Laissez-Faire Capitalism Has Failed []

The financial crisis lays bare the weakness of the Anglo-Saxon model.

by “Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics”, “weekly columnist for

It is now clear that this is the worst financial crisis since the Great Depression and the worst economic crisis in the last 60 years. While we are already in a severe and protracted U-shaped recession (the deluded hope of . . . has evaporated), there is now a rising risk that this crisis will turn into an uglier, multiyear, L-shaped, Japanese-style stag-deflation . . .

The latest data on third-quarter 2008 gross domestic product growth (at an annual rate) around the world are even worse than the first estimate for the U.S. (-3.8%). The figures were -6.0% for the euro zone, -8% for Germany, -12% for Japan, -16% for Singapore and -20% for Korea. The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production, employment, exports and imports is accelerating rather than decelerating. . . .

Moreover, in many countries, the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system.

Traditionally, only emerging markets suffered–and still suffer–from such a problem. But now such sovereign risk, as measured by the sovereign spread, is also rising in many European economies whose banks may be larger than the ability of the sovereign to rescue them: Iceland, Greece, Spain, Italy, Belgium, Switzerland and, some suggest, even the U.K. . . . At some point a sovereign bank may crack, in which case the ability of governments to credibly commit to act as a backstop for the financial system, including deposit guarantees, could come unglued. . . .

this may have been a good headline 150 or so years ago. Since then laissez-fair capitalism has not even existed.

Exactly. What we have now, on a global scale, is Socialistic Capitalism or Capitalistic Socialism.

There is an incestuous relationship now between the two prevailing economic models and is amplifying the failures of both models.

Have any of you read the article?

You are debating terminology, not substance. *

The author featured on (no bastion of any kind of socialism) is arguing against specific economic models and also against specific economic hypotheses such as the “efficient market hypothesis.”

Are both of you saying that the “efficient market hypothesis” is actually true?*

The theme of the article is more than in the title apparently.:shrug:
My argument would be that there is more to the failure than the failure of the government to regulate. It wasn’t that the government was deregulating, but that the government was actively encouraging and guaranteeing bad behavior in the name of social policy. As long as housing market was on the upswing and continuously rising then it didn’t matter that the government was guaranteeing loans to people who could not afford to pay them back. Defaults could come without cost for everybody would get their money back as long as the house sold for more than it was bought for. As long as banks were being implicitly being backed by government guarantees, what did they care that the loan was bad? And as long as poor people who could not afford houses were being allowed to buy homes, social do-gooders in government could feel good about themselves.
As long as the price of houses kept on rising, everybody is happy? But in the meantime, such government intervention bye the ACORNS and the community organizers was in effect creating a false market that was not real demand. The demand part of the equation was not populated by people who could actually afford the houses the government was encouraging them to buy though sub-prime lending.

De-regulation was not really the biggest problem then. It was government having its heavy hand on the scale tipping the balance, allowing banks to maximize profits at seemingly no risk.

For if it was in the interests of government to encourgage these high risk loans then it was also implicit understood by the lenders that the tax-payer was taking the risk and not the banks.

Capitalism is based on greedy certainly, but risk is the antidote to risk. Having to actually foot the bill for bad risks discourages unbridled greed. By removing the concept of risk from the equation, government in effect encourage unbridled greed.

The question is then who regulates the government? As long as it is the uneducated voter, the greed of individuals will always ask the government to provide them with more. There is a cost to this kind of socialism, and that cost we are finding is a very heavy one indeed.

The article just doesn’t address this. Really one need go no further than the title to know that it wouldn’t.

Government has everything to do with the current crisis. Heavy regulations on manufacturing, excessive taxes on everyone and everything, free trade that is anything but free and a swelling government that grows and grows and grows is the reason our economy is failing.

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