Corporatism in America

Matt Taibbi's latest article is another classic:

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

Although it's sometimes a bit lefty in tone, I recommend the whole article. If a tenth of what Taibbi says is true, it's a damning indictment of the people's representatives, Republican and Democrat alike, who were either too corrupt or too stupid to defend the interests of their constituents.

I couldn't resist a chuckle at the gullible and unscrupulous Democrats who were all too happy to redirect taxpayers' money, so long as it filtered down to 'the common man' - that poor soul who must forever be treated like a child, protected from his own mistakes:

On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to "facilitate loan modifications to prevent avoidable foreclosures." With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. "That provision," says Barofsky, "is what got the bill passed."

In the event, rather than providing yet more welfare for the poor, the bailouts provided a staggering amount of welfare for the rich - "what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation":

the amount of money that eventually got spent on homeowner aid now stands as a kind of grotesque joke compared to the Himalayan mountain range of cash that got moved onto the balance sheets of the big banks more or less instantly in the first months of the bailouts. At the start, $50 billion of TARP funds were earmarked for HAMP. In 2010, the size of the program was cut to $30 billion. As of November of last year, a mere $4 billion total has been spent for loan modifications and other homeowner aid.

Of course, neither homeowners nor bankers should have been bailed out. Politicians from both left and right are too ignorant and immoral to grasp this basic capitalist principle. The results are predictable.

Taibbi devotes a section to moral hazard:

Worst of all, the Implicit Guarantee has led to a dangerous shift in banking behavior. With an apparently endless stream of free or almost-free money available to banks – coupled with a well-founded feeling among bankers that the government will back them up if anything goes wrong – banks have made a dramatic move into riskier and more speculative investments, including everything from high-risk corporate bonds to mortgage­backed securities to payday loans, the sleaziest and most disreputable end of the financial system. In 2011, banks increased their investments in junk-rated companies by 74 percent, and began systematically easing their lending standards in search of more high-yield customers to lend to.

This is a virtual repeat of the financial crisis, in which a wave of greed caused bankers to recklessly chase yield everywhere, to the point where lowering lending standards became the norm. Now the government, with its Implicit Guarantee, is causing exactly the same behavior – meaning the bailouts have brought us right back to where we started. "Government intervention," says Klaus Schaeck, an expert on bailouts who has served as a World Bank consultant, "has definitely resulted in increased risk."

The truth is that the 'implicit guarantee' had been in place long before the 2007-8 crisis. Supposedly capitalist America has a long history of bailing out those who play the game and lose, provided they're big and well-connected. If there's been a 'dangerous shift' in banking behaviour, it's just a matter of going up a gear.

Taibbi concludes in characteristic style:

So what exactly did the bailout accomplish? It built a banking system that discriminates against community banks, makes Too Big to Fail banks even Too Bigger to Failier, increases risk, discourages sound business lending and punishes savings by making it even easier and more profitable to chase high-yield investments than to compete for small depositors. The bailout has also made lying on behalf of our biggest and most corrupt banks the official policy of the United States government. And if any one of those banks fails, it will cause another financial crisis, meaning we're essentially wedded to that policy for the rest of eternity – or at least until the markets call our bluff, which could happen any minute now.

Other than that, the bailout was a smashing success.

Never let a crisis go to waste

Like most Britons (and perhaps unlike most libertarians) I feel instinctively more comfortable in a society where gun ownership is uncommon. Perhaps it helps that our police don't routinely carry weapons (though that's no consolation to Jean Charles de Menezes).

Nevertheless, I'm sickened by the attempts by President Obama and the BBC to exploit the Sandy Hook killings to further the cause of gun control.

Were his tears real?

In a subsequent speech, Obama came out fighting:

We can't tolerate this anymore. These tragedies must end. And to end them we must change ... what choice do we have? We can't accept events like this as routine. Are we really prepared to say that we're powerless? In the face of such carnage? ... Are we prepared to say that such violence visited on our children year after year after year is somehow the price of our freedom?

Perhaps I'm just sensitive to his arrogant and patronising tone, but it all seems very sinister. The warmth of a small child's embrace is indeed a special thing, but I hate to see it abused by Obama's speech writers.

Mises.org today republished an article from 2006 (presumably originally published in the wake of a previous shooting):

Before we even get to the main article, the introduction by Daniel J. Sanchez makes some sobering points:

The heart-rending nightmare that occurred at Sandy Hook Elementary on Friday was not only a product of the pure evil of one individual, but also yet another complete failure of the State. The precious children lost were victims, not only of an individual monster, but of a collective monster. The State made it incredibly difficult for their parents to avoid sending them to mass camps (modern schools) every day, all day. And once there, the State completely failed to keep them safe. More than that, by making the Sandy Hook mass camp a "Gun-Free Zone", the State actually made it impossible for anybody (staff, teachers, parents) to protect them.
...
A sign that says, "Gun-Free Zone" serves not as a warning to murderers, but as a welcome mat.

Tragedies and atrocities inspire an intense desire in the human heart for radical action and change. The radical change that follows Sandy Hook should not be to disarm the general public even further, which would only lead to even more atrocities (at the hands of both independent criminals and the State), but a mass rejection of state schooling. In the wake of this tragedy, parents should pull their children out of public schools for the sake of both their education and safety. And they should cry out, with the protective passion that comes with being a father or mother, for the immediate and complete abolition of all restrictions on home-based and private education. It is time for parents to take their children back from the State.

The main article addresses one of the points that I'd been wondering about: what if the teachers had had guns?

in 1985, only eight states had right-to-carry laws — laws that allow a person to automatically get a permit, provided he passes a background check and completed a training course. Today there are forty states that have some version of these laws. Lott's examination of the data showed that "from 1977 to 1999, states that adopted right-to-carry laws experienced a 60% drop in the rates at which the attacks occur and a 78% drop in the rates at which people are killed from such attacks."

Moreover, he points out that before 1995, it was possible for teachers to bring guns to campus in many states and that "the rash of student shootings at schools began in October 1997 in Pearl, Mississippi after the ban," (my italics).

I haven't investigated the facts for myself, but it seems plausible enough.

Meanwhile, CNN is looking across the pond:

In a country where the constitution is treated with such contempt - where a War on Drugs is pursued without any equivalent of the 18th amendment - how long before American citizens will be disarmed?

How much of a defence do hand guns or even assault rifles offer against helicopter gunships, tanks, and neutron bombs? Not so much, really. But it does make oppression a little less convenient, and sometimes that's all it takes.

UPDATE

Today's Mises.org article features a quote from Justice Joseph Story on the 2nd amendment [Familiar Exposition of the Constitution of the United States (1840)]:

One of the ordinary modes, by which tyrants accomplish their purposes without resistance, is, by disarming the people, and making it an offence to keep arms

Trouble across the pond

Jeff Randall has a good article in today's Telegraph on the debt situation in the US:

The White House website boldly claims: “President Obama has led the way on structuring the government to live within its means.” This is not even remotely true. By any measure, the US continues to spend way above its income and, as a result, its debt position is deteriorating apace.

These are the facts. George W Bush left behind a set of books that were not so much unbalanced as vertiginous. At the end of 2008, US debt was $9.9 trillion, or 69.7 per cent of GDP, and the ballooning deficit was $683 billion. Since then, all the key indicators have worsened markedly. By the end of this year, gross debt is forecast to reach $16.3 trillion ... more than 100 per cent of GDP, or a rise of two thirds under Obama. The annual deficit is close to $1.5 trillion, 10 per cent of GDP. Worse still, according to official forecasts, US debt is on course to hit $20 trillion by 2016. If this is a country living within its means, one dreads to think what would happen if Washington decided to throw a party.

Of course, $16.3 trillion is just the official figure. As here in the UK, and in every other developed nation, far greater liabilities hide 'off balance sheet'.

In an article for Mises.org, Gary North explains:

The expert here is Professor Lawrence Kotlikoff of Boston University. His most recent report says that total unfunded liabilities went from $211 trillion a year ago to $222 trillion this year.

The biggest source of future red ink will be Medicare. In second place is Social Security.

How can the government pay off these obligations? It can't. The possibility does not exist. The government needs a spare $222 trillion to invest in private companies. This investment must make a return of at least 5 percent to provide the money needed to pay meet the government's obligations. There is no $222 trillion available, and no capital markets large enough to absorb $222 trillion.

Conclusion: the US government will default.

In this context, 'default' doesn't just mean that 'investors' in government debt lose their money. It means that the government will renege on a wide range of welfare IOUs.

These IOUs were unsustainable long before Obamacare. As with our own National Insurance scheme, they made the mistake of paying out immediately - out of current contributions rather than past savings. There's a term for this sort of scheme:

The welfare state's Ponzi scheme economics will catch up with the politicians. It will catch up with everyone who is dependent on the welfare state. All over the Western world, this is statistically inevitable.

We wonder why people begin Ponzi schemes. The schemes always blow up. They cannot survive. The numbers tell us that. Why don't the initiators see what must inevitably hit them?

The financial world was amazed at Bernie Madoff. How did he fool smart rich people for so long, and for so much money?

Simple. He copied Congress.