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Under the circumstances – government bailouts of the leading banks of the U.S. and Europe, and a stock market that posted a record weekly drop of 18 per cent last week, and a 40 per cent plunge since last summer – the biggest failure in modern free-market economics was bound to raise doubts about the future of capitalism as we know it.

There’s little question among European leaders that the contagion of U.S. subprime mortgages that has necessitated European bailouts and outright nationalizations of major banks requires a total rethink of the U.S. style of cowboy capitalism. Wall Street practices have been too widely emulated in Europe in the view of leaders like Britain’s Gordon Brown, France’s Nicolas Sarkozy, Germany’s Angela Merkel and even Russian President Dimitri Medvedev, overseer of rampant crony capitalism, who got their licks in this week.

Italian Prime Minister Silvio Berlusconi, a tycoon with a near-monopoly on commercial broadcasting in Italy, scorned the "capitalism of adventurers" in the U.S. – the anything-goes Wall Street investment bankers who put annual bonuses ahead of integrity. Sarkozy, possibly the most pro-American of prominent Frenchmen since Marquis de Lafayette, asserted last week that "this crisis was not born in Europe. This crisis was born in America. It is now a global crisis.

"A new form of capitalism is needed, based on values which put finance at the service of business and citizens, and not vice versa," Sarkozy told other European Union leaders at a mid-week summit in Brussels. Gordon Brown, the British PM and former treasury minister, proposes "far-reaching reform" that would have global banking come under the control of a "college of supervisors" to watch over the shoulders of bankers to curb their reckless instincts.

The dramatic, $700-billion (U.S.) Washington bailout of banks and brokerages has many in the U.S., too, wondering if such radical government intervention in the private sector presages, as the Washington Post headlined a recent essay, "the end of American capitalism" and "market-knows-best" thinking. One hears everywhere in the U.S. these days that we are witnessing, at the very least, the end of Reagan-era deregulation.

"Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system," says the Post. The question takes on even more force when the massive handouts sought by Detroit’s crippled automakers are taken into account.

Yet all this hand wringing is overdone. When the dust settles after the spectacular flameout in the global financial sector, and stock markets recover from their recession and credit-squeeze fears, capitalism will be practised much as it was before – with absolute minimal government intervention in America, albeit with stricter regulatory supervision; and in Europe with the same heavy dose of statism as before.

For starters, the partial privatization of leading U.S. banks announced by Washington early this week has ample precedent. The FDR-era Reconstruction Finance Corp. rescued distressed banks in the 1930s. Key industries were nationalized during World War II. And Washington played an extensive role in cleaning up the savings and loan mess in the 1980s. In each instance, the nationalized banks and other industries were promptly returned to private-sector ownership once the crisis had passed. And that is the plan this time, too. Washington does not want to be in the banking business.

What will emerge from this financial meltdown is fewer and larger U.S. and European banks, far more tightly regulated – which is more characteristic of routine industry consolidation than, say, a new, permanent regime of state-directed capitalism http://payday-loans-e.com. And as much as the financial system’s breakdown has inevitably impaired the general economy, the rot is almost entirely limited to the financial sector – hardly justifying a root-and-branch reinvention of American capitalism. No one is talking about nationalizing Silicon Valley, for instance, or America’s robust consumer goods, retailing, pharmaceutical or agribusiness sectors.

Indeed, there’s scant talk of significant reform even within financial services. At the very least, one would think, a return to the New Deal-era separation of commercial banking and investment banking would seem to be called for, given that the sector’s fecklessness can be traced to the lifting of that restriction in 1999. But no, when investment banks Bear Stearns Cos. and Merrill Lynch & Co. faced insolvency, Washington opted to forcibly merge them with commercial banks J.P. Morgan Chase & Co. and Bank of America, respectively.

As for European gloating over that continent’s purportedly more prudential banking practices, the argument doesn’t bear scrutiny. In Europe, almost all major banks save France’s BNP Paribas, Spain’s Santander and London-based HSBC drank the Kool-Aid that U.S. housing valuations would rise indefinitely, helping spur the biggest boom and bust in the history of the U.S. housing market.

Otherwise, some of the biggest losers on soured U.S. subprime mortgages and other dodgy assets are to be found in Europe, including Swiss banking giant UBS AG, which has taken a staggering $42 billion (U.S.) in writeoffs in impaired loans, and an over-leveraged Royal Bank of Scotland PLC, in which Britain is taking a 60 per cent equity stake. The casualty list extends to Hypo Real Estate, Germany’s second-largest commercial real estate lender, rescued in a $67-billion (U.S.) government bailout; the once formidable Dutch-Belgian financial conglomerate Fortis, rescued by Holland, Belgium and Luxembourg; and Dexia, a French-Belgian lender to municipalities bailed out by Paris and Brussels. All had loaded up on toxic U.S. securities, taken on excessive debt, and relied on volatile short-term loans, rather than deposits, to fund operations.

"The same mechanisms that led to the crisis in the United States were operating here," Arnoud Boot, a professor of finance and banking at the University of Amsterdam, told the New York Times this week. "It’s totally misplaced for European lenders to put the blame on the Americans." Indeed, the troubled European financial firms were, if anything, less risk-averse than their U.S. counterparts, employing more than twice as much leverage as their U.S. peers.

One of the more influential post-Cold War texts was The End of History, an argument that Western-style capitalism had triumphed over Communist and socialist ideology. But European powers have since stubbornly clung to their statist ways. And the rise of radical Islam has made a hash of the theory the West was no longer constrained by rival ideologies backed by force.

Pronouncing an "end" to any ideology or practice of long-standing is at best premature. Greed and high-level corruption, which ultimately brought down the Soviet Union, are not about to be purged from capitalism, which will take a genuinely new form only after the Seven Deadly Sins are outlawed.

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