Free-market Republicans melt down

This may be counter intuitive, but I think the majority of people owning securities in the form of 401k, mutual funds, IRAs etc. is not necessarily always a good thing. Too many people were unconcerned with bad business practices, lay-offs, and reckless activity on the part of corporations as long as their stock price was going up. As a result we have seen two bubbles pop in less than a decade. Even worse, the pursuit of higher profits, has lead to things like outsourcing, lay-offs and reliance on China. Things that are not in the long term interest of the American middle class. So while your portfolio may have risen, the costs for the future of America have been great.

>>>But what makes us [conservatives] so willing to disbelieve that concentrating so much unchecked power in the hands of financiers will lead us to paradise?

Perhaps y'all still buy into the idea that material wealth is a sign of God's blessing on that individual, so it stands to reason that the wealthy man must be especially virtuous and wise to have earned God's favor.

No I disagree emphatically, mutual funds, or indeed stock prices are not the problem, the moral hazard in owning these investments is born by the investor. The "bubbles" we have experienced were NOT in pursuit of healthly and licit profits, but in pursuit of irrational and illicit usura vorax not most perniciously in private form but in the form of municipal debts, see the 1944 Aquinas Lecture here: http://www.acu.edu.au/library/find/past_exams,_digital_theses__and__collections/aquinas_memorial_lectures (inaugural event, scroll down to inception of the dated list)
A certain pope, Benedict by name, XIV by number, decried the antidemocratic 4% bond floated by the City of Verona in a local Italian encyclical that 50 years later was applied to the whole Church: Vix Pervenit.

Consider this, we are not shocked that in extremis citizens may be conscripted to defend homeland security, but we would be shocked if we were to have our money conscripted in like fashion? Well, that's what happens when the national debt is sold to China or the United Arab Emirates... the taxes on the income you earn by creative and productive free agency is now the income they earn as interest on the capital your government conscripted to defend you and your families security. What's mutual about that investment risk? NOTHING - the lender is guaranteed a return even if it means your grandchildren are left to pay it...

Rod: "Here's what I don't get about conservatives. We are able to recognize the danger in Big Government; our understanding of the fallenness of human nature makes us rightly suspicious of the concentration of power in the hands of the state."

An interesting post, and something I'll have to chew on for a while before commenting. But I quibble with the quote above. I think the recent years of government under total Republican control dispels, or at least punches a HUGE dent, in the notion that conservatives "recognize the danger in Big Government."

Sure, there were some naysayers, but for the most part conservatives embraced--or at least condoned--bigger government (including a whole new cabinet position); reckless spending; foolish wartime tax cuts (a first in our Republic); and foolish foreign adventures all in the name of wiping out evil (see Bush's post-9/11 Cathedral address).

It's going to be a long, long time before any conservative can talk about the wickedness of big government with any sort of credibility.

I said what Brian said for years. I also said it in regards to privatizing Social Security, for instance. When everyone is invested, in some way, specifically in corporations and in the stock market, and see it as the one, and the ONLY source for their long term financial security.. then when the market goes down, and it does, EVERYONE is hit, and directly hit, in a way that people could only dream about in, say, the big crash of 29, or even that one in 87, or.. well, name another big crash.

But secondly, (and this may have very well been one of the reasons certain parties wanted it), everyone is personally invested in, pure and simple, the increasing profits of corporations, and it is hard to be objective, in that case, when it comes to the behavior, the means that corporations were using to be that profitable. Not only how immoral, or how unethical, but also how, basically, dishonest. Since, in the end, the profitability of stocks isn't really about how well a business is doing, but how well it is PERCEIVED a business is doing.

But sooner or later, reality strikes in a way even the best number shuffler can't disguise, and hits suddenly, and hits hard. In the form of a bankruptcy, or a buy out, and people are 'taken by surprise' and 'didn't see this coming'. And the taxpayers, and the average Joes are the ones, again, who take the hit, and who pay the bills, or whose jobs are downsized so they can't even pay THEIR bills, to solve the problem.

I think the recent years of government under total Republican control dispels, or at least punches a HUGE dent, in the notion that conservatives "recognize the danger in Big Government."

Sure, there were some naysayers, but for the most part conservatives embraced--or at least condoned--bigger government (including a whole new cabinet position); reckless spending; foolish wartime tax cuts (a first in our Republic); and foolish foreign adventures all in the name of wiping out evil (see Bush's post-9/11 Cathedral address).

Let's be fair and not use Republicans and "conservatives" interchangeably. The GOP in recent years is not "conservative" (and arguably has never been so) though it depends on conservatives for its base.

And lest my fondness for the Scholastics leaves me open to the accusation of anti-ecumenism, consider Murray Rothbard (a secular Jew) on the flowering of capitalism in medieval Italy: http://www.mises.org/rothbard/RothbardOnKauder3.pdf
and listen in to a podcast of the first five chapters of his "The Ethics of Liberty" here. He defends the market by means of natural law.

(Oh that we had Jurists who could defend the sanctity of life in the such robust fashion... but sadly our economy is victim to the same activist secularists as our courts, Kyrie eleison)

The whole housing mortgage business has been a creature of government. From tax exemptions, to the FHA, to Fannie Mae and Freddie Mac, to subsidies for first-time buyers, it's a creature of artifice.

What we have, once again, as with public transportation in New York City, is the socialization of losses. If there are big profits to be made, the fat cats lick their chops; if there are losses to be suffered, the gummint rides to the rescue.

It has been ever thus.

The GOP is not a conservative party in most senses, but the party of Big Capital, which is, as Marx knew, revolutionary. The Dems have become party of the new meritocracy (knowledge workers) and most minorities, but they too long ago made their peace with Big Capital. Each party buys off its less affluent supporters, albeit in different coin.

Lest I be Wright-boated for presenting this negative picture, I don't say "God damn America," but "God have mercy on America." (If Orthodox, repeat 40 times).

BrianF: Sorry but in the last 10 years is a market where 10,000 invested in an SP500 index fund in 1998 is still worth about 10,000. in euros that 10,000 has LOST value, see: https://admin.minyanville.com/assets/FCK_Aug2007/Image/eurospx.jpg by circa 20% - that's a destruction of real purchasing power, mostly under Chairman Greenspan.

As the young African American father, when asked about the price of a gallon of gas on PBS Nightly Business Report, succinctly retorted

"Heck when you have two kids to feed, you're more concerned about a gallon of milk costing $5"

Rod, you are being mean and judgmental towards conservatives. :-) Sorry, too much to pass up.

Wasn't it Frum in his last book who asked "Who made Republicans the party that must apologize for the excesses and corruption in every big business crisis?" Im sure I have badly misquoted but the idea is there.
There is a difference between believing in the market and giving those who run it free rein. I just always think of the big pendulum swinging. Too far to either side and things fall apart.

Claire;

Something strikes me as fundamentally incorrect in this term "Aristotelian precept behind free markets and just price." Could you elaborate?

Do you mean Aristotle was not about Free Markets? As I recall, in the Nichomachean Ethics, he was much more concerned with the relationships of the family, with the key virtue being phronesis - practical wisdom,the exercise of prudence, the ability to balance rules, the ability to apply the right rule to the right situation, and how the interrelatedness of family members. I can't see Aristotle as a proponent of Free Markets.

Adam Smith's concept of Free Markets was based more on the coolness of Stoicism than the Aristotelian concepts. [Although I would agree that if a little more of the Nichomachean ethic had been applied and a little less of Adam Smith's gospel of the self interest, we'd no doubt be in a better place right now on Wall Street.]

In terms of Justice, distributive and rectificatory here are a couple of good definitions.

"Distributive justice deals with the distribution of wealth or honors among a group of people and should be given according to merit. Rectificatory justice deals with exchanges between two or more people and should always aim at restoring a sense of balance and equality between the people concerned" I see these ideas also as incompatible with the idea of a Free Market.

Off the top of my head, Inflated CEO bonuses run contrary to distributive justice. And rectificatory justice speaks for itself.
I wonder if it would do much good for our country to add a little more phronetic Nicomachean theory into the US financial system?

What would a Nico-Smith write?

Pax

Spelling - It's Nicomachean.

Sheilagh, in what sense would creating a bank like the bank of Ireland be unacceptable? Afaik BOI is just an ordinary commercial bank and not even the largest in the country.

Leslie: Alan Greenspan cannot be truely considered "free marketeer' since he held the reins to our fiat currency - we need free banking for true free markets (see Ron Paul et al for the details of that political philosophy)

In Exodus the term "lend" (in Hebrew lavah לוה) is not synonymous with the Hebrew term na'sha נשה for "debt price." Loaning involved binding oneself in a social contract to another (etymologically derived from "cleaving" as in conjugal covenants) cf.blueletterbible.org/lang/lexicon/image.cfm?img=1CF19F9C6FFFD068705E61363DE017A42
and freely subjecting oneself to a share in the risk of gains or losses of a fungible asset that would be invested (and consumed) in the enterprise.

Usury has no such claim to common good "societas," for the risk of consumption of the fungible in the enterprise is NOT carried freely by both, but "exacted" http://cf.blueletterbible.org/lang/lexicon/image.cfm?img=059E65EBD08CDD0D5FA9CC90AAD7020C5
from one in imposition of bondage on the other's productive or creative agency.

A fiat currency is a form of usury, or more strongly theft, since the value of the specie used by the citizenry is not in their power to determine (by merit of their subjective yet free marginal utility enterprise, commerce and trade) but is imposed on them by the exacting of interest in exchange for paper currency by the municiple administration (whether monarch or democratically elected public servant).

Sheilagh: Aristotle approved of the concept of subjective utility, paving the way for marginal utility as a means of determining just price in the marketplace. The virtue ethics of Aquinas avails itself of the "subjective" to refer to the "personal" ie that an honest broker will not sin, since he will lose his livelihood. This virtue ethic functions best in subsidiarity mode, ie the risk of corruption of sin is best controlled (I am my brother's keeper) when the exchange is public and between equal partners, not when it becomes secret and unequal (ie when the government presumes to interfere in the proper business of lower levels of competency)

Funny how Gentili's ‘silete theology in munere alieno!’ has been abandoned by the powers that be... they don't like having the tables turned...

As the young African American father, when asked about the price of a gallon of gas on PBS Nightly Business Report, succinctly retorted

"Heck when you have two kids to feed, you're more concerned about a gallon of milk costing $5"

Unfortunately, the price of that gallon of gas is directly related to the price of that gallon of milk. And everything else. If there is one product out there whose price directly affects the price of every other good and service out there, it is oil.

"What I don't get is how come the Wall Street gang gets to take home multimillion-dollar bonuses based on short-term profits made with reckless, risky investments ... but when those investments go bad, the US taxpayer has to bail them out."

1. You realize that a lot of those short-term profits are paid out in the form of stock options, which become worthless if the stock price happens to tank. A call option with a $70 dollar strike price is worth essentially zero, when JP Morgan buys you up for $2 (or $10). Many of Bear's employees lost pretty large amounts (both in absolute terms and as a percentage of their net worth). For example, former Bear Stearns chairman James Cayne lost some $978 million out of $993 million (those figures predate JPM's second offer at ~$10, so Cayne's holdings must have appreciated somewhat, but his losses are still huge). Now, I am not shedding any tears for him, or for anyone else at Bear Stearns, but the idea that they are somehow insulated from the effects of their own reckless behavior is not entirely true. This isn't a bad thing of course, its whats supposed to happen if the company you run goes under.

2. Bear wasn't insolvent before its counter parties started withdrawing funds and drained the company's $18 Billion cushion in the week before its collapse. If Bear Stearns where a bank rather than a broker, that would have been an old fashioned bank run.

3. It may not be pretty, but Bear couldnt be allowed to fail. It was a party to $10 trillion in trades, and had Bear failed... well I cant even imagine that. But the chaos that would have ensued would have been an order of magnitude greater than anything since the great depression. The Fed's exposure is only $29 billion (JP Morgan put up $1 billion for a total of 30, and under the terms of the agreement JPM would incur the first $1 billion in losses, with anything thereafter borne by the Fed).
Even if 100% of that money where lost, thats $96.67 per American citizen, 0.2% of US GDP or 1.2% of the Federal Budget. Can anyone honestly argue that the deeper recession that would have followed had Bear defaulted would have been less costly than that? Further, all of the $29 billion wont be lost since the Fed has a 10 yr. window for the assets to appreciate: the assets that Bear pledged against the Fed's guarantee aren't worthless, they are just completely illiquid in current conditions. But sometime in the future liquidity will return to the credit markets, and the Fed will be able to recoup some money out of those securities (of course, it will be less than the nominal value of $29 billion).

That said, banks seem to have grown too large for their own good, and some additional regulation is definitely necessary, and not just for the banks. The entire real estate industry needs to have its regulations reviewed, along with a healthy dose of fraud prosecutions.

And these are the nation's largest banks.

Large Banks Office
250 E Street, SW
Washington, DC 20219-0001
(202) 874-4890

Responsible for the largest national banks including Bank of America Corporation, Banknorth Group, Inc., Barclays Global Investors, Charter One Financial Inc., Citigroup, Inc., First Horizon National Corporation, Harris Bank, Hibernia Corporation, HSBC Group, Huntington Bancshares, Inc., J.P. Morgan Chase & Company, KeyCorp, LaSalle Bank Corporation, MBNA Corporation, Mellon Financial Corporation, National City Corporation, National Commerce Financial Corporation, The PNC Financial Services Group, Inc., Treasury Bank, U.S. Bancorp, Union Planters Corporation, UnionBanCal Corporation, Wachovia Corporation, Wells Fargo & Company, and Zions Bancorporation.

Large Banks Office
250 E Street, SW
Washington, DC 20219-0001
(202) 874-4890

>>>
You'd asked how many politicans in the past 25 years could have been elected to office by preaching thrift, self-discipline and self-sacrifice. Well, Ron Paul comes very close. Which makes me think I just might want to move to his district because the people there must have some sense.
Posted by: Tad | March 27, 2008 6:12 PM
>>>

His constituents have plenty of sense - they keep re-electing him because he makes sure they get every last bit of government money that they are entitled to under the government programs he rails and votes against.

As he should, since that is his job.

And to guage how much debt the "gambler's of last resort" might dump on our doorsteps consider the wagers the banks have placed to avoid getting an education in commerce and trade (those ballooning bubbles are their increases in one fiscal year, my friends):

http://www.nytimes.com/imagepages/2008/03/23/business/23HOW_BALLOON.html

A third of BSC stock was owned by employees.

Currently the company is worth less than their former boss's last pay check...

"What I don't get is how come the Wall Street gang gets to take home multimillion-dollar bonuses based on short-term profits made with reckless, risky investments ... but when those investments go bad, the US taxpayer has to bail them out."
These are the corporate guys that wholly own the Republican party and are well on their way to buying out the Democrats.
We're bailing out the Iraq War Contractors, one formerly headed by Dick Cheney by staying in Iraq. Let's face it: If we stay fifty more years they're gonna have a civil war. Dick Cheney's company at one point in the Iraq orgy (more than a year ago) was only giving us 50cents back on every Federal Dollar spent and they're still contracting now. If that's not a pork bail-out, well call me James Dobson.
Donny (aka Republican lightfoot) Rumsfeld's only coporate accomplishment was Nutrasweet outside of government.
Condi Rice was an exec for Exon Mobile in the Middle East.
Bush had several flopping oil ventures of which he was the CEO funded by the bin Laden family so his dad wouldn't lose out on a gravy train.
The Wall Street Gang became it's own police force. Why do you think that Bush really believes polluters can regulate themselves?
What's sad is that the same people that are completely fixated on Wright are the ones that fell for all this. They're brainwashed with suburban 401K consumer culture and Hollywood Republican blood lust. And to boot, they're a powerful voting block that eats whatever Rush, FOX news, Pat Robertson, John Hagee, and other knee-jerk media feed 'em.

How many politicians of either party could have hoped to have been elected to national office over the past quarter century by preaching thrift, self-discipline and self-sacrifice?

Rush, FOX news, Pat Robertson, John Hagee, and other knee-jerk media try and make sure they can get another one of their own in.
Jerry Falwell helped bring down our first openly born-again president, Jimmy Carter. James Dobson and the new neo-Puritans will do their best. How else is Pat Robertson gonna do business with brutal dictators like Charles Taylor and wish death on Israeli moderates?

Jerry Falwell helped bring down our first openly born-again president, Jimmy Carter.

Well, that's at least one good dead Revvum Falwell performed in his life, bless his heart.

Rod,
I think your Catholic priest friend has it wrong. I don't even think most pornographers would cover up molestations to save their institution.

An excellent discussion, to the details of which I have little to add, so I'll break with personal tradition and offer a short post. ;-)

"Power corrupts, and absolute power corrupts absolutely."

I believe we (humans) have learned that this is inadequate, and should be supplemented by something a bit more subtle, but of greater consequence.

"Power attracts the corruptable."

I encountered this concept in Frank Herbert's "Chapterhouse Dune":

All governments suffer a recurring problem: Power attracts pathological personalities. It is not that power corrupts but that it is magnetic to the corruptable. Such people have a tendency to become drunk on violence, a condition to which they are quickly addicted.

Our substance addiction is money, not violence, though one can easily lead to the other.

I would like to go even further than Obama, by calling for a moratorium on the use of the term "The Economy." The economy is an amalgam of the decisions of human beings. If we insist on treating it as a singular noun, let's at least go back to our biblical roots and call it Moloch.

V, I'm as unhappy with Bush as you could possibly ask, but your metaphor ignores (by implication) the fact that it was the foxes who designed and built the chicken houses. In my first career, I spoke with some of them. :-( This is not something to blame Bush for without seeing his place at the end of a long line of foxes from both parties.

I think we all know what the real problem here is, the thing that the Republicans are avoiding saying:

The Democrats lost in 2004.

See, Kerry was supposed to win. He was supposed to be blamed for the mortgage disaster, he was supposed to be blamed for the forthcoming economic meltdown. He, of course, would be at fault, because he would have triggered it in 2005 or 2006, as soon as he figured out what was going on, because the sooner the insanity ended, the better for everyone.

And Katrina would have happened as Kerry was attempting to rebuild FEMA and the entire Federal government after Bush, and been handled somewhat poorly and Kerry would have gotten all the blame for it.

Also, Kerry was supposed to be blamed for the growing civil war in Iraq, and be blamed for 'losing' it when he cut our loses in 2006 or so as it became immensely unpopular.

The warrantless wiretaps should have never been uncovered until long after they ended.

Come on. Tell me I'm wrong. Tell me that isn't exactly what would have happened under a Democrat president. Or under a Democrat Congress, for that matter.

It's happened time and time and time again. Reckless spending, reckless economic control, reckless deregulation, reckless wars, all under Republicans, and the Democrats step in and get blamed for the whole mess.

But this time God smiled on the Democrats and caused them to lose in 2004. Thus exposing the actual problem.

Economic Security. That's is what we've bought, and we now have neither economic liberty nor economic security. Franklin warned against it, but people were so scared during the Depression that they elected a quasi-tyrant who passed all manner of economic security programs. Social Security, Medicare, and the myriad regulatory agencies all serve one purpose: to buy security. The Federal Reserve has a similiar origin, to prevent crises in the banking sector.

People are genuinely scared of freedom in all forms, and when you start talking about a truly free market people get panicky. I think it is similar to peoples' fear of flying: we don't like the idea that no one is in control, that we can be at the mercy of unknown forces. But unlike a plane, no one can pilot the economy. Even the Federal Reserve has no idea what is happening and they have said so in speeches. The best information they have comes months after things have happened, and even with that info they cannot predict the future.

There are many Americans who really believe that if Social Security was abolished (for youunger workers, obviously older folks do rely on it), most people wouldn't save for retirement. That if Medicare was abolished or people bought their own health insurance, instead of through their employer, that people wouldn't have healthcare. That if the government didn't pay for schools, no one would be educated. That if the Federal Reserve didn't exist, our financial markets would fail. Well, our retirement system is failing. Millions of Americans don't have healthcare, costs are skyrocketing, and the program delivering healthcare for retirees is failing. A large minority of children in America aren't educated. And our financial markets just failed. There is no difference between the inner city school that has a 10% literacy rate and what happened to Bear Stearns. The cause is one and the same.

Other Jim, I believe I see your point, though some of your hyperbole is, well, um, ahem... but I submit that you are not looking at the right parts of the picture.

No boasting intended, but there is no one outside the bureaucracy that understands Social Security better than I do. There are some things to consider:

1) It was never intended to be a 100% replacement for a person's employment income. Prior to pension reform (ERISA 1974), it made the support burden on the previous generation bearable. After that, it became integrated in retirement planning and helped illustrate flaws. 401(k) and IRAs are two prominent results of that. I was there. I participated in the private discussions during the period prior to their creation, and had a ringside seat for the effects their creation had on retirement cost of living gaps.

2) Retirement planning is not based on raw numbers. It is based on a rational and reasonable analysis of the living expenses after retirement. Our retirement system is not failing; it is "failing" to meet the irrational and unreasonable expectations of a culture that cannot see beyond the more-money and more-things mentality.

Private pensions and Social Security are Very Good Ideas. Don't throw them out with the bathwater because of the squalling infants who mismanage them.