Democratic Socialism (Pro) vs. Free-Market Capitalism (Con)

So first off lets define what free market capitalism essentially is. "Free market" essentially means that producers are free to enter a line of business and sell their products at whatever price they can charge; meanwhile consumers are free to buy whatever products they want at whatever price they are willing to accept. The interaction of the two is the "market", and a key to its function is freely-floating prices (the pricing mechanism), with prices going up or down reflecting supply, demand, and scarcity. The healthiest markets are those in which there are many producers competing for business, and also many consumers competing for the available products. The "capitalism" part refers to systems in which money is collected via savings, and channeled to productive economic activity via financial markets -- so that savers get a return on their money, and entrepreneurs and managers get access to capital to invest in their businesses. Capitalism is characterized by banks that take deposits and lend the capital; and by stock and bond markets that also direct savings into capital investment. So with that out of the way let us address the Pro's arguments. "I would like to begin by saying that free-market capitalism was responsible, for a considerable part, in causing the global financial crash of 2008- deregulation, an ideal of the free market system, permitted the banks not only to practice subprime lending, but also to package these loans into mortgage-backed securities, effectively packaging a huge number of high-risk loans into a complex financial product. Not only has the free-market system permitted large corporations to wreak such havoc in the economy, but also compelled us, as taxpayers, to save the 'too big to fail' financial institutions: in the USA, the government was forced to pay out over $120 billion in order to keep Freddie Mac and Fannie Mae afloat; in the UK the government spent "37 billion bailing out RBS, Lloyds TSB and HBOS. "So firstly the Pro has demonstrated a keen lack of understanding to what the actual economic system in the United States is. The United States is not a capitalist economy; this is a common misconception. The United States is a mixed economy. A mixed economy is defined as,"A mixed economy is an economy that includes a variety of private and government control; reflecting characteristics of both capitalism and socialism. " [S1]To argue on the platform that the global financial crisis of 2008 was brought on by a system of free market capitalism is completely false as I pointed out earlier. The global financial crisis was brought on by a clearly strained mixed economy which advocated bad (and sometimes outright fraudulent) lending practices. "Not only has the free-market system permitted large corporations to wreak such havoc in the economy, but also compelled us, as taxpayers, to save the 'too big to fail' financial institutions"As I said earlier the United States economy is not a free market economic model. The financial crisis happened due to four particular terms that most people are probably familiar with by now.1. Sub Prime Mortgages (SPMs)2. Collatoralized Debt Obligations (CDOs)3. Frozen Credit Markets (FCMs)4. Credit Default Swaps (CDSs)During the dot. com bubble which saw moderate crash in tech investments; Alan Greenspan the Federal Reserve Chairman of the United States on September 11, 2001 dropped interest rates to a meager 1% to promote more lending practices through wallstreet and various other credit services. This resulted in a staggering abundance of cheap credit. This practice of lowering interest rates to abysmal levels provided the large institutions to create huge amounts of lending leverage to amplify investment and lending outcomes. Accelerating to 2008 Wall Street decided to bridge the gap between homeowners and mortgage securities in order to secure higher leveraging outcomes to increase credit majorities through the federal reserve. This resulted in the creation of what we now call mortgage back securities (MBMs). The combination of mortgage backed securities allowed investors to compartmentalize these debt obligations into collateralized debt obligations (CDO's) As risky lending increased due to cheap credit and the cycle of low interest rates set by the Federal Reserve, Wall Street insured the safer asset loans through interest investment to make the loans appear safer in return then what they actually represented in risk. This deceit allowed credit rating agencies to falsely rate these securities with extremely high triple "AAA" ratings which is the highest level of security a return investment can earn. This allowed Wall Streets investment bankers to fraudulently capitalize their securities to stock holders and return lends in exchange for payments cycling through the securities. This practice of lending intensified when the banks began offering mortgages and other securities with no down payments, and no proof of income and thus the SPMs were born. This allowed Wall Street to completely ignore risk lending since the burden of risk was provided to home owners and hedge fund institutions who platformed the risky investments back into securities until the cycle ended. This made Wallstreet rich. However like all faulty systems of securities (and this one was obviously no exception) it began to quickly strain and collapsed. Homeowners who claimed large mortgages far beyond their means defaulted leading to mass and sudden housing foreclosures. The housing was then reallocated and put up for sale. The foreclosures however did not slow down and houses were resecured with mortgage payments completely grinding to a halt. This resulted in an absurd drop in the price of home ownership with the average price of a house collapsing below half of it's original value. As a result collateralized debt obligations become suddenly worthless with no possible way of any receiving any return value. They become toxic assets (assets which hold no marketable value). [S2]Then speeding up into 2008 the slow snowballing crisis reaches its full impact. Brokers and hedge fund managers began to panic with increasing loads of toxic assets. They take out massive loans to offset the toxic assets and refund their current projects. This however was not enough to save the bad credit already accumulated. This began the domino effect of bankruptcy after bankruptcy with the result of the entire financial system of the United States collapsing from abysmal securities. All worthwhile investments turned toxic and the brokerships were left completely shattered. Loans could not be lent and the economy of the United States grinded to a halt costing the United States billions upon billions of dollars in worthless assets. So now we are in the aftermath of this recession (mostly). As we can see the recession both in the United States and globally was certainly not the cause of the free market system exploiting home owners and mainstreet out of their money. The recession and the economic downturn was the result of the United States federal government's decision to lower interests rates so low that banks were not encouraged to safe lending procedures. Ultimately as we can see the recession was due to a failure of the US government to set proper interest rates for the US market economy and because of this it is most certainly not the fault of any free market system. The Pro has simply failed to demonstrate how this was a failure of free market capitalism and how democratic socialism is therefore somehow superior. I look forward to the Pro's response. Sources:[S1] . http://www.princeton.edu...[S2] . http://www.investopedia.com...