Fed, Treasury Propose the Dissolution of Capitalism 21 comments
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I have sat back and watched atrocity after atrocity be committed in this downturn. Like all Americans I have watched as public funds have been shifted for private gain, as fraud has been perpetrated, as lie after lie has been paraded in front of Congress, as the Fed has seized all vestiges of Congress’ power to create and control the production and allocation of money supply which is one of the US’s most precious assets, and as Congress and its institutions (including the Fed which is private but is suppose to act on the public’s behalf) bequeath money upon the most unfit institutions rather than the most fit institutions to lead us into the next decade and wonder why nothing works.
So why do I choose to write now? Because now, laid at the feet of the public, is one atrocity that exceeds them all. It is not about money supply which monetarists know can be created at whim by the government as long as they are willing to risk the results (inflation and usually massive corruption as we are witnessing). It is not about taxation, which the government can legally solely whittle away your money to zero, for they can do so by creating more money to the point all your existing money becomes a shadow of its former self.
Rather is is about real assets. It is about the fundamental core of capitalism itself. It is about making your own business, incorporation, employment, and all the functioning of the free market itself. What is being laid at the feet of Congress like some grand trophy is the Fed (representing banking interests) and Treasury (representing banking interests and the executive branch) is their right to seize any company or corporation, irrespective of their solvency if they find it a threat to the greater economy. How is the case made for this type of policy?
Essentially, the Fed and Treasury have created the disease themselves. They have fostered and sustained dying companies they should have gone bankrupt and then into a court trustee so that they can continue to damage the greater economy. They have allowed their brethren financial behemoths to get so large and incur so many bad assets that the entire GDP of the US in one year couldn’t cover their derivatives contracts. And even then, they have then shifted public funds to still keep them from bankruptcy and conservatorship. Justifiably they now argue that the problem is obvious. The bad companies are not being seized and going bankrupt. Thus, rightly, they continue to be a detriment to society. They need to be seized and put into conservatorship so they can be dismantled and cease to cause harm. They mask the fact that they themselves are preventing the normal mechanism for this from operating. The mechanism is bankruptcy.
Rather, they propose, the system is broke and they are the only remedy if given the right to deem any business a threat to fiscal stability. With only the mandate of the President and the Fed which is a private institution whose ownership is kept secret for purposes unknown, they can seize any company they choose. Although you may think this would be the likes of AIG, there need be no change to existing laws to prevent them from seizing the likes of AIG. The government owns an 80% stake of it. It exists at the whim of the government as does all the other justifiable companies for conservatorship like Fannie Mae (FNM) and Freddie Mac (FRE).
Without government support they go bankrupt and into conservatorship tomorrow. So who exactly is this targeted to: GM? But they too would go bankrupt and then into conservatorship without a bailout. Perhaps in the future this could be used to conservatorship good institutions that refuse to support bad ones. Microsoft (MSFT) to bail out AIG for the good of the country. IBM should support Bank of America (BAC). Regardless of the reasons or intents of this proposal. For good or ill. Regardless of whether such power offers openings for abuse or not. The fact that any government institution should abridge the right for the legitimate holders of a company from controlling their assets unless insolvent is a complete dissolution of all capitalist fundamentals. The fact that any American, anyone who studied business, economists, American history, or holds a shred of support for a free market or embraces capitalism should not stand up and demand the resignation of the Fed, Treasury, and anyone supporting this is astounding. Rather, people continue to wonder if the market will fall on a trillion dollar support plan and if some guys get $215 million dollars in bonuses. If tomorrow the public finds themselves run by Stalin it would be hard to say the public didn’t deserve it.
Where is the moral outrage? This proposal strikes at the heart of capitalism more than someone proposing the complete redistribution of everyone’s bank accounts. This deals with ownership of the fundamental core of the economy, business, your jobs, your livelihood and whether the government can seize it in the name of the public interest. In the end, I am a Constitutionslist. I would hope such a policy would be rapidly struck down by the Supreme Court. However, the fact that this could even come out of the mouths of those in power is astounding to no end.
Who’s interests do they have in mind? I can rightly say it certainly is not yours.
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Fortunately, as long as current technologies are used, our quality of life can remain high. It would be a shame to move backwards from the agricultural, transportation, energy, housing and medical gains we have made in the last 50 years.
"Wall St. greed & fraud caused all this"? Really? How so? Bernie Madoff is one fraud I'm aware of. Are you holding out on us? What other frauds can you cite? And what's the total amount of loss/damage caused by each? I assume you're talking about investment banker fraud.
Greed? Nice one. That's such an amiguous term these days that all non-thinking people are swallowing it whole. Exactly what greed caused this? Profit-seeking? And exactly how has this decade's profit seeking been qualitatively different from the profit-seeking of generations before? Do you really want me to believe that people are greedier today than they were ten years ago? I don't even think profit-seeking *is* greed. Aren't profits good? If you've got a problem going after profit, you don't have a problem with wall street - you've got a problem with capitalism so just spit it out.
Come on man. Why is it so hard to believe that bankers made bad bets while going after profit? Isn't this the simplest answer? Oh, and dare I forget the bubbling up of our economy on credit? I wonder what greedy bastards caused that? Oh. Right. That was the consumer, which of course is us. And who was the enabler? Right. The Fed. Your government.
Get off the "wall street done us wrong bandwagon" unless you've got more ammo than "greed." Who gave you your talking points, anyway? Your Sunday school teacher?
Great article, Moon! Spot on, my friend.
We are losing much and it will become apparent in a year or two when the currency becomes worthless just how much.
Economists, who have long been sold out on government grants, ignore their bedrock principle that sound money signals sound decisions. So, since the inception of the Fed, forget about sound decisions.
Our economy is largely dysfunctional, top to bottom now. The decision making is completely so in DC. We're left with naked power plays and a shrinking range of terrible options and outcomes. By postponing the pain of taking the first step to recovery for so long.
DC and Wall St. pulled off TARP, got away with it in arrogant style with little debate. Then incumbents were reelected. What's the limit? They keep upping the ante, this article and comments show plenty of nasty possibilities.
I think it's reassuring that people are responding finally to obscene greed on Wall St. Sure, outrage is symbolic now but if we finally start emptying the trash at elections there may be a sliver of hope.
Therefore, if Americans were voting in record numbers that too would be a reason to, "be very worried"? Hmm. Interesting viewpoint.
The derivatives that are waiting to blow are (in my opinion) the equivalent of nuclear warheads within miles of and pointed straight at every major city in the world. If a country was not only developing nuclear technology, but had clearly amassed thousands of capable missles, should some authoritative body not have the right to seize complete control of the nation? In a perfect scenario we could completely enclose that nation, remove its people, and blow it to pieces, but collateral damage just can not be avoided so easily.
"The fact that any government institution should abridge the right for the legitimate holders of a company from controlling their assets unless insolvent is a complete dissolution of all capitalist fundamentals."
At what point would the legitamate holders of a company possibly admit that their institution is insolvent, and how far would they leverage and poison their assets in the hope of returning it to solvency? Might that company not make ever more dangerous dealings with nefarious counterparties, deepening the spiral, and inevitably creating a systemic failure?
I may not trust the government so much, I trust select people, certainly not the ubiquitous individual. Libertarian paternalism seems like the wave of the future, people need to be encouraged in the right direction, not given the choice, with no appropriate advice, to choose whatever they wish. That choice is more often than not the wrong one.
>> "the real problem right now is the derivatives" >> No. The problem is there is no reserve backing the derivatives. It's like me personally selling a $trillion in "insurance" backed by nothing but my word. It makes the term "insurance" an oxymoron.
Selling "insurance" without any underlying reserves is, by definition, FRAUD and the perps belong in prison, not in the Hamptons.
As for the systemic risk, consider that there were last year globally more than 1,000 trillion dollars - yep, that's a quadrillion dollars - in face value of derivatives backed by only a few tens of trillions in total global GDP and you get a snapshot at the problem. What gummints are doing is akin to bailing out the Titanic with teaspoons.
Which is also FRAUD.
Once the financial community has proven that it cannot be trusted, and I think the current mess proves that to be true, it is necessary to regulate it. Financials need to operate like reserve insurance companies - if one fails the others sieze its assets and cover its claims. And EVERY financial product sold must be approved before it can be marketed, just like insurance products.
Clearly, the financial community has run amok and the taxpayers should not be responsible for paying the tab for their irresponsible behaviour.
As for the Constitutional issue, I'm reminded of a comment I heard when Iraq was writing their new constitution - "Why don't we just give them ours ? It a good one and we're not using it anymore. "
'
Come on man. Why is it so hard to believe that bankers made bad bets while going after profit? Isn't this the simplest answer? Oh, and dare I forget the bubbling up of our economy on credit? I wonder what greedy bastards caused that? Oh. Right. That was the consumer, which of course is us. And who was the enabler? Right. The Fed. Your government.
Get off the "wall street done us wrong bandwagon" unless you've got more ammo than "greed." Who gave you your talking points, anyway? Your Sunday school teacher?
'
There is no hyperbole and no fear mongering.
The fact of the matter is this "financial crisis" was manufactured by the banksters with the intention of privatizing profits and socializing losses.
The fact of the matter is that only the post WWII boom produced real wealth and served to increase the standard of living for the masses of the working/middle class. Real wealth was produced b/c it was based on the use of the productive forces.
After 1973 however, the ruling class failed to make use of the productive forces, and instead relied on the creation of credit to artificially expand the limits of the market (demand). Well, that has now reached its limit and the withdrawal of the credit, combined with the failure of the capitalist system to deliver on a real increase in living standards for the masses of the working/middle class, after inflation, has led to a crisis of over-production: a destruction of demand resulting from the demise of the once great American consumer.
More information below:
2009 03 08
Capitalism Future Of: Seeds Of Its Own Destruction
tinyurl.com/cmrlma
"Banks Counted on Looting America’s Coffers"
tinyurl.com/bkezmt
"Fluke? Credit crisis was a heist"
tinyurl.com/cgugqm
"Following the A.I.G. Money"
tinyurl.com/d6xkbk
"Economic Fascism and the Bailout Economy"
mises.org/story/3333
"Behind the Financial Market Crisis?"
mises.org/story/3111
Also it has been noted by others that the FDIC can also force insolvent financial companies into receivership. This also is another mechanism which should have been used but wasn't to prevent the financial mess we are in now and negates any emergency to give the power to take over companies to the Treasury or Fed.
It could be strongly argued that the same mechanism needs to be extended to insurance companies or ones that write derivatives coverage. It need not be broader than that.
Geithner's proposals I mentioned are blunt, do not address the problems head on, and are open to political and moral abuse of all kinds. This goes without mentioning the issues Krugman has raised regarding him coddling the interest of banks over the stability and soundness of the American taxpayer and economy at large.
Anyway, thanks for all the comments.
"I agree that we are putting ourselves at risk for a Chavez like situation where a leftist dictator gains control. Then our constitution is at risk, innovation is at risk, our very well being becomes a concern."
You are correct about a "Chavez like situation" up to a point. And the point is we already have a leftist dictator and his name is Barack Obama. The sheep in this country seem to go "b-a-a-a" and let Congress and The Executive Office run over them.
Where is the outrage? There are only whimpers.
Our government's solutions are dangerous and frought with moral hazard. Yet there is no public outrage, even as people continue losing jobs. Is this complacency, or do the masses tune out when things sound complicated? It's not hard to see the writing on the wall that more bad times are ahead. But we don't know how bad things will get. All the people buying ammo indicate there is a perception that social unrest is a real possibility.
On the lighter side: There's a zombie book called World War Z. There's a great line that goes something like this: No one realized what was coming except for know-it all intellectuals. And you know who listens to them? Nobody!
re: Martial Law in 2008.
This is the unfortunate underbelly of democracy. Right now, the populace is complacent, so they elect leaders without much scrutiny and do not hold them to high standards. Our economy is the result. It can be far worse. Remember, Hitler was democratically elected amid the chaos of 1932 Germany.
The government always has the right to seizure. You may say we have constitutionally protected rights in the 4th amendment against illegal search and seizure, but there are so many ways to circumvent this legally that I won't even bother to list them.
I will use the Japanese 'internment' camps as an illustration. This was an executive order the constitutionality of which was upheld by the Supreme Court. Japanese Americans were indiscriminately outlawed from the West Coast and sent to Utah and lived in pre-Holocaust Jewish style ghettos. Their rights to just about any part of the Constitution were denied, to include basic rights to property.
Now, we won WWII. What if, by some chance, we had found ourselves at the mercy of the Japanese war machine? Would we have succumbed to even more hysteria and began witch trials accusing Japanese Americans, who would have been interned at these camps for years, some who may have had ancestry dating 100 years in the United States, of spying for their former homeland? Would there have been calls for blood and executions? Why not? After all, they were regarded as sub-human:
www.msu.edu/~navarro6/srop.html
The depictions are graphic but historically accurate - note figure two, and especially figure three, as depictions of Japanese and the 'civilized solution'.
Freedom is relative. We have a lot of it, because paradoxically freedom isn't free, and we have paid for it many times over in blood, sweat, and tears. Articles like this are signs that we have traded away our freedom for something else. Exactly what remains to be seen.
Anyone see a Movie or read a book called: The Pelican Brief?