Harry Long

The Virtue of the Republic

Deryl, so true. I am always touched that so many still honor our principles as a nation.


On May 18 06:55 PM derryl wrote:

> Superb article.
>
> Harry quoted Jefferson, "When virtue is banished, ambition invades
> the minds of those who are disposed to receive it, and avarice possesses
> the whole community."
>
> Whether we like it or not, leaders 'lead'. When ordinary people see
> the leaders (or their neighbors) getting fabulously wealthy they
> want to get in on the action, regardless of the immorality of the
> means. 'Avarice possesses the whole community.'
>
> In the post-war era people saw their leaders and neighbors getting
> ahead by being productive workers and this created a virtuous cycle.
> Now we're in the vicious cycle of getting ahead by entitlements and
> bailouts; by getting money we haven't earned with no concern for
> who we're robbing. This is the kleptocracy phase of a society and
> I don't know how to get out of it. Hopefully there is the beginning
> of a bottom-up realization that basic reality has not changed: we
> need to earn our living producing real things of real value to each
> other. Maybe a nation of honest earners will refuse to accept a cabal
> of kleptocrats ruling them.

The Virtue of the Republic

Wcinvest, to your point about AIG's counterpaties:

To those who would argue that derivative counterparties would have been "unfairly" penalized by AIG's (AIG) collapse, let us be clear—we are not talking about innocents, we are talking about highly sophisticated (but clearly not very bright) players in the derivatives markets.

Traditional theory in Economics of the Law posits that it is most efficient for actors best able to exercise a prudent standard of care to bear the liability of loss. Simply put, it costs less money for derivative counterparties to examine a company's balance sheet and refuse to do business with any companies they deem imprudently run than to bail out the derivative counterparties later. If they do choose to do business with companies that are badly run [such as AIG], they should bear the full risk of loss, without any government "affirmative action" for such sophisticates.

seekingalpha.com/artic...


On May 19 03:03 AM wcinvest wrote:

> A few good ideas in this article but their is no need to demonize
> the banks that have already been scapegoated.
>
> The biggest beneficiaries of government fund that won't be paid back
> are the 2 GSEs and AIG. None of these companies are banks! I do think
> AIG should have been handled differently but if they failed, it could
> have led to other failures of insurance companies and that may have
> been a disaster that led to the complete collapse of the financial
> system. Slowly over the next 5-8 years, the GSEs should be split
> up if necessary and become private companies without an 'implicit
> guarantee'.
>
> Most of the companies that behaved most irresponsible have either
> failed or suffered massive dilution. And yes, lower interest rates
> does help the banks in a recession but the rates were lowered to
> help the economy much more then to help the banks... When rates are
> raised, it's not too punish the banks but simply to curb inflation
> and make sure the economy doesn't spin out of control.
>
>

The Virtue of the Republic

Antiquary, with all due respect, if it was not below a decent level of return, why didn't interest rates get to the current level without government intervention?


On May 18 10:39 AM antiquary wrote:

> "So essentially, by artificially lowering the price of capital (interest
> rates) supply dries up, as it does in every market where price fixing
> is allowed. If you can't earn a decent return on your money, why
> would you take it out of your wallet?"
>
> The posit you take as granted is that the ceiling set by the Fed
> is below a decent return. This is not necessarily true; what a "decent
> return" is will depend on what the alternatives are in the current
> economy. The general level of paranoia is not a legitimate factor.
> I think the way you get banks to lend is by showing them that they're
> being outcompeted by other people or entities who are lending, even
> if that has to be the Federal government for a time to prime the
> pump.

The Virtue of the Republic

Thank you, henarl. Very kind words.