Capitalism After the Crisis

April 26th's news (see WSJ Page 1) on how Warren Buffett has intervened in the Congressional debate on derivatives is not good news. It underscores the point made eloquently and persuasively in the recent paper “Capitalism After the Crisis,” by Luigi Zingales, a professor of finance at the University of Chicago School of Business.

Zingales’ warns that the nature of American capitalism is at risk. Financial industry interests – as distinct from the interests of a fair and open-to-competition market – are becoming too powerful and risk being unduly served by government. America is becoming more like Europe or many Asian and South American markets, where it is not what you know but whom you know (or can influence to your way of thinking and in your interest).

Buffett’s latest intervention - in the interest of his holdings and the interests of non-transparent financial practice – is a powerful signal of this financial influence on the political process.

It may be that Obama can resist Buffett on this, but I would wager not. And will the resulting legislation actually serve the public interest in a fair market? Zingales is asking us to consider what is really at stake here, as a Congress heavily supported in campaign contributions by financial interests (note Goldman Sachs et al), and influenced by lobbyists (is Charles Schumer a handmaiden in disguise?), is about to decide where the power will lie. We should remember that Warren Buffett is an investor with investors to protect, and a P&L to preserve.  And P&L is not an acronym for public interest.

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