It seems like the mainstream news is beginning to catch up with us. Today’s column by John Farmer on the front page of the New Jersey Star Ledger is entitled “In Bush’s Bailout, Echoes of Marx.” Looks like the Libertarians are way ahead of the curve once again.
RICHMOND, Va. -- The Bush administration has come full circle -- from Karl Rove to Karl Marx.
With its latest gambit -- a $250 billion federal purchase of major bank stocks coming on the heels of an earlier $700 billion federal rescue package -- President Bush has taken a giant step toward partial nationalization of the nation's financial system to save it from its own excesses.
Who'd have believed it? Socialism with a Republican face!
This is no longer a matter of a bailout. Purchasing preferred shares that take preference over current preferred and pay interest while allowing these banks to continue paying dividends opens up a whole new can of worms. The government, not the taxpayers, owns these banks. There is no longer a level playing field. The government is dictating compensation for CEOs, how much equity investors will be paid for holding their positions, how the markets will treat these new government held securities, who will get the government money and how these newly issued preferred shares will be valued. Next stop, government officials on the boards of directors.
This is a complete abandonment of our capitalist system. When the government controls the markets, and don’t think that this will end with the banks, there are no longer free markets. Government controlled markets will not allow for fair market value of stocks and bonds. When the government determines the value of any security, the others must be affected. The government has already stated that it will value these preferreds at what it believes the value will be in three years, not a current market value. The effect could be devastating.
Economics dictates that capitalism is a boom and bust system. Savvy investors realize this and trade accordingly. Those caught in real estate bubbles are just plain foolish and have no idea what is going on in the markets. Adam smith’s “invisible hand” is greed and greed is what makes out system work. There is something to be said for those who are willing to take risk, but there is no risk if the government is going to bail out poor investments.
In addition, this does not change the economic landscape. We are still heading for a very deep recession, if not a full blown depression. Housing will continue to suffer, jobs will continue to evaporate, and now we run the risk of serious inflation as long as the government printing presses continue to create “liquidity” in the form of Treasuries.
There is an old adage that states “If you allow the nose of the camel under the tent, soon you will have an entire camel in your tent.” We now have half a camel in our tent and are soon to have a whole camel in the form of a nationalized banking system.