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alone welcome to cross talk we're all things are considered i'm peter a little is the capitalist system in crisis after five years of financial and economic chaos multiple bailouts from wall street to cyprus the global capitalist system is on trial high unemployment and mountains of debt plague the western world all the while politicians go from one blunder to another so what has capitalism done lately. to cross something crisis of capitalism i'm joined by rachel martin in paris she is the tribune company syndicated columnist and founder of rachel martin associates in new york we have george said newly he is

a fellow of the global policy institute of london metropolitan university and in washington we crossed to fred smith he is founder and chairman of competitive enterprise institute and if that means you can jump in anytime you want george says capitalism state today well i think capitalism is indeed in crisis it's been five years since the crash of two thousand and eight and the multiple bailouts and the unemployment remains high and there's no real prospect of recovery and what is really becoming clear is that we're now having to live with a situation of very high unemployment high rates of poverty and capital which is supposedly the unit of capitalism essentially going to exclusively for one purpose which is finance it always it just simply makes money off itself ok rachel jump in the state of capitalism today. you know capitalism

was doing just fine until it was hijacked by socialism and what i think george is seeing and what we're all seeing and what occupy wall street has been protesting is really the socialists a version of capitalism and not capitalism itself and george just touched on one the reason why we're seeing issues with a system that is no longer capitalist at all and that is capital no longer being part of capitalism it's been replaced by leverage by financialization of capital so capitalism doesn't have capital in it anymore and it's interesting because why street light is. history like there's been a lot of wall street likes the current situation knows about wall street but if you are going but peter wall street has never been capped wall street's not capitalist either wall street is is its own system entirely capitalism by definition

is selling one skills and work and product of for a price to a need in the free market that has been corrupted that very simple direct relationship has been corrupted so badly by socialists by. to profit from the system by no and you know it's very you know why wall street but like i said wall street's not capitalist either but it's a whole other read capitalists are wall street and the fact that those two things are equated is is is just ridiculous but it's very interesting because i think it's important to pinpoint the genesis of this and and how it came about and it's really interesting because i think your views are find it really interesting especially on this network that there was a gentleman by the name of your investment off who gave a talk in los angeles in one thousand nine hundred three and he was a k.g.b. to factor and he was a propaganda expert for the k.g.b. and he explained six different point six areas of ideological subversion of

a population which would go unnoticed by the. average person which would undermine capitalism and a few of those points are education and he said it would take a couple of generations for this to come for for western for capitalism to basically implode on itself because of slight changes slight influences the education system he said if we can get it airy fairy and if we can get people away from the hard sciences and towards things that are kind of useless in the marketplace that will subvert capitalism another thing he mentioned all right i really do enjoy that we can go to all it's kind of pride for us i've got really good friends first let's go to fred first got here there are six of them so i know fred we're going to we're going to go a long way away from where we started off as today you know the earlier person made this point better i think than your yuri did judge of jumper in one thousand nine hundred eighty two as for the capitalism could survive and he said no and he pointed out the intellectual class would find capitalism distasteful would write married his disdain for love capitalism would gradually poison the well of public

opinion to lead to the kind of collectivization of the capitalist system but that you don't blame the kora because people have tilted the rosalie right off of it what we have done is it's and i do not believe it's the financial engineering that has anything to do with this let's take you where is of innovation and that could have been wonderful capitalist success stories the renewable energy area and the financial engineering area the river thames and all the that type of activity in both cases there are wonderful ideas that can properly be and be distilled and become a wonderful way of wealth creation but in both cases government randian and subsidize it to renewable energies that become a sink for wealth not a creation of wealth and in the derivatives area with fannie and freddie with a moral hazard of basel and so forth we created an unstable system that is stabilizing capitalism but you don't blame capitalism for the fact that we've destroyed the senate structures that with effectively socialize the risk that's not

capitol hill to grab and socialize with georgia. none of this is that although this is cold comfort if you're unemployed isn't it well that's absolutely right and i'm also a little. strange when people talk about this idea that there's some pure capitalism because really capitalism from its inception had always been very much a state run business i mean it's basically from you know you starting from going back to the american history. of the state has always been very much involved in helping out capitalism and even before the recent bailout i mean the great. american industrial success of the computer industry would have existed had it not been for government it was a government investment in the mainframe computers that gave us the computer industry it was government that provided support for microsoft or apple it provided support for the internet so all of these great innovations of all come about that

thanks to governments i don't think it was ever a moment when. there was this pure capitalism i mean what the reason i think is that simply mark you are ya'll are going to where i was simply age that. let me finish please just so that there's a free market ideology according to which. you know when people are going to go go out of business if they can no longer meet the needs of the market but the free market ideology only works really for poor people i mean for for many years the rich have always been joyed the protection of the state and you know the bailout of two thousand and eight was just a in a long tradition of such bailouts ok fred you want to jump in go ahead. no no no that's silly look of course there have been government intervention we've never been virginal in the sense that we've had pure capitalism but we've had a higher approximations than we do today eight hundred eighty s. which when capitalism or us here in america we had the robber barons but we all

said j.p. hill we had the bankruptcy of the the railroads. caused by the government intervention go through today we have capitalism has shrunk from ninety five percent of the us economy to fifty percent today government's massive in america today so of course you're going to have more of the problems that george and rachel and i are all concerned about but you can't blame capitalism when you have less of it than you had before we were doing well when we were a capitalist economy and will do well again once we get passes idiocy of trying to go a mixed economy but don't blame capitalism for the fact that we don't have as much as we need to. way and go ahead you've been patient go ahead. yeah. it's it's not like capitalism can't exist alongside the state. it's just that the problem is the inverse of that the problem is when the state jumps on a product of capitalism to tax it or to regulate it i mean we did quite well as a society without all the regulations we see now i mean it's just grown

exponentially but i guess and i think it goes back to a cultural shift i think there was a time when you could do business on a handshake when hard work was the norm when people got up every day and went to work and didn't spend all their time protesting in front of the capitol because they you know they are complaining about the fact that their life isn't what they think it should be instead of getting out and trying to fix it and using their brain and their able body and to do something for themselves and i think that's that's the issue it's the inverse it's not like state statism and capitalism can't co-exist it's just that when when the state jumps all over capitalism it becomes an issue george jump in. no yes what we do have now is that for many people there is such a thing as capitalism there they are told one fine day that where you don't really have a job anymore and there was a year and therefore they are laid off why because the company isn't making

a sufficient profit. the are the c.e.o.'s and the shareholders very nicely they maintain their profit line so what we have now most of the business i know we had to trade on which is. the proper practice i just added finish the. privatization of gain and socialization of losses this is. not because of socialism i mean these these people who the system that is being created is being created by people who have decided to make the system work for them so for everyone else there is capitalism pay well that's that's the way the market works very one else there is the nice little bailout of the golden parachute provided by the state ok rachel do you want to reply go ahead. yeah yeah there's a point you made about the fact that you know everybody just gets laid off and and businesses are trying to save money and they can only win by doing that there's actually a very specific example in the news very recently of wal-mart losing quite

a bit of business recently because they laid off a large amount of the workforce thinking that they could do exactly that what they found out very quickly because the market will correct that you don't have to the government doesn't have to regulate that or force people to force businesses to employ people what happens is customers realize that i can't get the service i normally can so they move to costco and target and that affected wal-mart's numbers so the market regulates itself we don't need people to meddle with it we don't need socialist or status or centralized government to to equal the field with the free market i mean. marx learned i want to jump in here fran it before we go to break and let me go to the right now let me go to fred what wal-mart wal-mart is a classic and let me follow up with that rachel one other thing too is the idea that there's some sort of rigidity in the corporate structure of america or the wealthiest americans anyone who follows forbes richest people in the world index

year after year after year right or so i create i'm going to jump in here we have to go to a short break unfortunately after a short break we'll continue our discussion on capitalism state which are to. believe these. things are.

the book about international airport in the very heart of moscow. welcome back to cross talk we're all things are considered i'm peter lavelle two minute we're discussing capitalism in crisis. ok fred i'd like to go back to something was mentioned earlier that you know you rich people have socialism in poor people of capitalism. well yeah they i get mad

that that's the argument out there but in fact if you look at the list of the richest people if you look at the children of the largest corporations in america over the last century massive amount of churning from decade to decade going up and going down americans are fairly tolerant of creative destruction the realisation that the old has to give way to the more efficient more affordable products for more people than any one thing happened in two thousand and eight believe that didn't happen as a two thousand and eight did it they had that's right that's right they have to believe it's done fairly and when they see government keeping people artificially alive that is what led both the occupy movement and was free and the tea party movement to in many ways react exactly the same way they weren't opposed to capitalism they were opposed to it's distorted form of crony capitalism or is rachel says socialized capitalism that is what people are opposed to and that's why we went to capitalism again would have a much more unified america on the left and the right george go ahead. well here's

the this capitalism has been around for a while i mean these the bailouts of two thousand and eight follow on from the earlier bailout in one thousand nine hundred five of the goldman sachs. that was of the see the huge crisis goldman sachs needed to bail out over its loans to mexico that was the bailout of the s n l's that was the bailout of the banks in the one nine hundred eighty s. each time there was this bailout we have the same situation which is that the bankers they go to government and say well we've taken all these risky loans and if you don't bail us out the entire economy of the world will come tumbling down and the politicians are don't know whether this is true or not and immediately whip out their checkbooks and write it out this is what capitalism is and therefore what is precisely that the riches are bailed out they continue to earn their massive bonuses while everybody else has to pay for their risky loans and the risky you

know nonsensical decisions and lose their jobs and are then but basically are out for you know the permanently unemployed if you look at the. unemployment statistics are you can see that there's a there's a rising number of people who are basically permanently unemployed they just essentially were just been waiting to die off because there's just no prospect of their getting any jobs now this is the direct consequence of this system which rewards. risk taking which isn't real risk and punishes the people who've just been doing the basic jobs rachel go ahead. george let me go to rachel first legally where is first ok. where were the personal responsibility in all of this i mean if there was nobody willing to take on loans that they couldn't afford to pay back or take on mortgages

that they couldn't afford to pay. there wouldn't be a crisis i mean if if banks where they're saying to people look i want to force this loan upon me when the people said look i really can't pay that i really shouldn't be taking that because it's out of my knee that i should be where it's going to be right from the way you want to there's no other way. around isn't it the other way around these banks these people could not pay these way alternately you know they knew what they know nancy your question go ahead but the banks knew the banks knew no but you know what it's where well that's fine the banks can try a con if they like but and then they get you but then they get bailed out person then they get away. and and to get bailed out because people were too stupid to say look i can't take that loan because that's out of my means so where's the personal responsibility where are we as a society to say you know what we screwed up not the banks we screwed out we fell

for capitalism screw our capitalism screwed out of somebody from calico isn't going to read good here both freddie go ahead it will actually things that is not good and not proud capital is going to spread one half of the corn. wait rituals focus on the responsibility of the lenders who went out and got over there the credit users they did perfectly acceptable and of course there were banks who did the same thing on the other side and there were individuals on both sides who didn't the cultural collapse that rachel fears i think certainly there's been some cultural erosion because of this moral hazard we've created but generally speaking some very important banks b.b. and t. decided not to make those kind of loans and a very large number of people including friends of mine did not buy a house that they couldn't afford most people reacted normally the troubled grades the system was so destroyed in that sense that we just disconnected the fire alarms

and we were surprised that the building burned down that's the solution you capitalism requires on a sense of checks and balances you can you can take risk but if you lose you lose and we all understand that that system was weakened by the model has it problems we created but those didn't come out of the private sector those came out of the political sector it wasn't capitalism be saying we're not going at all since because capitalism can't do that it was the government doing it ok george. right and we're going to merge with you're going to enjoy. the bankers were extending the bankers were extending these loans and they were earning enormous amounts of money on these loans they didn't do it out of some kind of charity they were making money on all these loans so the fees were accumulating then when they were securitized the bankers were making money off of the derivatives so all of this was that this continually churning. money vos profits

to the owners of the banks and then of course when the whole thing when belly up then they went to the government but in fact this was all of this was well known there was probably a great surprise in this because there's been a long pattern of bankers being bailed out by government so there's literally no risk they knew perfectly well what they were doing they were making enormous sums of money and when inevitably the collapse came they were they went to the government i mean it's a pattern that's been repeated over and over and over again rachel you want to reply go ahead nobody on you know on second going to yeah yeah but going back to what fred said he has he has a point and it's a fits exactly here he was talking about the fact that there was a political impetus for this move and that is during the clinton administration fannie mae and freddie mac. were mandated to deal with loans to people who were minorities racial minorities he could not afford to repay these loans but clinton want to be able to

say at the end of this term the minority under my watch the minorities in america were able to buy houses so it's black clip for you and to the friend of my friends for am i wrong on going. right maybe and right and enjoying some support today. thank you yeah. absolutely right it's not only the clinton decided to have an up or to clinton's idea was where we're less race is more blacks will own their homes did bush comes running in with the ownership the same decisions that do the same thing . we were basically pushing. the throats of people who couldn't afford lives everybody says it's ok but that was criminal over and over that hooper really rise out of the religious ladder the point is yes or no george those go ahead george yeah but who paid that though again who paid the price for this the people who pay the price are the homeowners because they were foreclosed upon they got kicked out of their homes but the banks didn't pay any price for that they they

made enormous sums of money on all these loans they made enormous sums of money on securitizing these loans and then after the bailout they continued to earn enormous sums of money so for these decisions those people that clinton supposedly helped well they lost their homes i was thrown out on the street but the bankers they did very nicely thank you very much fred you said something earlier in the program i think it's really interesting because capitalism fred you said something earlier in the program you said real capitalism how would you like to see it in america go ahead. i would like to see the a ray of moral hazard that i would like to reconnect the disciplines that capitalism grew up with we should get rid of deposit insurance it was a win when deposit insurance was started in the one nine hundred thirty s. f.d.r. not exactly a you know what i champion of capitalism said this was very dangerous it would encourage people to try to ignore the soundness of their banks and banks to be more

imprudent we did it again and again during the s. and l. crisis over and over again we have weakened what the what catalyst offers which is which is you can take risk but then you the risk are yours if you lose by weakening those we destabilized a large part of the financial industry maybe. we nationalized. we had bailouts what nationalizing the banks will mean that we totally protected the nationalized banks of other countries or less stable than ours i mean there are all of them it's a moral hazard problem you've got to recognize that if you're going to let people take risks they have to bear the consequences when they're wrong and every attempt to eliminate that to make sure will take risk and then nothing will go well what about limiting risks with distance and limiting risk with. what about the banks fred keep going what about the banks. the banks down at the banks would not have

a problem if the other banks so that would be stupid banks and he grabs stupid people of any institution but wall street the moral hazard problem but get on straight fannie and freddie of giving them good. wall street so figure now for ever as up they are doing all the handful of people and yeah while the one percent of their people are not angels it depends on the institutional framework you created we created a system designed to fail and it failed but it was not a capital ok george i want to go to you i want to give george the last words it was because it looks like capitalism is working just fine for one percent go ahead. yeah and you know i don't know whether the deposit insurance is ready or very much to do with it i mean look at what's going on now i mean the banks are essentially getting interest free loans from the government which they then lend back to the government and then pocket the interest that they make on that so and then this money then goes into the stock market so the banks are again making money twice

over and this money is not think used in any productive way so something to do with the you know with the deposit insurance it's basically the banks are encouraged to lend recklessly and this is this is contemporary capitalism nothing has changed in two thousand and eight. lady and gentlemen thank you very much many thanks to my guests today in paris new york and in washington and thanks to our viewers for watching us here at the see you next time and remember crosstalk. the worst year for the. white house of the day the radio guy and club element.

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