Crony Capitalism Caused the Crisis

Our power-grubbing politicians never shy away from blaming the shortcomings of capitalism for the “Great Recession” of the 21st Century.  The old mantra goes, “capitalism is a flawed system that requires government intervention to alleviate the suffering caused by its shortfalls”.  Supported by their tax dollar dependent cronies in academia and their big government loving mouthpieces in the mainstream media, our ruling elite has been effective in socializing the masses that they know what they are talking about.  It is of course all an attempt to justify expanding the size of government even more so there is more for the politicians to give away to their faithful supporters.

Capitalism did not cause the financial crisis that we are still mired in some 29 months after it began; crony capitalism did.  Crony capitalism is loathed by every proper capitalist because it is more akin to the corrupt socialist systems of the past than to true capitalism.  In true capitalism, the primary responsibility of the government is to protect private property rights and prevent and punish fraud.  How can a system that confiscates private property through taxes (income and property) and transfers that property to others (domestic and foreign welfare) be called capitalist?    How can a system that takes from one to prop up the failure of another be called capitalist?  In terms of fraud, how many bank loan officers and borrowers who provided false information on the mortgage applications that contributed to the crisis have been prosecuted and jailed?  Uncle Sam has a weak record at best when it comes to exhibiting the qualities of a government operating in a capitalist system.

Instead, Washington has built a system based on favoritism and patronage.  Look at “Too big to fail”.  This should be translated into “Our Friends are the best”.  Hundreds of billions, if not trillions of taxpayer dollars, have gone into bailing out companies that in return can be counted on to contribute billions of dollars to Republican and Democratic campaign coffers.  The rationale we were told is that if any one company went under our economy would fall off the cliff.  Really, I don’t remember being airborne when Lehman Brothers was allowed to go belly up.  “Too big to fail” was a hoax perpetrated on the American public so the politicians could repay their campaign benefactors.  And they are at it again with their attempt to institutionalize “too big to fail” in financial reform legislation before the Senate.

In a true capitalist system GM and Chrysler would have been allowed to go bankrupt.  Their assets would have been purchased by other entities and workers would have been hired for hopefully a more profitable endeavor.  The economy would have been rid of a drag on it and therefore would be more able to operate at an efficient level.  Instead, what we got from our crony capitalist system was a huge taxpayer bailout that primarily benefitted the United Auto Workers Union (UAW).  In fact, it’s telling that the entity which for years demanded higher wages and benefits and was most responsible for the demise of GM and Chrysler was able to claim a huge stake in both companies ownership as a result of the government’s bailout deal.  At the end of the day, the UAW is richer, the politicians get their campaign contributions from Motown and the American taxpayer will ultimately have to bail out the car companies again sometime in the future.  

Now, it is true that if the bailed out financial companies were left to go under a lot of honest folks would have lost a lot of money.  But, that is only because of the system the crony capitalists have built.  The Federal Deposit Insurance Corporation (FDIC) allows depositors to place their money in banks without any worry that regardless of how irresponsible their bank may be they will always get their money.  Would you eat at a restaurant that was known for food poisoning?  I didn’t think so, but it doesn’t matter to you that you probably still have your money in a bank that acted irresponsibly and lost it in the early 2000s.  Even though they have brought the economy to its knees you will still get your money through government insurance.  Then, there is Fannie and Freddie Mac who really work on behalf of mortgage lenders and the real estate industry.  These two entities guaranteed (with taxpayer money) all the irresponsible behavior of the failed banks.  When the crisis unfolded what did Uncle Sam do to them?  He bailed them out and allowed them to add even more mortgages to their portfolio.   

In a true capitalist system much of the behavior that brought on the financial crisis would not have happened.  Bankers would have known that they faced the possibility of losing everything, their wealth, career, and even their freedom through reckless and/or fraudulent acts.  Government would not have been there to cushion their fall.  Of course, the biggest thing that would not have been there for them in a capitalist system would have been the existence of a central bank.

Indeed, the Federal Reserve Bank is certainly the most anti-capitalist feature of our economy.  In essence, it is a secretive small cabal of monetary central planners that determine the value of our money and stands ready to act as lender of last resort for over-leveraged banks.  It has been responsible for all of the big economic crises since its inception in 1914.  It caused the Great Depression with its easy credit policies towards banks and Wall Street.  It was responsible for the hyper-inflation of the 1970s and the savings and loan crisis of the 1980s because it monetized the Vietnam War and the social programs of Johnson’s “Great Society” of the 1960s.  In just the last fifteen years, it inflated the dot com and housing bubbles causing the biggest economic downturn since the Great Depression.  The Fed’s answer to the crisis, lower interest rates and bailout the banks.  There is no question where the Fed’s loyalty lies.  And this loyalty has paid off handsomely for its constituency – Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS), and Citigroup (C) — together have posted $62 billion in after-tax profits in just the last 18 months!  Meanwhile, the true unemployment rate continues to hover around 17 percent, foreclosures are up, and the cost of health care is through the roof.

True capitalism is not perfect, but then again no system is.  To blame capitalism for the financial crisis is absurd.  We have a crony capitalist system in the United States where politicians pander to corporatists and unions and in return get huge amounts of money to monopolize the political system.  It’s a vicious cycle that benefits Washington.  No wonder it spends all of its time blaming capitalism for crises.

       

Article first published as Crony Capitalism Caused the Crisis on Blogcritics.

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