Washington's waning way: how bail-outs poison a free market recipe for the world The events of the past few weeks on Wall Street have handed ammunition to the opponents of free markets well outside the financial sector and way beyond America's shores. A model of freewheeling finance the US has pushed around the world, which had already undergone some tactical withdrawals over the past decade, appears in headlong retreat. For some, the retreat of the Washington model risks turning into a rout. David Rothkopf, a senior Commerce department official during the administration of President Bill Clinton, says the world is at a turning point. "This is a watershed," he says. "This is the end of 25 years of Reagan-Thatcherism, `leave it to the market, less government is better government'. That is over - period." Some policymakers are confident that, while the pace of liberalisation may slow, it is unlikely to go into sharp reverse. Many economists point out, moreover, that not all liberalisation is the same and that a financial crisis does not justify shunning all free markets. Yet successive US administrations have wrapped the different varieties closely together in a policy package and sold it through a variety of outlets - the International Monetary Fund, the World Bank, the World Trade Organisation and the US's bilateral trade agreements. Disentangling them in the minds of foreign governments and their electorates will be hard. That package may have started with advocating lower import tariffs on goods, a policy which commands relatively wide support among orthodox economists. But it has expanded to include more controversial strategies: allowing foreign institutions to buy local banks or set up their own subsidiaries, deregulating domestic financial markets and ending controls on cross-border capital movements. Jagdish Bhagwati of Columbia University, a leading trade economist, has long warned that this is a dangerous confusion of liberalised financial markets, which are subject to repeated bubbles, panics and crashes, and the international movement of goods and services, which is not. Yet in practical terms the two have often been bundled. Washington has sought, for example, to export its own financial model through its trade deals. The template that the US uses in all its negotiations for bilateral trade pacts, and from which it tolerates few departures, includes strict limits on using capital controls to control financial crises.
The events of the past few weeks on Wall Street have handed ammunition to the opponents of free markets well outside the financial sector and way beyond America's shores. A model of freewheeling finance the US has pushed around the world, which had already undergone some tactical withdrawals over the past decade, appears in headlong retreat.
For some, the retreat of the Washington model risks turning into a rout. David Rothkopf, a senior Commerce department official during the administration of President Bill Clinton, says the world is at a turning point. "This is a watershed," he says. "This is the end of 25 years of Reagan-Thatcherism, `leave it to the market, less government is better government'. That is over - period."
Some policymakers are confident that, while the pace of liberalisation may slow, it is unlikely to go into sharp reverse. Many economists point out, moreover, that not all liberalisation is the same and that a financial crisis does not justify shunning all free markets. Yet successive US administrations have wrapped the different varieties closely together in a policy package and sold it through a variety of outlets - the International Monetary Fund, the World Bank, the World Trade Organisation and the US's bilateral trade agreements. Disentangling them in the minds of foreign governments and their electorates will be hard.
That package may have started with advocating lower import tariffs on goods, a policy which commands relatively wide support among orthodox economists. But it has expanded to include more controversial strategies: allowing foreign institutions to buy local banks or set up their own subsidiaries, deregulating domestic financial markets and ending controls on cross-border capital movements.
Jagdish Bhagwati of Columbia University, a leading trade economist, has long warned that this is a dangerous confusion of liberalised financial markets, which are subject to repeated bubbles, panics and crashes, and the international movement of goods and services, which is not. Yet in practical terms the two have often been bundled. Washington has sought, for example, to export its own financial model through its trade deals. The template that the US uses in all its negotiations for bilateral trade pacts, and from which it tolerates few departures, includes strict limits on using capital controls to control financial crises.
A VINDICATED EUROPE CELEBRATES `CIVILISED' CAPITALISM As Peer Steinbrück pondered recent events on Wall Street, Germany's hard-nosed finance minister could not help indulging in a bit of futurology. "When we look back 10 years from now," he told journalists on Thursday, "we will see 2008 as a fundamental rupture." The US, he said, would lose its role as a "finance superpower", write Bertrand Benoit and John Thornhill Yet while US commentators may have interpreted such remarks as heralding a statist renaissance in Europe, there are few signs yet that the old continent is turning its back on the free market. (...) Yet it would be wrong to read such statements as precursors of a general retreat of liberalism on the continent. In his speech, Mr Sarkozy defended the essence of capitalism that had permitted the "extraordinary surge of western civilisation over the past seven centuries". He also said it would be a "historic error" to return to the collectivism of the past that had been responsible for so many disasters. In Germany, the world's largest exporter of goods, politicians are all too conscious of how much their country has benefited from trade liberalisation. Meanwhile, the last thing Ms Merkel and Mr Steinbrück want is for the radical Left party, a coalition of defectors from the Social Democratic party and former East German Communists, to turn the crisis into ammunition for next year's general election. In June, Ms Merkel told the FT she was worried that attempts to discredit free-market liberalism would play into the left's hands. As Mr Steinbrück put it before German legislators: "Neither calls for more state nor naive beliefs in market forces will help us in our task of shaping the economy in a way that will allow all to benefit from stable, crisis-free growth."
As Peer Steinbrück pondered recent events on Wall Street, Germany's hard-nosed finance minister could not help indulging in a bit of futurology. "When we look back 10 years from now," he told journalists on Thursday, "we will see 2008 as a fundamental rupture." The US, he said, would lose its role as a "finance superpower", write Bertrand Benoit and John Thornhill
Yet while US commentators may have interpreted such remarks as heralding a statist renaissance in Europe, there are few signs yet that the old continent is turning its back on the free market.
(...)
Yet it would be wrong to read such statements as precursors of a general retreat of liberalism on the continent. In his speech, Mr Sarkozy defended the essence of capitalism that had permitted the "extraordinary surge of western civilisation over the past seven centuries". He also said it would be a "historic error" to return to the collectivism of the past that had been responsible for so many disasters. In Germany, the world's largest exporter of goods, politicians are all too conscious of how much their country has benefited from trade liberalisation.
Meanwhile, the last thing Ms Merkel and Mr Steinbrück want is for the radical Left party, a coalition of defectors from the Social Democratic party and former East German Communists, to turn the crisis into ammunition for next year's general election. In June, Ms Merkel told the FT she was worried that attempts to discredit free-market liberalism would play into the left's hands.
As Mr Steinbrück put it before German legislators: "Neither calls for more state nor naive beliefs in market forces will help us in our task of shaping the economy in a way that will allow all to benefit from stable, crisis-free growth."
As the industry becomes more regulated and less lucrative, the most talented bankers and traders may defect to the more entrepreneurial and financially rewarding world of boutique investment banks, private equity firms and hedge funds. Were that to happen, private equity groups including Blackstone and Kohlberg Kravis Roberts, independent investment banks such as Lazard and Rothschild and hedge funds like Citadel could gain. Seasoned investment bankers dismiss this view, arguing that their industry has a chameleon-like ability to adapt to changing circumstances. But even the most ardent proponents of this theory acknowledge that, given the severity of the current plight, such a transformation will take time. "Other generations of bankers will be allowed to make the same mistakes I did; of that I am sure," says a veteran banker at a European bank. "The only question is how long it will take."
Seasoned investment bankers dismiss this view, arguing that their industry has a chameleon-like ability to adapt to changing circumstances. But even the most ardent proponents of this theory acknowledge that, given the severity of the current plight, such a transformation will take time. "Other generations of bankers will be allowed to make the same mistakes I did; of that I am sure," says a veteran banker at a European bank. "The only question is how long it will take."
http://www.ft.com/cms/s/0/fa25105a-8c0a-11dd-8a4c-0000779fd18c.html In the long run, we're all dead. John Maynard Keynes
Steinbrück is a staunch follower of the economic-liberal line within the SPD, a hardcore Third Wayist. Back when he was PM of Northrhine Westphalia, in a display of US-style bipartisanship, he used to co-write a position paper advocating 'reforms' with Hessen's infamous CDU PM Koch: the "Koch-Steinbrück paper". It was repeatedly brought up until recently as a blueprint for 'pragmatic' reforms.
One of the "economic wisemen" of Germany (this is an official government adviser position; these economists also tended to advocate 'reforms') played a similar tune.
None the less, that Steinbrück and Merkel feel the need for such outspoken burial of Anglo 'Turbokapitalismus' (fearing voter loss to the Left Party) speaks volumes about the current situation, the current feeling among the powers-that-be. *Lunatic*, n. One whose delusions are out of fashion.
'Reform' always was focused strongly on the labour market and entitlements. All losses of the current banking crisis in Germany were the result of securitisation products with their undelying assets in foreign countries. That is on what Merkel and Steinbrueck focus, and on what they have started to make suggestions, how to tackle that problem. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
Of course I think it is strongly off base, to focus the federal election campaign on education, as this should be solely an issue for lower level elections, but the CDU obviously has given up any resistance against the 'Gleichschaltung' of the children in this country. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
In the further text is mentioned, that in common speech it was casually used to describe the events in Soviet zone of influence, and in anti-Soviet propaganda literature. So it is not exclusivly used to describe events during the Nazi time. Given the gazillion explicit Nazi comparisons in the web, and the literally match of the explaination, what it means, with what I intend to say, I think it is OK to use such a term in an internet blog comment. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
Of course it adds not to any argument, but is an expression of opinion. This opinion has only indirect something to do with the centralisation on the federal level, but more with the general direction of school politics in Germany. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
It is, in (academic?) English. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Yes, I agree it's very vague, but that's Merkel 's art. But given the context: her blocking the calls for more conservatism and marketism at the executive body meeting, I don't think it is as meaningless/meaning-what-the-listener-wants as you imply. *Lunatic*, n. One whose delusions are out of fashion.
Huh! *Lunatic*, n. One whose delusions are out of fashion.
I find it very disappointing, that the CDU is willing to sell out its core constituency seemingly on nearly all issues. But for staying in power, it is obviously the best thing for them. Losing freedom voters to the FDP won't change that the CDU will get more votes than the SPD, and for a black-yellow coalition the votes would not be lost. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
I of course have very different feelings about this, but I agree this is a selling-out of the core constituency paralleling what the SPD did under Schröder. *Lunatic*, n. One whose delusions are out of fashion.
