Capitalism: RIP 27 comments
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Markets soared late this week on news that Superman(aka Henry Paulson) was once again ready to fly into the heat of battle and snatch victory from the jaws of sure defeat. According to Paulson, the federal government was busily crafting a taxpayer funded scheme to absorb all of the bad mortgage debt and make Wall Street whole again.
The idea of course was to put an end to the annoying financial crisis so we can get back to the serious business of overconsumption and debt accumulation.Political leaders were told last week by Paulson and Fed Chairman Bernanke that if something weren’t done, the entire financial system was going to melt down within the next week. Maybe this was true, maybe it wasn’t, but whatever the case, they got the full cooperation of politicians to do whatever they want.
Congress will sign anything right now as long as they can get out of town for their next vacation, and I fully expect Paulson to receive a carte blanche very quickly to do whatever he sees fit. Am I the only one who sees a problem with this?
It was very clear from last week's news conference that Paulson is in charge. Not the President, not the Congress, but a banker. And not just any banker. This is the guy who used to be in charge of Wall Street’s biggest firm. This is the man who sold his holdings in Goldman Sachs (GS)on June 30, 2006 for almost half a billion dollars. Is it really out of place to consider the conflict of interest here? I think not.
It would appear as though control over this entire situation has been ceded to Mr. Paulson, and to a lesser extent, Fed Chairman Ben Bernanke. Bernanke, however, is about as effective as Congress. He’s an academic, and has absolutely no idea how to fix this mess. That is apparent.
I cannot honestly believe that Paulson would have said what he said 13 days ago if he knew he was going to have to retract it that quickly. This indicates that they have no idea what is going on.
They are not proactive; they are reactive. This time they want it all. Full authority to buy all bad debt. They want this to be the last one. The biggest, best, and final bailout. The complete nationalization of the banking and financial system here in the .
I wonder if they plan on using taxpayer money to make good on all the bad debt that was sold overseas? Paulson’s estimate on the amount needed is off by at least a magnitude of 10. He knows he cannot go into a press conference and pledge trillions in taxpayer money to this problem. The dollar sold off as it was – almost before the words were out of his mouth.
Around the same time, SEC Chairman Christopher Cox penned an emergency order banning the short sale of no less than 799 financial companies. Miss any Mr. Cox?
This was done to ‘maintain market integrity’. Integrity? For anyone who was watching last Friday, the results of this order have been dramatic. Obviously, short ETF’s and mutual funds make money for their holders by shorting stocks. Inverse ETF’s that track financial indexes make money for their holders by shorting financial stocks. So what happens is the poor guy that thought he’d try to protect his portfolio or actually make a few bucks by picking up one of these funds has gotten crushed.
Even the short funds that don’t necessarily focus on financial firms have had a bumpy ride.Actually deciding to enforce the existing rule on naked short selling was the right thing to do. Never mind the fact that this should have been going on all along. Clearly, naked short selling was OK as long as it was confined to operations deemed to be inconsequential by the financial elite.
However, the action to place a curb on genuine short-selling is another matter entirely. To remove an important market function with absolutely no notice is draconian, and reeks of overt fascism. It says we no longer have a free market. It says that it is OK to put our hard-earned money in the markets as long as we do it in a manner which is pleasing to the financial aristocracy.
The take home message here is that if they don’t like the rules, they’ll just change them. This mentality has become more and more obvious over the past eight or so weeks. It leaves those out-of-the-know wondering what rule will be changed next. It must be nice if you are privy to these things as I’m sure there are many that are, but for the majority of folks it adds another layer to an already complex puzzle.
Last week's two day rally in the markets has already been called a triumph over the credit and banking crisis. Indeed it seemed as though the mood of Wall Street changed from pure despair to pure euphoria in the span of 24 hours.
Lost in all of this were the reasons for the euphoria. We’re losing our free markets and there is cheering.
The irresponsible actions of the very upper crust of the financial structure are once again being rewarded, and payment comes from the sweat of the common man’s brow. This is cheered, and there is euphoria.
The government and media have lambasted foreigners when they nationalize companies, natural resources, or infrastructure. Yet our government will do it on an even grander scale and the media looks the other way. There needs to be outrage, not cheerleading. There needs to be accountability, not bailouts. The system needs to be allowed to purge, not to continue the binge.
Perhaps Sherwood Boehlert, a former Congressman from put it best when he said: ‘This is something you can't go on forever without addressing, but Congress, in a short span of time is best served by going home.' For once I couldn’t agree more.
Disclosures: Own Jan 09 XLF Puts
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This article has 27 comments:
calling it drastic is okay, but this is far from fascism - don't be ridiculous! were you up to your head in short positions or what's this cryout? you no longer had a free market when General Paulson nationalized FRE/FNM over a sunny weekend closing all escape doors for investors...
"Sure I have my own opinions, but I don't often believe them"
And how we are planning to solve this problem? By "giving" congress more and more power and increase "regulation and oversight". Are we insane??
...and need to be said: the more we keep electing liberals to public offices and positions the closer to hell we'll get.
This is capitalism at it's worse, not liberalism. This started with the Clinton admin, and the Republican congress, unless you consider republicans liberals (lol). We need to vote everyone out, everyone that has been there for the past 20 years Dem or Repub.
The one thing that I feel confident enough to predict is the current financial system is in the beginning of its death throws. The huge liabilities incurred by our institutions are not over, and in the end will unfortunely prove fatal. The big question is what will take it's place? Will it be real reform and a transparent system where the government acts as referee and enforcer of market dicipline, or will it be another "New Deal" where the government is not just a participant but the '800 pound Gorilla" distorting the market and changing the rules whenever it sees fit. Right now it appears to be the latter.
IMO, we need a 30-day moratorium on the use of "totalitarianism", "socialism", "facism" and the like so people can bone up a little on history. When we get to the point of a police state that outlaws political opposition, sanctions gulags and concentration camps, confiscates private property, demands public loyalty to a dictator, and systematically murders anyone who doesn't toe the line, then we can talk about "totalitarianism". But not before
A modern day economic prophet.
So I'll ask you one question - If this is a failure of capitalism, what exactly do you propose we replace it with. Should we just increase the proportion of socialism in the capitalist/socialist system we have? Should we give the goverment who got us into this mess MORE power so that they can get us out? Make no mistake - our transformation into a failure-proof, debt-ridden, blameless society (except for greedy CEO's - obviously they are the cause of every problem) has been strongly encouraged by our own government.
Excellent questions and good observations.
In all this discussion no one has mentioned an obvious need to break up the old boys network in Washington. How about term limits? I would suggest limits of three terms in the house and two in the senate. After reaching a term limit, an individual would be ineligible to run for a position in the same legislative body for a specified period of time, say eight years. This would limit an individual to 18 years in Washington if they could win three terms in the House followed by two terms in the Senate. That is long enough for anyone, no matter how capable they are.
I'm getting tired of paying for parties I'm not invited to.
Capitalism is an ethical system as well as an economic system. It essentially says, 'we don't need kings or interventionist governments to oversee us or meddle in our affairs. If we create value and ensure fair markets, the role of government is relegated to rule maker and umpire ensuring that market participants play fair.'
Capitalism not only ensures private ownership, wealth creation, innovation and the rest; it ensures autonomy from interventionist government. If I behave in ways that necessitate government intervention, I am essentially destroying that system. If I want government out of my life, I behave ethically.
Sounds pollyanna, but it is really very simple. you may strongly disagree, but I am convinced the government steps in not because it is power hungry, but because it sees no viable alternative in a given case. The government didn't step in in the case of civil rights because it was looking for a convenient way to meddle. It stepped in because certain states refused to enforce Constitutional guarantees. It didn't step in during the Depression because it was feeling frisky; it stepped in because a demoralized nation standing in breadlines amid a frozen economy was unacceptable. And it didn't step in this time because of a good old boys network. It stepped in because it wasn't prepared to deal with a full blown social crisis as a result of a new Depression. It is impossible in this case - as it was during the Depression - to ignore the issue of scale.
Naive, but simple: don't want government intervention? Keep your house in order. Wanna do the whole bad mortgage/mortgage backed securities shell game? fine, but don't cry when the gov't needs to pull your ass out of the fire.
and BTW, whenever you play these stupid games of grossly irresponsible and greedy risk, you unavoidably increase the power of the government - the last fracking thing you want.
Failure of capitalism, dude. It is on US, not them
I was not referring to the old boys network with regard to the current government action trying to moderate the crisis. The old boys created the problem over the past 50 years.
Blondino is right that we need rules. Capitalism is not anarchy. Anarchy is no rules. But what do you call a system where the rules are changed according to the whims of the powerful? I call it Autocracy. That's why I say the difference between the US and Russian economies is a matter of degree. When autocrats change the rules it's usually to benefit the elite, but it's always sold to the rest of us as a way to "save the system". Why should the taxpayer buy worthless subprime paper from banks that no one else will touch? To save the system! So that the banks can go back to business as usual. Anyone find that giant loophole in the Paulson Plan? And finnaly yes, many Americans are irresponsible spenders and borrowers, but who encouraged that? I could go to jail for charging someone 20% interest on a loan - unless I'm a credit card company.
I think it's vital that we clean out the deadwood in congress, but I don't think that term limits are the answer. The only way to insure good government is through educated, informed, and involved voters. Since they no longer teach civics in school, and the media have become political mouthpieces for the parties, we can write off the educated and informed requirements.
I'm with madasiwannabe. The economy has become a party most of us aren't invited to.
All of this discussion yesterday got me thinking. So I came up with another question. Just what is the proper function of financial institutions and how should they operate? Why have a financial system at all? (this is not a retorical question). I don't think most people even have a clue.
www.cnbc.com/id/268673...