This is the response that Gerald Friedman, of the UMass-Amherst econ department and the Center for Popular Economics, gave to Al Jazeera English in response to the question, “Is This the End of US Capitalism?” They also asked Jamie Galbraith (UT-Austin), Mark Weisbrot (CEPR), John Berlau (Competitive Enterprise Institute), and James S. Henry (author of The Blood Bankers.
The end of US capitalism? I really doubt it.
This is a very serious financial crisis and if mishandled could become a serious recession even a depression, but it is unlikely to be as bad as the Great Depression of 1929-40 as the authorities have learned to co-operate in crises.
More importantly, a capitalist system – or any social system – can only be brought down by an opposing system supported by a rising economic class.
There is no such contender on the horizon right now to challenge capitalism. So, we’ll continue to muddle along.
Still, it will be bad all around unless we change direction. An effective anti-depression strategy would help those with bad mortgages so that they will be able to make payments on their mortgages and keep their houses; such a policy would help the banks by allowing for a “trickle-up” effect.
Instead, the Federal Reserve is trying to hold back the tide of defaults and foreclosures by helping the top.
At best, this will transfer the costs to average Americans, who lose their homes, watch their neighbours lose their homes, and will in many cases lose jobs when construction and other businesses fail.
Foreigners will be hurt too because many banks and other financial institutions outside the US have invested heavily in US securities including mortgages and stocks and bonds in US investment banks.
Helping the people
We need a trickle-up strategy: Help the financial barons by helping the people.
The US should provide major help to people holding mortgages to renegotiate these and to make some payments so that people can stay in their homes and banks will be able to continue to carry these mortgages on their books.
There should also be a major increase in unemployment benefits so laid-off workers are protected and can continue to buy things and make payments on their debts. This, too, will help the banks.
We should also have a major public works programme to employ laid-off construction workers in overdue infrastructure building and have strict new transparency requirements on banks and other financial institutions.
The Fed, the Treasury, and foreign central banks (especially the European Central Bank and the Bank of Japan) should announce that they will stand behind every major bank and financial institution so that average investors will be absolutely protected.
This will end panic selling and allow the markets to stabilise.
At the same time, the Fed and others should take an equity stake in these institutions to to pry open the accounting records and to enforce new regulations that would clearly separate normal business operations from the speculative activities of the last decade.
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