This must be some kind end of an era.

Lehman Brothers, Bear Stearns; names which are familiar in the realm of economics are no more. New prints of textbooks are required because the old ones are already outdated.

I spent almost continuously for four years living in the Michigan Union and every year, I would pass through its proud hallway. In front of doors along the hallway so full of memories, premium names would appear. Each year without fail, these institutions would visit Michigan for recruitment purpose.

It was here how I learned of these names. And what I did not know, I later learned more comprehensively in classes and later, through wider readings, sometimes in the libraries and usually on the internet.

During senior year, the highfliers were talking of joining these names, of joining the Lehman Brothers. I could only look at them enviously.

This is definitely not the first time names such as the Lehman Brothers have been swept away by time and carved only in history now. Drexel Burnham Lambert is another prestigious name which suffered the same fate approximately 20 years ago. Michael Lewis in Liar’s Poker skillfully described that era when he was with the Salomon Brothers.

In this time of collapse, doomsayers are sprouting like mushrooms after the rain. The end of capitalism, they say. Look around, the sky is falling.

On the contrary, no. The sun will rise again tomorrow and so shall we.

There is pain involved but all this is part of capitalism. It is to some extent a free market. Though the Austrian-inclined would deride what mainstream economists would call business cycle, the periods of exuberance and pain are just part of the game. We reap what we sow.

Similar crisis happened in the past in the 1980s in form of savings and loan crisis. In the aftermath of the crisis, market reforms were carried out, resulting in stronger market and renewed confidence in capitalism. The same will follow the subprime mortgage crisis after the dust settled.

Business failure is typical in capitalism. There is risk in business, as in life, and failure humbles us all. It reminds us that we cannot win forever and ever. Any state effort to artificially eliminate risk will only make us arrogant. Mark my words, the bailouts of Bear Stearns, Fannie Mae and Freddie Mac will be the seeds of future disaster.

There is really no need to overly worry and panic each time businesses fail in a free market because each time it happens is one more time for all of us to learn something new, or to relearn something which we forgot.

It is still sad to watch everything that is familiar going down in flames. Watching people, especially honest hardworking smart people, losing their jobs is always heartbreaking for me but losses and failures are bitter medicine. It is sad but let it fails. The invisible hand is at work and it knows better. After all this, we will emerge stronger.

So, here is to capitalism for there is none else better. We have reached the end of history.

2 Responses to “[1776] Of capitalism is here to stay”

  1. on 16 Sep 2008 at 03:32 xea

    That’s nonsense! Capitalism breeds greed!! The law of the jungle applies. The weak perishes and the strong devour the weak growing mightier!

    11 banks in 9 months……Lehman Brothers represents only the icing on the cake. In time it shall be revealed to us the real cake. And when that happens the world shall watched at the leading advocator of democracy and capitalism flounder and falter under the very foundations on which it was build upon.

    I’m not a doomsayer; I’m realistic.

    Communism has and always will be the way to go!! Equality and fairness for all!

  2. on 16 Sep 2008 at 12:35 anon

    re: xea

    Capitalism works because it’s the closest thing we have which adheres to immutable, real, ‘natural’, economic laws. Communism and socialism have been tried over and over again – to the point of making everyone worse off; if you’re concerned about capitalism, nature AND equity, maybe take a leaf from the Old Testament laws – but the world doesn’t subscribe to God.

    In capitalism, individuals have the freedom to make choices, and take full responsibility the resulting consequences; when this freedom is curbed (under communism / socialism), when you’re not making decisions for yourself, remember – SOMEONE ELSE IS MAKING THE DECISIONS FOR YOU.

    If capitalism ends (achieved through political means, with approval by the sheeple), what you get is the curbing of individual liberty – FASCISM, in short.

    History testifies to this.

    And I’ve jumped up and down about this – the fundamental problem is not with free markets, the lack of regulation, speculators, foreigners etc, but there no longer exists a SOUND MONETARY SYSTEM.
    My view is that paper (fiat) currencies as opposed to HARD MONEY are bound to collapse sooner or later.

    Most of what goes under the guise of capitalism is actually socialism for the rich – but a lot of people (socialists/communists especially) cannot distinguish between the two.

    Capitalism doesn’t breed greed. That people are motivated by greed, optimism, etc is simply human nature. People being people, you know. People can speculate, comment, entice, deride and behave in their greedy ways, but their choices of behaviour is strictly CURTAILED under a hard monetary system. In other words, they can be themselves, but they won’t be able to wreck the economy.

    The real poison is the ability to inflate and deflate the money supply — all by the sanction of the state.

    The fall of Lehman Brothers and the other investment banks, contrary to what you have asserted, only affirms the fact that the market is the GREAT LEVELER. Leave the market alone, before which all men and all firms are treated with cruel justice, harsh equality, and unrelenting fairness.

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