The top executive of General Electric Co. said Wednesday he couldn’t predict when the recession would end or how bad it will be, but said the global economic crisis has “fundamentally reset” the way companies do business and capitalism itself.
Speaking at GE’s annual shareholder meeting in Orlando, Fla., following what has been a punishing year for the conglomerate, CEO Jeff Immelt said the downturn was the worst since the Great Depression, and that it would ultimately lead to changes such as greater government involvement in business and a restructuring of the financial services sector that was a root of the crisis.
This man’s confused comments indicate the problem, but do not address it. The problem in fact started with over-regulation of the financial services sector in (1) a failed attempt to conduct social policy and (2) a decision to force the financial institutions to take on a police role. It is very simple if you understand the Community Reinvestment Act which resulted in the sub-prime mess and things like Sarbanes-Oxley which layer on tremendous costs and inefficiencies. Those misguided policies were topped off by a “conservative” administration’s decision to “invest” in banks and abandon long-time market principles that would have allowed failed institutions and management to be replaced by healthy ones by established processes. It is a shame that leaders like this fellow apparently welcome these bad innovations instead of addressing the fundamental problems. Does anyone understand the proper role of government and how capitalism and free markets are supposed to work anymore? Or are all the politicians and business leaders just ready to plunge forward into a new socialist utopia? I thought that just recently the European and Russian “experiments” in government ownership and complete regulatory control of the economy were universally accepted as clearly inferior to the American way!
The “fundamentally reset” is a natural function of capitalism. When you fly too close to the candle you get burned. That’s how it works. The European ( Moscow is a nominally European city) experiments with statist command economies simply demonstrate(d) the futility of trying to legislate a natural force.
Socialism is the economic equivalent of declaring PI to be equal to 3.0 by legislation.
The ongoing collapse of the world markets ( it is not by any means an “American” problem, though we are intimately involved) does not demonstrate a failure of capitalism…capitalism just is…it demonstrates the failure of “third way” fascism.
The thing to understand about this GE CEO is that he favors all of the Obama Administrations cap and trade tax program and government restrictions on oil research and production … because … GE is the largest manufacturer of wind turbine engines in the world. (And, as an aside, who owns much of the land for leasing where these wind turbines would be placed … why T. Boone Pickens, of course.) Thus, MSNBC and NBC support Obama’s energy policy embarrassingly vehemently, to promote the business that their parent company wants to push (and they do it without acknowledging that is what they are doing – bad, bad, bad).
I do not agree that the collapse was the result of over regulation. It was clearly the result of under regulation. The repeal of depression era legislation, primarily the repeal of the Glass Steagall Act, and the failure to regulate derivative trading, led the the collapse. The Community Reinvestment Act played a very minor roll in the financial mess.
If regular banks had never been allowed to merge with insurance companies and investment banks we would not be in the mess we are in today. When Phil Graham pushed through the Gramm-Leach-Bliley Act in 1999 repealing much of Glass Steagall many people predicted this very collapse. In fact in the fall of 2007, almost a year before Treasury and the Fed said “no one saw this coming” economist Robert Kuttner wrote in an editorial “The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron and kindred scandals, are all the consequences of serial bouts of financial deregulation. Since the 1970s, in the name of free-market efficiency, Congress and presidents of both parties repealed key protections put in place by the New Deal. But the main effect has been to engineer windfall profits for financial insiders, replace real productive innovation with financial engineering, shift wealth from families to corporations, and put the entire American economy at ever greater risk.”
The repeal of Glass Steagall allowed for the rise of financial institutions to big to fail. When these institutions did in fact fail, the Government was forced to intervene or face another Great Depression. Had these institutions never been allowed to grow to the size they did. Citi may have failed. BOA may have failed, AIG may have failed, but they would not have taken the economy with them; and the Government could simply have said too bad.
Further, because these financial institutions believed they were too big for the Government to allow to fail, they engaged in excessive risk taking and lost. Fortunately for them, and unfortunately for the taxpayer they were right. They were to big for the Government to allow them to fail. So in the end their management, if not their stockholders won big. They got to keep their multi-hundred million dollar bonuses, and they are still in charge, and ready for the next round of bonuses they will demand for successfully pulling their institution out of the fire.
I agree completely with the idea that the government needs to prevent the citizenry from any finanicial institution becoming too big to fail. Would love to see the Obama administration break them all up into the smallest possible pieces. And more competition could result in better terms and more competitive options on credit cards!
Fundamentally resetting Capitalism – isn’t that the entire Obama objective? Why would we expect Obama to do otherwise given what we know of his upbringing, associates and history?
Elections (General AND Primary) produce consequences. We have arrived at this point because 53% of voters bought Obama’s HopenChange bilge. God help us.