Follow Up: Fake Populism

Shortly after writing my Goldman Sachs "conspiracy theory", it occurred to me that I left out a crucial - and rather irritating - side note: President Obama's disingenuous populist act regarding big business and the completely fictitious oppositional relationship he has with it.

Obama is out there stumping this faux-populist message, pretending that the financial industry doesn't want the regulations - when clearly, the big players definitely do! Darlene Superville of the AP reports:

"Obama criticized financial industry interests for opposing the proposed regulations and for waging a "relentless campaign to thwart even basic, commonsense rules.""

In what world is this the truth?

I've already explained precisely why Goldman Sachs benefits from the new legislation, and major news sources - even the most blatantly pro-Obama or pro-state ones - have already widely reported on Goldman Sachs' support for it.

Personally, I get really sick of this myth that big business hates these regulations. It's nothing more than a great narrative that's been hammered into people's minds by government aided by not only the news media, but entertainment - film, television & radio - for decades as well. The lesson everyone, everywhere, needs to learn is that most corporations love corporatism. Any way a business can use the law to make life more difficult for their competitors, and any time a business can secure special privileges from the government which no one else has (see: Blue Cross/Blue Shield, among many others), they are going to be in favor of those "regulations".

Ironically, most small businesses do hate big government regulations like this because they most often severely hamper their ability to compete and strongly favor the existing major players. But aren't the "small" businesses - the ones that employ most people in America, and the ones that aren't filled with multi-millionaire executives and which have billionaire owners; the ones that have no connection to the powerful politicians in Washington - the ones that Obama is claiming to be protecting in all this?  

As usual however, claims & reality aren't even in the same ballpark.

So I leave you with a personal favorite quote by Milton Friedman in 1978:

"Business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger....Every businessman is in favor of freedom for everybody else, but when it comes to himself that's a different question. We have to have that tariff to protect us against competition from abroad. We have to have that special provision in the tax code. We have to have that subsidy."

He was, is, and probably will always be correct on this point.  And there is no better argument I can think of for why the power of the state always needs to be extremely limited in matters of the economy.  As long as there is power to broker & influence, there will always be those well-connected folks who are pulling the strings.

A Goldman Sachs Conspiracy Theory...

A number of news articles over the last couple days have made me curious about something... And that curiosity has developed into a miniature conspiracy theory.

Granted, I generally hate conspiracy theories.  I usually find them to be entirely implausible - at least when they become so overly complex and massive that thousands of people in dozens of bureaucracies would need to be in on it, like suggesting that the moon landing was staged.

So perhaps we should consider this to be more of a "back room deal" than anything else. That's not implausible at all, and in fact is a mainstay of politics through out the centuries... Like all excellent conspiracies... This one involves scandal, subterfuge, wealth and power centered around powerful politicians and the banking elite that keep them where they are - in this case those at Goldman Sachs.

Here's what we know:

1. The Government is currently advocating for significant increases in financial regulation:

I've written before on this blog about how bad an idea all this regulation is, but one of the main ways the administration has been pushing all this is by constantly fear mongering about the state of the economy without the new rules.  Now, they did exactly this at the beginning of bailout season a year+ ago, and of course the economy today is far worse than what they claimed was the worst-case scenario without any government intervention... So their track record on this kind of thing is pretty abysmal.

Stalwart mouthpiece of the government, Business Week, reports on President Obama's latest claims:

"[Obama] said his plan to overhaul U.S. financial regulations is the only way to prevent the “turmoil that ripped through our economy over the past two years..."

The piece goes on to describe why the administration thinks it must have "control" over various aspects of Wall Street, from regulating derivatives to restructuring companies.

The government is also trying to pretend that this won't be an obvious way to provide a virtually limitless legal structure for bailing out favored companies, but some critics seem to be able to see through all that... I have no love for Mitch McConnell, but from the Business Week article:

" Senate Republican Leader Mitch McConnell of Kentucky disputed this point, saying the bill as passed by the banking panel last month “institutionalizes and sets up in perpetuity taxpayer funding of bailouts” because it grants the federal government authority to unravel institutions whose failure threatens the financial system."

Obama apparently called this a "cynical and deceptive assertion", but looking at the history of these things would suggest otherwise.  Giving a government the power to decide which companies are and aren't a "threat" to the financial system is tantamount to giving them carte blanc license to simply decide which companies will be allowed to exist and which will get special privileges.  This is a recipe for disaster, and clearly a remarkably easy way of turning most major business decisions into contentious political issues... Conveniently giving businesses even more incentives to pump as much of their resources into lobbying and political manipulation as possible - which any observer should note is exactly what has increased along with government power in America over the years.

So we know that the government is currently trying to build up support for new legislation taking control of even more of the U.S. economy.

2. Goldman Sachs is also advocating & supporting this new financial regulation:

For reasons I absolutely cannot fathom, most people have this bizarre belief that big business and big government work against each other.

The opposite is true.

In the early days of health care "reform" debates, Wal-Mart - everybody's favorite evil retailer - supported government mandates forcing employers to provide insurance to their employees... People were shocked and confused.  Later on, PhRMA (the Pharmaceutical industry's lobbying group) gave $150,000,000 in support for pro-health care "reform" advertisements... People were shocked and confused.  And now... Major investment bank, Goldman Sachs, supports financial regulation.  According to the Washington Examiner:

"The nation's largest investment bank, famously cozy with top government officials in both parties, has tipped its hand to its shareholders, indicating that major financial "reform" proposals will help Goldman's bottom line...

...These are the very "fat cats" to whom Obama directed his trash talk in January: "If they want a fight, that's a fight I'm willing to have." Well, it looks like they don't really want a fight. It looks like they want more regulation. The question is: What's in it for Goldman?

If you take Blankfein and Cohn's word, stricter federal liquidity and capital requirements would amount to regulators doing Goldman's work for Goldman. They want Uncle Sam to mitigate "uncertainty about counterparties' balance sheets." That is, they want the government to reduce the risk that Goldman's debtors or insurers will run into trouble.

This is an odd function of government: Making Goldman Sachs feel safer in its business dealings."

...Again, people are shocked and confused.

Know why I'm not shocked or confused?  Because large corporations have always done this!  In each of the above examples - as the Washington Examiner explains with Goldman Sachs - the regulations are going to benefit the major corporations.  Typically these benefits come at the expense of smaller competitors.  In the Wal-Mart example, that's exactly what happens.  With regard to PhRMA (and eventually the insurance industry as well) supporting health care "reform", they stood to maintain their position as a cartel and gain tens of millions of new customers now forced to buy their products by law.

So that's the second issue - we know that Goldman Sachs is in favor of financial regulation.

3. Goldman Sachs is being investigated on accounting fraud charges by the SEC - and that will help obtain support for the new legislation:

As of last Friday (April 16th), the Securities & Exchange Commission is now (quite publicly) investigating Goldman Sachs on accusations of fraud.  According to Marcy Gorden of the Associated Press:

"The civil charges filed by the Securities and Exchange Commission are the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.

The news sent Goldman Sachs shares and the stock market reeling as the SEC said other financial deals related to the meltdown continue to be investigated. It was a blow to the reputation of a financial giant that had emerged relatively unscathed from the economic crisis.

Goldman Sachs denied the allegations. In a statement, it called the SEC's charges "completely unfounded in law and fact" and said it will contest them."

Now this is the interesting part to me and where the analysis all sort of converges.

Goldman Sachs is highly connected with the Obama administration. They were his second largest campaign contributer, donating nearly $1 Million in 2008. Many people who are upper-level advisers and key central planners of the American economy were formerly employed by Goldman Sachs... For example, current Chief of Staff of the U.S. Treasury, Mark Patterson;  former Secretary of Treasury, Henry Paulson; Chairman of the New York Federal Reserve, Stephen Friedman; as well as former Secretary of the Treasury & current adviser, Robert Rubin were all upper executives or CEOs of Goldman Sachs.

Most importantly of all, however... This public whipping investigation will provide ample fodder for Obama to drum up public support for the new regulations.  It will be (and already is) extremely easy for administration officials and their supporters to hold up this example and say that new rules can prevent these sorts of things in the future.

This is patently untrue, of course... But it's easy to see the political benefit of a loud, visible investigation of Wall Street.  It's a populist dream, pitting the government against one of those horrendously unpopular investment banks, and seemingly giving the administration this heroic aura in the process. Even the L.A. Times notes this reality:

"Fraud charges leveled against the investment bank Goldman, Sachs & Co. center on complex financial dealings. But for President Obama, the accusations against the venerable Wall Street institution offer a chance to revitalize a simple political narrative that he has all but lost in recent months: that he and his party are protecting ordinary Americans victimized by the economic meltdown."

So even though there might be a brief dip in Goldman Sachs stocks, the reality is that this investigation ultimately helps them achieve their long term goal of getting the government to write new financial regulations.

The SEC is probably marginally independent enough for this to be purely a coincidence, and they definitely have a massive incentive to find some big examples to make up for the fact that they clearly let everyone down repeatedly in the last several years across the board with scandals like Bernie Madoff's ponzi scheme... I would like to give them the benefit of the doubt, but it's important never to underestimate the power of politicians to influence various agencies like the SEC and it's even more important not to ignore the lengthy & sordid history of regulatory capture involved.

Major investment bank executives and their various bankers aren't idiots.  In many ways they are made up of the best & brightest finance schools have to offer. Far brighter, in fact, or at least far more savvy than SEC bureaucrats as a general rule.  They're certainly better paid.

So it's not that much of a stretch to suggest that Goldman Sachs could have fairly easily pulled some strings and gotten themselves out of any serious investigation if they wanted.  And of course, there's nothing to suggest that they haven't done this, and that the SEC investigation is going to be all that serious anyway.  My guess is they'll wind up with a slap on the wrist, at best, and their stock will rebound quickly.

At any rate... I just don't think the investigation is going to be an issue for them in the long run, and it certainly does bring up some interesting questions in my mind.

So.... This is the "conspiracy theory" I propose:

Goldman Sachs could very likely be working with the Obama administration to present a public display in the form of a visible SEC investigation which will provide support for a financial regulation bill - which current & former Goldman Sachs employees will have an immense influence in writing... In exchange for agreeing to short-term stock declines based on a minor public whipping, Goldman Sachs will be providing significant help to get the new laws they support passed.

The government wins because the legislation provides for more political control over the economy - which means more opportunities for politicians to promise goodies to constituents and more power to decide who wins & who loses.  That means easier re-election campaigns, more authority, more stuff named after them and more attention & special "perks" from lobbyists & interest groups for those politicians as they try to influence business outcomes and collect on favors that make themselves wealthy at the taxpayers' expense.

Goldman Sachs benefits from all of this immensely because of quid pro quo and being highly influential in writing the legislation to begin with... In this case they're trading some short-term "pain", which may not even be very real to begin with, for long-term gains by passing their risk-minimization costs on to the taxpayers.

One constant in economies heavily controlled by government, where politicians control economic outcomes is this: As long as the major players (in investment banking and other industries) maintain their politically well-connected positions, they will always be the winners.

I'm not sure if this counts as a conspiracy, and I have no proof of any specific back room deals, but I think it might be historically naive to think that it's all just a coincidence - especially since everything about it lines up favoring the interests of big government & big business.

What do you think? Too crazy?

CNN Poll: 56% of Americans Recognize the Obvious

I thought about blogging this CNN story the other day when I read it, but obviously a lot of other important stuff has been happening instead...  Additionally, I don't really put any stock in public opinion polls because what people say can be easily led one way or another by the questions themselves, and as any first year marketing student probably knows; what people say and what they actually do are often widely divergent.  That said, CNN reports:

Fifty-six percent of people questioned in a CNN/Opinion Research Corporation survey released Friday say they think the federal government's become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens. Forty-four percent of those polled disagree.

What is sort of irritating about this is that government is ALWAYS a threat to liberty.  Government is liberty's opposite.  Isn't this, by definition, completely self-evident?

What is government?  Not to be too ridiculously pedantic, but let's go to the dictionary, shall we?

-Noun

1. the political direction and control exercised over the actions of the members, citizens, or inhabitants of communities, societies, and states; direction of the affairs of a state, community, etc.; political administration: Government is necessary to the existence of civilized society.
2. the form or system of rule by which a state, community, etc., is governed: monarchical government; episcopal government.

And liberty is, of course, the absence of control being exercised over individuals' actions.

It's really that simple. Intrinsically, government is against liberty.  They are oppositional concepts... Of course, many might argue that in some contexts, this is ok.  Government restricts some "liberties", such as the freedom of people to murder or brutalize each other.  True enough... In one sense, one might argue that once a law is made establishing that murder is not ok, and that top-down punishments will result if an attempt is made or carried out, then it is fair to say that liberty has been curtailed.

Yet, if the goal is maximizing liberty, then the first step to accomplishing that is protecting individual rights - one of the most important of which is naturally the right to life.  Essentially in this role, government's job is simply to play referee and make sure that no one is violating the rights of others through violence, theft, fraud, or murder.    Government is only one of several possible ways of protecting natural rights (which of course are not derived from government but are intrinsic and self-evident in all sentient beings who are able to assert them), but unfortunately it is historically actually probably the worst one I can think of.

Throughout history, governments have never limited their role to protecting liberty.

Instead they've typically just been a means of providing fancy titles and false-legitimacy to thugs and tyrants who's interest lies purely in controlling the bulk of the people under their charge for personal wealth and status.  If the goal is concentrated power, government is always the way to go.

George Washington said it best, I think:

"Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master."

To my mind, the government has overstepped its bounds the very second that it is no longer purely a protector of liberty and has moved into dictating the terms of people's lives.  This includes telling people what activities they can pursue, what kind of houses to build, where to live, how much they can or cannot accept as employees or how much employers can offer, what kinds of food they can eat, drugs they can take... The list is endless.  Basically anything the government is doing which restricts the voluntary activities of individuals is an affront to liberty.

The US government is REALLY far down that road already... So honestly, it's a shock to me that the CNN poll didn't result in 100% of people believe government is a threat to liberty.  That's exactly what it is by definition, and you have only to look around you occasionally to see the amount of freedom that is curtailed here.  It's not the land of the free or home of the brave in really any greater sense than Russia is in 2010!

In fact, when I was in Russia, the border guards and police pretty much did exactly what ours do...

More importantly, since every incentive is geared towards expansionist government, they tend to quickly begin curtailing people's freedom of choices on grounds that have nothing to do with keeping the barrier of equal liberties in place.  The US was a unique experiment in the history of government and our Bill of Rights was a truly monumentous step forward.  But it seems we're actively engaged in taking 10 steps back...  What's funny to me, though, is the partisan hackery that surrounds this kind of thing on CNN.

For example, in the comments, Pedro says:

"Funny that so many GOP respondents think the government is a threat given that it was the Bush administration that tried to do away with Habeas Corpus and had the military and NSA listening in on the phone conversations of American citizens without having to secure a warrant.

Yeah, I for one feel much safer with the government now.

Really Pedro?  Cause last I checked, the current President Obama has done every single thing on that list as well!

There's a ton of comments about how no one was complaining about this kind of stuff when Bush was president... But ya know what?  I sure was.  Most of my friends were.  Isn't having consistent principles and actually paying attention to the real policy awesome!?  No one should feel safer today than they did 2 years ago.  None of the policies have changed and many have gotten significantly worse.  What's more, in my opinion anyway, there is added danger precisely because so many people view President Obama as different than Bush.  The media now actively ignores the Iraq & Afghanistan quagmires, they ignore his lawyer's defenses of wiretapping, the lack of action on unlawfully detained prisoners held without trial, they ignore virtually everything except his political advocacy of horrendously bad domestic policy ideas.

Additionally, the economic situation - which make no mistake, was abysmal under President Bush - is actually worse in 2010 than it was in 2008!  The misallocated assets held by banks around the country have never been allowed to clear, the Fed has pumped trillions of dollars into the economy to keep a rapidly deflating bubble from fully collapsing as it needs to, and thousands of pages of new regulations are going to strangle American businesses - just as the 78,000 pages of legislation under Bush did before.

Oh, did I mention Obama just reauthorized the Patriot Act?

That's the crazy thing about government, though!  It almost never repeals the horrific laws of the past administrations, no matter how awful, and merely continues piling up new ones on top of the old.  It's kind of an exponential growth of stupid, destructive and liberty crippling policy and has been a constant theme throughout history.

So... Uhh... Yeah.  Government is a threat to liberty.  Congratulations, CNN, for pointing out one of the biggest understatements of all time.