by Lee Sustar
October 11, 2008
Lee Sustar explains that the mayhem in the markets this week is symptomatic of a deeper crisis–and the leaders of the most powerful governments aren’t sure what to do.
IT WAS the worst week ever for Wall Street and the world financial system–a global stock market meltdown that wiped out more than $6 trillion of wealth and had even cautious media commentators musing about the failure of capitalism and the possibility of another Great Depression.
Even Congress’ passage of the $700 billion bailout to the banks, sold as a surefire solution to the crisis, was spectacularly unsuccessful in restoring market confidence. Nor could the coordinated efforts by central banks in the industrialized nations to lower interest rates and make hundreds of billions of dollars available in new loans budge the frozen credit markets–lending between banks and to businesses remained at a standstill.
For working people, the threat lies not only in the wipeout of retirement funds, now that traditional pensions have been replaced by 401(k) plans and other programs tied to the stock market.
The worse nightmare is what happens if the banks continue to clamp down on lending, even to other banks, because of the entirely justified fear that the next borrower could go bankrupt. If loans to businesses remain on ice, then there may not be money to pay suppliers, or meet next week’s payroll–and the crisis will take a further lurch downward with mass layoffs and closures.
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BY THE week’s end, the assumptions of free-market, neoliberal ideology–the foundation of U.S. politics for last three decades–had been totally discredited.
Gone were the clichés about how “the free market knows best,” and that “government regulation stifles capitalist dynamism and growth.” Instead, the same people who whined a month ago about the nationalization of mortgage giants Fannie Mae and Freddie Mac and insurance company AIG as creeping “socialism” now advocate the most sweeping government intervention in the economy since the Great Depression–and fast.
“The government needs to inject capital directly into banks,” wrote Wall Street Journal columnist David Reilly. “The government also needs to force banks to recognize losses they have so far ignored, require banks to provide fuller disclosure of holdings, push banks to lend to one another again, euthanize weaker banks while helping strong banks get stronger, guarantee deposits and backstop a portion of bank credit.
“Above all, the government needs to tell banks that they have to take part in a systemic solution. The time for negotiation by banks is over.”
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