travisthornton.net

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

See attached letter.

In a tyranny, it helps to make friends with the tyrants.

Let me try to make this short and sweet; that very phrase must surprise all you within a closer circle of trust, those subject to my ramblings in the wake of Obamacare, the single greatest step towards state control in American history.  The good news is, American has been closer to socialism before under FDR, who moved slower and more incrementally in getting us there.  The bad news is, Obamacare did more to get us there quicker than any we’ve seen before, with unprecedented restrictions upon the individual, in one massive reconciliation package.

So, here’s to your health - paid for by the American taxpayer.

There is much to say about Obamacare, but for now, I won’t focus on it in its entirety; I’ve written enough on it already, and I stand by every word I have already said.  So with little regard toward the actual impact of their legislation, the Democrats passed their key piece in their social agenda.  Part of me refuses to believe it actually happened, but it did.

For the Left, it is equally unfathomable that opposition to their legislation remains fermented.  The Democrats cannot understand the billion dollar write-downs of corporations such as AT&T and Caterpillar, and John Deere.  All said, the bill may cut $14 billion from corporate profits, in the words of Speaker Pelosi, “Jobs, jobs, jobs, and more jobs,” notwithstanding.  While piecemeal destruction of the private sector may indeed be their intention, who will pay for these cuts in profits?  That’s right, the individuals; the employees.  Echoing what 17th Century British philosopher Jeremy Bentham once said, “It is vain to talk the interest of the community, without understanding what is the interest of the individual.”

But I digress.  I promised short and sweet, so I’d like to point out how (some of) this bill will (theoretically) be paid for, by utilizing a deliberate form of fiscal drag known as “Bracket Creep.”  Allow me to explain.

As you know, Obamacare will subsidize Health Care for families who cannot afford it, commonly referred to as “the poor.”  The new standard of “poor” (a deliberate phrase, for you econonerds) is “four times the poverty level,” or $88,200 for a family of four.  The “poverty level,” as you know, is indexed to the Consumer Price Index, as to keep up with inflation.

Obamacare will be (theoretically) paid for with revenue increases, including (theoretical) cuts to Medicare, and taxes.  Among the many taxes (seventeen, total) within Obamacare, the ”Hospital Insurance Tax” of Section 9015 levies an excise tax on income and investments of “High Income Taxpayers,” defined as an individual making more that $200,000 ($250,000 for joint filers) a year in Adjusted Gross Income; that is, the proverbial “rich.”

So let’s recap:  $88,200 is the new poor, and $250,000 is the new rich…  this year.  You see, as the dollar is devalued and inflation kicks in, the standard of poor will rise, while the standard of rich stays the same.  The new rich are ”the rich” today, “the rich” tomorrow, and “the rich” forever.  This is not speculative; this is statutory language, signed into law last week.

Do you see what’s happening here?  More and more people will enter the “High Income” tax bracket, acquiescing their income to government, with more and more people receiving a subsidy for Health Care.  This is a form of Bracket Creep, which occurs when middle income levels move into higher tax brackets as income rises with inflation.  Scoff, you may – Obama’s strengthening the middle class, right?  Yeah, and it’s been done before; Cuba, for instance, only has two classes:  the Middle and the Bureaucrat.  And, as Michael Moore told you, Cuba also has universal Health Care.  Little wonder Obamacare garnered the endorsement of none other than Fidel Castro: It’s a “miracle!”

And so goes the American empire; it sure was a good run.  Really?  Well, with no one left to pull the cart, how can it move?  As Josh Fisher of Bloomberg News puts it,  “With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work.”  He blames our swollen entitlement programs for the impending “meltdown ahead,” following in the footsteps of the Roman Empire.

“Oh, come on!” you may say.   As long as there is no inflation, nobody will “creep” into the “High Income” tax brackets, right?  Oh, wait…  Record increases to the money base (to pay for handouts) will result in record inflation, which will result in higher taxes on the middle class.  It’s just a matter of time.  Increasing dependence accelerates the United States down the same plank from which Greece just walked.  Which, if you ask me, was precisely the point.

Who cares, though?  Not my generation; no, sir.  I mean, get a grip, Travis!  Even if it is the law of the land, who will actually police our health care taxes and penalties?  The IRS?  Surely you jest!  Oh, wait…

In a 2008 Rolling Stone interview, then-candidate Barack Obama answered the question “Three books that really inspired you” with the following:  “Toni Morrison’s Song of Solomon, the tragedies of William Shakespeare and probably Hemingway’s For Whom the Bell Tolls.”

So, in reference to the reference of the reference, I’ll close with the following; John Donne’s Meditation XVII, 1624:

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main.  If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend’s or of thine own were:  any man’s death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bell tolls; it tolls for thee.”

It tolls for thee.  The 2010 (and 2012) elections are right around the corner.  We are not Cuba yet.  There is hope for our country.  It starts with repeal of Obamacare.  That hope is found in the voting booth.