Monthly Archives: May 2010

As a newfound Tea Party supporter, I must regrettably put some distance between myself and Rand Paul, whom last week I referred to as “one of the new faces of the conservative movement” (along with Marco Rubio).  So, here I am, doing what Rand Paul refuses to do – I’m eating my words.

In a number of interviews, Rand Paul has taken issue with Title II of the 1964 Civil Rights Act; that’s the piece of legislation that desegregated private businesses open to the public (with an exemption for clubs requiring membership by design).  The day after winning the Kentucky primary, on The Rachel Maddow Show, when Maddow asked him, ”Do you think that a private business has the right to say ‘we don’t serve black people’?”

Dr. Paul answered with the following:

“I’m not in favor of any discrimination of any form.  I would never belong to any club that excluded anybody for race. We still do have private clubs in America that can discriminate based on race. But I think what’s important about this debate is not written into any specific ‘gotcha’ on this, but asking the question: What about freedom of speech? Should we limit speech from people we find abhorrent? Should we limit racists from speaking? . . . I don’t want to be associated with those people, but I also don’t want to limit their speech in any way in the sense that we tolerate boorish and uncivilized behavior because that’s one of the things freedom requires.”

Later, to Maddow’s question, “How about desegregating lunch counters?” Paul answered:

“Well, what it gets into then is if you decide that restaurants are publicly owned and not privately owned, then do you say that you should have the right to bring your gun into a restaurant even though the owner of the restaurant says, ‘Well, no, we don’t want to have guns in here,’ the bar says, ‘We don’t want you have guns in here because people might drink and start fighting and shoot each other?’  Does the owner of the restuarant own his restaurant?  Or does the government own his restaurant?  These are important philosophical debates but not a very practical discussion.”

Well.  As you would expect, this instantly became fodder for left-wingers like Joke Line - I mean, Joe Klein – of Time, Keith Olbermann (and the rest of MSNBC), and Anderson Cooper (and the rest of CNN), thereby strengthening their longstanding attempts to broad brush libertarian philosophy, the Tea Party Movement, the Republican Party and the Right largesse as “racist.”  Let’s stop right there and define our terms.

Defending Libertarianism (Again)

Statists may feign shock at the debate over proper size and scope of government in the private sector, but for libertarians, the discussion is not new.  In fact, the conversation occurs frequently in the minds of real libertarians, who understand and appreciate the freedoms people have from government intrusion.  The standard principles of freedom enjoyed today are upheld by the Declaration of Independence (“All men are created equal“) finalized federally with the 13th Amendment (“Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States”) and the 14th Amendment (“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”)

Our framers understood the importance of individual freedom, and, contingently, the restraint of federal powers.  Standing on the shoulders of John Locke and Jeremy Bentham, Thomas Jefferson, our first libertarian President, reiterated these principles in his First Inaugural Address, stating:

“Sometimes it is said that man can not be trusted with the government of himself.  Can he, then, be trusted with the government of others?  Or have we found angels in the forms of kings to govern him?  Let history answer this question.”

Jefferson offers more to the argument for the individual, though, as he prudently couched his disdain for federal powers three sentences later, saying:

“A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.  This is the sum of good government, and this is necessary to close the circle of our felicities.”

This idea became known as the “Harm Principle,” and was promulgated specifically by John Stuart Mill in years to follow.  This principle is important in the context of Rand Paul’s comments.  Government is supposed to uphold individual rights, from both government and other individuals; otherwise, it serves no purpose.

While regrettable, additional legislation became necessary due to the reality of the law’s spotty application throughout the states.  It took nearly 100 years to properly adopt the intent of the 14th Amendment – equal justice under law – with regards to race relations.  The Civil Rights Act of 1964, and before it, Brown vs. Board of Education (1954) were painful but necessary pieces of our national history, ensuring that a minority is not to be oppressed at the will of the majority.  Libertarians understand that, if nothing else.

So while I appreciate his philosophical argument, I cannot endorse Rand Paul’s brand of libertarianism, because I think he has his founding principles all mixed up.  The guarantee of life and liberty comes before the pursuit of happiness, or as the author of that phrase also put it, the “circle of our felicities.”

It’s not that hard in my mind, really; I agree with Calvin Coolidge, our last libertarian President, who said at the 150th anniversary of the Declaration of Independence:  ”If all men are created equal, that is final. If they are endowed with inalienable rights, that is final.  If governments derive their just powers from the consent of the governed, that is final.”

What does this mean for the GOP?  Sunday morning, George Will (a libertarian think-tank) conferred this is indeed a problem for the Republican Party, and that Rand Paul is “frivolous.”  Additionally, the haphazard RNC Chairman Michael Steele said he is ”uncomfortable” with Paul’s views.  This forces one of two things: either all Republicans must denounce Paul’s point-of-view, individually or collectively; or Rand Paul must convincingly amend his comments, letting the world know this was merely a philosophical debate about the struggle between public and private sectors.

I do not believe Paul is a racist.  However, he has yet to convince America of this.  From the outset, I wanted to like Dr. Paul, but his “rookie mistake” was a pretty big one: displacing ideology with reality.  There is still time for Rand Paul to right his ship and explain his comments, but hiding in Kentucky won’t help him, or our cause.

“All, too, will bear in mind this sacred principle, that though the will of the majority is in all cases to prevail, that will to be rightful must be reasonable; that the minority possess their equal rights, which equal law must protect, and to violate would be oppression.”

~ Thomas Jefferson, First Inaugural Address

Financial reform is looming, and for many, is confusing.  Don’t fret; as John Locke said, “What worries you, masters you.” So, relax, peace be with you, Selah, and Shalom.  Instead, let’s play a game called Three Card Monte.  It’s easy!  Ready?

It’s Fall 2007.  The Housing Market is beginning to crater.  Three cards are presented.  Joe Public is supposed to pick a card to place the blame.  One card represents the Federal Reserve and the Treasury, a complicit Congress and an oblivious President.  It’s marked with a ‘G’ for government.  Another card represents the investment banks and three complicit ratings agencies; it is plainly marked, again, with a ‘G’ – for Goldman Sachs.  The third card represents the Government-Sponsored Enterprises, or GSEs, namely, FannieMae and FreddieMac.  Guess what?  It’s marked with a ‘G’ as well.

The cards start to move.  Hard to follow?  Who’s to blame?  Wait – this is easy!  Our economic crisis began in the financial sector, which seized up due to the housing market.  Firms like Countrywide were handing out sub-prime mortgages like Halloween candy.  Eighty percent of those mortgages were held by Fannie and Freddie.

The cards stop, and it’s time to choose.  Joe Public chooses ‘G’ for GSEs.  And he chose… poorly.

It’s the Fall of 2008, and now that GSEs are off the table, we’re down to Two Card Monte.  This should be easier to follow than Three Card Monte, right?  When the cards start moving, though, they’re going pretty fast.  So, then-New York Fed Chairman Timothy Geithner calls a meeting, after which Bear Stearns and Lehman Brothers collapse.  Within a week, the number of investment banks on Wall Street shrink from five to three.  Who benefitted the most from the elimination of competion?  Of course, Goldman Sachs; their former CEO, Hank Paulson (who, by the way, is the third consecutive former Goldman CEO to be Treasury Secretary), drafts up a bailout bill to save our Union, and global markets with it.

What?  I thought we eliminated all the risk in investments!  The investment firms were acting within the bounds, albeit free from regulation in the derivatives market.  Then along comes a derivative instrument known as Credit Default Swaps, free from oversight.  Good idea, right?  They’ll help prop up the market.

Well, it turned out to be a terrible idea.  Exactly how can a firm bet on a loan in the short term and against it in the long term?  And with Repo 105, firms could freely shift its assets to liabilities on its balance sheet, and back again.  Just when Joe Public goes to pick the ‘G for Goldman’ card and put the blame on the banking industry, a Leviathan hand throws a new card on the table.  It’s the ‘H for Health Care’ card, and according government and the media, rising Health Care costs are to blame for all of our fiscal woes.

Huh?  Well, if you say so, we’ll play Three Card Monte again.  By Fall of 2009, it’s time to choose.  With all fingers pointing at Health Care, the choice is made, and the other two cards continue to rotate with little attention.

By the Spring of 2010, America has exhausted itself with Health Care, and a bill has passed into law.  Now that that’s off the table, there are only two cards are left:  We’re back to Two Card Monte.  Until, of course, something else comes along to distract Joe Public again.

The Game Is Rigged

Having trouble following two cards?  That’s the point.  In last month’s post, “Freedom’s Antithesis,” I coined the term “postmodern socialism” to describe the symbiotic relationship enjoyed by today’s statists at the expense of capitalism.  Here, we see the other side of the coin; “banksters” are working within bounds, but the game is rigged.  How else does a firm make a profit every single day trading day (63 total) for an entire quarter?  Goldman made no less than $25 million a day during a recession, but they weren’t alone; in fact, four firms had perfect trading quarters.

Banking analyst Matthew McCormick commented, “It’s statistically improbable to have three firms batting 1,000 and also pitching a perfect game. You wonder why the rest of America has some suspicion about proprietary trading.”

So, don’t feel bad for disparaging this kind of activity, because it’s not capitalism.  It’s postmodern socialism.

Invisible Hands

Whereas Adam Smith spoke of an “invisible hand” controlling economic movement, what we now see are “Invisible Hands;” one hand is financial, and the other is the Leviathan hand of government.  The federal government has allowed – in fact, enabled – Credit Default Swaps to go on this long, but why?  Surely, their intent was not to allow our economy to collapse… was it?

Who was it that allowed the deregulation of the derivative market?  Former Treasury Secretary Larry Summers, who is quoted as saying, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”  Remember, it’s not capitalism.  It’s postmodern socialism.

It all boils down to two cards on the table; one card is for the banksters, and the other represents the Federal Reserve and the Treasury, this time, with an oblivious Congress and a complicit President and cabinet; Larry Summers is now the President’s top economic advisor, Timothy Geithner is now Treasury Secretary, and I’ve already discussed how the Federal Reserve has allowed the Treasury bond market to become a bubble, allowing bond purchases at 0.25 percent and sales back to the Treasury at 3 percent.  We’ve established who made money; who lost?  Look in the mirror.  While you were sleeping, Two Card Monte continued.

If you decide not to believe me, follow the money and find out for yourself.

Flash Crash

What exactly happened last Thursday?  The market tumbled dramatically, 999 points, and as quickly as it happened, recovered.  If you believe this was a result of a market glitch, or a “fat-fingered” mistake, you’ll never win Two Card Monte.  Was this “Black Swan” moment even committed in error?  Maybe not.

The Securities and Exchange Commission claims it cannot find a reason for the 700-point drop, now referred to as the “Flash Crash.”  What – or who – could cause such a dramatic dip in the market?  Furthermore, why?

So, sure, some investors made boatloads of money in thirty minutes of high-speed online trading.  Regulators could easily find out who made money during those moments of financial terror, but will they?  Would they want to?  Why not?  Is there something else happening here?  I’ll just say that the possibility exists that the market was used as a geopolitical tool.

Sounds crazy, right?  Well, with the EU negotiating a Greek bailout, the Euro risked implosion.  Before the Flash Crash, Germany would not agree to a $60 billion bailout; afterwards, Germany agreed to a $955 billion bailout.  Coincidence?  Turns out, that bailout may not stabilize the Eurozone, either.  As a result, the Euro as currency devalues next to the dollar.  Again, coincidence?

Regarding all this, I have many questions and few answers.  It’s not particularly my subject of study, but I’m learning.  Maybe we’ll find out someday, but not likely.  This is where large-scale collusion has taken us, though.  You can call it “doom-and-gloom,” or you can call it reality.  You can even call it Two Card Monte.  I call it postmodern socialism.

“If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason reject every kind of government action.”

~ Ludwig Von Mises