It's been quite a week for Capitalism.
On Friday, federal regulators seized the assets of Indybanc, making it the second largest bank failure in American history. On Monday morning depositors were reported lining up at Indymac branches in California at 4:30 AM in an effort to get their deposits out.
The federal government insures deposits up to $100,000; beyond that, there is no formal federal insurance. There are people whose deposits at Indybanc exceed $100,000. It's too early to know what will become of their money.
On Sunday, at 6 PM, the Treasury Dept. announces a plan to "bailout" the troubled mortgage institutions, Fannie Mae and Freddie Mac. Part of the plan includes the federal government buying stock in these private companies as well as the Federal Reserve System (Fed) making loans available to them at the same rates that member banks pay for this privilege. The Treasury explained that a collapse of Fannie Mae and/or Freddie Mac would be intolerable for the world financial system.
The USGovt and the Fed have been engaged in a series of putting out brush-fires regarding the world financial system since at least March 2008, when they put together a bailout of the Wall Street investment bank Bear Stearns. That bailout set precedents, as does the current bailout of the two mortgage giants.
The precedents being set all have at there core the intervention of the federal government into sectors that had previously been considered, at least de facto, realms of the private sector.
This dynamic is reminiscent to this writer of the revamping of Capitalism that took place during the period of the Great Depression and WW II during the mid-20th Century. Only this time the folks in charge are trying to conduct a revamp/rescue in the stealth mode, careful not to say things that might worsen the situation, but also offering very little in the way of explaining what is going on and why the System has reached this stage of disrepair.
There are legitimate concerns about fueling bank-runs by uttering the wrong words; for example, Wall St. has been cautioned by the SEC to avoid rumour-mongering, whispers between traders that today could bring down a firm. But is complete silence from the president on these matters the only alternative? Up until today, it has been Treasury Secretary Paulson who has been the lone voice of the administration and certainly the Treasury Dept. sits at the nexus of the private and public financial system. But the time for the president to address this critical situation has arrived.
The heavy lifting in this current re-capitalizing of Capitalism is going to be left to the next president, probably Obama. And, ideology aside, it appears that an expansion of the role of the federal government in our Capitalistic economy is inevitable; in fact, it has already started with the actions taken thus-far by the laissez faire Bush Administration. Only they don't bother to state that fact for public consumption.