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Binks
Social climber
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Topic Author's Original Post - Sep 25, 2008 - 05:15pm PT
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Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."
Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?
Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,
Ron Paul
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k-man
Gym climber
SCruz
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Sep 25, 2008 - 05:26pm PT
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Excellent article.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity!
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noshoesnoshirt
climber
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Sep 25, 2008 - 05:38pm PT
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We need to nationalize the Fed immediately.
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Mtnmun
Trad climber
Top of the Mountain Mun
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Sep 25, 2008 - 05:39pm PT
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We're f#@ked!
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Binks
Social climber
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Topic Author's Reply - Sep 25, 2008 - 05:40pm PT
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A little look back 12/20/2006 to see how we got here and the greedy a-holes we are bailing out.
http://www.usatoday.com/money/industries/brokerage/2006-12-20-wall-st-bonuses_x.htm
NEW YORK — Executives at Wall Street's top financial firms will probably remember this holiday season with particular fondness, as soaring profits cascade down to traders and bankers in the form of multimillion-dollar bonuses.
This year, four of the top five brokerage houses have posted record earnings, paced by Goldman Sachs, where income jumped 68% over 2005.
Even Morgan Stanley, where an ugly internal putsch resulted in the ouster of an autocratic CEO last year, bounced back smartly in 2006, announcing a 51% rise in earnings Tuesday.
Bear Stearns and Lehman Bros. also set records for revenue and earnings.
As a reward for Goldman's blockbuster performance, CEO Lloyd Blankfein received a staggering bonus of $53.4 million this week, the largest ever granted to a Wall Street CEO.
Joining Blankfein in the bonus stratosphere is Morgan Stanley CEO John Mack, who got $40.2 million last week.
Lehman CEO Richard Fuld got a seemingly modest $10.9 million bonus earlier this month. But don't shed any tears for him: Fuld also received a 10-year stock payout worth $186 million.
All told, this year's bonus pool for Wall Street executives hit $23.9 billion, the New York State Comptroller's office estimates. That's a 17% jump from last year's bonus pool of $20.5 billion, and it works out to an average bonus of $137,580 for every person employed in the financial services industry.
But few will receive bonus checks for the average amount. Instead, the top executives at these firms and their most successful traders will get bonuses north of $10 million each, while the underperformers and support staff will receive far less than the average.
Such is life in the fast lane of the financial sector, where salaries are dwarfed by the bonanzas reaped each December. "The salaries on Wall Street are generally very small," says Alan Johnson of Johnson Associates, who advises financial firms on compensation matters. He says someone who makes only $150,000 to $200,000 in salary might get a $9.8 million bonus.
ohnson describes the psychology of the all-or-nothing bonus as unique in the economy. "It's a very odd phenomenon that you don't see elsewhere in American business," he says.
"It's one thing to win the lottery, but to be told by your boss to come to a meeting next Tuesday morning, where you'll find out your bonus, you're on pins and needles," he says. "It's a very stressful time. You've spent nearly a week throwing up."
But if that big payday arrives, life is good. Johnson recalls meeting with a Wall Street executive earlier this month after bonuses had been handed out. "This guy couldn't wipe the smile off his face," he says. "It was almost kind of bizarre. He had the same kind of look as the guy on TV who won the lottery."
Those who do reap the big payoffs in December spend the money in different ways. Some have already been living beyond their means, and the massive check makes up for the shortfall.
Others, who've lived within their means, feel like Masters of the Universe. "If you've got a multimillion-dollar bonus, and you ride the train home that night, get off at your station and see the Jaguar dealer, you might say, 'You know what? You're driving that Jaguar home,' " says Johnson.
It's almost like Hollywood, he adds, where top directors and actors get huge paydays. Unlike Hollywood, which has off years, Wall Street has experienced four consecutive years of double-digit growth. The fact that four of the biggest financial firms blew away their earnings records begs the question of whether the laws of gravity still apply.
To a great extent, Wall Street's biggest banks are prospering because they've all expanded beyond their traditional businesses into the trading of complex financial products. Also, even though the market for initial public offerings has cooled in the USA, it's strong overseas, and Wall Street firms have competed aggressively around the world for new issues of stock and debt.
And yet, some observers doubt that the big firms can keep breaking one earnings record after another.
"There's a disconnect between the economy and the financial system," says Richard Bove, who tracks the financial services industry for Punk Ziegel. "Income has to be generated somewhere. The financial sector has taken on a life of its own not connected to what's going on in the economy and, ultimately, that has to be addressed."
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noshoesnoshirt
climber
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Sep 25, 2008 - 05:54pm PT
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OK, we're all gonna be taking it up the flue on behalf of the investment bankers.
I'm just gonna stop paying my mortgage; perhaps the Congress will convene a bipartisan committee to bail me out.
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philo
Trad climber
boulder, co.
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Sep 25, 2008 - 05:55pm PT
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“Capital must protect itself in every way... Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd”.
J.P. Morgan.
on the verge of creating the FEDERAL RESEVE.
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noshoesnoshirt
climber
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Sep 25, 2008 - 06:16pm PT
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So these investment banks were leveraged to the extent of something (on the extreme end) like 90:1 debt:assets.
The same guys now threatening us with another great depression if we don't shovel good money after bad are former major shareholders in these failed banks.
Talk about getting your cake and eating it too. And defecating the wretched remains on the american taxpayer.
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tooth
Mountain climber
B.C.
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Sep 25, 2008 - 06:17pm PT
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Who were the ones laughing at those of us posting these ideas from Ron Paul a YEAR ago?
America chose what they are getting. Don't say you didn't make the poor decisions of sub-prime mortgages, etc. You probably have one of them, and/or didn't vote for Ron Paul when he was predicting this while McCain was having a stroke and Obama was partying with JayZ.
Ron Paul sounds exactly the same now as he did 10 years ago, but only after you get charged 700 billion do you wake up. Or will you?
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Dick_Lugar
Trad climber
Indiana (the other Mideast)
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Sep 25, 2008 - 06:25pm PT
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This BAILOUT OR RESCUE PLAN OR WHATEVER THE PHUK YOU WANT TO CALL IT STINKS TO HIGH HEAVEN! I EMAILED TWO OF MY REPRESENTATIVE TODAY AND SAID "NO TO THE BAILOUT. LET NATURAL SELECTION SORT OUT THE WINNERS AND LOSERS".
I URGE YOU ALL TO DO THE SAME EVEN THOUGH IT APPEARS TO BE A DONE DEAL.
IF IT DOES GOES THROUGH, I SAY WE "EAT THE RICH" AND BE DONE WITH THEM!
I'M WRITING IN RON PAUL ON NOV. 4TH REGARDLESS IF IT MEANS THROWING MY VOTE AWAY!
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noshoesnoshirt
climber
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Sep 25, 2008 - 06:25pm PT
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From the draft bill: "Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
Sweet, no oversight for nearly a trillion dollars worth of our money.
In the interest of fairness, this clause was yanked by incredulous lawmakers.
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noshoesnoshirt
climber
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Sep 25, 2008 - 06:29pm PT
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I'm rolling my 401k into gold and ammo.
At least I have a big back yard with a garden.
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Raydog
Trad climber
Boulder Colorado
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Sep 25, 2008 - 06:30pm PT
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Wow.
(that's all I can say right now...)
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Binks
Social climber
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Topic Author's Reply - Sep 25, 2008 - 06:40pm PT
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I support Obama now, but Ron Paul was my choice for republican candidate. I donated to his campaign.
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noshoesnoshirt
climber
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Sep 25, 2008 - 06:45pm PT
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Yeah, Ron Paul is square and up front. That's why the heavies running the show behind the scenes will never let him or anyone of his ilk get close to the presidency.
Most Americans still buy into the dem/repub paradigm, and believe they have a choice when picking one over the other. McCain and Obama work for the same interests, and gee, it seems our economic/power structure has worked out just dandy.
(if you are worth more than a couple of billion or so)
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Binks
Social climber
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Topic Author's Reply - Sep 25, 2008 - 06:51pm PT
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This bailout should not happen. Let the big guys die.
http://money.cnn.com/2008/09/25/news/companies/banks_lending/index.htm?cnn=yes
The littlest guys are still lending
While the credit crisis has shaken Wall Street to its core, the thousands of community banks that make up the lion's share of the nation's banking system remain, to a large extent, quite secure.
"Our lending window continues to remain open," said Jonathan Fox, the chairman and CEO of The Fowler State Bank, a Colorado-based bank an hour's drive from Pueblo with about $56 million in assets.
Fox admitted that, since the credit crunch began, his bank has taken a harder look at the value of a piece of real estate involved in a loan as well as a customer's income.
But he said that his bank, which traces its roots back to 1899, can continue to lend freely because they didn't get caught up in the subprime mortgage market.
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Raydog
Trad climber
Boulder Colorado
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Sep 25, 2008 - 06:53pm PT
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RE:
"Most Americans still buy into the dem/repub paradigm, and believe they have a choice when picking one over the other."
couldn't agree more,
look how readily the American public suck up
political and consumerist marketing...
it's all around us.
Back to square one: think Dick Lugar has the right idea.
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johnboy
Trad climber
Can't get here from there
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Sep 25, 2008 - 07:30pm PT
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This bail out merely lubricates the screwing were getting. As long as were lubricated, the screwing will continue.
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Raydog
Trad climber
Boulder Colorado
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Sep 25, 2008 - 08:20pm PT
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We'll be fighting in the streets
With our children at our feet
And the morals when they worship will be gone
And the men who spurred us on
Sit in judgement of all wrong
They decide and the shotgun sings the song
I'll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray
We don't get fooled again
The change, it had to come
We knew it all along
We were liberated from the foe, that's all
And the world looks just the same
And history ain't changed
'Cause the banners, they'd all flown in the last war
I'll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray
We don't get fooled again
No, no!
I'll move myself and my family aside
If we happen to be left half alive
I'll get all my papers and smile at the sky
For I know that the hypnotized never lie
Do ya?
Yeaaaaaaaaaaaaaa!
There's nothing in the street
Looks any different to me
And the slogans are out-phased, by-the-bye
And the parting on the left
Is now parting on the right
And their beards have all grown longer overnight
I'll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray
We don't get fooled again
Don't get fooled again
No, no!
Yeaaaaaaaaaaaaaaaaaaaaaaaaah!
Meet the new boss
Same as the old boss
(lyrics by Pete Townsend...)
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tooth
Mountain climber
B.C.
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Sep 26, 2008 - 05:41am PT
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Bump - this should be realized.
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