Is this the end of Capitalism ? An Open Forum for debate

The headlines everywhere, over dramatic as usual herald the end of an era. Perhaps this is the end of an era. But the era of what ? What was so different here from the few times it has happened before ? Like the Great Depression ? or Black Monday (or was it Tuesday ?). I am not sure I get it all, and I do believe no one does. But lets hear voices and lets find a way to lead this into a healthy debate, so we all can hope to make some sense of the free fall that is taking place in the financial systems of the world.
First, what is Capitalism and what are it’s assumptions ? At it’s most simplistic level It assumes a free market economy where individual (even though selfish) actions ultimately pan out for the good of the larger collective or economy. So that s one rule flouted in any case ! We all accept that individual actions bordering on greed have in fact sucked enough wealth out of the system to completely dis-balance it,
Second, Capitalism assumes an equality of market information. It assumes that everyone has the same information and understanding of the market situation, based on which they will make decisions beneficial for themselves. That is patently not true anymore, with financial instruments so complex that individual decisions are heavily reliant on advice and more so, advertising that provokes dreams and fantasies to people. Capitalism will never take into account that people can be encouraged to create debt through a multiplicity of credit card transactions, or over-leveraging through re-mortgages of equity in home values. The over creation of debt fuels the artificial creation of money supply that is NOT backed by an increase in productivity, because a large chunk of this increased mney supply is being sucked out of the system by few very wealth individuals and organizations.

.. third, capitalism assumes a smooth flow of goods and services, of financial transactions and eschews laws and practices that great huge bumps and dams in such a flow. Yet that is almost utopian, as it never has and never will happen.
So all we can hope for is a Capitalism that is micro-managed to keep the engines of Capitalism well oiled – with money supply, individual decisions, exchange of goods and services, all moving in somewhat of an even flow, keeping the engines of the economy humming along smoothly and recording reasonable growth and wealth creation.
That idea of micromanaging has completely failed. Instead a system has developed and been encouraged by which a certain section of the community have been able to subvert the checks and balances completely in their own favour, largely through the creation of an artificial economy not based (as I said earlier) on an increase in productivity, but artificial increases in values of homes, and of financial instruments. In the case f the US, therefore it has created the massive external debt that everyone hoped would just become the norm.
So what we have seen is not the problems of Capitalism, but a complete abuse of the base ideas behind Capitalism. So the debate really is – Is Capitalism possible at all – or is it a micro managed free market economy that we shuld look forward to, and what are the checks and balances we can implement to not let such a spiral happen again,
is such a spiral just part of a cyclical correction ?

13 thoughts on “Is this the end of Capitalism ? An Open Forum for debate

  1. Greenspan one of the architects of this mess says, this is once in a century event.
    Greedy politicians are saying, this is because of the greed in wall street but not the people.
    If you have lots of money in the US you may be at risk of losing atleast some part of it. I think buying gold or buying property at a bargain price would be a safe bet. Don’t let too much money in the banks. FDIC insurance covers upto $100K for an individual acct.
    Some analysts say that approximately 150 banks or investment firms are expected to fall within the next 15 months. There is a high chance for FDIC to go bankrupt. But if that doesn’t happen currency value of the USD might sink.
    Save your savings now or never

  2. 10-year cycle
    Did we hit bottom yet or not.
    Did you tell that to John McCain? He still believes that fundamentals of this economy are still very strong. People sometime wonder if he is getting it confused with Chinese economy.
    No amount of govt. intervention can change the economy.
    NY state could lose 40,000 jobs, $3 Billion
    Those smart people are not in charge. The people in charge were saying everything is fine and go do shopping
    Economy is falling, people are losing jobs, fuel prices are rising, depressing is coming, housing market is going down. Look at the brighter side, if you invest in constructing industry building apartments you can make money now.
    Jokes apart, what were the people smarter than me and you doing to prevent all this from happening?. Weren;t they smart enough then?
    3-4 years to recover from dot com bubble burst (200 billion max)
    This is MUCH worse than Dot-Com bubble, As Dot-Com bubble was just for IT industry, this financial sector, Housing Sector, Insurence Sector (trillion dollars). And obviously IT as IT is service industry for all these.
    FDIC has only 50 billion.
    House prices are down nearly 20% and have perhaps another 10% to go.
    A new projection shows Wall Street’s meltdown will likely cost New York state up to 40,000 private sector jobs and $3 billion in tax revenues over the next two years, two state officials said Thursday

  3. Its worth a thought :
    The Outstanding Public Debt as of 19 Sep 2008 at 07:16:48 PM GMT is:
    $ 9 , 6 5 0 , 5 4 6 , 0 8 6 , 4 1 3 . 9 1
    The estimated population of the United States is 304,757,564 so each citizen’s share of this debt is $31,666.31.
    The National Debt has continued to increase an average of $1.80 billion per day since September 28, 2007!

  4. Don’t WORRY
    Be HAPPY
    Its Friday and enjoy the evening for disucssions tomorrow …
    Don’t worry about what anybody else is going to do. The best way to predict the future is to invent it.
    The word impossible itself says I-M-Possible.
    The secret of health for both mind and body is not to mourn for the past, nor to worry about the future, but to live the present moment wisely and earnestly.

  5. Dear Shekhar,
    The laissez faire capitalsim that totally allows free markets will never really exist as some people will always take advantage of it and create some inefficiencies. Besides that we definitely need regulatory agencies like SEC and FED to control extenuating circumstances. It is not the end of capitalsim but the start of a new one where there will be slightly more regulatory control(just slightly) and that is quite welcome -like we did with the P Notes in Bombay last year. This bailout is basically to undo the actions of some big corps who actually thought that they were working towards the interest of their shareholders and things just went wrong so the biggest govt in the world steps in and helps – nothing wrong with that. Poeple who have very good credit will find it easier to get credit/loans and others with lower FICO scores will have a harder time but capitalism will run. Even 1 trillion is not so big for America. Just that we are entering the world of controlled capitalism which may actually open up opportnuies for a lot of players who are not in NY – who can now play at the same level playing field as the traders in NY.
    It was a massive correction that was waiting to happen after the sub-prime fiasco and no matter how private these companies are they are still American – the backbone of American capitalism and the govt. will not allow them to fail. People blame greed as if people in Hong Kong or Tokyo or Mumbai are not greedy – it was just a risk that was less calculated, the banks thought they were woking in the interest of their shareholders and massive foreclosers happened. But this is a great step – after a year or two the free market policies will return, just that the SEC will become more stringent. I think it is a great time and a new start for America and a very good time to buy.
    Best Regards,

  6. Any form of government that advocates external gratification is fated to be doomed. All these labels are thrown around quite foolishly..what is Capitalism really? And is it being practised to perfection? What is Communism? People have some vague definitions and half-baked theories with big words and less substance. The ways of life at the grass-roots are the real thing..there nobody is a capitalist or socialist or communist..all these labels are the craftiness of the monkey mind.

  7. This may be off topic, or perhaps not.
    “Who is John Galt?” This scares me.
    So for all those vacations in the Hamptons and the private jets, the taxpayer will pay.
    My respect for RBI has gone up a few notches.

  8. Dear Shekhar:
    I can clearly hear your exasperation with a capitalism that has so utterly and completely moved away from its original tenets. Particularly over the past 25 years there has been the introduction of new mechanisms to push the borders of legitimacy to a stretching point. Greed has been the great motivator to create new ways to increase the wealth of a fraction of our societies at the expense of those who no longer have the means to understand the new vernacular of capitalism. This once so venerable and battle-hardened system has withdrawn into the corporate suites of Wall Street and other financial centers of the world to be the purview of an elite that has completely lost its touch to a reality as it is felt by over 95 % of the world at large. In this shady environment of high finance, transactions are taking place on their trading floors that smack in the face of fairness, live-and-let-live maxims and prudence. Rules that should regulate excesses are circumvented with ease and ruthlessly, the regulatory bodies go with the flow and allow the stretching of safeguards to the fringes of sanity.
    The last great crisis that had its roots in reckless lending practices of the savings and loan institutions had destroyed assets of over half a trillion dollars. Those assets were of course not blown into space to be absorbed by a black hole of vengeance, rather more mundanely they were all snatched up at scandalous discounts by the so-called vulture capital. The RTC agency that was run by incompetent and often corrupt government operatives channeled those assets that had once belonged to the American middle class into the hands of an elite section of society that had availed itself of capital inaccessible to those who were not part of this infamous fraternity. Nepotism was rearing its ugly head in those days. Did capitalism exert its pride and authority as a result, had it exorcised its demons and had it taken its scoundrels to task? Not by a long shot. The pain was soon forgotten, the lessons not learned and devious brains concocted new schemes that weaseled their way past the regulators. Subprime became the catch phrase of the new millennium, new fabulous riches could be amassed, the middle class was again lured into the netherworld of illusion and the enticing life beyond its means. The regulators were again slumbering and the politicians were intoxicated with inflated economic data that did not have their roots in sound economic principles. In fact they were only an outgrowth of the feverish activity in the financial centers that had completely lost touch with the economy out there in the real world. The pundits of Wall Street presented a picture of a thriving economy to an uncomprehending audience that was unwilling to reflect the optimism inherent in such utterances.
    We of course all guessed it right. The middle class again was the great loser and greater damage could only be averted through a government that had looked into the abyss and had seen the unprecedented destruction of wealth and worse a system within which the modern world was functioning. The bailout of the perpetrators was a mere footnote to an apocalypse that would have ensued had clear and brilliant brains not carried the day.
    To find the guilty parties in this grandiose scheme would be very difficult. There are too many culprits. The whole society partook in this and developed its own brand of greed. Common sense was given leave of absence. The apostles of illusion were preaching a sustainable life beyond our means and we all had put our heads into the sand and eagerly wanted to believe what simply could never become reality.
    Will we finally learn or will the memory of the pain again fade into insignificance and new enablers and seducers will rise from the rubble of yesteryear’s catastrophe? In the final analysis the new laws and regulations cannot protect society against itself and its endless capacity for greed.
    With best regards.

  9. Sir,
    End of capitalism? Beginning of Barter? They both go hand in hand. Capitalism cannot end without going back to Barter system. and actually the Barter lead us to capitalism.
    If you have milk more than what you can consume what do you do? process it to butter.. what you do with the butter milk? Distribute as a free by product to the neighbours.
    What do you do with BUTTER? You would like to store it as long as you can, And when you can’t convert it into GHEE.
    Ghee? OLD is GOLD? Convert Ghee in Gold.
    How can capitalism ever end? It only changes Hands!!
    Vinod Agarwal – Believes wealth creation is a form of ART.

  10. am not an economist, but it is probably cyclical. however it is about time that it ceases to be cyclical and we realise that consumeristic living benefits no one, not even the consumer. we think it does but it depletes us spiritually and keeps our mind occupied with vain things.
    so i hope it is not cyclical and there is something that triggers some form of equality in the world.
    maybe obama should donate all the money in the american treasury to africa and rectify america’s karma to some extent…as it is going to catch up with that nation very soon……
    america’s karmic debt is beyond a number…..
    love, shivani

  11. Now that the 700 billion bailout is almost finalized, I wonder what new schemes will these financial institutions come up with to convince the gulliable public? This seems to be a vicious circle of capitalism. Will there be a lesson learnt from this debacle. Never, I think there will be only more of these, some foreward thinker will come up with a brilliant idea, even the Barter may work, with securatization on them similar in lines with home equity loan- blame it all on capitalism.

  12. @ austere
    why do you feel it is a “Who is John Galt?” situation? the present crisis was not triggered by the atlases shrugging. or was it? i thought it had something to do with banks overlending, particularly to the housing sector?
    can u please explain. dont understand these things.

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