Friday, September 19, 2008

So what happened to "Capitalism", "Free" Market economy, etc..

The "Market" is supposed to "correct" itself - so we have been told... And a good government is one which governs/intervenes the least in the "free" market dynamics!

But then, last week - actually last few months - at least one government, which has championed/ branded/ enforced the cause of the "free" market, has been interfering with the "free market" - actually bailing out companies (Countrywide Financial, Bear Sterns, Fannie Mae, Freddie Mac, AIG, etc. - many more to come)...

Here are some reflections/links - sent by some friends - on this changing paradigm...

  • Masters of The Universe Humbled

    "Not surprisingly, the atmosphere at this year's World Economic Forum was grim. Those who think that globalization, technology and the market economy will solve the world's problems seemed subdued.

    Most chastened of all were the bankers. Against the backdrop of the U.S. subprime crisis, the disasters at many financial institutions and the weakening of the stock market, these "masters of the universe" seemed less omniscient than they did a short while ago. And central bankers, too, were in the Davos doghouse this year.

    Anyone who goes to international conferences is used to hearing Americans lecture everyone else about transparency. There was still some of that at Davos. I heard the usual suspects – including a former treasury secretary who had been particularly vociferous in such admonishments during the East Asia crisis – bang on about the need for transparency at sovereign wealth funds (though not at American or European hedge funds).

    But this time, developing countries could not resist commenting on the hypocrisy of it all.
    " ...Read on

  • Private Enterprise Worship Exposed

    "The high priests of capitalism are in sackcloth and ashes, their belief in markets shattered, their catechism of risk-taking renounced. From Wall Street to Detroit, once-devout believers in unfettered private enterprise are running from their religion. Now that their greed has brought the economy to the brink of depression, they want government help.

    What happened to those masters of the universe? What happened to their handmaidens, the Republican politicians who denounced government regulation and read from the holy scriptures as recorded by Ayn Rand?

    When ordinary Americans began to lose their homes several months ago, conservatives were quick to denounce them for being too stupid to understand a simple mortgage or too undisciplined to know how to live within their means. The right-wing talking heads had a field day denouncing plumbers and painters, teachers and personal trainers threatened with foreclosure: They’re idiots! They’re losers! They’re suckers!

    Well, it now seems there were quite a few idiots among the brokers and bankers who bundled loans in complicated investment vehicles they didn’t fully understand. They actually believed they could vastly increase the financial rewards they received while virtually eliminating the risk of losses. That’s the very definition of “sucker.”
    "...Read on

  • Banking on Neo-Confucian Capitalism

    "It's university graduation season again and invariably, many graduates I encounter want to become investment bankers.

    In less than a year, financial stocks have plummeted by over 70 per cent in value. Millions of Americans and Britons have lost their homes. Countless millions more around the world have seen their net wealth drop precipitously, possibly never to recover within their working lives. Who to blame?

    Investment bankers, of course, who devised all those sub-prime mortgages and other cute "products" with long, exotic names.

    As someone noted, never in history have so many people lost so much money due to the actions of so few.

    Why then would young graduates want to be investment bankers? Well, to begin with, because investment bankers reward themselves pretty well, regardless of how others are doing. Bonuses paid in London's financial district totalled f6 billion 6815.7 billion) this year, though the total losses of financial services companies were 10 times greater.

    And in case you think that pay should correlate with performance, don't be naive. Last year, the CEO of a large private equity fund walked away with a US8350 million (SS499 million) bonus, though his just-listed company's share price had tanked by 37 per cent.

    Nobel laureate Joseph Stiglitz recently noted that the Wall Street financial system "paid bankers to gamble. When things turned out well, they walked away with huge bonuses. When things go badly, as now, they do not share in the losses. Even if they lose their jobs, they walk away with huge sums".

    To be fair to the maligned financial engineers, others also got rich during the good years. In 1994, the average American CEO was paid about 90 times more than the average blue-collar worker. Today, it is 180 times.

    But it is still mainly bankers who buy the thousand-dollar wines and Bentley convertibles. In America's Fortune 1,000 industrial companies, CEOs make around two to five times more than their immediate subordinates. In Wall Street, the top dog earns around 20 to 40 times more than his immediate subordinates.

    It's not surprising then that income inequality in the United States is at an all-time high. The share of the national wealth owned by the top 1 per cent of Americans has more than doubled – from 20 per cent in 1976 to more than 50 per cent today. Through changes to the tax system, an American private equity partner can today pay less taxes than the cleaning lady in his office, according to economist Paul Krugrnan.

    How did all this happen with no one complaining?
    " ...Read on


    Jo said...

    You've just been awarded with a Brillante Weblog 2008 award. :-) Check out my blog post ( for details.

    Divi said...

    You are indeed making a world of a difference through your writings.
    Just to tell you,You are being avidly read by many in the town of Indore.
    Thanks a lot Sir!
    Keep Writing.