In view of the current Wall Street crisis, America’s credibility as a bastion of free markets has come under the radar. The Fed’s recent bailout of AIG, Fannie and Freddie are perceived by many as a free market detour.
The government’s latest bailout news involves a plan to make the biggest intervention in the financial markets since the 1930s. Central to this plan would be a mechanism to bad assets off the balance sheets of financial companies or instead perhaps to create a federal insurance for investors in the money market funds. Additionally, the Securities and Exchange Commission is getting ready to propose a temporary ban on short selling financial stocks.
The Taxpayer Is Affected
Who’s being affected? The American taxpayer. Some have accused the government of using the bailouts as a method to privatize profit and socialize losses. However the downfall of companies like Lehman Brothers and AIG are already proving to have far reaching effects on the economy. Perhaps there is no choice then except for government intervention.
Are free market economies sustainable?
A free market economy refers to a system where the buyers and sellers are solely responsible for the choices they make. Free market gives the absolute power to prices to determine the allocation and distribution of goods and services. However, the notion of free market is mainly a theoretical concept as every country, even capitalist ones, places some restrictions on the ownership and exchange of commodities. So while the concept of free markets works in theory then, the truth is that its sustainability could well be questionable. Even though the U.S. has always been the hero of free market economics, the truth is that the government has stepped with bailouts in the past. The last time we saw this happen was during the Great Depression.
Photo credit: Google