Free Market Capitalism, The God That Failed


Free market capitalism is the “god that failed,” writes Martin Wolf. Thus does Financial Times lead off a feeble chorus of lament in its “Future of Capitalism” series. What do we do now? is the question. Can capitalism be tamed? Can it be harnessed? “Yes we can!” says America’s president.

Richard Layard from the London School of Economics, offered a way forward:

“We should stop the worship of money and create a more human society,” he writes. “Happiness has not risen since the 1950s in the US or Britain,” he points out, despite big increases in wealth. “Modern happiness research can help find answers,” he believes.

“Old fashioned socialist planning is the only coherent alternative to a collapsing capitalist economy,” an alert FT reader added.

Given the depth of these insights, we decided not to dive into this discussion headfirst. Instead, we will simply mock the swimmers from the bank. Brazil’s president, Lula da Silva, for example, could only come up with a campaign slogan: “The future of human beings is what really matters.” But who can blame them? They want a capitalism that makes people happy…fairer, gentler, greener… they want to reform it…to housebreak it…to cut its balls off so they can safely put it on a leash and introduce it to their daughters.

But they miss the point of it altogether: we can’t reform capitalism; it reforms us. Capitalism punishes mistakes and rewards virtue (or good luck) – not necessarily quickly or gently…but roughly and imperfectly, like a hanging judge in a frontier town. On paper, of course, we can do better. Imagine a world where public employees are saints and geniuses who do such a swell job of allocating capital we want for nothing. But then, when we get a chance to see them in action, we find that they are bigger rascals than the capitalists themselves.

This week, under pressure from its new proprietor – the U.S. government – AIG released a list showing who had gotten more than $100 billion of its bailout money. At the top of the list of recipients was a familiar name – Goldman Sachs. In a truly astonishing co-incidence, Goldman is the firm that had been run by the very person who headed up the AIG rescue – former Treasury Secretary Hank Paulson. And what serendipity! Lloyd Bankfein – Goldman’s top man now – was actually in the room with the feds when the AIG rescue plan was put together.

“…we can’t reform capitalism; it reforms us. Capitalism punishes mistakes and rewards virtue (or good luck) – not necessarily quickly or gently…but roughly and imperfectly…”

In the room; in the deal. But the big scalawags ducked out of the press almost immediately. Instead, the headlines focused on the small fry. AIG paid bonuses of $450 million – some charged it was $1 billion – to its executives. These guys shouldn’t get bonuses, came the popular outcry; they should get a firing squad.

You’ll recall the story. The insurance giant AIG lost money on a series of gambles. For example, it gambled that it could insure the mortgage payments of people who couldn’t afford to buy a house. During the bubble years, people bought houses at outrageous prices. They could borrow 80% of the purchase price from government-backed debt mongers Fannie Mae and Freddie Mac. Buyers were supposed to put up the other 20% themselves, giving lenders a margin of safety in case the transactions didn’t work out as planned. But, if an insurance company would guarantee the other 20%, Fannie could cover 100% of this “enhanced” mortgage loan. AIG found that insuring this part of the loan was profitable – as long as nobody asked questions. But then the market price for the collateral dropped – by as much as 50% in some areas. Suddenly, people were walking away from their houses. Defaults on these “enhanced” loans ran at 5 times the rates on normal Fannie-backed mortgages.

An ordinary person would look at these facts and pronounce the same judgment as the capitalist market: AIG and Fannie both deserve to go broke. But give him enough higher education in the economics department, or a job in government, and the fool rushes in –with someone else’s money.

In the theory of bailouts, an ailing firm is given a helping hand when it needs it. This gives it time to get back on its feet, and prevents it from dragging down its employees, lenders, investors and counterparties. But what actually happens is much simpler. Money is goes from the pocket of the person who earned it…to the pocket of someone who didn’t…from the innocent bystander to the fellow who caused the accident. Capitalism takes money away from erring capitalists; the capitalism improvers give it back to them.

And who decides who gets the loot? Ah…as soon as you hold them up to the light, the angels’ wings fall off. By and large, these are the same cherubim and seraphim – such as Hank Paulson – who were supposed to be leading…regulating…and controlling capitalism when it ran into a ditch. Not a single one raised a warning. Instead, they whooped for the free market and passed the whiskey bottle to the driver! And now, thanks to their bailouts, AIG continues writing insurance against mortgage loans. Seventy-three AIG executives continue getting $1 million bonuses. A long line of reckless counterparties goes unpunished. And Hank Paulson offers advice to Financial Times readers on how to make capitalism work better.

But that is always the problem with improving capitalism…even in the slapstick American way. The reformers promise a ‘new deal,’ but they’ve always got an ace up their sleeve somewhere.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.


  1. A thought or two.. The only thing wrong with capitalism is that it permits too few people to own too much. Monopolies are no different from socialism except that socialism is easier to sell to the public. Maybe that’s the aspect that “failed” in the U.S. ie: the banks owned too much stuff whose price was way above its value and now they are dictating how everything has to happen. On the other hand, that probably has more to do with money and who issues it, not capitalism per se.

  2. Great article!

    The part about house breaking capitalism and introducing it to their daughters was hilarious.

    I am happy to see that someone other than Rush Limbaugh finally has the balls to speak the real issue at AIG – namely the 93 Billion laundered through AIG to Paulson’s friends, those other banks should be going bankrupt because of poor decision making. They should be in the poor house and their assets bought by smaller, better run institutions

  3. The only thing wrong with capitalism is that the rules are set by people who believe we can do well without it. Example is the aforementioned LSE academic.

  4. Agreed! Well said, great article.

  5. Yes Spiro. “The only thing wrong with capitalism is that the rules are set by people who believe we can do well without it” but let us be clear…. These people are the liberal politicians with a bent toward socialism and carpetbaggers who get elected with the help of a compliant media. All have been indoctrinated into the system through the liberal think tank commonly known as “College” or “University” and all now unconsciously blather on with their double-speak. Truly, 1984 has come to pass, and the world has become insane. Right is wrong Left is the new Right; Patriotism is destroying your country. Too many people are seemingly unable to think for themselves despite all of the benefits of “modern” education.

    Moreover, they seem to have created an elite class where they can dictate and regulate your life but the rules don’t apply to them. When you hear a politician say he’ll soak the rich don’t believe it. He is not going to soak himself and his friends. There is a loophole somewhere that allows them to escape (carbon credits). And if they do get caught they will simply begrudgingly pay the minimum penalty and laugh it off (Tax-Tim Geithner) They have a lust for power and control and their most effective weapon against us is the tax code. They simply want to regulate and tax every aspect of our lives. Somehow the socialist/communist mentality has attacked and taken over from within – like a cancer.

    Now, get your pitchfork and let’s build a guillotine on the Washington Mall and fix this problem :)…but I digress.

  6. The problem with the stock market as we know it is that investment seen as a whole, is a pyramid scheme. Its revenue is based on other peoples investments, not on profit of the companies the stocks represents. The companies is just pretty brands connected to the stocks. How do we prevent bubbles and connect paper value to real value. The problem is not capitalism as such but the premises under which it operates.

    Erik Martino
    April 13, 2009
  7. The truth is this.We live in a world of neanderthol thinkers.A world of I have it and you dont.A world of Im not hungry and you are.A world of I have health care and you dont.A world my friends of I have it and you dont and furthermore I dont care if you ever have it.Yes this is the world we live in.May the strong survive.And yet we have these absent minded selfish arrogant rich people who sit back everyday and claim to be so religious and Godly but yet speak out against a healthcare system for all.They care not that people are dying because they cant get that operation that they need.They care not that people here in the USA are playing Russian Roulette everyday of their lives hoping to dodge the bullet of sickness knowing that it would cost them their life savings and send them into a lifetime of debt.These ruthless people will be the cause of the next civil war in this country.It will be a civil war between the rich and the poor.This is why we need a moneyless system.A system that takes profit away from the things that all humans need.These things of course(Food ,Shelter, clothing, Healthcare)Yes a system that will stop paying the rich bastards who push Radiation and chemo because its a profit for them.STOP THIS NONSENSE OR GIVE US OUR OWN PLANET!!ENOUGH OF THIS!Stop the profit and see how fast Cancer and other diseases will be cured.I assure you people,it will be fast.There will be no need to keep away cures.Instead there will be a great need to find cures for all.And we will all put our minds together for a better world that will take us where no man has gone before.We may not see this in our lifetime because we of course live in this may the strong survive world.But our children will be the shinning light for us all.But let this message be known to YOU for whom I speak this.I and many more see the deceit and lies that you have hidden from us.Its just a matter of time until your lies will find you out.You try and claim that socialism is bad.You hypocrits.You engage in socialism each and everyday that you drive down that road in your car.You paid a federal or state tax for that road.Now if you work here you are a socialist.But if ask if you would pay a tax for healthcare you would be against it wouldnt you now.This is just a sample of the rich ignorant bastards that we have here in this country.
    goodday, Brent

    Brent Vincent
    May 13, 2009
  8. Capitalism : The New God


    Individual Satisfaction – Father

    Exploitation – Son

    Purchasing power – Holy Spirit

    10 Commandments

    * I will make sure I maximise my profits at the cost of everything else
    * Individual satisfaction must be 100% satisified even if it means I cheat on my marriage, destroy my childrens lives and end up divorced
    * Exploit whoever you can for whatever you can, its survival of the fittest
    * You are what you can afford
    * Love thy cheap goods even if you don’t know they came from a child sweat shop
    * Thou shall not worship false Gods: socialism, communism, et al
    * Thou shall be faithful and not lie with another man’s wife unless our wife failed to deliver for a few days or I see someone else I want in the street round the corner, like the latest purchase from that tv store down the road I just had to have as it was 50 inches wide not 45 like the one I have already.
    * Individual success and power are everything crush all enemies that stand in your way.
    * Avoid giving money to charity it is rescuing and people should be responsible for their own problems even if they are not self inflicted or were originally caused by our neoliberal economic and political policies.
    * Lend support to wars and support dictators if there is cheap oil or cheap access to valuable resources to be gained as our country has to be the most wealthy and powerful.

    New Testament Most Important of all these Commands not love thy neighbour :

    Love myself and everyone else can have the breadcrumbs that fall from my table

    12 Disciples – Enablers, Message Delivery Systems, Promoters

    * World Bank & IMF
    * Companies that exploit developing nation producers with low and unfair prices
    * Advertisements that promote materialism with irresponsible marketing messages
    * Pride
    * Greed
    * Ego
    * Vanity
    * Banks that don’t support and help small businesses, yet provide huge overdraft facilities to big organisations who really do not need that support .
    * Lenders who throw credit cards at people that they can’t afford to have or use
    * Banks that wont lend to people who actually need the money and provide the financial support they are supposed to so these people turn to loan sharks and charge huge profitable fees for bounced Direct Debits and unauthorised overdrafts.
    * Politicians with delusions of grandeur that want to control the world
    * Judas Iscariot – Enlightened invididuals that try to inform people (whistleblowers)

    The Evil One

    Devil – Socialism and anything resembling socialist systems

    Lord’s Prayer

    Our Individual Satisfaction

    That art all over the world
    Hallowed be thy buy one get one free
    Thy autumn sales come, Thy supreme shopping experience be done
    On earth as it is in the stores
    Forgive us for missing the winter sales and we will forgive the stores for closing on Sundays
    Give this day our daily buying
    Lead us into cheating, sleeping around and not looking after our children
    Let us not be tempted to really care about other people
    Deliver us from socialism
    For thine be the kingdom, the power and the glory, for as long as we practice this awful economic concept


    Note: writers note this is a criticism of capitalism in an attempt to make a few points and is no way shape or form supposed to represent the real bible and the Word of God within it.

    Copyright @ Jill Barraclough 2009 Please feel free to circulate this article with the copyright notice, authors name, contact details and Note above included. Writer can be contacted @ , or, or website is

  9. Mrs Barraclough wanted a rest from Mr Barraclough’s physical needs for a while. Mr Barraclough tripped over someone more accomodating in the interim. Mrs Barraclough reckons the pig should have paid more in the property settlement. And that God agrees. And capitalism is to blame for her and the kiddies what she’d popped out to Mr Barraclough getting financially stiffed in such an obviously abhorrent way?

    Prozak … I await your learned, ever enlightening and sagelike pontifications on the flatulent ruminations of our race? :) Cheers as always! Ned. :) :) :)


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