THE NEW WORLD

October 13, 2008 

Like Christopher Columbus’ crew before they sighted land on their first voyage to the New World, Americans, afloat on the turbulent seas of a global financial crisis, are wondering if they are sailing into the abyss. And like Columbus’ crew, Americans are skeptical. Their reactions run the gambit from panic to mutiny. Like Columbus, President Bush is telling everyone to stay calm; it's a long voyage, but we'll get there.

We know how Columbus’ voyage turned out; it changed the world. It was the beginning of the end for Native American civilizations and the start of a whole new era in human history. No one knows exactly how the current crisis and the government’s attempts to deal with it will turn out, but Americans are beginning to suspect that we too are about to discover a new world. We can only hope the people at the helm know where they are taking us. Remember, Columbus set sail for India.

There are very few Americans who really understand the delicate and complex mechanisms of free market capitalism and how to tinker with them. We assume that our presidents and the senators and congressmen on key committees of Congress that oversee our economy, along with the secretary of the treasury and the chairman of the board of the Federal Reserve, understand them. Indeed, many of them, including Bill Clinton, George Bush, John McCain, Barack Obama, Henry Paulson, and Ben Bernanke all say they saw the current crisis coming. So why didn't they prevent it?

The problem with Washington, DC, is that too frequently politicians make decisions about the country's economy based on their ideology and the interests of their constituents without a clear understanding of the consequences of those decisions. And when they attempt to correct a problem or avert a disaster, like doing brain surgery with a butter knife, they use instruments not well suited to the task.

When something goes wrong, they almost always blame the opposition. Republicans accuse Democrats of policies over the past 20 years that invited abuses at Fannie Mae and Freddie Mac, which ultimately caused the current crisis. They argue Democrats in Congress took money from Fannie and Freddie and other special interests to support questionable lending practices. Even when people warned them it was creating a serious problem, they ignored those warnings. Democrats accuse President Bush and Republicans of a failure to regulate Wall Street and financial institutions. Unregulated, people in the financial industry became greedy and corrupt.

Nevertheless, once the dam burst Democrats and Republicans, including Barack Obama and John McCain, supported the takeover of Fannie Mae and Freddie Mac, the $700 billion bailout/rescue package, and US government ownership of major US banks in the form of preferred stock. President Bush, Paulson, Bernanke and a host of Democrats and Republicans told us, “We don’t like this, but we have to do it to prevent our economy from collapsing.” The problem is just too big for the private sector to fix on its own.

They're probably right. But conservative politicians in both parties, financial experts, and many other Americans disagree. They believe there are less draconian solutions, these policies put us on the road to socialism, and it will be difficult to put the country back on a free-market footing when the crisis is over.

Anthony Faiola, writing in the Washington Post, points out, “With the recent takeovers of major lenders Fannie Mae and Freddie Mac and the bailout of AIG, the U.S. government is now effectively responsible for providing home mortgages and life insurance to tens of millions of Americans. Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system.”

Perhaps, if all this wasn’t happening less than a month before a presidential election, we wouldn’t have to be so concerned. But with both political parties scrambling for votes, we have to wonder if they are supporting short term solutions that may have undesirable long-term consequences? Are they offering a cure that will just make the patient sicker?

The prospects of a Democratic president and a Democratic Congress with a filibuster-proof majority in the US Senate have Republicans and many independents even more concerned. Rarely does one party control the presidency and both houses of Congress with such an overwhelming majority as to prevent a united opposition party from blocking legislation.

Judging from how often we have given one party control of Congress while electing a president from the other--19 out of 31 elections since World War II--Americans tend to prefer divided government. You can argue that it's this dichotomy and its tendency to keep Republican and Democratic governments from straying too far from the centerline that keeps government from overreaching.

I don’t know the best way to solve this problem. But like many Americans, I’m concerned about more than just losing money in the stock market. I have faith in America and its people, and I believe in the capitalist free market system, wisely guided by an enlightened and balanced government. Whichever man becomes our next president, he must resist the temptation to overreach and over regulate. American free market capitalism isn't perfect, but it is far superior to the alternatives.