US Banks Are Not Monuments Of Capitalism

Everyone, please stop saying that the current financial mess is a result of the excesses of capitalism. We do not have a capitalist economy and the current banking industry is not a monument of capitalist activity. Our current banking system conducts its business as a banking cartel; supported and enforced by the central bank and its regulatory agencies. No one knows or admits to this fact so it makes it almost unbearable for me to read or watch all the so-called experts as they share their opinions about the flaws with capitalism that have lead us to the current mess in the markets. I am most irritated by an article that I read in the Economist which is supposed to be written by some of the leading economic writers in the world. In its most recent issue (Sept. 20th, 2008), the magazine was covering the latest bailouts of AIG, Fannie and Freddie, and the bankruptcy of Lehman Brothers. One article entitled “What next?” characterized the crisis as a clear message that capitalism is a flawed economic structure. It said, “The government of the world’s leading capitalist nation has been sucked deep into the maelstrom of its most capitalist industry. And it looks overwhelmed (The Economist, “What next?” Sept. 20,2008, pg. 19).” The author mistakenly believes that our banking industry is the titan of capitalist industry. This is absolutely absurd!
The real monuments to capitalism are the small businesses and entrepreneurs that make products which meet people’s needs without any government assistance or protection. The central bank and its member banks, the horrendous government monstrosities of Fannie and Freddie and the greedy morons that helped circulate the bad debts were not partaking in free market activity, they were encouraged to act badly because of market interventions by the government and its state backed banking cartel. They were not following normal free market rules that everyone else it required to abide by. Because of the special backing they receive from the government (low interest loans and subsidies), lending institutions convince themselves that they are incapable of failing. So they feel safe to take more and more risk, earning higher and higher returns. They always continue to increase their leveraged, risky bets until their Ponzi schemes are exposed. Then a market crisis takes root as everyone’s confidence in the market evaporates. Eventually a painful but necessary liquidation phase begins as bad debts and assets are cleared out of the market. Unfortunately, the banks’ risks and stupidity hurt the rest of the economy and instead of people realizing that the banking industry is inherently flawed because of the overleveraging that it is encouraged to do when it has the backing of the central bank, people blame the market crisis on capitalism. Now they are saying, “Hey, you capitalist pigs. See what you did to the markets? Now we have to get the government involved even more so it can use its infinite wisdom to fix the problem.” In other words, the author of the article in the Economist made this point by stating: “Capitalism requires people to pay for their mistakes…with the markets reeling, pragmatism trumped principle” (pg. 19). So apparently pragmatism—at least according to writers at the Economist— means turning towards Socialism. But is government control of the financial markets pragmatic? Are we supposed to forget about the fact that government bailouts waste our tax dollars? And, that a rise in the government debt will continue to dilute the value of our money? I suppose it is also considered blasphemy to mention the fact that the government caused the problem in the first place, right? So, what are we to do? Who is responsible for fixing a problem that the government and the banking cartel caused? Are the writers at the Economist right? Do we need to be “pragmatic” and let the government take over the markets so that we can all pretend that the entire financial system is sound? I think not.
Right now, we should be having a really serious discussion about fiscal and monetary policy. We should educate the public about how the central bank contributes to rising levels of inflation and market instability. It will take some time and a great deal of effort but the American economy is going to become even more Socialist than ever before unless we stand up and rail against the government’s increasingly unconstitutional uses of power. Americans are not going to realize how important it is for them to stop supporting big government plans until we boost our resolve to educate people about Libertarian ideals, Austrian business cycle theory, micro economics, and the dangers of central banking and government intervention. I promise that I will use every opportunity that comes my way to inform the public about what is really going on in the economy and what they can do to recover their financial and personal freedoms. I hope you will too.
Times of crisis always provide a ripe opportunity for us to learn from our mistakes. Please don’t make the mistake of blaming capitalism for the current market fallout. Instead, take the time to learn something new. I suggest you start by exploring Austrian economics. This school of Economic thought explains how overleveraged fractional reserve banks cause periodic booms and busts. A great website that contains all the information you need to understand Austrian Economic theory is: www.mises.org. This website is the homepage for the world’s leading free-market think tank, the Ludwig von Mises Institute, located in Auburn, Alabama.
I hope you enjoy learning about how the markets really work as much as I do!
Sincerely,
Betsy Hansen