DEUTSCHE BANK CHIEF EXECUTIVE: “I NO LONGER BELIEVE IN THE MARKET’S SELF-HEALING POWER”
Mar 26th, 2008 by Conor McCabe
Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.” (Martin Wolf, “The rescue of Bear Stearns marks liberalisation’s limit”, Financial Times, 25 March 2008)
God, there is something decidedly new-age about the idea of a self-healing market. Joseph Ackermann later qualified his statement, saying that he was talking about the American housing market only. A strange qualifier, no? The healing hand of the free market applies to everywhere EXCEPT America? Even more strange is the fact that the German federal government has spent the last year bailing out the Industriebank to the tune of around €5 billion.
Recently, Thomas Straubhaar had this to say about the so-called free market and its brand of helping hand-outs.
“Profits are to be privatised and losses nationalised - I consider that screamingly unjust.”
There is a popular, unchallenged, belief in Ireland in the free market - one to which the Irish Labour Party gives more than a nod. The party’s website, for example, gives a 2004 policy document as its latest policy statement on all things economic.
My purpose is to set out the framework of a social democratic alternative, based on the long-held values of the political left, but adapted to modern conditions, and attuned to the needs of one of the most open economies in the world.” (Pat Rabbitte, July 2004)
This needs to be updated, if for no other reason than this unassailable faith in the open market has been demolished by recent events, and has been dropped by some of the most serious players in world economic affairs.
Consider the Labour party’s economic policy document in the light of Martin Wolf’s article, especially the closing paragraph:
“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.
Martin Wolf remains committed to the broad principles of the free market, but even he has recognised that regulation is once again back on the economic agenda. In this context the events of last week, never mind four years ago, are indeed a foreign country.
There is a vacuum in Irish political debate with regard to social democratic principles of a regulated market. (In fact, the idea of “profits privatised and losses nationalised” lies at the heart of the ongoing rape of the Irish healthcare system by the PDs. Private profits and public losses is what “two-tier” is all about.) The Irish Labour party has an opportunity to grasp once again these values and to take ownership of them. By doing so, it would strengthen its hand in the move away from being the complacent member of a future coalition, to becoming the dominant partner. Now´s the time to do it.
Nice graphic! I thought I should let you know - but probably you know this already - that there are some fairly strong arguments to the effect that the US housing bubble, and related subprime mortgage mess and credit crunch, are really the fault of the fixed low interest rates and monetary inflation carried out through the mechanism of the Federal Reserve. The huge expansion of credit, which fuelled the boom, would not have been possible without the institution of fiat currency in a fractional-reserve banking system. This system of inflation can thus be blamed for whatever malinvestment and misdirection of resources occurs.
I mentioned on my blog that I think most people seem to feel that the monetary system we have now is some kind of laissez-faire capitalism. This is very far from the truth. I think it would help if they understood the nature and origins of money itself - as I said on my blog, you could start with “What Has Government Done to Our Money?” by Rothbard if you want to get a radical free market perspective. People who support the monetary policy carried out by Greenspan and Bernanke are not radical libertarians - they are generally neoclassical economists or supply-siders.
You’ll find plenty of Youtube videos featuring genuine market-oriented US financial analysts like Peter Schiff and Jim Rogers, if you want to get that sort of perspective.
YES! Not only is Friedman a gonner, but now the shite he peddled to the world is loosing it’s shine. Much like it did for Chile. And Brazil. Oh and Uraguay, Argentina and Guatamala. We’re just lucky we don’t have juntas round this neck of the woods (though if one could get rid of Bertie I might join….)
Thanks for the comment Graham. My own view is that government regulation of the market is absolutely vital to the needs of the citizens. The problems you mention with Greenspan pumping money in the 1990s into an already credit-fueled frenzy are problems of policy. The principle of government regulation remains. Government intervention does not make people poorer. The social history of western society in the 19th and 20th century is proof of that.
[…] commented earlier on Dublin Opinion that it was a mistake to think that the US monetary system was an example of laissez-faire […]
I find it amusing when the ‘free market’ is decried for its apparent failings when its failings are always due to a lack of freedom in the market.
It becomes even more hilarious when markets that appear free do fail and people rush in to prop it up with funny money and legislation… because in a free market, things can and will fail… but by being allowed to fail is what contributes to a stronger market.
Work on protecting property rights and personal freedom, leave the rest to be managed where it is managed best… by us… the market.
Evolution has created a lot of things that fail… but look where we are now… decrying our very nature seems childish and shortsighted to me.
For those curious, I recommend: Mises.org
I find it equally amusing when free-marketers, faced with the complete and utter failings of their belief system, descend into a childish theoretical fantasy in order to shore up their pitiful allegiance to a dead philosophy.
Evolution has taught us many things, but not, it seems, the ability in some to tell one’s free arse from one’s market elbow.
for the self-delusional, I recommend: a large paper bag to cover one’s head with; failing that, a large pile of coats to hide under until it all goes away and you can go back to playing with your theoretical soldiers and derivative monopoly money.
The Free Market: where bullshit gets top dollar.