Crony Capitalism Caused the Crisis

May 15, 2010

Our power-grubbing politicians never shy away from blaming the shortcomings of capitalism for the “Great Recession” of the 21st Century.  The old mantra goes, “capitalism is a flawed system that requires government intervention to alleviate the suffering caused by its shortfalls”.  Supported by their tax dollar dependent cronies in academia and their big government loving mouthpieces in the mainstream media, our ruling elite has been effective in socializing the masses that they know what they are talking about.  It is of course all an attempt to justify expanding the size of government even more so there is more for the politicians to give away to their faithful supporters.

Capitalism did not cause the financial crisis that we are still mired in some 29 months after it began; crony capitalism did.  Crony capitalism is loathed by every proper capitalist because it is more akin to the corrupt socialist systems of the past than to true capitalism.  In true capitalism, the primary responsibility of the government is to protect private property rights and prevent and punish fraud.  How can a system that confiscates private property through taxes (income and property) and transfers that property to others (domestic and foreign welfare) be called capitalist?    How can a system that takes from one to prop up the failure of another be called capitalist?  In terms of fraud, how many bank loan officers and borrowers who provided false information on the mortgage applications that contributed to the crisis have been prosecuted and jailed?  Uncle Sam has a weak record at best when it comes to exhibiting the qualities of a government operating in a capitalist system.

Instead, Washington has built a system based on favoritism and patronage.  Look at “Too big to fail”.  This should be translated into “Our Friends are the best”.  Hundreds of billions, if not trillions of taxpayer dollars, have gone into bailing out companies that in return can be counted on to contribute billions of dollars to Republican and Democratic campaign coffers.  The rationale we were told is that if any one company went under our economy would fall off the cliff.  Really, I don’t remember being airborne when Lehman Brothers was allowed to go belly up.  “Too big to fail” was a hoax perpetrated on the American public so the politicians could repay their campaign benefactors.  And they are at it again with their attempt to institutionalize “too big to fail” in financial reform legislation before the Senate.

In a true capitalist system GM and Chrysler would have been allowed to go bankrupt.  Their assets would have been purchased by other entities and workers would have been hired for hopefully a more profitable endeavor.  The economy would have been rid of a drag on it and therefore would be more able to operate at an efficient level.  Instead, what we got from our crony capitalist system was a huge taxpayer bailout that primarily benefitted the United Auto Workers Union (UAW).  In fact, it’s telling that the entity which for years demanded higher wages and benefits and was most responsible for the demise of GM and Chrysler was able to claim a huge stake in both companies ownership as a result of the government’s bailout deal.  At the end of the day, the UAW is richer, the politicians get their campaign contributions from Motown and the American taxpayer will ultimately have to bail out the car companies again sometime in the future.  

Now, it is true that if the bailed out financial companies were left to go under a lot of honest folks would have lost a lot of money.  But, that is only because of the system the crony capitalists have built.  The Federal Deposit Insurance Corporation (FDIC) allows depositors to place their money in banks without any worry that regardless of how irresponsible their bank may be they will always get their money.  Would you eat at a restaurant that was known for food poisoning?  I didn’t think so, but it doesn’t matter to you that you probably still have your money in a bank that acted irresponsibly and lost it in the early 2000s.  Even though they have brought the economy to its knees you will still get your money through government insurance.  Then, there is Fannie and Freddie Mac who really work on behalf of mortgage lenders and the real estate industry.  These two entities guaranteed (with taxpayer money) all the irresponsible behavior of the failed banks.  When the crisis unfolded what did Uncle Sam do to them?  He bailed them out and allowed them to add even more mortgages to their portfolio.   

In a true capitalist system much of the behavior that brought on the financial crisis would not have happened.  Bankers would have known that they faced the possibility of losing everything, their wealth, career, and even their freedom through reckless and/or fraudulent acts.  Government would not have been there to cushion their fall.  Of course, the biggest thing that would not have been there for them in a capitalist system would have been the existence of a central bank.

Indeed, the Federal Reserve Bank is certainly the most anti-capitalist feature of our economy.  In essence, it is a secretive small cabal of monetary central planners that determine the value of our money and stands ready to act as lender of last resort for over-leveraged banks.  It has been responsible for all of the big economic crises since its inception in 1914.  It caused the Great Depression with its easy credit policies towards banks and Wall Street.  It was responsible for the hyper-inflation of the 1970s and the savings and loan crisis of the 1980s because it monetized the Vietnam War and the social programs of Johnson’s “Great Society” of the 1960s.  In just the last fifteen years, it inflated the dot com and housing bubbles causing the biggest economic downturn since the Great Depression.  The Fed’s answer to the crisis, lower interest rates and bailout the banks.  There is no question where the Fed’s loyalty lies.  And this loyalty has paid off handsomely for its constituency – Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS), and Citigroup (C) — together have posted $62 billion in after-tax profits in just the last 18 months!  Meanwhile, the true unemployment rate continues to hover around 17 percent, foreclosures are up, and the cost of health care is through the roof.

True capitalism is not perfect, but then again no system is.  To blame capitalism for the financial crisis is absurd.  We have a crony capitalist system in the United States where politicians pander to corporatists and unions and in return get huge amounts of money to monopolize the political system.  It’s a vicious cycle that benefits Washington.  No wonder it spends all of its time blaming capitalism for crises.

       

Article first published as Crony Capitalism Caused the Crisis on Blogcritics.


As Usual, Government Regulation as Political Payoff

April 23, 2010

I heard the president’s speech at Cooper Union College today and thought it was quite bizarre that he would criticize Wall Street for bad behavior when Washington is currently running our national debt through the roof and the policies that emanated from there in the last ten years caused our current financial crisis.  The old adage about those that live in glass houses and stone throwing immediately came to mind.  But, the president really believes that the financial crisis we still find ourselves in despite trillions of dollars in Keynesian spending is somebody else’s fault.  In fact, he indicated that, “…the system as it stands is what led to a series of massive, costly, taxpayer bailouts.”  And I thought it was Mr. Obama and his big government colleagues in the Congress who voted unconstitutionally to give away our money to the greedy, misbehaving banks.

Now, the president’s bizarre remarks are one thing, but the financial regulation bill before the Senate is even more bizarre.  Crafted by Connecticut Senator Chris Dodd, the bill will do nothing to fix the real causes of the financial crisis. In actuality, the bill amounts to nothing more than a political payoff for Dodd’s benefactors on Wall Street.  And this should come as no surprise since Dodd’s donor list reads like a who’s who of the financial services sector.        

First of all, Dodd’s bill does nothing to address the primary culprit of the financial crisis – the Federal Reserve.  Yes, consumers took out mortgages they could not afford and loan officers falsified applications knowing that they would collect their commissions long before the bad loans defaulted on a bigger institution up the line.  But the Fed supplied the poison for it all to happen – easy money.  After 911, Alan Greenspan’s Fed kept interest rates artificially low at 1 percent for three years.  This encouraged a mortgage craze as trillions of dollars were borrowed.  It was a government sponsored get rich quick scheme as many housing investors bought homes with low teaser rates and no money down.  You know the rest of the story – homeowners leveraged their homes to the max, rates adjusted up and the bubble burst when many folks could no longer afford their payments.  To add insult to injury, the Fed came to the rescue of financial institutions, even foreign ones, at the expense of taxpayers.  Make no mistake about it, the Federal Reserve exists for the profit making of banks alone.  It was established by bankers; it is run by bankers; it allows banks to inflate dollars through fractional reserve banking; and it is there for them when they need a few dollars to keep the charade going.  No other industry has a full government agency to support its shady dealings like the banking industry.  Dodd’s bill, by ignoring the Fed’s culpability in the crisis, has no chance of preventing financial calamities in the future.  Additionally, it only benefits the big banks since their benefactor, the Fed, will continue to operate unencumbered by any new regulations or oversight.

If ignoring the Fed’s role in the financial crisis is not bad enough, Dodd’s bill also institutionalizes “too big to fail” bailouts.  It should be pointed out that a major rationale of financial reform is to ensure that taxpayers never again get stuck with bailing out firms that are too crucial to our economy to fail.  Well, Section 113 of the bill provides for a “Financial Stability Oversight Council” which would identify distressed firms whose failure would “pose a threat to the financial security of the United States…”  Section 210(n)(1) establishes an “Orderly Resolution Fund” within the U.S. Treasury that would provide $50 billion in bailout money funded by taxes on financial firms.  Of course, ultimately those taxes would come from consumers in the form of higher bank fees.  These two sections of the bill essentially provide implicit guarantees from the government against failure for big banks.  They extend the life of the moral hazards that we have become too familiar with.  In the end, they will encourage big banks to continue to take undue risks which will once again put taxpayers in harm’s way.  These sections of Dodd’s bill will not prevent future financial crises.  On the contrary, they only benefit big banks by allowing them to risk everything with the knowledge that taxpayers will be there to pony up bailout funds for them.

Since 1989, Chris Dodd has received over $12 million in campaign contributions from the financial services industry.  They own him and this bill proves it.  On the other hand, the president is yet to embrace Dodd’s bill.  In his speech at Cooper Union he said to financial firms, “I want to urge you to join us, instead of fighting us in this effort.”  If he chooses Dodd’s bill to reform the financial industry he probably won’t get much of a fight from Wall Street.


You Should be Furious!

December 16, 2009

There are certainly a lot of things that Washington does that should make the average American citizen furious.  I would like to point out just four: the hypocrisy of the illegality of purchasing foreign prescription drugs, federal employee salaries, the job busting cap and trade legislation, and the wanton destruction of the dollar.

The price of prescription drugs in the United States has increased by 9 percent in the last year.  Certainly the ever increasing cost of drugs is a major reason for the pressure on Congress to reform our healthcare system.  However, currently it is illegal for Americans to import cheaper prescription drugs from outside the United States.  Drugs produced by American companies, but sold in foreign markets are usually between 35 to 55 percent lower in price due to price controls of other countries.  It is an outrage to me that we are not able to take advantage of the stupidity of other governments and import and buy their cheaper American made drugs.  The same bleeding hearts in D.C. that whine about how people are dying because they can’t afford prescription drugs are standing in the way of those folks getting cheaper drugs.

Now, an argument given for keeping importation illegal is that the safety of the drugs cannot be guaranteed.  Nonsense!  We are talking about countries like Japan, the United Kingdom, and Canada which have product protection mechanisms in place.  Personally, I’ve lived in the developing world for 8 years and my family has never had an issue with unsafe drugs in those countries.  The bottom line is that there is an easy way to cut drug costs and provide much needed medication to the financially strapped sick, but Congress refuses to do the right thing.

Then there is the story reported by USA Today that the number of federal employees who make $100,000 or more jumped from 14 percent to 19 percent of all bureaucrats during the first 18 months of the recession.  The average federal worker’s salary is now $71,206 compared to $40,331 for private sector employees.  To put it in even greater perspective, in December 2007 the Transportation Department had one employee earning $170,000.  By June of 2009 the department had 1,690 workers with salaries above $170,000.  Substantial pay raises and new salary rules were the reason for the jump in salaries.  So while 7.2 million Americans were losing their jobs, not only were financial institutions and car manufacturers bailed out, your tax dollars also went toward ensuring the comfort and security of our ruling bureaucrats.  Not only did Uncle Sam not cut back on labor costs like the rest of America, he handsomely rewarded those that produce very little if anything that benefits society.  All Americans should be furious.

Turning to the environment, if Congress was intent on destroying jobs in these tough times it would have immediately passed the 1500 page cap and trade legislation.  The painful new taxes the legislation would have imposed on all of us would have increased business costs and reduced aggregate demand thereby making an awful job market that much worse.  Additionally, Environmental Protection Agency administrator Lisa Jackson admitted during a Senate committee hearing that the bill would not significantly reduce global carbon concentrations in the atmosphere.

Fortunately, Democrats have sat on the legislation given the political risks to their careers of passing it.  But, just one minute, because to the rescue comes the EPA.  This past week the agency issued an “endangerment finding” that global warming is hazardous to human health.  In addition, the enviro-nazis at the EPA threatened Congress that if it didn’t pass cap and trade then it, the EPA, “would act on its own—and in a far more blunt fashion than Congress preferred.”   According to one anonymous administration official, ,” the EPA is going to have to “regulate in a command-and-control way, which will probably generate even more uncertainty.”

Why is the EPA going to impose regulations that it admits will not significantly reduce global carbon concentrations in the atmosphere?  Why does Congress put up with this extortion?  Wasn’t the EPA created by Congress and thus answerable to it and not the other way around?  Why would Congress allow a bunch of unelected bureaucrats to decide policy?  The answer is easy: to deflect blame for stupid policy.  The EPA is doing Congress a favor – it is going to further drain our economy with expensive regulations and when your congressperson runs for reelection he/she can blame the EPA.  Of course, the question that should be asked at town hall meetings is, can’t Congress take away the EPA’s power?  Yes it can, and as Americans get wiser about what charlatans their elected leaders are they will press them more and more for upright answers.

Lastly, and most importantly, the American people should be outraged at the wanton destruction of their currency by the Fed, Congress, and two presidents.  In the last 3 years alone the dollar has lost 30 percent of its value!  What do you expect the way money has been thrown at financial firms, car manufacturers, and so forth.  For their part, the banks seem to have done well investing their bailout funds since they seem to be turning profits without loaning money.

The federal philanthropy continues – on Saturday, the Senate cleared the way for the passage of a $1.1 trillion spending bill.  The vote was held up for an hour to allow Senator Lieberman an Orthodox Jew to walk more than 3 miles to the Hill on the Sabbath to cast the 60th vote to end debate.  Now, I am not an authority on Orthodox law, but didn’t the Senator consider voting in the Senate chamber work?  I suppose, like the Constitution that body continues to violate, when it serves their purpose members of Congress fell free to violate whatever parameters will get the job done.

All the bailouts and all this additional spending with money we do not have on aid for car dealers, loan guarantees for steel companies, and 5000 pork barrel projects for individual members continues to devalue our money making it that much harder for those already struggling to make ends meet in this horrendous economy Washington has given us.  Members of Congress are either charlatans or economic imbeciles because their inflationary policies hurt the same people they purport to help.  The whole thing is a stupendous outrage.

So, what is there to do?  I already think it is too late?  We owe 12 trillion dollars with none of our problems resolved.  Congress and the President seem hell-bent on making sure America is further bankrupted by every giveaway scheme imaginable – everyone knows the litany by now, too big to fail, too important to fail, so called environmental protection, cash for clunkers, homebuyer credits, etc, etc, etc….  I suppose we have the mid-term elections to look forward to next year, but given past experience if Republicans take Congress it will be akin to going on a diet and drinking Bud Light instead of Regular Bud.  Bottom line:  both are bad brands. 

If this article has irritated you even just a little bit, understand that there is a lot more that Washington spews that is awful.  From prescription drugs to federal salaries it seems like Washington only cares about it special constituencies and not the rest of us who are hurting.  And these examples are just the tip of the iceberg.


Let California Fail

May 24, 2009

It is ironic that the federal government is substantially meddling in the financial affairs of other entities given the dilapidated state of Washington’s own finances.  First, there were the banks, investment houses and insurance companies – the most notorious being AIG.  Then the auto companies weighed in getting their piece of bailout funds from Uncle Sam.  Now, it seems the states will be next to tap the national treasury for funds that do not exist. 

There is a saying, “As California goes, so goes the rest of the nation.”  How true these words have become since both are completely bankrupt.  With the defeat this week by voters in the Golden State of ballot initiatives that would have drastically raised taxes to close a $24 billion budget gap, the state is on course for a complete financial collapse by July.  Unlike the national government, California can’t print money to buy more time either – no pun intended.  It must find a way to raise the funds otherwise millions of Californians will not receive checks.

But, not to worry, Governor Schwarzenegger, Senator Boxer and other Golden Staters are putting the squeeze on Treasury Secretary Tim Geithner to guarantee emergency loans that California needs to meet its obligations.  With the state’s credit rating in the toilet, some analysts believe federal backing is California’s only hope to secure the loans it needs to pay its bills.   The proposal would collateralize U.S. taxpayer funds to guarantee private lenders that they would be repaid if California defaulted.  The concept is to take the risk out of lending to California for banks and place it squarely, again, on the shoulders of American taxpayers.

Of course the leverage state officials are using on Geithner is that California is “too big to fail.”  They claim if the state were to go belly up it would send ripples through the rest of the country and even the world.  Further, if Washington allowed the collapse to take place imagine what that would do to the confidence the rest of the world has in us to lead economically.

Clearly the feds are in a totally unenviable position.  If they don’t bail Sacramento out they will look really bad given their enormous generosity towards unscrupulous bankers, and inept carmakers.  Since most of the money California needs to borrow will go to ordinary folks, teachers, cops, government workers, Washington can’t be seen again to favor the interests of Wall Street over Main Street.  Thus, I believe there is no question that the Obama Administration will bailout California.  Naturally, this is a big mistake.

In the first place, if Washington succumbs to the “too big to fail” ploy with California, then what happens if say Wyoming asks for bailout funds.  Can it be denied because its economy is not nearly as important as California’s to America’s health?  Is it proper to favor one group of Americans over another simply by virtue of where they live?  I realize we do that now with things like highway funds, but saving one state and letting another go is a horse of a different color.  What about Wyoming’s portion of the federal bailout funds for California?  If Washington submits to Schwarzenegger’s request it will open up an array of ethical and legal questions pitting states against each other.

Then there is the “moral hazard” that would result with a California bailout.  Given that politicians are not very courageous when it comes to making touch choices, state bailouts by the feds would allow state officials to manage state funds even more irresponsibly.  California is a perfect example.  The statist politicians there have overpaid public employees, spent generously on social services, and overregulated business and the environment.  Bankruptcy is the perfect solution to their reckless spending.  It is what ended socialism in Eastern Europe; it should be used to end socialism in California.  Without it, politicians of all stripes will believe that Uncle Sam will catch them when they fall.  This will impede economic recovery and perpetrate the myth that Washington has a bottomless bank account or a bank account at all.

Which brings us to the question of where does California think the feds are going to get this money anyway?  Our leaders have become oblivious to our financial condition.  When you can’t pay your bills you are bankrupt.  Washington has been bankrupt for a long time, but again has had the means (printing press) to put it off.  And put it off the politicians have.  That is why we now face the economic situation before us – a lower standard of living, mountains of debt both personal and national, and a gigantic task of rebuilding our industrial base so that we can compete again.  You see the politicians since at least 1971 have mortgaged our future; those bills have come due; and we don’t have the money to pay them.

So, California is not alone.  “As California goes, so goes the rest of the nation.”  Both entities are broke.  Perhaps instead of groveling to Washington to bail them out with funds Washington doesn’t have, the politicians in Sacramento can set an example for Washington to follow – deregulate, end the welfare state, disband public unions, and live within your means as a society.  Wouldn’t it be nice if California led the nation in a positive way for a change?


Trouble in Paradise

March 31, 2009

March 30, 2009

All relationships hit rough patches.  There is no better proof of this than in our schools.  One day the happy young couple is oblivious to the rest of the world as they are lost in each other’s loving gaze.  By the next day, usually after the boy has done something stupid, all bets are off on whether the relationship was ever meant to be.  Yelling, screaming, and a blatant rejection of the boy’s physical advance are telltale signs that there is “trouble in paradise.”  Unfortunately, it seems the United States is playing the part of the boy in a similar scenario with its economic partners.

It is no secret that the Federal Reserve and/or the Treasury Department has printed or committed over $12 trillion to “stimulate” the economy.  Of course, no one should expect that the government is done with its spending binge.  All signs point to more massive expenditures, albeit in more creative ways, in the future.  Janet Yellen, president of the San Francisco Fed and a voting member of the U.S. central bank’s policy-setting Federal Open Market Committee in 2009, told the Forecasters Club of New York, “I’m convinced this is no time to relax our efforts.”  In fact, recently, Bernanke and his central economic planners, announced that the Fed would purchase (print money) more than $1.25 trillion in government bonds and mortgage backed securities – all in an effort to lower interest rates further, unfreeze credit markets, and get Americans to spend like drunken sailors again.  Naturally, the Keynesian’s believe this is the award winning recipe to produce a prosperous economy.  Apparently, they have not been paying attention to the world economy since the 1930s.

But, some folks have been paying attention to that economy for the last eighty years or so and know that the answer to solving our current crisis is not more of the same Keynesian policies that got us into this mess.  Ironically, some of these folks know more than our policymakers even though they come from traditionally command economy societies.  Take Czech Prime Minister and current European Union president, Mirek Topolanek for instance.  Last week, at an EU gathering he characterized U.S. government economic plans as “a road to hell” claiming that Washington’s massive stimulus packages and banking bailouts “will undermine the liquidity of the global financial market.”  According to Topolanek, “We need to read the history books and the lessons of history and the biggest success of the EU is the refusal to go this way.”  These remarks, coming from a man who use to live in a centrally planned society, speaks volumes about how Washington is pursuing the wrong course of action by attempting to spend our way out of the economic crisis.  In any event, the sharp comments of Toplanek may indicate trouble in paradise ahead for the U.S. and her European trading partners

The slights to U.S. economic policy did not stop there.  While Topolanek railed against overuse of the printing press by the Fed, the Chinese central bank proposed replacing the U.S. dollar as the international reserve currency with a new monetary unit not connected to any country.  The Chinese have become very concerned about what American inflation will do to the value of their assets ($800 billlion in reserves) and they are also sick and tired of the reckless fiscal and monetary policies of the U.S. government in the last year but also since President Nixon closed the gold window thirty-eight years ago.  It is obvious that Uncle Sam has become addicted to the Chinese financing our never ending debts.  This was made abundantly clear when Secretary of State Clinton practically begged the Chinese government to continue buying treasury bonds on a recent trip to that country.  Make no mistake about it, the Chinese have performed the role of enabler to the U.S. government’s spending sprees for some time.  Only now have they realized the peril they put their economy in doing so.  Given Washington’s penchant for spending and Beijing’s apprehension that the plan will work to revive the economy, the relationship between the world’s two superpowers seems to be headed for a falling out – trouble in paradise.

By agreeing to accept the U.S. dollar as the international reserve currency through the Bretton Woods agreements, the whole world essentially bought into a Ponzi scheme known as the U.S. government.  With authority granted by the U.S. government, the Federal Reserve Bank has always been there for us.  It has artificially lowered interest rates to keep phony booms from ending.  It has bailed out insolvent banks to protect our assets.  It has printed money and issued bonds to foreigners in order to preserve our standard of living.  Never mind that we have piled up a mountain of debt in the meantime.  Keynesians tell us that huge debts don’t matter anyway.  Tell that to our trading partners.  It might restore the peace and end the trouble in paradise.


Bankruptcy over Bailout

November 21, 2008

November 21, 2008

Congress is getting so much pressure and hearing so many tall tales these days that it’s akin to unscrupulous telemarketers battering the simple minded to buy their product.  It is getting to the point where Congress will need to pass legislation to protect itself from money grubbing shysters.  First, it was the Paulson/Bernanke Crime Syndicate (their specialty is counterfeiting) that told Congress they needed a cool $700 billion or the sky would collapse on the United States.  Now, it is the poor automobile industry (that just got $25 billion from Congress in October) that needs another $25 billion lest the unemployment rolls in this country will swell by 13 million or 4 million (they haven’t decided on a number yet).  Next month, Congress will probably hear from the airline industry and how it needs billions.  After that, look for the agriculture sector to weigh in and then who knows, cigarette companies?

The fact is, soon there will be no end in sight to the steady stream of industries and groups that will lobby Congress for federal largess unless they put an immediate halt to the giveaways.  Congress has a golden opportunity to do just that right now by saying no to the automobile industry.  No matter what the costs, Congress must say in the words of Roberto Duran “no mas” to billions in bailouts for Detroit. 

For one thing, all of these bailouts are unconstitutional and thus illegal.  Article 1 Section 8 of the U.S. Constitution clearly specifies the powers delegated to Congress.  Nowhere in those roughly 17 powers is Congress given the authority to transfer money from one constituency to another.  Nowhere in there does it say Congress can use the federal Treasury to prevent corporate bankruptcies.  Critics of this position will say, “but what about the general welfare clause in the same section?”   The answer is, if the general welfare clause gives the Congress the power to bailout corporations with taxpayer funds then why did the authors of the Constitution not delineate that power among the 17 powers in that section of the Constitution?  Why did they delineate any powers at all if the general welfare clause includes any power?  According to the general welfare clause logic of the statists, the Congress can do whatever it wants under that one clause.  That is why we are in the mess we are in.

Another reason Congress must put an end to its handouts is because it is investing in losing propositions.  The Big Three automakers are a perfect example.  Their stock has plummeted by 75 percent since the beginning of the year and all three are on the brink of bankruptcy.  If investors are bailing on the Big Three in droves and each has one foot in bankruptcy court and the other on a banana peel, why in the world would our elected representatives even consider putting billions of dollars in them.  Would you?

Of course there is a good reason why the carmakers are collapsing.  Like other industries that have disappeared from the American landscape, the automobile companies have been the victims of collective bargaining laws passed by Washington and the State of Michigan.  It has been estimated that the average GM worker makes $81.80 an hour in wages and benefits.  In comparison, non-union Toyota pays $48 per hour in wages and benefits. The legalized extortion that the UAW is allowed to hold over GM puts the company at a competitive disadvantage costs wise by about $1000 per vehicle produced.

So, if Congress should not bail out these broke companies, then what should be done?  The same fate should befall the automakers that should have befallen the failing banks.  They should be allowed to go bankrupt.  “But they are too big to fail.”  “Many people will lose their jobs, their homes, and their healthcare.”  The bottom line is that the Congress cannot solve our economic problems by throwing good money into unsustainable enterprises.  The more than $2 trillion the government has already injected into the economy has proven that.  Besides, at the right price, entrepreneurs will buy the assets of the bankrupt firms and start a new American auto industry.  There is a market for cars in the U.S. and it is only a matter of time before some American(s) fills that market need.  Then the millions of workers who lost their jobs with the Big Three bankruptcies will have an opportunity to work for a competitive company.


A Call to Arms

September 28, 2008

September 28, 2008

America, we have reached the point of no return!  The government of the United States is about to embark on a course that will prove to be ruinous for our country.  This morning, Congress is jubilantly announcing a tentative agreement on the Wall Street bailout plan.  The plan, if approved this week by the full Congress and signed by the President, is a betrayal of the constitutional oath taken by our leaders.  It is a violation of the public trust and an extreme abuse of the fiduciary responsibilities that each member of Congress and the President has to the American people.  In short, any member of Congress who votes for the measure is guilty of treason and should be dealt with accordingly.

Why is voting for the plan a treasonable offense?  One reason is because it gives enormous power to the Treasury Secretary, who is an unelected official.  He will have power to buy deeply distressed mortgage-backed securities and other bad debts held by banks and investment firms with taxpayer money.  This includes bad debts held by foreign banks that do business in the U.S.  So essentially, by approving the plan the Congress will be handing over $700 billion of taxpayer money to an unelected official and an imperial president.

The whole thing reeks of fascism.  In all of the debate over the bailout plan, no one (except Ron Paul) has questioned whether the move is constitutional.  Congressional leaders are ignoring the will of the people where polls indicate that only thirty percent of Americans approve of the legislation.  The Treasury Secretary and the President are being given extraordinary new powers to act as economic dictators.  And the federal government through the plan is again turning to public debt to stimulate the economy to presumably put us back on sound economic footing.  As this government induced crisis worsens, Washington is acting more and more like Italy under Mussolini than America under Jefferson.

Without question, it is a government induced crisis.  For nearly twenty years, Alan Greenspan as chairman of the Fed embarked on a policy of easy money – low interest rates and expanding money supply.  He became the parent who just couldn’t say no to the American people.  His policies as Fed chairman led to the dot com bubble and bust in the late 90s.  To stimulate the economy after 911 he lowered the federal funds rate to an unbelievable one percent!  The rate stayed there for a year and was increased slowly for the next three years after that.  Rates were low enough for a long enough period of time to cause severe misallocations in the economy.  Thus, the housing bubble was born.  Of course, it also took the absolute stupidity of many Americans to get into debts that they could not afford – a concept that seems to be an implied right of American citizenship which is expressed through laws like the Community Redevelopment Act.  Lastly, by sprinkling in some fraud by lenders and borrowers alike you have the recipe for the disaster that looms over us today.

So, what do our esteemed leaders propose to get out of this mess?  They are proposing more of the same things that got us into this mess.  Passing a $700 billion bailout package is easy money to the politicians and says to the stupid and fraudulent that any mistakes or criminal actions you may have committed will be remedied by the deep pockets of the American taxpayer.  Congress will appropriate this money as if there will be no repercussions down the road.  This sounds very familiar to the mindset of Fed governors when they lowered rates to one percent.

Congress is also being as stupid as those Americans who got themselves into debt that they couldn’t afford.  The U.S. government doesn’t have $700 billion dollars to spend.  Hell, it doesn’t have $10.  It has $9 trillion in debt on the books with at least another $50 trillion in future obligations like Social Security.  At some point soon, foreign countries will stop loaning the U.S. money.  Our currency will become worthless and our standard of living will deteriorate.  Yes, debt does matter whether you are a business, a family, or a huge government.

Lastly, fraud is a component part of our leaders’ proposal to get us out of this mess.  We are being told that this “rescue” plan is for Main Street not Wall Street.  We are being told that somehow putting up huge sums of taxpayer money to buy bad assets is the best answer to get out of the mess that deregulation of the financial industry caused.  The lies go on and on.  Make no mistake about it, the politicians will pass this plan to help their benefactors on Wall Street – those that have helped them get elected.  It is a fraudulent use of taxpayer money.

If not the politicians’ plan than what should be done to remedy the crisis?  Immediately, the government should cease intervening in the crisis.  Let the market determine its own equilibrium.  Former private assets like Fannie and Freddie should be liquidated.  Government spending, especially military spending, should be reduced.  The budget should be balanced, taxes cut and regulations on businesses eliminated.  Any protectionist measures enacted by Uncle Sam should immediately be repealed. 

In the area of foreign affairs, the U.S. should bring troops home from bases around the globe and stop riling up hostilities with Pakistan, Iran, North Korea, Russia, and Venezuela.  These moves would free up funds to be used at home where they are needed and not on high-risk, no gain military adventures.

In conclusion, any member of Congress who votes for the bailout package is betraying their constitutional oath, violating the public trust and abusing their fiduciary responsibility to the American people.  On November 4th they should be thrown out of office and not replaced with a clone from the other major party.  Instead, minor party candidates should be elected to return our government to “We the People”.  I urge all Americans to write letters to the editor, talk to community groups, friends and family, become involved in minor party candidate campaigns and vote your conscience.  The vicious cycle perpetrated on us by the politicians in Washington must end.  But it cannot end without the efforts of all of us.