Category ►►► Beggar's Banking Banquet

January 8, 2010

Obama's Jobless Relapse

Beggar's Banking Banquet , Econ. 101 , Tax Attax
Hatched by Dafydd

Let's see...

The economy is rocky; so the Obama Administration responds by:

  • Pouring hundreds of billions of dollars down the rathole of "stimulus," funneling most of it to well-heeled political cronies, ficticious accounts, and radical organizations;
  • Forcing banks, financial institutions, and huge corporations to accept "bailouts" -- accompanied by nationalization;
  • Piling on hundreds of new, hideously expensive government programs whose primary purpose is to buy Democratic votes by paying off special-interest groups;
  • Taking over health care, looting Medicare, and engineering a socialist system, as near as makes no difference -- one that costs about $2.5 trillion that we don't have;
  • Taxing the energy industry to death, making it so expensive to generate power that we just stop doing do, to prop up a dubious, unscientific thesis that has been all but disproven already;
  • Pushing Unionization über Alles, regardless of how that affects job creation;
  • Jacking up all other taxes, particularly on various despised industries and on the hated "rich," but with a good, healthy wallop at ordinary Americans across the country;
  • Issuing -- without industry input but with the connivance of a murder of wacko, anti-capitalist groups -- a labyrinth of new, untested, and incomprehensible regulations for businesses to follow or be slaughtered by;
  • And warning America that Barack H. Obama knows what more it really needs -- and he's going to give it to us, good and hard, in 2010! (Including throwing open the immigration floodgates, tearing down the wall, and heavily favoring those immigrants least likely to assimilate and become productive workers, rather than welfare hunters.)

And now the administration is shocked, shocked that unemployment remains at 10%; that real unemployment -- unemployment plus underemployment plus discouraged workers who have quit looking for jobs -- rises to 17.3%; that the deficit skyrockets by trillions of dollars; that other countries (read: Fascist China) are increasingly reluctant to lend more to a bad-risk borrower -- say, too bad there's no extraterrestrial Fannie Mae to buy our toxic asshats! -- and that every economic indicator is headed further south.

Welcome to Econ. 101.

The first principle of Obamunism appears to be "more, harder, faster!" It's almost as if Obama has accepted that he will be a one-termer, and that he'll lose most (or all) of his Democratic majority in November; so he wants to ram through as much radical leftism as possible before he becomes a lame duck next January. Maybe we can reach a tipping point where even a Republican takeover in 2010 and a President Mitt Romney in 2012 can't stop America's slide into ACORNism...

It's no wonder he's such pals with Mahmoud Ahmadinejad, Oogo Chavez, Mel Zelaya, and los bros Castro: birds of a feather, you know. Let's hope we can clip his wings -- before he flocks us all.

Hatched by Dafydd on this day, January 8, 2010, at the time of 12:05 PM | Comments (1) | TrackBack

December 14, 2009

Straight From the Horse's Mouth

Beggar's Banking Banquet
Hatched by Dafydd

(Or perhaps the other end.)

Barack H. Obama held a meeting today with top bankers and financial mavins, the CEOs at such corporations as American Express, US Bancorp, JP Morgan Chase, Capital One, Bank of America, Goldman Sachs, Wells Fargo, and others; at this gathering of the world's financiers, Obama issued a proclamation of what noble sacrifice the very universe demands of them:

The president said it is not his intent to vilify one person or industry -- to not dictate to them or micromanage their compensation practices.

"My job is to ensure that consumers and the larger economy are protected from risky speculation and predatory practices, that credit is flowing, that businesses can grow, and jobs are once again being created at the pace we need."

In working together towards a lasting recovery, Mr. Obama said, "we rise and fall together: banks and small businesses, consumers and large corporations. And we have a shared interest in working together to ensure a lasting recovery that will benefit all of us and not just some of us."

Very well then; we take the president at his word: We must never again make risky, speculative loans to poor people who cannot pay them back.

  • Such loans, generally at usurous rates, clearly qualify as "predatory practices."
  • They bring the free-flow of actual credit to a screeching halt by diluting it with ersatz "credit" that is in fact welfare.
  • They stifle the growth of businesses by sucking all the credit oxygen out of the room and blowing it at unqualified borrowers instead of credit-worthy companies, small and large.
  • And they damage the economy so that jobs are lost, not created -- and not "saved" -- at a stunning rate... as we have seen since the inauguration of one Barack Obama.

Taking the man at his word, I can only conclude that President Obama now calls upon Congress to repeal the Community Reinvestment Act of 1977, along with every act, amendment, or regulatory "reform" since then that has driven banks and other financial institutions to pound sand down a rathole, lending too much money to people with too little credit, too much debt, and too little ability to meet a mortgage payment.

Thank goodness Obama has finally come to his senses!

Either that, or... well, there's always the faint possibility that he doesn't really mean what he says. But surely no President of the United States could be so despicable as to gallop into the history books, at least those written by liberals, across the shattered dreams of the undeserving poor, lured into believing they can purchase spectacular homes despite having insufficient income.

After all, they are all honorable men, these well-meaning do-gooders; all, all honorable men.

Cross-posted on Hot Air's rogues' gallery...

Hatched by Dafydd on this day, December 14, 2009, at the time of 11:58 PM | Comments (0) | TrackBack

October 23, 2009

Could See This Coming!

Beggar's Banking Banquet , Socialism 101
Hatched by Dafydd

In the companion piece to this post, Couldn't See That Coming!, we noted that the United States Department of the Treasury, run by tax evader Timothy Geithner, has decided to institute wage controls at those companies that accepted large amounts of TARP money; TARP is the Troubled Asset Relief Program... that is, the Wall Street (and Motown) bailout.

We ended that post with the by now familiar bleat (which I shamelessly stole from Patterico, though I added the adverb, which Patterico began copying -- God, how incestuous the two of us are!) the pathetic bleat of "What could possibly go wrong?" Now, with a tip of the hat to Rich "Mullings" Galen, we learn exactly what can possibly go wrong:

At Treasury, President Obama's pay czar, Kenneth Feinberg, announced sharp cuts in pay for 175 top executives at seven big banks and automakers that received hundreds of billions of dollars in federal bailout money during the financial crisis. The new structures reduced the cash salary paid to some executives by 90 percent and tied more compensation to long-term stock awards....

At the Federal Reserve, Chairman Ben S. Bernanke proposed a broader but less proscribed plan to restrict pay at banks. The aim is to prevent them from rewarding employees for actions that could endanger the firms' long-term financial health. Unlike Feinberg's more limited plan, the Fed's guidance would cover all banks it regulates -- even those that never received a bailout -- as well as U.S. subsidiaries of foreign companies.

But hey, it's not like the federal government is, like, you know, taking over the private sector; they're not actually setting wages for all banks -- they merely get the final say on what those wages will be:

However, the Fed's proposed rules have wiggle room: The guidelines would let banks set their own compensation but give the Fed veto power over pay practices that it determines could threaten the safety and soundness of a bank. They would extend the regulators' reach into pay practices affecting tens of thousands of bank employees, from senior executives to traders of complex securities.

Thank goodness the government of Barack H. Obama dodged the temptation to allow the Party -- sorry, I mean the State -- to own all industries; that would be Marxism (which would presumably thrill Anita Dunce). Instead, the banks and industries will all be privately owned -- but the owners will take orders directly from the Party.

State, whatever.

Such an arrangement is not Marxism; it's fascism, as classically defined. But with the Obamacle, it's liberal fascism, fascism with a smiley face.

Galen takes us by the hand and leads us to the threatened land:

Putting aside defense firms -- which exist on government funds -- there are thousands and thousands of companies which get local, county, state or federal contracts. Does every executive of each of those companies fall under the same rule?

Should the Governor of Missouri decide how much the owner of the company which provides the janitorial services in the State House in Jefferson City can earn because he takes State money? Or, the executives of airlines on which government employees fly?

We have marched down this road before, with the wage and price controls imposed by Richard Nixon in 1971, ostensibly for only 90 days but in reality for nearly three years. The dreadful policy was finally abandoned as a colossal failure in April, 1974, just before Nixon's impeachment hearings began. This brief squib from the Econ Review is a succinct summary of the catastrophic Nixonian policy that Barack Obama seems determined to replay:

August 15, 1971. In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971. By the prevailing historical standards, such inflation rates were thought to be completely intolerable.

The 90 day freeze turned into nearly 1,000 days of measures known as Phases One, Two, Three, and Four. The initial attempt to dampen inflation by calming inflationary expectations was a monumental failure....

While there were skeptics in August, 1971, there were a great many who thought "temporary" wage and price controls could cure inflation. By 1974, this notion was thoroughly discredited, and attention gradually turned toward a monetary approach to inflation.

Funnily enough, ObamaCare is also a reenactment of Nixon's own attempt to take over health care. For these two policies and many others (such as his "enemies list" and frequent attempts to control the press), I insist that Richard Nixon -- like Lyndon Johnson, Franklin Roosevelt, and Woodrow Wilson -- was also a liberal fascist. Barack Obama clings to the coattails of a well-established (albeit perverse and unAmerican) tradition.

Obama has a different, meaner purpose for wage controls than trying to beat down inflation; at least Nixon thought (wrongly) that his plan would benefit the country. By contrast, Obama wants to dictate the compensation packages of bank officers far above his pay grade for two equally discreditable reasons:

  • He simply believes in his own omniscience and generally wants to command every aspect of the American economy and culture;
  • He is a vindictive SOB and wants to punish those who made so much more money than he, even though he is the one with "the Vision of the anointed." How dare they!

Nixon's motive for liberal fascism was public; Obama's is deeply and disturbingly personal.

But the effect will be the same: the collapse of those companies "blessed" by the invisible foot of government, swiftly followed by the collapse of confidence in the ability of the federal government to do anything right.

To quote that infamous right winger, Pete Seeger*, who turned 90 this year:

When will they ever learn?

When will they ever learn?


* For the irony impaired, Seeger is a Communist folk singer, pardon the redundancy. The quoted line is the chorus from what is likely Seeger's best-known pacifist song, "Where Have All the Flowers Gone?"

Cross-posted on Hot Air's rogues' gallery...

Hatched by Dafydd on this day, October 23, 2009, at the time of 2:54 AM | Comments (1) | TrackBack

April 23, 2009

Let Barack Put UAW in the Driver's Seat

Beggar's Banking Banquet
Hatched by Dafydd

As part of the administration's plan to destroy Capitalism in order to save it, the feds have offered an extraordinary deal for Chrysler motors: They go into bankruptcy, driven there by unsustainable wages and benefits paid to members of the United Auto Workers union; but all those UAW-driven wages and benefits of employees and former employees are absolutely protected from any reduction by the bankruptcy court.

No, really:

The Treasury has an agreement in principle with the United Automobile Workers union, whose members’ pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing, said [people with direct knowledge of the action], who asked for anonymity because they were not authorized to discuss the case.

Well, that certain makes sense (especially the anonymity part): I'm sure that after the old Chrysler was driven into the ground by risibly high payments to current and former workers, the new Chrysler will have no problem meeting those exact, same obligations. And why not? They're going to be heavily financed by the American and Canadian taxpayers.

No, really:

Under the most likely assumptions, Treasury will provide the financing that Chrysler needs to operate while under bankruptcy protection. The Canadian government is also expected to participate in backing the company.

The Globe and Mail of Toronto reported the Canadian government’s role on Thursday.

Last month, the Obama administration told Chrysler it would provide up to $6 billion in financing if Chrysler and Fiat could complete a deal by the end of this month. Fiat originally agreed to take 35 percent of Chrysler, but the stake was subsequently reduced to 20 percent. The administration said it would provide up to $6 billion in financing if the two companies agreed, on top of $4 billion in federal assistance that Chrysler has already received.

Oh, and those wicked creditors who viciously lent Chrysler money will finally get their comeuppance for such a dastardly deed:

The only major question that remains unresolved is what happens to Chrysler’s lenders, who hold $6.9 billion in company debt. The government’s most recent offer, presented Wednesday, would give the company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler.

However, the lenders chastised above do not include the UAW, which runs the Chrysler health-care trust that Chrysler Motors owes $10.6 billion; some creditors are more equal than others, and that debt will be paid in full: The auto-workers union will accept company stock in lieu of half the obligation, and the remainder will be guaranteed by the federal governments of the United States and Canada.

(Of course, the UAW will continue to administer that trust, since that is part of the benefits package that has been guaranteed -- in its entirety, it appears -- by the invisible foot of the Obama administration.)

Whew! Thank heavens the One We Have Been Waiting For has so quickly hit upon the most equitable and balanced solution to be applied to Chrysler, G.M. ("the terms of a Chrysler filing might offer a glimpse into the shape of G.M.’s own filing"), and indeed every huge corporation deemed too big to fail. Having resolved that thorny problem, the moving Obamacon moves on to more important tasks, including:

  • Cutting taxes for all Americans who pay no taxes (liberals and Obama cabinet members), while raising taxes on all Americans who do pay taxes (i.e., the rich, the GOP, and other Bush supporters);
  • Negotiating our surrender to al-Qaeda, after the disastrous defeat of George W. Bush's wars of aggression against humanity in Iraq, Afghanistan, Pakistan, and Minnesota;
  • Allying with Russia to protect it from further criminal attacks by Georgia, which rebellious province was egged on by George W. Bush, Dick Cheney, Blackwater, and Halliburton;
  • Apologizing to Iran for forcing it to house American criminals for 444 days in the late 70s, rightly jailed by the People's Republic of Mullahdom for spying on Iran during George H.W. Bush's tenure at the CIA;
  • Pleading with China, traditional financers of the United States, to once again begin sending us cash to nationalize more American industries, after George W. Bush's divisiveness caused the greatest country on Gaea's green globe to cut us off, cold duck;
  • Splitting Israel down the middle so that the West Bank and Gaza can be a "contiguous" Palestine -- which the Bush administration utterly failed to propose, despite world opinion;
  • And writing an entire book of reasons why everything bad that happens in the next eight years of the administration of Barack Obama -- already the greatest president in American history -- is in fact another horrific legacy of the failed administration of George W. Bush, the worst president of this or any other nation, in this or any other century, on this or any other planet.

Eight years: Long enough to change that pesky 22nd Amendment...

UPDATE (a few minutes later): Please read this related post, about the feds' unacknowledged conflict of interest -- they also own equity stakes in the very banks they are pressuring to renounce their claims on Chrysler in exchange for a warm, fuzzy feeling -- by Scott "Big Johnson" Trunk over at Power Line.

Hatched by Dafydd on this day, April 23, 2009, at the time of 2:19 PM | Comments (6) | TrackBack

April 2, 2009

Triumph at the Summit of Mount Obamarama

Beggar's Banking Banquet , Liberal Lunacy , Media Madness , Obama Nation
Hatched by Dafydd

A summit just concluded in London among the G-20, the group of 20 richest nations; the heads of state spoke to each other without visible brandishing of weaponry. This much we can all agree upon.

But that's about all we can agree upon. Here is AP's take on the outcome:

At his summit debut, President Barack Obama failed to persuade foreign counterparts to commit to fresh and lavish spending to boost economic revival. And the success he did achieve in finding common ground was as much the result of modified goals as swaying other countries to bend to U.S. priorities.

Still, he emerged with much of what he wanted from allies on the flailing global economy. And he helped thwart a French-backed attempt to set up an international financial regulator.

And here is the assessment by the New York Times:

After more than 11 hours of meetings, Mr. Obama emerged Thursday from his first summit meeting with a handful of modest concrete commitments. He did not get much of what American officials had been hoping for, notably failing to persuade other countries to commit to more fiscal stimulus spending.

Oh, yes; they're clearly singing from the same hymnal.

So what exactly does AP see as emerging with "much of what he wanted from allies on the flailing global economy?" Oh, that's as clear as crystal:

Thursday's daylong gathering of the G-20 nations pledged $1.1 trillion in loans and guarantees to struggling countries, agreed to crack down on tax havens, large hedge funds and other risky financial products, rejected protectionism that hampers foreign trade and committed to upgrading an existing financial forum to flag problems early in the global financial system. Those were all elements Obama was seeking.

And, as he hoped, the leaders also rejected a push by French and German politicians for a global financial super-regulator, a proposal that had been expected to go down in defeat. The emphasis, instead, was on cooperation among nations to each choose it own way to enact "a stronger, more globally consistent, supervisory and regulatory framework...."

Still, the leaders, many wary of piling up debt, did not sign off on large new stimulus packages for their own countries. Obama's administration had initially pushed for such a commitment, but backed off in recent days as European opposition solidified.

So Barack H. Obama elicited a few trivial, generalized noises from the other members about markets and trade; he managed to "thwart" a French demand for one-world government (at least on financial issues) that everybody knew going in was "expected to go down in defeat" anyway... and he bowed to the rest of the wealthy nations on a world-wide stimulus package, dropping it the moment it met the slightest resistance. Or skepticism.

Obama's "agreement" comprised caving to Europe; there will be no such global stimulus, as the One had long insisted was vital to preventing complete economic meltdown.

Mind, I'm very glad he caved; it's a craven admission by the president that his earlier sepulchral warnings and nigh-biblical denunciations were just so much hot air (no offence to Captain Ed, et al)... and the confession that, in the end, doing nothing is preferable to doing Obamunism -- even to the Euroleft! Still, it's always easy to come to agreement when One is willing to jettison all of One's demands; it rarely takes much diplomatic genius to persuade people to accept their own position instead of yours.

Oh, wait; there was one other signal triumph by the Childe President: According to AP, Obama somehow got the developed nations to "agree[] to crack down on tax havens."

Bully! So no longer will China allow companies to incorporate in Macao or Hong Kong and thereby skate on paying their "fair share" of taxes. But how did he do it?

Sayeth the Times, the big disagreement was between President Nicolas Sarkozy of France -- who wanted the nations to commit to a "name and shame" policy anent tax havens -- and President Hu Jintao of Red China, who did not want any such naming and/or shaming of the two biggest tax havens in Asia, to wit, those very same Chinese provinces of Macao and Hong Kong.

Here is how it all played out:

Mr. Sarkozy wanted the big communiqué produced by the Group of 20 to endorse naming and shaming global tax havens, maybe even including Hong Kong and Macao, which are under China’s sovereignty. Unsurprisingly, Mr. Hu was having none of it. He appeared angry that Mr. Sarkozy was effectively accusing China of lax regulation, and that the French leader was asking China to endorse sanctions issued by the Organization for Economic Cooperation and Development, a club of wealthy nations that Beijing has yet to join.

According to accounts provided by White House officials and corroborated by European and other officials also in the room, Mr. Obama escorted both men, one at a time, to a corner of the room, to judge the dispute. How about replacing the word “recognize,” Mr. Obama suggested, with the word “note?”

The result: “The era of banking secrecy is over,” the final communiqué said. “We note that the O.E.C.D. has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.” Hong Kong and Macao did not appear on the list.

And there we have it. In a stunning tour de force, Barack Obama has achieved the trifecta:

  • He grabbed credit for "thwarting" a French plan that was already doomed before Obama set foot in Londontown;
  • He obtained a broad agreement with the other nations by taking the signal policy he has claimed for months was the only thing which could save the world economy -- and consigning to the dustbin of non-history;
  • And he resolved a conflict between Europe and China over the latter's tax dodgers by kow-towing to the Chinese, ensuring that Macao and Hong Kong can continue to operate without any fear of being outed, named, isolated, or shamed.

Well now! See how much can be accomplished if America really sets its mind on diplomacy, rather than the Cowboy-George, go-it-alone policy of dictating to the rest of the world? The Times sums up what our man in London has taught us about our proper place in the world:

Gone are the days, from Pax Britannica to Pax Americana, when Britain and the United States made the rules that others followed.

“If there’s just Roosevelt and Churchill sitting in a room with a brandy, that’s an easier negotiation,” Mr. Obama said during his hourlong meeting with the international news media, during which he called on reporters from India and China to ask him questions. “But that’s not the world we live in, and it shouldn’t be the world that we live in.”

Yes, he has certainly proved that those days (of two years ago) are gone. Forgive me if I don't caper and frolic in glee; I've been feeling a bit enervated for the last two-plus months.

Hatched by Dafydd on this day, April 2, 2009, at the time of 11:43 PM | Comments (0) | TrackBack

The Great Dictator, part (C)

Beggar's Banking Banquet , Congressional Calamities , Democratic Culture of Corruption , Liberal Lunacy , Tax Attax
Hatched by Dafydd

If you want a picture of the future, imagine an iron fist clutching a smiley face -- forever.

The first two posts of this miniseries were:

We ended the last segment with a tease:

The final step of a liberal fascist takeover of the industry would be to control the wages of all employees, to be able to set them however they want.

So let's leap straight into the maw of that final eldritch horror of state capitalism, corporate socialism, or as I prefer, the Jonah Goldberg formulation: liberal fascism:

But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the "Pay for Performance Act of 2009," would impose government controls on the pay of all employees -- not just top executives -- of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

The author of the article, Byron York, is the former White House correspondent for the National Review; he now writes for the Washington D.C. Examiner. York describes the legislation that Chairman Barney Frank (D-MA, 100%) has approved:

The measure is not limited just to those firms that received the largest sums of money, or just to the top 25 or 50 executives of those companies. It applies to all employees of all companies involved, for as long as the government is invested. And it would not only apply going forward, but also retroactively to existing contracts and pay arrangements of institutions that have already received funds.

In addition, the bill gives Geithner the authority to decide what pay is "unreasonable" or "excessive." And it directs the Treasury Department to come up with a method to evaluate "the performance of the individual executive or employee to whom the payment relates."

There really is no other way to describe this than a fascistic economic policy, where by "fascistic" I mean corporate socialism, similar to that developed most extensively by Italian dictator Benito Mussolini. (Adolf Hitler did not invent it; he admired the economics of "Il Duce" so much, he copied them in his "Third Reich".)

Before moving further, it's important to note that fascism, while it has the stench of racism, antisemitism, and warmongering for conquest, is not strictly defined that way. An administration can be fascistic even if it has not the slightest whiff of any of those qualities. That said, however, the current administration is an open and unapologetic fan of race-based preferences; is packed to the gills with ardent foes of Israel who too often slop over into naked Jew hatred (using the code phrase "the Israel lobby"); and fecklessly threatened to invade Pakistan even before Barack H. Obama was elected; it can hardly be said to be anti-racist, philosemitic, or pacific.

The bill was actually authored by freshman Rep. Alan Grayson (D-FL, not yet rated), most famous until now for filing lawsuits against Halliburton; the fair-minded and non-prejudicial Grayson offered this unique reason for House members to vote for the bill:

"This bill will show which Republicans are so much on the take from the financial services industry that they're willing to actually bless compensation that has no bearing on performance and is excessive and unreasonable," Grayson said. "We'll find out who are the people who understand that the public's money needs to be protected, and who are the people who simply want to suck up to their patrons on Wall Street."

These are not the words of a man who has any love of the free market, individualism, limited government, or Capitalism whatsoever. I venture to say that Mr. Grayson veers perilously close to totalitarianism... and he might not even mind the label.

In a recent post, Patterico quoted Thomas Sowell's Basic Economics; Sowell hit it right on the money, as usual:

Too often a false contrast is made between the impersonal marketplace and the compassionate policies of various government programs. But both systems face the same scarcity of resources and both systems make choices within the constraints of that scarcity. The difference is that one system involves each individual making choices for himself or herself, while the other system involves a smaller number of people making choices for others.

It may be fashionable for journalists to refer to “the whim of the marketplace,” as if that were something different from the desires of people, just as it was once fashionable to refer to “production for use, rather than for profit” -- as if profits could be made by producing things that people cannot use or do not want to use. The real contrast is between choices made by individuals for themselves and choices made for them by others who presume to define what these individuals “really” need.

We must contrast the clarity, logical development, and true love of freedom found in Sowell's argument with the crabbed, self-serving, power-mad, authoritarian, arrogant, condescending, ill-informed, adolescent wish-fulfillment of Barack Obama, Timothy Geithner, Barney Frank, Alan Grayson, Squeaker of the House Nancy Pelosi (D-Haight-Ashbury, 100%), Majority Leader Harry "Pinky" Reid (D-Caesar's Palace, 70%), and every other member of the liberal cabal that wants to hijack our country and turn it into Sweden. Or into fascist Italy of the 1920s, 30s, and early 40s.

Thomas Sowell is above all an American man who loves the American experiment... while the Obamunists are from Venus, I think. Barack Obama despises everything that the United States is right now; he will only love his country when it's no longer our country, but just an extension of the EU and the UN.

But always with a smiley face. Never forget the smiley face... that's the distinction that makes one a compassionate liberal fascist, which makes all the difference.

Hatched by Dafydd on this day, April 2, 2009, at the time of 5:07 AM | Comments (4) | TrackBack

March 31, 2009

The Great Dictator, part Deux

Beggar's Banking Banquet , Liberal Lunacy , Presidential Peculiarities and Pomposities , Tax Attax
Hatched by Dafydd

In the Great Dictator -- which won the Watcher's Council award for non-members, only the second time we've ever managed that! -- we wrote:

But the Great Dictator of 2009 may turn out to be glib huckster from Hawaii by way of Chicago named Barack H. Obama; for the administration appears poised to enact rules that could end up completely controlling all executive compensation for every major company that has anything to do with financial matters, or is publicly held, or has any sort of requirement to report anything at all to the SEC -- even including companies that never took a dime of TARP or stimulus money.

Today, we read the following chilling report of our Childe President finding he has some new powers, hitherto unknown to be in the Constitution:

President Barack Obama asserted unprecedented government control over the auto industry Monday, rejecting turnaround plans from General Motors and Chrysler and raising the prospect of controlled bankruptcy for either ailing auto giant. Eager to reassure consumers, Obama also announced the federal government would immediately begin backing the warranties that new car buyers receive -- a step designed to signal that it is safe to purchase U.S.-made autos and trucks despite the distress of the industry.

In a statement read at the White House, Obama said he was "absolutely committed" to the survival of a domestic auto industry that can compete internationally. And yet, "our auto industry is not moving in the right direction fast enough," he added.

With his words, Obama underscored the extent to which the government is now dictating terms to two of the country's iconic corporations, much as it has already taken an ownership stake in banks, the insurance giant AIG and housing titans Fannie Mae and Freddie Mac.

In an extraordinary move, the administration forced the departure of Rick Wagoner as CEO of General Motors Corp. over the weekend, and implicit in Obama's remarks was that the government holds the ability to pull the plug on that company or Chrysler.

The New York Times gives a little more detail about the detailed level of the terms that Barack H. Obama is now "dictating" to a private company:

“And so today, I am announcing that my administration will offer G.M. and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success,” Mr. Obama said.

Speaking a day after the White House pushed out the chairman of G.M., Mr. Obama said Chrysler has been instructed to form a partnership with the Italian automaker Fiat within 30 days as conditions for receiving more government aid.

Now it's certainly true that GM did, in fact, suckle from the federal teat; and that of course lends at least a little legitimacy to the White House's demand for some oversight. We all know that above everything, Obama is concerned about keeping a gimlet eye on expenditures of public funds... hence his repeated tongue-lashings of George W. Bush during the 2008 campaign for having run up deficits of $100 billion, $200 billion -- once even $400 billion!

But the new Obama plan goes far beyond ensuring that GM is using its corporate welfare wisely; Barack Obama evidently believes he knows how to build and sell cars better than do GM executives. He dictates not only how much they can pay their top brass, he wants to control who that top brass will be. What's next -- will the president assert the authority to select the next CEO directly? Does the government post of GM CEO require Senate confirmation?

(Perhaps he'll pick Chas Freeman; I understand he's between jobs right now. And realistically, Freeman is no more an ignoramus about the automobile industry than he is about intelligence, his previous and now withdrawn appointment.)

Will the president begin setting prices for various models? Choosing what color options will be available? Taking over the service contract? Oh, wait, he already did that.

The final step of a liberal fascist takeover of the industry would be to control the wages of all employees, to be able to set them however they want... thus funneling workers into favored industries or even particular companies and away from others: Imagine an earmark, inserted in the dead of night during the reconciliation phase of legislation, raising auto-worker wages at plants in one state and lowered them in an adjoining state. What effect might that have on the labor market and government control of the economy? (And what a fearsome weapon to wield against Obama's political enemies! But I'm certain that aspect of wage controls has never occurred to the One.)

By a bizarre coincidence, that scheme is exactly the subject of the Great Dictator, part (C). Stay tuned...

Hatched by Dafydd on this day, March 31, 2009, at the time of 5:44 PM | Comments (2) | TrackBack

March 27, 2009

How Could "Wall Street" Rahm Be Such a Liberal Fascist? (Actually, How Could He Not?)

Beggar's Banking Banquet , Democratic Culture of Corruption
Hatched by Dafydd

Beldar has a thought-provoking post up about Rahm Emanuel's "lost years," the two and a half or three years he worked as an "investment banker" on Wall Street, amassing from a low of $16 million to a high of "nearly twenty million dollars," despite having no relevant experience and no applicable degree. That's translates to a range of from $5.3 million per year up to a possible $8 million per year... not bad, for a guy who is less qualified to be an investment banker than my wife -- who at least worked in a bank once.

Here is the thought Beldar's t-p'ing post provoked in me: It's generally acknowledged in free-market circles that the bigger a business, the more government-like it becomes... and the less it supports actual market economics.

Megacorporations much prefer the stability and predictability of government contracting (domestic or foreign) to getting down in the trenches and selling to the peons; that's why Benito Mussolini got so much cooperation from the Italian corporations for his fascist economics (i.e., corporate socialism); the corporations were guaranteed monopolies and massive profits, and all they had to do was obey any orders from the government -- non c'è problema! Il Duce never told them to do anything against their natures.

(Think of the opening salvo against Capitalism in Rand's novel Atlas Shrugged... the "Anti Dog Eat Dog" rule -- which is enunciated not by the government but by the supposedly private railroads themselves: They connive to divide up the country so that no railroad ever has to compete with any other railroad. Rand may have been a mathematical and logical dummy, but she did know her recent history.)

Thus, for all their protestations today, I doubt that most of the American corporations large enough to be receiving government rescue/bailout packages are very frightened of the plan recently announced by Secretary of the Treasury and tax evader Timothy Geithner, which would essentially put all companies that are publicly traded or have any other nexus to the feds under the more or less direct control of the federal government... a stage of what I think Jonah Goldberg would call "liberal fascism."

Rahm Emanuel was clearly a tool of Big Banking during those three lost years... so it's not much of a shock that he rattles on against Capitalism today. He still serves the same masters.

And so does President Barack H. Obama.

Hatched by Dafydd on this day, March 27, 2009, at the time of 3:34 AM | Comments (0) | TrackBack

March 23, 2009

Déjà Vu About Vujà Dé

Beggar's Banking Banquet , Liberal Lunacy , Media Madness , Obama Nation , Toxic Jackassets
Hatched by Dafydd

I once crafted a neologism, vujà dé, bouncing off of the psychological term déjà vu -- the false feeling that something you are now experiencing happened before. My new word vujà dé means -- the false feeling that something that actually happened before is really brand, spanking new!

I woke up this morning -- well, this afternoon -- and read the following new financial-rescue plan from Treasury Secretary Tim Geithner:

The Obama administration formally presented the latest step in its financial rescue package on Monday, an attempt to draw private investors into partnership with a new federal entity that could eventually buy up to $1 trillion in troubled assets that are weighing down banks and clogging up the credit markets....

Initially, a new Public-Private Investment Program will provide financing for $500 billion in purchasing power to buy those troubled or toxic assets -- which the government refers to more diplomatically as legacy assets -- with the potential of expanding later to as much as $1 trillion, according to a fact sheet issued by the Treasury Department.

At the core of the financing package will be $75 billion to $100 billion in capital from the existing financial bailout known as TARP, the Troubled Assets Relief Program, along with the share provided by private investors, which the government hopes will come to 5 percent or more. By leveraging this program through the Federal Deposit Insurance Corporation and the Federal Reserve, huge amounts of bad loans can be acquired.

The private investors would be subsidized but could stand to lose their investments, while the taxpayers could share in prospective profits as the assets are eventually sold, the Treasury said. The administration said that it expected participation from pension funds, insurance companies and other long-term investors.

This gave me an intense feeling of déjà vu (not vujà dé); didn't... we... see something like this sometime before? Not very long ago? Something... something... it's all coming back to me now....

Oh, wait. This may be it:

As proposed by Secretary of the Treasury Henry Paulson and Chairman of the Federal Reserve Ben Bernanke, the putative "$700 billion" "bailout" is actually neither: It will neither cost that much, nor will it bail out those financial institutions that wrote bad loans for people they knew were not likely to be able to pay them off.

As I understand it, here is the basic plan. Note that I'm drawing this from many sources, it's not yet written in stone -- or even in ink -- and I can't give you sources. If you want more information, you're on your own! But here is what I've been able to glean:

  1. The Treasury is given authority to spend up to $700 billion (outstanding at any particular moment) to buy MBSs, CDOs, and related instruments that have become "illiquid." These "toxic assets" will be purchased from their current owners at a huge discount... meaning the banks and other investors who purchased these pigs in pokes will, in fact, take a significant financial hit... they're not being "bailed out."

So the Treasury can buy up these toxic assets; what do they do with them?

  1. I believe the plan (which has not yet been formalized in legislation) is to create a Treasury owned and managed resolution corporation that will take ownership of these toxic assets. Analysts will then pore through each MBS, determining the status of all the underlying mortgages and making a report publicly available. This will make the opaque assets completely transparent. All the financial fundamentals will be visible, so analysts at private companies can examine all of the securities and decide how much they would pay for each.
  2. The resolution corporation will then auction off each of the the now-transparent MBSs, selling it to the highest bidder; that very action allows the market to reset the value of the security.

That is why I characterize this rescue operation as "pressing the reset button."

Once some corporation has examined the fundamentals of the security and offered the winning bid for it, the MBS becomes (by definition) liquid; it is no longer a toxic asset. Its value has been reset... and it can go up or down after that point based upon subsequent, well-understood events (defaults, repayments, prepayments) in the underlying mortgages and reevaluations based upon other, market-based criteria. In other words, it becomes just like a mutual fund.

The crisis was the inability to value MBSs; the solution is to reset their values. The beauty of the Paulson-Bernanke plan is that this resetting is done by the free market, not by government decree.

Finally, note this point:

  1. When the Treasury-owned resolution corporation auctions off the now-transparent MBSs, it can use that money as income. Since the asset is now much more valuable than before (having been scrubbed into transparency), if it becomes saleable, then it will certainly sell for more than the discounted rate at which the corporation bought it. In other words, the resolution corporation will make a profit on every security it resells -- so the program will not actually cost $700 billion... it may even end up completely in the black.

That's why the Paulson-Bernanke plan is neither a bailout -- the so-called beneficiaries in fact must pay dearly for their folly -- nor massively expensive, since it resells most of the securities it bought, and at a profit. It could still end up costing money, depending on how many of the MBSs end up still toxic even after the complete report (if too many of the underlying mortgages are in default, for example); but the losses won't be anywhere near $700 billion, and they may be less than the profits.

That was a Big Lizards post from September 22nd, 2008; the differences between the old plan, from almost exactly six months ago -- developed by George W. Bush's Treasury Secretary Hank Paulson and then Chairman of the Federal Reserve Ben Bernanke -- and the new plan just proposed today by Barack H. Obama's Treasury Secretary Tim Geithner and current Chairman of the Federal Reserve Ben Bernanke are... well, subtle:

  • The Paulson-Bernanke plan wasn't quite as expensive as the Geither-Bernanke plan;
  • It didn't have the patina of private investors coming along for the ride (heavily subsidized by the federal government and leveraged by the Federal Deposit Insurance Corporation, FDIC) that we see in today's version;
  • In the original version, the government would buy the toxic assets from their current owners at a discount; Treasury (or a Treasury-owned resolution corporation) would investigate and "valuate" them (determine the actual value of the underlying mortgages that make up each mortgage-backed security, MBS, and related debt instrument); and then private investors would buy the formerly toxic, now liquid assets from the government at an auction. In the new version, the government will partner with private and corporate investors, leveraged by the FDIC, to buy the assets; then they would be auctioned to other private and corporate investors.

I don't know about you all, but the distinction between the two plans doesn't leap off the screen for me. The Times doesn't report whether the feds will undertake the intermediate step of investigating and reporting the details of these toxic assets, but I think it must be so; I can't see how else could they be turned from illiquid to liquid, except by injection of what I called in a later post, "timely, honest, accurate, and believable information," or THABI.

It seems I wasn't suffering from déjà vu after all. As the great sage Bert the one-man band, sidewalk chalk artist, and chimney sweep said, "Can't put me finger on what lies in store, but I feel what's to happen all happened before."

The current plan even includes the reset-by-auction of toxic assets that I gleaned from the original plan; from the Times story above:

An attractive feature of the program is that it will allow the marketplace to establish values for the assets -- based, of course, on the auction mechanism that will signal what someone is willing to pay for them -- and thus might ease the virtual paralysis that has surrounded those assets up to now.

For a relatively small equity exposure, the private investor thus stands to make a considerable return if prices recover. The government will make a gain as well. In the worst case, the bulk of the risk would fall on the government. The presumption, of course, is that the auction will lead to realistic purchase prices.

So where does vujà dé (not déjà vu) enter into it? Simply this: I haven't seen a single elite-media commenter point out that this is the very same plan we started with... lo these many months ago; the same plan that was quickly derided by congressional Democrats, railed against by presidential-candidate Barack Obama, dismissed as nonsense by voters (and by Wall Street), and derailed in favor of direct investments in -- that is, nationalization of -- banks, savings and loans, insurance companies like AIG, and so forth.

Everyone writes and speaks as though this is a brilliant innovation -- imagine, buying up toxic assets and using public auctions to establish a "realistic purchase price" for them! Who but Geithner could possibly have thought of such a corker of a solution? He's finally demonstrated the mental superiority with which he was hailed when he was nominated (so brilliant, we simply had to overlook that little kerfuffle about evading income taxes when he worked at the International Monetary Fund).

I still have a few questions:

  • How long will the elite media continue to heap scorn upon that fool, Henry Paulson, and his ludicrous plan to buy up toxic assets -- while lavishing praise upon that genius, Tim Geithner, for his fantabulous plan to buy up toxic assets?
  • And what about the hundreds of billions (or is it over a trillion? I can't remember) already spent or pledged by the federal government to buy "equity interests" in hundreds of financial corporations? Do we perpetuate the mass nationalization program even as Treasury crows that the wonderful thing about the new rescue plan is that it privatizes the bailout?
  • Does the Obama White House suffer from Multiple Ideology Syndrome?

Everything old is new again, the wheel has come full circle, and what a long, strange trip it's been!

Hatched by Dafydd on this day, March 23, 2009, at the time of 3:30 PM | Comments (6) | TrackBack

March 21, 2009

The Great Dictator

Beggar's Banking Banquet , Liberal Lunacy , Media Madness
Hatched by Dafydd

In 1940, socialist Charlie Chaplin -- acting as screenwriter, director, producer, and of course star -- released the Great Dictator, which parodied Adolf Hitler in particular and fascism in general. Chaplin played both Adenoid Hynkel, dictator of Tomania, and also a Jewish barber who happens to look exactly like Hynkel.

But the Great Dictator of 2009 may turn out to be glib huckster from Hawaii by way of Chicago named Barack H. Obama; for the administration appears poised to enact rules that could end up completely controlling all executive compensation for every major company that has anything to do with financial matters, or is publicly held, or has any sort of requirement to report anything at all to the SEC -- even including companies that never took a dime of TARP or stimulus money:

One proposal could impose greater requirements on the boards of companies to tie executive compensation more closely to corporate performance and to take other steps to assure that outsize bonuses are not paid before meeting financial goals.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.

Beyond the pay rules, officials said the regulatory plan is expected to call for a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system.

Of course, there is virtually no chance that any scheme this radical could get through Congress, where Republicans still have at least some say in enacting legislation -- if only to filibuster something this grandiose, anti-capitalist, and authoritarian. But Obama has an answer for that minor roadblock as well; if the Times is to be believed, he intends to impose wage controls by direct decree, bypassing Congress entirely:

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

The plan is certainly audacious. I would rather say breathtaking, stunning, shocking, jaw-dropping, mind-boggling -- and of course, quite mad. But when the president of the United States believes he can simply dictate (by executive order) how much everybody working in any publicly traded company is paid, I don't think it can be called anything less than a form of socialism.

But what kind? Certainly not Marxism, because he is not abolishing corporations or private capital. Rather, this sort of corporate socialism was invented in the 1920s by a fellow in Italy named Benito, who called it "fascism." Barack Obama evidently plans to go the "full Jonah," returning liberal fascism to America for the first time since Lyndon Johnson's "Great Society," and following in the footsteps of such liberal-fascist/populist luminaries as Franklin Roosevelt, Woodrow Wilson, and Theodore Roosevelt.

To the list of reactions above, let me also add -- ominous.

So how much executive power would Obama seize to himself? How about this:

A central aspect of the plan, which has already been announced by the administration, would give the government greater authority to take over and resolve problems at large, troubled companies that are not now regulated by Washington, like insurance companies and hedge funds.

That proposal would, for instance, make it easier for the government to cancel bonus contracts like those given to executives at the American International Group, which have stoked a political furor. Under the proposal, the Treasury secretary would have the authority to seize and wind down a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board.

So a contract is a contract -- unless the president doesn't like it, in which case he will be able to rewrite it (or void it) at will. When contracts between third parties stand only as long as the head of government allows them to stand, then there is no stability and no predictability: In short, there is no more rule of law, and capital pulls up stakes and moves to a sunnier clime. Then, of course, there will be a great many more "struggling institutions."

Who decides which institutions are struggling? Perhaps that too will be decided by the same deciders: the Secretary of the Treasury, the president, and five out of the seven members of the Federal Reserve Board of Governors. If so, then the president can point to any corporation, family business, or not-for-profit organization, declare it to be "struggling," and then take it over, rewriting contracts, compensation packages, benefit plans, retirement funds, and (one presumes) prices and wages.

At that point, there truly is no limit to the president's power to personally dictate and direct the nation's economy. We will no longer have a capitalist or even quasi-capitalist state but direct fascism, without even the liberal "smiley face" to adorn the invisible foot of government.

So what sort of dictator would Mr. Obama be?

In unveiling the regulatory plan this week, President Obama would signal to Europe that he intended to crack down on the risk-taking and other free-wheeling practices by the financial industry that resulted in the global economic meltdown.

...And that also resulted in the greatest creation of wealth in all of human history. We'll have none of that, buster!

And who is behind the move? It appears to be Fed Chairman Ben Bernanke more than Treasury Secretary Tim Geithner:

From the outset of the Obama administration, officials and European leaders have disagreed over how much to limit pay. And Mr. Geithner has discouraged the administration from imposing across-the-board limits on compensation of all employees at troubled companies receiving federal assistance and more burdensome pay restrictions at healthy institutions that the administration is trying to encourage to take government money so they can increase lending.

Last week, Ben S. Bernanke, the Federal Reserve chairman, also called on regulators to supervise executive pay at banks more closely to avoid “compensation practices that can create mismatches between the rewards and risks borne by institutions or their managers.”

Presented with a choice between two top advisors, one of whom cautions against a radical nationalization of the entire corporate world, the other of which urges just that approach -- Obama opts for the latter. Surprise, surprise, on the Jungle Boat ride tonight. So if the Times report is accurate, then the Executive branch will determine what risks are acceptable for businesses to take; what rewards they are allowed to bestow upon their employees; and presumably every phase of the transaction in between. Can wage and price controls be far behind?

So what do Republicans have to say about this plan? I don't know -- because the New York Times elects not to inform us. They neither quite nor even paraphrase any response by anybody other than members of the administration and Democratic leaders in Congress. Evidently, the rest of us have become invisible.

But I make no doubt that Arlen and the gals from Maine will, with "great reluctance," throw their weight behind the necessary step of putting capitalism under state control... "just for the duration," of course.

So how long, exactly, does the duration endure? Until we're as prosperous as we were during most of the Bush administration? I fear that with the advent of liberal fascism, and the resulting destruction of the economy that will provoke, that new golden age could be a lang, lang time a-growin'.

Hatched by Dafydd on this day, March 21, 2009, at the time of 9:53 PM | Comments (1) | TrackBack

March 19, 2009

Obama's State-Ownership Society

Beggar's Banking Banquet , Confusticated Conservatives , Dancing Democrats , Democratic Culture of Corruption , Liberal Lunacy , Obama Nation , Toxic Jackassets
Hatched by Dafydd

Back in the precambrian era -- in fall of 2008, I of course mean -- we warned in several posts that when the federal government takes an "equity interest" (ownership in whole or in significant part) in private companies, it creates a grave threat to the capitalist system:

When government buys a significant stake in private companies, it creates a terrible conflict of interest; decisions that should be made entirely on economic grounds -- attempting to maximize the long-term profit for the owners of the company, whether stockholders or private consortia -- are made instead by politicians pushing a particular political ideology, or else trying to benefit big campaign donors.

Corporate management is ultimately accountable to the owners (though owners can be derelict in their fiduciary duties), while politicians are accountable only to voters and donors, neither of which may have any particular concern about the financial viability of particular private companies in the government's stock portfolio.

This is how we explained it in the first post linked above:

The latter especially is a key element of Woodrow Wilson, Benito Mussolini style fascism; it invariably leads to the State, as the $700 billion gorilla on the board of directors, exerting overwhelming control over corporate decisions... which it will exercise on the basis of politics, not profits.

When people read "fascism," they immediately tend to envision concentration camps, jackboots, and Nazis goosestepping at mass rallies; but the real danger of fascism, especially liberal fascism (fascism with a smiley face, as depicted -- against author Jonah Goldberg's wishes -- on the cover of his book Liberal Fascism), is government control of corporations. The more control is handed over to politicians and bureaucrats who have no hand in actually producing the product (loans and securities, in this case), the more critical decisions will be made on irrelevant political considerations, often leading to financial disaster... and another bailout, leading to even more government control. Eventually, the State completely hijacks the corporation for political purposes... and we're well on our way to Hugo Chavez-land.

The threat posed by the government taking an equity interest in private companies can be minimized by making it a matter of law that the holdings are fully divested as soon as buyers can be found at market prices -- either the company buying back its own stock or private third parties taking it off government's hands; in the third Big Lizards post linked up top, "Is It Adios to Capitalism - or Only Au Revoir?", we discussed this possibility:

With the long-expected decision today by President George W. Bush, Treasury Secretary Henry Paulson, and Fed Chief Ben Bernanke that Treasury will spend $250 billion of the $700 billion buying equity stakes in nine top banks, thus injecting "liquidity" directly into the industry, we stand at a crossroads. The question is whether this is "goodbye" to Capitalism or just "see you soon"... whether this is a permanent break from free markets or just a necessary but temporary bank holiday....

The direct injection of liquidity by Treasury buying equity is also outside the market, because that money is extracted from people by force, in the form of taxes. But at the core, even this direct investment is an attempt to buy time to complete the "transparentizing" (horrible neologism, I know) of the toxic assets -- the recreation of the information that was lost by multiple unregulated securitizations of massive collections of mortgages.

Once the [timely, honest, accurate, and believable information] has been restored to the mortgage-backed securities and other instruments, the market can reboot itself...

With the restoration of the missing THABI information, the market can reboot, and the catastrophe will be averted. So long as partial-nationalization of the banking industry lasts only long enough to retransparentize the toxic assets, thus allowing the market to begin functioning again, it will be an acceptable, even necessary intervention.

Alas, there is nothing in the Obama administration's bailout that implies they will, in fact, consider this a temporary expedient; from everything I've read, they see it as a permanent "reform."

There are two classic anti-capitalist examples of divesting funds for political reasons; together, they point out the very real danger when government becomes a part owner of the private sector through enforced or distressed nationalization (we have seen both in the present crisis):

  1. When universities, big corporations, and of course government programs in the 1970s dumped all their investments in companies based in South Africa or doing business in South Africa, even if they were based elsewhere, to protest Apartheid; this was in response to purely political pressure from black activist groups here in the United States.
  2. And when the usual suspects more recently dumped all investment in Israel, Israeli companies, or companies that did not ritually denounce Israel, in response to purely political pressure from antisemitic, anti-Israel, and generally pro-Palestinian and Islamist activist groups.

Both are examples of government trying to use equity ownership to bully the private sector into purely political actions that have nothing whatsoever to do with the companies in question.

When the government is a significant investor in a company, it cannot help running those companies; government funds never come "string free." Worse, the State runs those companies not to make profits, but to score political points.

In fact, that is exactly what is happening in the case of American International Group (AIG): We have such a huge investment in that company now, $80 billion, that how much they pay employees in retention "bonuses" (inducements to continue working for AIG, rather than jumping ship to some less shaky company) has become a political football.

In fact, the U.S. House of Representatives has just voted overwhelmingly, 328 to 93, to enact a confiscatory tax on AIG employees -- almost by name! -- if AIG fulfills its contractual obligations by paying the employees who stayed on for the work they did (reducing AIG's liability from $2.7 trillion to $1.6 trillion):

Spurred on by a tidal wave of public anger over bonuses paid to executives of the foundering American International Group, the House voted 328 to 93 on Thursday to get back most of the money by levying a 90 percent tax on it....

But there was no doubt after the House vote that the lawmakers were keenly aware of their constituents’ anger, which was focused on A.I.G., although the House measure would apply to executives of any company getting more than $5 billion in federal bailout money.

Hours after the vote, the office of Andrew M. Cuomo, the New York attorney general, said A.I.G. had turned over the names of employees who received bonuses, in response to a subpoena.

Before releasing the list, the attorney general’s office plans to review it and assess whether individuals on it might have reason to fear for their safety.

“We are aware of the security concerns of A.I.G. employees, and we will be sensitive to those issues by doing a risk assessment before releasing any individual’s name,” Mr. Cuomo’s office said in a statement.

Well that's mighty decent of them.

So the bill was openly and unabashedly driven by constituent anger -- anger that cannot possibly be based upon a sober and detailed consideration of whether those particular employees deserved those particular bonuses; in fact, the most likely culprit in ginning up such rage and fury is Congress itself, along with the president, who have been demonizing AIG and its employees for months now. It happened again in the debate on this very bill:

“The people have said ‘no,’ ” Representative Earl Pomeroy, Democrat of North Dakota, shouted on the House floor. “In fact, they said ‘hell no, and give us our money back.’ ”

“Have the recipients of these checks no shame at all?” Mr. Pomeroy continued. Summing up his personal view of the so-far anonymous A.I.G. executives, he said: “You are disgraced professional losers. And by the way, give us our money back.”

Great leaping horny toads. I had to wipe spittle-spray off my face after just reading it! "Disgraced professional losers?" Is Earl "Elmer Gantry" Pomeroy (D-ND, 85%) under the impression that these bonuses are going to the actual folks in the credit default swap area, who are the ones who brought AIG down? Or is Pomeroy just blindly striking out against anyone who makes more money than he?

And while we're on the subject, I think there is not a single Democrat in Congress to whom I could not say, “You are disgraced professional losers; and by the way, give us our money back.” And with a damn sight more justification, Earl.

Contrariwise, John Hinderaker -- my favorite blogger on my favorite blogsite, Power Line -- makes a compelling case that the bonuses were in fact perfectly proper:

  • They were retention bonuses, not performance bonuses.
  • They were paid, not to the employees responsible for the collapse, but to other employees who have worked hard for months after the collapse to rescue AIG... rather than jumping ship with their expert knowledge of AIG's exact portfolio problems, taking jobs with other companies that had better futures.
  • As John writes, "[the employees] satisfied the terms of the bonus by wrapping up a portfolio for which they were responsible and/or staying on the job until now. As a result of the efforts of this group, AIG's financial products exposure is down from $2.7 trillion to $1.6 trillion.
  • They stayed at AIG precisely because of those bonuses; but now the government, having eaten the fruit of that labor as an equity holder, wants those bonuses to go, not to the people who earned it, but to the government itself!

But note how carefully the Times dances around the question of who exactly is getting the bonuses, and what those people's roles were in the collapse:

The $165 million in bonuses has spawned rage in part because it was paid to executives in the very unit of A.I.G. that arguably turned a stable, prosperous insurance company into a dice-rolling financial firm in search of quick profits.

But there must have been hundreds of employees working in the financial products division! Does the Times think that every employee, from vice president down to secretary, was personally responsible for the foolish decisions that nearly killed AIG? Do liberals fantasize even that every executive in that division was responsible?

If new (post-collapse) AIG CEO Edward Liddy is telling the truth, and so far no current or former employee has come forth to contradict him, then the bonuses are going to people who were not responsible for the collapse, but are responsible for helping AIG deal with the collapse after the fact.

These are the people that Rep. Barney Frank (D-MA, 100%) calls corrupt:

Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee and has been among A.I.G.’s fiercest critics, spoke contemptuously of the bonus recipients as people “who had to be bribed not to abandon the company” they had nearly ruined.

Wouldn't that same language, "bribed not to abandon the company," apply to every employee who ever demanded a raise?

It's another example of liberals' inability to deal with complexity; for all their protestations of having more subtle minds, they are really quite simplistic: The poor (and the rich who "represent" them) are always good; the productive core are always bad; and every moral question is the same shade of neutral gray.

John makes the same point as we anent this ridiculous 90% "tax," which is actually a deliberate attempt at confiscation, as the president made clear yesterday in Orange County. John writes:

The legislation introduced by the Democrats today to tax these bonuses (and possibly a few others, although it isn't clear that any others have been or will be paid that are covered by the statute) at a 90 percent rate is an outrage. It is, in my legal opinion, obviously unconstitutional. It is evidently intended to calm the current political firestorm and not to achieve any real objective.

John refers to the legislation as "introduced by the Democrats;" while that's technically true, it's only a half-truth: Democrats may have proposed it, but the House GOP split almost 50-50 on what Hinderaker (a lawyer) and I (a "sea-lawyer") see as an obvious bill of attainder.

In fact, the AP version of the Times article demonstrates Republican cowardice in the House: 87 Republicans voted against the "tax"; but 85 Republicans voted with the Democrats, blaming those retained employees for all of our woes... most switching at the last minute:

Minority Leader John Boehner, R-Ohio, said the bill was "a political circus" diverting attention from why the administration hadn't done more to block the bonuses before they were paid.

However, although a number of Republicans cast "no" votes against the measure at first, there was a heavy GOP migration to the "yes" side in the closing moments.

This is out and out pandering by the GOP... and it's vile. If we cannot even count on the House Republicans to stand up to liberal demagoguery, to stand up for Capitalism, then what is the point?

It's time for Minority Leader Boehner (R-OH, 100%) to fish or get off the pot: Does he lead a party that is distinct from the liberal Democratic majority, that is center-right, and that still believes in Capitalism, the rule of law, and conservative principles of governance? Has he learned the lessons of 2006 and 2008? Or does Boehner believe that the GOP's best shot at returning to power is to morph into a quieter, gentler version of the Democratic Party, pushing a slightly more restrained version of Obamunism?

I'd really like to know the answer to that conundrum before the next election.

Hatched by Dafydd on this day, March 19, 2009, at the time of 6:59 PM | Comments (7) | TrackBack

March 7, 2009

I'll Take Both A and B, Patterico

Beggar's Banking Banquet , Blogomania , Econ. 101 , Iraq Matters , Tax Attax , War Against Radical Islamism
Hatched by Dafydd

Patterico published a post yesterday comparing two statements, one by Rush Limbaugh, the other by Huffington Post commentator Lee Stranahan. (Patterico titled his post "More on Limbaugh," ha ha.)

Patterico draws a parallel between the two statements -- not difficult, since Stranahan cooperated by deliberately crafting his to reflect Limbaugh's -- and our friend Patterico appears to believe he has scored a point by noting that both have the same structure (which was Stranahan's point anyway). Here's Patterico:

If I were a liberal, and if Stranahan had had a major national platform where the entire country was discussing his views, I’d want to tell him to find a different way to say what he said. Do you think it would help Democrat politicians to spend days answering questions like: “Do you also want the Iraq war to fail, like Lee Stranahan?” -- and have to spend time explaining to people that Stranahan didn’t really want soldiers to die? I’d tell Stranahan: You want to say you opposed Bush’s policies, great. Stop saying it in a way that makes it sound like you wanted troops to die. Yes, I know you don’t mean that. People will still think you do -- and frankly, you weren’t all that clear about saying you didn’t. You said it, but the implications of what you said could suggest to some that you might not have meant it....

Rush has had a major national platform where the entire country was discussing his views. As a result, I wish he’d find a different way to say what he said. I say to him: If you want to say you oppose Obama’s policies, great. Stop saying it in a way that makes it sound like you want Americans out of work. Yes, I know you don’t mean that. People will still think you do -- and frankly, you weren’t all that clear about saying you didn’t.

Anyone who bristles at hearing the phrase “You’re damn right I wanted the Iraq war to fail.” -- or who can imagine other Americans bristling at that line -- should understand what I’m saying.

I have a very different reaction than Patterico, however: I am offended by neither statement; neither makes me "bristle." I take each as a pronouncement of the core position of its speaker:

  • Rush Limbaugh wants Barack H. Obama's leftist revolution in America to fail utterly, even if that means many thousands of Americans are temporarily hurt economically; Limbaugh hopes and believes this will make America stronger, so that America will become once more the "shining city on a hill" that Ronald Reagan dubbed us, spreading American-style republicanism across the globe.
  • Stranahan wants America's military opposition to the militant Islamism of the Iran/al-Qaeda axis to fail utterly, even if that means many thousands of American soldiers are killed permanently; Stranahan hopes and believes this will make America weaker and more like a European country, so that internationalism will reign supreme and we have one-world government in the model of the United Nations.

What demarcates these polar-opposite worldviews is not the structure of their presentation but the substance of their philosophies; I ringingly endorse Limbaugh's and resoundingly reject Stranahan's.

I share Limbaugh's statement that he hopes Obama fails in his quest to remake America into a socialist state and remake the American citizen into the New Soviet Man... and I reject Stranahan's statement that he hopes the Iraq war fails to stop the tide of militant, fundamentalist Islamism, "jihadism," and terrorism from washing across the entire world, making America an international laughingstock and making it easier for his god, Barack Obama, to utterly transform us into antiAmerica.

I make no apology for being a partisan in that philosophical, political, and military conflict; and I'm astonished that Patterico doesn't see that we can defend Limbaugh's statement on its merits, and attack Stranahan's on its -- using as controversial language as we want -- without offending middle America or being in the least hypocritical: The two philosophies are substantively worlds apart, which is far more important to ordinary people than Stranahan's tendentiously crafted structural similarity.

Hatched by Dafydd on this day, March 7, 2009, at the time of 12:07 PM | Comments (9) | TrackBack

February 2, 2009

Nanny's in Your Kitchen: the Spice Wars Begin

Beggar's Banking Banquet , Illiberal Liberalism , Liberal Lunacy , Obama Nation
Hatched by Dafydd

"Republican" Mayor Michael Bloomberg of New York City -- he was a Democrat until he decided the Democratic ticket was too crowded for his mayoral run, so he switched to have the nomination to himself -- now presides over a staggering budget deficit:

Mayor Michael Bloomberg officially announced Friday the city's $4 billion budget gap and unveiled a new budget filled with painful cutbacks that will impact every New Yorker.

Wall Street got sick and now New York City residents have to take their medicine, and Bloomberg's budget solution will probably be hard for most of us to swallow. New taxes, a smaller workforce, and reduced city services -- all the ingredients of Friday's "Doomsday" budget plan.

"This is a very tough time for our city and nation," Bloomberg said. "We have a $4 billion budget gap. It is serious, I think it is manageable."

Facing this Bloomsday budget plan, Mr. Mayor has thought and thought and thought and thought... and all that ratiocination has done to him what too much reading of chivalric fiction did to Alonso Quixano, about whom Cervantes wrote in the Quixote:

In short, he became so absorbed in his books that he spent his nights from sunset to sunrise, and his days from dawn to dark, poring over them; and what with little sleep and much reading his brains got so dry that he lost his wits. His fancy grew full of what he used to read about in his books, enchantments, quarrels, battles, challenges, wounds, wooings, loves, agonies, and all sorts of impossible nonsense; and it so possessed his mind that the whole fabric of invention and fancy he read of was true, that to him no history in the world had more reality in it.

And a few days ago, Michael, Princeps of Novus York, had a divine revelation: The specific enchantment that would serve to rescue his beloved principality from the economic fiery furnace is "sal salis deleda est!" Now we know how he'll "manage" the $4 billion deficit; sic semper tyrannis.

Clearly, the rabble are simply too ignorant to know how much salt they're eating. They cannot be trusted to make such urgent decisions, which affect the principality as a whole, all by themselves, the selfish villains.

So he has decided to do something about it: He is gearing up to order food manufacturers to "voluntarily" cut the amount of salt in the food they prepare by 50%; and if they don't voluntarily comply, the next step will be to ban any dissenters from selling their food products in New York City.

As New York is America's largest urban market, and it's too expensive to have two different versions of every product -- one for New York, the other for Everywhere Else -- the upshot will be that manufacturers will be forced to undersalt their food across the entire United States. Even the Pace Picante Sauce sold in Amarillo and Taos will have to conform to the tastes of "New York City!"

"Salt, when it's high in the diet, increases the blood pressure and high blood pressure is a major factor for heart disease and stroke," said Dr. Sonia Angell of NYC's Cardiovascular Disease Prevention Program.

This is just Mayor Bloomberg's latest health initiative, following on the heels of a smoking ban, a ban on trans fats and forcing restaurants to post the calorie contents.

But many New Yorkers peppered the mayor with boos for his latest idea.

The inaptly named Dr. Sonia Angell might want to reinterview her cherubim sources; evidence that a high salt intake causes medical problems in otherwise healthy people is scant. Instead, most studies show only that people who already have problems -- cardio-vascular, exercise-induced asthma, stomach problems -- can significantly benefit from decreasing their salt intake. And in any event, do we really want a government that tells us what amount of an ordinary, even necessary mineral we are allowed to eat? "Deadly NaCl" has become the new millennium's "poisonous CO2".

Anyone who wants to reduce salt in his diet has a plethora of options available; there are health-food stores in nearly every reasonably large city, and probably hundreds in America's largest city. These stores carry many products that are low-sodium or even sodium-free. You can also simply make food from fresh, non-processed ingredients, thereby controlling how much salt your dishes contain.

With a city teetering on the edge of financial ruin, should Mr. Mayor be frittering away his energy and his budget forcing everyone to conform to an NYC "health Nazi" committee? (Adolf Hitler was a fanatic vegetarian and anti-smoking zealot, making Hitler the world's first "health Nazi.") It's hard not to suspect that Bloomberg's real objection to salt is not that it damages some people's health but that it makes food taste good, when we should be tightening our belts. (The mayor's political allies in the Center for Science in the Public Interest are even more overt, verging on brazen, in their war on flavor.)

This knee-jerk wildly inapropos response proves (if that were still needed) that Michael Bloomberg is still a liberal Democrat at core, no matter what letter he puts after his name now. A liberal is never more than two hysterias away from reverting to liberal fascism, in which every problem is a social problem -- and every social problem requires a collectivist, totalitarian solution. If some people's poor health is exacerbated by excess salt, then nobody should be allowed to eat too much salt... where "too much" is of course coterminous with "more than Mayor Bloomberg likes."

Liberals simply become impatient when one raises the liberty issue; in their hearts, no matter the rhetoric they espouse or claim to accept, right back to the days of the Progressive Party and the Fabian Society, they have always believed that liberty is overrated... that there are only two kinds of men: those who are meant to drive -- the "vanguard," or as Thomas Sowell dubbed them, the "Anointed" who have "the Vision" -- and those who are fit only to be driven (the lumpenproletariat).

The line of totalitarian succession stretches unbroken from Woodrow Wilson to Franklin Roosevelt to Lyndon Johnson to Jimmy "the Sweater" Carter -- to the Pelosi, Reid, Obama axis today, thence to all the little Obamoids orbiting the One like teeny, tiny moons. This includes Mr. Mayor of the cosmic center, New York City -- Bloomberg, rationer of prandial pleasure and arbiter of the new American asceticism... We the People sacrifice all so that They the Anointed may feast, swill, chain-smoke, and wallow in hundreds of billions of taxpayer dollars (tax-free for cabinet appointees!) showered upon them because they are who they are.

Meet the new nanny; same as the old nanny. (Pass the salt, please.)

Hatched by Dafydd on this day, February 2, 2009, at the time of 6:41 PM | Comments (3) | TrackBack

October 23, 2008

Clinton's Smoking Fannie

Beggar's Banking Banquet
Hatched by Dafydd

Friend Lee has gone big-game hunting, and he bagged a major trophy: A smoking-gun article from the New York Times, September 30th, 1999, that settles once and for all who is to blame for the current economic collapse. The title of the article says it all: Fannie Mae Eases Credit To Aid Mortgage Lending.

First, let's settle the evidently still "open question" of who was behind the move to lend too much money to people who had no ability to repay it:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

The article notes that "banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers." Then it quotes our good friend Franklin Delano Raines, who it identifies only as "Fannie Mae's chairman and chief executive officer."

In fact, during Jimmy Carter's administration, Raines was a top official at the Office of Management and Budget (OMB) and also on the White House Domestic Policy Staff; later, he became Fannie Mae's vice chairman in 1991 -- then leapt back onto the White House staff in 1996, as Bill Clinton's director of OMB.

Three years later, in 1999, he flipped and twisted right back into Fannie Mae -- this time as CEO. Raines' career perfectly illustrates the flying trapeze of the Clinton administration, where high officials float through the air with the greatest of ease between quasi-private businesses and the very bodies that regulate those same businesses. Thus Raines helps rewrite the rules for Fannie Mae, then immediately leaves to run the company under the rules he just helped change in Fannie Mae's favor.

Which point the Times fails even to mention. Welcome to the New York Times, the great dissembler: "All the news we see fit to print!"

Here is Raines, carefully explaining the wonderful intentions behind subprime lending:

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Well don't worry; we'll fix that little discrepency.

(Five years later, Raines was forced to accept "early retirement" for his accounting shenanigans, which put millions of dollars from Fannie Mae into his own pocket -- as much as $90 million in extra compensation based upon overstated earnings. He later settled for a $3 million fine, which is actually paid by Fannie Mae's insurance policy. So it goes in the Democratic era of Clinton; think "Sandy Berger.")

Why would the Clinton administration and congressional Democrats be so anxious to lower the borrowing requirements? Back in 1999, basking in the glow of the golden age of Clinton, the Times was rather more forthcoming about the purpose:

By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Oh, and while we're at it:

The change in policy also comes at the same time that HUD [the Department of Housing and Urban Development] is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Somehow I suspect that findings of "racial discrimination" directly bolstered congressional support for the Clinton policy that Fannie Mae (and Freddie Mac) scrap credit requirements in order to dramatically increase the number of mortgages extended to minority home buyers. As we have seen this year, it's very hard to avoid flinching when the Left begins lobbing racism artillery shells; it's the ammunition that never runs low.

What an astonishing coincidence: An investigation by HUD into "racial discrimination" in credit ratings -- probably based entirely on the "disparate impact" of such ratings on the ability of blacks and Hispanics to get home loans, rather than any comparison of default rates among whites, blacks, and Hispanics -- followed immediately by deregulation that allows Fannie Mae to essentially ignore credit rating when it buys or guarantees mortgages, with the avowed purpose of increasing the rate of lending to minority home owners.

HUD was run at the time by Andrew Cuomo, who was the cabinet official most anxious to scrap the Fannie/Freddie credit rules; I am not sanguine that the "investigation" his department initiated was conducted in an unbiased and non-politicized fashion. Color me cynical.

Speaking of prescience, the American Enterprise Institute, a conservative think tank, issued a blunt warning back in 1999:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

This article should end all question of who is to blame and who tried to stop the insanity; but of course, the Times will not report on this point... even to the extent of not reporting in 2008 what it itself openly reported nine years ago. Back then, the bad-credit mortgage program was a feather in Bill Clinton's cap, leading to more minority home ownership; but today, it's a black eye for the Democratic Party, and particularly damaging to the ascendance of the One We Have Been Waiting For. And that makes all the difference in its newsworthiness.

Hatched by Dafydd on this day, October 23, 2008, at the time of 3:50 PM | Comments (8) | TrackBack

October 14, 2008

Is It Adios to Capitalism - or Only Au Revoir?

Beggar's Banking Banquet , Toxic Jackassets
Hatched by Dafydd

With the long-expected decision today by President George W. Bush, Treasury Secretary Henry Paulson, and Fed Chief Ben Bernanke that Treasury will spend $250 billion of the $700 billion buying equity stakes in nine top banks, thus injecting "liquidity" directly into the industry, we stand at a crossroads. The question is whether this is "goodbye" to Capitalism or just "see you soon"... whether this is a permanent break from free markets or just a necessary but temporary bank holiday.

I believe Bush when he says it's the latter:

"The government's role will be limited and temporary," Bush pledged. "These measures are not intended to take over the free market but to preserve it. He said these steps and other related actions echoed similar bold moves made overseas in an effort to prevent a global recession. Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."

He said that the efforts to rescue the nation's battered financial sector was a short-term move to help banks to be able to begin lending again.

Alas, it's not up to him, is it? Bush has only three months left in office, and surely this direct-equity program will last longer than that (more likely a year or eighteen months). The question is what the next president will do... whoever he is.

The original plan, recall, was for Treasury to buy (through a resolution corporation) toxic assets themselves; the reason for the change is twofold:

  • The financial situation deteriorated at warp speed, much faster than expected, and it appeared that the world financial markets were headed towards a Great Depression-level collapse; it seemed to the administration that action had to be taken immediately to inject capital directly into the institutions that otherwise could go under, taking the world economy with them.
  • It became clear that it was impossible to set up the asset-purchase procedure (including creating a new government-sponsored or owned resolution corporation) quickly enough:

    The $700 billion rescue program will continue to feature the purchase by the government of banks' bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running.

    Treasury officials said Tuesday that they still plan to buy troubled assets and that this program would start as soon as possible.

If in fact this turns out to be a temporary nationalization, I don't think it will be that bad. I agree with nearly every economist (though I am not one) that the free market alone cannot resolve this problem; but unlike them, I actually know why, or I think I do. Let me explain why the market is helpless here...

We've all been looking at this problem from the wrong perspective: We keep thinking of the rescue plan as injecting liquidity into the banking system and other credit markets; but the real need is to inject, not liquidity, but information; liquidity is just a seredipitous side effect.

The more I read about the current world fiscal crisis, the more I believe that it's not a market failure, not a credit failure, not a mortgage failure, and not a liquidity failure: Those are all symptoms of the real, underlying failure.

What has actually failed is the world information supply. Simply put, everything related to finance, to trade, to buying and selling -- in short, everything connected with any kind of a market -- depends upon access to timely, honest, accurate, and believable information (hereafter "THABI"). For an example I have used before, you cannot buy a car based solely on a grainy picture in a newspaper, because you cannot put a value on it; does it even have an engine?

You need THABI before you can make an offer. And the same is true for mortgages, mortgage-backed securities (MBS), credit default swaps (CDS), construction loans, business letters of credit (LOC), and so forth. Without sufficient THABI, no seller has any idea what price to ask the buyer, and no buyer has any idea what price to offer the seller. Buyers and sellers cannot come to a "meeting of minds," which means nobody can agree on any contract. And that means no market can exist.

That is exactly what has happened and is still happening today, all around the world: a global shortage of THABI, of timely, honest, accurate, and believable information.

This is caused by the lack of a particular kind of regulation, one that every economist, from Keynesian to libertarian (Austrian or Chicago-school), agrees we need: the THABI requirement. Like a fair, equitable, and trusted civil-court system, access to timely, honest, accurate, and believable information is a fundamental requirement for a market even to exist in the first place. This is why the market cannot itself correct for this problem: THABI is a lower, more fundamental "layer" than the market; the market sits atop THABI. Therefore, in the absence of THABI, the market cannot exist... hence cannot correct for the lack of THABI.

To put it into computer terms, no application software running on a computer can possibly fix the problem of that computer's processor being unable to communicate with the computer's memory: That communication is necessary to run any application at all; clearly you cannot run an application on a computer to fix the problem of being unable to run any application on that same computer.

As the market is unable to function without THABI, it cannot function to restore THABI. All that information must come from somewhere else; and the only "somewhere else" that can act quickly enough to stave off a global depression is the State. Because the State functions both within and without the market, it can force changes even when the market is stymied... just as it takes a State to enforce the decisions of a civil-court, because only the State can step outside the market to seize by force the bank accounts of those who flout the court's decision.

The direct injection of liquidity by Treasury buying equity is also outside the market, because that money is extracted from people by force, in the form of taxes. But at the core, even this direct investment is an attempt to buy time to complete the "transparentizing" (horrible neologism, I know) of the toxic assets -- the recreation of the information that was lost by multiple unregulated securitizations of massive collections of mortgages.

Once the THABI has been restored to the mortgage-backed securities and other instruments, the market can reboot itself:

  1. The assets can be valued;
  2. They will all have some nonzero value, because no mortgage is worth nothing (if nothing else, the land itself has value);
  3. All will be saleable, though often not at as high a price as the financial institution purchased them;
  4. Each institution will thus be able to figure out how big a write-down it must take... and whether it can even stay in business or needs to sell itself to another institution.

There... that's a market! With the restoration of the missing THABI information, the market can reboot, and the catastrophe will be averted. So long as partial-nationalization of the banking industry lasts only long enough to retransparentize the toxic assets, thus allowing the market to begin functioning again, it will be an acceptable, even necessary intervention.

Bush and Paulson have really worked hard to make it difficult for a future president to use this plan as the camel's nose poking its way under the big top; the plan is designed to sunset automatically, allowing the banks to buy back their equity in no longer than three years, but earlier if both they and the incoming administration agree:

“It is profound, and it is something of a shift back to the state,” said Adam S. Posen, an economist at the Peterson Institute for International Economics. “But is this a recasting of capitalism? I think what we’ll see is that the government acts as a silent partner and gets out as soon as it can....”

The package does call for the government investments to be in three-year securities that the banks can repay at any time, when markets settle and conditions improve. “This is clearly a crisis measure in crisis times, but it’s a good thing there is a sunset provision that limits the length of the government’s investment,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University.

The historical record of such equity-based interventionism is mixed; on the one hand:

The United States has a culture that celebrates laissez-faire capitalism as the economic ideal, yet the practice strays at times. Over the last century, the federal government has occasionally taken stakes in railways, coal mines and steel mills, and has even taken a controlling interest in banks when it was deemed to be in the national interest.

The corporate wards of the state typically have been returned to private hands after short, sometimes fleeting, stretches under federal stewardship.

But sometimes the shoe is on the other hand:

The traditional American reluctance for government ownership is not shared in other countries. After World War II, several European countries nationalized basic industries like coal, steel and even autos, which typically remained in government hands until the 1980s, when most Western economies began paring back the state’s role in the economy.

After all, we're talking about the federal government; the temptation is always to push far beyond necessity to the tipping point of no return... after which the partial-nationalization becomes permanent, aiming not to restore the market but supplant it.

I will tell you straight: If our next president is Barack H. Obama, then that tipping point is inevitable. Obama's instincts are all European, all towards nationalizing and socializing everything from banking to medical care to taxes; he proclaims over and over again that he will reduce income taxes for "95% of the American people"... knowing that 40% of them don't pay a dime of income tax.

That means at least a third of those whose "taxes" are "lowered" will instead get an annual check from the federal government -- a welfare scheme that will end up, ten years from now, costing more than one trillion dollars per year, according to the Tax Policy Institute; four times what ordinary cash-welfare would cost!

Obama is socialism, socialism is the One. If he is president, he will move heaven and high water to permanize all this federalization, wrenching America away from the Capitalism he hates and cannot understand (and has never, in his entire career, had to deal with) -- it's inevitable. But it's not inevitable that he will win.

We don't know for sure that a John S. McCain administration will know when to say "enough!" -- though that is strongly hinted by his newest economic plan to guarantee all deposits for their full worth, not just $250,000... but only for six months. Whether that's the perfect duration or just a convenient number, it indicates that he is thinking temporary; unlike Obama, all of whose proscriptions and prescriptions are permanent, transformative changes to American society and economy, away from Capitalism and towards socialism.

A "crisis," properly defined, is when the world holds its breath, and nobody really knows what will be. In that sense, we are truly at a crisis, a crossroads between freedom and socialism; we're riding a fast horse that has got the bit in its teeth, and none of us knows which way he shall finally turn his steps.

It is time we started yanking on those reins and leaning hard in the right direction. Now is not the time to close our eyes and abandon ourselves to our fate, to concede the game in the eighth inning. So let's all put on our manly gowns, gird our loins, and pull up our socks: The game ain't over until the last fat lady is hung.

Hatched by Dafydd on this day, October 14, 2008, at the time of 8:05 PM | Comments (8) | TrackBack

© 2005-2013 by Dafydd ab Hugh - All Rights Reserved