The Straits of Hormuz

Once again this narrow stretch is being used as a threat, so what should we do?  I may sound like a broken record, but how about an emergency increase in the imported oil tariff of $50 a barrel? It's a message to oil market to drop its price which then reduces the Iranian threat as well as their treasury.  It might even help our treasury and credit rating.  I agree with Ron Paul in that going to war over Iran would be idiotic, costly and the end of of our empire. Curiously from the debates a moderate such as Romney appears to want to increase defense spending so that he can strut around like a bully in situation such as this.

The Road to Serfdom

Re-reading Hayek's book and I want to repeat a sentence and then comment.

"But while progress toward what is commonly called "positive" action was necessarily slow, and while for immediate improvement Liberalism had to rely on the gradual increase in wealth which freedom brought about it had to constantly fight proposals which threatened this progress."

1) Liberal in this book is used the way it was meant to be used about a hundred years ago, in other words one hundred and eighty degrees from what is generally understood to be liberal today.  Unfortunately many freedom loving individuals may not understand that and misconstrue what a libertarian is just for that reason. In my mind the libertarian manifesto is a few words from Jefferson's hand on the Declaration of Independence declaring "life, liberty and the pursuit of happiness" to be everyone's right.

2) Freedom and free markets create wealth slowly and steadily. You run into trouble when you try to short cut freedom to reach artificial goals.  Needless to say our freedoms have been pretty badly cut up since FDR's administration made Washington D. C. a center of federal authority.

3) Ron Paul's life long focus on liberty has built a slow steady brick by brick fortress of a campaign much like the steady economic progress described by Hayek. It doesn't flip flop. It grows when others go out on a limb against liberty and then have to retrench and mend their ways. There is no desperate say anything necessary to get elected about the Paul campaign.  The GOP has a revolution on their hands and it looks very much like Goldwater versus Rockefeller.

Ranks of Ron Paul Volunteers

According to today's NYT front page article it appears that Ron Paul has the youth group, reminiscent of the Clean Gene supporters of Senator Gene McCarthy presidential bid in 1968. Another article in the same paper talk of how the Republican candidates are using the social media to promote their message. I don't think the regular members of the GOP understand social media.  First its tough to get your message out to the old folks if they are not online and do not know what Face Book is.  As I remarked earlier,  Ron Paul looks old but has a message that appeals to the young, who happen to be tech and media savvy.  Michele Bachman and Rick Santorum look young and attractive but they appeal to a constituency that have to pull out their ear horns and ask, "eh .. what did you say? "

Jackson the Banks

Almost sounds pornographic and of course it begs the question what it means?  Do what Andrew Jackson did,  eliminate the Second Bank of the United States or in the present circumstances the Federal Reserve  and the top ten banks into one hundred little pieces.
Now that I have the placard I need  to get the gumption to go the Wall Street demonstrations.

Wall Street Demonstrators

I would like to be a part of it, but I haven't come up with a condensed enough version of my chant: "Big Government and Wall Street are cake eaters. Bring government back to the States and break the banks into little pieces just like Andrew Jackson did.

Make Banks the new Populist Taunt

I thinks it time for a little class warfare. TBTF Banks are the better target for those trying to reign in the Fed. While I approve of Ron Paul's audit of the Fed, I think reducing TBTF banks to a size where they are not too big to fail has a higher priority. Also TBTF banks have been exerting outsize influence in Washington and eating too much of society's cake. It's time to make TBTF a populist bogey man.

Libertarian Pollicy to Libya

Libya is going to make Iraq seem like a walk n the park once Qaddafi is gone. There is nothing that we can do about it other than to encourage the rebels to split it up into its various tribes. From the square shape of the country it's apparent it was made up by a colonial power. Any semblance of institution has been destroyed. The country is tribal and any attempt to make it different will be the bloody basis of another despotic reign.

The Military Industrial Complex

Ron Paul quoted retired Secretary of Defense Gates pronouncement that “anyone advocating a third war for the U. S. is nuts.” I'll further state that anyone who believes that the defense budget can't use some further cutting back is nuts as well. Deploying an air craft carrier and its fleet to break up a line of donkeys carrying supplies is so expensive that the donkeys win, whether they survive or not. Further more wars of attrition such as Afghanistan are impossible and we as a nation should know it since General George Washington never won a battle during our revolutionary war against the British, he just wore them out.   

Why can't Libertarians and Conservatives come together?

We both believe in the constitution, but conservatives would have been Tories and Libertarians the revolutionaries during the War of Independence. Never the less, Conservatives are a necessary element of political deliberations because they create a drag on coming to too hasty a decision, but it's a hell of a philosophy to hang your hat on.  

Separating Church and State

I can't abide by any candidate who does not keep the separation of Church and State first and foremost in their deliberations. God's will in a political setting can be anything pronounced by an authoritative speaker, such as someone declaring two hundred and twenty five years ago that it was God's will that we remain the loyal subjects of King George the third and to countenance a revolution was blasphemous.  

Scary Perry

Rick Perry's money raising power and “pay to play” Texas culture makes him a scary crony capitalist. I say that Texas has been prospering because of high energy prices and that its economy is doing well in spite of Governor Perry. The contrast between Ron Paul, another Texan, and Rick Perry could not could not be starker. One doles out the people's money to his favored friends while the other would be sick to his stomach being a part of such a sham.  

$50 a Barrel Tax on imported oil

We have an economic malaise of no confidence. Capital is readily available but no where to apply it. What is a country to do? The tax proposed in the title is counter intuitive, but let me postulate that a large cash inflow into the U.S. Treasury will raise confidence and that this inflow may not create much if any outflow from consumer's pockets. This is because the world crude oil market will drop on lesser demand on the margin and speculators will leave the world market further deflating prices. It's very likely that world oil price will drop to $50 leaving the U. S. consumer at the same $100 level prevalent now which will also keep domestic alternative energy investments and oil and gas drillers from suffering and it makes much more sense than promising a $2 a gallon gas price.

Marshall Mcluhan

While Bachmann is young and attractive her supporters are not. Ron Paul's supporters on the other hand are not old and folksy. What's going on here? The Republican establishment doesn't understand Marshall Mcluhan, actually not many do; myself included. Today we are witnessing the premise of the "Media is the Message" with the Arab Spring that started with one lone dissenter in an obscure Tunisian village who became a cause among the young in social media. I postulate that Twitter and Facebook are the natural media of the young and that the young in general who take up this media are libertarian and not authoritarian at heart.
The Republican's are not going to achieve their goal of making Obama a one term President with a great fundraising yet essentailly authoritarian candidate such as Rick Perry. Ron Paul with his consistent libertarian message is doing well. He does not understand it, but he has Marshall Mcluhan on his side and an old media blockbuster will not.

Thomas M. Hoenig, Retiring as President of the Kansas FED RES Bank

Too bad. Mr. Hoeing has been a lone voice in the Federal Reserve looking to break up TBTF banks into smaller entities that fail with no ill effect on the taxpayer when they act imprudently. It's unfortunate that his views are out of touch, possibly since Kansas does not cut much weight in the Federal Reserve, because they are what could save our financial system.
What's wrong with our banking system? First and foremost Wall Street Banks represents too big a percentage of the U. S. economic activity for what are essentially a bunch of cake eaters. The economy needs to shed highly compensed financial engineers that produce nothing and consume greatly. Ben Bernanke has studied the Japanese lost decade (decades?)and still does not understand that by protecting Wall Street and their bonuses that he is doing the same as Japan supporting its walking dead.

Evangelicals do not understand free market economies

Rick Perry of Texas is about to enter the Republican primaries for President and so we will have another Evangelical in the race. Republicans need to renew their commitment to free markets and capitalism which I postulate are libertarian versus God fearing fundamentalists who are authoritarian by nature. When a Perry or  Bachman espouse a free market solution of reduced taxes, government and regulation to add supporters to their tent they create a conflict between authoritarian and libertarian ideals which will result in poor decisions. For example Richard Nixon had no real ideology other than Republican expediency. How else can you explain his putting in wage and price controls when he was President? In spite of rabid anti communism he couldn' have been more like one, authoritarian!

Reckless Endangerment

Gretchen Morgensen and Joshua Rosner's book exposes the central character of the great recession. His name is Jim Johnson and he ran Fannie Mae in the 1990's.  He was the puppeteer who dangled Barney Frank and Chris Dodd to do his bidding. His henchman was Angelo Mozilo, his sponsor was Goldman Sachs and his victims are the American Tax Payer. What ever aspirations to greatness that James A. Johnson former CEO of Fannie Mae, Director of Goldman Sachs, Brooking Institute and The Kennedy Center of the Performing Arts had, this book thoroughly and irrevocably smashes it right now. This guy makes Bernie Madoff look like a Saint.
Besides marvelous character assassination richly deserved, this book makes very clear that "Government Sponsored Enterprises" such as Fannie Mae with one foot in government and the other in private enterprise is untenable. Fannie Mae took its unfair advantage of a government guarantee to lobby and secure additional advantages.  It worked the books as shamelessly as Enron and Worldcom to enrich its executives.  And it cynically got the ball rolling in a direction and speed that was sure to to end badly.

Sheila Baird interview with Joe Nocera NY Times Magazne

Hard to believe that there was a government regulator who got it.

“Do you really think they should have let Bear fail?” Asked Joe Nocera.

“Let’s face it,” Sheila Baird responded. “Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail. So, yes, I was amazed when they saved it. I couldn’t believe it. When they told me about it, I said: ‘Guess what: Investment banks fail.’ ” 

Japan's Biggest Utility Faces Insolvency Risk

TEPCO, Tokyo Electric Power Company, is the on the verge of going under after failing so catastrophically to control their nuclear facilities that were swamped by the March tsunami on Japan.  I mention this because an industry that managed to co opt its government, justice system and regulators as thoroughly as TEPCO did, finally destroyed it's shareholders.  I believe it was management complacency that pushed short term decisions that ultimately bet the company's existence. Similarly BP's offshore drilling disaster came from complacent management which now risks the independence of the company and a good portion of its shareholders capital.  Last year BP made a desperate high stakes deal with Russia which is now falling apart because of Putin's cavalier attitude over private property and the rule of law. I don't think it will be long before BP is bought by another major.
In both cases short cutting prudent precautions in spite of government regulatory and judicial approval did the company and its shareholders no good.

Blocking Elizabeth Warren

Joe Nocera's editorial today in the New York Times regarding resistance to Elizabeth Warren's nomination to the Consumer Financial Protection Bureau reveals the Republican's ideological conundrum, they express free market support for banks that are too big to fail. Mitch McConnell and most Country Club Republicans support starving the newly formed bureau and then let the concentrated banking sector, the large players not the home town banks, run wild with the consumer.
As Libertarian I am against the need for Dodd Frank and the new bureau being formed by Elizabeth Warren but only if the Too Large to Fail Banks are all split up into pieces that they become small enough to fail without harming our economy.  It would be a great Teddy Roosevelt moment in Republican history if Mitch and his Senate colleagues would give up their efforts to block and or stall financial regulations and counter propose a sweeping culling out of duplicative financial rules, agencies and congressional committees along with a  simple rule that any bank reaching a certain level of assets be required to split into completely separate entities. I doubt the GOP Senators, other then Rand Paul,  have the ideological fortitude to wrap their arms around such a quid pro quo exchange when the bank lobby holds so much  sway over the Republican Party.

Why the GOP is blowing up

As an authoritarian intolerant party that appeals to the elderly the GOP can not square losing a Republican stronghold in upstate New York because of Congressman Paul Ryan`s Medicare plan. They are going to cave on entitlements to keep their hold on a dying constituency.
Ron Paul because of his Libertarian ideology attracts the young, tolerant and fiscally conservative voter, the future electorate. I predict that he will do very well in 2012. Good enough to give the GOP a Goldwater catharsis that will lay out the party`s ideological framework for the future? Let`s see.

Republicans need a catharthis

Where would we be if the the Republican Party were to win the 2012 presidential election?  I put to you that the managerial class failed so miserably during the Bush Administration that the GOP does not have the ideological compass to take over the helm after four short years. They suffer from a muddle of authoritarian views that lead us to war and economic crisis in the previous decade.

To my mind the dichotomy of Rand Paul and Mitch McConnell is one that Republican's have to resolve. One is the Tea Party standard bearer and the other is quite frankly, King George the 3rd of England, the conservative that sparked the revolution.

Co-opted Regulators

Tokyo Electric apparently has had its way in Japan for the past few decades and now you can see how one small concession leads to another until you have a concentration of six Nuclear Power Plants built in a small city in North East Japan that suffered a massive tsunami only a short eighty years ago.  I say short because in actuarial terms I believe you look at events possible within a hundred years. Possibly the nuclear time horizon should be more like five hundred years and I am not anti nuke.

BP's oil rig disaster was regulated by a co-opted agency whose name escapes me but who never the less proves the point that depending on regulators who really have no skin in the game is futile. I know that we are considered a litigious society but as a Libertarian I prefer private market solutions such as performance bonds and the court system to redress a harm committed.

The fact that the Congress has not taken off the $75 million dollar liability limit for offshore oil drillers is an indication of how powerful the  oil lobby is. Banks with an even bigger lobby make sure no proposal to limit the size of our bank's ever sees the light of day.

Japan's earthquake and subsequent tsunami were devastating enough, but to have a major bulkhead of the infrastructure fail so completely in the hour of greatest need  is the true calamity. To have the co-opted regulators who failed so miserably in protecting Japan re-assure its citizens, especially it's children, to remain in a nuclear hot spot is the final insult.  I understand the Japanese character is stoic but their treatment by their government provokes revolution similar to the Congress's lack of action against the oil and bank lobbies.

Trying to Rein In ‘Too Big to Fail’ Institutions

http://www.nytimes.com/2009/10/26/business/economy/26big.html

What a mish mash is Dodd Frank's attempt to rein in TBTF's. The nuanced regulation is sure to get co-opted so that once again the bonus' are for the banker's and the ruinous invoice is for the taxpayer.  The Pecora commission's break up of investment and commercial banks brought us the Glass Steagall Act which protected the economy from a financial calamity the likes of the depression for seventy years. This new supposedly hard hitting version is going to get run over once the speculative juices begin to flow again and bank executives like Angelo Mozilo re-appear.

Corporate Taxes

Reading Barron`s magazine I note a push for reducing or eliminating the corporate tax for all the obvious reasons. Let me add efficiency as a not so obvious a reason. The corporate side has an army of expensive lawyers and accountants battling an expensive IRS bureaucracy. The battles rages at great cost and is pure consumption.

Inefficiencies create tax avoidance schemes which keep capital and job creation overseas. It builds a cadre of cake eaters in the economy. Many are Wall Street financiers who create un-economic tax avoidance instruments.

Legislators under the guise of fairness have a way of making fund raising complex. Complexity generates inefficiencies and inefficiency then creates special interests which makes it unfair again.

As a libertarian I recognize that the government has to raise revenues so that it can provide essential services such as a justice system, police and defense. The old fashion way was with import duties. I submit to you that eliminating the corporate tax and in compensation putting in a $100 a barrel oil import tax would raise revenues and repatriate capitaL and jobs. It would be unfair at the beginning, Texas oilmen will be thankful, but less so as time goes by as alternative energy develops a following. Similar to the Constitution`s command structure there is less micro managing and more sweep with this swap of inefficient with efficient taxing.

Hoodwink Germany

   Previously I mentioned that it would take a century before German bankers would listen to a wall street proposition. With the announcement that the German Bourse is about to buy the New York Stock Exchange, I guess I was wrong.  My reference was Michael Lewis's "Liars Poker" where he was in London in the 1980's and sold a German investor a bill of goods under the guise of a smart deal.  I can't understand why today's German Banker would countenance another good investment from Wall Street.

   In the meantime getting the conservator of Fannie and Freddie to convert a big percent of their  debt to equity is no hoodwink of our friends in China and elsewhere that are big investors in that debt. The Prospectus clearly stated that the debt was not covered by the full faith and credit of the U.S. Government.  Making this debt to equity conversion will teach future investors not to mistake GSE debt for U.S. GOV debt again and pretty well kill all the MAES, Sally and so on.

   Congress can not mandate that sovereign funds to buy crap. The best insurance is one where the seller has the most to lose if the loan goes bad.  If a bank wants to sell it's portfolio but has to keep the riskiest first 10% tranche, then I believe our Swiss and German friends may consider buying Mortgage Backed Securities from them in the future. I don't believe, on the other hand, that they will will feel secure because of greater government regulatory scrutiny and credit scoring from Moody's and the like.  And I don't believe that without a 10% retention scheme that the private market will be able to bundle mortgages in a similar manner as Fannie and Freddie.

   Finally I get annoyed when there is a call for greater regulation as a solution to a market problem.  Fear of failure is the great regulator.  If Congress would legislate less like a micro manager and more like a commander, for example banks are to be regulated under such and such rules versus no financial institution can be bigger than one percent of the U. S. GDP, the later would give a much a healthier result.

What to do about Fannie and Freddie

The treasury just released their report and it misses the most important idea completely, which is that the taxpayer can never be a back stop to the mortgage business. Private markets are completely capable of securitizing loans and it was Fannie`s misguided attempt to keep market share, when all their models said pull out, that exacerbated the real estate bubble. William Ackman`s idea of converting a significant portion of Fannie`s debt to equity would speed privatizing to a matter of a year and not the expected decade of the report. Another idea not mentioned is that mortgage issuers retain the 1st 10% of risk of loans sold to those who bundle the loans into securities. This feature would improve the quality of the loan`s underwriting, documentation and freedom from fraud more reliably than a micro managed regulatory approach.
Have no fear that these points are just too simple for the administration and Congress to fathom. Complexity, fairness, influence and perverse Washington group think will keep the GSE`s festering forever. In the meantime it will take a century before Wall Street can hoodwink German banker`s into shoddy Detroit slum based product again. If I were a Swiss or German Banker I`d drop the phone at the first mention of the caller`s assertion of a Wall Street connection.

The Financial Inquiry Commission is no Pecora Commission

http://topics.nytimes.com/top/reference/timestopics/organizations/f/financial_crisis_inquiry_commission/index.html

The 1930's Pecora Commission suggested breaking investment banks apart  from commercial banks.  Today's Financial Inquiry Commission apparently dwells on the minutiae of the current crisis without any big picture conclusion other than punishing those that acted badly. It's no secret that banks being regulated co-opted the regulators, Federal Reserve and Congress so any law that proposes more regulation is destined to fail again.
13 Bankers by Simon Johnson and James Kwak makes a very good case for breaking apart our biggest financial institutions into more manageable not "too big to fail" entities. NTBTF would do more than any overseer of bank finance could do to keep bubbles from getting out of hand. The present set of bank regulators that are a part of the FDIC  can and should continue, but no bank with FDIC insured deposits should be one tenth as big as the new maximum permissible and greatly reduced financial behemoths proposed here.  So if Bank of America got rid of Merrill Lynch as a way to reduce its size it would still have to contend with dismantling it's national network into separate entities if there was to be FDIC insurance on deposits. This may leave those on Wall Street as agog as was AT&T before it was broken up. Breaking the phone company monopoly seemed irresponsible and inconvenient at the time but there is much agreement today that it was the right thing to do. 

Commission report on the BP Gulf Coast Oil Spill

BP's oil spill and it's consequences would seem to put a Libertarian point of view at odds with the real world. I would beg to disagree.

1st, it is completely apparent that government regulators and regulations were overwhelmed by the industry being regulated. It is an instance which shows that looking for more government regulation is not only hopeless but dangerous as well.

2nd, the private market solution to prevent  and control such a disaster has been with us and been used for a long time. Driller's, the consortium developing and producing a field, need to put up a bond to cover environmental disasters much like construction projects are insured.  The 75 million dollar cap on oil disasters presently in place is apparently a result of the oil lobby capturing the Congress. That  limit needs to go completely.  Thank god BP with its assets was responsible and that it was not a sham shell type of corporation intended to limit it's liability.  

Making sure that those who create the liability have a ton of skin in the game is a much more effective regulator than a government watch dog agency. BP gave the Gulf Coast a real black eye and I am not sure that President Obama understands that he should be thanking his lucky stars that there was a huge asset he could go after instead of some sham built around government rules.