The News Factor, an online Conservative News Magazine

This article at The Journal of the American Enterprise Institute by Jeffrey Friedman shows us that there is something to learn on BOTH sides of the aisle …

Capitalism gets a bad rap from the libs ... but as an economic system, it "mitigates both human greed and human fallibility."

A BBC poll conducted in 27 countries found last month that only 25 percent of Americans think capitalism is working well—and that this is the highest proportion of any country in the world. Overall, 51 percent of those interviewed thought that “regulation and reform” are needed to fix the problems of capitalism, and 23 percent maintained that an entirely new economic system is in order.

This is the intellectual toll taken by the financial crisis. But the people of the world, including most of its intellectuals, are simply wrong to think that capitalism caused the crisis. And once we understand what really happened, we get a rather different conception of capitalism than those entertained by either its conservative defenders or its liberal critics.

Beginning with “What Really Went Wrong,” Friedman walks us through the mortgage market from 2001 to 2006. During this period subprime mortgages slowly ate away at an otherwise stable financial market.

The heart of the matter is that most mortgages written during the housing boom were pooled into enormous mortgage-backed securities (MBS). Fannie and Freddie securitized mortgages, but so did investment banks, such as Bear Stearns and Lehman Brothers. Shares of these MBS were then sold, as bonds, to investors around the world—but primarily to the world’s commercial (lending) banks. When subprime mortgage defaults began to spike in the summer of 2007, the value of all MBS began to be doubted. By September of 2008, doubt had turned to rout. Nobody wanted to buy the MBS inventory held by Lehman Brothers, since nobody knew how far home prices would drop, and therefore how low the value of MBS might go.

Think you know the “REST OF THE STORY?” Heh, heh … think again and read more HERE

Aw shucks … let me give you one more tidbit just to bait the hook …

How Liberals Get Capitalism Wrong

Liberals are correct to see through the usual defenses of capitalism. But they are wrong on the big picture. They fail to notice that there’s more to capitalism than luck and greed: there is competition—the saving grace of the whole system and, when undisturbed, the source of its strength.

… A baker who offered moldy or tasteless bread would be driven from the field by a competitor offering a better product. That is the message of Adam Smith.

The reason is the competitive nature of the capitalist system; the motives of individual capitalists are irrelevant. Competition puts capitalists’ different motives and ideas to the test of consumer satisfaction. This tends to give consumers what they want—and it diversifies a capitalist society’s investment portfolio. Capitalism thus mitigates both human greed and human fallibility. This is an amazing achievement, but there’s nothing magical about it.

Economy American Enterprise Institute, capitalism, Financial crisis, Jeffrey Friedman, mortgage-backed securities, subprime mortgage market