"Fannie’s and Freddie’s free lunch, by Joseph Stiglitz, Commentary, Financial Times: ...The US government is about to embark on ... a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk – with all the long-term adverse implications for moral hazard – from an administration supposedly committed to free-market principles.I heard some "left wing" talk show host yesterday on AM 1150 who kept going on and on about free markets and how if we just let them do their job everything would be ok. Well, no. Free markets, as an idea, may be perfect, but the truth is that they are a utopian concept, a shadow on the wall. Power (as seen above) will always intervene, and, indeed, power structures (lobbyists, politicians, Wall Street) were present in the first place as Fannie Mae was massaged into a corporate model (with benefits for shareholders). Until we have an open discussion about who is wielding this influence and whether such influence is undue and subject to corruption and failure, then our conversations will also remain in a "utopian" netherworld that fails to account for what is really happening.
Defenders of the bail-out argue that these institutions are too big to be allowed to fail. If that is the case, the government had a responsibility to regulate them so that they would not fail. No insurance company would provide fire insurance without demanding adequate sprinklers; none would leave it to “self-regulation”. But that is what we have done with the financial system."
[h/t economists view]
Capitalism, the marketplace are incredibly dynamic systems, but they can be a threat to democracy when they become a corporatocracy. It's funny, someboday was telling me how much China was becoming like us; I looked around and thought: "No, we're becoming like them."
