With the passage of the $700 billion dollar financial rescue plan, the U.S moved closer to socialism, but no closer to a crisis resolution. For a nation that prided itself on capitalism, looking down its collective nose at socialism, nationalizing bad debt was an easy out. But by bailing out banks, insurance companies and investment firms, lenders were helped and homeowners ignored.
Rethinking How Markets Work
It’s also a startling admission that free markets don’t work. Contrary to Adam Smith's invisible hand theory , espoused in The Wealth of Nations, and embraced by Wall Street, individuals and corporations pursuing their own self-interests do not necessarily promote the best interests of society as a whole. The invisible hand that was supposed to guide the market has, in the end, pick-pocketed taxpayers. Where does all of this lead?
What Went Wrong with the Financial Bailout Plan?
Under capitalism, individuals and corporations pursuing their own self-interests would promote the best interest of society as a whole. What actually happened was that in the pursuit of profits, risks were ignored. Corporate responsibility fell by the wayside. Now, U.S. taxpayer dollars are on the line. In the largest bailout since the Great Depression, the U.S has made choices that will reverberate for years to come.
Already a huge sea-change has occurred. The U.S government is now the largest taxpayer-owed bank and the ultimate risk manager. The dominance it enjoyed as the world’s leading financial superpower has been greatly diminished. The IOUs held by foreign investors will tie the new administration’s hands in any foreign dealings, financial or otherwise.
What's Next for Global Markets?
What other concessions will the U.S. have to make? In choosing to bail out financial firms, social issues and solutions will be pushed to the back burner. Solutions to Medicare, Social Security and public education will be harder to fund. Future generations, already burdened with the cost of two wars and a $500 billion budget deficit, will be on the hook for even more money. As Edward E. Gordon discusses in Skill Wars (1999 , Butterworth-Heinemann), t The future generation is already saddled with disadvantages; fewer critical competencies, increased responsibility for an aging population, and growing competition from a global marketplace.
The Role of Government
Is the U.S. government the lender of last resort? If the U.S. bails out financial firms, and gives another $25 billion to the auto industry, can the airline industry be denied when it comes hat in hand? What and who will be next? Will this bailout succeed? How close does the U.S move toward socialism? Is Denmark agood example? Will quasi-socialism work in the U.S. economy? How about in the world economy? The questions are many and, right now, the answers few.
Looking to the Future
One thing is for certain. The days of easy money and lax regulation are gone. Taking its place will be more regulation, fewer business and personal loans, and a skeptical investor who will demand more honesty and transparency if trust and confidence are to return.
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