Tags: Longstreth | capitalism | Fed | government

Former SEC Commissioner: US Govt Doesn't Really Believe in Capitalism

By Michael Kling   |   Friday, 12 Apr 2013 12:21 PM

U.S. government officials say they believe in capitalism, but their actions say otherwise, says former SEC Commissioner Bevis Longstreth.

“To be sure we’re on the same page, let’s rehearse the definition: Random House Dictionary defines ‘capitalism’ as ‘an economic system in which investment in, and ownership of, the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals or corporations,’” Longstreth writes in an article for the Huffington Post.

To begin with, he says, the Federal Reserve is buying almost 75 percent of the government’s annual debt issuance.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

That, he says, “creates unnatural upward pressure on all assets.”

Fed Chairman Ben Bernanke has said rising stock values would boost consumer wealth, boost confidence and increase spending.

“Isn’t Bernanke deliberately asking the investing public to throw caution to the winds?” Longstreth asks. “And doing so despite the fact that, after more than four years of untested medicine, the patient has not recovered?”

In addition, the government allowing a handful of mega-banks that at too big to fail, jail or manage to flourish with government subsidies is an illustration of the government not supporting capitalism.

For instance, a Senate subcommittee found numerous abuses connected to the JPMorgan Chase “London Whale” trades, yet none of the recommendations the subcommittee put forth mentioned breaking up mega-banks, referring the findings to the Justice Department for prosecution or to the Securities and Exchange Commission for enforcement or suspending JPMorgan’s banking license.

The Office of Comptroller of the Currency (OCC) knew what JPMorgan’s derivatives traders were doing, yet did nothing, Longstreth writes.

“Does this behavior make the OCC a silent partner of Morgan, participating in a conspiracy of silence? Does it suggest that, perhaps, the ‘big five’ are wards of the state, or worse, visa versa?”

Moreover, the government still supports 95 percent of the mortgage market through Fannie Mae and Freddie Mac. “Why should this be? What’s public about private home mortgages?” he asks.

The government’s intervention in markets to bail out companies and control the economy is using antibiotics. As use of antibiotics has grown, bacteria have become more and more immune to them.

“The parallel to government intervention to save private enterprises and control the economy is strong,” Longstreth says, “and may become stronger as the unintended adverse consequences of national economic policy slowly emerge.”

Bernanke has said the Fed’s program of buying bonds to keep rates low is not creating an asset bubble.

“In the stock market, we don’t see anything that’s out of line with historical patterns,” Bernanke said, according to The Washington Times. Although stock indexes are at record highs, corporate profits are high and stocks are below their record highs after adjusted for inflation.

Low interest rates are needed to sustain the economic recovery, and the Fed will keep rates low until unemployment has dropped to 6.5 percent, he explained.

“It’s still not a completely satisfactory economic recovery,” Bernanke said, The Times reported.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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