There is no doubt that the worlds financial system is under serious threat right now. And there is no doubt that – just as day follows night – good times will follow bad.
One thing has become very obvious over recent weeks. The American system of unfettered, unregulated capitalism simply doesn’t work.
Take the housing market for instance. After the 1929 crash, most states changed the rules for borrowing. What they said was that if someone borrowed money secured over their house and they defaulted, the bank could only seize the house. They couldn’t pursue the individual. The assumption was that if a homeowner defaulted on his mortgage, then his credit rating would be so bad that no-one would lend to him.
Of course, in recent times the system has fallen down. Because first line lenders were not going to hold the mortgage, they were just going to flick it on, they didn’t care who they lent to. So these people who had simply walked away from a previous mortgage were eagerly lent to by greedy mortgage brokers.
Hence the sub-prime mortgage saga which triggered this crisis.
Bush, Bernanke and Paulson are all rushing around with clever solutions. They are presenting themselves as the saviours – the clever guys with all the answers.
Make no mistake – this crisis has happened on their watch. Sure its origins may go back a long way – but the Bush administration has been in charge for 8 years. They must carry a huge burden of responsibility.
Many people believe that in some way, this crisis is caused by the Share market. We hear commentators blaming the crisis on Wall Street and people assume that Wall Street is the stock exchange.
Stock Exchanges around the world reflect the strength of an economy and the companies in that economy. They are an indicator of strength or weakness not the direct cause.
So where to from here? There is no question that the totally free market capitalist system will be replaced. Just as the Berlin Wall coming down was a momentous occasion in politics this crisis is a momentous occasion in economics.
We will see a new system evolve – one with checks and balances and one where wealth will relate to real assets not speculative profits.
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