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Capitalism needs to be rescued by capitalism | TribLIVE.com
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Capitalism needs to be rescued by capitalism

Jack Markowitz
| Thursday, December 4, 2008 12:00 a.m

Capitalism seems to have stranded its passengers.

Their vehicle is laid up. The free enterprise model is in for repairs. And who knows when it will come out•

Whatever good emerges from the trillion-dollar bailout and the multi-billion “stimulus” that’s surely coming, they are teaching a very disquieting lesson. That the free marketplace mysteriously quits on you. Or that it works only to a point then breaks down. And big government has to rush in to clear the wreckage. Capitalism requires rescue — by socialism!

Now that has to be a blow to long-term national confidence, whatever happens near-term to the stock market and Gross Domestic Product.

It’s in the American grain to believe that private capital and individual effort, under reasonable laws, produce the most goods and services, the highest living standards. Centrally planned economies can’t come close. That’s been proven.

But suddenly U.S. prosperity is viewed as teetering on enormous piles of debt, financed with artificially low-cost money. Trillions have disappeared from retirement savings, as if in a mirage. Banks are reputed afraid to lend, and giant manufacturers cry for taxpayer handouts.

Only government intervention, we’re told, can stop this downward spiral. The economy is too important to be left to the marketplace.

And of course it’s never been a marketplace of saints. This time, under lax regulation, it got a wee bit too creative.

Selling houses to people who couldn’t afford them was wrong. Yes, this made lots of money for awhile. It enriched home builders, mortgage writers and furnishings suppliers. And local governments, whose tax coffers grew with the real estate sprawl.

But pricing the mortgages deceptively low was wrong. Then selling them into secondary markets in such huge quantities was wrong. The lenders didn’t have to be careful enough about the suitability of borrowers. But banks are supposed to really want their money back.

Then packaging the mortgages into bonds for investors worldwide was wrong. Too many of investors, including pension funds, own too much junk paper. Who can tell what it’s all worth• That it’s a recipe for panicky sales and credit crisis.

Likewise, promoting credit cards to countless consumers who don’t know how to use credit responsibly was wrong too. Consumers are trillions in hock individually as well as in national debt. And isn’t GDP now two-thirds dependent on consumer spending?

Scholars will be studying the origins and might-have-beens of the Great Bailout of 2008 for generations as they have studied the Great Depression of the 1930s. Did capitalism really “fail” and require the ministrations of socialism• Or did political meddling just make everything worse than it had to be•

And how will the good old model of capitalism drive after the repair crews are done with it?

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