EU-DIGEST

The Ghost of the Defunct Economist - by Alan Singer

What if the problems are deeper than they are being portrayed? What if rather than being the result of poor leadership and greed, they reflect a fundamental structural problem in the capitalist economic system on the magnitude of 1929? What if the solutions being debated such as bailouts for financial concerns and industrial giants, credit for consumers and small businesses, and insurance for small investors and homeowners, will at best postpone the fallout from the crisis? What if the problem is not that consumers are not buying at Wal-Mart, but Wal-Mart itself?

Labels: Capitalism, EU, US

Global crisis reason to rethink market economies - Andrew Ojede

In the 1930s, the US banks were the flagships of American economic might, and emulation by other nations of the fiercely free market financial system in the United States was encouraged. The recent financial crisis in the US and currently propagating through the entire global financial systems has its roots in the previous global financial crises that occurred in the 1990s and early 2000s. Capital movements were directed toward the US market with low interest rates, but with little or no regulation. Many American consumers, even those without sound credit history, became over-leveraged. There was explosion in sub-prime mortgage lending – lending at an adjustable interest rate to American consumers without sound credit and amidst uncertain future income. The financial turmoil threatens to put the banks, at the heart of the US financial system, partly in the hands of the government.

An economy based on the free market cannot function that way. It is reasserting itself in the lives of American citizens in ways that were unthinkable in the era of market-knows-best thinking. The hands-off brand of capitalism in the US is now being blamed for the easy credit that sickened the housing market and allowed a freewheeling Wall Street to create a pool of toxic investments. Many critics now view the heavy intervention in the market as further robbing Washington of the moral authority to spread the gospel of laissez-faire capitalism.

Labels: Capitalism, World Economy

A chance to change Capitalism - by **Will Hutton

"This is a crisis that has been 30 years in the making - a Gordian knot of libertarian free-market fundamentalism, unregulated globalism, the collapse of social and political forces committed to fairness, the explosive impact of financial innovations such as 'secularization', and sheer greed. In the United States this first manifested itself in Newt Gingrich's 'Contract with America', that gave free license to the anti-tax, anti-government, pro-deregulation instincts of an increasingly fervent Republican party. That wasn't all. The financial markets were exploiting the new freedoms to insist that governments did Republican things. The Bush presidency sealed the market fundamentalists' victory.

In the early Nineties came a breakthrough that would transform the financial landscape. Goldman Sachs took the concept hitherto used by mortgage companies of packaging up mortgage payments and selling them as a financial security and applied it to an Arizona trailer park. The site pledged its income to a new company, specially set up, which then issued securities - backed by Goldman. The market bought them. 'Secularization' took off: there are more than $8 trillion of securities backed by a weird and wonderful range of income streams. America, followed rapidly by Britain, did not have to worry that it did not save enough cash to support its borrowing ambitions; it could sell these securities to all bidders from all over the world - especially in Asia and to China's central bank - to finance ambitions to borrow. Each has contributed to the fiasco - and all now need to be unraveled if the economy is to have a sustained recovery.

What we are witnessing now is a system failure that requires a systemic response – the creation of a new system that sponsors a fairer, more productive capitalism in its place, while maintaining high flows of credit and debt. Banks issued bonds allowing huge takeovers. Hedge funds and private equity companies blossomed. Money flowed into residential housing. New York and London were in an unseemly race to regulate less. And if regulators raised an eyebrow they were told not to worry. The securitized bonds - this packaged income - could always be sold to raise cash; and on top of that banks took out insurance against the risk of default. Nor should regulators worry if banks directed the investment funds under their management to buy any unsold bonds which might look like a fraudulent conflict of interest; one day they would rise in value. So confident did bank directors become that they authorized their managers to run hidden portfolios of securitzsed assets offshore in secret tax havens; thus would profits be boosted at no risk. Bonuses also grew larger and larger, residential and property prices kept rising, fees from ever-bigger deals became juicier and juicier. And when there were setbacks, such as the dot.com bubble bursting, the then chairman of the Federal Reserve Alan Greenspan was on hand to flood the markets with cheap money. The free-market fundamentalists seemed to be right. Markets never did make mistakes, financial business kept booming, leverage became astronomical. The ever more extravagant school fees were easily paid and Britain's Home Counties - like New York and the Hamptons - became home to parties of astounding luxury and lifestyles of grotesque opulence. Gentlemanly capitalism became super-gentlemanly capitalism. The Financial Times' How to Spend it magazine is studded with dresses that cost up to euro 40.000. Private submarines, jets and yachts became the rage. Some hedge fund managers even considered themselves underpaid at euro 150 million for one year's work.

The left's critique of capitalism - that markets delivered instability, booms and busts, monopoly and gross inequity that paradoxically undermined the values of integrity and trust that bind markets together - was proven wrong. There should not even be a mixed economy between private and public sectors. The job was to enlarge the role of markets. There was no effective opposition. The left and organized labor collapsed as intellectual, social and political forces; there was no conviction that any alternative to this shareholder value-driven, financial, 'securitised' capitalism existed, or any political muscle to support it, even if there were. Mainstream culture moved away from public purpose and fairness; the new priorities were individual self-fulfilling, personal experience and loyalty to self. The past 20 years also saw an unparalleled boom in the money markets. As the free market blossomed, so too did cheap debt, huge bonuses and ostentatious wealth.

Now, as the world financial system lies on the brink of collapse, it is time to build a new one, based on fairness instead of naked greed, and with long-term commitment to building businesses and supporting investment. This is a terrifying moment; but it is also our generation's once- in-a-lifetime chance to change world capitalism.

**Will Hutton was the former editor-in-chief for The Observer in London and is currently the Chief Executive of The Work Foundation (formerly the Industrial Society). The analysis in his books is characterized by a support for the European Union and its potential, alongside a disdain for what he calls American conservatism. He is a governor of London School of Economics, a visiting professor at the University of Manchester Business School and Bristol University, a visiting fellow at Mansfield College Oxford, a trustee of the Scott Trust that owns the Guardian Media Group, rapporteur of the Kok Group and a member of the Design Council's Millennium Commission.[2] . Hutton's most recent book The Writing On The Wall' was released in the UK in January 2007. The book examines Western concerns and responses to the rise of China and the emerging global division of labor, and argues that the Chinese economy is running up against a set of increasingly unsustainable contradictions that could have a damaging universal fallout. On February 18, 2007, Hutton was a featured guest in BBC's “Have Your Say program” discussing the implications of China's growth.

Labels: Capitalism, EU, Europe, The US economic meltdown, World Economy

Capitalism in limbo as renegades kill bailout - by David Olive

In a stunning rebuke to U.S. President George W. Bush and GOP presidential candidate John McCain, Republicans in the U.S. House of Representatives, joined by many Democrats, yesterday killed a bailout scheme promoted by the administration to rescue a U.S. financial system in paralysis.Bush, who twice has addressed the nation on the urgent need for passage of the rescue package, and from McCain, who stayed in the capital over the weekend making calls to recalcitrant Republican members of Congress to win their reluctant support for the bailout bill, 133 GOP and 95 Democratic members of the House joined to defeat the bill in a 228-205 vote. The rebuke amounted to a repudiation of the elites by Congressional backbenchers and their constituents. So why this remarkable revolt, which leaves the global financial system in a state of "credit gridlock"? All 435 House members have been deluged since last week with correspondence from constituents angry at what they perceive as a bailout of Wall Street fat cats at taxpayers' expense. And many Americans who've managed to keep up their mortgage payments are also resentful about indirectly bailing out neighbours who bought houses they couldn't afford.

All 435 members of Congress face re-election in just five weeks. Even those who voted for the bailout did so while holding their noses, and are fearful of confronting wrathful voters when they return to their districts later this week to campaign for re-election.

Labels: Capitalism, US Economy

Investors Duped by CNBC Bubble Pumping Casino Propaganda - by Mike Stathis

Note EU-Digest: "an interesting report on how news reports from stations like CNBC are spinning the financial news to Utopian heights and getting many investors to follow-up on their hyped-up advice. Its American Capitalism at its best, or is it?"

Mr. Mike Stathis is the Managing Principal of Apex Venture Advisors, a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

Labels: Capitalism, CNBC, Spin Doctors, Wallstreet

BARACK OBAMA A FRIENDLIER FRONT MAN FOR IMPERIALISM

Obama represents a section of the ruling elite that has concluded the invasion and conquest of Iraq was a strategic debacle and that a significant change in posture and personnel is required to salvage the interests of US imperialism in the Mideast. With Obama’s nomination secured, the American media has now gone into overdrive to peddle such illusions.

The television networks have devoted endless hours to glorifying the great achievement of American democracy in nominating an African-American to lead the presidential ticket of one of the two major bourgeois parties for the first time in US history. There is no doubt that such illusions are currently widespread, and not only among minority workers and young people of all racial backgrounds, who are genuinely appalled by the outgoing Bush-Cheney administration’s eight-year record of war, reaction and social decay. But the significance of Obama’s nomination, as well as his election on November 4, should that occur, cannot be judged on the basis of such superficial considerations as skin color.

Despite the incessant claims of the media and of their Democratic Party supporters and apologists, Obama no more represents the interests of black and minority people than Hillary Clinton represents the interests of all women. Both Obama and Clinton are political representatives of the American ruling elite, the small financial aristocracy which controls all the economic and political levers within US society, including the two officially recognized “major” parties and the mass media. Obama is a fervent defender of the profit system and has the backing of some of the wealthiest individuals—including billionaire investor Warren Buffett, who this year became the single richest man in America, surpassing Bill Gates of Microsoft.

Like Senator Obama, Mr. Buffett is an intelligent man, and he is not backing the Illinois Democrat because he seeks a radical transformation in American society.

Labels: Barack Obama, Capitalism, EU, US elections

Capitalist Meltdown - by Michel Rocard former PM of France and leader Socialist Party

All the ingredients seem to be in place for a long and powerful perfect storm of economic decline and social unrest. We in the developed world live in democracies. Every four or five years, the legitimacy of the system needs to be confirmed by elections. But is the system being so delegitimized by the economic and social turmoil that elections will no longer be viable?

Of course, capitalism remains more compatible with personal freedom than communism ever was. But it is now blindingly obvious that capitalism is too unstable to survive without strong public regulation.

Labels: Banking, Capitalism, Economy

Free Enterprise: Why Bill Gates Hates My Book - by William Easterly

Mr. Gates seems to believe that the solution is to persuade for-profit companies to meet the poor's needs by boosting the "recognition" of corporate philanthropy. But the dossier of historical evidence to suggest this would work is as thin as Kate Moss on a diet. First of all, the recognition motive has proven to be awfully weak compared to the profit motive. Otherwise we would have had a lot more than the $5.1 billion of annual American corporate philanthropy to the Third World (as of 2005, which has the most recent reliable figures). That was four one-hundredths of 1% of the $12.4 trillion of U.S. production for the free market. Is it really the poor's only hope that the Gap will donate a few pennies per sexy T-shirt for AIDS treatment in Africa?

Profit-motivated capitalism, on the other hand, has done wonders for poor workers. Self-interested capitalist factory owners buy machines that increase production, and thus profits. Capitalists search for technological breakthroughs that make it possible to get more output for the same amount of input. Working with more machinery and better technology, workers produce more output per hour. In a competitive labor market, the demand for these more productive workers increases, driving up their wages. The steady increase in wages for unskilled labor lifts the workers out of poverty.

Labels: Capitalism