Bridle the “Free” Market

By Kollengode S Venkataraman (Published in July 2010)

There is an axiomatic belief bordering on dogma among conservative Republicans and Libertarians that less governing is better governing, and that a Free Market system is self-correcting.

But Free Market has never been free. After all, elected officials pass laws creating the environment in which the supposedly Free Market can operate. In making laws, elected officials jostle to pick the winners, or at least load the dice to favor the interest groups favorable to them. That is how hundreds of thousands of lobbyists for every imaginable interest group  make their living in cities, state capitals and in Washington, DC trying to load the legislative dice in their clients’ favor.

Besides, when the supposedly free-market-driven system in banking, finance, manufacturing, and the energy sectors takes the country to the brink of collapse – and this happens predictably in the US every 15 to 20 years – tax payers have repeatedly coughed up big-time monies to bail out businesses because they are “too big to fail.” The bailout monies have only become bigger with every new scandal.

Let’s us face it. Private enterprises are value-neutral, driven only by their profit motive. What they do to society at large is not their concern as long as they make profits, and they make more profits than their competitors. Along the way, they often have done irreparable damage to land, water, and people’s lives. Just see the abandoned ruins of industrial sites — mining in the West, or in the industrial heartland in the US – where the owners simply walked away after exploiting the land and the resources for decades without remedying the land they exploited for profit. And now in the Gulf of Mexico BP has become a four-letter word. Similarly, the history of occupational diseases and industrial hygiene tells how workers’ health was ruined by the working conditions through the ages. This, we all have come to recognize, is the price for progress.

In explaining the recent shenanigans of the banking and insurance industry that took us to the brink of financial collapse, commentators used casino metaphors. Remember, taxpayer monies in trillions  —  1 trillion is 1,000,000,000,000 —  were used to bail out these guys for their recklessness.  In casinos too, as long as the house gets its money, its operators don’t care what happens to gamblers. But gamblers at least know  the odds are heavily against them. In this financial shell game, investors were not told of the heavy odds against the different financial instruments the banks created and sold, even though the banks knew this game would collapse sooner or later. They even betted against these instruments themselves, making huge profits even as their clients lost.

Goldman Sach’s CEO Lloyd Blankfein was like a poker player when he testified with a straight face on April 27, 2010 before Congress that he didn’t pay attention to the credit ratings Wall Street uses all the time to peddle financial products to investors. Not surprisingly, New York state’s attorney general Andrew Cuomo is investigating “investment banking companies whether they provided misleading information” to the rating agencies (Standard & Poor’s, Fitch Ratings and Moody’s) “to inflate the grades of mortgage securities.” Among the banks investigated are Goldman Sachs, Morgan Stanley, UBS, Citigroup, and Merrill Lynch. Attorneys general do not start expensive investigations unless they see a prima facie case.

When the lives of people are ruined, Wall Street’s high-stakes poker players escape saying, Caveat Emptor or Buyer Beware. Precisely because buyers – even the sophisticated ones — are not able to comprehend these complex and “synthetic” investment instruments, the strong arm of the State needs to intervene to protect individuals and the society at large.

Market-driven economy’s virtue is not that it is the best, but that all other economic systems are far worse. It is the same with elected governments. It is not that elected governments are the best, but all other systems of governance are far worse. Elected governments have checks and balances they have set for themselves to limit autocratic tendencies among rulers. Even then, there is no guarantee. Similarly, to protect ordinary citizens, it is necessary that governments regulate the supposedly free market system with laws with criminal consequences much the same way the criminal justice system takes care of crimes.

After all, after economic collapse, the big players, with their huge severance packages, move to their safe havens scattered all over the world, while the presidents, governors and mayors are left to salvage the physical ruins of the land and the economic ruins of people left behind.

Coincidentally, in April British Petroleum’s deep-sea oil well 40 miles south of New Orleans ruptured and the offshore platform Deepwater Horizon exploded killing eleven workers. Every day 2.25 million gallons of a mixture oil and gas has been spewing out of the rupture at 5000 feet below sea level polluting the American shores in the Gulf of Mexico. The mavens of American finance and manufacturing have been blaming everybody else but themselves to the catastrophes. Is there any wonder why nobody in the US trusts CEOs?  — END


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