By: KENNETH MAXWELL

Folha de S. Paulo - Op-ed section - page A2


It is surprising that capitalism ever needed outside enemies. When the inevitable and cyclical crises of the system occur, the causes are almost always the same. Greedy speculators overreach, break the minimal rules of market regulation and transparency inherited from the last crisis, and invent a new pipe dream of constant expansion and everlasting profits that investors fall for.

This time it was the skill of mortgage brokers in relieving the average American householder of the cash tied up in their only major asset, their homes, and transforming these mortage instruments into speculative paper which bundled up in packages were resold repeatedly down the line at inflated prices to investors who often used borrowed cash for these transactions.

The most egregious of these pitches was a series of advertisements that run of all the US local TV stations showed householders busily stripping the walls of homes, and as they did so, the
wallpaper turned into dollar bills. Many fell for this. It allowed them to borrow against the value of their homes and use the cash for consumption.

This was one of the key elements that sustained the US consumer boom. The whole scheme of course rested on the perception that house values were rising and would continue to do so indefinitely. But it came at the cost of millions of families surrendering the value of their homes to unknown speculators in a highly volatile market.

At base it was the old capitalist shell game, not much different from the multiple bubbles that had preceeded it, since it ultimately depended on the belief that the assets at the botton of the pyramid, the holy grail, was real and not a illusion. In this case the holy grail was confidence that the value of property would continue to rise. But this is no longer happening.

Will the current crisis bring the capitalist system down. Probably not. The political consequences, however, may be less easily contained, especially in an election season. The US has long been a property owning democracy.

This has been its great strength. Peeling dollar bills like wall paper off the walls of the average American homeowner may prove not to have been as smart a move as it appeared at the time.

KENNETH MAXWELL is a weekly op-ed columnist (every Thursday) for Folha de São Paulo, Brazil's leading newspaper.