• Government vs. American Capitalism

For a generation, now, we have been accommodated with a front row seat to a rigorous and seemingly intractable advance of government into the whole of America’s social fabric, and into the institutions of its capitalist system. Today we are confronted with a wave of negative wind pushing against the capitalism that has brought America its unprecedented success, as it absorbs the blame for the economic meltdown.

I am not equating capitalism with free markets here as is too often done, because that would imply an inclusion of international communities into a common basket, and there has to be balance and common sense in the application of “free trade,” between participants as we have discussed in previous articles.

Recessions inevitably deliver capitalism a bad rap. Making matters worse, there are usually groups or individuals who have taken advantage of power and influence, or who hustle the provenance of panicked confusion into magnified opportunities for fortune creation. All the while, wide swaths of society are struggling to meet basic needs. Visible abuse of the system that leads to wealth concentration provides thresholds over which those so inclined will leap to promote expansion of government and its insinuation into the corporate fiber of the Nation. Such intrusions usually come from those with little grasp of the elements at the heart of economic growth, human nature, creativity and the human spirit. On the other hand, extravagant, unrestrained, and unconscious excess fosters jealousy, and reaction. It can also propel overreaction, which in turn empowers those in government who seek increases in government intervention at all levels of commerce.

Such exercises in reactive belligerence pretending concern for the public “good,” are actually acts of self-interest intoxicated by ideology, or worse, driven by overwhelming ego. The reactive process ignores long term consequences of hysterically applied policies, and absolutely cannot effectively evaluate the secondary or tertiary repercussions.

We lament the often-declared unintended consequences of unctuously presented self-righteous actions such as the promotion of dubiously structured mortgages. It is reasonable to expect a chicken in every pot. It was, however, unreasonable to have politicized the American dream of home ownership into a structural expectation and promoted it as a fundamental right. Somehow, the “home” became the vessel that would bring forth the promise of collective prosperity. Both of the dominant American political assertions, Republican and Democrat, signed onto the program. Both sides of the political isle bent all rules of common sense to exert pressure in effort to curry favor with the electorate, and corporate benefactors, while satisfying expectations of lobbyists.

The department of Housing and Urban Development from the early ‘90s on, pushed minority applicant quotas on mortgage bankers, and set targets for the purchase of less than median mortgages by Fanny Mae and Freddie Mac (FM & FM). With the taxpayer on the hook for trillions in questionable debt, banks and bank executives were dancing in risk-free ballrooms up to the rafter in money. As the trillions accumulated, FM & FM, with the applause of Wall Street financial institutions such as Morgan and Goldman, “creatively-accounted” for the real value of the toxic assets that taxpayers would one day be required to cover. Oversight? Sure there was oversight – oversight that appropriate kickbacks made their way to all of the proper pockets. The Clinton Administration and Congress pushed banks to adhere to the Community Reinvestment Act (CRA) in order to be allowed to diversify. Again, where was the risk? Thank you FM & FM. No, make that, thank you taxpayers. Then along came George Bush with the American Dream Downpayment Initiative (ADDI) signed into law in December 2003 to increase home ownership rates with funds to be provided to first time buyers for down payments and closing costs.

Making matters more fragile, in came galloping the Morgan and Goldman types, smarter and more ruthless than the deplorable dunces at AIG who were easily perverted into insuring Collateralized Debt Obligations, and seducing banks to over-leverage, using complex instruments the bankers didn’t understand. The financial community availed itself self-servingly of the opportunity created by the government’s intervention. Morgan, Goldman and other investment banks made billions selling tainted goods to banks and to foreign governments. Lack of awareness and understanding by the general community encouraged a galvanization of international endorsements for what were worthless toxic assets from the outset. The long-term consequences of this extensive and forceful government intervention will have unintentionally synthesized some extremely substantive burdens on our grandchildren.

What old and repeated lesson has once more been reinforced from this generation-long exercise?

Government is using taxpayers’ money to build powerful infrastructures that will in effect work against them, and encroach on their freedoms. Uncontrolled government intervention and cronyism are destructive potencies that destroy the fundamental bulwarks of the capitalist system, and Washington has been practicing the schemes for too long. In so doing it has eroded the openness and efficiency of America‘s economic broad-wealth creating environment. I say broad because any government reinforcement of excessive concentration of wealth and power is not conducive to the long-term health of the broader society.

Entrepreneurial energies bloom most abundantly in small clusters. The more the better, but each succeeds best without encumbrance of committees, or group designed strategies. Government on the other hand is by its nature a giant mushrooming amoeba, incapable of creativity, requiring endless approvals, with all departments and agencies in a continuous phase of expansion, justified by egos requiring satisfaction and aggrandizing the turf. Government bureaucracy instills dependence upon itself whenever and wherever possible. History shouts that dependence on government becomes dangerously habitual, and leads to loss of liberty. That goes for individuals, as well as for businesses.

Stifling true entrepreneurial spirit will destroy that critical energy at the foundation of the American economy. It is this fundamentally critical energy that strives to anticipate needs or wants of the broader society, then creatively delivers solutions, and augments output. It strives to become educated in order to better understand whatever might advance its ascent along the risky path to success, and endeavors to minimize its assumptions. Above all it applies as much common sense as it can muster to minimize the chances of failure, and improve the odds of producing something greater than what began. As this energy succeeds, many prosper and benefit. Entrepreneurial independence operating within the boundaries of the Nation’s laws has for two centuries differentiated America from every other country on Earth.

It is understandable that not everyone can be an entrepreneur in the strictest sense, however, each can be entrepreneurial in personal practice and mindset, and each one of us can be thoughtful. At the very least, we can all void jealousies that might restrain that spirit in others, or attempt to obstruct their right to exercise positive natural tendencies and capacities. So doing might quell the demagoguery that is inflating the ascent against the private sector, productivity, and the creation of wealth.

We should not accept deceitful rationalizations artfully packaged through demagoguery and homiletics, or allow them to deliver prepackaged thinking on our behalf. We are presented with economic realities which demand reason, and summon our uncompromised reasoning. The economic challenges presented should apprehend the participation of the whole of population. Such participation is occasion for self-education at a very singular level to understand, as much as is possible, all of the causes that led to the events now chastising the country. The comprehension will guide the electorate toward a more judicious discernment, as it navigates through the political passage ahead. Assuming that others “on The Hill,” will have the answers, would be a gross abdication of rights and capabilities.

Capitalism provides the platform for the individual to push the boundaries of creativity and productivity in the creation of wealth. Government’s role is to protect the environment, through laws, and judicious oversight, within which capitalism is allowed to strive. Broad participation is required, without ambiguity, if there is to be sensible pushback on the advancing and infringing hoards from “The Hill.”

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• A.I.G. – A National Embarrassment

America expected, or hoped for, a new administration that would set new standards in leadership, ethics, and diligence over the government of the country. Instead there is growing unease as the nation increasingly realizes that the lack of competence demonstrated by its new leadership regrettably appears to be simply more of the same.

As Obama jumps on the public’s reaction-to-A.I.G.-bonus-bandwagon with requisite teleprompter escorted acrimony, the reality of his administration’s failure to effectively manage taxpayer money is surfacing. What happened to promises of controls over executive pay for bailout recipients? Before signing the checks, shouldn’t agreements have been struck regarding the “use of funds?” This is basic sound business practice, so where is the common sense in the continuing delivery of money with no strings?

Even if, as A.I.G.’s chief executive Edward Liddy suggests, the company has no choice but to honor the bonus commitments made to its employees, it was the Administration’s responsibility to establish parameters for the application of the money. The problem here is not so much that a minor percentage is going to “bonus” money, but that the administration had no idea where the big money is really heading. This, after A.I.G. had already embarrassed its benefactors with a California resort conference, and an English country manor partridge hunt, following the initial protection from bankruptcy with US$85-billion in taxpayer money. Have we forgotten that Geithner was the brilliance behind that original A.I.G. bailout? Is this not evidence of his inability to conduct basic and sound business methodology?

If Geithner was aware that A.I.G. planned to pay bonuses ahead of time, which is apparently the case, why is Obama now seemingly indignant? Is this parade presenting an opportunity that looks too tantalizing to ignore? Perhaps Geithner should now remain well clear of buses.

Barney Frank, the Chairman of the House Financial Services Committee also jumped on the hysteria fuelled opportunity with, “These bonuses are going to people who screwed this thing up enormously, who made terrible decisions." Really? How does he know who they are? Liddy seems to have confidence in them, and he’s only being paid $1 per year to clean up the A.I.G. mess. It seems that Barney Frank’s failure in the whole A.I.G. disintegration is escaping both himself and the MSM.

There are many questions swirling around the A.I.G. fiasco that should be answered if any change is going to be brought to the banking community, including:

- Should Frank’s responsibility in the creation of this mess not be analyzed with more objectivity, and much more scrutiny?

- Is anyone asking how it was that Maurice R. "Hank" Greenberg, former A.I.G. Chairman and CEO, was able to transfer $2.2 billion worth of A.I.G. stock to his wife less than four years ago while this disaster was being cooked? What employee is worth that much over and above the millions he received in cash? Are any CEOs worth these tens or hundreds of millions?

- Where was Congressional oversight through the past fifteen years of abuse by the company’s executives? Should it not assign a special prosecutor? Shouldn't former employees like Joe Cassano and his dangerous actions be grilled and dissected so that the country can receive a better understanding of the process that produced the mess? Should there not be investigation into the hundreds of millions of dollars that Cassano and his colleagues took each year, draining the coffers that American taxpayers are now being forced to refill?

- Was the A.I.G. Board of Directors actually awake and functioning, and should it now be charged with fraud? Shouldn't all public company Boards of Directors not be restructured and made more accountable?

- Eliot Spitzer was on the hunt, prior to being felled, probing into questionable reinsurance transactions and improper accounting practices of the giant insurer. Spitzer filed a civil suit against the company and its top two executives charging fraud and misrepresentation of reserves, but eventually all investigations and charges were called off. Who really made the rain stop and why? Does Congress care? It didn’t appear to at the time the sheriff was called off the trail. Shouldn't the investigation be re-launched?

- Hank Greenberg and his lieutenants also settled a shareholder suit charging that he and three other executives used a brokerage named C.V.Starr which was under their control, and through which they siphoned commissions and fees from A.I.G., the very company they managed. Why is Congress not calling for an investigation? Taxpayers are heading for complete ownership of this company, they deserve answers?

- Last summer, A.I.G. CEO Martin J. Sullivan received a severance package valued at $47 million when he resigned following $20 billion in write downs. Why is no-one asking for that money back? Why did Congress not cry wolf?

- Is the credit default swap game played by A.I.G. too complicated for any investigation to unravel the decision making line of command? It shouldn’t be. The collateral and guarantees were provided to recipients that are on its books and all transactions can be, or should be, verified. The risks were taken, perhaps with abandon, but still someone made those decisions. Someone, actually many, should be brought to the fore and become accountable for the decisions. The A.I.G. Board and its senior staff at the time should be placed in the sights of a special prosecutor.

- Why is there no investigation of the supposedly venerable J.P. Morgan and its role in launching the A.I.G. explosion into writing insurance on packages of Collateralized Debt Obligations? It seduced A.I.G., a U.S. government backed fish, into the game, by conning its enthralled employees to bite on a risky business concept Morgan and other investment bankers like Goldman Sachs could sell to funds and banks around the world. Citigroup Inc. did Iceland taxpayers a particular favor when it suckered that country into bankruptcy by convincing it to purchase more than its share of these worthless derivatives.

A.I.G. has been used as a personal piggy bank by a long list of senior people, inside and outside the business, and yet here America sits, suffering from the denouement of this abused tragedy of a company. Worse, the taxpayer is having to incur massive debt for the failures of senior executives who are not being punished for crimes that obviously had to have been committed. This company’s central role in the financial meltdown that is affecting the whole world deserves more scrutiny than it is getting from either Congress or the White House. America and its taxpayers deserve better.

Obama’s constant blame of the Bush White House for having created the mess is becoming a tired refrain, and is a misdirection of the real responsibility. The implosion of the financial community was caused by actions stimulated by bi-partisan incompetence. Congress and the Obama Administration appear able to rapidly impose tremendous burdens on current and future taxpayers, but are completely incapable of bringing forth any plan that will clean up the mess, or taking any actions that will reduce the likelihood that such a financial disaster will reoccur. Such is the price of having people in charge who are simply out of their depth while confronting one of the greatest challenges to have faced the country for the past fifty plus years.

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