Tuesday, March 16, 2010
The Prolegomena
I will preface all of the below with the declaration that I believe that capitalism is the best economic system man has devised. I think this for the simple reason that I believe that capitalism reflects the best (and by that I mean the most efficient, and provides the potential for the most fair) way to allocate scarce resources. I think history bears this out quite strikingly when you compare countries that were "divided" -- like North and South Korea and East and West Germany. I could be wrong, but that's what I think. Therefore, for me, capitalism is not prescriptive, it is descriptive, and, to some extent, apolitical. It is no more an ideology than the law of gravity.
That said, the Unitest States of America can no longer claim to be a captalist country, or at least as it comes to several of the largest portions of our economy. The auto industry would not exist in this country without government assistance. More accurately, "domestic" car companies wouldn't exist, because some foreign cars are made in the South (well, maybe Ford would still be around, whatever). And, the entire edifice of Wall St. would not exist as it currently does. If AIG had been left to fail, ALL the major investment banks would have gone out of business, along with many of the largest commercial banks. I'm OK with not letting that happen, because it would have meant Great Depression 2.0, but we should never ever forget that all of Wall Street would be closed, bankrupt, out of business if Uncle Sam had not intervened.
The financial-political complex in this country is rotten, and, even worse, it doesn't even live by its own credo -- make money at all costs.* The titans of wall street, the masters of the universe, are bad businessmen. They are bad businessmen because they drove their businesses into the ground. They lost money, lots and lots of money. Unimaginable amounts of money. How they lost the money is unimportant (well, it is very important, but not for the purposes of this little blog post).
If a little kid with a lemonade stand made a nickel, he made more money than AIG last year. Congrats kid, you're a better businessmen than all the quants, all the traders, all the guys "on the street" who made millions of dollars. (For doing what? Why?)
So, to all those guys who like to eat their steaks red, pay really low taxes, and smoke big cigars -- guess what, you're just another ward of the state, a welfare recipient.
How did it happen? Because the game was rigged. It was heads I win, tails you bail me out. They wrote the rules, but then they broke them anyway, all in the name of "the free market". There is no free market. In the free market, these guys would be out of business. I say it again because it's worth repeating. Ask the guys from Bear Stearns and Lehman Brothers what happens when Uncle Sam decides not to bail you out.
If you own a grocery store, and the cash coming in isn't enough to pay your debts as they come due, you will go out of business. The bank will tell you to close, liquidate, and tough luck kid. There is no "bridge loan", which is just a euphemism for saying that you're broke and you need money to pay your bills. However, if you are "too big too fail" you can never lose. And if you can never lose, you will take big risks. And when the shit hits the fan, the country gets the bill.
This is no longer a capitalist country. It's reverse socialism -- take from the poor, give to the rich.
And in a few years, we will have forgotten how close we came to complete destitution. After the Great Depression, we got the New Deal, we got the SEC, we got the administrative state and loads of new regulations. After this, we will get toothless regulation (if we're lucky), nothing will change, and the "free market" will just hum along until the next calamity.
[*You know what, this is wrong. They did make money ... for themselves. That was their real credo, money for me at all costs. To hell with the real economy, to hell with my clients, to hell with my own firm, fuck the taxpayer, just give me money.]
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That said, the Unitest States of America can no longer claim to be a captalist country, or at least as it comes to several of the largest portions of our economy. The auto industry would not exist in this country without government assistance. More accurately, "domestic" car companies wouldn't exist, because some foreign cars are made in the South (well, maybe Ford would still be around, whatever). And, the entire edifice of Wall St. would not exist as it currently does. If AIG had been left to fail, ALL the major investment banks would have gone out of business, along with many of the largest commercial banks. I'm OK with not letting that happen, because it would have meant Great Depression 2.0, but we should never ever forget that all of Wall Street would be closed, bankrupt, out of business if Uncle Sam had not intervened.
The financial-political complex in this country is rotten, and, even worse, it doesn't even live by its own credo -- make money at all costs.* The titans of wall street, the masters of the universe, are bad businessmen. They are bad businessmen because they drove their businesses into the ground. They lost money, lots and lots of money. Unimaginable amounts of money. How they lost the money is unimportant (well, it is very important, but not for the purposes of this little blog post).
If a little kid with a lemonade stand made a nickel, he made more money than AIG last year. Congrats kid, you're a better businessmen than all the quants, all the traders, all the guys "on the street" who made millions of dollars. (For doing what? Why?)
So, to all those guys who like to eat their steaks red, pay really low taxes, and smoke big cigars -- guess what, you're just another ward of the state, a welfare recipient.
How did it happen? Because the game was rigged. It was heads I win, tails you bail me out. They wrote the rules, but then they broke them anyway, all in the name of "the free market". There is no free market. In the free market, these guys would be out of business. I say it again because it's worth repeating. Ask the guys from Bear Stearns and Lehman Brothers what happens when Uncle Sam decides not to bail you out.
If you own a grocery store, and the cash coming in isn't enough to pay your debts as they come due, you will go out of business. The bank will tell you to close, liquidate, and tough luck kid. There is no "bridge loan", which is just a euphemism for saying that you're broke and you need money to pay your bills. However, if you are "too big too fail" you can never lose. And if you can never lose, you will take big risks. And when the shit hits the fan, the country gets the bill.
This is no longer a capitalist country. It's reverse socialism -- take from the poor, give to the rich.
And in a few years, we will have forgotten how close we came to complete destitution. After the Great Depression, we got the New Deal, we got the SEC, we got the administrative state and loads of new regulations. After this, we will get toothless regulation (if we're lucky), nothing will change, and the "free market" will just hum along until the next calamity.
[*You know what, this is wrong. They did make money ... for themselves. That was their real credo, money for me at all costs. To hell with the real economy, to hell with my clients, to hell with my own firm, fuck the taxpayer, just give me money.]
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