When the American economy collapsed in 9/08, the fallout seemed minuscule compared to the scope of the event. “Within 24 hours, the stock market crashed, and credit markets around the world froze,” Frontline reported. The resulting changes are historic, according to Frontline’s economic experts, but occurring without much notice or fanfare in the public eye. Hopefully this article will help clarify these issues, as a follow-up to last Central Teaching (3/12/11) on fulfilled biblical prophecy.
The Global Tsunami
It happened that fast. Economic scholars say it was the worst since the Great Depression, and Federal Reserve Chairman Ben Bernanke—also a scholar—said it was even worse. 1 It meant “the collapse of our way of life,” NPR reported. “Not just an increasing number of economists were saying it…everybody was saying it.” 2 Others characterized it as an Economic Armageddon (as the cartoon shows).
It crashed into the public eye like a global tsunami, the pundits said.3 Then it disappeared. It roared across the globe, but left little wreckage in its wake, except for bothersome abstractions—the government held majority stock in GM, Freddie Mack and Fannie Mae (the two largest corps in the world, according to FRONTLINE), Wall Street’s top firms, and the nation’s 12 largest banks. The Fed also printed a trillion dollars of monopoly money (money without backing4 ) to buy these companies, but who really cared or noticed?
“Too Big to Fail”
Nobody can claim (with integrity) that America remains intact as a Capitalist economy after 2008. “Armageddon was clearly upon us as capitalism was declared dead and buried with the Great Depression ahead,” CBS Market Watch said.5 Certainly when the government nationalizes our largest companies, it is a wild departure from traditional Capitalism.
“Financial Institutions must be allowed to fail,” Treasury Secretary Paulson announced in July, 2008, which is conventional dogma. 6 By Sept. 17, Paulson reversed direction along with Washington’s elite corps of staunch Capitalists. By Sept. 19, Paulson and Bernanke told Congressional leaders, “We need a bailout!” “If we don’t do this, we may not have an economy on Monday,” the Fed Chairman told lawmakers on Friday afternoon.7 Conservative free-market lawmakers immediately rebelled, but as a global economic meltdown gained momentum, resistance dwindled, and they got almost $1 trillion. They called it TARP.
Now armed with big bucks, Paulson and Bernanke herded the CEOs of the largest banks into a room and announced they must sign controlling ownerships over to the government. Nobody could leave until they signed. Otherwise, Paulson threatened, dissenting bankers would be fingered with “toxic assets” on Monday morning, and then let investor panic close the banks. (“I’ll give them a deal they can’t refuse,” the Godfather said.)
Capitalism lost its fan club in 2008. Both political parties, both executive and legislative branches, and all the top banks quickly agreed to take economic survival away from free market forces, because our new, monolithic financial institutions are “Too Big to Fail”. A book by that name topped the NY Times best-seller list throughout 2009.
Perhaps the greatest defector of free-market economics was retired Fed Chairman Alan Greenspan (my old “boss” at the Fed). At Congressional hearings in 2009, in a dramatic exchange with Congressman Henry Waxman (D), he said free-market trade is defective:8
Congressman Waxman: You found a flaw in reality?
Greenspan: A flaw in the model that I perceived as the critical functioning structure that defines how the world works, so to speak.
Waxman: In other words, you found your view of the world—your ideology—was not right?
When the staunchest Capitalists abandon it, when chief politicians and economists vote against it, Capitalism is dead. The economy was nationalized in 2008, although not entirely. It may not be socialism, and clearly not all free market economics were eliminated, but whatever the new economy is, it is not classic, American-style Capitalism.
The Next Economy
People are understandably aversive to radical assertions like “the death of Capitalism”. Facts cannot mitigate against the assertion, however, because the nationalization of these enterprises is irrefutable. There are some hopeful objections that might be raised, however…
Maybe this new economy is only temporary, an emergency measure? It is true these are temporary measures, but it’s also true these measure permanently redefine American financial institutions. The bailouts were given to the nation’s largest institutions, the ones “too big to fail.” Clearly, this is economic engineering which mitigates against smaller, more efficient and nimble financial institutions, which Capitalism says must be allowed to thrive and replace the big, old monsters.
The government is not directly controlling these nationalized companies, right? It is true the government is not micro-managing, but at a macro level it did replace top management. Still, micro-management is not what redefines the economy. The government has crafted a new economy, however, dominated by financial institutions “too big to fail.”
In the next installment, with the benefit two years’ hindsight, I can demonstrate what this new economy actually looks like.
- Harvard economics professor Martin Feldstein told Frontline, “It is unlike anything I’ve seen or anything since the Great Depression that I’ve studied.” Feldstein was chief economic advisor for Pres. Reagan, and now sits on Pres. Obama’s Economic Recovery Advisory Board. See FRONTLINE: inside the meltdown: interviews: martin feldstein | PBS [↩]
- Read Adam Davidson’s interview. Davidson is editorial director of NPR’s multimedia project Planet Money. See FRONTLINE: inside the meltdown: interviews: adam davidson | PBS. [↩]
- See Too Big to Fail, by Andrew Sorkin. [↩]
- “Gold hits record high above $1250/oz.” the “the treasury prints over a trillion new dollars,” the Wall Street Journal reported 6/8/2010. See Economic Armageddon, p. 29, footnote 41. [↩]
- Allan Roth, CBS Market Watch blog. See Jeremiah:Armageddon, p. 8. [↩]
- FRONTLINE:Meltdown-Timeline, 7/2/2008 timeline entry. [↩]
- FRONTLINE:Meltdown-Timeline, 9/18/08 entry. [↩]
- see my earlier post with a video of the exchange between Waxman and Greenspan. [↩]
- The New Reserves
- Wish You Were Here!