Everybody Blames 'Capitalism' for the Mess. Don't.

I would like to address a comment from the post Obama is No Match for Economic Reality: "You guys, the capitalists, messed up completely, so far beyond anyone's wildest imagination..."

Careful. You can't call the system we had leading up to this mess 'capitalist'. You can't call the housing bubble, and the mess on Wall St. the product of 'capitalism'.

You could call it Crony Capitalism or Corporatism or Finance Capitalism, BUT you cannot call it 'ideal' Laisse-Faire Capitalism.

The only reason any of this was even possible was precisely because the markets were not allowed to do their job... that is to say they were not 'free'.

Alan Greenspan changed the world when he first threw the might of the Federal Reserve into the breach during the 1987 stock market crash. Market participants saw this and adjusted their behavior accordingly. That is to say, they lost respect for risk and increased their exposure to it via increased leverage because they could count on The Greenspan Put.

The governments of the world started this mess through with their various economic policies. If the Chinese corporatist model had not artificially kept the Yuan exchange rate down to increase exports, a surplus of trillions of US trade dollars would not have flowed into everything from US Treasuries to US mortgages driving yields down to absurd levels. Without this artificially cheap credit, their would have been no 'reaching for yield' by investors such as pension funds. Without their demand for higher yields, mortgage securitization would never have exploded. Without the hunger on Wall St. for more mortgages to package, there would not have been a move into toxic mortgages such as subprime. Without access to cheap credit strawberry pickers would never have bid a $300k house up to $750k, leading to a massive real estate bubble. Without the bubble, there would have been no bust.

Fannie Mae, Freddie Mac are not the product of free market capitalism but of government social policy. Fannie was founded in 1938 during the Great Depression. In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers. As Larry Kudlow would say, the "mustard seeds" for a real estate ponzi scheme of truly epic proportions were planted. The end result of course could be nothing other than mustard gas.

GM would have smartened up back when it still could if the government hadn't bailed out Chrysler back in 1979. Instead, GM grew complacent, safe in the knowledge that it could never die because the government surely wouldn't allow it. Now GM cannot compete. Bailout or now bailout. Consequently, Detroit is dead and a median home price of $7 500 proves it. (Yes, seven thousand five hundred dollars.)

Government! Government! Government! Constant intervention has resulted constant booms and busts of ever increasing magnitude.