once certain minimal social benefit levels were achieved) and the preservation of the old, pre-fascist world of inequality of the rich and the poor.  And of course in most cases, there was nothing pure about fascism - - it is a magnet that inevitably attracts the wealthy, anxious or fearful for their wealth and privilege and ready to stop at no means to protect it.

Brutality and inequality are the real deal-killers for fascism, at least IMHO.

[Amianthus]

So, to recap:

Brutality and harshness under fascism == bad.

Brutality and harshness under communism == good.

[Xavier_Onassis]

Brutality and harshness under fascism == bad.

Brutality and harshness under communism == good.

===========================================
Brutality and harshness are always undesirable. It is not necessary to have either for people to live in harmony and prosperity.

It would be possible to remove the brutality and harshness that afflicts Americans as well, if we reformed the economic and criminal justise systems. It has been done elsewhere, but it would step on the toes of the oligarchy,  who rely on it to acquire a still bigger piece of the pie.

[Michael Tee]

So, to recap:

Brutality and harshness under fascism == bad.

Brutality and harshness under communism == good.

========================================================================

I'm sorry.

The brutality of fascism greatly exceeds that of communism.
That the goals of communism are much more laudable than the goals of fascism.
That the inequalities of society are levelled out much more under communism than they are under fascism.
That the victims of fascist brutality are mostly innocent people and that the victims of communism were mostly fascists, criminals, parasites, foreign agents, enemies of the people, racists and anti-Semites.
Most of the "brutality" of communism is Cold War mythology from Nazi and collaborationist apologists.

But otherwise, you are right.  Brutality is bad whoever practices it - - the U.S.A.  included.

[Plane]

So, to recap:

Brutality and harshness under fascism == bad.

Brutality and harshness under communism == good.

========================================================================

I'm sorry.

The brutality of fascism greatly exceeds that of communism..

Well that is the questionable part isn't it?

That the goals of communism are much more laudable than the goals of fascism..

Wait ,...that is certainly questionable too.

That the inequalities of society are levelled out much more under communism than they are under fascism..

I ,..Don't really know.

That the victims of fascist brutality are mostly innocent people and that the victims of communism were mostly fascists, criminals, parasites, foreign agents, enemies of the people, racists and anti-Semites..

That is so much like saying your which hunters catch the innocent and ours catch real whiches.

Most of the "brutality" of communism is Cold War mythology from Nazi and collaborationist apologists. .

I wish you were more of a sceptic.

But otherwise, you are right.  Brutality is bad whoever practices it - - the U.S.A.  included.

Unargueable.

[Xavier_Onassis]

The entire purpose of Fascism is to impose the will of the majority on the minorities.

Communism as practiced in the USSR was not anything that anyone could or should envy. It's only good was that it held the nation together against Hitler. Stalin was a monster, Lenin was an ideologue who did occasionally monstrous things. I would not want to live a minute under either of them, or Hitler, Mussolini, Franco or Salazar, either.

[Universe Prince]

Three questions for Prince:
1.  What specific acts of government interference do you think caused or contributed to what specific aspects of the current crisis?

For starters, there is the use of Fannie Mae and Freddie Mac and various pieces of legislation to "encourage" supposedly "affordable housing". On the surface, this seems like a good idea. In practice it essentially established subprime lending. This doesn't excuse by any stretch the kind of predatory lending that sometimes went on with people being mislead into ARMs and whatnot. However it does set the groundwork for massive amounts of subprime lending and the state in which the FMs have found themselves. That Fannie Mae and Freddie Mac are involved alone discounts the notion of a "Berlin Wall" because they were both government sponsored enterprises.

And then there is the action of the Federal Reserve in keeping interest rates artificially low, which contributed in no small part to the housing bubble. It was a government interference that, along with proclamations from Greenspan and Bernanke, created the false impression that there was nothing wrong in the housing market and everything was fine.

And then we come to the fed meddling in failing businesses. Bear Stearns should have failed. Instead, the Federal Bank of New York helped JP Morgan take over Bear Stearns, and this is more evidence that there was no "Berlin Wall". AIG should have failed. Instead the government decided on a huge bailout. And these are just the recent events. There have been other bailouts, the airline bailouts come to mind, that established that just about any corporation large enough could simply depend on the federal government bailing the corporation out if it got into trouble. Remove the consequences of risk, and people end up taking risks they shouldn't.

These are broad strokes. Someone more versed in economics than myself could go into more detail. And again, none of this excuses bad behavior by those in the private sector. I'm not saying they did nothing wrong or do not deserve punishment. But they most certainly do not deserve a huge federal government bailout that takes money from middle class working people and gives it to corporations and their much wealthier owners and boards and such. There is simply no excuse for that.

2.  Would you at least accept in principle that different acts of government interference could have had a more beneficial effect?

Different acts of government. If you count letting businesses fail as an act, yes. I am not sure what government action would have been beneficial in this, except maybe making the FMs entirely privately run businesses.

3.  what would you say to the argument that without whatever "government interference" was in fact applied to the markets, the crash would have been worse in one or more ways (i.e., deeper, broader, longer, less salvageable?)

I would say to that argument that it is utter nonsense. Much of the events that factored into the crash would not have happened at all without government interference. To say that without these events the crash would have been worse is ridiculous. This is not to say that everything would always run smoothly in a market free of these interferences, but it is to say that without government pushing for subprime lending and keeping interest rates artificially low and implicitly promising to bailout businesses, this crisis does not occur. So the argument that the crash would have been worse without these actions is nonsense.

Please do not assume that I think businesses should be allowed to do any damn thing they please. I think as long as we have a government, businesses should be subject to laws that protect people's rights, the same as any other human entity. And I do not hold up the market as a god-like entity that can do no wrong. People are involved, so obviously sometimes bad things will happen, mistakes will get made, some people will try to cheat the system, et cetera. But frankly, I don't believe we can solve that with the government trying to keep people from the consequences of their actions. That is how we got into this mess in the first place.

Michael, I know you and I do not agree about this, and we could have another argument about socialism, capitalism and liberty, but we'll have to do that another time. I have other things to do right now. However, I wanted to thank you for asking the questions. Those were good questions, and I was glad to see them. So thank you for that.

[Xavier_Onassis]

As a rule, houses rise to rather outrageous prices, then interest rates go up, and they become mostly unaffordable again. When interest rates fall, then there is another housing boom and prices shoot up yet again. This time, interest rates stayed low.

A problem you failed to mention is the use of credit default swaps as insurance, which they are not. There should have been a regulation against anything other than actual insurance being used as insurance. Banks should not be able to bundle and sell off mortgages immediately, either, and there is no reason that derivatives need to be sold.

[Universe Prince]

A problem you failed to mention is the use of credit default swaps as insurance, which they are not.

They are actually, however, they are also a rather risky means of insurance. And no, we don't need regulations against them. What we need is to let businesses who use them as such suffer the consequences of their actions.

[Xavier_Onassis]

They are actually, however, they are also a rather risky means of insurance. And no, we don't need regulations against them. What we need is to let businesses who use them as such suffer the consequences of their actions.

================================================
No, that won't work, because they will trash the entire economy.  Banning using these things as insurance is a far better solution. You cannot trust these fools to be honest, as we have seen.

[Universe Prince]

No, that won't work, because they will trash the entire economy.  Banning using these things as insurance is a far better solution. You cannot trust these fools to be honest, as we have seen.

Sounds like a reason to let them fail, rather than ban them from doing something that is not an inherently bad practice.

[Xavier_Onassis]

Sounds like a reason to let them fail, rather than ban them from doing something that is not an inherently bad practice.

But it IS inherently a bad practice. Insurance should ALWAYS insure. Credit swaps do not do this. They are bogus insurance, less useful than a bogus $10 Rolex.

If every mortgage is actually insured by insurance that will pay up in the event of default all the time, this would PREVENT failure.

Sounds like you are in favor of bogus insurance being sold as the real thing. Why? Do you sell these things, or what?