[darjen]

A fundamental flaw in the article:

"The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from behaving badly by imposing taxes and regulations."

If the government hadn't intervened in the first place, and instead let these irresponsible banks fail, then the transfer of taxpayer money in the form of bonuses never would have happened.

What she's describing here is, in actuality, yet another flaw of government intervention.

[KirinDave]

I wouldn't say that was the main thrust of the article, by any means. You take one sub-point amongst a set of much larger and more important points and mine it out and claim that yet again, government intervention has proven useless.

Her main points, for those who will tl;dr the article and take your post for granted:

1. People do not always act in ways that are inherently good, either in an ethical sense or in a sense of what is "financially good." Rand does seem to suggest that this will be an inherent property of people who are capable of rising to positions of power.

2. The current system rewards people who can amass capital and take risks with it more than people who actually create that capital in the first place. She points out scientists and engineers who make the world a better place and invent new technology that can revolutionize markets are not proportionally rewarded for this change, while speculators who can take big chances with money are rewarded disproportionately. This creates a strong draw away from the allure math, science, and medicine towards the better paying jobs in the world of finance, thus weakening our ability to innovate and generate new capital for capitalism to draw upon.

Your complaint addresses neither of these, and I can't help but feel like you were being a bit disingenuous and dodging the actual issues she raised by hiding behind a straw man outside the crux of the article. Please address her substantive complaints if you're going to argue with the article.

[yummyfajitas]

Regarding 1, that's nonsense. There are many unethical people in positions of power in both Atlas Shrugged and the Fountainhead.

Near as I can tell, the most she ever suggests is that people who compete within the market (e.g., by inventing a better metal or making better loans) are more ethical than those who use the government to gain an advantage.

[steveplace]

The current system rewards people who can amass capital and take risks with it more than people who actually create that capital in the first place.

The origin of this system was not created through free-market-capitalist methods.

scientists and engineers who make the world a better place and invent new technology that can revolutionize markets are not proportionally rewarded for this change,

But the men and women who take on risk to pay them are rewarded.

[KirinDave]

> The origin of this system was not created through free-market-capitalist methods.

Is that relevant?

> But the men and women who take on risk to pay them are rewarded.

Yes, but that's the interesting part. The actual exceptional people are, almost invariably, the scientists and doctors, and engineers who possess unique backgrounds, education, and frequently unique cognitive abilities. Many people have invested large sums of money to gain the unique education that allows them to purse. And then suddenly any speculator is considered to have "taken risk" by funding these people? And they get the lion's share of the reward, while it may take years just for the actual inventor to pay back the loans. Meanwhile the funder could be "anyone with money" and now they simply have more money.

Sometimes people who like capitalism talk about a Meritocracy, but that word is deceptive in this case because it's a meritocracy of products, not a meritocracy of people.

[dantheman]

Inventing something by itself does not create value, to create value it must solve a problem. If you invent something,self funded it, and then take it to market you will be incredibly rich.

[KirinDave]

Such as the Theory of Relativity, or inventing the Internet, right?

Too bad reality doesn't reflect your sentiment. Even solving a massive problem may not result in becoming rich. Especially with the way network economics has turned the whole scarcity model upside-down for modern internet-based startups.

[gaius]

What you consider "profit" depends on what you are trying to achieve. There are plenty of billionaires who'll be forgotten but in 500 years people will talk about Einstein like we talk about Newton, and about Tim Berner-Lee like we talk about Da Vinci.

[whopa]

But one of the points of the article was that people who have the potential to be the next Einstein or Berners-Lee are disincentivized to pursue that potential, and instead follow a path that makes more money, but doesn't add value to society.

[kansando]

Right. And allow the economy to go into a long-term depression with 25%+ unemployment. A government "for the people" does not have a choice in this matter. The real problem is that bankers/speculators have so much power on the outcome for people who are not at all related to the industry.

[megamark16]

The point isn't whether or not the government should have intervened, the point is that because they did we can't blame Capitalism for the outcome of that specific action. A purely capitalist market would have let the financial crisis run is course, right or wrong. At least, that's how I see it.

[chrischen]

The thing is the US isn't purely capitalist.

[darjen]

strangely enough, that's not what happened when harding kept his hands off the market during the major crash of 1920-21.

and why did the bankers get so much power in the first place? there is a LONG history of government centralizing, cartelizing, supporting, and regulating the market's major financial players.

[moron4hire]

You write like you have a crystal ball and can see the future. There is no telling what "letting the banks fail" will do for the long term. However, we do know that increasing national debt to the degree that has been done is not good.

[danek]

There is also no telling how bailing out failed businesses will help us in the long term either. Intuitively it seems worse to me. And unfair--what about all the other banks that didn't screw up by leveraging 35:1?

[gaius]

these bailed out banks want to hand out billions in bonuses to their non-performing employees

If I worked for a bank, and I had nothing whatsoever to do with its subprime business, and had made a trading profit (or was in an unrelated function like IT and had fulfilled all my targets) then damn right I'd expect a bonus, and I'd deserve it too.

It's interesting to note here in the UK that the 70% taxpayer-owned RBS has just posted record losses, where as Goldman Sachs who repaid their TARP money to the US government, plus interest, as soon as they could is doing good business and paying their employees decent bonuses this year.

[condor]

Goldman's business was subsidized by the Government, in the form of funding Goldman's transaction partners, so that they could pay Goldman what was owed.

In normal business if my customer goes bankrupt, even if I made the sale and was owed money, I would take a loss on that transaction., and if the loss was large enough it would affect all of my employees, who in turn took the risk of working for me. I took the risk of selling to that customer, I was in the best position to judge their stability, and so would have to deal with the consequences. Goldman didn't have to deal with the consequences of transacting with unstable partners, the Government (in the form of the taxpayers) stepped in to deal with those consequences, and that is why in large part Goldman is able to exist, earn a profit, and pay bonuses.

[gaius]

Goldman's business was subsidized by the Government, in the form of funding Goldman's transaction partners, so that they could pay Goldman what was owed.

That is as true for them as it is for RBS! My point is that the government isn't doing a very good job of running a bank...

[dantheman]

Goldman may have repaid their TARP payment, but they received a crazy amount of money through the AIG bailout. The amount of government flowing into these institutions is astronomical, and almost all of them should have entered bankruptcy -- had their assets sold to firms that were responsible.

[sethg]

Banks, more so than most enterprises, are stepchildren of the state. You can't charter a bank without "government intervention", because a bank's stability, and hence its ability to attract depositors, depends on things like access to credit from the government (the Federal Reserve, in the US). The question is not "government intervention" vs. "no government intervention", but rather what kind of intervention is in the best interest of the public.

[darjen]

you're right, our banking system isn't even remotely close to being based on voluntary trade and "free market". so I'm not sure how we can even discuss this supposed failure of the free market.

[AndrewDucker]

Do you have any idea what the current financial situation would have looked like if the government had just let the banks collapse?

Hint: a lot like a jenga tower does just after you take away a vital piece.

Letting the entire financial system collapse might _possibly_ have led to better behaving banks in the long term(although I doubt it, people don't learn). But in the short term it would have cascaded through the entire economy and left the economy entirely non-functional.

[billswift]

It could have, but I have seen no evidence to support this. In fact, that is why the econo-blogger Megan McArdle at The Atlantic supported the bank bailouts, because she feared that would happen. But despite reading her blog regularly, she has presented evidence only her (and others) fears about what could have happened.

[aswanson]

C.f. for what (possibly) happens when banking systems collapse: http://www.livinghistoryfarm.org/farminginthe30s/money_08.ht...

[yummyfajitas]

That's also what (possibly) happens when your agricultural system fails due to a dustbowl/drought, free trade is eliminated, big chunks of industry/labor cartelize, and the government takes over huge sectors of the economy.

[condor]

"Do you have any idea what the current financial situation would have looked like if the government had just let the banks collapse?"

No, and neither do you. That's why its called a free-market. It's free to do anything. It's not a free-market thats only free to take the form of what our expectations are.