The Capitalist Chimes In

First, let’s start with the thanks. Anok has graciously opened her Blog to the Enemy. Whether she is crazy for doing it, or I am for taking the bait, remains to be seen… 

As Anok said, this isn’t about whether we are against the Bailout, we both are touchingly in agreement on that point. Maybe this simple fact should serve as a hint to Washington. If you know about Anok’s and my own normally diametrically opposed viewpoints this is a hint as subtle as a train wreck.
Anok, you raise many points here, in fact, too many to deal with in one reply, so I am going to break it down into a few answers. Effectively walking around the 800 limit 

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I am going to begin by addressing your final point, that of unregulated capitalism.

Let’s be clear that there are very few people left in this country that are proponents of a complete unregulated capitalist system. I don’t know anyone that believes companies should be allowed to do anything without any consequences. For instance, you’d be hard pressed to find an American “Capitalist” that believes companies should be allowed to hire 5 year olds because their small hands and arms are just the right size to reach past that spinning saw-blade. There is undoubtedly some regulation that is necessary, warranted, and good for everyone involved. So we end up with not as much capitalism, as we do fiscally conservative ideas. To call a fiscally conservative a “capitalist” is about as accurate as calling Obama a communist. I will however loosely use the term Capitalism to denote the fiscal conservative stance since it is undoubtedly closer related to that than to the far left view of Socialism.

The problem here isn’t “Unregulated Capitalism”, the problem here is too much regulation, the efforts of Government to regulate capitalism or to be more precise to control one side of the equation only. Which is the potential negatives that come with having the benefits of capitalism.

This meddling is what has allowed companies to become “too big to fail” to begin with. (Which I’ll discuss in the next post.)

That being said, capitalism (as defined above) is essentially fair – Take a deep breath and two aspirins- I know that one made you see stars. But I promise I have a point here.

Real Conservative fiscal policy, would indeed allow for failure, which can be perceived as bad. But it would also remove any rights that these companies have to come crying when they end up making too many bad decisions. If they made large loans to small income families, they would eventually end up eating that loss and the company would fail. THAT serves as the warning to others. It isn’t until government steps in and says that these corrections occurring in a free market are “not acceptable” and start to meddle to control it, that the problems really begin.

Any side of this issue, be it left or right has to deal with the good and the bad of their own position, it’s when you try to implement the good of both sides that you end up with a clash where the bad reaches a synergy. Quite frankly, we can’t have the cake and eat it too.

Yes, there are negatives to both systems. Capitalisms problem is that it places a responsibility on the all parties not to make bad decisions. It operates on the basic assumption that a majority of decisions made will be good decisions. And it gives little or no pardon to those that makes bad ones. In the words of my old secretary,” Stupid hurts.”

A perfect example of this is the difference between the Big Three, and the foreign brands that have placed factories in for instance Tennessee. The big three have enjoyed government protectionism in order to stem their failing position on the international market. Now these Big 3 that have had that benefit, are the very ones that need more help. The foreign companies that had to fight their way into this market IN SPITE of big 3 having the backing of the US government aren’t sitting in Washington asking for 25 billion, they are functioning as they should.

You blame greed, and that is naturally a major player in this. But just to irk you a little I have to quote Gordon Gecko,” Greed is Good, Greed Works”.
Greed is no different than any other motivating emotion. It serves as a creating and driving force. It is only when greed is accompanied with rewarding bad or even illegal decisions and actions that it becomes a problem.

You seem to forget that these people, making bad decisions as to their own finances, taking loans they can’t afford. Are doing so because they are greedy to have things that their financial status can’t support. You blame the corporate greed, but I put it to you that the real greed rests with the lenders who are taking these loans. If a company is greedy, and makes bad decisions because of it, they should not be rewarded with a bailout either. But without the greedy customer, this problem wouldn’t exist.

The truly fiscally conservatives see no difference between a greedy person, and a greedy company. They both made their beds and now they have to sleep in them. Neither situation is the problem of someone else.

Finally, you discuss how the market was doing well regulated, and how despite unregulated markets it crashed in the late 20’s. Aren’t you forgetting how it did before it crashed? If you care to examine how the US economy grew before the 20’s crash, you will see that it wasn’t exactly stagnant and dismal before that, in fact, 1870 to 1916 US production increased tenfold. That’s a slight 1000% dent in your “unregulated markets are bad” theory. The position of the US as the world leading industrial nation was created in this unregulated market.

Now I’m past the 800.. so I’ll be back to post on the “too big to fail” argument next.

Bailouts, the Anarchist Perspective.

First and foremost, I should mention that right before sitting down to write this, I was pleasantly surprised with an Alternet article in my inbox titled: How kids Learn to Love Capitalism, and it essentially equated teaching capitalism to kids through vicious schoolyard games, like "kill the kid with the ball". It gave me a great big chuckle, you'll read it and understand why immediately. Second, this is my post in the dual blog post with my guest author Erik. To see what inspired the idea for this, go to Blogcatalog to see for yourself. The question at hand isn't whether or not either blogger here agrees with the bailout of companies like AIG, the "Big Three" or the credit and mortgage industry, but rather, why we don't because we have two very different reasons, and two very different opinions on the entire situation. I'll make this as simple as I can, keeping in mind this is a complicated subject. Now, on to my 800 word limited post. (The intro doesn't count! *cough*)

The problem at large is with the new economic catch phrase of the day, "too big to fail". This is the key aspect that sparked this very blog experiment. I do believe that these companies became too big to fail, but I believe they are too big to fail because the government failed to properly regulate them.

I can hear the screams now - we can't regulate progress! Success cannot be curtailed! I hear you, however if these companies were actually successful, they wouldn't be asking for a bailout, they wouldn't be failing, and they certainly wouldn't have gotten too big for their britches.

Some people blame government regulation for the economic meltdown. For example, Robert Blumen form the Mises Institute, years ago, accused Fannie and Freddie of distorting the market in a way that would cause an implosion, of sorts, or at the very least, a problem. Many people blame the Community Reinvestment Act for the huge subprime upset that has been blamed for the real estate crisis. But is this blame correct? Has the government intervention on these matters actually caused an economic implosion? What about companies like AIG? What government regulations caused their demise? Or the Big Three? The credit industry? Other than the welfare the companies willingly accepted, I don't see what government program spurred their decline. Furthermore, Fannie and Freddie went to private shareholder ownership back in '68.

Here's my theory:

Fannie and Freddie were implemented in 1938 as a quasi-private company, designed specifically to grease the wheels of capitalism. They buy bad debt, but they also lend and sell to others. They take money, and they move it around to make it all work. Some speculate that the having a semi-government run company buying up debts both good and bad is meddlesome, and interferes with the ebb and flow of free market capitalism. However, the majority of private lenders are under no obligation to sell their debts to Fannie or Freddie. In fact, the agencies were pressured by the primary lenders to ease their credit requirements for qualified lending, and, in 2004, anti-predatory lending regulations were dropped, allowing primary lenders to engage in high-risk lending practices. More to the point, Fannie and Freddie's requirements were simply too conservative, and so lenders looked elsewhere for their securities, and upped the high risk behaviors.

Some blame the CRA for this spike in high rick lending, but in fact only a sparse amount of lenders were bound to the CRA, the rest who engaged in high risk lending practices were private businesses with no obligation to do so.

Why?

In a word, Greed.

I'm going to use an anecdotal story to convey my point on this. Lending money is a risky business. The CRA low to moderate income debacle immediately creates blame for the government. However, low income doesn't necessarily equal "high risk". What low income means to banks, is "small loan, therefore, little financial reward". A lender can successfully lend money to a low to moderate income family for a home, provided that the applicant has a decent credit history, and, the homes are in affordable price ranges.

Ahh, there's the rub. Affordable homes. The real estate market, where I live, got greedy and opportunistic. The availability of wealthy people flowing into the town due to a (short lived) economic boom meant housing prices skyrocketed. The agents have to make money, right? The homeowners wanted to sell their homes for three times what they paid for it, right? The lenders wanted to make some serious money with large loans, right? That's exactly what they did, in the meantime they shot themselves and the rest of the community in the foot by putting homes in an economic bracket that was simply out of reach for the low to moderate income home buyers. Now they had to issue larger loans to people who couldn't really afford them.

Who's fault was that?

All of a sudden, there was a strain on the market, and credit started to freeze up. The securities from Fannie and Freddie were too strict, and so they deregulated them, opening credit up. In the meantime, however, the government issued a warning to Fannie and Freddie, that they had to maintain at least 30% capital to have enough of a cushion. Instead, Fannie and Freddie cooked their books, and continued buying loans beyond what their capital cushion allowed, causing their own financial meltdown.

To me, it's a bit like a child ignoring parental warnings, and asking for more and more liberties, then getting hurt. At what point was it the fault of the government for the predicament the lenders found themselves in? The regulations were in place long before this happened - and they worked just fine, to tell the truth. The so called market distortion by Fannie Mae et al seemed to sit rather well with the private industries who chose to do business with them. The CRA was being met just fine until the real estate and lenders decided they wanted to make more money.

If it was really the fault of government regulation, then why did the market do fine when they were regulated, and fall apart when deregulation occurred?

Granted there is the argument of bailouts rewarding bad companies. Rewarding companies who can't operate on their own is a bad idea, and why I disagree with the bailouts. This argument, however, can easily be put to task as the chicken or the egg. Which came first?

Well, de and unregulated markets did, actually. Pre-Depression the markets were hardly regulated at all, and they still collapsed forcing the government to step in.

I would love nothing more than for these companies to die a painful death on their own, with no welfare to save them. However, I would want that death to serve as a reminder of what needs to be done in the future to prevent Depressions from happening. The economic fallout for those of us who played no part in this mess is simply unacceptable, and I feel that regulation needs to be more strident.

For as much as I loathe the illegitimate authority of the government, I abhor the ludicrous disasters of unregulated capitalism even more. And so, while I just argued in favor of a government, it should be known it was actually an argument against unregulated capitalism.

Resources:
Lending to the poor didn't cause crisis (Reuters)
Sandra F. Braunstein
Director, Division of Consumer and Community Affairs
Subprime mortgages
Before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives
Finance and Economics Discussion Series
Divisions of Research & Statistics and Monetary Affairs
Federal Reserve Board, Washington, D.C.
New York Times
Key facts about Fannies Mae, USA Today
Mortgage Giant Overstated the Size of Its Capital Base
Hey Big Brother, Can You Spare a Dime?
F.B.I. Looks Into 4 Firms At Center Of the Storm
Freddie Mac Ordered to Raise Capital Reserves
Fannie Mae Shares Plummet on Reports of New Violations
Fannie Mae, Wiki
Fannie Mae debt
Securities Exchange Act of 1934 - Section 13
No Action, Interpretive and/or Exemptive Letter: Fannie Mae
Finding Dulcea, business
2005 housing regulatory bill that was stalled on the floor, and never passed
Mortgage Crisis might have been worse without CRA
Subprime lending, Wiki
Subprime lending, investopedia

I'm Going to Have a Guest Author!

This week, I've decided to turn over a portion of my blog to Erik, a member of Blogcatalog for a point and counterpoint blog debate about the economy, the mortgage problems, and corporate welfare.

We'll each write a post (he limited me to 800 words!!) about our opinions on the subject matter, and then, I'm guessing chaos will commence.

A little background:

Erik and I both debate fervently on the political board on Blogcatalog, and generally have opposing views, and take turns bashing each other on the board. It's a good time had by all. In any case, we do have some great debates on there and decided this would be a fun experiment.

Now, here's my question to you guys and gals, would it be something you'd like to see an opposing viewpoint represented here on a regular basis? Maybe once a week or twice a month, or something to that effect? I was thinking it might be refreshing to read someone's words other than my own, and to hear an opinion that opposes my own.

Let me know what you think!

Dehumanification

Yes, that is a made up word. In my world, dehumanification is a verb, it means to actively dehumanize the populace through means which reduce, devalue, or undermine human value to which a typical result is violence or neglect of other human beings for the purpose of raising one's own self worth to acceptable levels. I'm sure there is a real word out there that means the same thing, but it simply isn't as clever as mine.

After many hours of contemplating the Walmart stampede(s), and the Toys R Us shootings, I've come to the conclusion that these events are a small part of a much larger societal problem we are currently facing. (That would be dehumanification.) You can see it working it's way through our communities in subtle and not-so-subtle ways. For example, relegating and reducing an entire group of people down to an easy to digest demographically correct bite size stereotype, and then using their situation against them, like a weapon. Poverty is a good example. Race is another. Religion, political affiliation, genres and sub genres - the list goes on and on.

It's very easy to categorize and label people when you don't know them personally, and apply a rather broad brush of judgment across a wide array of individuals. In this way, you have reduced people, individuals, human beings, into a larger faceless group. Much like posting online anonymously, it gives the renderer of judgment an easy target, with no real responsibility or incentive to understand the fact that individuals are affected and behave differently, even when in the same or similar situation, group, or genre.

Plus, the rhetoric is just so easy to spew, it's how Lady Propaganda works her magic.

Obviously, the tragedy that played out on Black Friday is the epitome of not so subtle dehumanification. Although the stampede and killings related to the consumerist frenzy is not the focal point of this argument, it did incite the thoughts about humanity in general. It proved enough of a shock to wake up just about everyone.

I had joked, only slightly, about how degenerates like us Anarchists, punks, skins, and city dwellers of a similar genre had enough decency to prevent such events from occurring in our own violent activities, and a decent point was brought up by Tiffany from Rational Outrage. She noted that perhaps, just maybe, that those of us who are less sheltered from reality, those of us who live on the fringe, or who are a bit "raw" have not yet been sucked into the habit of viewing other people as less than human.

She has a point.

Although our lifestyle is more often than not shoved into the stereotype of an unsightly and disgusting mess on the bottom of society's shoe, we do tend to live life a bit differently, and, outside of the norm of everyday thinking. And quite by choice, at that. We reject capitalism, we reject consumerism, we reject the notion of defining one's value by the toys we own. We also tend to be poorer, live collaboratively and collectively, and reject the notion of gated communities and nuclear families. Typically this is a shocking discovery for mainstreamers, but I digress.

The point is that we are accepting of alternative lifestyles, understand the inner workings of society's worst areas and least progressive states of being, and have seen or operate in the underbelly of the general public. Reality isn't something we learned on a partially scripted TV show. That said, there is a homogenization and isolation of society that has really restricted the exposure of the real world to a great many people, and thus, they have actually become desensitized, not us.

One would think the opposite would be true, and to an extent that is correct. Many of us are desensitized to injury, violence, and drunken debauchery. But on a very real level, I would argue that we are hyper sensitive to tragedies and atrocities of a certain nature. So much so, that we try and reject any contribution to the aspects of society that perpetuate it.

But back to my point. Our society does revolve around consumerism. Without it, capitalism cannot survive. In order for our economic system to thrive, we must convince people that ownership of goods is of the utmost importance. Otherwise, they won't buy. What happens when we insist that the purchasing of goods defines our contribution to society, and thus our value to society? We create an economic caste system that values those who can buy, more than those who cannot. And so the categorization of people into groups begins. It evolves into "othering" and dehumanization of entire groups of people. It removes compassion for those who cannot thrive at the same level as those at the top. Just look at some of the comments about poor people in forums online. "These people won't earn their own way." "These people refuse to support themselves." "These people take our tax dollars and then buy big ticket items."

"These people."

Which people?

In comments and reactions about the incident at Walmart, the comments varied from shock to blame. The comments referred to those who trampled the man as "animals". In a technical respect, this is accurate. However, when paired with claims and statements such as "Well there were a lot of black people there..." and "The poor shop at Walmart..." and "What did you expect from these people?" You begin to get a clearer picture of the problem. I once had a person tell me that a whole plane full of people flying in the economy section could go down and no one would care. "No one cares about these people anyway."

"These people."

I'm in no way defending the actions of the group that trampled a man to death. However you have to step back and look at the reactions, you have to remove yourself just a little bit, and wonder what they mean when they say "These people are animals!" Do they mean this particular group who did indeed act like a stampeding group of animals, or are they referring to a quasi acceptable stereotype of poor minorities? Does the lack of distinction between the two intentions perhaps raise a red flag?

Is the attitude of the "these people" ideology not part of the larger problem? Did anyone stop to consider the fact that those stampeding may have felt the exact same way? Perhaps the consumers who surrounded the participants were "these people" to each and every participant to this tragedy, and so were not valuable enough to be treated with any modicum of decency and respect?

It's food for thought. We reap what we sow, and those of us living in a world where relying on others for cooperation and support, and the value of each person is based on contributions and ability, and not on material ownership are less likely to generalize, to "other" and to classify others as subpar beings.

Perhaps living in the gated well-to-do communities where "self reliance" is based on wealth (because they are not, in fact, self reliant - they rely on a great deal of people to do everyday things for them at a price) has brought down the general welfare of people all over the country. We see it on a large level, every day. I don't see it as being any less effective on a small scale.

In the end, when self worth is defined by the toys you own, it's a bit easier to see why people would literally stamp out a human life for the chance of getting a socially acceptable toy, on sale. The dollar value of the TV itself isn't worth more than a human life, but the chance at being perceived as "someone" is more valuable than one of "these people's" lives.

What a sad state of being.