The 700 billion bailout of US financial institutions serves to expose several myths associated with free enterprise and free markets:
Remember when the former Soviet satellites and Russia were beginning their initiation into capitalism? There was this great theme of Shock Therapy. The socialised institutions were to be subject to market forces even though the result was considerable immediate economic and social disruption. This was all necessary to introduce the healthful regime of market forces at work. Apparently this does not apply to the US. You would think that in the US now is the time for shock therapy and letting market forces do their creative destruction...
But creative destruction is another key concept that is gone out the window. The markets must be saved from creative destruction rather than letting market forces play out as they are supposed to do according to standard doctrine. This seems a case of rewarding those who through greed and mismanagment of risk have caused the crisis.
But this leads us to moral hazard. The intervention and bail out is a clear case of creating moral hazard by rewarding bad behavior rather than letting the market punish it.
Of course governments are said to be inefficient yet the government bailout in this case is needed to create efficient markets. We have linguistic gobbledygook that goes beyond Orwell.
We now have the need for re-regulation after having been spoon fed healthy doses of propaganda recommending deregulation of everything. Of course the government boss who oversees the spending of US citizens money on bad debt needs no regulation:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. (from Naked Capitalism)
So bad debt is being bought up supposedly at market prices but no doubt at higher than market prices since there is no real market for the debt.
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