In this piece I am going to answer some of Mr Kwarteng’s twaddle questions verbatim. It is a fact that markets do fail, but it is a good thing and when Milton Friedman argues that markets always work and that only the market works, it means that it is the best of the available options. Think about the Nordic model that Mr Kwarteng keeps trumpeting, though they are state controlled economies, on the contrary, most of the services that can be deemed government territory are out sourced to the private sector to take advantage of market allocation of scarce resources.

It is insane for anybody to argue that capitalist do not want regulation. If that is the case what is the essence of government. No capitalist is a friend of the anarchist. Capitalism thrives under the rule of law. It is the endless red tapes, the bureaucratic jungle and the needless burden on corporations that the capitalist object to. For example, you are landlord who rents out properties, how would you feel if the government tells you who you should rent out your property and how much rent you should charge?

When Mr Kwarteng first mentioned De Soto in his first article he claimed that capitalism cannot work in Africa because of lack of private property rights. I quipped that it was the figment of De Soto’s imagination. Kwarteng countered that his conclusions was based on data collected from all over the world and not just based on his Peruvian background. It is the same way that racist scientist in the last century came up with data from all over the world to prove that the black man is an inferior being. Is Mr Kwarteng going to swallow that idiocy that he is inferior to the white man? If you want to prove anything you can easily collect data to do it. You can collect data to prove that most criminals come from difficult background, and argue for mitigation when they are caught since it’s not their fault. However, there are equally more people who came from very difficult background that did not end up as criminals.

What has Ghana being doing after the overthrow of Nkrumah is a very serious question posed by Mr Kwarteng. Meaning Ghana has been practicing capitalism after the overthrow of Nkrumah without any success. And I am very sorry to announce to him that the economic atrophy we are experiencing is the shoddy foundation his Uncle Nkrumah laid that the country finds itself in the endless economic degeneration. The corruption that is killing Ghana today was started by Nkrumah and subsequent Ghanaian leaders have perfected it. He pitifully asked the question whether Joseph Ankrah, Akwasi Afrifa, Nii Amaa Ollennu, K.A. Busia, Edward Akufo-Addo, I.K. Acheampong, Fred Akuffo, J.J. Rawlings, Hilla Limann, John Kufuor, John Atta Mills, and John D. Mahama, were not all capitalists. And I must say if he cannot differentiate the capitalist and pugilist socialist among them then it’s not worth having any serious discussion. He exhibited his crass ignorance, which is not worthy of what he writes.

I am going to pick just one of the leaders he mentioned to make my point. However, if Mr Kwarteng is so ignorant not to know which of them were socialist and capitalist, I am not going to do his homework for him. TOR was formally called Ghaip (Ghanaian Italian Petroleum Company); it was fully privately owned. It was Acheampong who came to nationalize that company, and brought it under government control. And I don’t have to tell you this; currently, it is the main source of our national economic problems. Will a capitalist nationalize privately owned business? Can anybody understand now why I continually use the word silly, stupid, crass, ignorant, and I have lost count of them, to describe the things that Mr Kwarteng writes?

Kindly put on your thinking cap and follow me on this one. How can an enterprise in a free market economy reach a settlement with the U.S. Justice Department over allegations of lending discrimination? Does it make sense? Let me make it very simple. If a dipsomaniac is refused a drink in a private bar, can the owner be prosecuted for discrimination? It is insane and beyond comprehension. Mr Kwarteng copied and paste in his article under consideration, ‘In the 1990s, convinced that the US mortgage was RACIST, the Clinton Administration launched a massive campaign of social engineering…They targeted private banks with discrimination lawsuits if they didn’t lend to enough minorities…’ While you are there during the same investigation it was found out that white clients were denied mortgage in higher proportion than Asian customers. How do you explain that unless you are a dimwit not to know that the whites were higher risk than their Asian counterparts? The fact is their black customers were higher risk and they are denied most of the time. Per the same statistics that Mr Kwarteng is using to make his useless claims of racism, it was found out that Asians were offered mortgage more readily than whites. Does that mean that the same banks were racist towards whites or the right answer is that the whites compared to the Asians were higher risk and had bad credit records? I will advice Mr Kwarteng to go and set up his own bank and offer mortgage loans to customers who have no jobs and bad credit record. This is what happens when government begins to meddle in the way capitalist enterprise is run.

I will hereby give a short analysis of what led to the last American recession, which unfortunately many countries were caught up in the melt down around the world. In America, the citadel of global capitalism, there are two hybrid companies called Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) whose business operations promoted recklessness in the banking and financial institutions. I used the word hybrid because these companies are not completely private – they are government sponsored. In the latter part of the Clinton’s administration these companies were pursued aggressively to offer loans at lower standards to people who will normally not get loans from the traditional banks. Unfortunately, the Republicans, the guardians of capitalism, headed by George Bush came and looked the other way, and sometimes with tacit compliance, because they all wanted to increase home ownership. What Fannie Mae and Freddie Mac do is purchase mortgages from smaller banks across the country. As these banks sell the mortgages they get money for a thirty year mortgage without having to wait for that period for monthly repayments from their mortgagees to pay off their debt. With the revenue from the sales to these hybrid companies the small banks then have liquidity to create more mortgages to profit from. So the more they offer mortgages the bigger their profit. As a result, credit standards collapsed completely, and low credit ratings called ‘subprime’ mortgages became common. Then the ‘liar loans’ appeared and the most laughable ‘the ninja loans’, which meant no income no job and no assets. Ask yourself the question why would any banker give loans to a client without income, job nor assets? It’s because their losses or risk was insured by the government or socialised as someone cleverly dubbed.

With the lowering of standards for mortgage loans demand for houses increased while the supply side tanked. Then prices began to rise, and finally a bubble was created, which fed on itself. Martin Felbstein, a former chairman of the council of economic advisers in the Reagan administration, estimated that from 1997 to 2006 consumers drew more than $9 trillion from their home equity, which is about six times the total debt obligation of the whole British government. Obviously, all that equity yielded from a bubble, which meant the Americans consumed what they have not produced. In effect, they sucked in funds from all the major economies around the globe in the form of investment into the U.S. housing market with the active connivance of Wall Street based on the implicit assumption that the government will not allow Fannie Mae and Freddie Mac to fail. And of course it couldn’t go on indefinitely when you are investing into a financial system that is growing without a commensurate productivity. So when the bubble burst all these economies got their hands burnt badly, because they were investing their pension funds, individual savings etc. into a bubble. And clearly, when the banks learnt the extent of the damage they became sceptical and scared to offer loans for mundane economic activities such as loans for cars etc., and it created a gridlock leading to the meltdown. And when the recession happened it was the capitalist who took the blame for the debacle, and the government official who created the mess with Mae and Mac were given the pass. Thank you


Philip Kobina Baidoo Jnr
London
baidoo_philip@yahoo.co.uk