American capitalism and current financial markets

America declares that it is a capitalist country. But after looking at recent developments in financial markets and America's response to them, can we really say that it is ? This question mark should have been bigger than i have put it. Let's first discuss which financial changes i am talking about.

Recently there have been financial turmoil all over the world. It started around one month back. Almost every country seems to struggling with this crisis. Every stock market is falling like anything. Most of the banks are trying to inject liquidity in the system by lowering their key rates. All those indications show that world economy is in crysis.

We should in fact have realized this situation before some time. I was watching one interview two months back. Interviewer was Namrata Barar who is equity correspondent in NDTV and person was Shankar Sharma. At that time no body could expect that sensax will fall to 10,000 levels. But Shankar Sharma said that sensax will go up to 10,000 levels in that interview. At that time market was hovering around 15000 levels. I though that what the hell is problem with this guy. I never expected that indian market will fall that much. But if we now see, we find that he was right. So from where it started. It started from bankruptcy of Lehman brothers. After that many more financial institutions came and showed that financial markets are indeed in crisis and it is expected that in next one year almost one thousand banks will file for bankruptcy all over the world. Even now people say that stock markets have fallen significantly but who knows if they are indeed. If we look at facts of great depression then we find that during that time American markets, which are considered as one of the strongest and stable market, fell more than 90 percent.

Now i will come to my original point about American capitalism. According to capitalism, companies have full freedom to do anything they want. If they do good they will grow if they do not then they will be in crisis. Recent changes in financial systems have put American financial institutions in great trouble. Markets do not have enough liquidity. Credit crisis is also there. American government came up with a 700 billion bailout plan to overcome this situation. Now if american government assumes that if an institution is not able not survive then it should not continue. Then why did govt made plan for bailout and buy bad assets of the financial institutions ?
Leaving this blog at this point will continue this in next part.