Bailout Blues

By David Warren
The Ottawa Citizen
http://www.canada.com/ottawacitizen/index.html
September 25, 2008

I trust no reader will take me as a financial maven -- indeed the whizbangs in question are out of favour at the moment -- but I did once edit a business magazine in the Third World, and learned some of the jargon.

Indulge me a moment longer, and I will tell you the magazine was Business in Thailand (not quite a threat to Forbes or Fortune, or even Euromoney -- my bedside reading at the time, though it hasn't been through the decades since).

In this job I developed a tremendous admiration for (overseas) Chinese business practices. I thought these men (and women: some matriarchs, too) the purest and best of capitalists. I met several "CEOs" of surprisingly large trading firms, founded on such romantic commodities as vegetable oil seed.

What did I admire? First, the modesty of these people. No matter how wealthy and powerful, each was incapable of forgetting, for example, the Swatow noodle shop from which he rose. I met, for instance, a man who commanded a substantial fleet of cargo ships. He worked in the tropical heat, under an oil-dripping ceiling fan -- in a singlet, at an ancient splintered school desk. He had always used that for his table, and saw no need to replace it. It had brought him very good luck, after all. Its small surface area was further reduced by an abacus.

Second, such a man could be counted on. His yea meant yea, his nay meant nay, and his handshake bound him better than any contract enforceable in law. In the ethical world he inhabited, a single default was the end of his reputation, and thus the end of his livelihood. No second chances.

Third, I will mention the competitive zeal. Without spreadsheets, without quarterly reports, with no more than accurate inventories and current prices juggling in his head, he could deliver huge volumes of product to a buyer, "just in time," at profit margins sometimes less than one per cent. And get and stay rich doing this.

Sad to say, I am speaking of business methods that are almost extinct, even in East Asia (although the memory of them remains a fine influence today). More happily, I am able to remember big businessmen who did not give themselves airs, who did not cultivate the vanity and "charisma" we have come to associate with high-profile public traders and moneylenders.
Moreover, I think -- indeed, I know -- that behind the façade of every successful businessman is this man in a singlet, ignoring the heat of the day. "Raw capitalism," let us call it, is an honest dealing with the materials of the world.

It is the kind of sweaty laborious capitalism that supplies us with clothing, shelter, food and drink. I am therefore suspicious of most "free market" talk; of every attempt to reformulate immortal "raw capitalism" as a fashionable ideology or creed.

Any reader who has followed me for some time will guess that I am appalled by the (purported) $700 billion bailout that U.S. President George W. Bush and Treasury Secretary Henry Paulson have organized, yet cannot reasonably oppose it at a moment when the markets are close to a true meltdown. I am further appalled by the spectacle of the Democrats in the U.S. Congress, exploiting the emergency to affix massive quantities of poorly disguised pork to the blunderbuss bill.

And finally, appalled by the media and chattering heads calling the whole mess a "crisis of capitalism" when the plain facts show the opposite. The whole "subprime mortgage" instrument was invented by bankers specifically to assuage heavy-handed Congressional demands to swell the number of minority and low-income homeowners, 20 years ago. Fannie Mae and Freddie Mac were already bloated quasi-government bureaucracies, dangerously freed from many conventional market disciplines. And among the chief beneficiaries of the current bailout are the most extravagant contributors to the Democrat Party.

As one of my more knowing correspondents put it: "Wall Street loves money but hates free markets, because free markets distribute economic benefits to those who earn them, rather than to those best able to seize them."

The capitalist investment bankers stand accused, rightly, of having invented brilliant kiting schemes -- ultimately to deliver credit to customers who hadn't earned it. Their "greed" is irrelevant -- everyone is trying to make money. The point is that the schemes themselves were basically unsound. The lesson is that when home ownership is considered a "right" instead of a privilege, it is not only the housing market that goes bottom up.

This is a lesson no one wants to learn, so it will take time to sink in. But any attentive reader of the Wall Street Journal can know today, what his neighbours may never even hear tomorrow: that this market crack-up, like every other, came not from observing the basic principles of capitalism, but from trying to deny them in the face of nature.

otiosus@sympatico.ca

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