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Miriam Leitao Rio de Janeiro, Brazil Miriam Leitao is a reporter and columnist for O Globo and Radio CBN in Brazil. She is also a commentator on Globo TV Network and runs her own blog, www.miriamleitao.com, hosted at Globo online at www.oglobo.com.br. She was awarded Columbia University’s Maria Moors Cabot Prize in 2005. Close.

Miriam Leitao Rio de Janeiro, Brazil Miriam Leitao is a reporter and columnist for O Globo and Radio CBN in Brazil. more » Main Page | Miriam Leitao Archives |

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Lessons America Can't Teach Us Now

American capitalism could still teach the rest of the world a few lessons - but it's increasingly teaching us what never to do if you are a country loyal to a free-market economy. For instance:

 Never nationalize a troubled insurance company, especially two days after the Treasury and the FED say that no more taxpayer money will be used to rescue bankrupt financial companies.

As a government, never interfere to rescue and sell a failed investment bank and then decide several months later not to do the same for other failed investment banks. Applying that kind of double standard for the same species of financial creature signals to the market that monetary authorities are making up the rules as they go along. That lack of a strategic or systemic view takes a toll on market confidence.

As a regulator, never be so lenient, so lax with the rules regulating financial markets, for so many years in the name of deregulation and small government. The end result of this complacency could be more government intervention. After all, a free market has never meant zero regulation. Clear and parsimonious regulation is the best way to promote a free market while at the same time prevent damaging distortions.

Despite being called "The Maestro", former FED chairman Alan Greenspan failed to identify "irrational exuberance" when it appeared, and took no action. He failed to orchestrate the free market symphony just when it really needed a true Maestro.

The United States preached the virtues of "pure capitalism" for so many years, highlighting the need to privatize state-owned companies and insisting that the market could solve its problems by itself. Now it turns around to do the opposite. Here in Brazil we followed these supposed virtues - reducing the role of the state, privatizing state-owned companies, re-regulating the capital market with very impressive results. However, in spite of the success of the previous policies, defenders of "big government" are now celebrating the bankruptcy of neoliberal capitalism and the inauguration of a new era of the state-led economy.

Authorities should never underestimate the risks of a bubble in any economy. As everybody knows, bubbles do burst after their euphoric boom periods. The government should never assure the market that taxpayer money will be available to pay for irresponsible and fraudulent behavior, because this leads to the well-known risk of "moral hazard". Markets will always bet on the taxpayer's bail-out. Let's hope that a year of crisis is enough to trigger preemptive government actions to avoid the worst-case scenarios, in which the government would be forced to absorb all the toxic papers and bad mortgages in the market.

This government-induced mess has put people's savings in danger. The best way to fix it now is to support homeowners by enabling them to pay their mortgages - not to rescue banks.