Unbridled American-led Free Market Economy Unbundling...

"Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property."
~ Aristotle, Politics, Book II, Part V

I have always wondered how financial markets work, especially the humongous bubble leveraged on staggering multiples of supposed assets or investments.

How is it that when one 'invests' big or bigger, one can then create even bigger borrowed volumes of trade? Frequently these so-called educated ingeniously 'hedged' speculations are supposedly to help stabilise wilder fluctuations in volatile markets, well... what now?

Hedge funds and derivatives trading (and other so-called structured financial options) have now shown up its true colours—it's not green, and many if not most entities are now in the deep red!

It began with the sub-prime loans debacle where unqualified and risky borrowers were given uncharacteristically preferential mortgage interest rates well below market levels. Wikipedia describes this as "Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to various risk factors, such as income level, size of the down payment made, credit history, and employment status." [For a cartoon powerpoint subprime made easy...]

Many therefore were borrowing more than they can afford to remortgage or pay back, some were holding on to such 'cheap' holdings as investments in lieu of hard cash and other more volatile stocks and shares; and defaulting in huge numbers. Foreclosures therefore spiral upwards. (For a good analysis, see Jakarta Post 'The Tumbling of Giants")

Then, the soaring crude oil and commodities price hike triggered and unravelled the tenuous hold on liquidity. Savings and loans banking entities as well as insurers were all caught in a vicious web of interlocking downward spiral of near worthless returns. Then, Bear Sterns went under, the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) collapse, the Lehman Brothers chapter 11 protection, Merrill Lynch, Washington Mutual shock and worst of all the huge AIG collapse...

Now, the US with a panicky but hapless President George W Bush, is trying to cobble together the biggest bail-out the world has ever seen—USD 700 billion! This, purportedly to forestall the collapse of the world's largest economy and potentially triggering a global economic meltdown! It appears that the rooster has come home to roost.

Some 10 years ago during the Asian financial crisis, respected economists worldwide but especially American, were all pushing the then battered economies to accept the collapse and rapid-fire restructuring while the IMF and World Bank called all the shots, not withstanding the terrible social upheavals and shocks. (see Times' How Asia's Bankers Avoided Crisis)

Many home-spun corporations were quickly sold to foreign fund managers and multinationals. Huge numbers of the local population were bankrupted and impoverished, with some of the most traumatised resorting to rioting with ethnic overtones... Then, it was said that this was an acceptable phase of change for the better...

Thus, it is so ironic that the Americans are changing its tune—turning its own economic model on its head, and calling for such a blatant if callous bail-out! By protecting these huge corporations, it may be earnestly helping to prevent a severe meltdown. However, it is feared that it might also be protecting those perpetrators who had wallowed in profligate, wanton greed and obscene wealth acquisition for so long, with the addiction and mentality of casino gamblers of gargantuan proportions!!!

Naturally, the American citizen is not amused, with more than 90% of them feeling that they the taxpayers should not be bailing out these corrupt officials (that they should not profit in any way from their mistakes), while at the same time urging the lawmakers to ensure the sanctity of their mortgages, their savings and their pensions. Furthermore, more conservative Republican Americans are still opposed to dismantling the free-market system which they feel should not see a return to more governmental oversight (see Conservatives Viewed Bailout Plan as Last Straw)

Asian economists are now feeling even more betrayed and angry. They now realise that the world is truly unequal. "Do as I say but not as I do" appears to be the American model of free-market capitalism. (See Does financial bailout show US double standards?) Many people refuse to acknowledge that deep down (perhaps for fear of offending the superpower USA), there has always been an American 'exceptionalism' clause where its citizens and its interests reign supreme and supersedes everyone else's... Its benign power is evident only when its interests are protected or extended.

Perhaps, it is time for the US to eat humble pie and acknowledge that it alone cannot provide all the answers and solutions to our immensely complex and chaotic world. Perhaps, the US can help to finally strengthen its own flawed institutions by reinforcing more institutional oversight guidelines and regulations (not less!). In so doing, America might then recover its vaunted capacity to export good ideas and ideals, but perhaps more by example than by other devious means of influence and subtle and not so subtle coercion.

Perhaps the free trade agreements so aggressively pushed with many countries, should be revisited or even revised to acknowledge each and every country's inflexible interests, which are already in place in several clauses of the American agreement, but which many countries sheepishly enter into because of the so-called USA-driven market size...

Gross excesses during the past few decades were often apologetically rationalised away by the weight of US-trained and US-indoctrinated economists worldwide, such that alternative models have been left by the wayside. Socially-conscientious or directed mechanisms, safety net issues are almost taboo in the modern paradigm of this now shaky economic model. Continental European economic models with stronger social protections appear to have withstood better the current financial storm. (see Why the world will avoid Armageddon)

Thus, perhaps older Europe can play a bigger role in today's world in helping to reshape and restructure the world's economy. Perhaps, the Asian model of guided and government-regulated free-market models can find a more respectable place where control and regulations still exact a modicum of fear and responsibility from the crass extremes of unbridled greed and speculation.

Not being trained as an economist, helps to picture in my simple mind that there really is no free lunch. That one plus one may be 2, 3 or even 5, may be plausible. But 100 or 10,000 (!!!?), this seems just too far-fetched, too stretched beyond the imagination of unsophisticated mortals who deal with simple multiples in hoped-for returns from investments for one's future.

But we have of late let some award-winning theoretical free-market economists propagate attractive if mindboggling concepts of mathematical if unreal 'imaginary' numbers of market possibilities.

The past 2 decades or so have seen newfangled economic theories fanning a mentality of voracious greed to reap enormous profits and pay-outs, seemingly on an erstwhile unending gravy train of limitless resources. This belief has spurred that exponential urge to spend, speculate, guesstimate or gamble beyond one's monetary worth or capacity...

Following the 1987 global recession, we seemed to have embarked on a roller coaster ride of mainly positive growth of exponential proportions, with a spectacular rise in a middle class population worldwide. [See Henry Liu's essay on The Coming Trade War and Global Depression (2005)]

Free market capitalism and mass consumerism swept the world in an unprecedented success story which saw the demise of the communist-socialist model beginning with the 1989 dismantling of the Soviet Union.

Excesses and poor judgements by many aspirant developing countries on fast track growth led to the Asian Tom Yam crisis of 1997-98—this disaster crippled and decimated many third world nations and led to enforced hugely unpopular infusions of IMF and World Bank measures and funds.

Governmental bail-outs were frowned upon, and this 'shock and awe' model was proposed as the necessary bitter medicine which will eventually salve all economic hurts and wounds, notwithstanding the social upheavals which were unleashed in nations such as Indonesia, Thailand, South Korea and even in Malaysia...

In the long run, this approach was supposed to enhance economic strength and stability of the individual countries involved, where freer markets with foreign funds and investments, inflows or outflows, would be unhampered. It also presupposed that regulatory frameworks be simplified to the point of being ineffectual—it appears that Milton Friedman's school of economics was once again given free reign to transform new nations, new markets...

Only that this approach is supposed to allow individual/personal ingrained self-interest and 'greed' to ride supreme and therefore encourage a trickle down effect to finally eradicate poverty. Because, everyone as homo economicus should in theory be capable of finding their own true worth and place in today's world—they should be able to pull themselves up by their own bootstraps, unassisted, as this would artificially weaken the model...

Yet, despite this proposed unapologetic hard-nosed approach, most nations found that they could not accept the unvarnished practicality in toto, that, it was and remains an unforgiving mindless system which unfairly punishes the weak, the marginalised, the less capable, the less endowed. Pitiable safety nets had to be set up as glossy corporate social responsibility measures, often placed at the bottom rung of economic need or even consciousness...

Hence, while enormous wealth has been generated, enlarging a bigger than ever middle class, this paradigm has also enhanced the rich-poor divide (socioeconomic inequality measure, the Gini index).

As the nouveau riche empowered entrepreneurial and the investment savvy speculators pile on wealth and acquire more and more consumer goods and services, the left-behind and marginalised continue to fester in the underbelly of privation and hardship.

This growing destitute class seethes with anger, envy and appears readily to slip into disaffection with resultant tendencies toward potential violent, vengeful, anti-social behaviour—the stuff that begets urban anarchists, religious fanatics, jihadists, other mindless mobs totally opposed to the 'western' model of the world!

Extreme wealth disparity which breeds social dystopia—where an increasing populace feels miserable, dispossessed, disempowered and oppressed—is a real danger to a peaceful, progressive harmonious world.

Notwithstanding the ascendancy of economics and finance in the world today, the recent financial meltdown is a timely reminder that economics is never a hard science if ever, and whichever economic model cannot be the one and only foolproof unchanging model for the world.

It is precisely because mankind is quite unique in the biosphere of this one Earth, that he thrives relentless. With his/her multifarious activities, preferences and free choices, mankind represents the non-linear chaotic paradigm of fully evolved animal life.

What makes the first human from Africa migrate outwards around the globe, will never be known. But our proliferation globally into every nook and cranny of the planet attest to our tenacious grasp for life.

By testing the limits of his/her physical ability, intellectual prowess, artful skills at extending him-/herself through arms, appendages, then barter trades and finally financial alternatives, man has become that quintessential homo economicus.

Sadly, the long arms and tentacles of human reach can be too impactful, too abrasive even. Our human lives now extends through pervasive interweaving impacts and ubiquitous interconnectedness, changing nearly everything it touches...

But with our innate nature which makes everyone of us free to choose and to want for personal property, he is also ultimately, unpredictable...

An abridged version of this appears in malaysiakini as American capitalism unravelling