[OPE] The ideological reception of market failure

From: Jurriaan Bendien <adsl675281@tiscali.nl>
Date: Thu Oct 16 2008 - 13:08:15 EDT

As regards the ideology of "market faith", here's five comments:

(1) October 13, 2008 Mr Strauss-Kahn says: "The crisis in financial markets is the result of three failures: a regulatory and supervisory failure in advanced economies; a failure in risk management in the private financial institutions; and a failure in market discipline mechanisms." http://www.imf.org/external/np/speeches/2008/101308.htm I am not too sure what he means by "market discipline mechanisms" though, it remains a bit vague.

(2) 16:50 14/10/2008 "The liquidity crunch is more severe than people realize, Bank of Israel Governor Stanley Fischer explains. "When a stock loses 50%, you say, wow, but it isn't as if a whole market will disappear by tomorrow. Liquidity is a more serious problem," he says: If nobody lends money, 1930s-style recession could ensue. Still: This is not the end of capitalism, as so many suggest, Fischer said. "I believe there will be major changes in the American financial system, in risk management and in supervision over financial institutions. But I don't think it will be a revolution, and this isn't the end of capitalism. Churchill said that democracy is the worst system, except for all the other ones. The same is true of capitalism." http://www.haaretz.com/hasen/spages/1028435.html

(3) ) "Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism. For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime. Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets." http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR2008101503166.html?hpid=opinionsbox1

(4) "The government's role will be limited and temporary," Bush said from the Rose Garden. "These measures are not intended to take over the free market, but to preserve it." http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101400738.html?hpid=topnews&sid=ST2008101302921&s_pos=

(5) "The neo-liberal era initiated in the 1980s was never as liberal as many claimed. Despite the Reaganite commitment to rolling back the state, this was a period in which there was a rise in large budget deficits in the US. Throughout the 1980s and 1990s, the state was used pragmatically to manage interest rates and the value of the dollar. Nor was the US administration averse to saving 'toxic' banks. In 1984, the Reagan government believed that the Continental Illinois was far too important to be allowed to fail, so it spent an estimated $1billion buying up its bad debts. A long time before the 'credit crunch', the state had adopted a highly interventionist role in the economic life of mature capitalist societies. (...) The most important consequence of the economic crisis is likely to be the re-politicisation of the economy. This could lead to more demands for extending and deepening the system of financial regulation, and for the state to adopt a greater role in economic affairs. In one sense, such a re-politicisation of the economy would not be a negative development. It may well encourage a more serious public debate about issues that are fundamentally important to people's lives. However, the downside of the re-politicisation of the economy is likely to outweigh the benefits. After the rescue of the banking system, the state will be under pressure to adopt a more active role in the economy - and the current pragmatic approach of the state may well give way to a more statist tendency towards micro-management and the bureaucratisation of economic affairs" http://www.spiked-online.com/index.php?/site/article/5817/

(Actually, in 1984 Milton Friedman published a book in which he argued that big government had grown under Reagan and Thatcher, in spite of rhetorics to the contrary - see Milton & Rose Friedman, The Tyranny of the Status Quo (Harcourt, 1984). Friedman's thesis was that "everywhere, whether in the United States, Great Britain, France, or Germany, a new administration has just about six months to make major changes that will benefit the community at large. .Unless the occupant of [the White House], Republican or Democrat, makes such changes in the first few months after being elected or reelected, the tyranny of the status quo will assert itself and prevent further change.").

The securitization of the banks by the governments does not weaken the power the banks, but strengthens them.


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Received on Thu Oct 16 13:17:11 2008

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