Ron Morley's Freedom Blog

What? Us Worry?

It is a well-known Wall Street expression that “the market dislikes uncertainty.” Yet, this has seemingly been forgotten, if it was ever known, by Senator Chris Dodd (D-Conn) when he said “I'm concerned that we may end up having to do that [nationalization], at least for a short time,” in order to bring stability to the nation's financial markets. Wall Street reacted violently to this hint that the State may continue its destruction of private enterprise in the United States and bank stocks led the downward trend. The market recovered slightly by the end of the day when a White House spokesman denied that the Obama regime has any intention of taking over the country's banks. One of NPR's “Marketplace” commentators reminded the show's audience of the old Wall Street adage, but seemed unaware that it is largely the acts of the Federal government that has made the nation's stockholders so jittery.

And that, indeed, is what is behind most of the recent volatility in the stock market: uncertainty about what actions the Federal government may take to try to correct the current economic crisis. And why shouldn't the markets be unsure of what lies ahead? In the last year we've seen the State intervene to force the sale of Bear Stearns to JPMorgan Chase at fire sale prices. This was done, “to avoid economic turmoil”, instead of allowing the company to go bankrupt so that the market could efficiently reallocate the mismanaged assets. Yet, only a few months later, the same wise men who had declared Bear Stearns to be “too large to be allowed to fail” decided that Lehman Brothers did not meet that standard and that company was allowed to go under. The Lehman Brothers bankruptcy had been preceded by the Federal takeover of Fannie Mae and Freddie Mac only a few days earlier. These actions took place after several months during which former Treasury Secretary Henry Paulson had repeatedly said that there would be no more Federal bailouts of financial firms. Of course, there's no reason to think that this say one thing, do another, policy of the Federal government might have led to a few Wall Streeters wondering what was going to come next: no reason to think that the State's arbitrary actions might introduce some uncertainty into the calculations of the nation's financial managers.

Then came the infamous Paulson Wall Street bailout bill, since renamed TARP, which was originally to use government funds to purchase so-called “toxic assets” from banks and other financial institutions that had gotten overly involved in the sub-prime mortgage market and were now losing money in the wreckage left by the implosion of the housing bubble; itself a result of Federal government mismanagement of the economy. However, only a few weeks after the Congress was stampeded (through the use of a never-ending stream of doom and gloom statements coming from Treasury Secretary Paulson, Federal Reserve Bank Chairman Ben Bernanke and large numbers of media commentators) into agreeing to spend some $700 billion, to rid the system of toxic assets, Mr. Paulson decided that the money would best be used to purchase equity stakes in various large financial institutions. The Secretary justified this move by saying that it was the best way to get the credit markets moving again. Certainly, Wall Street has no reason to be concerned about the policy flip-flops of a man who, at that time, had virtually unlimited power over the financial markets of the United States: no reason to be worried about arbitrary actions by the Secretary of the Treasury, no matter which party is in power in Washington.

Then came the debate over whether or not to bailout the Detroit automakers by providing them so-called “bridge loans” which supposedly would allow them to restructure themselves and become “financially viable” once again. We were told that the Detroit companies could not be allowed to go bankrupt, which would have been the best and quickest method of reallocating mismanaged assets, and that the Federal government would have to provide them the loans. At first the lame-duck Bush regime opposed this course of action, but eventually, it caved-in to mounting political pressure from various Midwest state governors, the UAW, and the auto company executives themselves. This backing and filling and posturing by all involved is no reason to think that yet more uncertainty was introduced into the minds of those who hold and manage stocks. After all, simply because it is no longer possible to tell what the State is going to do in regard to the economy is no reason to be concerned. There's no reason to think that the many changes in policies and methods of dealing with the economic crisis was the result of State functionaries throwing things at the wall in hopes that something would stick. No reason to believe that the Washington wise men had no idea how to manage the use of the State's power to intervene in the supposedly free American financial marketplace. No reason to get a little jittery if one had significant amounts of money tied up in the financial markets.

The recently-passed economic stimulus bill is another example of irresponsible Federal meddling in the marketplace and is the economic equivalent of pouring gasoline on a fire to put it out. By now, the combination of the Federal Reserve's acquisition of approximately $1.5 trillion of bad assets, the $700 billion TARP program, the nearly $800 billion Obama stimulus package, the potential $5 trillion liability that came with the nationalization of Freddie Mac and Fannie Mae, and the as yet untold billions to be poured down the drain of the Detroit automaker “bridge loans” add up to a significant fraction of the nation's GDP of $14.3 trillion. However, to listen to the Statists there's no reason to be concerned about the size of these liabilities, no reason to wonder whether or not the U.S. can pay the bills that our all-wise leaders in Washington are running up. There's certainly no reason for the folks on Wall Street to be concerned about further arbitrary actions by the State: no reason to think that President Obama may not find it politically convenient to extend his unilaterally imposed pay cap for Wall Street bankers to other classes of employment or otherwise exercise the State's nearly unlimited economic powers. No, the State never mis-uses its power.

And yet, seemingly none of the highly educated fools who are running the show in Washington seem capable of putting two and two together and realizing that it is the State's actions which are largely responsible for the current economic downturn. However, they can be forgiven for being so blind publicly, as they know that admitting their responsibility would lead to public demands that they stop what they are doing. Instead of admitting responsibility, the powers that be have embarked on the largest disinformation campaign seen in recent years. We are told on a daily basis that the crisis is a result of the failure of the free market, that the only solution is to give more power to the State, that consumers must resume their profligate spending and continue running up those credit card bills, that we must continue to loan money to Detroit, and that the State must be allowed to place caps on the amount of money a person may earn should he or she decide to become a banker. The truth is buried in an unceasing torrent of lies and distortions, about both current events and history, particularly the history of the Great Depression. The State is held up as the source of all wisdom and goodness. We are told that Federal budget deficits no longer matter, that we must “get the credit markets working again” by spending enormous amounts of money that we do not have and will not be able to repay. No, there's absolutely no reason that the stock markets should be concerned about the State's continued exercise of its ever-growing power to arbitrarily intervene in the workings of the market.

Why the Delay?

President Obama, after spending the better part of the last month insisting that his so-called economic stimulus package be passed immediately (maintaining that failure to do so would spell utter ruin for the country), is going to wait until tomorrow to sign the bill, which was passed last Friday. The fact that the President has delayed signing the bill puts the lie to the supposed emergency conditions that required the immediate passage of the bill. Remember, this is a bill that the Statists consider to be so important that time could not be spent debating any of its multitude of provisions or even whether or not it was necessary. The President repeatedly went on radio and television and spoke before live audiences berating Republicans, and others, for daring to ask what is in it, who is going to reap the benefits of the hundreds of billions of dollars that are being spent, and trying to make modifications that might actually help the economy, such as including more tax cuts in it and cutting back on the actual spending that the President proposed. We were told many times during the last three weeks or so that passage of this bill was imperative; that every minute that was taken before passage meant that more American jobs were lost, more homes were foreclosed, and more damage was being done to the very fabric of the American economy itself. Now that the bill has been passed and the spending of the hundreds of billions of dollars is assured, the sense of urgency has, apparently, vanished.

One must ask, why is this? Why is delay acceptable now, but not during the time leading up to the passage of this incredibly wasteful, and damaging, piece of legislation? Why are not the President's supporters camped outside the Oval Office chanting, “Sign that bill, save our jobs, spend that money” at the top of their voices? The simple fact is that, as with the TARP bailout bill that was rushed through under similar conditions of feigned urgency last October, those who backed the bill understand full well that a delay of even several months would not make a significant difference to the overall effect on the American economy in the long run. The American economy is too large to quickly change direction, either up or down. It has taken months, if not years, for the effects of the collapse of the housing bubble, which actually began in late 2006/early 2007 to reach the point they have. It will take equally as long, if not longer, for the many malinvestments that were made, in large part because of mis-guided policies of the Federal government, to be corrected so that the assets involved can be put to good use and the economy can resume growing. The only reason that the Keynesian economists and statist politicians painted such a dire picture was to panic the American people, many of whom are woefully ignorant regarding economics, into demanding that “something be done” to forestall the looming disaster which supposedly threatened to engulf mom, apple pie, and all that is good. Politicians know from long practice that the best way to get what they want, in this case more power over the economy for the Federal government, is to evoke a sense of urgency around whatever their current issue is. The result is that, between the actions made possible by the TARP bill, loans of billions of dollars to the Detroit automakers, and, now, the economic stimulus package, the power of the State to intervene in the United States economy has grown tremendously. Large parts of the financial and manufacturing segments of the economy are now effectively nationalized, though most Americans don't realize it because that term is never used.

Instead, we are told that “bridge loans” have been made to the automakers so that they can go on to “financial viability”. "Equity stakes" are taken in large and important financial institutions. New regulations are called for so that “this will never happen again.” Trillions of dollars are pumped into the banking system by the Federal Reserve in an attempt to “get the credit markets moving again.” Executives of businesses which have taken Federal money are now told how much they may be paid instead of having their wages set by voluntary negotiations and market forces. The strings that are attached to the billions of dollars about to be spent as part of the economic stimulus package are presented as the means of “making sure the taxpayers' money is well spent.” In other countries these actions are called “forced nationalization” (as was the case when Venezuela took over oil fields and other assets owned by foreign oil companies). In other countries the proliferation of new regulations is called authoritarianism. In other countries if the government sets maximum wages it is seen as socialism or communism. In other countries when the central government decides how money must be spent and who the winners and losers are in the marketplace it is called “central planning.” Something must be different about the United States when the same actions are called by other names and the motives of those who back the new powers of the State are automatically assumed to be pure and benign. It's probably something in the air that ensures that the United States' government would never, ever, do anything but good.

As always when dealing with politicians it is more important to pay attention to what they do, than to what they say. Actions do, indeed, speak louder than words and President Obama's delay in signing his much ballyhooed and supposedly vital “economic stimulus” bill reveals that he knew all along that his story was a tissue of lies and distortions. The American people have, again, allowed themselves to be duped into giving up more of their freedom in the mistaken belief that the State will keep them “safe”; this time from “economic turmoil.” There is precious little real freedom left in this nation, as most citizens will discover when they wake up one day to find that the State has decided how much they are allowed to earn, how much of some good they may purchase at the local market, how limited their choices of domestically manufactured motor vehicles (and the options on those which are available) are, and what doctors they may see and what treatments they may be offered, among other things. Americans have forgotten, if indeed most of them ever stopped to realize, that a State which can “give” them everything also has the power to take those things away. Liberty may not guarantee that everyone can have everything they might desire, but it does guarantee that what they do get they will be allowed to keep.

War crimes and economic policies

The following is essentially the text of an email that I recently sent to a friend who'd asked me if I thought that senior members of the former Bush regime should be prosecuted for war crimes because of the use of torture as an instrument of national policy. He also asked what I thought about the economic policies of the Bush regime and its expansion of the power of the Federal government. I've edited the original email slightly to make it suitable for publication here, but the changes have been minimal.

Yes, I do think that former President G.W. Bush, Vice-President Cheney, Attorneys General Alberto Gonzales, John Ashcroft, and Michael Mukasey should be tried before the International Criminal Court in the Hague for war crimes and other crimes against humanity. Only this will serve as a warning to those who occupy those positions in the future that the leaders of the United States, no matter the circumstances, are not laws unto themselves, but must be held accountable for their actions. As for the Bush regime's management of the economy, I would think that a reasonable case could be made for malfeasance in office, though I'm not sure it would extend to criminal prosecution. After all, it could be argued that these things fall under the heading of making general policy and that a chilling effect would occur if government employees were made to feel that their actions could be second guessed years down the road and then be prosecuted because of it. On second thought, that might not be all bad. Seriously, though, everything that you mention [the auto company bailout, the Wall Street bailouts, using Federal Reserve policy to encourage the growth of the speculative housing bubble, etc.] is, to my mind, unconstitutional to start with as there is nothing in Article I, Section 8 that gives the Federal government the power to muck about in the market place except to regulate commerce, which, if you look in your dictionary, is defined as the buying and selling of things and the Founders intended regulation to be used in the sense of "to make regular" as is pointed out by both Madison and Hamilton in The Federalist Papers.

The main problem we have at the moment is that the supposed solutions to our economic problems are not only antithetical to our way of life, but they are nonsensical from an economic standpoint. What got us into this trouble in the first place was the over-extension (some of it State-mandated) of credit to those who could not afford to pay down the debt they were taking on. Leaving aside discussion as to "whose fault" that is as irrelevant, the Fed's policy of attempting to "unfreeze the credit markets" is simply trying to continue the policy that got us here. It is the economic equivalent of pouring gasoline on a house fire in an attempt to put it out. How does this make sense? One of the biggest lies that's being told by virtually every so-called economic guru that is given air time on the news these days is the idea that people should not be trying to save any money, but should, instead, continue their practice of spending every cent that comes their way. The only way that a society generates wealth in the long term is to have capital available to invest in new factors of production, whether those be new employees, machine tools, physical plant, or research and development doesn't really matter. The only way that capital is generated is when people do not spend every dollar they have, but, instead, put some aside in savings accounts, CDs, and so on. Those deposits then allow banks to lend that money to those who wish to borrow it to purchase new factors of production, which leads to more production of physical goods, which increases the overall wealth of the society in question. Leaving aside the issue of whether or not fractional reserve banking is a good idea (I don't think it is as banks which are allowed to practice it are inherently bankrupt and are only playing the odds that the majority of their depositors will not want to withdraw their money at the same time) an economic downturn is exactly the time when people should be encouraged to save as that's the way out of the downturn.

However, John Maynard Keynes convinced the politicians of the world that his "cure" of lots of government spending to "prime the economic pump" was the way out of the economic troubles of the 1930s. Of course, this appealed to the politicians because it allowed them to be seen to be "doing something" to "help" the people, while simultaneously increasing their power over the economy: they couldn't make all that new money available without putting some rules in place about how it could be used, now could they? To top it off, deficit spending is wonderful for politicians as future generations get stuck with the bills and future politicians get stuck with making the unpopular choices that should have been made in order to avoid the deficits in the first place. Is there any reason to wonder why America's first Fascist Dictator Franklin Delano Roosevelt loved these economic ideas? Combine the Keynesian economics with the Progressives' ideas of allowing Congress to delegate its legislative authority to "expert decision makers" in numerous Federal regulatory agencies (another unconstitutional idea that was only allowed to really take off after the Supreme Court rolled over for Roosevelt following his attempted court-packing scheme) and you have the basis for the behemoth Federal government that is the bane of freedom which we now live with.

We are but witnessing the logical end of the path which we began to tread in the early 1900s when Theodore Roosevelt began his campaign against the so-called "malefactors of great wealth" and used that as an excuse to put in place the first pieces of a strong regulatory apparatus, which his cousin, Franklin, then expanded enormously in the 1930s. Once the nose of the camel of unconstitutional Federal regulation was allowed into the tent of the free market the march to eventual nationalization of the economy and totalitarian rule was under way. I highly recommend that you read Frederick Hayek's The Road to Serfdom for a more formalized and academic treatment of the reasons that we have reached the current state of affairs. As it is, the Federal government has now effectively nationalized large portions of the financial markets by taking equity positions in large banks as part of the Paulson "bailout program". That process is being extended to the automotive industry via the so-called "bridge loans" being made to GM and Chrysler. Those companies will be unable to demonstrate "financial viability" any time in the near future and the previous loans will be used to justify making more under the guise of "protecting the taxpayer from further losses", instead of allowing the bankruptcy process to take its course so that other companies, which could more efficiently make use of the assets GM and Chrysler now own, are allowed to purchase them. Rather, the majority of Americans are being required to subsidize the life-styles of UAW workers who played a major role in the destruction of the companies they work for by effectively looting them for their own benefit. It's ironic that the socialist who now sits in the Oval Office is going to preside over a situation in which waitresses who work for minimum wage will be taxed so that the money can be given to UAW workers so the union workers don't experience any "economic turmoil" of their own.

And speaking of the minimum wage, one must ask if it makes any sense in a declining economy to require potential employers to continue to have to pay minimum wages to employees who are economically marginal? If job creation is the goal towards which all of the Federal spending and bailout programs are aimed why are private employers not given the freedom to set wages according to the demands of the marketplace? There are a lot of people who would work for $5/hr. right now, and likely a number of jobs that could be economically viable if private enterprise were allowed to follow the laws of economics rather than the dictates of politicians in Washington who have never run a business and whose only goal is to continue themselves in power no matter the cost to society at large. All minimum wage laws have done is to ensure that the economically marginal are unable to find gainful employment, which is why the rate of unemployment among black and Hispanic youth goes up every time the minimum wage is raised (it lags by some time but the correlation is there). Thus, we have the absurd situation, so common with programs foisted upon us by so-called "liberals" (who, in case you haven't noticed, are not liberal with anything except the expansion of the power of the State to interfere with your life, but I digress), in which programs designed to help an economically troubled group simply makes the situation worse for those supposedly being helped. I highly recommend Thomas Sowell's Basic Economics and Economic Facts and Fallacies for further reading in this area.

So, to get back to your original question about whether or not those who profited from the collapse of the housing bubble after putting in place Federal government policies that led to the trouble, I doubt that one could prove a direct link between action and profit. However, I would be in favor of establishing an economic "Truth and Reconciliation Commission" that would be required to investigate and publicize the actions of those responsible in both the government and private sectors, along with undertaking the education of the American people about economic principles that our State-controlled "education system" fails so signally to do. However, there is no chance that such a thing will be done. Instead, the American people will continue to be told that the current economic mess is entirely the result of a “failure of the free market”, while ignoring the major role that the Federal government played in the fiasco that became the housing bubble. Those in power have no interest in the public learning the truth behind the current economic problems and every reason to continue to lie to and mislead the public regarding those issues. The only hope we really have of getting the truth out is via the Internet and the libertarian blogs that thinking people continue to read and discuss.

Thomas Jefferson, the nature of the State, and President Obama

I got an email today from an old friend asking whether the signature line of an email which I'd sent him was really something that which Thomas Jefferson had written. What follows is more-or-less my response to him (slightly edited to leave out personal information).

Actually, so far as I know, Jefferson did write all of those things. I've got a collection of his complete correspondence and other writings and every time I've questioned the authenticity of one of those quips I've looked it up and, by golly, there it is. Jefferson constantly wrote about the dangers of the power of the State and the inherent evil of that structure. One of the things that he was at pains to point out was that it is the State that is evil, regardless of the intentions of the individuals who make up the power-wielding apparatus thereof. He contended, and history has certainly borne him out, that, because the only power the State has is based on coercion it is inevitable that such power will be used by someone to extend the power of the State further and it is the small encroachments which lead, inexorably, to great reductions in civil liberties such as we are seeing in our own time. Each little encroachment, if not opposed to the utmost, is used as a precedent to justify the next small extension of the power of the State: it matters not the motivation of those who espouse the initial extension of power. In the end the State reaches a point at which the continuation of its existence is seen as more important than anything else and it is at that point that one begins to see the identification of the State with the Nation: which are actually separate entities, the one made up of government functionaries, the other of the mass of the people themselves. That is why Presidents such as FDR, G.W. Bush, Bill Clinton, Barak Obama, etc. go to such great lengths to try to be seen as "men of the people", which encourages the mis-identification of the State with the Nation.

We are about to get a huge dose of that now that Barak Obama has become the President. Indeed, it's already under way. Using the guise of "helping the people" President Obama is acting vigorously to extend the power and influence of the State. Given the extent of the so-called "economic stimulus" package, with its plethora of new programs and spending, the power of the Federal government is about to take another great leap forward. All of the money which is to be spent directly will come with significant strings which will define who may use the money and how they must act in order to get it. The tax breaks amount to the same thing, the people are being bribed into acting in ways which the State finds acceptable by promising them that they will be allowed to keep a little more of the money which is rightfully theirs to begin with. The State reached the point years ago at which, for all practical purposes, it began acting as though all of the money which people earn actually belongs to it and the people are allowed to keep some of it out of the goodness of the State's heart. Just listen to the political rhetoric when our leaders talk about the "need" to raise taxes for this, that, or the other thing. There is never any doubt in their minds (or their speeches) that the money belongs to them in the first place, and that it's simply a matter of determining how much of it people will be allowed to keep for their own purposes.

Given the philosophy of the economists who are now in charge of developing "programs" and "stimulus packages" designed to end the economic crisis which we are in the midst of we will see yet more trillions of dollars of Federal debt racked up. All that debt amounts to is a tax on the future earnings of all Americans and, at the rate the debt is being increased, it is one which cannot be paid off short of virtually confiscating all earnings and property so that the State may have direct control of all economic activity. That's been tried before - it was called Communism - and it utterly failed to meet the needs of either the people or, ironically enough, in the end, the State itself; as was seen with the collapse of the Soviet Union in the early 1990s. Americans have been blinded to the reality that the TARP program and the so-called "bridge loans" to the auto companies have effectively nationalized large chunks of the American economy. That fact has been driven home, though few have seen it for what it is because of the skillful use of State propaganda, when President Obama declared that a certain class of citizens - "bankers" - will no longer be allowed to earn more than $500K per year if their banks have taken any money from the State in the form of TARP funds. Most Americans are willing to see those horrible, nasty, evil, greedy bankers punished for their supposed lead role in creating the current economic, but they fail to realize the precedent that has been set: the State has now asserted that it has the right to cap the earnings of anyone who takes advantage of some Federal program. Today, it's the TARP program, but who's to say what it will be tomorrow: perhaps it will be those who use the State's higher education system and make above a certain arbitrarily set number, say $250K per year to use President Obama's definition of excessive earnings. By allowing the State to set the earnings of one class, Americans have opened themselves up to allowing it to set the earnings of all. For decades it's been accepted by the idiots of this nation that the State has the right to set the minimum wage that employers can pay, effectively casting large numbers of teenagers and other marginally employable persons (mainly black teens and young males) into the loving arms of the State's welfare system - effectively creating an entire class of people who are wholly dependent on the State for their existence. As of last week we're seeing the logical extension of the State's supposed "right" to interfere in the free market; which will do nothing, but introduce more uncertainty and aberrations into that market. And, of course, by ensuring that the best management talent will go to banks which are able to pay the going market rate for their talent, the State is setting up those banks which have taken TARP funds for yet more failure in the future, which will be used to "justify" yet more State control over that sector of the economy: funny how that works out, huh?