'Brothers' of Capitalism should not be one

(Editor’s Note: The following essay, originally titled “Brotherhood,” was submitted in a first year English course to fulfill a Comparison and Contrast essay assignment.)

Dane Koontz
Featured Writer

There is an old Chinese fable of two brothers who, when they met, formed a monster and caused untold destruction across the lands of China. Eventually, the monster was defeated, the brothers were separated, and peace and prosperity would return to China. The moral of this parable is that certain pairs of entities – be they inherently good or merely misguided – must never under any circumstances become one. For thousands of years this philosophy has stood. Unfortunately, this particular union cannot always be prevented. Twelve years ago, the brothers of capitalism, the banks and the brokerage houses, were allowed to come together; the beast was awakened, and because of this, the economy and banking system will fall.

Throughout American history the two were together as a single entity; the practice of the banks giving loans to the brokers was common. Because of this relationship, the American stock market was rife with all sorts of economic booms and panics throughout the late nineteenth and early twentieth centuries, finally culminating in the stock market crash of 1929, and the Great Depression of the following decade. These events led to the enactment of laws and restrictions to keep banks and brokers separate from each other.

In the years that followed, the economy grew and prospered. But as it flourished and thrived, the public became consumed by its well-fed greed; the public became blinded by the flare of the increasing excesses it was enjoying. This mentality of ever growing prosperity led to the idea that we did not need to keep the brothers of capitalism separate from each other any more. So in 1996, at the height of this “era,” the banks and the brokerage houses again became one entity.

After this fraternal reunion occurred, there were a few years of relative expansion. But over time something changed. After about five years, loans were issued to first-time homebuyers who signed up for adjustable rate mortgages that, even in the best of times, they could never pay off. Real-estate speculators, assuming home prices would keep climbing, overextended themselves in the hope of flipping landed properties. But, unfortunately, home prices did not continue to rise; instead the prices started to drop substantially. The debts from these property failures were wrapped into complex securities that mortgage companies and other entrepreneurial banks then sold to other banks. The monster was unleashed.

In the process of this rampage, the economy has suffered devastation unseen in the previous century: millions of foreclosures, including auction-sales notices and bank repossessions, have been reported; the credit markets have frozen; job layoffs are at an epic scale; and, more recently, foreign markets affiliated with the U.S. economy are collapsing. Although the monster has been recently separated into the two brothers by its own destructive powers, it is too late. The damage has already been done.