Fed Amputates Invisible Hand
By Andrew Jeffery Sep 19, 2008 12:00 pm
Weak survive at expense of strong.
Our free-market economy enabled money, credit and resources to be sent to the economic players who needed it. Entrepreneurs could raise money to start new, innovative businesses; researchers could seek out cures for diseases that touch millions of lives, as well as those that afflict just thousands; firms that made enough bad decisions went bankrupt.
The job of regulators was to ensure the system functioned and to set up rules by which honest business could be conducted. It wasn't a perfect system, but it was better than the alternative.
This is the alternative.
When government invades free markets to the extent it has -- specifically in the last 24 hours -- the system ensuring capital gets where it needs to be breaks down. Money is instead doled out to the firms well connected enough in Washington to lobby for handouts.
Beltway bureaucrats have been trying to rewrite this country's economic rules and protect Wall Street from its own mistakes for over a year. Still, the free market prevailed, punishing the firms that made the most egregious bets during the housing boom: Countrywide, Bear Stearns, IndyMac, Merrill Lynch (MER), AIG (AIG), Lehman Brothers, National City (NCC), Washington Mutual (WM) and Wachovia (WB).
According to our once-free market, these firms needed to be wiped out, gobbled up and liquidated, so real economic growth could take hold from a stronger foundation.
This morning, we heard many claim the government's actions -- temporarily banning short selling, the creation of a Treasury Department distressed-asset hedge fund, the establishment of a federal backstop for money markets, to name but a few -- were necessary to prevent a wider financial and economic crisis. The shortsightedness of this argument is astounding.
A couple hundred years ago, Charles Darwin opined that nature has long been engaged in weeding out the weak, protecting the strong. This natural ebb and flow of dominance according to a given species' inherent characteristics has governed the world's socioeconomic landscape for more than 4 billion years.
The actions taken overnight seem to refute Darwin's claim that Mother Nature can manage her own backyard. Adam Smith's invisible hand is capitalist Darwinism, moving the weak aside so the strong can survive.
To take that power away from the market is tantamount to shoving God aside and rewriting the evolutionary playbook.
The effects of these actions, this fundamental ideological shift from capitalism towards socialism, represents a seismic shift in the history of this country. The events of the past week -- and what it says about our collective ability to take our lumps, drink our medicine and recognize that the path to the ultimate goal is one littered with hairpin turns and drop away cliffs -- will not be lost on future generations.
The events of the upcoming months and years, whether we're content to continue to hand over more and more power to the few, elected and non-elected alike, will show the true mettle of the American spirit.
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2008-09-19 12:07:08
Election Year
None of this would be happening if this wasn't an election year. The Republicans would bear the brunt of the blame if they did nothing.
2008-09-19 12:42:34
A sad day
I agree with you about what has happened.
this is rewarding and protecting those who made the mess and leaving them free to continue in their jobs.
Fools looking after idiots!
this is rewarding and protecting those who made the mess and leaving them free to continue in their jobs.
Fools looking after idiots!
2008-09-19 12:44:46
I Disagree
I think this would still be happening even if this weren't an election year. It just would not have happened as quickly.
The run up to this crisis didn't just "happen" over time because of laziness or stupidity or even greed. Regulations were removed or ignored. Easy money became even easier. You had to have been blind to not see this coming.
The 1930's Great Depression allowed for the greatest transfer of wealth from the middle class to the financial elite and well connected.
What exactly do you think is going on now?
The run up to this crisis didn't just "happen" over time because of laziness or stupidity or even greed. Regulations were removed or ignored. Easy money became even easier. You had to have been blind to not see this coming.
The 1930's Great Depression allowed for the greatest transfer of wealth from the middle class to the financial elite and well connected.
What exactly do you think is going on now?
2008-09-19 12:55:22
I hate to talk politics...
I hate to talk politics on Minyanville. That said... M. Taillon, this crisis indeed has nothing to do with the election cycle, but that was not the point. Today's hideous regulatory spasm, otoh, has everything to do with it. And it gets uglier; I have no taste for spastic regulation, but worse, I see two candidates for the Presidency competing to see who can do a more thorough job of entangling the markets, and the people, in the snares and toils of Big Government. Just give us an excuse, I hear them say - we'll tell you we're here from Washington DC to help you...
2008-09-19 12:59:27
I Disagree
Further to Michael's comments. This intervention/manipulation has been ongoing for more than a year. Prior to that, major players in the mortgage banking industry colluded with the federal government to ensure that the watch dogs were fed Ambien laced kibble.
These latest moves go beyond moral hazard to outright robbery. They are doing this because they believe, perhaps correctly, that the majority of the public is sufficiently ignorant and/or pliable so as not to come after them with pitchforks while they finalize the wealth transfer.
These latest moves go beyond moral hazard to outright robbery. They are doing this because they believe, perhaps correctly, that the majority of the public is sufficiently ignorant and/or pliable so as not to come after them with pitchforks while they finalize the wealth transfer.
2008-09-19 15:39:57
I hate to talk politics...
the question... is not principaled government, defined by a constitution that works by and for the people something we have strived for until when? Has the concept become unattainable or has an ideology blurred the framers vision. This took a few decades to manifest. The exchange of cornerstones for sawdust sausauge has been similar to the gingerbread man climbing on the wolfs head to cross the river. Who are the wolf? Are we really not capable of seeing? In a "business friendly enviroment everyone from the judiciary to regulators have looked the other way. At the end of the day, has it been for growth sake or just heavens sake?
2008-09-19 16:48:03
Exactly...
You are dead-ace on, my friend.
I wonder if they will sell NWO-labelled clothing items. Something like, "I Witnessed the Greatest Financial Con of All Time, and All I Got Was This Lousy T-shirt."
I wonder if they will sell NWO-labelled clothing items. Something like, "I Witnessed the Greatest Financial Con of All Time, and All I Got Was This Lousy T-shirt."
2008-09-20 12:30:49
AJ Great Article
The government not allowing the weak (and stupid) to die will have a profound effect on our freedoms going forth. You called this a SEISMIC shift and the true mettle of the American spirit will be tested. I agree. We as a nation have fought and defended freedom around the globe and now we are faced with the invisible enemy that wants to take away freedoms for the good of everybody (in a bipartisan way). This is not going to be a a happy ending.
2008-09-21 12:34:46
Foreign Banks Included in Bailout by Taxpayers
Got up this morning and read this and was FURIOUS:
"In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department's mortgage bailout, according to the fine print of an administration statement Saturday night.
Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."
A distinction without difference to the American people? Really?!? Have you asked?!?!!! I have a distinction for Mr. Paulson: What's the difference between a pitchfork and an AR-14 with a 30 round clip?
I can't believe it!?!? The bailout itself is indentured servitude to the government and Wall Street, but including foreign banks is insane.
It is all a violation of public trust, ethics, and individual rights going back to the Magna Carta that is firewood for revolution.
"In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department's mortgage bailout, according to the fine print of an administration statement Saturday night.
Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."
A distinction without difference to the American people? Really?!? Have you asked?!?!!! I have a distinction for Mr. Paulson: What's the difference between a pitchfork and an AR-14 with a 30 round clip?
I can't believe it!?!? The bailout itself is indentured servitude to the government and Wall Street, but including foreign banks is insane.
It is all a violation of public trust, ethics, and individual rights going back to the Magna Carta that is firewood for revolution.
2008-09-21 23:53:19
AJ Great Article
Jerry,
The greatest risk I see is that people continue to blame the free market for these problems. The further we push towards more government involvement in our lives, the further we get from actually solving the underlying problems.
Its really not Democrats vs. Republicans, both groups are guilty and just slight variations of the same, bumbling thing.
Thanks for the kind words -- and let's hope it won't turn out as ugly as its starting to seem.
Andrew
The greatest risk I see is that people continue to blame the free market for these problems. The further we push towards more government involvement in our lives, the further we get from actually solving the underlying problems.
Its really not Democrats vs. Republicans, both groups are guilty and just slight variations of the same, bumbling thing.
Thanks for the kind words -- and let's hope it won't turn out as ugly as its starting to seem.
Andrew
2008-09-22 00:40:32
AJ Great Article
Thanks Andrew,
A sad day, yes, let's hope it doesn't turn out ugly.
That is why ethics and limits and boundaries are som important; they keep things from becoming ugly by nipping them in the bud.
Instead, our government and industry stewards seem intent on slaughtering the Heifer to get a little beef for Sunday dinner. Ooops, no milk or butter or cheese for the rest of the year.
Too much of this kind of thinking. It can't be sustained.
Sad....
A sad day, yes, let's hope it doesn't turn out ugly.
That is why ethics and limits and boundaries are som important; they keep things from becoming ugly by nipping them in the bud.
Instead, our government and industry stewards seem intent on slaughtering the Heifer to get a little beef for Sunday dinner. Ooops, no milk or butter or cheese for the rest of the year.
Too much of this kind of thinking. It can't be sustained.
Sad....
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