Monday, September 22, 2008

Ethos of deregulation turned on its head

I don't get it. The whole point of "deregulating the market" in the 1980s and 1990s, I thought, was to create a system in which enterprises would be left to either sink or swim.

The Government would NOT intervene to save those who were weak, and thus unworthy to survive, we were told. And as the strong prospered and expanded in this cutthroat economy, we would, we were assured, eventually find ourselves on a firmer, more viable footing. There would be some pain along the way - some bitter "medicine" to be taken - but in the end we would all be better off.

As Richard Sylla, a financial historian at New York University says: "The last 20 years saw people actually mouthing the idea that government should keep [its] hands off. We had this free market ethos: Reagan’s 'government isn’t a solution, government is the problem.' Now people are saying, 'The market is the problem. The government is the solution.' "

How quickly the times have changed! I have just picked up the following AP list of US Government interventions since March of this year:

March 16 - The Federal Reserve agrees to guarantee $29 billion of Bear Stearns' assets in connection with the government-sponsored sale of the investment bank to JPMorgan Chase & Co.

July 11 - Federal regulators seize IndyMac Bank's assets after the mortgage lender succumbs to the pressures of tighter credit, falling home prices and rising foreclosures. The Federal Deposit Insurance Corp. says the action will cost about $8.9 billion out of its $53 billion insurance fund.

Sept. 7 - The Treasury Department seizes teetering mortgage finance institutions Fannie Mae and Freddie Mac, temporarily putting them in a government conservatorship with plans to inject up to $100 billion into each.

Sept. 16 - The government announces an $85 billion emergency loan to rescue American International Group Inc., the world's largest insurance company, in return for a 79.9 percent stake in AIG.

Sept. 19 - The Bush administration announces a plan to let the government buy hundreds of billions of dollars of bad mortgages and other forms of toxic debt that have been weighing down US financial companies.

And when did I last hear Bush & Co say that the US economy was "fundamentally sound"?


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