In its daily analysis headed "Capitalism in Crisis," Lee Hudson Teslik writes that it was French President Nicolas Sarkozy who first said, "The all-powerful market that always knows best is finished."

The "laissez-faire" developed economies that kept their hands off the economic tillers have undertaken humongous economic interventions of historic proportion. CFR's daily appraisal said the United States, most countries in Europe, Japan and South Korea all have funded private banks through recapitalization. Some, including the United States, even took the more radical step of buying assets directly from private firms. A much broader swath of countries, said CFR, "have engaged in other forms of intervention that range from guaranteeing bank deposits to cracking down on short-selling to attempting to boost private lending markets."

Out-of-control executive compensation packages, $100 million year-end bonuses for top traders, $150 million golden parachutes for chief executive officers voted out by their boards for doing a crummy job, and $300 million yearly pay for unregulated hedge fund managers, all contributed to the image of Las Vegas on the Hudson. There is talk of limiting tax return deductions to $500,000 for executive salaries in the institutions that are now partly under government supervision. But Fortune 500 CEO annual compensation has been averaging $14 million, including golf club dues, limo and driver, use of company jet, and other emoluments. And those limited by government fiat to half a million dollars a year are bound to find a way around the new restrictions. Or they wouldn't take the job.

The same hue and cry against corporate chieftains demanding U.S.-inspired financial rewards on the same level as sports and movie stars has broken out all over Europe.

Back in favor is John Maynard Keynes, the Great Depression-era British economist who argued free markets would not "self-correct" and that government would always be needed to ensure (1) market gains would translate into improved living standards and (2) topside excesses would not give capitalism a bad name.

Many financial experts believe the Nov. 15 summit of world leaders in Washington, sold by Sarkozy to Bush 43, should produce at least the outlines of a new financial architecture to update, possibly replace, the post-World War II Bretton Woods accords. But this will be a long, tedious negotiation with a deck stacked against the United States.

Sober second thoughts also have flowed from prestigious global publications -- e.g., The Economist and Financial Times, both British -- urging decision-makers not to throw the baby out with the bath water. Capitalism -- wild or tamed -- has brought great benefits to humanity. It also has played a critically important role in alleviating poverty in fiscally responsible countries. But that rule excludes much of the developing world.

The FT's Martin Wolf told CFR that "the effort to preserve liberalized capital markets faces a huge intellectual challenge, given the severity of the crisis. We're going to have to do a very credible job of explaining that we're going to do better in the future, managing the global adjustment on macroeconomics. But it's going to be very hard." The current system of international power is no longer an accurate reflection of current realities, let alone future ones.

The Organization for Economic Cooperation and Development says in its latest study the rich are getting richer and the poor poorer in most developed countries. And there isn't much the wealthy nations can do about it as they struggle to keep their heads above the rising tide of deficit financing.

The next president of the United States begins his first term with a current account deficit of close to $1 trillion. As Russia re-emerges on the global stage where China and India are strutting their stuff, the United States is much diminished. The failure of the Doha trade talks earlier this year was another manifestation of the shifting balance of power.

In his new book, "The Three Trillion Dollar War," co-authored with Harvard's Kennedy School Professor Linda J. Bilmes, Columbia University Professor Joseph Stiglitz says he was driven by "the suspected disparity between the advertised cost of the (Iraq) war and the true cost on the economy."

When White House Director of the National Economic Council Lawrence Lindsey said the war might cost $100 billion to $200 billion, this figure was dismissed, as he was, in favor of a $50 billion to $60 billion estimate. "It was clear," says Stiglitz, Nobel Prize winner in Economic Sciences in 2001, in the Yale Journal of International Affairs, there was an agenda to keep the real tab concealed. He lists the high price of oil as having a depressing effect on the economy. "Deficit spending on the magnitude we have engaged in can't help but have a negative effect on our economy. At the very least, it led to a weakening of the dollar, which has led to inflationary pressures. ... "

Stiglitz also says the United States is fighting on borrowed funds from abroad, including China. "Since America's savings is down to zero. We have had to borrow from abroad. So although you cannot say the money that China is lending is going to Iraq per se ... this is the first war since the Revolution we have had to rely on foreign debt." Sleight of hand through some 26 separate bills for the war, he claims, have concealed true costs, notably the tens of thousands of contractors paid top dollar both at home and in Iraq.

Both Iraq and Afghanistan will continue to drain the treasury with life-long costs for some 20,000 wounded veterans. Wall Street's excesses have weakened America's standing the world over. So either we accommodate the new global power realities, or we slowly drift into a new world disorder.

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