No sooner had the banks failed and extorted money from the taxpayers of the future then all the typical Statists come running out to the nearest microphone to declare that “capitalism” had failed (I put “capitalism” in quotes because it is a derogatory term developed by Karl Marx to refer to the free market). You had the funny talking, gay Congressman spouting all that nonsense about how the free market had failed the consumer and that the banks were going under as a result.
However, nothing could be further from the truth and if you had half a brain and enough information on the subject, you’d know why. I wouldn’t bother trying to explain it to these wicked men and women in Congress, though, because they actually do know all this, but simply don’t care. They are not interested in your well-being, but their own and they will seek any means necessary to secure their money and property because in a truly free market, such people are nothing but failures.
First of all, you have to understand that for an economic system to be a truly free market system, you have to have absolutely little or no government intervention in the economic sector. Beyond anything that protects the property of one individual from another, like copyrights, patents, and trademarks, the government cannot dictate how a private business operates, otherwise it is not a free market system. Certainly there are certain areas where government is necessary, but these areas are clearly spelled out in the United States Constitution.
With the government out of the way, this opens the free market’s largest factor in protecting the consumer: competition. This does not mean that the person who sells the cheapest product wins. Normally, the cost is a huge factor, but we all know that we also expect a certain level of quality as well. When people misbehave in a free market, where an unsafe product is produced, the free market quickly takes care of it because reputation and integrity are everything. A businessperson cannot survive when their integrity is called into question. In this day of the Internet and fast information, it is all the more reason why a free market system is so much better.
I could probably write a whole book on this topic, if I wanted to and had the drive to do so, but that is the basics behind a free-market or “capitalist” economic policy. This is the economic policy that so many sleazy politicians called into question last year and this year when discussing the bank failures. In reality they were only seeking to save their own rotten careers when they did so.
The banking industry is, in actuality, not a free-market industry. The Federal government heavily regulates it and has done so since at least 1913 when the Federal Reserve was created. They are also supported by the taxpayers of the present and future through agencies like the FDIC. The FDIC specifically insures the deposits people make into banks so that if they fail, people won’t lose their money. Banks rely on people depositing money to them so that they can loan that money out to debtors and gain profits on the interest. That is basically how the operate. Besides insuring the consumer from lose of money, the FDIC also helps the banks gain customers. If you were looking for a bank, would you chose the one that didn’t have FDIC insurance?
Because of agencies like the FDIC, bankers are able to loan out more money than usual and make riskier and riskier loans. After all, if their assets are secured by the future taxpayers of America, then they can take larger risks in order to secure larger profits. There is a downside, however, but most banking institutions don’t seem to mind overall. Because the government backs the bankers, the government has a keen interest in regulating the banks. Most of the time they don’t do much other than write rules that prevent smaller banks from gaining traction in order to insulate larger banks from competition, but every once and a while a law is proposed or passed that hurts them.
Recently, Congress introduced a law that places stricter regulations on credit cards, the crack-cocaine of loans, and are looking to require people to show proof of income when applying. This hurts many over-priced retail stores who make money this way.
While I doubt this law will pass, unless the Democrats are going for scorched Earth when it comes to their political careers, I doubt this solution would have been necessary if the banking industry was truly a free market industry.
The reason behind this is simple: if they weren’t backed and protected by the government, do you honestly believe that some acne-faced teenager (of which I was once one) would be allowed to issue credit cards to complete and total strangers who have little to know identification or proof of income?
In a truly free-market environment, I doubt a bank would take such a high level of risk in that regard. Expand that to what happened with home mortgages and other forms of debt and you’ll get a picture of what really failed here. It was the unholy union between private companies and government politicians ensuring that the “private” companies were insulated from risk so they could squeeze more money out of the economy.
The failure was not “capitalism” but Statism.