Saturday, February 28, 2009

Give the people what they want

Perhaps we have to lose everything before we can begin to get it back.

I have been frustrated over the years by the fact that capitalists have not done much to defend or communicate their beliefs. Maybe they don't understand them themselves. Capitalism is not all about money. It's about freedom and creativity and an economic system that compliments human nature rather than trying to suppress it.

However, I'm beginning to believe that there might be some wisdom in standing down and letting the people have what they think they want. What they think they want is security. They want to be fed, housed and cared for. They don't want to have to stress and worry about how to take care of themselves and their families. They believe that the government can make this happen.

The fact is, the more the government takes over the functions of the free market, the worse our economic situation is going to get. Incentives for producers are rapidly disappearing. The level of government debt is getting so enormous that any sector, industry, company or individual that has a degree of success better than average is going to be targeted a revenue source. Eventually, we may indeed all be more equal. We will be equally poor. We will have a Soviet style society where toilet paper is a hot commodity. Health care will be free, and dangerous. You will be employed, but the government will tell you where you'll work, what you'll produce and to what specifications. This will come about as more and more industries are "temporarily" nationalized for the public good.

But, enough with the dire predictions. There's nothing left to do now but watch it play out. This is what the people demanded. I believe we will find out fairly quickly if what they thought they wanted was what they really wanted. You can have all the security you asked for. All it will cost you is your self.

Wednesday, February 25, 2009

The fig leaf of "regulation"

In his recent address to a joint session of Congress, one of the things President Obama pointed to as causing our current financial crisis was "the gutting of regulations". That's a nice generalization and it conveniently gets everyone off the hook, as it implies that everyone responsible was operating within the law.

In fact the catalyst for this crisis was what has become known as "toxic assets". That is, complicated derivatives based on very risky loans made to high risk individuals. Evidently these investment products, which were largely purchased by major financial institutions, were so complicated that even the buyers weren't and aren't sure how they work or what they're really worth.

Who designed these derivatives? I mean, specifically, what are their names? Who marketed them? What about the "best and brightest" CEO's and execs in the banking industry that bought them without knowing what they were buying? Who made these purchase decisions? What are their names and how do they explain their actions? Where was Congressional and federal oversight when these derivatives were being created and sold? How do you get approval to market an investment vehicle nobody understands?

I submit there are players who knew full well this thing was going to blow up, but laundered the make up of the derivatives and stroked their politicians so well they were able to successfully dupe the whole country out of trillions of dollars. Who knew what and when did they know it?

We may never know the answers to these questions because the Bush administration and then the Obama administration as well as Congress called for trillions of taxpayer dollars to bury the problem rather than a full investigation to unmask it. The federal government could have allowed the major banks to fail (creating a huge opportunity for others), let the consequences play out and expose and hold accountable the individuals who, over decades, concocted this Ponzi scheme. Instead, they took the cowards' way out. They criticize entire classes of people and industries because a true search for the truth might leave them fully exposed. They generically call for "stricter regulations" because they don't want an investigation. They hope to pass this off as a natural consequence of capitalism and "too free" markets rather than a continuing deception. If they get away with it, and they probably will, it will happen again, and again, and again.