Was the current economic situation caused by too little government intervention in the financial markets—or too much? I'd say the latter. Washington used Fannie/Freddie as a political piggy bank, causing it dole out loans to people who had no business receiving them. And because Freddie and Fannie's obligations enjoyed the implicit guarantee of the federal government, they were able to obtain funds at lower rates and become by far the biggest dog on Mortgage Street. That in turn caused private-sector banks to lower their lending standards in order to be able to compete. Throw in the Community Reinvestment Act—another major bit of government meddling that forced lenders to compromise underwriting standards—and you had a recipe for the current unpleasantness.
But the Washington Post, in the person of Anthony Faiola, sees too much capitalism, not too little, as the problem. According to his official WaPo bio, he "writes about the forces of globalization" for the paper. Faiola's article in today's WaPo is entitled The End Of American Capitalism?—and it seems clear he'd love someday soon to be able to remove the question mark.
Faiola attributes none of the current mess to government meddling, placing all the blame on an insufficent degree of government interference in the markets. His opening line reads less as a prediction that as a consummation devoutly to be wished: "The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism."
According to Faiola:
Given that the United States has held itself up as a global economic model, the change could shift the balance of how governments around the globe conduct free enterprise. Over the past three decades, the United States led the crusade to persuade much of the world, especially developing countries, to lift the heavy hand of government from finance and industry.
But the hands-off brand of capitalism in the United States 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 that has infected the global financial system.
Nowhere does Faiola lay any of the blame on Fannie/Freddie's government-inspired freewheeling ways. The only reference to the institutions is to the government's takeover of them, not of the way that "heavy hand of government" pushed them into unsound practices.
Faiola also offers a quote from Joseph Stiglitz, laureate of that same Norwegian institution that awarded Al Gore its peace prize. Stiglitz, a former Clinton-administration member, is famous for mocking free-market advocates as "fundamentalists." Says Stiglitz:
The point now is that no one has respect for that kind of [free-market] model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us.
Faiola seems to revel in the markets' difficulties. After predicting that we are heading for "a more restrained model of free enterprise," his closing line is a quote—which reads like a gloat—from a former Carter administration official: "If you look around the world, China is doing pretty good right now, and the U.S. isn't."
An Obama administration would be stocked with economists of the sort favored by Faiola. Chinese-style "capitalism," here we come?
Note: for a good antidote to Faiola's article, check out this IBD editorial, which suggests that the very prospect of ditching capitalism lies behind much of the current panic.
"Why has the market dropped so much?" everyone asks. What is it about the specter of our first socialist president and the end of capitalism as we know it that they don't understand?
The freeze-up of the financial system — and government's seeming inability to thaw it out — are a main concern, no doubt. But more people are also starting to look across the valley, as they say, at what's in store once this crisis passes.
And right now it looks like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.