Fiatch

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Nevada 1, California 0.

HT Robert Wenzel.

The proliferation of czars across the federal government symbolizes the fatal conceit that has taken hold.

Katherine Mangu-Ward writes in “The Lure of the Czars:”

President Barack Obama is taking the practice of naming czars to new heights. As Foreign Policy points out, with the selection of “border czar” Alan Bersin, the Obama administration surpassed the Romanovs in its production of czars. It took those old Russkies 300 years to produce 18 czars. It took Obama less than 100 days.

The czar is a perfect techocratic role—appealing to Obama, who has been much praised for “surrounding himself with smart people.” The appeal of the czar rests on the belief that if we could just figure out the right smart, competent, well-intentioned person to put charge, everything would go more smoothly.

Would you believe we now have a TARP Czar, a Stimulus Czar, and a Car Czar?  We do.

This czarist approach is both conceited and futile.  It will necessarily underperform markets.  Free enterprise simply, clearly does a better job.

It is amazing that our officials idolize the czar position.  It is even more startling that American citizens tolerate such arrogant, expensive folly.

Of course, it must feel intoxicating to become a czar.  Note the full title of Russian sovereign rulers:

“…according to the article 59 of the Russian Constitution of April 23, 1906, ‘the full title of His Imperial Majesty is as follows: We, ——— by the grace of God, Emperor and Autocrat of all the Russias, of Moscow, Kiev, Vladimir, Novgorod, Tsar of Kazan, Tsar of Astrakhan, Tsar of Poland, Tsar of Siberia, Tsar of Tauric Chersonesos, Tsar of Georgia, Lord of Pskov, and Grand Duke of Smolensk, Lithuania, Volhynia, Podolia, and Finland, Prince of Estonia, Livonia, Courland and Semigalia, Samogitia, Belostok, Karelia, Tver, Yugra, Perm, Vyatka, Bulgaria and other territories; Lord and Grand Duke of Nizhni Novgorod, Sovereign of Chernigov, Ryazan, Polotsk, Rostov, Yaroslavl, Beloozero, Udoria, Obdoria, Kondia, Vitebsk, Mstislavl, and all northern territories; Sovereign of Iveria, Kartalinia, and the Kabardinian lands and Armenian territories - hereditary Lord and Ruler of the Circassians and Mountain Princes and others; Lord of Turkestan, Heir of Norway, Duke of Schleswig-Holstein, Stormarn, Dithmarschen, Oldenburg, and so forth, and so forth, and so forth.’”

Now read about US Auto Czar Ron Bloom who:

according to his not being embroiled in a state-pension-kickback scandal like his predecessor and despite his union ties; by the grace of President Obama, Regulator and Technocrat of all the Automakers, of General Motors, Buick, Cadillac, Chevrolet, Tsar of Chrysler, Tsar of Dodge, Tsar of Jeep, Tsar of Ford, Tsar of Pontiac, Tsar of Hummer, Lord of GMC, and Grand Duke of Autoparts Makers Visteon, Delphi, Williams Controls, AutoZone, and PepBoys, Prince of CarMax, Penske, AutoNation and Advance Auto Parts, US Auto Parts, O’Reilly, Pick-Ups Plus, and other Auto-Parts Retailers; Lord and Grand Duke of Genuine Parts Company, Sovereign of LKQ Corporation, The Coast Distribution System, and All Wholesale Auto-Parts Distributors; Sovereign of Conrad Industries, Harley-Davidson, and the Michigan lands and union territories - Heir of Hoffa, Duke of Washington, D.C., Ohio, Indiana, and so forth, and so forth, and so forth.

It is also worth noting that the Obama administration placed a 31-year-old Yale Law School student with no auto industry experience in charge of restructuring GM.  Reportedly, he is a very smart guy.

These arrogant officials should get over themselves and get out of the way.  Entrepreneurship is hope and change that yields an open tomorrow.  Centralized power is an old, sad, terrible road that leads to a dead end.

And so, forth.

[image source]

Virginia Postrel writes:

The WaPost notes that the “cap-and-trade” bill sponsored by Henry Waxman and Edward Markey is, in fact, loaded with all sorts of direct federal regulation of a decidedly dictatorial command-and-control nature.”

To determine what will happen next, simply ask yourself what course will most concentrate power.  That’s all this is — a power grab. It will of necessity end very very badly.

Centralized authority via government cannot allocate resources as efficiently as distributed authority via markets.  Misallocation of resources is a non-trivial matter.  It’s critically important.

Politicians know how to play a crisis, though.  And America is still, by and large, numbly and dumbly taking it.

If you believe this has anything to do with Republicans versus Democrats, you are doing it wrong.  Concentrating federal power is the grand unifying bipartisan project.

We don’t have a government problem.  We have the government we deserve.  We don’t have a media problem or even a monetary, health-care, or education problem.

We have a citizen problem.

Why do we still pretend?  What store of value is safe?  What happens next?  What if the Austrian school is right?

And part 2.

Bill Moyers recently spoke with WIlliam Black, former bank regulator and author of The Best Way To Rob A Bank Is To Own One.  Here is part 1.

From Reason.tv:

At Reason’s 40th anniversary event, held in Hollywood on November 14 and 15, the American Enterprise Institute’s Peter Wallison analyzed the roots of the current market meltdown and explained how government policies directly caused or massively exacerbated the housing bubble and the subsequent bust at the center of things.

The Arthur F. Burns Fellow in financial studies and codirector of AEI’s program on financial markets deregulation, Wallison is the author of several books including most recently, Competitive Equity: A better way to manage mutual funds.

Watch “Hedge Funds and the Global Economic Meltdown.”  How much criminality exists within this system?

What inspires trust? What destroys it? What store of value is safe?

Btw, the end of this video urges the audience to write their government representatives.  I’m down with that.  However, please do not write “filmmaker” Michael Moore.  He is an even bigger waste of time than CNBC.

Despair asks, “Who says cheaters never win?”

76 years ago today, President Roosevelt signed into law a bill passed by the US Congress that outlawed gold held by citizens.  Keep in mind that private ownership of gold was not decriminalized until the 1970’s.

Here is an excerpt from Wikipedia on the Emergency Banking Act of 1933:

The Emergency Banking Act (also known as the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive.

On March 5, 1933, the day after Roosevelt’s inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.

The bill also gave the Secretary of the Treasury, William Hartman Woodin, the authority through an amendment to the Trading with the Enemy Act to confiscate the gold of private citizens, excluding dentists’ and jewelers’ gold and “rare and unusual” coins. These citizens received an equivalent amount of paper currency which was subject to later devaluation with relation to gold. Ultimately, the US dollar was devalued by approximately 40%, ending the deflationary spiral the American economy was experiencing.

Within 3 days of the act’s passage, 5,000 banks had passed inspection and were reopened. Roughly two-thirds of U.S. banks quickly reopened under this act, and faith in banking institutions was somewhat restored.

This act was a temporary solution to a major problem. The 1933 Banking Act passed later that year presented elements of a more permanent solution, including formation of the Federal Deposit Insurance Corporation (FDIC).

For additional info, see also:

• LAT reports “Roosevelt Closes All Banks; Congress Meet Thursday” from March 5, 1933.
• WSJ reports “Bill Seeks to Let FDIC Borrow Up To $500 Billion” from March 6, 2009.

What if the government is disobeying law?  What if this whole show is an illegal farce? What is worse than failure?

Consider “The Underlying Fraud In Banking” from The Market Ticker. Lest you mistakenly assume this article presents fringe conspiracy theory, check the intro:

Ok tinfoilers, this is not what you think it is; I’m sure many of you came here and started to read because you thought I was going to rant about fractional reserves or the lack of “sound money.”

Sorry, no dice.

No, I’m going to talk about the inherent fraud over the last five or so years in the housing (and other lending) markets, and it is NOT where you think it is.

The author meticulously outlines fraudulent lending practices and securitization schemes as well as regulatory failures, all apparently against the law. Read all these details for yourself. This is important stuff.

After walking through the mortgage-securitization-oversight mess, the author continues:

Got it?

This is really pretty simple - there must be a leverage limit and the OTS, OCC and FDIC must enforce that limit to insure that banks do not fall into being undercapitalized.

Further, no bank may make a capital distribution (pay a dividend) or pay a management bonus if before or after doing so it would be undercapitalized.

Where has this supervision been?

Note that Geithner and President Obama have continued this nonsense, and Geithner is one of the people personally culpable for ignoring the law in the first place.

What will stop this blatant lawlessness?

Certainly not Congress. Ben Bernanke was before Congress this last week and guess what: Not one question about the law compelling him (and the other regulators) to act before banks become insolvent.

Now President Obama has released his budget which provides for even more bailouts - a potential $750 billion “second round.”

Yet the law under which we are supposed to operate in this country makes clear that this sort of policy decision is directly contrary to statute; instead, the law by its black letter requires banks to be taken into receivership before they become insolvent.

And oh by the way, the regulators are not allowed (by that law) to ignore off-balance sheet obligations either. Uh uh - they are required to take action before the insolvency occurs irrespective of how - and they did not.

In fact the banks have self-declared their non-compliance with that statute as noted in The Ticker right here (“Our Tier 1 Ratio Is Strong!”) once again last night!

This “self-declaration of insolvency” in fact goes back to Washington Mutual’s original1Q 2007 report that set me off and started me writing Tickers back in April of 2007!

We are in fact talking about what amounts to nearly two years of this nonsense to date, and through the fall of 07 into the early part of 08 the MLEC garbage (and friends after it went down in flames) makes clear that regulators, including Treasury and The Fed knew exactly what the state of these firms was and willfully ignored it.

There is not a policy “decision” allowed here guys and dolls - this is black letter statutory language that compels a certain set of actions - statutory language put in place after the last time we were here (the S&L crisis) that was intended to prevent the damage ($150 billion) that was done to our nation the last time!

This time around we’re at $750 billion with another $750 in “placeholders” in the budget - that is, fully ten times as much damage, and yet the black letter law of the land says that this approach is directly contrary to the statute.

What are the implications of this allegedly criminal behavior?

..the underlying reason we have seen a market collapse is not due to economic recession.

Recessions are not “abnormal”; they come about due to the human condition - people are both too ebullient and too fearful. “Animal spirits” include both reaching for a brass ring and cowering in the corner, contrary to the Wall Street myth that such is only a “positive” thing.

No, we have seen this collapse because “The Bezzle” has reached into literally every corner of our financial system and government and nobody has been held to account.

When the S&L crisis happened only a few people went to jail, even though thousands committed felonies. When the Internet Bubble blew up only a few went to jail even though it is trivially easy to identify thousands who flatly lied about growth metrics - and that’s just one place they were lying in their annual and quarterly reports.

As we have continued to tolerate “The Bezzle” it has become clear to people in all financial areas that they can lie and get away with it. That the odds of being caught, say much less prosecuted, are so trivial that it’s definitely worth the risk.

So how does it end?

This - up and down the line - from the intentional lack of prosecution to willful refusal to follow the law to utter stupidity in criminal sanction - is the essence of “The Bezzle” and it is why capital has fled.

It also, however, points out an essential truth about any future recovery in our economy and banking system - it won’t happen until “The Bezzle” is muzzled to a significant degree.

It is too much to expect that we will ever get rid of “The Bezzle” entirely. That’s simply not going to happen - there will always be cheats, liars and frauds.

However, until those who commit such crimes and blatantly ignore the black letter of the law are held to account on a consistent basis, thereby destroying the belief that this sort of criminal activity is “free of material risk”, there can be no meaningful recovery of economy progress.

We can either demand and obtain this change in policy and attitude now as Americans, or the market will do it for us by continuing to tank and forcing these firms and examples into the open where they are destroyed. The unfortunate reality, however, is that the latter course - refusing to face this and allowing the inevitable market implosion to do that which we refuse to through law enforcement - will also take down tens of thousands of sound companies who also see their capital base removed while their obligations remain.

Bluntly put - Congress and The Administration must, right here and now, compel these regulators to follow the law or remove them from their positions of power.

This had to be done two years ago and it still needs to be done.

There is no way to stop the bleeding in our capital markets - both credit and equity - until this occurs. It will happen; we are only choosing the means and where we want to confine the risk to.

If we continue down the path we are on now we are risking the meltdown of the United States Federal Government;

How’s it looking today?

The Fed knows that it is holding a bunch of crap and is threatened by the “value” (or lack thereof.) If they shove that off onto Treasury then the detonation of over $1 trillion in bad debt will occur on the government’s balance sheet, which will (1) cause a dramatic move upward in Treasury interest rates, (2) translate into all other forms of debt and (3) result in exactly the same collapse that happened in the 1930s - but it will be far worse in degree, since we are far more in debt now than then.

As things stand today I have no confidence whatsoever that The Obama Administration has any intention to act according to law any more than George Bush’s Administration did.

As a consequence until and unless the government’s position and actions change my “base case” economic forecast must remain bearish and over time continue to grow more bearish; without the 2/3rds of all capital that is private in our economy, even with supplanting of that capital from the government (to the extent it is able) I believe we are looking at a potential 30% contraction in GDP from top to bottom and unemployment reaching north of 20% on U-6 (broad form), with the very real possibility of a 20% headline number.

We are headed for an Economic Depression worse than the 1930s at Warp Speed folks, and it is not going to happen because of “fundamentals” or even because “the credit markets froze up.”

No, it is going to happen because both the Bush and Obama administrations are intentionally, with malice aforethought, ignoring the black-letter law of the land for the purpose of covering up their own malfeasance and misfeasance, and neither political party or the American People will get off their fat asses and demand that it be stopped.

Your job, prosperity and wealth are on the line America - right here, right now.

This is not some abstract failure in the market - this is a series of actions that have been taken with the full intention of screwing you, by both Democrats and Republicans, so that a handful of robber barons masquerading as capitalists do not have to face the music for their acts.

How bad can it get? Have a look at these charts folks over at Calculated Risk. They’re sobering - and if the lawlessness does not stop we are just getting started.

Is it possible that a theft of this magnitude is being perpetrated right before our eyes in the United States of America?

What builds trust?  What destroys it?  What store of value is safe?  What happens next?

Robert Higgs in the CSM yesterday:

Instead of stimulus, do nothing — seriously.

Stimulus is unconstitutional. And history shows that the economy can recover strongly on its own, if politicians stay out of the way.

Until the 1930s, the Constitution served as a major constraint on federal economic interventionism. The government’s powers were understood to be just as the framers intended: few and explicitly enumerated in our founding document and its amendments. Search the Constitution as long as you like, and you will find no specific authority conveyed for the government to spend money on global-warming research, urban mass transit, food stamps, unemployment insurance, Medicaid, or countless other items in the stimulus package and, even without it, in the regular federal budget.

This Constitutional constraint still operated as late as the 1930s, when federal courts issued some 1,600 injunctions to restrain officials from carrying out acts of Congress, and the Supreme Court overturned the New Deal’s centerpieces, the National Industrial Recovery Act and the Agricultural Adjustment Act, and other statutes. This judicial action outraged President Roosevelt, who fumed that “we have been relegated to the horse-and-buggy definition of interstate commerce.” Early in 1937, he responded with his court-packing plan.

Although Roosevelt lost this battle, he soon won the war. As the older, more conservative justices retired, the president replaced them with ardent New Dealers such as Hugo Black, Stanley Reed, Felix Frankfurter, and William O. Douglas. The newly constituted court proceeded between 1937 and 1941 to overturn its anti-New Deal rulings, abandoning its traditional, narrow view of interstate commerce and giving the federal government carte blanche to spend, tax, and regulate virtually without limit.

After World War II, the government enacted the Employment Act of 1946, codifying the government’s declared responsibility for managing the economy “to promote maximum employment, production, and purchasing power,” and it has actively intervened ever since, purportedly to attain these declared ends. Its shots have often misfired, however, and we have endured booms and busts, a decade of stagflation, bouts of rapid inflation, and stock-market crashes. The present recession may become the worst since the passage of the Employment Act.

Federal intervention rests on the presumption that officials know how to manage the economy and will use this knowledge effectively. This presumption always had a shaky foundation, and we have recently witnessed even more compelling evidence that the government simply does not know what it’s doing. The big bailout bill enacted last October; the Federal Reserve’s massive, frantic lending for many different purposes; and now the huge stimulus package all look like wild flailing – doing something mainly for the sake of being seen to be doing something – and, of course, enriching politically connected interests in the process.

Our greatest need at present is for the government to go in the opposite direction, to do much less, rather than much more. As recently as the major recession of 1920-21, the government took a hands-off position, and the downturn, though sharp, quickly reversed itself into full recovery. In contrast, Hoover responded to the downturn of 1929 by raising tariffs, propping up wage rates, bailing out farmers, banks, and other businesses, and financing state relief efforts. Roosevelt moved even more vigorously in the same activist direction, and the outcome was a protracted period of depression (and wartime privation) from which complete recovery did not come until 1946.

The US government has shown repeatedly that as an economic manager it is not to be trusted. What we need most are authorities wise enough to follow the dictum, “First, do no harm.” The stimulus package will do enormous harm. The huge debt burden it entails, by itself, ought to condemn the measure. America is already drowning in debt. But the measure will also wreak harm in countless other directions by effectively reallocating resources on a grand scale according to political priorities, rather than according to individual preferences and economic rationality. As our history shows, the economy can recover strongly on its own, if only the politicians will stay out of the way.

New regulation could empower shareholders aka private owners.  Instead, it is being used to empower government and centralize power and influence.  Tragic.  Predictable.  Corrupt.  Doomed to fail.

From “Carl Icahn Channels Adam Smith’s Anti-corporatism via the WSJ with a hat tip to Reason Magazine:

The real problem is that many corporate managements operate with impunity — with little oversight by, or accountability to, shareholders….

The problem…is that boards and managements have been entrenched by years of state laws and court decisions that insulate them from shareholder accountability and allow them to maintain their salary-and-perk-laden sinecures….

Management-friendly states have a vested interest in attracting these companies because hosting them generates a substantial portion of state revenues. It’s a symbiotic relationship: The state offers management protections and, in return, receives much-needed tax revenue.