Re: [Marxism] Pffft - Abroad, Bailout Is Seen as a Detour From Capitalism

[Bonnie Weinstein <giobon@xxxxxxxxxxx>]

Abroad, Bailout Is Seen as a Detour From Capitalism
By NELSON D. SCHWARTZ
September 18, 2008
http://www.nytimes.com/2008/09/18/business/worldbusiness/18rescue.html?ref=b
usiness

PARIS ? Is the United States no longer the global beacon of unfettered,
free-market capitalism?

In extending a last-minute $85 billion lifeline to A.I.G., the troubled
insurer, Washington has not only turned away from decades of rhetoric about
the virtues of the free market and the dangers of government intervention,
it has also likely undercut future American efforts to promote such policies
abroad.

³I fear the government has passed the point of no return,² said Ron Chernow,
a leading American financial historian. ³We have the irony of a free-market
administration doing things that the most liberal Democratic administration
would never have been doing in its wildest dreams.²

While they acknowledge the shock of the collapse of Lehman Brothers, the
bailout package for A.I.G. on top of earlier government support for Bear
Stearns, Fannie Mae, and Freddie Mac has stunned even European policy makers
accustomed to government intervention in the economy.

³For opponents of free markets in Europe and elsewhere, this is a wonderful
opportunity to invoke the American example,² said Mario Monti, the former
antitrust chief at the European Commission. ³They will say that even the
standard-bearer of the market economy, the United States negates its
fundamental principles in its behavior.²

Mr. Monti noted that past financial crises in Asia, Russia, and Mexico
brought government to the fore, ³but this is the first time it¹s in the
heart of capitalism, which is enormously more damaging in terms of the
credibility of the market economy.²

In France, where the government has long supported the creation of national
champions and worked actively to protect select companies from the threat of
foreign takeover, politicians were quick to point out the paradox of what is
essentially the nationalization of the largest American insurance company.

³Today the actions of American policy makers illustrate the need for
economic patriotism,² said Bernard Carayon, a lawmaker of President Nicolas
Sarkozy¹s center-right governing party, UMP. ³I congratulate them.²

For the ³evangelists of the market this is a painful lesson,² he added.

We¹re entering ³an era where we have much more regulation and where the
public and the private sector will mix much more.²

In Asia, the Washington-led bailouts have stirred bitter memories of the
very different approach the United States government and the International
Monetary Fund pushed during the economic crises there a decade ago.

When the I.M.F. pledged $20 billion to help South Korea survive the Asian
financial crisis of the late 1990s, one of the conditions it imposed was
that the Korean government allow ailing banks and other companies to
collapse rather than bail them out, recalls Yung Chul Park, a professor of
economics at Korea University in Seoul who was deeply involved in the
negotiations with the I.M.F.

While Mr. Park says the current crisis is different ? it¹s global rather
than restricted to one region like Asia ? ³Washington is following a
different script this time.²

³I understand why they do it,² he added. ³But they¹ve lost credibility to
some extent in pushing for opening up overseas markets to foreign
competition and liberalizing economies.²

The ramifications of the rescue of A.I.G. will be felt for years within the
United States, too, not just abroad.

That¹s because it was a very different kind of company than Fannie Mae or
Freddie Mac, which enjoyed government sponsorship as mortgage finance
providers, or Bear Stearns, which was regulated by the federal government.

³This was an insurance company that wasn¹t federally regulated,² said Gary
Gensler, who served as a top official in the Treasury Department during the
Clinton administration. Nor did A.I.G. have access to Federal Reserve funds
or deposit insurance, like a commercial bank.

³We¹re in new territory,² Mr. Gensler added. ³This is a paradigm shift.²

A.I.G. is also in a different league both by virtue of the breadth of its
businesses and its extensive overseas operations, especially in Asia.

What¹s more, it fell into something of a regulatory gap under the current
rules.

While the company, based in New York, is better known for selling
conventional products like insurance policies and annuities overseen by
state regulators in the United States, it is also deeply involved in the
risky, opaque market for derivatives and other complicated financial
instruments, which operates largely outside any regulation.

Along with the threat to the plain-vanilla insurance policies held by
millions of ordinary consumers, it was the looming threat posed by these
arcane financial instruments that prompted Washington to act and bailout
A.I.G.

Mr. Chernow, who has written extensively about the efforts of J. P. Morgan
to steady the economy in 1907 before the creation of the Federal Reserve,
echoed Mr. Gensler¹s conclusion.

³It¹s pure crisis management,² Mr. Chernow said. ³It¹s the Treasury and the
Federal Reserve lurching from crisis to crisis without a clear statement on
how financial failures will be handled in the future. They¹re afraid to
articulate such a policy. The safety net they are spreading seems to widen
every day with no end in sight.²



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