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Tags: financial | meltdown

U.S. Headed for Capitalism/Socialism Hybrid

Arnaud de Borchgrave By Monday, 20 October 2008 02:03 PM EDT Current | Bio | Archive

No German minister will have held such sway over Germany's economy since Albert Speer was put in charge of the country's entire production capacities by Adolf Hitler in 1942.

According to the Financial Times, such was the power turned over to German Finance Minister Peer Steinbruck last week. A little late in the day to rattle thousands of German gazillionaires who have long concealed their wealth next door in Switzerland — or further afield in the tiny island nations of the Caribbean, Cyprus, Mauritius in the Indian Ocean, Nauru and Vanuatu in the Pacific, and the lesser-known emirates of the Gulf (e.g., Sharjah, part of the United Arab Emirates).

The global financial meltdown had numerous Paul Reveres as messengers of coming battles. Two years ago, congressional committees heard testimony from experts who described derivatives as "a ticking global time bomb."

Unregulated hedge funds, which have been making 30 percent or more a year for their wealthy clients ($1 million, and $5 million to $10 million initiation fees), were shortcuts to the exploding billionaires club (up from 350 to 1,150 in less than a decade). To make it in the top 25 hedge funds, managers made approximately $400 million a year — each.

Joe the plumber wouldn't know how to describe a hedge fund. Not surprising, as it is a de facto closed club for wealthy individuals and institutions, which use aggressive strategies unavailable to mutual funds, including selling short, program trading, swaps, arbitrage and derivatives.

Two years ago, a top trader at Goldman Sachs was rewarded with a $70 million year-end bonus out of $16.5 billion earmarked for fringe benefits that year. He was insulted. Thought he was worth a lot more. So he turned it down, quit, created his own hedge fund, and made $320 million his first year. Median income for four-person American families: $61,000.

In September's market turmoil, withdrawals from U.S. hedge funds alone hit $43 billion. A total of $150 billion is expected to exit before year's end, which compels managers to sell assets worth about $400 billion. Some fund managers offered to wave fees if their clients agreed to stay on till March. Liquidity is now the mantra for the mega-rich.

Casino capitalism, crony capitalism or bandit capitalism, call it what you will, except democratic. So a course correction to the left in the United States Nov. 4 will surprise no one.

The hedge funds alone produced almost $200 billion for their guilt-edged portfolios — out of $2 trillion. Fund managers take 20 percent of any and all profits on top of 1 percent to 2 percent of assets as annual management fees.

European officials have compared the current global financial upheaval and the European Union's response with the collapse of the Soviet empire beginning Nov. 9, 1989, with the fall of the Berlin Wall and with al-Qaida's Sept. 11, 2001, attacks against the twin towers and the Pentagon, the two symbols of U.S. financial and military power.

The 15 European nations that adopted a common euro currency concluded this was a propitious time to curb superstar emoluments. Similar warnings echoed in London and Washington.

America's European allies are calling for a new Bretton Woods, the historic New Hampshire conference at the end of World War II that created the World Bank and the International Monetary Fund — and acknowledged the United States as the world's financial and economic leader that it has been ever since.

The Europeans have concluded the global nerve center in Washington needs rebooting. Some are even saying a new economic system, a sort of hybrid of capitalism and socialism, will spring from the current wreckage on the edge of the precipice.

State-sponsored recapitalization of banks to avoid a meltdown is the first step in that direction.

The first manifestation of this new economic phenomenon was the way the United States forced nine major banks to accept partial nationalization. In jeopardy now is the system that allowed the United States to borrow $2 billion to $3 billion a day from the rest of the world to maintain the world's highest standard of living, based on conspicuous consumption, at a time of growing world shortages.

Iceland, a NATO ally, was the first "First World" nation to go belly up. The small, riches-to-rags island of 350,000 people, who read more books per capita than any other country in the world, also made a living as banker to a wide variety of tax dodgers.

They were all wiped out, including 300,000 Britishers who kept money on ice below their national radar screens, when Iceland declared bankruptcy and appealed to Russia for a $5 billion loan.

Pakistan, one of the world's eight nuclear powers, and a "major non-NATO ally, was also bankrupt. Its new president, Asif Zardari, who returned from his meeting with President Bush empty-handed, as nothing could be guaranteed pending a clean slate in Washington, flew off to China to seek $1.5 billion.

China is also Pakistan's longtime close friend that has been granted anchorage rights at the new naval base of Gwadar in Baluchistan on the Arabian Sea, near the mouth of the Gulf of Oman and the Persian Gulf. China also has concession rights for developing vast mineral resources near the tri-border area of Pakistan, Iran, and Afghanistan.

The presidential election — short of an October surprise — looms as a likely Republican trainwreck. The postmortems will run billions of words. The national debt during Mr. Bush's eight years in the White House has almost doubled to $10 trillion. And next year's budget is projected to run a $500 billion deficit, a sharp plunge from the $750 billion surplus projected when Bill Clinton left office. Americans without health insurance have grown by 7 million, while average premiums have almost doubled. And U.S. forces have been fighting for a year longer than they did in World War II.

The 83 percent of Americans who have told pollsters they believe the United States is headed in the wrong direction abroad also list "improving America's standing in the world" as a priority objective for the new president. "A genuine and complete reform" of the world's financial architecture, as wide-ranging as Bretton Woods was for the post-World War II world, is now the challenge posed by the European allies.

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No German minister will have held such sway over Germany's economy since Albert Speer was put in charge of the country's entire production capacities by Adolf Hitler in 1942.According to the Financial Times, such was the power turned over to German Finance Minister Peer...
Monday, 20 October 2008 02:03 PM
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