House Committee on Financial Services • October 21, 2008 • Effective Government
Alice M. Rivlin • Senior Fellow, The Brookings Institution; Director, Greater Washington Research at Brookings; Professor of Public Policy, Georgetown University
Mr. Chairman and Members of the Committee. Past weeks have witnessed historic convulsions in financial markets around the World. The freezing of credit markets and the failure of major financial institutions triggered massive intervention by governments and central banks as they attempted to contain the fallout and prevent total collapse. We are still in damage control mode. We don’t yet know whether these enormous efforts will be successful in averting a meltdown. But this Committee is right to begin thinking through how to prevent future financial collapses and make capital markets work more effectively.
Pundits and journalists have been asking apocalyptic questions, “Is this the end of market capitalism? Are we headed down the road to socialism?” Of course not! Market capitalism is far too powerful a tool for increasing human economic well-being to be given away because we used it carelessly. Besides, there is no viable alternative. Hardly anyone thinks we would be permanently better off if the government owned and operated financial institutions and decided how to allocate capital. But market capitalism is a dangerous tool. Like a machine gun or chainsaw or a nuclear reactor, it has to be inspected frequently to see that it is working properly and used with caution according to carefully thought out rules. The task of this Committee is to reexamine the rules.
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