The Militant Libertarian

I'm pissed off and I'm a libertarian. What else you wanna know?

Saturday, September 27, 2008

War on Ducks

Got comments? Email me, dammit!
Permanent link for this article which can be used on any website:

Failure To Be Real Capitalists Caused Crisis


An indictment of greed! A case for more government intervention! Worst financial crisis since the Great Depression! Failure of capitalism! This list includes the "lessons" of the recent turmoil in the financial markets. Nonsense.

Down with greed!

Someone please produce the gun held to the temples of borrowers who put little or no money down, took out "teaser" rates, and then pleaded ignorance or victimhood when the lender — as stipulated in the contract — jacked up the rate. Lenders and borrowers expected government/taxpayers to somehow, some way, step in and shield them from the consequences of their decisions. This creates "moral hazard" — behavior based upon the knowledge of protection from the bad consequences of reckless or irresponsible behavior. Decisions entail risk, whether personal or financial ones.

We need more regulation!

We have it — lots of it. Ever hear of the Office of Federal Housing Enterprise Oversight? This agency, which employs 200 people, exists for one thing and one thing only — to "oversee" Freddie Mac and Fannie Mae, the "government-sponsored entities" that own or guarantee 40% of the nation's residential mortgages. Mere months before Freddie and Fannie's collapse and subsequent government takeover, OFHEO issued a report that saw only clean sailing. The Community Reinvestment Act, passed in 1977, mandated that lenders lend to high-risk borrowers — or else. The government actually held up prudent bank mergers if one or both sides did not sufficiently "lend" to borrowers who, under normal circumstances, failed to qualify. Why is the federal government in the housing business in the first place? We need less government, not more regulation.

We are experiencing "the greatest financial crisis since the Great Depression"!

Even if this were true, we aren't even close to that catastrophic event. At the Great Depression's nadir, 25% of adults were unemployed, including nearly 50% of urban black adults. Economist David Wheelock of the Federal Reserve Bank of St. Louis says that by the dawn of 1934, nearly half the urban homes with mortgages were in default, and 7.3% of housing structures had been foreclosed. Today, 6.4% of mortgages are delinquent, 2.75% are in the foreclosure process, and 0.6% of all housing units are bank-owned.

But what about since the Great Depression? Take the recession of 1980-81. In 1980, inflation averaged 13.58%, unemployment increased from 6.3 to 8.5%, and the prime loan rate reached an astonishing 21.5%. According to the Mortgage Bankers Association, today's delinquency rate is only a little higher than in 1985. And in 1999, the foreclosure rate set records.

According to the FDIC, in the almost two-year period of 2007 and 2008, 15 banks have failed. Similarly, during Clinton's last two years in office, 1999 and 2000, 15 banks failed. In the recession-free years of 1988 and 1989, there were 1,004 bank failures. And since the Depression, the average number of yearly bank failures has been 94.

This exposes the failure of capitalism!

What do you say we actually try capitalism, where private actors reap rewards and assume the risk? "Capitalism," says Kenneth Minogue, professor emeritus at the London School of Economics, "is what people do if you leave them alone." People want "hands off" until, that is, they want "hands on." People want homes, many preferring that option even when renting may be more prudent. Many want rent control to shield them from leasing at fair market rates. Democratic presidential candidate Barack Obama promises "world class" education — with taxpayers paying for it. And the federal government, in dramatic contradiction with the limited-government intention of the Constitution, involves itself in health care, guaranteeing private-sector retirement accounts, disaster relief, welfare, unemployment compensation benefits, retirement benefits, etc.

The Federal Reserve Bank, in effect, prints money to pay for things that voters demand — but their taxes cannot cover. The proposed bailout of financial institutions enables the Fed to create hundreds of billions of dollars out of thin air. The cost is greater inflation — a stealth tax on us all.

Government, meanwhile, grows and grows.

In 1930, before Franklin Delano Roosevelt's New Deal, taxpayers paid about 12% of their income to all three levels of government — state, local and federal. Today we pay approximately 40% — even more if you attach a value to unfunded mandates, such as those issued by agencies like OSHA.

So, yes, our recent financial turmoil does suggest failure — a failure to truly practice capitalism and a failure to accept and believe in the value, appropriateness and morality of limited government and maximum personal responsibility.


Got comments? Email me, dammit!
Permanent link for this article which can be used on any website:

Fraud of Global Warming

by Floy Lilley

The former U.S. vice president, Al Gore, is now urging civil disobedience to stop coal plants. He told a New York audience recently, "If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration."

Global Warming and Reinventing Government have been Gore’s two lifelong causes. He is using the one to accomplish the other. His fundamental assumptions and views of global warming were well documented in his film, An Inconvenient Truth. Thousands of schoolchildren have viewed it.Gore was even awarded a Nobel Peace prize for the documentary in 2007 which he shared with the Intergovernmental Panel on Climate Change (IPCC). It is telling that the very first Chairman of that IPCC group, John Houghton, had pronounced, "Unless we announce disasters, no one will listen." True to script, Gore announced disasters and many listened.

As Gore urges civil disobedience to stop coal plants for the sake of carbon dioxide emissions, it is time to revisit several of those assumptions and implications he made in An Inconvenient Truth. Each of the fourteen highlighted here is a snapshot of the Global Warming doomsayers’ views. The added perspective shows the fraud of the catastrophic manmade Global Warming thesis:

Carbon dioxide drives the temperature of the planet. Gore assumes that carbon dioxide (CO2) is the causal factor of warming temperatures. But, for at least 240,000 years carbon dioxide has been a lagging indicator of any warming. That means that the earth warms and, later, there is an increase in the gas carbon dioxide. Roy Spencer, Climate Research Scientist in Huntsville, Alabama, notes that "the cooling effects of weather have a stronger influence on surface temperatures than the warming influence of greenhouse gases." The major greenhouse gases are water vapor (which accounts for 70–90 percent of the effect), carbon dioxide and methane. Many scientists work on the theory that the sun is the prime driver of Earth’s climate. Earth temperature and sun activity do correlate closely. Additionally, many scientists examine the larger cosmos. Their theories reveal an interplay between the sun and cosmic rays – sub-atomic particles from exploded stars. Further, they discern long-term temperature patterns as our solar system moves through the arms of our Milky Way galaxy. Again, those events correlate more closely to Earth’s temperatures than do manmade carbon dioxide levels.

Temperatures will rise 1.5–4.5 degrees Celsius when CO2 levels double from a pre-industrial level of 280ppm to 560ppm. Because Earth’s sensitivity to carbon dioxide changes has been overstated, the scientifically likely temperature result of such a doubling is 1.5–2.0 degrees Celsius. Earth’s current CO2 level is 380ppm.

Catastrophic Global Warming will cause sea levels to rise 20 feet. The work of scientists supports a sea level rise of about one inch per decade. In one hundred years it should rise 10–12 inches.

Catastrophic Global Warming is forcing island nations to evacuate their populations to New Zealand because of rising sea levels. Tuvalu was the poster child for this alarm, but neither Tuvalu nor any other islanders have evacuated to New Zealand.

Catastrophic Global Warming is melting Antarctic sea ice. But, Antarctic sea ice is thickening over the gigantic continent. This thickening reduces sea level. There is ice loss on a tiny sliver of the continent stretching out far northward. That is what Gore’s movie image relies upon. The ice shelf collapse there was more likely to have been driven by ocean current fluctuations.

Catastrophic Global Warming is resulting in extreme weather. Tornadoes? The US is home to one-third of all the world’s tornadoes. But, tornadoes have not increased. Drought? There is not greater incidence of drought. Record typhoons and cyclones? No. Hurricanes? There are about ninety-five hurricanes annually and globally. But, hurricanes are neither more frequent nor more intense. In 2004 the IPCC hyped hurricane-fears without any scientific soundness. Gore’s film footage implies that hurricane Katrina was an inescapable consequence of manmade globally averaged warming. Facts do not support that alarm.

Catastrophic Global Warming has caused global temperatures to be warmer now than they have been in 1,000 years. Gore’s graph displays a long level period ending in an upward sweep like a hockey stick, displaying the appearance of runaway temperatures. A young IPCC scientist named Mann created this hockey stick graph for a 2001 report, making the real Medieval Warm Period and the Little Ice Age disappear. It was an enormously effective prop. Alarmists used it for their the-science-is-settled position. It made the 20th-century temperature increase look unique. But, Mann’s methodology would have conjured any random set of numbers into a hockey stick. And, the temperature increase was not unique. In 2006 the National Academy of Sciences issued a report stating that this graph used flawed data. The IPCC has dropped the use of the Mann hockey stick from its 2007 Report. But, this piece of deliberate disinformation caused great damage to truth and science.

Catastrophic Global Warming has dried up Lake Chad. Lake Chad has been totally dry several times before humans were adding any CO2. That situation is due to over-extraction by communities.

Catastrophic Global Warming has been shrinking the snows of Kilimanjaro. By the time Ernest Hemingway wrote The Snows of Kilimanjaro in 1936, half of the snow was already gone. This is before man began releasing CO2 into the atmosphere to any extent by burning fuels for energy. No temperature on the mountain is above freezing. There has been no temperature change in fifty-five years. Shrinking is likely to be a circulation issue and lower precipitation, not a rising temperature issue.

Catastrophic Global Warming increases mosquito-borne malaria. Malaria was endemic to most of the developed world just fifty to one hundred years ago. We eliminated malaria in Europe and the United States while the world warmed. 600,000 people died of malaria in Siberia. Malaria sickens 300 to 500 million poor people annually, killing as many as 2.7 million each year. In sub-Saharan Africa, one in 20 children dies of malaria. The approximately forty million humans killed by malaria since 1972 have died because a politician, William Ruckelshaus, as the Environmental Protection Agency’s first head, banned the beneficial pesticide DDT.

Catastrophic Global Warming is quickly melting Arctic sea ice. Arctic sea ice decreases during the summer melt season, and Arctic temperatures have risen faster than anywhere else. But, the Arctic region was warmer in the 1930’s. That could not have been caused by mankind. And, Artic sea ice has recovered from 3 million square kilometers to 14 million square kilometers. Ice-cover around the Bering Strait and Alaska has more recently been at its highest level ever recorded.

Catastrophic Global Warming is killing polar bears. Factually, that claim was based on a single sighting of four dead bears the day after an "abrupt windstorm" in an area housing one of the increasing bear populations. Global polar-bear population has increased dramatically over the past decades.

Catastrophic Global Warming is melting Greenland’s ice. Greenland has been warmer. Its ice did not melt – except around its edges. There has been no net warming – and perhaps a slight cooling – since 1937. Vikings colonized and farmed Greenland during the Medieval Warm Period. The return of colder climate drove them away.

And, lastly, for An Inconvenient Truth,

Catastrophic Global Warming has caused mass extinctions. Warming extends ranges for plant and animal species. Biodiversity is enhanced. That’s why the greatest concentration of biodiversity is in the tropics. Higher concentrations of carbon dioxide are shown to increase plant production, while lowering water requirements and reducing stress. Animals thrive on more abundant plant-life. Enriched CO2 has yielded an additional one-sixth production which would not have happened in its absence.

Each of these fourteen scenarios would have been an environmental bad had it happened and had it been empirically proven to have been caused by humans. The alarming events did not happen. The scary scenarios all came from computer climate models. There has been no empirical proof substantiating Gore’s claims and implications.

The hypothesis of catastrophic globally averaged warming resulting from human-caused carbon dioxide increases has failed. Failed hypotheses should be rejected.

The catastrophic Global Warming hypothesis fails to show that changes in carbon dioxide drive changes in temperature. Changes in carbon dioxide do not account well for the highly variable climate we know the Earth has had, including the Roman Warming (200 B.C. to A.D. 600), the cold Dark Ages (A.D. 440 to A.D. 900), the Medieval Warming (A.D. 900–1300 when CO2 levels were much lower than today), and the Little Ice Age (1300–1550 when there were few sunspots). The catastrophic Global Warming hypothesis is a feeble theory made seemingly true by pure repetition.

The catastrophic Global Warming hypothesis fails to explain the reality of the last one hundred years. Half of our modern warming occurred from 1905–1940, when carbon dioxide levels were still quite low. The net warming since 1940 is a minuscule 0.2 degrees Celsius. An interlude of global cooling occurred in the 1950s and 1960s, when CO2 levels were increasing. It totally fails to explain the absence of warming in the last ten years, despite a continuing rapid increase in CO2 concentration. If greenhouse action by carbon dioxide drove warming, the upper air should have warmed faster than the surface, but observations show the opposite has been the case. Although computer models say temperatures should have risen, Alabama temperatures have fallen for 115 years. Citrus crops used to be common. What could you do about this catastrophe? Buy jackets and get out of the citrus business. In other words, adapt.

It is fraud to spread alarmism of catastrophic "human-caused global warming" based upon projections generated from computer climate models which have substantial uncertainties and are markedly unreliable. It is fraud upon fraud to throw scarce resources at Global Warming when such expenditures will have inconsequential results except to impoverish us, notwithstanding that Al Gore believes it will be good for our spirituality to work together on such a common cause. There are real and achievable global causes of diseases, malnutrition, sanitation and energy that are valid projects and worthy efforts – efforts that Bjørn Lomborg endorses in his book, Cool It. No global efforts toward expensive CO2 cuts are valid or worthy. Current Climate policies are health and wealth destruction policies.

Doomsayers are claiming that climate can be adjusted in some predictable way, but it can not. It is fraud to claim that it can. As published in the Bulletin of the American Meteorological Society, Richard Lindzen of M.I.T. has conducted studies that thwart the greenhouse effect. What that means is that "just because the greenhouse effect is real, it does not follow that an increase in intensity will necessarily lead to a significant increase in mean global air temperature, as climate alarmists are wont to claim…Hence it is not inconceivable that an increase in the atmosphere’s CO2 concentration may result in no warming at all. Or even a cooling!...Much more research will be required before we can determine that the ongoing rise in the air’s CO2 content even constitutes a problem, much less specify its magnitude and prescribe ameliorative measures for dealing with it."

The magnetic attraction of government funding for global-warming research, the political climate of fear-based policies seen in both climate issues and economic issues, and doom-sopping journalism works to push events into a downward spiral of exaggeration and hype. Al Gore rides this emotional wave. He has refused all debate with climate scientists. It is after all, for him, not about truth. For him truth is simply inconvenient.

COOL It and Six Other Books to Lower Your Global Warming Fever

Cool It: The Skeptical Environmentalist's Guide to Global Warming by Bjørn Lomborg (2008) tells us to stop the focus on carbon dioxide cuts. Stop throwing good resources at global treaties and global command and control plans. They will have inconsequential results upon climate. You will fail to do any real good, cautions Lomborg. Put global warming into perspective. There is useful common sense packed into this slender and readable work from this Danish environmentalist.

The Deniers: The World Renowned Scientists Who Stood Up Against Global Warming Hysteria, Political Persecution, and Fraud**And those who are too fearful to do soby Lawrence Solomon (2008) checks to see if those who differ from the "consensus" claimed by Gore and the UN really are just crackpots. Surprising himself with his findings, Solomon's efforts revealed the skeptics to be more accomplished and more eminent scientists than the Gore & co. group who have gone along.

Climate Confusion: How Global Warming Hysteria Leads to Bad Science, Pandering Politicians and Misguided Policies that Hurt the Poorby Roy Spencer (2008) says that the policies being advocated by environmentalists and politicians in the frenzy over global warming are sure to fail and bound to harm people. Governmental funding for research has predictably created biased scientists, but Washington, too, has been corrupted by this hyped "problem" and the money being thrown at it. Spencer shows with a light touch that he knows people as well as he knows weather.

Unstoppable Global Warming: Every 1,500 Years, Updated and Expanded Editionby S. Fred Singer and Dennis T. Avery (2008) presents the case of how the Earth tells its own climate tale. This reasoned perspective of natural climate change driven by our own sun refutes the alarmists' baseless fears of man-made global warming caused by increases in carbon dioxide. The authors argue for humane policy consequences.

The Chilling Stars: A Cosmic View of Climate Changeby Henrik Svensmark and Nigel Calder (2008) calls the carbon dioxide theory feeble and presents a far more robust theory of galactic cosmic rays. Based upon Svensmark's research at the Danish National Space Center, The Chilling Stars offers the broadest perspective yet presented on climate change. If confirmed by further research, sub-atomic particles from exploded stars affect Earth's climate more than man-made carbon dioxide.

Shattered Consensus: The True State of Global Warmingedited by Patrick J. Michaels (2005) presents essays by climate experts which reveal what is and what is not known in climate science. Cautioning that bad policy will result from flawed scientific assumptions, each expert carefully notes what has been predicted and what has been observed. Major discrepancies raise major questions about any policy created to "fight" climate change.

Meltdown: The Predictable Distortion of Global Warming by Scientists, Politicians, and the Mediaby Patrick J. Michaels (2005) is a premier presentation of the cycle and culture of exaggeration. Never shy, Michaels does tell it like it is. What he reveals is not professional and is not pretty. Spencer's Climate Confusion echoes these same sad discoveries of scientific ignorance and fraud.

For websites on global warming, the two kings still reign:


Got comments? Email me, dammit!
Permanent link for this article which can be used on any website:

Thursday, September 25, 2008

Plus ça Change You Can Believe In

Why the Bailout is Not Socialism
by Jeff Snyder

Reports of the Treasury Department’s proposed bailout legislation are focusing on the cost to the US taxpayer, the "socialist" nature of this intervention in the supposedly free market, and the question whether it will work, but not on exploring just how it’s going to work. It is important to understand just how far the proposal is from real socialism, because it is actually far more shocking than socialism. It’s a continuation of what we already have – creating profit-making opportunities for the wealthy off of the backs of taxpayers.

Socialism – actual nationalization or governmental joint ownership – would at least theoretically be an improvement over the current bailout proposals, because the government might then demand actual financial integrity and actually prosecute company officers and managers whose misdeeds and recklessness cause the government to lose its share of the company’s profits. There is nothing in the proposed legislation that indicates that the federal government will end up with ownership interests in financial institutions. The bailout is controlled by the Federal Reserve, which is a private organization looking out for private interests, NOT a government entity supposedly protecting the public interest.

The reality of how the bailout is actually going to work is highlighted by a provision found in Senator Dodd’s proposed alternative to the Treasury’s bailout legislation. To my knowledge, the significance of this relatively obscure provision has escaped media comment. But first, some context. A 1932 provision of the Federal Reserve Act allows the Fed to lend funds to non-banks (e.g., private companies and partnerships) at a discounted rate "in unusual and exigent circumstances." Specifically, 12 U.S.C. 343 provides, in pertinent part, as follows:

In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 357 of this title, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe. [Editorial comment: note that the Fed prescribes its own rules and is "regulated" by itself, not by Congress. In other words, it does what it likes. No one in Congress and neither McCain nor Obama is talking about changing this.]

Section 19(a)(2) of Senator Dodd’s original bill provides that if the Federal Reserve Board exercises this authority, it must notify the Senate Committee on Housing, Banking and Urban Affairs and the House Committee on Financial Services of "the specific terms of the actions of the Board, including the size and duration of the lending, the value of any collateral held with respect to such a loan, the recipient of warrants or any other potential equity in exchange for the loan, and any expected cost to the taxpayer for the cost of such exercise."

The first thing to notice about the Dodd language is that it contemplates the possibility that both stock or other equity and warrants may be acquired and transferred by the Board to private parties, and not to the government. Under 12 U.S.C. 343, the Fed already has this power to structure loans as it sees fit in unusual and exigent circumstances. The Dodd bill simply requires that the Senate and House be informed what the Fed has done, and provides no authority to Congress to control it. So the vaunted Congressional "oversight" consists simply of being informed of what has been done after the fact. But note this well: The bailout bill provides no mechanism for assuring that the federal government acquires any ownership stake in the companies it bails out for the funds it provides. It is not nationalization. What will happen is that the Fed will have the power to preserve and make new kings of finance on the backs of taxpayers.

Some examples, all of which appear to be permissible under the terms of the proposed bailout bills, will help illustrate how this is going to play out. In order to save a financial institution that is actually bankrupt because it doesn’t have the reserves to absorb the losses from the toxic $500 million mortgage-backed security portfolio, the Fed purchases the $500 million portfolio at face value. In order to minimize the Fed’s ultimate loss, and because the Fed is not equipped to actually deal with the mortgages in this pool, the Fed sells the portfolio to some other institution or a new private vulture fund created for this purpose. Naturally, the mortgage pool is risky, so it has to be sold at a deep discount with sufficient room in it that the private interests that will purchase it can expect to make a profit from taking this on. Let’s suppose that the Fed sells it at $.20 on the dollar. The taxpayers have therefore lost $400 million on the bailout. Ultimately, the pool collects $.60 on the dollar and makes a profit of, say, $.20 on the dollar. By shifting the losses to the taxpayers (for which they receive nothing), a new profit making opportunity has been created for the big boys. Essentially, the taxpayers financed the new profits by absorbing losses in excess of the amounts that are fully and finally realized. Congress receives a report.

Suppose, instead, that the Fed, using its authority to lend money to businesses "in unusual and exigent circumstances," loans a troubled financial institution $500 million at a very low interest rate secured by $500 million, face value, of the company’s "toxic" mortgage backed securities. The terms of the loan provide that as payments are received on the securities, they are applied against the interest and principal amount of the loan, and that the loan is otherwise nonrecourse, that is, the company is liable only to the extent of the value of the collateral pledged as security. Thus the U.S. treasury can expect to recoup some portion of the funds and the taxpayers are only on the hook ultimately for the portion of the loan that can’t be paid for from collections on the securities and for the time value of the money, which is hopefully substantially less than the full amount loaned. In addition, suppose that part of the deal is that the Fed also receives warrants (options) to acquire, say 50%, of the company’s stock at $X per share, which can be paid either in cash or, by what is its equivalent, by canceling the same amount of debt on the loan. The warrants are transferable, as is the stock that is obtained by exercising the warrants.

Perhaps you begin to see the possibilities. First, suppose the ailing company needs even more money. The Fed exercises the warrants and pays even more taxpayer money to purchase the company’s stock. Thus, the $700 billion bailout is in fact only the beginning, and this eventuality is expressly acknowledged by the Dodd proposal. But consider the next step. The Fed now holds 50% of the company’s stock, which it may sell at a price determined by the Fed in order to recoup part of the loss on the loan. Naturally, the company still may not be in the greatest shape, so the stock has to be sold at a depressed value, with sufficient margin so that the purchaser will be motivated to buy because he expects to make a handsome profit. Again, because the loss was shifted to the taxpayers, a new profit making opportunity has been created for the big boys. Congress receives a report.

Or finally, consider this alternative variation on the loan scenario just mentioned. The Fed’s financial analysts issue a report concluding that, ultimately, the toxic mortgage-backed securities that are collateralizing the Fed’s $500 million loan will pay $.0.80 on the dollar. Let’s assume that the exercise price on the warrants is effectively $0.10 on the dollar amount of the debt, and the Fed sells the warrants for $0.05 on the dollar amount of the debt, or an amount which, when added to the exercise price the warrant holder will have to pay to buy the stock, effectively equals $.15 on the dollar amount of the debt. (The Fed can’t ask for too much, because investors won’t buy if they don’t have a realistic chance of making a profit!) The Fed reports to Congress that it expects that the loss to the Treasury on this transaction will only be 15%, because it expects to collect $.80 and it has sold the warrants at $.05. A few years go by. It turns out (who knew?) that that the toxic mortgage-backed securities are only yielding $.40 on the dollar, and since this is a nonrecourse loan, the remainder of the debt is just a loss to the US taxpayers. Meanwhile, the company, freed from its toxic contingent losses, has been able to rebuild itself into a financial titan. Turns out that the warrants are now worth five times the amount the investors paid for them, and the investors are going to make a killing! Ha ha! Now that’s what America is all about! Being rewarded for taking risks!

With hundreds of billions at its disposal, the Fed has the ability to preserve and create new titans of finance. The bailout process will not be unlike Russia’s creation of overnight billionaires through the public sale of rights to its national resources for ludicrously low sums of money, all accomplished at the expense of the taxpayer. I believe we here in the US call this "crony capitalism" when practiced in Russia. The taxpayers will bear the losses, receive nothing for it, while new profit opportunities are created for the ruling class. Nothing prevents this. Congress will receive reports.

This is not socialism, but pure Americanism. The people trying to perpetrate this grand theft would like you to continue to think it’s socialism, because that mistake hides the reality of what it really is. Nowhere does the federal government end up with an actual ownership stake in the companies it is bailing out that would permit it, ultimately, to continue to recoup losses and even profit on its loan, theoretically lessening the burdens on taxpayers (way) down the road. I am not saying this rosy scenario would ever come to pass – we’re talking about government here after all – but that would be socialism.

The proposed bailout solutions are more of the same – plus ça change you can believe in. The game is rigged and we are the losers. Neither Republicans or Democrats are proposing to do anything to fix the real source of the problem that impoverishes all but the most wealthy – fractional reserve banking and the Federal Reserve. Without eliminating that system, more "regulation" can never eliminate the moral hazard or power to create unearned wealth that comes from the power to manufacture credit out of thin air. "Regulation" is just the mantra that politicians reach for to mollify you with a promise to prevent a recurrence of a nightmare enveloping us that they have helped create, in this case while they completely ignore or fail to see the real cause of the problem, guarantying that it will recur. Think about what politicians are actually promising. Regulation! Solution to all future problems! It does nothing for you now, it does not ameliorate one iota the suffering brought down on you now. For you, what's done is done and you just have to suck it up! The politicians will take care of it by protecting you in the future! And if it doesn’t work, we won’t know that until later, when the next disaster occurs, when the politicians will promise more regulation or better regulation again! Eventually, after you’ve lost everything, they’ll get it right! Maybe! We’ll have to wait to see! For the titans of industry though, what's done is not done, For you, regulation, for them, money. You will remediate them, now, for the damage they have inflicted on themselves, and pay for it the rest of your lives. It's not socialism, it's the American way of business.

The only candidates who are actually promising to address the root cause of the current financial disaster are third-party candidates Ralph Nader, Chuck Baldwin, and Cynthia McKinney who have signed, with Ron Paul, a statement of agreement on the actions they will take in the areas of foreign policy, privacy, the national debt and the Federal Reserve. To the American voter I say, if the bailout discussions don’t show you what the System really is and your place in it, your eyes are unopenable. But if this disgusts you, if you really want change and not more of the same ("regulation!"), if you really want to vote your pocketbooks and place yourselves on a path to financial security, you will have to abandon your favored system of Voting Only for Someone Who Can Win (yes, even though the winners will receive reports about what the Fed has done!), and vote for someone who will really address the conditions of your bondage to this country’s ruling class.


Got comments? Email me, dammit!
Permanent link for this article which can be used on any website:

Ron Paul Against the Bailout

Statement Before the Financial Services Committee, "The Future of Financial Services: Exploring Solutions for the Market Crisis," September 24, 2008

Mr. Chairman,

It is truly a shame that, less than two decades after the fall of communism, the lessons of price control are completely lost on most Washington power-brokers. The Treasury proposal before Congress is nothing more than a form of price control, an attempt to keep asset prices artificially elevated. The root of our recent economic boom, as in any other business cycle, was government intervention into the market under the guise of lowering the interest rate, which is itself a price. The function that prices play in the market in equalizing supply and demand, and the distortions that necessarily accompany each government effort at price-fixing, are forgotten by too many in Washington.

One of the primary causes for the length and severity of the Great Depression in this country was the federal government's attempts at keeping prices artificially elevated. A typical example of getting causation backward, the federal government assumed that falling prices caused the depression, whereas in reality the falling prices were the result of the economic depression, and were necessary to bring the economy back into equilibrium. In its attempt to keep agricultural prices high, the federal government began to pay farmers to destroy their crops, while unemployed people lined up at soup kitchens around the country.

A similar situation exists today, where many mortgage-backed securities and other similar assets are horribly overvalued. The market response would be to allow these assets to be sold on the market at whatever price they would bring. This would result in a shakeout of bad debt and a shorter, sharper correction than would otherwise occur. Unfortunately, the political will to allow banks to take the responsibility for their lending actions is at times lacking.

Many here in Congress are asking where the money for this bailout will come from, and indeed it is a good question. $700 billion does not just materialize out of the ether, but then again neither do the hundreds of billions of dollars that we spend every year to fund our imperial war machine. We must the face the fact that our country is dead broke, and not just that, we are facing over $10 trillion in debt, and tens of trillions more in unfunded liabilities. This $700 billion bailout will only increase that debt, and increase the amount of money we pay merely to service the interest on that debt. The end result of this is higher taxes on our children and grandchildren, and the full-scale destruction of the dollar.

The only viable solution to this financial crisis is to keep the government from intervening any further. The Federal Reserve has already loaned hundreds of billions of dollars through its numerous lending facilities, and the Congress has passed legislation authorizing further hundreds of billions of dollars to bail out Fannie and Freddie, yet each successive crisis event seems to be advertised as larger and more severe than the previous one. It is time that this Congress put its foot down, reject the administration's proposal, and allow the bust to work itself out so that our economic hangover is not as severe as it might otherwise be.

Statement before the Joint Economic Committee, "The Economic Outlook," September 24, 2008

Mr. Chairman,

I believe that our economy faces a bleak future, particularly if the latest $700 billion bailout plan ends up passing. We risk committing the same errors that prolonged the misery of the Great Depression, namely keeping prices from falling. Instead of allowing overvalued financial assets to take a hit and trade on the market at a more realistic value, the government seeks to purchase overvalued or worthless assets and hold them in the unrealistic hope that at some point in the next few decades, someone might be willing to purchase them.

One of the perverse effects of this bailout proposal is that the worst-performing firms, and those who interjected themselves most deeply into mortgage-backed securities, credit default swaps, and special investment vehicles will be those who benefit the most from this bailout. As with the bailout of airlines in the aftermath of 9/11, those businesses who were the least efficient, least productive, and least concerned with serving consumers are those who will be rewarded for their mismanagement with a government handout, rather than the failure of their company that is proper to the market. This creates a dangerous moral hazard, as the precedent of bailing out reckless lending will lead to even more reckless lending and irresponsible behavior on the part of financial firms in the future.

This bailout is a slipshod proposal, slapped together haphazardly and forced on an unwilling Congress with the threat that not passing it will lead to the collapse of the financial system. Some of the proposed alternatives are no better, for instance those which propose a government equity share in bailed-out companies. That we have come to a point where outright purchases of private sector companies is not only proposed but accepted by many who claim to be defenders of free markets bodes ill for the future of American society.

As with many other government proposals, the opportunity cost of this bailout goes unmentioned. $700 billion tied up in illiquid assets is $700 billion that is not put to productive use. That amount of money in the private sector could be used to research new technologies, start small businesses that create thousands of jobs, or upgrade vital infrastructure. Instead, that money will be siphoned off into unproductive assets which may burden the government for years to come. The great French economist Frédéric Bastiat is famous for explaining the difference between what is seen and what is unseen. In this case the bailout's proponents see the alleged benefits, while they fail to see the jobs, businesses, and technologies not created due to this utter waste of money.

The housing bubble has burst, unemployment is on the rise, and the dollar weakens every day. Unfortunately our leaders have failed to learn from the mistakes of previous generations and continue to lead us down the road toward economic ruin.

Got comments? Email me, dammit!
Permanent link for this article which can be used on any website:

Tuesday, September 23, 2008

The Fed, Inc.

Got comments? Email me, dammit!
Permanent link for this article which can be used on any website: