A Capitalist's Letter to President Obama 35 comments
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Dear President Obama,
I had always been a supporter of you, precisely because you are not married to any particular ideology, and you have an ability to listen to varying opinions, weigh their merits, and ground them on reality.
I am writing to you because your heavy-handed economic policies are too interventionistic for their own good. I previously wrote about Capitalism in Jeopardy, where I feared that governments all over the world will use the recent credit crisis as an excuse to enact various protectionistic and socialistic economic policies, undoing human progress over many decades past. My worst fears are beginning to take hold.
I will not go as far as naming you a socialist, as I remain convinced that your decision-making process is not overly hindered by any ideology. Which is why I even attempt to make a free-market capitalist's case to you at all.
First off, I want to debunk a common misconception that the mortgage crisis was a failure of the markets. On the contrary, the private sector did their ordinary profit-seeking thing, but it was the government's policies that were the prime drivers of the mortgage bubble:
- The Federal Reserve maintained an artificially low interest rate for over a decade, enabling cheap credit that caused a cascading effect down to the regular consumers who maxed out their credit cards and took out mortgages they couldn't afford;
- Fannie Mae (FNM) and Freddie Mac (FRE) were created as government sponsored entities, with the mandate of increasing home ownership, again with the overall effect of encouraging low quality loans made to borrowers living beyond their means;
- The government sanctioned status of the rating agencies (S&P (MHP) and Moody's (MCO)) were given too much influence, enough to convince investment funds to treat AAA-rated mortgage-backed securities as golden, when in fact they were junk.
It is not hard to imagine that without the low interest rate, the credit bubble would not materialize. Without Fannie and Freddie, the supply of loans made to credit-unworthy borrowers would be significantly limited. Without the rating agencies, investment funds would rely more on their own research when purchasing these structured products.
The cure for misguided regulations is, of course, not more regulations, but smarter regulations. Now, it is very difficult to pass smart regulations on economic matters, mainly because the free market, when left alone, is a well-oiled machine that functions efficiently the vast majority of time.
However, I am not implying that the government should never intervene in the economy. Contemporary economics identified some cases of true market failures, for example: instances of externality, monopolies, the free-rider problem of public goods etc. The trick is to identify if a particular fall-out was caused by a true market failure, or if it is the remnants of some previous misguided policies.
I agree with Keynes that "in the long run, we are all dead." There are merits to his supply-side economics - the government has a role in resuscitating an injured economic by spending stimulus money. But let's not weaken your stimulus package with any ulterior agenda. I don't have to remind you of the global backlash you received upon inserting protectionist language like "Buy American" into the stimulus bill.
Congress's fiasco over the banks' executive compensation did more harm than good. If the terms of compensation were not stipulated originally when the TARP money was handed out, we should not dictate them retroactively. However, if we do dictate, it makes the banks reluctant to take the money, which reduces the effectiveness of TARP in resuscitating the credit market. There is no free lunch - tinkering with the market in one place causes unintended side effects in another.
Recently you ridiculed the bond-holders of Chrysler for not compromising their loans in order to save the company. You said "I stand with Chrysler's employees and their families and communities, not those who held out when everybody else is making sacrifices."
You neglected that the lenders like hedge funds and investment firms have a fudiciary duty to their own investors to maximize return, and in this particular case they actually have a duty to bring matters to a bankruptcy court because that is where they can recoup most of their investments. The investors trusted the fund managers to look out for their interests. These fund managers bought into what they thought was the most senior of Chrysler's debt, but your proposal would effectively make them subordinate to the UAW union.
Imagine the consequences if this took hold. The hedge funds buying into senior debt can no longer be sure of their senior status. Going forward, this will make them less willing to lend, or they will demand a higher interest rate from the companies that need the capital. The investors will no longer trust the hedge funds in watching over their money, so they would either withdraw their capital, sue them, or both. End result is there will be less capital available to lend. And did you say you need the private investors' help in providing capital for your PPIP initiative? There is no free lunch.
The government should intervene to negate true market failures. But the bankruptcies of Chrysler and GM are not failure of the market; they are failure of Chrysler and GM themselves for producing crap that nobody wants. These companies should be allowed to fail such that they either restructure to become competitive, or, over time, have their labor and assets reallocated to other more productive enterprises.
An author of The National Review recently claimed that you declared a "War on Capital". I think that is still an unfair statement at this point. Once again I trust that you will judge these arguments on their merits alone, without ideological bias. Please carefully consider each economic policy you enact and err towards the side of non-intervention; we do not need another war.
Sincerely,
Gene Chan
Disclosure: No positions
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Respectfully
Larry Kimble
And you get an A for looking through the haze of media drivel and seeing all this coming.
Otherwise, your letter is a good description of the causes and possible remedies for our current economic malaise. However, Obama will not agree with or act upon any of your ideas - he has his own egalitarian agenda.
glad to see that clear head back.
if you listened to obamamama or read his books how could you not think he is a socialist? if you looked at his history and voting record you had to notice that he was an extreme leftist. at least his opposition was a moderate leftist.
too old
kinda hoping we don't have a ww to get us through this. some might split hairs and say it was the post-war situation. either way it took a ww.
If the Dow crashed to 5000 would it hurt , sure, Would it recover, absolutely. There will be a price to pay for this bail out, a very big price.
The rule makers are the entities that put them in power
Mr. Chan-- Surely you must be kidding. Have you ever looked closely at BO's past alliances? He's been a left-wing anti-capitalist since his teenage years when he was mentored by Frank Marshall Davis (member of the Communist Party USA). Then, as a community organizer, he worked closely with the Democratic Socialists of America. His self-proclaimed mentor, Rev. Wright, preached Black Liberation Theology (a Marxist ideology) to him for nearly 20 years.. And let's not forget his friend William Ayers, the terrorist bomber who still seeks to overthrow our capitalistic society.
www.aim.org/aim-column.../
Also, when BO first ran as a State Senator, he ran as a New Party member.
www.americanthinker.co... a_new.html
Please tell me when you have ever seen BO take a "balanced" approach to anything? His voting record and past alliances show nothing of the sort. Can you name even one conservative, or even moderate group, that he's ever aligned himself with?
One thing for certain-- BO is gifted at reading speeches with such vague language that people hear what they want to hear. He also has a habit of saying things that sound reasonable, but doing the exact opposite. Don't listen to what he says, watch what he does. Here's just one recent example-- detnews.com/article/20...
It's extremely troubling that an intelligent person as yourself was fooled into voting for BO, thinking that he was some type of "rational moderate". Even more disturbing is how people like yourself *still* haven't accepted the fact that he's a hardcore leftist, no matter how much of the private sector he nationalizes. How much more will it take?
BO's the ultimate con man. He's a wolf in sheep's clothing. He took advantage of your trust. You ought to be angry.
On May 07 10:41 AM Ranger wrote:
> Your post is ridiculous. Without Obama having done what he did, we
> would be in a depression RIGHT NOW! We are in Sweden Mode, and will
> be for approximately 3 years.
Our systems are broken and corrections are healthy for all Americans in a long run.
Newly elected President Obama and his teams are doing their very best so America is not bleeding to death.
Is his Plan of Execution perfect and a solve all of our crisis? I do not think so but so far so good. Everything they touch, have some positive effects. If something fails, let it be.
Based on track records, I do believe that government has nothing but good intentions. If you can helps, please do bring solutions to problems. If not stop blaming and whinning.
> George W. Bush, Alan Greenspan, Paul Hanson, and "Capitalists" drove
> us down to our knees with reckless policies during the past 8 years.
Nice try. It wasn't free-market capitalism that brought us to us knees (as you, Democrats, and the media would like us to believe), it was reckless socialistic policies that spawned this mess. Fannie/Freddie (Gov't Sponsored Entities), the Community Reinvestment Act (CRA), activist groups like ACORN, many Democrats (including Clinton), and even Bush 43, created the artificial demand the drove the housing bubble and subsequent collapse-- all in the name of "affordable housing for the poor." We saw the unintended consequences of their actions. First, home prices doubled in many states due to previously-unqualified buyers snatching up homes faster than they could be built; then, with total market collapse when these buyers could not keep up with their mortgage payments.
www.city-journal.org/h...
Unfortunately, not wanting to miss out on the action, many lenders got sucked up into the frenzy once the ball got rolling by lending to unqualified buyers,in order to reap the front-end profits (points/closing costs), and then quickly throwing these ticking time bombs over to Fannie/Freddie. Private investment banks then jumped on the bandwagon, copying Freddie/Fannie's business model by bundling their own toxic assets and selling them as "AAA" Mortgage Backed Securities (just like Fannie/Freddie!)
Once again, the Fed Gov't was promoting, even demanding, these actions all in the name of "affordable housing for the poor." And while the Bush administration saw the warning signs of the collaspe of Fannie/Freddie and even alerted Congress several times, at the same time, it was adding fuel to the fire. Anyone remember Bush's speech to HUD in 2002?
www.hud.gov/news/speec...
Neither Bush 41 or 43 were ever true believers in free-market capitalism. Their political leanings have always more towards Rockefeller Republicanism than Reagan Supply-Side policies.
Good intentions pave the road to hell. Centralized planning of economies has never worked anywhere it's been tried. Can you cite for me one example where heavy gov't intenvention has really worked? While FDR's New Deal helped a few individuals get by during tough times, it's now a well-known fact that it kept us in the Great Depression all the way into the 40's. Even Roosevelt's own economic advisers admitted it failed to bring the economy back.
It was government meddling with the free market that got us into this mess. The last thing we need is more of it. There are far too many unknown and uncontrollable variables in an economy the size of ours to think you can control it through centralized planning. Only ignorant and arrogant fools believe such a thing.
On May 07 10:29 AM Gene Chan wrote:
> epeon, I supported him not for his economic policies, but for his
> ability to listen and and adopt a more balanced approach when evidence
> weigh against his decisions. This is one hopeful attempt at accomplishing
> that.
Its not capitalism that got us into this but the usual greed and hubris. Greed seeing the profit, hubris arrogantly thinking they had all the solutions.
> epeon, I supported him not for his economic policies, but for his
> ability to listen and and adopt a more balanced approach when evidence
> weigh against his decisions. This is one hopeful attempt at accomplishing
> that. May 12 02:05 PM |Report abuse| Link | Reply 00
Can you cite even one example of this? Or have you simply fallen for the fraudulent image of the "Great Uniter" that the media held him up as?
It sounds to me like you're describing Bush...always trying to please everyone by staying in the middle. Bush was NOT the conservative the media constantly portrayed him as.
Anyway, back on topic. More on Obama's mishandling of Chrysler:
www.bloomberg.com/apps...
apnews.myway.com/artic...
The answer is very simple: GM was selling cars below the cost. GM was losing money on every car they sold.
GM is in a de-facto bankruptcy a long time ago. Only government money kept them in business for the last 6 months.
Gene Chan is correct that due to Obama actions the risk of lending went exponentially up. Consequently, private money will be very difficult to get for any business.
Let me give an example. 15 years ago, China went out off commercial satellite launch business because of the cost of insurance for satellite launching using China rockets went up so much that commercial customers could not afford it in spite of very low launch prices China was offering. 15 year later, China is still out of this strategically important business.
Fool.
www.reason.com/news/sh...
I'm still waiting for examples demonstrating that Obama isn't married to any particular ideology. Your silence is deafening.
Have you finally accepted that fact that he's a hard-core leftist who's taking control of as much the economy as possible? How else can you explain his refusal to let the banks return taxpayers' dollars in order to be released from the government's control?
Just wait til he takes over health care...Once that happens, there's no turning back. God help us all.