What has happened – not only in America but also in Britain – to this promise of a calm, pragmatic response to the world’s economic problems? This week Mr Obama expressed outrage at the $165 million bonuses paid by AIG, the stricken insurance group, to executives in its financial products division who are responsible for most of its tens of billions of dollars in losses.
In Britain the row over Sir Fred Goodwin’s pension continues to grow. And in both countries, hatred of bankers is making it difficult for governments to take further action to stabilise the banks and support economic growth.
The behaviour of the bankers who first blew up the world financial system and then proceeded to loot it, is genuinely outrageous and deserves political retribution. But that should take the form of recovering the booty by the normal processes of law.
A better title for this story would probably be, “Are Socialism and Capitalism Incompatible?” The article accuses the bankers of being the ones who “blew up the world financial system” and yet, history does not confirm this. At the root of the housing melt down, which is generally understood to be the major problem, was the mass selling of bad loans so that no bank had to carry the load of bad deals. Bankers are repeatedly accused of doing this for their own greedy desires to take money from others, but what was the initial cause of these bad loans?
A phrase everyone should get familiar with is “Community Reinvestment Act.” In essence, this act, passed under Jimmy Carter and then taken even further by Bill Clinton, had at its roots the desire to allow all Americans to own their own home and to ‘reduce discrimination in low-income areas.’ How did it do this? By forcing banks to make loans to people who have “low-incomes” or face severe punishments, including loss of FDIC insurance, inability to open new branches of a bank, inability to receive permission to merge with or acquire other companies to name a few.
Now, there is a problem in making the blanket statement that banks must loan to those in the low-income bracket or face penalties because many people in this bracket for whatever reason, good or bad, have poor credit scores. If I were to come to you and ask you to let me borrow $1,000 but you know I hardly ever can pay back my loans, you will be smart enough, hopefully, to know to not expect it back if you ever ask and so you probably won’t give me the $1,000. If The same thing happened but this time there is a person with a gun in your back telling you, ‘make the deal or I shoot,’ of course you are going to make the deal, but you will not want to hold onto an IOU you know is likely worth nothing, you will obviously want to see if anyone else wants to take the IOU off of your hands.
So in my opinion, the title of this article should not have had “Democracyâ€(freedom) but “Socialismâ€(government control and redistribution of wealth). And the answer to this question is “yes, they capitalism and socialism are incompatible.”