Is Capitalism the culprit?

Asif Punjwani March 12th, 2012

Capitalism is an Economic model in which every individual acts according to his own interest, and the market forces collectively achieve collective goals. If more people feel Automobiles fit their need compared to a motorbike, the markets will start to respond accordingly. There involves no central planning other than public projects like Water/Sewer/Road Projects. Capitalism unitizes capital and labor via sound money. Money provides the signaling mechanism of the availability of goods/services via incentives at a given time in the economy. For e.g. It may be cheaper to fly to get to a city than drive. Falling CnG prices due to oversupply gives consumers the incentive to consume CnG instead of Petrol. Money carries within itself all the collective signals from individuals participating in the economy. It is this characteristic of money that makes it sacred in Capitalism. Capitalism isnt a new idea. It has been around for the last 5000 years where Gold, Silver, Copper, Salt and other scarce commodities were used as money. It is Banking and its Fractional Reserve Lending that came about in the last 400 years. What we have today is a sickening version of Capitalism where money is debt, profits are projected, investments are leveraged, Governments are monetized, International trades are subsidized and the losses are socialized. In a free market, everyone has as much of a right to succeed as much as they have a right to fail. Today, its laissez-faire till a banker get a margin call! What we perceive as money today is not money but debt issued either by the Central Banks to finance Government Budget Deficits or by Commercial Banks to finance Private and Public Investments. During Economic bubbles, banks issue plenty of money causing economic signals and incentives to go haywire. The Banks and Governments play this Economic Tango with Deficit-financing and loan guaranties for Commercial lending (Fannie& Freddie) while trampling on the rights of individuals participating in the economy. Banks have financialized Education and Housing in US with Government backing, thereby raises cost. Government has financialized healthcare and retirement via Medicare/Medicaid and Social Security respectively. The Financial Crisis of 2008 wasn't the failure of the Oil Industry, the Auto Industry, the Airline Industry, the Agriculture Industry, the Textile Industry or any Industry that actually produces goodol honest-to-God goods that we use every day. It was the failure of Mortgage Bankers who issued NINJA (No income no job/assets), Liar-loans, No-Doc and Alt-A loans which we know as Subprime loans today. It was the moral failure of property appraisers. It was the failure of the rating agencies and their blind rage to increase their market-cap by rating everything under the Sun as Triple-A. It was the failure of SEC and the FED to enforce the laws. Even the FBI saw the mortgage fraud brewing as early as 2004. AIG was label as ENRON back in 2005. Afterall

Citibank testified under oath that 80% of their MBS loans were defective in 2007. The SEC and FED sat and enjoyed the music. Lets not blame the VAR(value at risk) numbers when the initial due-diligence was missing before the loans were issued. And when the music stopped, this funny money was supposed to bring a shrewd justice to these institutions. This funny poison called Financial instruments (CDO2 ,Interest-rate Swaps, naked CDS & puts) were all rescued by real debt issued by the Central Banks to the Governments. The World will continue to pay a huge price for these bailouts via Inflation, vanished savings/pensions and slow economic growth. Free-markets gave us the Industrial revolution, the light bulb, the Microprocessor, mobile phones, television, eBook Readers and automobiles, all at affordable prices. This is proof that free-markets work. But it will fail if fraud is not punished and sanctity of money is not protected. Government - the prosecutor of fraud and protector of money, itself is the culprit here. It delegated its sovereign right to issue money to the Banks. Fraud is fraud unless you are a Banker or if you stole from the Bankers (Madoff). A world where downloading illegal music could land you in prison for years but wrecking up the global economy would cost you less than 1% of your market cap. Not only does Goldman Sachs own the World but also its future generations. Its up to the free citizens of the world to refuse their paper currencies and bank checks in return for their fruits of labor or face eternal damnation of financial slavery.

Asif Punjwani trades equities, bonds and derivatives in the International Capital Markets. He can be reached via Twitter @AsifAmeer_AP