Bailout Reeks of Karl Marx's communist manifesto

In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favor the free market, agree with him.

Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal, have made declarations in favor of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US $700-billion bailout package.Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.

So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?

The rationale for intervening always seems to center on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying up of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman’s thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.

It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.

But there is another approach that doesn’t compromise with free-market principles and coherently explains why we constantly get into these bubble situations followed by a crash. It is centered on Marx’s Proposal Number Five: government control of capital.

For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.

Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.

As prices get distorted, mal-investments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels.

During that manic phase, everybody seems to believe that the boom will go on. Only the Austrians warn that it cannot last forever, as Friedrich Hayek and Ludwig von Mises did before the 1929 crash, and as their followers have done for the past several years.

Now, what should be done when that pyramidal scheme starts crashing to the floor, because of a series of cascading failures or concern from the central bank that inflation is getting out of control? It’s obvious that credit will shrink, because everyone will want to get out of risky businesses, to call back loans and to put their money in safe places. Mal-investments have to be liquidated; prices have to come down to realistic levels; and resources stuck in unproductive uses have to be freed and moved to sectors that have real demand. Only then will capital again become available for productive investments.

Friedmanites, who have no conception of mal-investments and never raise any issue with the boom, also cannot understand why it inevitably leads to a crash.
They only see the drying up of credit and blame the Fed for not injecting massive enough amounts of liquidity's to prevent it.

But central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided. Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures can only delay the market correction and turn what should be a quick recession into a prolonged one.

Friedman — who, contrary to popular perception, was not a foe of monetary inflation, but simply wanted to keep it under better control in normal circumstances — was wrong about the Fed not intervening during the Depression. It tried repeatedly to inflate but credit still went down for various reasons. This is a key difference in interpretation between the Austrian and Chicago schools.

As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the mal-adjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. ... To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about ...”

The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction.

Hopefully, we will see a better "deal" come our way, but I doubt it. That's just my cynicism coming out and right now, I am in full cynical mode.

The Bailout As Proposed

http://assets.sunlightfoundation.com/pdf/eesa2008.pdf

Here is the 110 page document that spells out the initial bill that will be submitted.

At least they stripped ACORN from the language. If you don't know what ACORN is ... well it is a community organization that helps/uses the poor to gain monies from our government.

The Bubble has burst folks, and now we are going to have to pay for it ... one way or another!

Our banking system is bailing out those who profited from the little man ... those who profited from their own excessive greed ... those who put at risk our way of life.

Do you really know how this bandaid is going to work ... Robert Shiller, an Economist at Yale, said this morning on ABC, "It's not!"

Last week in history - Under Siege

I don't know about anyone else, with what all has taken place last week, I believe we are in deep dooo dooo! Spoken in an interview this morning, a young man declares, "We are now a socialist state."

If not now, we are certainly headed that way. Wall Street, the street where dreams were once made, is under siege by Washington. New York's Mayor Bloomburg is sending out warnings to his constituents. "Times are going to get bad. The free-wheeling, big-spending, money flowing, wheeler-dealers will soon be tightening their belts." He states that multi-million dollar apartments will soon be up for sale. Things will be tough as he cut 1.5 billion from his city's budget.

Had regulations been put in place, as Bush wanted early on in his first four years, we may not have been in the place we are today.

Announced this morning, Wachovia may be the next to fail.

Last week, Bank of America became the largest bank. What is coming is any one's guess. Our future generations will be paying for the errors of today, that is, if they are still living a life of freedom.

Our Constitution is unraveling as I speak. It's very words are being nullified as our congress has lost its way. Recently spoken by McCain, "We went to Washington to change it, instead, we were changed." Power does corrupt as evidenced by all those caught up in corruption and now serving time in prison...or soon to be headed there.

Wall Street Journal
09/26/2008

Mean Street: The Bailout - You Can Never Be Too Cynical

he absurdist drama “The Bailout,” now playing under the Capitol Rotunda, is perversely reassuring. It has reinforced my long-held belief that you can never be too cynical about Wall Street or Washington.

Is anyone capable of rising above his narrow self-interest? By the end of the weekend, we will know for sure. Either there will be a bailout plan or there won’t.

Certainly, there is no excusing Wall Street’s failings in this mess. But at least Wall Street grasps the severity of the crisis and has embraced a possible, albeit self-serving, solution.

Washington, meanwhile, engages in an elaborate circus of political brinksmanship in which the nation’s economic survival is a campaign plaything.

A fan of politics may argue that all the hearings, closed-door sessions and news conferences is the stuff of democracy, where a compromise satisfies no one but serves the public interest. That is a version of reality best left to a grade-school textbook.

How can you explain the recent House Republican proposal for an entirely different bailout structure? This proposal has zero chance of being adopted. Zero. It serves only a political and not a practical function.

Or Democratic Senate leader Harry Reid’s insinuation this morning that Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson were focused on serving Wall Street’s interests and not the public’s?

Bernanke and Paulson are the only two people in this process with nothing but the public interest at heart. But they are Republicans and so must be demonized.

Of course, politicians of all stripes claim they act on behalf of Main Street. And that Main Street hates the bill. But what do you expect?

The media and politicians have convinced Main Street that it is the victim in this drama. Those evil Wall Street bankers. The theft of $700 billion from good people and giving it to bad people.

That is a nice simple interpretation like an old Hollywood film or a trashy paperback. It is wrong, but it’s black and white. Understandable.

Not like Bernanke. He is complex. At committee hearings, the beleaguered bearded professor actually tried to explain how the financial system works. Big mistake. That isn’t good for sound bites.

Both he and Paulson gave the politicians and Main Street too much credit. They have behaved too calmly, and too rationally for the nation to get the message.

Bernanke and Paulson should have made outrageous promises at the hearings and argued there is no way this will cost the taxpayer $700 billion, that the taxpayer will in fact make money. That works much better on the American psyche. America loves buying lottery tickets. Think of the bailout as a lottery ticket with much better odds.

Perhaps the greater failure by Bernanke, Paulson and President Bush was a reluctance to scare the hell out of people. A leader shows gravitas and concern, not panic. But, perhaps, a little panic wouldn’t hurt. Because you get the sense that Main Street is so busy being angry, that it isn’t sufficiently frightened. The public still doesn’t connect their lives to the crisis. But it should.

Because no bailout bill means that:

By the close of the stock market on Monday, the value of Main Street’s IRAs, 401Ks and pension plans will be worth a lot less than on Friday. How much? Hard to say, but a loss of 20% isn’t crazy.

By week’s end, there is a good chance that a raft of large banks will be taken over by federal regulators.

Within two weeks, as the banks hoard cash, the credit lines on most of Main Street’s credit cards will be reduced, foreclosure proceedings accelerated and car-leasing programs suspended.

Within a month, Main Street won’t be able to buy a home, a car or a tractor unless paid for in cash. As the credit markets shutdown, the mortgage, auto and small-business loan markets will nearly disappear. And the economy will grind to a near halt.

Far fetched? Not at all. It is the absence of credit–not too much of it–that causes great economic depressions.

The credit markets even today are essentially frozen, waiting for a resolution of the bill.

I am not holding my breath waiting for Main Street to come around and support the bill. And I certainly don’t expect Congress and the two presidential candidates to quickly put away their swords.

No, that would be the right thing to do. They will take the nation to the brink this weekend. And then–and only then–will they do the right thing.

This shouldn’t just make you cynical. This should make you question everything about the kind of government we have.

Hang on, it's going to be a bumpy ride...especially depending on who runs the White House the next four years...and personally, I would rather have my honorable maverick father run this country versus the young, community organizing socialist, who wants to rule the world!

Early Economic Stabilization Act - "It's ALIVE!", said Dr. Frankenstein.

Is Gov. Palin Qualified to serve as VP or someone who studied under a communist?

http://www.pbs.org/now/polls/poll-435.html

PBS/Now is conducting a poll to see what America thinks..."Do you think Sarah Palin is qualified to serve as VP of the US?

Well, to show them up and to put her on top, use the link and vote!

For the first time in our history, we are at a crossroads unlike anything we have ever faced. We can choose someone who promotes Marxism by his recent comments about getting in your neighbors face and tell them to vote for us...or McCain, who was raised in a family of honor...something Obamimami doesn't believe in or exude. He would rather promote the ilk of Saul Alinsky, another communist community organizer.

Who was Saul Alinsky?

Known as the "father of modern American radicalism," Saul D. Alinsky (1909-1972) developed strategies and tactics that take the enormous, unfocused emotional energy of grassroots groups and transform it into effective anti-government and anti-corporate activism. Activist organizations teach his ideas widely taught today as a set of model behaviors, and they use these principles to create an emotional commitment to victory - no matter what.

Grassroots pressure on large organizations is reality, and there is every indication that it will grow. Because the conflicts manifest in high-profile public debate and often-panicked decision-making, studying Alinsky's rules will help organizations develop counteractive strategies that can level the playing field.

Governments and corporations have inherent weaknesses. And, time and again, they repeat mistakes that other large organizations have made, even repeating their OWN mistakes. Alinsky's out-of-print book - "Rules for Radicals" - illustrates why opposition groups take on large organizations with utter glee, and why these governments and corporations fail to win.

Large organizations have learned to stonewall and not empower activists. In other words, they try to ignore radical activists and are never as committed to victory as their opposition is committed to defeating them. Result? They are unprepared for the hailstorm of brutal tactics that severely damage their reputation and send them running with their tails between their legs.

Some of these rules are ruthless, but they work. So just what was Saul Alinsky's plan for subversion?

RULE 1: "Power is not only what you have, but what the enemy thinks you have." Power is derived from 2 main sources - money and people. "Have-Nots" must build power from flesh and blood. (These are two things of which there is a plentiful supply. Government and corporations always have a difficult time appealing to people, and usually do so almost exclusively with economic arguments.)

RULE 2: "Never go outside the expertise of your people." It results in confusion, fear and retreat. Feeling secure adds to the backbone of anyone. (Organizations under attack wonder why radicals don't address the "real" issues. This is why. They avoid things with which they have no knowledge.)

RULE 3: "Whenever possible, go outside the expertise of the enemy." Look for ways to increase insecurity, anxiety and uncertainty. (This happens all the time. Watch how many organizations under attack are blind-sided by seemingly irrelevant arguments that they are then forced to address.)

RULE 4: "Make the enemy live up to its own book of rules." If the rule is that every letter gets a reply, send 30,000 letters. You can kill them with this because no one can possibly obey all of their own rules. (This is a serious rule. The besieged entity's very credibility and reputation is at stake, because if activists catch it lying or not living up to its commitments, they can continue to chip away at the damage.)

RULE 5: "Ridicule is man's most potent weapon." There is no defense. It's irrational. It's infuriating. It also works as a key pressure point to force the enemy into concessions. (Pretty crude, rude and mean, huh? They want to create anger and fear.)

RULE 6: "A good tactic is one your people enjoy." They'll keep doing it without urging and come back to do more. They're doing their thing, and will even suggest better ones. (Radical activists, in this sense, are no different that any other human being. We all avoid "un-fun" activities, and but we revel at and enjoy the ones that work and bring results.)

RULE 7: "A tactic that drags on too long becomes a drag." Don't become old news. (Even radical activists get bored. So to keep them excited and involved, organizers are constantly coming up with new tactics.)

RULE 8: "Keep the pressure on. Never let up." Keep trying new things to keep the opposition off balance. As the opposition masters one approach, hit them from the flank with something new. (Attack, attack, attack from all sides, never giving the reeling organization a chance to rest, regroup, recover and re-strategize.)

RULE 9: "The threat is usually more terrifying than the thing itself." Imagination and ego can dream up many more consequences than any activist. (Perception is reality. Large organizations always prepare a worst-case scenario, something that may be furthest from the activists' minds. The upshot is that the organization will expend enormous time and energy, creating in its own collective mind the direst of conclusions. The possibilities can easily poison the mind and result in demoralization.)

RULE 10: "If you push a negative hard enough, it will push through and become a positive." Violence from the other side can win the public to your side because the public sympathizes with the underdog. (Unions used this tactic. Peaceful [albeit loud] demonstrations during the heyday of unions in the early to mid-20th Century incurred management's wrath, often in the form of violence that eventually brought public sympathy to their side.)

RULE 11: "The price of a successful attack is a constructive alternative." Never let the enemy score points because you're caught without a solution to the problem. (Old saw: If you're not part of the solution, you're part of the problem. Activist organizations have an agenda, and their strategy is to hold a place at the table, to be given a forum to wield their power. So, they have to have a compromise solution.)

RULE 12: Pick the target, freeze it, personalize it, and polarize it." Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions. (This is cruel, but very effective. Direct, personalized criticism and ridicule works.)

Who is at fault for economic mess?

Just found this bit of information (which debunks the crap being said that the economic mess was caused by Bush)in New York Times written by Stephen Labaton, and dated September 11, 2003, where the "Big Bad" Bush Administration...

recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates. ...

''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.

''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.

The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.

At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.

Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.

After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.

''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.

Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.

Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''

The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.

Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

Well, well, well...looks like when the Bush Administration attempted to regulate this mess, it was the dumb, dumb, Democrats who opposed it....DUH!

Whole article found here...
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

Let's go to Greystone Mansion for $28K

Well the AFFAIR (that is what you call it, when you pay for privilege, isn't it?) will take place...and an interesting place this is...Take a look!
http://www.seeing-stars.com/Live/Greystone.shtml

Oh, and puleez excuse me, Barbra will be singing at the next event for a mere $2500 two and one-half miles away...

For the full gaffe take time and visit both places...oh,and if we are ever out there, we can visit the interior of the largest home ever built in the Hills -- totaling 40 thousand square feet.

Take time to visit Politico.com for the whole kitchimacarry...http://www.politico.com/news/stories/0908/13471.html

$28,000 per plate for Obami ? Am I invited?

Yep, Matt Drudge just posted that Obamibiden will be attending a $28,000 a plate dinner tonight in his honor in Beverly Hills.

Am I missing something here? What kind of pass does a $28K plate offer to the White House? And let's not forget how in touch he is with the little people. Are you kidding me?

Let me count the ways he is mis-stepping his way to become POTUS.

Look at how morose this is...and the Democrats are for the little people, the under-privileged, the cast-down, the poor, the hungry...excuse me?

OBAMA BOOM ECONOMY: RECORD BANK IN BEV HILLS, $28,500 A PLATE!
Tue Sep 16 2008 06:25:55 ET

The nation's financials may be in a spiral, but cash is flowing into the Obama campaign faster than Marvin Hamlisch can play "Niagara"!

Yesterday, Obama declared how we are in "the most serious financial crisis since the Great Depression."

Today he will host a dinner in Beverly Hills --- costing attendees $28,500 dollars each!

Hundreds of high rollers, including some of the biggest executives in film, television and music, will munch gourmet chow and hang out with the candidate.

Streisand will then sing at the five-star Beverly Wilshire, no doubt reviving the Depression-era standard "Happy Days Are Here Again" with new urgency.

Obama is set to break a single-day fundraising record of $9 million.

Tuesday's events in Tinseltown come after Obama racked up a record-breaking $66 million dollars in fundraising last month, beating his previous high mark of $55 million last winter.

"The fundamentals of our economy are strong, but these are still very, very difficult times," rival McCain said, sunny-side up.

"Sen. McCain, what economy are you talking about?" smiled Obama.

Developing...

Looks like its going to be a hot time in the old town tonight...