Lessons of 1929

The New Jersey Star-Ledger has posted an editorial on 10/29/09, entitled Stock market crash anniversary: Lessons unlearned. They wrote:

"In the years that followed [1929], economists, politicians and Wall Street’s overpaid optimists assured one and all they’d learned from the orgy of greed and excess. It wouldn’t happen again. The Feds had saved the system and put new regulations in place to prevent a repeat. Trust us, they said. And in our ignorance, we did.

"Over time, the lessons of 1929 were made to seem irrelevant and outdated, especially in the go-go economic climate of the 1980s. Layer by layer, 1930s regulations were stripped away. Under pressure from Wall Street, free-market fundamentalists and their acolytes in the press, deregulation was promoted and accepted — by Democrats as well as Republicans — as vital in the emerging global economy.

"The 1929-2009 parallels don’t end there. Post-1929 Wall Street’s leaders fought regulation fiercely; likewise their current-day descendants. Whether it’s regulation of derivatives (the value of which few buyers or sellers understood), higher bank capital requirements, or protection for consumers, Wall Street’s current captains of capitalism are against it.

"Will they win Congress to their side? When have they not? There’s much talk of the need to tighten the reins on Wall Street, especially the trading of billlions [sic] in securities backed by such uncertain assets as mortgages and credit card debt. But legislation remains stalled.

"In this country, Paul Volker has sounded the "too-big" warning. And he’s called for reinstating Glass-Steagall. Volker’s the guy who broke the 1980-81 inflationary recession and set the stage for a generation-long economic expansion.

"Maybe we should listen. Beats laying another egg."

Here is my commentary:

Posted by zemack
October 29, 2009, 8:09PM

Substitute the words “Wall Street” with the name of any ethnic group, and the injustice and bigotry implied in the use of that scapegoat become obvious. Throw in the undefinablely vague bogeymen “greed and excess”, and you’ve got the classic one-two punch beloved of all statists. That’s all they need to whitewash the real causes of the litany of economic catastrophes listed by the Editors.

The Fed’s excess money and credit expansion and then contraction fueled the stock market bubble and crash of the late 1920s. The crash, however, did not cause the depression. The market began to recover almost immediately, just like after the much larger 1987 crash. But unlike 1987, the rally ensued until mid-1930 when the Smoot-Hawley tariff act, the first of a series of disastrous government attempts to “save” the economy, was enacted. As the farm economy subsequently contracted, bank after bank collapsed under the weight of anti-branching, anti-diversification rules and other incompetent banking regulations. The Fed-engineered 30% shrinking of the money supply, massive “public works” projects that further drained capital from the economy, massive tax hikes, etc., etc., etc, crushed the economy. The Hoover-Roosevelt Depression was on. The power-hungry, mad economic scientists of the FDR administration, building on the policy foundation of the statist Herbert Hoover, then embarked upon a crippling array of actions that stretched the depression right through the end of WW II. If ever there could be proof of the failure of government economic intervention, this period of American history is the poster child.

But as the Editors say, we haven’t learned much. The S&L fiasco was brought on by the grossly misnamed Federal Deposit “Insurance” Corporation, a socialist-like scheme that promotes risky bank lending while draining responsible banks, their depositors, and taxpayers who bail them out (the so-called privatization of profits and the socialization of losses).

The current crisis is unequivocally “made in Washington”. Deregulation? Who controls money, the raw material of the banking industry? Who sets reserve requirements, interest rates, accounting standards, and every other conceivable aspect of finance? Exactly what regulatory authority did the government rescind during the alleged “deregulation” wave of the past quarter century? Repeal of Glass-Steagall is the only thing the Editors can point to, and it was not even culpable in the meltdown. Regulation actually increased on the banks (remember Sarbanes-Oxley?).

“Captains of capitalism”? Where does anyone see capitalism? The financial sector is the most heavily regulated American industry, operating under the thumb of a central bank money monopoly. The fed, in fact, is once again the prime culprit. Led by a central planning statist masquerading as a “free market fundamentalist”, the Fed pursued extraordinarily easy money policies without which the basic cause of the recession, the housing bubble, couldn’t have happened. As always, excessive risk-taking is merely a consequence of incompetent Federal Reserve policy. Fannie & Freddie, the FDIC, the CRA, the government’s very own “Too big to fail” policies, and the Clinton/Bush affordable housing crusades, among other things, did the rest.

As to Paul Volcker, I disagree on reinstatement of Glass-Steagall. The diversification enabled by its repeal fosters stronger institutions. What should be repealed is the government’s bailout addiction, which encourages to big to fail “mastodons of the market [like] JP Morgan Chase and Goldman Sachs…” As to Volcker being “the guy who broke the 1980-81 inflationary recession and set the stage for a generation-long economic expansion”, the Editors conveniently forget that he caved in to election year pressure from the Carter administration in the spring of 1980, abruptly reversing course and setting the stage for an even worse “second dip” in the recession. As BanditGuy points out, it was President Reagan who gave Volcker political cover to return to some semblance of sound monetary policy, at great political cost to himself.

Some vague notions of “Wall Street” and “greed” are all the Star-Ledger editors have to hang their hats on. Everywhere one looks, one sees the hand of government intervention making a mockery of free markets. The real lessons of the past century are a history of catastrophic government policies creating economic havoc, with freedom and capitalism getting the blame, leading to more government controls, and so on. The current Washington assault on individual rights, the constitution, the rule of law, and the remnants of free markets is a continuation of the same disastrous trend, “on steroids”.

Gov. Mark Sanford on Atlas Shrugged

Here is a review of Anne Heller's Ayn Rand and the World She Made, by South Carolina Governor Mark Sanford. Entitled Atlas Hugged, Mr. Sanford's essay attempts to portray Atlas Shrugged positively but he exhibits quite a bit of ignorance in regards to the book and Ayn Rand's philosophy. He also challenges Rand in the area of ethics.

I have taken him to task on a few important points.

My commentary:

Rand’s belief in the “perfectibility” of man is based upon the rejection of the dominant moral code of history, and the discovery of the proper ethics consistent with man’s nature and the metaphysical facts of reality. Altruism enshrines the unearned, both in matter and in spirit, as a moral absolute. As long as self-sacrifice was held to be the ideal, man was destined to be seen as flawed and possessing original sin, because the code of self-sacrifice is inimical to life that must constantly be broken if one is to flourish. Rand did not believe men are infallible, but capable nonetheless of heroic accomplishments on any level of ability. She posited rational self-interest as the proper code to live by, thus freeing people to pursue a life of personal achievement, fulfillment, and happiness, within the context of mutual respect for each other and a peaceful and benevolent coexistence. What the past 10,000 years has proven is that mankind’s “flaw” was in his predatory moral code, not in his nature. This is an essential ethical message in Rand’s novels, which Mr. Sanford misses or ignores.

Galt's hidden valley is not “a perfect society”, but a private, voluntary association of people. It in no way means an advocacy of anarchy. Rand considered government to be a vital institution and a necessary good, without which brutality would reign, provided that it is constitutionally limited to the protection of individual rights.

Objectivism is primarily a philosophy of reason, and so naturally rejects faith (defined as the acceptance of ideas or beliefs without any evidence). But as a long time admirer and student of Ayn Rand - and as an Objectivist husband, father, and grandfather who lives by that philosophy – I can most emphatically say that in no way does Objectivism preclude grace, love or (voluntary) social compact. When people are free – and only when people are free – these values do not conflict with the individual’s pursuit of happiness, and are in fact a part of it.

These are just a few of the errors in this review. Though Mr. Sanford gets some things right, he does not seem very knowledgeable about Ayn Rand or Objectivism. I don’t know what this says about the books that he is reviewing here, since I have not read them myself. But I’d suggest that anyone interested in learning should read and study her novels and non-fiction works and judge for himself (which requires independent thinking, a cardinal virtue in the Objectivist ethical system).

Star-Ledger: Rein in Big Business

The NJ Star-Ledger's 10/20/09 editorial, Wall Street: Rein in Big Business, is mostly a rehash of the usual myths about the finacial crisi, with an interesting twist which I called them on. For a related article, click here

Comment by others:

"None of the investment scams could have occurred without the explicit lies made by Stand & Poors, Fitch and Moody's. The overvalued EVERYTHING for payola...lots of loot.

These ratings agencies have gotten off scotfree and still value investment instruments, perhaps honestly now, who knows? Both Bush and Obama have looked the other way, setting the stage for a repeat scam at every tranche level."

My response to this correspondent:

Posted by zemack
October 20, 2009, 5:03PM

Golumba;

The three rating agencies are a government-protected cartel, licensed by the SEC, and essentially protected from competition. In addition, many of their customers are delivered to them by government coercion, in the form of requirements that banks, insurance companies, money market funds, and other financial firms get ratings for their debt securities only from ... you guessed it ... SEC licensed rating companies.

Everywhere one looks, one sees the hand of government intervention behind the financial crisis.


My commentary to the Editorial:

Posted by zemack

October 20, 2009, 8:50PM
The Editors claim that:


“Washington has been steadily stripping the system of any real regulation for the last 25 years..."


Just two paragraphs later, they state that:


“The argument that more government involvement is a step toward socialism ludicrously ignores the fact that we’re already more than half way there…”


The Editors apparently think that nobody pays attention to what they say and that they can get away with so blatant a contradiction. The first statement is utterly false. Apart from some minor tinkering with certain rules, exactly what regulatory powers did government actually relinquish? Glass-Steagall was not a regulatory rule, but a bad law whose repeal had nothing to do with the meltdown, which was caused by the Fed-Fannie/Freddie-FDIC-CRA induced subprime mortgage and housing bubbles. Government regulation actually expanded over the past 25 years, as witness Sarbanes-Oxley, the massive 2002 expansion of government interference that punished the thousands of innocent companies that didn’t cook the books, in retaliation for the few that did (and which were prosecuted under previously existing laws). Accounting rules spawned by Sarbanes-Oxley (so-called “mark-to-market”) were another in a series of government culprits. The repeal of Glass-Steagall was a positive that helped several firms weather the crisis by allowing for diversification.


The second statement is all-too-true. But the Editors don’t draw the obvious conclusion. Instead, they clamor for more government control to rectify the damage caused by government itself. This is the pattern by which totalitarian socialism is being smuggled into a once-free America. This road is being paved by the alleged goal of “protecting” the “consumer”, a privileged class that somehow exists separate and apart from producers and being incapable of entering freely into voluntary contractual agreements with the sellers of financial products. And this “protection” is being financed by the “generosity” of another distinct group called “taxpayers”, who are being forced to fund the steady destruction of their own freedom.

No, Washington is not “Moscow in 1917” and Lenin has not “just pulled into Union Station”. But the direction in which this country is headed is no less ominous. The Washington attacks on the health insurers, major news networks, and “Wall Street” fit a familiar pattern. Every advancing dictatorship seeks to shield its power-grabbing designs by demonizing some group of private citizens as enemies of the state (a term not in use, yet). In Russia, the enemy was the bourgeoisie. In Germany it was the Jews. In America today, it is businessmen, whose legitimate lobbying efforts, a normal activity in a mixed economy, are termed “sabotage”.




What must be “reined in” is government power. We must stop rewarding the mounting failures of the regulatory state with still more regulatory powers. The “failure in the current crisis” of the Federal Reserve, the Federal Trade Commission, and the grossly misnamed Federal Deposit “Insurance” Corp. does not, as the Editors claim, “only strengthen the case for tougher regulation”. These failures argue instead for their abolition, and a systematic return to individual rights, limited rights-protecting republican government, and their corollary free market capitalism, before it is too late.

More on Obama's Nobel

President Obama on the Nobel Peace Prize fast-track

The NJ Star-Ledger joined the chorus of voices fumbling to find the words to justify the ridiculus awarding of the Nobel Peace Prize to President Barack Obama.

I've left the following comments on their editorial. For more, see my full post at Principled Perspectives:

“So the prize is a symbol, awarded in this case to someone who represents the hopes of that handful of idealists in Oslo.”

So say the Editors.

It’s comical listening to the chorus of voices fumbling for the words to justify this embarrassing decision by the politically and ideologically corrupt Norwegian Nobel Committee “Peace” cabal. Their gibberish about “an early vote of confidence intended to build global support for the policies of his young administration” and “the change in global mood wrought by Obama's calls for peace and cooperation” and “pledges to reduce the world stock of nuclear arms, ease U.S. conflicts with Muslim nations and strengthen its role in combating climate change” just doesn’t quite cut it, even for this sorry crowd.

As the Star-Ledger readily admits, Obama was awarded this Prize for absolutely no concrete reason whatsoever! Something just doesn’t add up. The committee’s real motivation may have something to do with the shadow of an American political giant whose absence on the list of winners looms over their credibility like a giant storm cloud.

What could be the reason for this rush job? There is a critical anniversary coming up on November 9th of this year. This is the clue that makes it all logical.

Though a mixed bag politically and philosophically, Ronald Reagan got
at least one big thing right. He recognized that the Soviet Communist
Empire was an economic and ideological house of cards propped up by
the West. Only a very small handful of others believed that, including
Ayn Rand and Richard Pipes. Against almost universal opposition,
Reagan acted. He removed the moral sanction of our détente and
“peaceful coexistence” strategies by declaring the Soviets an Evil
Empire. Opposition dissidents behind the Iron Curtain were electrified
into action.

Then, as Margaret Thatcher recounted in her Reagan funeral eulogy;

“So the President resisted Soviet expansion and pressed down on Soviet weakness at every point until the day came when communism began to collapse beneath the combined weight of these pressures and its own failures.”

With continued Western economic support and moral sanction, the Evil
Empire could have survived for another generation or more, possibly
with cataclysmic consequences for America and the world. Instead, the ever-present threat of nuclear war was removed, and a billion people were freed … virtually without firing a shot.

It is my belief that the premature awarding of the Prize to Obama is an attempt to blunt the coming renewed recognition of Reagan’s indisputable achievement with the arrival next month of the 20th anniversary of the crumbling of the Berlin Wall – the symbol of the collapse of totalitarian communism.

But whatever the reason, unless and until it is awarded (posthumously) to
Ronald Reagan (jointly, perhaps, with Margaret Thatcher and Pope John Paul II), the Nobel Peace Prize will remain a sham and a moral abomination.

I also gave a pat on the back to wdillon for his post.

Obama the "Moderate"?

After documenting numerous instances of the Left's supposed disenfranchisement with President Obama, the New Jersey Star-Ledger came to the following startling conclusion in its 10/7/09 editorial, entitled President Obama disappoints the left:

"Is this really the guy liberals voted for? Well, yes. The Democratic left idealized Obama as one of their own during the election campaign and made him the repository of the all liberal goals in limbo during the Bush and even Clinton years.

"But had they looked more closely at Obama’s record in the Illinois Senate — his litany of "present" votes on tough issues, for example — they’d have sensed that, down deep, Obama’s a fervent moderate."

I posted the following comments:

Obama a moderate? I’m tempted to exclaim: “You’ve got to be kidding!” Unfortunately, the Star-Ledger is not that far off of the mark, but only in the political sense. Ideologically, Obama is very far to the left of the “middle”. The fact that a major news outlet can seriously claim that a socialist can be an American moderate is simply an indication of just how far we have drifted toward statism in this country.

This column presented a good example of this on 9/23/09 in its support of Obama’s government takeover of the student loan market (Better Student Loans), a blatant federal power grab over higher education. The justification? The problems in the government’s very own subsidized student loan program. The editors presented Obama’s action to be the only alternative to the status quo, thus whitewashing the only real alternative to total government control – eliminating the student loan program and reestablishment of a free education credit market. Instead, the choice is between two variants of statism … government control through private banking proxies, or direct government control.

There is no debate about the morality or practicality of government-subsidized student lending, no examination of the role of government in creating the problems cited by the Star-Ledger, and no consideration for eliminating the problems caused by government by eliminating the government student loan program.

The same pattern is seen with regard to healthcare and the financial crises. In each case, massive government interference caused the problems, and increased government control is seen as the solution. The moderate “middle” has shifted so far to the Left that the political debate now revolves around how much socialism to accept now and how fast we get to full socialism. I submit in evidence the perverse political spectacle of the republicans now defending Medicare against democrat attempts to trim it (Steele’s "seniors' health care bill of rights"). Obama’s “moderation” serves his purposes well. He merely entertains all competing "alternatives", so long as they represent different paths to his central planning utopia.

Once you throw individual rights, limited rights-protecting constitutional republican government, and free market capitalism into the national debate … America’s founding ideals, the only actual alternative to statism … you expose Obama as the rabid far-Left statist that he really is.