The Great Wall Street Bailout - End of Capitalism?

So much for capitalism on Wall Street. Like any other group of businesses, there is strong resistance to any government regulation, but considerably less resistance to a bail out when it's inevitable that the CEOs have blundered and endangered the entire economy.

According to those who amass such statistics, the American public opposed a bail out of Wall Street by 99 to 1. After the president, the Fed. chief and the Secretary of the Treasury explained to the public the severity of the situation, those opposed dropped from 99 to 90. One California congressman said that his e-mails and phone calls were running 300 to 2 in opposition. This is because there is probably no other group in our economy that would be likely to be on the receiving end of such a huge bail out except the financial sector.

Forget the fact that the cause of this problem is attributed to several factors:

A. The lax standards for mortgages – no doc. loans, ARMS with no right of pre- payment, 125% loan to market ratios, etc.
B. Arcane and complicated instruments surrounding these mortgages.
C. Exceptionally low interest rates for a long period of time.
D. The repeal of Glass-Steagall. (The Banking Act of 1933)
E. Mark to market accounting.
F. Exceptional leveraging by many institutions, and more.


The American public knows little about these factors. They do know, however, that this mess was caused primarily by greed and avarice, coupled with a great deal of incompetence on the part of the executives involved. They also know that these executives are not held responsible for their actions, but are, instead, handsomely rewarded by contracts they negotiated with very friendly Boards of Directors.

Carl Icahn (the ultimate raider) likens the bail out to a laboratory run by mad scientists who concoct a batch of chemicals, which when united, blow up the building. After the dust settles and the debris is hauled away, the laboratory is back in business with the same mad scientists in charge.

If one likens it to an addict, there are even those on Wall Street who think that we should keep feeding the addict (Wall Street) more uppers. But, allowing the addicted ones to withdraw with all the necessary pain could be a better course to follow.

The smart people who set our fiscal and monetary policy may be making a huge mistake by not letting the market forces take hold and run their course. There is much debate that the constant tinkering and intervention during the Great Depression, in fact, only served to prolong the Depression making it last for 12 long years (See The Great Depression in the United States from a Neoclassical Perspective - Cole and Ohanian).

Alan Greenspan ~ Icon of Wall Street

The icon of Wall Street, and of global corporations, Alan Greenspan, has finally shown the world the results of his gross incompetence. He thought as long as he satisfied Wall Street and the global corporations that he was safe. Wall Street loves low interest rates and American exporters are totally in love with the cheap dollar. Low interest rates, along with an increased money supply, sustained for a year, finally had the effect of the real estate bubble and the cheap dollar. The cheap dollar is relevant to the price of gasoline but nobody seems to be able to tell us how much the cheap dollar is contributing to these high gas prices.

It's hard to think of Alan Greenspan having the imagination to engineer the forced sale of Bear Stearns to J.P. Morgan-Chase, which was orchestrated by Secretary of the Treasury Paulson and Federal Reserve Chairman Bernanke. This is commonly termed a bailout but it is certainly not a bailout in the shareholders' (those who own the company) view - just ask Joseph Lewis, the UK tycoon who lost $1,000,000,000 in this so-called bailout. The stock that once traded at over $100 a share was reduced to just $10.00 in this workout. It's equally difficult to imagine that Alan Greenspan would have the courage of Paul Volcker (Fed chairman from the late 1970's through most of the 1980's), who chose, not by interest rate targets but by reducing the supply of money, to let the market find interest rate levels. Because of this he was able to wring the runaway inflation rate of 12% out of the economy.

Related: Scroll to the bottom of the page to see the Charlie Rose interview with Paul Volcker.