Wednesday, February 3, 2010

Ayn Rand, Barack Obama and Vaseline

According to The New York Times “When a 1991 survey by the Library of Congress and the Book-of-the-Month Club asked what the most influential book in the respondent's life was, Rand's Atlas Shrugged was the second most popular choice, after the Bible.”

Is this a good thing? It is certainly a very American phenomenon. Americans have much more stomach for inequality than most other cultures, but this is compensated for by a very wide open, accessible playing field. The combination of which has made for a very successful economy and culture. Rand glorifies the individual and his will and commitment to truth as he sees it. There is no room for ‘group think’ and social well being because in her eyes all that does is water down the final product. The best thing a person can do for society is do something right.

Americans have a unique relationship to government. From the time of the Puritans, the Government has always been looked upon as a potential enemy. If there is one thing that has always set Americans apart, it is this strange relationship to their governance. There is a fear that it could reach a tipping point, and all the life blood of the country would be sucked into some Federal vortex that would take away our souls. Government should first and foremost create a fair playing field by protecting private property, free speech, and of course defending the nation from foreign enemies. All other Federal endeavors have been looked upon with suspicion.

Many saw this as a backward, primitive philosophy; unduly cruel. But the events of the last 18 months have changed many a mind. For example, when a person can’t pay their mortgage, a bank has the right to foreclose on the house. I don’t think anyone is particularly fond of this, but we accept the fact that those are the rules. You borrow the money, you get the house, you can’t pay for the house, the bank gets the house back.

Now as we wade through this financial crisis, almost 14% of all mortgages are in trouble, either late or in foreclosure, and the number is slated to rise. Many folks are in trouble because of lost jobs, some because of speculation, others maybe due to a combination of the two. We certainly don’t want millions of people on the street, but as a nation, we don’t want to take over their mortgage payments either; this is America, not Sweden. A securitized debt is just that, secured by an asset, if you can’t pay the debt, the debt issuer gets the asset. Many people believe we should help folks renegotiate the terms of their loans, etc, to keep those teetering on the edge in their homes. But, if you can’t possibly make the payments, best to hand over the keys and start over.

What happened in the fall of 2008 was something very similar. The largest banks in this country, publicly traded, made huge mistakes. The same mistakes that many people did getting into big mortgages; they assumed they could get in and get out while real estate prices kept rising. The only difference is that the banks are supposed to be run by professional risk managers. Nonetheless, the fancy degrees from Ivy League universities didn't help them avoid the same mistakes the average American made.

But the response has been different. The TARP program, worth well over $1 trillion, bailed out the banks to the tune of $10,000 per American family. Who owns the banks? The top 10% of families in the US own 85% of all stocks, the top 1% owns 50% of all stocks. So basically, banks are mostly owned by the very rich and the rich and they were the direct beneficiaries of TARP.

TARP was supposed to save the banks that were ‘to big to fail’ and inject enough capital back into them so they would to start lending again. They haven’t. They took the money and pumped into the equities market. The rise in the stock market is almost equal to the money spent in TARP. The Federal Reserve bought almost all the mortgages issued in 2009, about another $1 trillion, this to keep the unconscious housing market still breathing. Where has this money come from? Uncle Sam pulled it out of the air. The graph below describes the increase in money supply.


This is truly terrifying; the kind of thing people may look back one day and wonder how we allowed to occur. Why are we not in a Zimbabwe type inflationary scenario already? Only because the banks have not started lending yet. They are sitting on the money or investing it in long term treasuries that pay 4.5%, and borrowing short term at almost 0%, with leverage, they are making a killing and not taking any risk. But inflation will arrive, and with a vengeance.

The point being, the playing field is no longer anywhere near being fair, and most Americans sense this. They might not be completely aware of the details, but they know something is amiss. Some Americans either made mistakes or simply got walloped and now they are paying dearly. Wall Street was negligent and they walk away unscathed. I heard one Wall Street type blame the crisis on people who bought big houses and flat screen TV’s on credit, and just didn’t want to pay the bill. Funny, after his entity went belly up, he walked in to another million dollar job.

Let us not forget, Wall Street was negligent, they committed banking malpractice, yet they are not paying for it. Banking is carefully managing risk, and during the housing boom almost all American banks simply stopped thinking about risk. Ayn Rand, and market capitalists in general would say they should be punished, i.e., allowed to die, but they weren’t. First they were saved, and now they are fattening themselves up on our dime.

The play was more or less this one. The elites lost a fortune in the equities market, a hangover to the greed orgy of the housing bubble. How to get it back? Have Uncle Sam pump a trillion bucks into the banks, so they could lift the equities and commodities markets again, up over 60% in the last year. Now they will cash out, put the assets in to something safe from inflation, and good bye country.
 

Conspiracy theories are generally fodder for demagogues and uncritical thinking. However, it's very difficult not to imagine a certain conversation on the back of a very big yacht with a few gentlemen drinking very old Scotch.

“Boy, we really have to stick them with a big one this time, this makes the Gulf War, Vietnam, and the Gore/Bush thing seem like Q-Tips.”

“Yes, but this fellow Obama, I think he could lubricate the tightest and driest of spots.”

The President professes to be a Christian and he should be reminded of one of the fundamental tenents of our faith.

"No servant can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon."

Mr. Obama, you are either their President or our President, but for as much as you want, you can't be both.

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8 comments:

  1. tenets not tenants. otherwise,great article

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  2. Thanks for the heads up, I made the change, as our friend noted.

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  3. Yes, great article!

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  4. WOW, I wish I'd said that that way! And, I don't say that very often.

    Brilliant summary of this financial atrocity.

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  5. Heh...

    Obama is OUR president...

    Heh Heh Heh...

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  6. Nothing is what it seems

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  7. here in Germany, if you can't pay your mortgage payments and the bank takes your house, they sell it, and if the price is less than your credit, you still have this rest as credit! and no house! you can't just walk away and steel yourself out of your obligations: you were not forced to take that credit: it was your economical decision. If you do not let idiots pay for their mistakes, you do only one thing: fill up the earth with idiots...
    just see indirectly bailed out Go(l)dman Sachs:
    being (indirectly) bailed out they continued doing the same: not much of a change! maybe Obama can, but doesn't want or dare to...
    Nikolaus

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  8. I look at these commits and I'm surprised I would think after reading this people would be really piss off. This is horrible what they have done to the American people. This country is about to fall apart and American people will pay for it while these greedy people get away with financial murder. Something have to be done we can't just lay down like we are dead in the water.

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