The Marksman wrote:The problem is, you've been led to believe that we've actually been living in a free-market capitalist system - we haven't. If interest rates were too low, leading to excessive lending, whose fault is that? The central banks set interest rates, not the market.
Of course that's utter nonsense. Yes central banks set interest rates but you're implying they engineered a debt bubble deliberately. The European Central Bank and the Bank of England are independent and made of the very people who form the market. Rate setting is almost as free from political influence as it has ever been. However the biggest problem with that argument is that key interest rates - LIBOR, bond and gilts rates - the rates at which companies, banks and governments borrow at are entirely set by the market.
If businesses do go bankrupt, in a free market system, they'd just fail and new business models would spring up in their place - they wouldn't be bailed out, impoverishing their parent nation. No, the problem is we haven't been living in a free market.
Of course virtually all businesses in the UK that should fail does and nobody bails it out. The only exception has been the banks and a couple of related institutions. The reason the banks get bailed out is because of the follow on impact. Firstly investment banks should have gone to the wall as they don't lend and the fallout could have been handled. However if RBS, Halifax, Northern Rock etc had been allowed to go under then they would have taken down every other bank and we would have had complete meltdown. We would have very quickly reached a state where people wouldn't believe that the piece of paper in their pocket worth about 3p and some words on was actually worth £20. Governments had no option but to bail out commercial banks.
The fundamental problem is the free market allowed a safe conservative industry to get greedy with massive bonuses for delivering higher profits whatever the risk. Virtually entirely self-regulated, they broke all the rules and designed products to allow themselves to lend more and more.
The free market screwed us all. Now it's time to make it our servant.