Current Financial Crisis Unmasks the Fiction of the Laissez-faire Market

After a generation of near totalitarian rule, the ideology of the unfettered free market--which was used as a blunt weapon to weaken or destroy almost all forms of market regulation--has brought the capitalist financial system to the brink of a collapse eerily similar to the days before the great crash of October 1929.

The current crisis has forced the Fed to rediscover the need for the firm hand of market regulation and intervention to restore order and trust in a market system collapsing under the destructive weight of laissez-faire ideology. The current crisis has served to pull back the curtain of our political economy to reveal the manipulative wizard hiding behind the fiction of a laissez-faire capitalist ideology that assumes THE MARKET can function free of the structuring hand of human regulation and decency.

The current crisis has forced even President Bush (in his brief statement of Sept. 18) to admit the need for the assertion of a firm governmental hand to keep the global market system from collapsing like a house of cards. Fortunately over the last several weeks we have witnessed the arm of the federal government rediscovering its regulatory function in the midst of crisis, as it has reached out to rescue Fannie Mae and Freddie Mac, and to orchestrate the orderly dissolution of Lehman Brothers, the effective nationalization of the global corporate insurance firm AIG, and begin to structure a new regime of regulation to try to reign in the destructive power of naked short selling in the stock market--even as Congressional leaders are now working with the administration to prepare a strategy for taking charge of over a trillion dollars of bad private debt.

Altogether, these actions are demonstrating the gravity of the current financial crisis, which is requiring the federal government to assert a comprehensive financial regulatory power in ways not demonstrated since the years of the Great Depression in order to protect and bring order to a market system teetering on the brink of collapse.

We are lucky that current leaders such as US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke seem to have learned well the historical lessons of the Great Depression, and are therefore not repeating the mistakes (of inaction) of the Coolidge and Hoover administrations that helped to precipitate the Great Crash of 1929 into the disaster of the Great Depression.

If the same kind of incompetence and corrupt leadership were in place in the Fed and the Treasury as have been in place in other parts of Bush’s executive administration, we might already be talking about the great crash of September 2008. And while we’re not yet beyond the danger of such a collapse, the Bush administration’s admission and rediscovery of the need for the strong hand of regulation to guard the market against the excesses of laissez faire totalitarianism may finally begin to turn back the tide of financial and economic disaster.

In the next few days, including another busy weekend for the Fed, we shall see whether the leaders of our government can make good use of historical wisdom and the appropriate powers of government to fulfill their duty to provide for the safety and welfare of the American people and our economy.