State intervention versus globalization and the free market?

State intervention versus globalization and the free market?

The demise of the Soviet Union and communism was meant to usher in a new period of globalization and modernity. However, from the Asian Financial Crisis in 1997-1998 to the current crisis within the banking sector of America, we see only one victor in the financial sector. Yes, the victory of state intervention and the good old methodology of tighter regulation and pumping money into the economy, in order to limit the free market system. So the open manipulation of the market becomes the norm during harsh times. Therefore, it would appear that capitalism, the free market, and globalization, are mere bystanders when the going gets tough. So should the state maintain its manipulation after the crisis is averted by maintaining proper safety checks?

Well if we turn the clocks back to the end of 1991 we can remember the dying embers of the Soviet Union. This event was meant to usher in a "new dawn" based on capitalism, the free market, globalization, and other over mentioned "buzz words." The new world was meant to be transparent, open, and a destroyer of over regulation.

Yet open borders, new ways of manipulating the money markets, easy access to international stocks or currencies, modern technology, and a host of other new ways appear to be leading the system in the other direction. Because dynamism did not emerge across the board but greater risks did. This applies to bad lending, hedge funds, short-term gains, over supply of money into developing nations during good times but a major pull out of capital when profits were over-played, and other negative measures. Therefore, many major financial companies, be they banks, investment houses, insurance companies, or other institutions, often diluted their respective safety mechanisms in order to keep up with their rivals.

Also, major economists, like the former Federal Reserve Chairman of the United States, Alan Greenspan, deregulated the market too much because his policies gave the green light for more risky investments. Given this, new ways of "creative accountancy" became the norm and companies could manipulate their balance sheets within the deregulated sector and via manipulating accountancy laws. At the same time the much vaunted elite universities ushered in a new generation but it appeared not to help and parts of the financial system became one "big gamble." Therefore, many major banks and financial institutions now became "a dice away" from bad credit and for some companies like Northern Rock in the United Kingdom and American companies like Bear Sterns, Fannie Mae, and Freddie Mac, it became bail out time. While other financial institutions like Citibank, Merrill Lynch, UBS from Switzerland, and a host of others, lost out big time on the credit markets.

Of course not all financial institutions are facing a major crisis and it is apparent that in America it is the mega-banks which are facing major problems or huge write-offs. Because smaller banks have remained loyal to their tried and trusted ways of greater transparency and less risk taking. However, the financial sector in America, just like in Japan in the early 1990s, have created this self-induced mess and once more government intervention via economic measures is needed to stem the tide of the current crisis.

Therefore, what is the solution to the new financial meltdown? It would appear that tighter regulation is needed and laws aimed at transparency should also be enacted. If changes are not announced on a major scale then tax payer bail outs by the less wealthy to support the mega-rich will keep on happening. Also, nations like America can only play around with their interest rates up to an extent because they can not go much lower, if so, then America will be caught up in a spiral of near zero interest rates like Japan. So much tighter regulations are needed in order to control the financial system and stem the globalized tide of anything goes and financial institutions must also be made accountable.

In truth, the financial sector is constantly making major mistakes and centralized governments have to keep on coming to the rescue. Therefore, the myth of globalization and the free market is clear to see because greater constraints will be enforced in the near future. Overall, the financial sector is not moribund, however, the thinking of many specialists is "moribund" because many began to player "poker" rather then focusing on genuine economic decisions. The new world order from the start was based on the manipulation of language. However, now it is the manipulation of tax payers money and government bail outs. Therefore, it is clear that state intervention is needed, otherwise, we will soon see another financial meltdown.

Lee Jay Walker Dip BA MA
http://journals.aol.com/leejaywalker/uk/