…it may be said that at any time when finance is under attack through the political authority, it is an infallible sign that the political authority is already exercising too much authority over the economic life of the nation through manipulation of finance, whether by exorbitant taxation, uncontrolled expenditure, unlimited borrowing, or currency depreciation.
–Isabel Paterson, The God of the Machine
Historically, I think it is a sign that the government is out of money.
I contend that the existence of such attacks, and even the expressed ability to do so is a sign of regime risk; and that unless there is a change in the cultural/political regime [you can change parties in power, but if the culture has accepted regime risk as the norm, y’all are still scrod], the regime risk will inevitably rise to unacceptable levels leading to economic collapse and/or capital flight.
Political attacks, to be effective in the short to medium term, have as an underlayment the threat of expropriation. Plain and simple. The risk is that if you offend the regime in power or those associated with the regime, they will steal everything that you have; because the political structure makes the rules, and can change them at will by law or interpretation. The real returns required to make investment of capital, effort, and applied skill worthwhile increase with the increase in risk of theft by the politicians and their cronies. Capital preservation and physical preservation rise as priorities in one’s decision tree.
This threat can come in the form of actual seizure of the business and its assets a’ la the Marxist/Leninist/Democratic Socialist model, or in the form of government control of the process but leaving the assets technically in the hands of the owners along the Corporatist model used by National Socialist/Fascist states.
The progression towards collapse can be measured roughly by the corruption in the system, what can be called the Guanxi factor [the system of bribes and payoffs to politicians, families, and cronies required to do business in the Peoples’ Republic of China]. Once a political system has devolved to the point where the power of economic life and death is concentrated in the hands of a few politicians/families/personal power structures; then economic decisions will be based on what benefits those politicians their families and power structures. Not on economic reality.
Since by its nature, the power is subject to random and arbitrary enforcement or benign neglect; it is and will be operating outside the formal structure of the law. That guarantees that not only will the power be used in the formal sense to advance the formal goals of whatever regime is in power; but that the families and power structures whose primary loyalty is to themselves will partake of that power at every opportunity for self-enrichment. Uncertainty is not a bug in such a system, it is a desired feature, and any increase benefits those in power.
In any third world country, and much of the first and second world, this uncertainty and corruption is endemic regardless of the political structure being Socialist, National Socialist/Fascist, a charismatic dictatorship, or tribal. The lack of what is traditionally referred to in the West as the “Rule of Law, not Men” is a declaration of war upon the economy and the productive class of any society. One can see this worldwide, regardless of race, color, or creed [and yes, I include the EU in this; as the EU governmental structure is accountable to neither law nor the population.].
If I may offer three points for consideration of our local status:
1) The current party in power opened its dominion with an assault on the “Rule of Law and not Men” from its first moments. Bailouts, mob threats on the rich by regime supporters condoned by the regime, seizure of corporations outside established laws which stole from those entitled to compensation and gave to regime supporters, the imposition of a seizure of the health care system of dubious constitutionality and by questionable legislative force majeure, the increase of the web of administrative regulations subject to arbitrary enforcement depending on political inclinations and the whims of the enforcers.
q.v. Gibson Guitar is subject to raids, seizures, and court actions by the Federal government for using certain woods in their guitars. Gibson is admitted to have followed US and Treaty laws in the procurement. Their violation is in theory because persons in Madagascar and India may have violated a local law long before they bought the wood. Gibson is also a non-union shop, and they make all their guitars in the US. The owners of Gibson also contribute personally to Republicans.
If the wood is illegal, it is by the same statute illegal for the US government to purchase Gibson Guitars, and yet the White House does so for gifts to foreign dignitaries. Fender Guitars uses the exact same wood from the same sources in their guitars. The owners of Fender contribute to Democrats, and most of their products are made in Mexico or China. Fender is given a pass, while the owners of Gibson were told by the Department of Justice that the problems would go away if they moved all production out of the country.
Add in the violations of law by the Executive Branch in the “Fast and Furious” gun-running scheme. And their open approval and sponsorship of the #Occupy movement, which has had law enforcement deliberately ignore violations of the law.
Arbitrary and politically based enforcement.
2) The theoretical political opposition, the Republicans, have been muted at best in their opposition to the above. There is a reason for this. Crony capitalism crossed party lines. All members of Congress are functionally and in many cases legally exempt from “insider trading” laws. And no one leaves Congress other than rich, regardless of party.
3) There is a grassroots political movement to reduce the size and scope of the Federal government and return to the “Rule of Law and not Men”. It faces as much opposition from the leadership of the Institutional Republican party as it does from the Democrats.
This does not bode well for the future economy. The political interference is just beginning.
Subotai Bahadur
Thank you Mr Bahadur. You have said very well all that I would have liked to say.
We are in the grip of a self-serving oligarchy, both nationally and internationally, and they must be deposed, whatever the means necessary,
There is no alternative.
Yes, the true conflict in America and the world right now is up vs. down, not left vs. right. But it sure is difficult for most people (myself included) to break out of the left vs. right dichotomy, because that way of thinking has been enforced for so long (and is so beneficial to politicians, their cronies, and the news media).
Oh, and I love the phrase “Institutional Republican Party”. Where I live (in Colorado), the Republican Party seems to be especially feckless, snatching defeat from the jaws of victory year after year!
Peter Saint-Andre Says @
November 27th, 2011 at 9:18 pm
Funny thing, I’m from Colorado too. The southern mountains. I have used the Institutional formulation for some time, here and elsewhere; because it is a handy way to differentiate between the base of the party [largely conservative] and the Ben4 tian1sheng1 de5 yi1 dui1 rou4 [stupid,inbred stacks of meat] who run the party according to whatever rules they choose at the moment. They would far more happily lose to any Democrat at any time rather than win with a conservative. I’d tell war stories, but if you are here, you’ve lived through them already.
If we are to Restore America [which motto I have appended to the Gadsden 2012 logo above in my uses of it], we are going to have to defeat not only the Democrats and their supporters, but also the Institutional Republicans who will in the crunch side with them.
Subotai Bahadur
Peter Saint-Andre..”Yes, the true conflict in America and the world right now is up vs. down, not left vs. right”
I don’t entirely agree with this; I think some of the main dimensions of the conflict are horizontal rather than vertical. Someone who own a regional trucking firm is likely to have more in common with his drivers than with a cabinet official (such as our idiot Nobel-prize-winning secretary of energy), and his drivers in turn are likely to have more common with him than with lower-level energy department bureaucrats.
There are always going to be elites, and there should be–we want the most astute businesspeople, the best pilots, the most skilled surgeons, the most talented actors, etc…the problem we now face isn’t so much elites per se as the attempt to consolidate elites onto a single ladder, with access tightly controlled via educational credentials and contacts.
I agree with David. Also, my impression is that the demonization of finance is essentially a leftist project and that it is in part an attempt to weaken opposition to leftism by dividing non-leftists against each other. Finance is an important US industry and is no more inherently corrupt due to the existence of crony-capitalist financiers such as Goldman Sachs than manufacturing is inherently corrupt due to the existence of crony-capitalist manufacturers such as GE.
Jonathan–maybe finance is not inherently more corrupt than, say, manufacturing, but I’d argue that in modern US practice, close government connections have been more of a success factor (or at least a perceived success factor) in finance than in manufacturing. There is a great deal of back-and-forth job movement between the “private” finance sector and the government; clearly people believe that their economic value is greatly increased by doing such switches.
Interesting and contrarian piece on the bank bail-out here….I think there are some holes in the argument.
Thanks, David. The Powerline piece makes good points. My point is that the demonization of finance is being driven by people who are hostile to free enterprise, and that non-leftists should not allow themselves to be coopted. Many of the critiques of corrupt finance that I read in libertarian/conservative media and blogs are ignorant about the financial system and lump useful tools such as debt, leverage and complex derivatives with corrupt practices such as crony bailouts, Fed unaccountability, employment revolving doors and the Fed’s zero-rate interest policy.
“They would far more happily lose to any Democrat at any time rather than win with a conservative.”
Welcome to Illinois. Same thing here.
“the demonization of finance is essentially a leftist project”
I disagree intensely. The problem now is that the banks and the politicians are extracting billions of dollars from the public in a formally lawful fashion and no one is paying trying to stop. Opposing that is not a matter of party — both parties are happy to let it continue. Opposing it is not an “attack on finance” it is a recognition that the country is being ransacked by politically connected private companies. It should be stopped.
I love this blog for many reasons. One of them is that around here, I am the leftist. This is the only place that happens.
What Lex said. Far too much of the American financial industry is not a free market, but a perfect illustration of Ayn Rand’s “aristocracy of pull”.
What are you two agreeing/disagreeing about? Are you agreeing with the demonization of finance? I don’t dispute that financial corruption is a serious problem or that finance is over regulated. But these are consequences of too-big government, not of finance per se. I am objecting to the many otherwise-thoughtful non-leftists who make confident assertions about the evils of financial practices that they don’t understand. In doing so they are doing the Left’s bidding. The Left would effectively nationalize finance by putting independent-minded financiers and financial institutions out of business, leaving the capital markets in the hands of Goldman, the Fed and Fannie/FHA, or perhaps, in the wishes of leftist populists, Congress.
Many libertarians and conservatives are as ignorant about finance as they rightly accuse leftists of being about such issues as guns and small business.
There is no such thing as finance per se. There is only finance as-is. And what we have now is a captured regulatory machinery and the funneling of billions of dollars to private businesses. That is piracy under color of law. If it is demonizing finance to point to diabolical behavior, so be it. I really don’t care about what a theoretical Leftist would like to do, I want to stop what the Fed and the big banks are doing.
Most businesses are not GM or GE. Most finance isn’t Goldman Sachs. Most of what Goldman Sachs does is probably morally unobjectionable. It is possible to oppose corrupt financial practices and not oppose legitimate financial practices. Finance as-is includes many benign practices. Would you shut them all down in the name of preventing corruption? There are people out there who do want to shut it all down. Don’t make it easier for them. It’s possible to deal with the corruption without destroying the financial system, but doing so requires first of all clarity of thought and language.
You are doomed. If you believe your financial institutions are best left to work their magic unsupervised and unhindered then my plan of having the USA tank brutally, for the benefit of humanity you understand I rather like many of you, is done.
A small clue. The present leaders of Italy and Greece were really appointed by good ol’ Goldman Sachs. I’m sure that will work out well. If Europe tanks the derivatives held by your financial institutions will destroy them.
Hey … I get my way no matter what happens. ;)
Jonathan, you seem to be jousting with a straw man. It is possible to distinguish between the illegitimate and destructive practices, of which there are many, and whatever benign practices you refer to. Currently I am seeing banks foreclosing on people in Chicago and routinely lying in court, based on reliable comments by fellow lawyers, to select one example from the last few days. There is a huge amount of corruption going on at all levels. Saying, the government should get out the way is not some kind of abracadabra formula. Law enforcement and preventing fraud and theft are legitimate government functions, and the government is failing badly. Madoff should have been arrested but he was not. Law enforcement failed. There is no “deregulatory” solution that would have solved that problem. The Fed loaning at essentially zero and borrowing back at interest is an unbelievable benefit for a few well connected private businesses. It should be stopped. PenGun is right. If this does not change, we are going the way of the former Soviet Union, with an oligarchy having destroyed and captured all of the wealth in the entire society, under color of legality. This is not a “leftist” critique of “finance” — it is an observation of a destructive oligarchy in action. All private businesses are not somehow good because they are private businesses, nor is all activity by government, such as law enforcement, is bad because it is activity by government. This is a reality that the Tea Party is aware of, since it started initially in opposition to the TARP bailouts, and it seems to have been one of the initial motivations for Occupy, before it got totally confused and lost in lefty claptrap. It is not a Left / Right issue, it is an everyone against the oligarchy and the oligarchy against everybody issue. Tim Geithner is not a leftist. He is a mole for Goldman Sachs at the highest level of the US government. Even Elizabeth Warren, who appears to be an honest Leftist, is aware of this. Let’s not be prisoners of preconceived categories that do not necessarily fit our current circumstances.
” Most businesses are not GM or GE. Most finance isn’t Goldman Sachs”
The size of the corrupt portion of the economy was overwhelming so it’s not too much of an exaggeration to say that “the system is corrupt”. The crash brought on by a lack of moral home loan underwriting (and, one can say) the lack of governmental regulation) of these underwriting and the consequent bundling created the biggest part of the financial market at the time and brought on the 2007-2009 debacle. Incompetent, practically unconscious people were allowed to thrive and people (new blood) that would have thrived in the absence of the favored were harmed as was the consumer in general. If that’s not corruption I don’t know what is.
The following bailouts clearly were corruptions of the laws dealing with failing financial (and business) organizations and are corrupt on the face of it.
The fed government doesn’t act when it should and acts when it shouldn’t.
OT:
Lex (and Jim), congratulations
For context, the Isabel Paterson quote is from her chapter on the Magna Carta. Apparently in Britain at that time, a lender who didn’t get repaid could generally only go after the specific property given as security in the note (a nonrecourse loan, in today’s terminology) and very often the value of the property was not enough to repay the amount that had been loaned. What happened was that the lenders discounted the note to the King, who then was apparently able to seize property and money up to the face amount of the loan. So the lenders (referred to generically in the MC as “the jews” (lower case)) made out a little better than they would have if they had handled the foreclosure directly, and the King made out like a bandit.
Paterson says that the MC prohibited the practice, restricting the King to the same foreclosure options that “the jews” would have had on their own.
Demonizing finance.
Acccch! No. Sorry. This.
You can comment with your iPhone on the train. Just not well.