Where there is smoke- there’s fire. Where there is obfuscation – there is something to hide. Bloomberg’s effort to make the FED disclose firms benefiting from the bailouts is being dragged out by the guilty FED and its chief, Ben Bernanke. This is why we need to pass Paul’s Audit the FED bill post haste. We need to know what’s going on with the FED.
(ht Zerohedge) Congressman Ron Paul reports that Congressman Mel Watts, a Democrat from North Carolina, has eliminated “just about everything” while preparing Ron Paul’s legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee. What will be the bankster’s quid pro quo for Watt’s selling the American people down the river? More importantly, what will be the American people’s reaction to Mr. Watts?
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
- Thomas Jefferson
In a review of Richard A. Posner’s book, A Failure of Capitalism, the following “facts and causes” of the current financial crisis and recession/depression are cited:
… excess savings flowing in from Asia and the reckless lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fuelled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions.
The idea contained in the title of this book is that because these conditions arose, capitalism failed. So, many people argue, since Capitalism can fail, then perhaps we should try something else: perhaps bigger government and more control, directly or indirectly, of the means of production. Posner’s conclusion is that:
… the pendulum swung too far and that our financial markets need to be more heavily regulated.
But the NYT’s review says Posner goes even further:
We are learning,” Posner writes, “that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails… Posner thinks laissez-faire economics has nothing relevant to say.
To those who accept Posner’s conclusions, the possibility that government interference in the market economy was the original cause of, rather than the cure of, the current crisis is never mentioned. The possibility that the current government interference is aggravating the current downturn is also dismissed. The Wikipedia post on Capitalism asserts that there is “little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and paid employment are elements of capitalism.”
Ok, since there’s “little disagreement” for these elements, let’s start with them. Based on these, it appears that the idea of Capitalism is really not much more than an ideal similar to the free, non-monopolized, yet, non-regulated markets theorized by economists when they talk about the concept of “pure, or perfect competition”. Thus, for example, Wikipedia’s definition of perfect competition indicates that the economy’s markets, if they were “ideal” and fit the definition of “perfectly competitive”, they would be characterized by:
- Many buyers/Many Sellers – Many consumers with the willingness and ability to buy the product at a certain price, Many producers with the willingness and ability to supply the product at a certain price.
- Low-Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market.
- Perfect Information – Prices are assumed to be known to all consumers and producers.
- Transactions are Costless – Buyers and sellers incur no costs in making an exchange.
- Firms Aim to Maximize Profits – Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
- Homogeneous Products – The characteristics of any given market good or service do not vary across suppliers
Of course, no economy has perfect competition and… no economy represents the ideal Capitalism. For example, let’s take “private ownership of the means of production”. If a few individuals, or a few private groups own (or control) all the means of production, we have monopolies or oligopolies. Technically, we might have some vague form of “capitalism”. But most of us would agree (except the lucky owners) that this kind of “capitalism” is far from the ideal. Also, this version dominated by monopolies and oligopolies, will ultimately, fail.
Now let’s combine the next two items in the list of accepted elements relating to Capitalism: “creation of goods or services for profit in a market” and “paid employment”. When we combine these two elements, we are merely lumping the return to capital and the return to labor together, for simplicity. Although one might be traditional and include “raw land”, too; both labor and capital are, in fact the main “means of production”. So the essential elements of capitalism include a return or remuneration to the owners, or controllers of the means of production. Ok, our ideal Capitalism now involves private owners, or controllers of the means of production (labor and capital) AND, from the previous paragraph, we don’t want monopolies or oligopolies to be the owners or controllers.
To the extent that monopolies and oligopolies control the means of production and to the extent that our government directly owns the means of production (communism), or indirectly controls it, through taxation and regulation (socialism), we don’t have the Capitalism ideal. Indeed, a growing special interest group that includes the current President of the United States, despises and opposes the very idea of private ownership or private control of the means of production, even by monopolies or oligopolies – unless, of course those oligopolies are subject to the control of the government elites. To the extent that these groups are in control in our country, we cannot say that Capitalism has failed, since we don’t have Capitalism.
So when our markets lock up, prices go extreme (up or down), and unemployment rises, does that mean that Capitalism, or perfect competition failed? Duh! We don’t have those things! They are ideals – theoretical concepts – that did not exist to begin with, and cannot logically be said to have failed.
What did fail? Well…how about government? Is it not government that is supposed to prevent special interests from gaining “unfair” monopolistic advantage? Is it not our government that is “supposed” to avoid favoritism between special interest groups? And who are the special interests who have recently obtained so much control that they now effectively control the government itself? Well…for one, the banks control the Federal Reserve and the Federal Reserve says it must remain free from “government oversight”, meaning it wants to remain a creature of the banks. Recall that Posner said the easy money policy of the Federal Reserve was a major cause of our current predicament. Further, Simon Johnson (among many) argues the banks have captured the government in a “Quiet Coup”. So, government has failed us miserably in fostering Capitalism. But Capitalism hasn’t failed; it’s government that failed! Our government has been taken over by the special interests.
One of the best analysts on Wall Street, Josh Rosner muses on the question of recent potentially illegal or unethical activities by financial institutions:
…in a time of national crisis we had institutions that were unwilling to put aside their lobbying, put aside their will to power, and recognize they had a greater obligation to the country. This is part of why I said capitalism in its purest form doesn’t work because they would assert their primary duty is their fiduciary obligation to their investors. However, I would say part of fulfilling your fiduciary obligation to your investors is to make sure there is a playing field on which to bring your ball and bat every week. Do I think they tried to maximize their returns in this crisis and minimize the losses they would have to recognize? Absolutely, no question. Is that wrong? I’m not an ethicist, so this is one man’s opinion: Yeah, I think in some sense it is wrong. How do we square that circle? That’s for the government to determine. But I do question whether our Founding Fathers intended for corporations to have the same rights as citizens.
Indeed, the government must create a level playing field without bias and payoff…and it has failed miserably to do so with respect to the financial institutions. But the banks and the ideologues are not the only special interests that control our government and direct it to allow the subversion of practical Capitalism. Not hardly. Besides the banks, other large corporations, notably the oil companies, as well as labor unions and political action groups, all have gained so much sway over our government that – until we eliminate that sway – Capitalism will never flourish in the United States. Indeed, the failure of government to remain free from the special interests is a central argument in favor of laissez-faire economic policies. The Wikipedia post on laissez-faire economics says that the laissez-faire champion, the Chicago School of Economics and other advocates:
…claim to favor a state that is neutral between the various competing interest groups that vie for privileges and political power in a country. They are critical of mixed economies on the grounds that it leads to an interest-group politics where each group is seeking to benefit itself at the expense of another and the consumer… any government intervention such as regulation, protectionism, creating legal monopolies, competition laws, or taxes, interfere with the [market’s judgment] being reflected accurately in the [market] price and the maximization of economic utility.
Laissez-faire assumes the existence of a vigilant, but unbiased government. The collusion between government and the special interests is possibly many things, but conducive to Capitalism is not one of them. Washington’s blog has a good post which suggests that the partnership of the special interests and the government that is preventing Capitalism in the United States is not really communism, or even socialism, it’s fascism:
Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:
What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as “financial fascism” [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company’s corporate ancestor, which made out quite well until Hitler’s bubble burst.
Is Scheer right? I don’t know. But Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because “the State pays for the blunders of private enterprise… Profit is private and individual. Loss is public and social” (page 416). This perfectly mirrors Roubini’s statement about the American government’s bailout plan….Remember that one of the best definitions of fascism – the one used by Mussolini – is the “merger of state and corporate power“.
Demonstrators from both the left and the right want to make a shocking point and gain attention by portraying both the previous president and the current one as fascist, but underneath there appears to be instinctive recognition by society of this trend toward fascism . One can hope so…before it’s too late:
Whatever the name of this demon: Socialism, Communism, or Fascism… it needs exorcism. However, just electing a new party that promises “change” is obviously not good enough. In the recent election, we merely swapped one set of special interests (like oil companies and oil service companies) for another (like unions and socialists). New laws ARE necessary – perhaps even a change or two in our constitution – to eliminate the control of our government by “partnering” special interests. In general, the sway that special interests now have over our election cycle is pitiful.
Making all campaign contributions from any entity (other than $2500 per individual) illegal would be an awesome step in the right direction. In addition, we need to stop all special interest advertising for six months prior to congressional and presidential elections. Ten year term limits on all congressional seats would also be an excellent way to make the influence that any special interest may gain over any particular congressman or woman to die a natural death when their term expires.
More specifically, the Ponzi scheme that is the Federal Reserve needs to be eliminated. Our new special interest-free government should be able to take over supervision of the Federal Reserve from the banks that now perform that function. Indeed, banks regulating themselves just won’t cut it! Further, NO bank or any other firm should be allowed to get large enough to control 5% or 10% of an industry. We have laws that preclude this sort of thing (i.e. Sherman Antitrust Act and other banking laws) that are already on the books! But our government has failed to enforce them. Why? It’s simple: SPECIAL INTERESTS OWN OUR GOVERNMENT.
Just a few weeks ago, while Chairman Bernanke was testifying to Congress, we examined the Fed balance sheet and P&L statement only to find what looked like the Fed handing over half a trillion dollars to foreigners. This was very surprising! When I asked Chairman Bernanke if this was true, he said, “Yes.” When I asked him who got the money, he said, “Fourteen foreign Central Banks.” And when I asked to who did they give the money, he said, “I don’t know.” “I don’t know” is not good enough when you’re talking about $500 billion. That’s $1700 for every man, woman, and child in this country…In the case of another $230 billion, it has been tracked as a secret bailout to Citicorp in the US. The fact is the Federal Reserve continuously puts all of us on the hook for decisions they make to play favorites with private interests to the tune of trillions of dollars…
HR 1207 passage is now guaranteed in the House because there are plenty of co-sponsors. But, there are only 25 senators co-sponsoring the senate’s version (Bernie Sander’s bill) of the Audit the FED bill. If they are not on the list, please ask your senators why they are not supporting the bill. Remember… if your senator responds something like: “It’s important to maintain Federal Reserve Independence…” Tell them, the FED must answer to SOMEBODY. Congress authorized the FED- Congress should do its job and oversee the FED – and not let the banks do it for them. These crooks need to go to jail…
According to Reuters, Rep. Barney Frank said he plans legislation to restrict the Federal Reserve’s emergency lending powers and subject the central bank to a “complete audit” in October 2009.
Frank said he has been working with Paul on compromise language. “He agrees that we don’t want to have the audit appear as if it is influencing monetary policy because that would be inflationary” . A video of his remarks was posted on YouTube here .
Frank said the audit and emergency lending provisions would be incorporated in broader legislation to revamp U.S. financial regulation that would likely pass the House in October. By seeking a compromise with Paul, Frank thinks he can strengthen the broader legislation’s chance at passage.
We’ll see if this actually gets done. Hopefully these “compromises” will not strip the bill of its teeth. We MUST have a REAL Fed Audit, not some pie-in-the-sky publicity stunt to make the ignorant think something is being done.
According to Rassmussen Reports, 75% of Americans support auditing the Federal Reserve. In contrast, only 9% of adults surveyed were against the idea of a FED audit. In the face of all this support, Fed Chairman Ben Bernanke is continuing to push back against the Federal Reserve Transparency Act, that would give the Comptroller General – the head of the Government Accountability Office – the power to audit the central bank.
Economist Dean Baker, who’s been a vocal critic of the Fed, recently commented:
“The country now has almost 25 million people who are unemployed or underemployed as a result of the Fed’s disastrous policies. Millions of people are losing their homes and tens of millions are losing their life savings. The country is likely to lose more than $6 trillion in output ($20,000 per person) due to the Fed’s inept job performance.”
The Federal Reserve Transparency Act MUST pass in order for our economy to recover for the long term. Contact your representative TODAY to show your support for the bill!
Make the United States Senate PROVE they are not in the pocket of the banks. The FED has threatened to destroy the economy if we tamper with their private monopoly.
Senator Jim DeMint (R-SC) is blocked by Senate Democrat Leadership from having a vote on his amendment to audit the Federal Reserve by Senator Ben Nelson of Nebraska who raised a “point of order” to prevent the vote.
After being blocked, DeMint directly challenges Senate leadership by pointing out the other GAO audits contained in the bill. The Senate president was forced to agree with Senator DeMint.
The bill is based on a bill authored by Congressman Ron Paul (R-Texas) in the House, H.R. 1207, and Senator Bernie Sanders (D-Vermont) in the Senate, S. 604.