Since the late U.S. President Ronald Reagan came to power in 1980, U.S. capitalism has shone for three decades until recently, demolishing socialism in 1989 and ruling the global financial market and economy.Leaving the glory years behind, U.S. or neo-liberal finance capitalism, is facing its demise or at least a major overhaul, due to the Wall Street crisis caused by the collapse of giant American investment banks, the icon of this form of capitalism.Many argue that the demise of the banks is not the end of capitalism characterized by “small government” and “deregulation,” but its doom is inevitable as every passing day brings worse news.Financial crises in Asia and Mexico have consumed the credibility of capitalism but no one then cast a serious doubt about it. However this time is different becasuse this meltdown happened on Wall Street, its very heart.
The U.S. has passed the point of no return by stepping heavily into the market, negating the fundamental principle of capitalism, “laissez faire,” French for “let do” and meaning that the government leaves people alone regarding all economic activities.The burst of the property bubble and the demise of U.S. investment banks have exposed inherent flaws, forcing Washington to fix its financial system with public money and to find ways to keep its markets afloat.In the last weekly report under Lehman Brothers banner, chief economist Paul Sheard said, “The current crisis seems to transcend the usual pattern of asset price boom and bust, damaging balance sheets and threatening the stability of the financial system and the health of the economy.“The severe impairment of the originate-to-distribute securitization model and the demise of the standalone investment bank are starting to look more structural than cyclical.”
Many argue that the Wall Street crisis triggered by the demise of American investment banks could bring an end to U.S. neo-liberal capitalism. However, global market experts countered that argument, claiming that it is not dead but mutating into a new form.Policymakers and regulators are now desperate to find ways to keep the financial system afloat through regulatory reform. The look of the financial markets is expected to change toward “bigger government” and “more regulation” going forward.
Regardless of the outcome of the U.S. government’s bailout plan, the Wall Street crisis is expected to transform U.S. capitalism into a “more regulated” and “less profitable” form, replacing its investment banking saga with universal banking ― a cocktail of commercial and investment banking.