Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.
– “The rescue of Bear Stearns marks liberalisation’s limit”, Martin Wolf, Financial Times, March 26
In the last couple of weeks the Federal Reserve of the United States of America, a government institution dedicated to preserving the sanctity of the US dollar, the monetary unit of choice for the entire global economy, has:
- Agreed to lend to investment banks
- Agreed to accept mortgage backed securities as collateral for its loans
- Backstopped $30 billion in liabilities in order to facillitate the acquisition of Bear Stearns by JP Morgan and avoid any systemic crisis
For all the talk we hear from politicians about the virtues of the market and freedom, what they actually practice shows this to be mere lip service. It’s capitalism in good times, socialism in bad.
On this score, I recommend an excellent article in today’s Financial Times by Martin Wolf, “The rescue of Bear Stearns marks liberalisation’s limit”.
UPDATE (Thursday 3/27, 11:00am PST): On this subject also see today’s Wall Street Journal: “Ten Days That Changed Capitalism” (subscription required).