"Unfortunately, the Chamber’s anger would appear misdirected."
The True Axis of Evil (Part II)
By J.M. Hamilton
The Business of America is Business, and NOT Banking!
At his 1964 coronation ceremony within the Cow Palace, Barry Goldwater, perhaps, offered up the most regrettable line in American politics, when he said: “I would remind you that extremism in the defense of liberty is no vice!” Of course “extremism” can be analogous to the old saw, “the ends justify the means.” Extremism, in the hands of the wrong leader, can be rationalized and deployed against nearly anything or anybody, even the extinguishing of freedom, itself (Witness President Bush’s Orwellian named Patriot Act. The beginning of a slippery slope, possibly?). And in these desperate times extremism is everywhere. We can see it in the Koch Brother’s Tea Party movement. One senses extremism in a combative Chamber of Commerce, who apparently, believes that to seek redress against Faustian Wall Street Banking community is an assault against American Business; the Chamber’s strategy is not unlike the strategy deployed by, what some would call, an extreme group, the NRA, who argues that any roll back or rules in fire arm ownership, even assault rifles, is an attack upon gun ownership.
And that’s what today’s “Axis of Evil” is… it is the extremes: from Communist China, with its billion or more of enslaved citizens, to the West’s laissez faire capitalism (LFC), and the Wall Street banks that are, or were, LFC’s present incarnation.
In nature, the extremes (black swans) tend to be weeded out, as flukes or freaks, in the long run; but, in the short run, the extremes can have cataclysmic impact, and should be guarded against or tempered. As for Mr. Goldwater, history tells us that while he was, arguably, a great U.S. Senator (especially in his later years), the American people, astutely, recognized possibly something extreme in Mr. Goldwater, and rejected him as a candidate for this nation’s highest office.
A virulent and extreme form of capitalist doctrine is laissez faire or quite simply, anything goes, from dynamiting your competitor’s rail road to Wall Street banks issuing, what Mr. Buffet refers to as, “financial weapons of mass destruction.” We all know that capitalism is an incredible engine, or vehicle, capable of many great things: lifting nations out of poverty to increasing the standard of living of citizens to name but two. But like any powerful engine, or vehicle, the world requires safety features, or rules and regs. Take away these safety features, say the brakes, and instead of a capitalist car of growth and opportunity, the world is left with a killing machine.
LFC may have reached its pinnacle as doctrine in the last thirty years, culminating in 2008 financial crisis. Let us hope. But there are still fanatics who believe that government has no place to play in the market place. To hear the Chamber of Commerce tell it, government has created a great deal of uncertainty in the business community, and as a consequence the means of production is hoarding cash as never before (observe Apple with over $50 billion in cash sitting on its balance sheet), rather than invest in CAPEX, growth and labor.
Unfortunately, the Chamber’s anger would appear misdirected.
While government does bear some responsibility for our current predicament, it was the adherents of LFC that advocated, lobbied, and supported the removal of the brakes from capitalism’s car. This is best illustrated by the Wall Street banks, which made billions of dollars short selling America, the American people, American business, and an engine of economic growth, the housing sector. So when the Chamber’s members look at shrinking top line growth, and the prospect of tax increases to pay for rising government unemployment benefits, they should look no further than LFC and Wall Street banks as the root cause. After all, our politicians only did what they were paid to do, service LFC and the banks!
For the high priests of LFC, as best exemplified by the Wall Street banks, the world is one big fatted calf, to be exploited, sacrificed and consumed. In the LFC religion, there is no allegiance to God and Country, only blind idolatry of profits, all in the name of furthering stockholder interests. Funny thing about “stock holder interests,” however, if we take a close look at how the Wall Street bank stockholders have fared in recent years, we can see that, if anything, blind faith in LFC has led to diminished stockholders returns, in equity and dividends. Meanwhile, bank management seems to get richer and wealthier, even while on the government dole.
It was not always this way, Wall Street banks were not always this nihilistic. If we read Ron Chernow’s House of Morgan, we know that, not without self interest, Morgan financed some of the adversaries of Germany in WWI, and we know that Morgan bailed out numerous banks, and assisted a foreign government, or two, during and after the crash of ’29. Siegmund Warburg is another example of banker from another era, who never lost sight of his ethical compass, wrote that the most important element of private banking was “moral standing.”
Compare that to Goldman Sachs today, who having been bailed out by the full faith and credit of the U.S. taxpayer in 2008, had bet against the U.S. dollar. A position Goldman later unwound, when dollar unexpectedly strengthened in the face of a collapsing Euro, an event Goldman played no small role in when it sold Greece CDS to help obscure debt from its financial statements.
What’s so frustrating for most Americans is double standard that we live with daily. In other words, majorities of Americans pay their bills, and live by the laws of the land, or suffer the consequences, bankruptcy, loss of home, and/or job. Apparently, unlike the Chamber/LFC crowd, and the U.S. Banks, we cannot call upon the Federal government for bailouts for egregious behavior. Which points to the entire LFC fallacy, the Chamber/Banks want LFC when there are profits to be had, but want to socialize the losses incurred in the event of a financial catastrophe: Too Big to Fail and Moral Hazard in action!
Many of these same TARP recipients are under fire, yet again. Bank of America (BOA) is a case in point. Having purchased Countrywide S&L, and having made some residential bets itself, BOA is being hammered by: a large volume of underperforming assets; lawsuits stemming from its failure to properly service residential mortgages; lawsuits from mortgagors, as BOA attempted to foreclose with shoddy paper work; and now the Feds and institutional investors are attempting to return CDO products, due to lousy underwriting standards.
Could yet another bailout be around the corner?
We know a back door bailout in the form of QE2 will soon, more than likely, be launched by the Fed, under the guise of monetary stimulus, all to better to keep the banking industry on morphine drip, and the U.S. economy on ice. Not coincidentally, business failures continue to rise (tens of thousands per annum), and unemployment rises, as the Fed and Treasury desperately attempt to keep these zombie banking institutions alive.
Our entire economic system is being held back, held hostage, so that we can keep these banking behemoths from failing.
Meanwhile, back at the White House, Treasury Secretary Tim Geithner assures the President and America people that TARP was a smashing success, having played no small role in its genesis as President of the Federal Reserve Bank of N.Y. Whether or not the debt to society will ultimately be paid back by the banks and AIG, no small amount having been converted from debt to equity, remains to be seen, but that’ s not the point. The repatriation of TARP monies back to the Fed was insignificant compared to the business and social costs, the resulting increase government deficit spending, and the loss of business revenue, as a result of the banking crisis. And yet, Mr. Geithner assures us that the American taxpayer has been paid back. By who’s stretch of the imagination?
Recent press suggests that Mr. Geithner may also be an advocate of another fiction perpetrated by the LFC/Chamber crowd, free trade!
And what about all those Goldman traders, including the likes of Fabulous Fab Tourre, who brought this crisis upon America and the world? Well fear not … Reuters reported recently that many of those traders have landed on their feet at that other bastion of LFC, private equity’s KKR!
With the Republicans and Chamber of Commerce set to take over the House, and possibly the Senate, how long before the extremist wrap the car, economy, around a tree?
http://blog.jmhamiltonpublishing.com/2010/10/09/the-true-axis-of-evil-part-i.aspx
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