Column A cliff hanger

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: The Communists may not understand Capitalism, but Marx did. He knew that the way it works is through cycles and crises. Every now and then when the economy grows for a few years running, people start talking about the end of the business cycle, a new paradigm, end of boom and bust. Then reality kicks in and, voila!, we are back in the same old ship tossing and turning on the waves.

This is where we have been since last summer in the developed countries and as yet there is no end in sight. George Soros has said this is the most serious crisis since 1929. He may be right or he may have merely shorted the market and is hoping his prophecy will yield profits. In 1929, the stock market crash did not immediately bring depression. It took the next four years for the full shock to be felt. Here, we have been in crisis for about a year, and still bank failures continue, each as much of a surprise as the other. When the US mortgage giants Fannie Mae and Freddie Mac began having trouble, the crisis hit a new depth. Their outstanding bond debt is $7 trillion; even China holds $300 billion of that. The US Congress has to do something, but it is not clear what.

Normally the answer is pump in liquidity and bail the defaulting company out. The bank/the corporation is ‘too big to fail’. But there are cautious voices. There is a libertarian tradition which believes investors should learn to suffer the consequences of what they have done. They have enjoyed dividends in the past, and perhaps even borrowed against the value of the stock. So, now if the stock is worthless, so be it. Capitalism can only be healthy if the losers lose and winners win.

Lately, the call for regulation and for intervention has allowed the loss makers to run to the government and get bailed out thanks to the taxpayer. When the same companies make profits they hate paying tax on it. Socialism when we lose and capitalism when we gain is neither fair nor a healthy way of running the market system.