Ron Morley's Freedom Blog

This is the place where I do my little bit to explain the evils of the State.

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.