Pure capitalism is a beautiful thing when working as designed. Capitalism works as a catalyst for invention. The money one strives for through capitalism is the perpetually hanging carrot on a stick. It motivates people to give extra effort going forward with the expectation of additional rewards in the future. Capitalism allows the choice for people to live extraordinary lives rather that just ordinary ones should they desire.
Unfettered capitalism has allowed for much of the innovation that the rest of the world has enjoyed over this past century. Just image what the world would look like today without capitalism. Much of the technology we use today would look like witchcraft in that parallel universe. Capitalism makes all of our lives easier over the long run whether we realize it or not.
There is also a very important downside to capitalism that is often overlooked. True capitalism punishes bad decisions. It quickly separates the fools from their money. Private enterprise is supposed to act as the unforgiving graveyard where bad ideas go off to die. Well functioning capitalism works like a giant reset button that periodically levels the playing field for intelligent young go-getters on the bottom rung of the economy. When true capitalism is working as designed, it is supposed to eventually weed out the idiots and the bad apples.
A few years ago, the rules of capitalism in the United States were changed forever. The origin of this change is rooted in the 1999 repeal of the Glass-Steagall Act. This law had been in place ever since the Great Depression. This law allowed for banks to take deposits and make loans and it also allowed for investment brokers to underwrite and sell securities. However, this law restricted ONE single entity from performing BOTH tasks at the same time due to an inherent conflict of interest. After repeated lobbying from big banks, Democratic President Bill Clinton and Republican Phil Gramm worked together to successfully repeal Glass-Steagall in 1999… and capitalism as previously known in the United States would NEVER be the same. This was an exercise in bipartisan stupidity.
A few years after being unshackled by Glass-Steagall, investment banks on Wall Street started making a series of ridiculously bad bets on the subprime mortgage industry. They were granting large mortgage loans to the poorest among us and were even being encouraged to do so by our government. They leveraged themselves beyond idiocy. Investment bankers with small penises and large egos got into a pissing contest with other people’s money. They started making bets that low-income people with no savings would be able to continue making enormous mortgage payments in perpetuity. Were these poor fools with no money and large mortgages partially to blame for this problem? You bet they were! But these investment bankers did not even seem to care if the whole system was rigged… because they were getting rich. Bankers would bundle these bad loans into small packages and then sell them to third parties. They would basically create these steaming investment turds, light them on fire, and then leave them at someone else’s doorstep.
Eventually, this house of cards came crashing down. The collapse of Lehman Brothers was the canary in the coal mine. Other investment banks and insurance companies soon came crashing down as well. The whole economic system started to look like it was about to go under. Credit markets became frozen and global panic quickly set in.
Goldman Sachs was the Wall Street investment bank that almost had this whole thing figured out… almost. Goldman Sachs saw much of this subprime mortgage disaster coming and attempted to invest in such a way to profit handsomely from it. They purchased a high volume of “credit default swaps” from the insurance company AIG that insured against a subprime mortgage meltdown. This is like you buying insurance just in case your neighbor’s house burns down. This is not insurance designed to protect you from individual loss. Credit default swaps are basically a means of placing bets on an external market… and in this analogy it even ENCOURAGES you to go burn your neighbor’s house down in order to get paid. Goldman Sachs made very large bets via credit default swaps that the subprime mortgage market would collapse and when they made the correct bet… they wanted their bookie named AIG to pay up!
There was one glaring problem with Goldman Sachs and their brilliant strategy. AIG was about to go “belly up” and assume room temperature along with Lehman Brothers. It appeared that there would be no giant insurance company remaining in the near future to reward Goldman Sachs for their wise investment move. These capitalist masterminds had lined themselves up like a row of dominos and they were all about to knock each other down.
There would be one man to save them all. His name was Hank Paulson. He was the Secretary of the Treasury and the top economic advisor to President Bush. In an instant, he became the “Chicken Little” of the President’s cabinet. Hank Paulson approached the President and told him that our economic sky was falling. Hank Paulson joined forces with the Federal Reserve to establish a plan of action in order to prop up the banking system. Hank Paulson literally got down on his hands and knees and begged the Speaker of the House to pass a trillion-dollar stimulus package to save the banking industry. Oh by the way, you DO know what Hank Paulson did for a living before becoming the Secretary of the Treasury right? If not, you are going to absolutely LOVE this! Before becoming a top advisor to the President of the United States… Hank Paulson was the CEO of Goldman Sachs! Small world, right?
As Wall Street got down on its knees and begged Congress for its forgiveness… America was at a crossroads. Our society was staring down into the dark uncharted abyss that was the downside of capitalism. I was frantically writing letters to my representatives begging them not to pass this trillion-dollar stimulus package for the banking industry. I recommended that any and all stimulus money should go to help provide a backstop for FDIC insurance so that most individuals could at least recuperate some of their savings in a few months. Fate had its hand firmly planted over capitalism’s large reset button. The idiots and the bad apples were about to be weeded out. The intelligent young go-getters were about to get their chance in this land of opportunity to start the process of rebuilding our economy from the ground up.
But in an instant… America blinked. Capitalism looked too frightening from so high up with no safe place to land. Our leaders allowed for almost a trillion dollars of taxpayer stimulus money to be distributed among all of the losers on Wall Street. We were told that these institutions were “too big to fail”. AIG was given over 182 billion dollars, much of which was then repaid to Goldman Sachs. Within the span of just a few days, capitalism in the United States was officially dead. What is now left in its place is some bastardized form of “pseudo-capitalism” in which a few undeserving investment bankers on Wall Street gather up the last remaining “hanging carrots of motivation” while the intelligent young go-getters spend their time looking for jobs on the internet while living in their parent’s basement. These brilliant investment bankers now know that they are too big too fail which makes crushing their opposition even easier.
Nowadays when I complain about the current state of capitalism and Wall Street in the United States, some people look at me like I’m some kind of communist. There are other people like many in the “Occupy Wall Street” crowd who tend to vilify rich people simply because they are rich and uninformed onlookers tend to lump people like me in together with them. I would like to announce to everyone that I am not an “Occupy Wall Street” guy. I am not a fan of “pseudo-capitalism” but I have absolutely no problem with rich people. In fact, I have always aspired to join the ranks of the rich. I will still chase an occasional hanging carrot on a stick on the rare occasion that I can actually find one. I would also like to state for the record that I was raised to believe in the American dream and I still love the concept of capitalism… I just don’t see it anywhere. Real capitalism in the United States apparently died a few years ago when it was somehow caught in the careless crossfire between unfettered greed and unfathomable stupidity.
