American Capitalism is NOT Capitalism

Capitalism today needs to stand up and be recognised or we are all doomed to low wages and poor investment returns for years to come.

American Capitalism is NOT Capitalism.

No matter what anyone says America has not been a capitalist country since the 1970′s as far as I can tell when it began bailing out companies that failed using taxpayers money.

I have seen the term American Capitalism written about several times. In one instance the article was reporting the death of American Capitalism.

“The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.”

I only wish that were so. Then Real Capitalism may get its chance.

You see capitalism cannot be customised. American capitalism is a misnomer. It cannot be capitalism if companies cannot fail and if taxpayers money is taken from them in order to save these failing companies.

Its legislated theft in my book. And the government representatives that voted for it should all be held to account.

The reason this is so important is that it affects all Baby Boomer Retirement Nest Eggs. The more governments interfere with the economy rather than providing the rules and regulations that govern it, the less will be your investment returns.

Right now the government interference is staggering and frightening at the same time.

You see you need capitalism and it’s implicit risk in order to get steady returns based on real profits. The problem over the last 25 years is that much of those profits were inflated by governments propping up failed enterprises and institutions. Your returns were just as inflated.

This house of cards was doomed to be blown away at the first sign of a major melt-down as the smart money (those “in the know”) got out of the way. That money hole was filled by the government stealing taxpayers money to prop up selected financial institutions this time around.

The problem is no one knows how big the money hole is. But rather than be cautious all western governments around the world just want to fill it in as quickly as possible with whatever money they have available. Their main aim is to make the problem go away. Their political survival is at stake. Voters are unforgiving.

Initially it was taxpayers money, then it was money borrowed from overseas and now it is printed money. But still the hole will not fill up.

Capitalism would have limited the damage, sold down the assets, moved any good money out of the failed companies and strengthened the healthy companies.

“But the hands-off brand of capitalism in the United States is now being blamed for the easy credit that sickened the housing market and allowed a freewheeling Wall Street to create a pool of toxic investments that has infected the global financial system.”

American Capitalism as it has been called did that, not Capitalism. So if it is the demise of American Capitalism please bring it on.

Let’s just remember it was the US Congress that forced US Banks to offer below market interest rate loans to people who were not eligible for a housing loan. Any bank that did not comply might find it hard to open new branches or do merges or acquisitions

That is NOT capitalism. When the State directs private enterprise on what they should do it is Fascism.

Mortgage brokers saw how good it was selling mortgages with an implicit government guarantee to people who never imagined they could ever afford a house.

As with all things involving governments and their implicit guarantees far too many people got loans they could not afford.

With so many bad loans it was only natural that those carrying the loans wants to either insure them or off-load them. The potential risk was exploding. Wall Street was called in to help out. Wall Street is paid to create deals that offset risk and provide for healthy returns. It found a way to minimise risk and then realised how profitable it could be.

So what might have begun as a responsible idea for managing risk soon became a way to make billions of dollars once Wall Street realised it was all government guaranteed.

So enter the murky world of mortgage backed securities and collateral debt obligations and credit default swaps.

I reckon Wall Street didn’t really know it had a tiger by the tail until it was too late. There was just far too much predatory lending and far too much debt to package, insure and sell. It was all pilling up in their basements.

They had to get rid of it and quick. No time to think of the consequences and anyway it was all insured wasn’t it? You couldn’t lose.

So it appears they packed millions of bad home loans that carried implicit government guarantees  with millions of “good” loans and then insured them against default anyway possibly through AIG. That’s sort of a belt and braces approach to wearing trousers isn’t it?

No wonder China bought into the Scam. It was a “can’t lose” proposition.

Having Risk, Assessing Risk and Managing risk is part of the capitalist system. Selling bad loans guaranteed by a government is not capitalism. Insure against any loss whatsoever is not capitalism and cannot be done anyway.

Unless governments take serious steps to legislate NOT to bailout business in the future, then we are bound to revisit the current situation in about 20 years or so.

Just look at how many bailouts American Capitalism has done.

All you can do now is hang on for the ride. But don’t knock capitalism until you have tried it.

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