THE BLOG
11/14/2008 05:12 am ET Updated May 25, 2011

The New Socialism Is The New Capitalism

QUESTION: What's the difference between capitalism and socialism according to Henry Paulson?

ANSWER: Socialism is when big government steals from the banks to bail out the people; capitalism is when big government steals from the people to bail out the banks.

At the bottom of the over-leveraged credit tower (where people don't have the cash to pay their debts) are ordinary erstwhile home owners and mortgage holders who made foolish decisions to buy houses they couldn't afford and have now lost their homes. Then come the banks that issued the bad mortgages by convincing guileless citizens the prices of their homes could only go up, and variable rate mortgages had no down sides. Then come all the secondary markets whose oblivious denizens bought all the bad paper apparently having no idea what they were buying.

The bailout makes nice noises about the poor saps at the bottom, but proceeds top down, because unless the banks and hedge funds and insurance companies are saved, the whole system crashes (sort of like it already did).

Besides, bailing out the bottom is socialism -- can't have that; while bailing out the banks is capitalism, or the kind of capitalism that lets taxpayers shoulder all the risk and banks keep all the profit. Well, to be sure, with the Democrats whining so much, Paulson has agreed to demand an equity position in the banks he bails so that at least some of the eventual profits, if there ever are any, come back into the Federal Treasury.

But real oversight, regulation, control, ownership by our government over the corporate institutions that precipitated the crisis -- that won't happen. The foolish corporate riders who rode us over the cliff will remain in the saddle while the foolish consumer victims are being pulled from the chasm and prepared for a new round of spending.

Which is to say we are not going to see any recognition that overproduction and over consuming by a capitalist system that manufactures needs rather than goods to sell all the stuff it has to sell to stay afloat is what really lies behind the crisis. Or that capitalism must change its ways -- like producing goods we actually need and taking responsibility for bad decisions it makes. On the contrary, the market's heading up (for a day at least), and the credit pump is being primed so consumers will start spending again, and we can go back to where we were before phase one of the crisis started. Back to spending our way to phase two of the crisis.

The blind greed is already evident in the vicissitudes of the market, where hysterical gloom on Friday is inevitably succeeded by hysterical exuberance on Monday. For all the chaos and sense of impending doom, no fundamental lessons have been learned.