|Those claiming free market capitalism has been 'invalidated' (nobody around here) are very severely confused about what just transpired.|
It was not 'under-regulation' of the mortgage marketplace which just occurred. It was precisely activist federal intervention, explicitly in court case after court case and even USSC case, that was used to brush aside 50 sets of more stringent state banking and lending regulations in order to dispose of '20% down and documented income.' Even if it was well meaning meddling, it was the blanket replacement of varied state regulation operating in parallel with a single point of failure federal model of regulation that enabled the OneSIzeFitsAll mess. I mean, the company called itself 'CountryWide', shouldn't that have been a massive hint?
Without the Golden imprimateur of FNMA/GNMA SEC EXEMPT/AGENCY RATED ... half is, half isn't GSE's, the 'securitization' at the root of the financial engineering nonsense could not have existed. Sure, sharks came running, but they were enabled by well meaning federal meddling in the marketplace.
In Sep 1998, when the LTCM fiasco unfolded, at the peak of our 'miracle 90's economy,' which could have well tolerated a little educational discipline, instead of administering that educational discipline to a system that had tolerated patent insanity, the fed cam running with its implied backup, if not actual bailout, of the 'fed consortium' that backed up LTCM in its over-leveraged nonsense. Back then, it was 'only' 3-4 billion in backup, but the message was clear: 'systemic risk' was the Magic Key to the OPM Kingdom, and 'moral hazard' was laid to rest, ignored as a factor. The message was clear; there was no financial nonsense too stupid that, should it crash and burn, the FED wasn't going to come running and bail out the cronies on Wall Street. The nation was sold down the tubes to a bunch of carny hucksters selling gibberish.
These jackasses lurched into a Math department and played Cargo Cult Scientists. It looked like Math; it smelled like Math. But when they came across terms too tough to calibrate in their own model, they simply ignored them as inconsequential(!) and the economies eventually smacked them up the side of their cargo cult science heads for that. These carny hucksters from CT bamboozled with a model based on 'the weather tomorrow in San Diego is going to be sunny and warm', and leveraged that 'certainty' out to incredible heights of hedgedom. Guaranteed. Sort of. And when the weather in San Diego grew uncharacteristically cold, the cargo cult science crap hit the fan, and a lot of greedy rich guys looking for ridiculous risk free returns got burned. What should have happened was, they should have eaten it. They, and any institutional buyers, and any system that tolerated total nonsense should have had its fingers burned, a giant, 'never pull that crap again.' Instead, the exact opposite occured, and this financial engineering nonsense was subsidized, coddled, and guaranteed for life--by others, taxpayers, not the principals. And the same carcass carving crony idiots who screwed the pooch in 1998 have been running the piggy bank carnival on Wall Street ever since, and THAT is what has been characterized as 'capitalism.'
Carcass carving capitalism has its place. So do eels, suckers, carp and all bottom feeders. But our tribe -- all of us, including capitalism's advocates -- let carcass carving capitalism come to dominate and define 'capitalism.'
Too many inbred Ivy Leagers sprinting to Wall Street to stare at the scoreboard and bet on the game, with no skin in it, using OPM and self made 'leverage rules' that guaranteed the health only of carcass carving and the manufacture of money from nothing but that carcass carving. Then, perhaps, a jaunt on the assembly line to K Street, to 'regulate' the cronies on the assembly line of cronyism, wink-wink. Wall Street and K-Street have become what all inbred clubs eventually become; corrupted by their own inbreeding. And, they've largely got away with it, clean.
In that world, which is to say, our world, the carcass carving capitalism world, beast building has become what what fools do. Who in their right mind is going to want to build beast in this graceless, clawing 'free-for-some?' I don't know what is going on on Wall Street these days, but there is still apparently carcass to carve in this graceless free-for-some the tribe is throwing. It's a sick carnival.
The sick thing we have now just has to break. Obama is not going to fix anything. Right, yet another Ivy Leager sprinting to DC, just what it needs, that is exactly what DC was running short of, Ivy Leagers.
Of course Obama came to bury capitalism. Has anyone been on an Ivy League campus for the past 40 years? What do you think is being endlessly preached at these playgrounds?
Relax. Crap don't float for long.