“If the privileged classes use the government for “legalized plunder”, this will encourage the lower classes to revolt or use socialist “legalized plunder” and that the correct response to both the socialists and the corporatist is to cease all “legalized plunder”.
“But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”
“Often the masses are plundered and do not know it.”
~Frédéric Bastiat 1801-1850
All three of these famous quotes come from one of my favorite economists and philosophers, Frédéric Bastiat. I placed them here in this order, to suit my purposes for this month’s discussion. My first observation would be that surely we are watching a repeat of history on the grandest of scales. Otherwise, how else could our issues today, so closely mirror the maladies Mr. Bastiat was describing over 160 years ago?! Now, let’s see if I can weave the headlines of the day to follow this logic I’ve laid out for your consideration.
Let’s start with a follow up to the growing John Corzine scandal, which I reported on a few months ago. According to Bloomberg[1], congressional investigators released a memo, confirming they came across an email from Edith O’Brien, who was a treasurer for MF Global. In the email, she confirms Mr. Corzine directly ordered the use of $200M of clients’ funds to cover a corporate overdraft of its brokerage account at JP Morgan and Co. That was just three days before the company collapsed! In addition, the article goes on to say, “Barry Zubrow, JPMorgan’s chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by O’Brien to ensure that MF Global was complying with rules requiring customers’ collateral to be segregated. The letter was not returned to JPMorgan, the memo said.” Can anyone say, “On advice of counsel, I plead the 5th”?!
Now stop and take the test prescribed above. Does anyone reading this column, regardless of your political leanings, expect that Mr. Corzine will ever end up in jail? How is this sort of thing any different than the Goldman Sachs/John Paulson Abacus scandal I covered a year ago? If you remember, John Paulson handpicked $1B of subprime mortgages to pool into a security, all of which he felt certain would default. Goldman happily packaged the loans into said security, complete with a triple AAA rating from Standard and Poor’s. Goldman then sold that security to unwitting institutional investors worldwide. That same day, Paulson took out a $1B insurance policy (in the form of credit default swaps), that Goldman likewise arranged for him, on that security. Ultimately, Paulson profited an additional $1B from the collapse of the security he had engineered. In other words, 100% of the loans failed as planned. Then there was Citibank’s settlement with the SEC last year. They paid a fine of $285M, after making a profit in excess of $700M, for perpetrating exactly the same sort of insurance fraud, as the Paulson/Goldman Abacus deal above[2]. And I don’t have to tell you, examples of this sort of “privileged class plundering” are far too numerous to chronicle in a single article. As for the last part of the test – it is readily apparent that none of us could have done anything remotely similar, without committing a crime.
Now contrast this plundering with that contemplated by the rise of redistributive policies, and proponents of so called “social justice” in response.
While the “Occupy Wall Street” movement may be less a grassroots phenomenon, and more a carefully orchestrated and well-funded labor union protest, does that fact even matter? Welfare spending combined at the federal, state and local levels in 2012 is already budgeted at $679.2B, or 4.35% of GDP[3]. While that is less than the cost of the recent Wall Street bailouts over the last three years, this cost is perpetual, and on an annual basis. We all want to give our fellow man a hand up, but $679B makes our welfare state the 19th largest economy in the world, ahead of Switzerland and 164 other countries.[4] Consequently, was anyone really surprised to learn then that California reported $69M of its’ welfare funds were withdrawn in Las Vegas, Hawaii, cruise ships out of Miami, and resorts in 49 other states, in 2010 alone?[5] Here again, if you and I tried this kind of stunt, we would all end up behind bars.
Finally, let’s consider who the “plundered masses” are that seem ignorant of their plight. Namely, I am talking about the hard working, tax paying, middle class, of this country. That would be you and me! With the Federal Reserve having held interest rates next to 0% for several years now, does that not unjustly punish elderly fixed income investors, and those of us who save money? Further, if you adjust the stock market value to account for the debasement of our currency, by comparing it to the price of gold, are we not
still stuck at 6500 on the DOW? We have all been victims of generational theft, on the largest scale in recorded human history. And yet, most fellow taxpayers I meet are thrilled to see their 401Ks have “recovered”. So it appears the plundered masses do, in fact, seem completely unaware of the blanket being pulled over our eyes. Even Keynes himself warned that, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens[6].” How right he was!
[1] http://www.bloomberg.com/news/2012-03-24/mf-global-s-corzine-ordered-funds-moved-to-jp-morgan-memo-says.html
[2] http://blogs.reuters.com/felix-salmon/2011/10/20/citis-abacus/
[3] http://www.usgovernmentspending.com/us_welfare_spending_40.html
[4] http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
[5] http://articles.latimes.com/2010/oct/04/local/la-me-welfare-20101004
[6] http://en.wikiquote.org/wiki/John_Maynard_Keynes
“Starting with the fact that people are different, it follows that if we treat everyone equally under the law, the results will by necessity reflect those individual differences. Stated differently, in a “fair and just” system that treats everyone equally under the law, income inequality is a natural byproduct. Likewise, if we decide instead that everyone should experience equal socio-economic outcomes, we must by necessity treat everyone differently or unequally under the law. Consequently, “equal treatment under the law” and “income equality” are not simply different concepts, but mutually exclusive terms. In other words, you can have one or the other – but not both at the same time!” ~ paraphrase of my favorite economist – F.A. Hayek
This month, the obvious topic for discussion was the recent $25B bank settlement, with the Department of Justice and 49 state’s attorney generals. In case you missed it, the five largest “too big to fail” (TBTF) banks settled allegations related to the “robo-signing” scandal, of a year and a half ago. This scandal as you’ll recall, involved clerical personnel signing and/or forging the signatures of bank officers, on foreclosure documents. Was this practice illegal? Yes of course. On the other hand, so is jay walking, and it should be reiterated that there were no reported cases of consumers who were foreclosed upon, who were not otherwise in default on their mortgage. So how much of this $25B will these questionable “victims” receive? Well that would be just $1.5B, or what amounts to approximately $2000 each, and the banks have up to three years to make those payments! Huh? “So where is the other $23.5B going,” you ask? Well let’s take a look!
very same regional areas of the country this was presumably designed to help? I think you get the idea. And finally, what do you think of bailing out our own PIIGS
First, let’s start with some good news for a change. It turns out we all have reason to applaud Judge Jed Rakoff
financial cheats in US history, you can be sure Corzine’s jersey will hang prominently in the men’s room, above John Thain’s golden commode. Corzine, of course, ran Goldman Sachs from 1994 to 1999. His tenure there was notable for two things. First, he took Goldman Sachs public which netted him $400 million personally. Then he followed that up by orchestrating the failed bailout for Long Term Capital Management. This latter ill conceived investment resulted in him being forced out of the firm the same year.
failed re-election bid. “
“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.” — Congressman Louis T. McFadden, 1932, (R -PA)
“This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill." -- Charles A. Lindbergh Sr., 1913, (R-MN)
"A great industrial nation is controlled by its system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world-- no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men." -- President Woodrow Wilson (D) - in apparent regret of signing the Federal Reserve Act he sponsored in 1913)
organ Jr. took up right where his father left off, only to become the greatest war profiteer the world has ever known. After the outbreak of World War 1, Jack lent $12 million to Russia and another $50 million to France in 1915. His firm then became the sole official purchasing agent for England, for all “…cotton, steel, chemicals and food.
Well, the First World War had made Jack so much money, he must have thought another one would be even better. And it was – for him. Long story short, in the midst of the Great Depression, he managed to secure $100 million in loans to none other than Benito Mussolini
It should also be pointed out that when the Social Security Act
Yes, on paper, there is $2.4 Trillion showing in the trust fund. However, the only investments allowed into the trust fund are US Treasuries. So this would be like you writing yourself $2.4 Trillion of IOUs and declaring yourself the wealthiest person in the world. The Social Security Trust fund exists only has an accounting device. It is shown as an asset on the Social Security of the ledger, but as an equal and offsetting liability on the Treasury Department’s side. Consequently, this trust fund is more accurately described as a “…budget authority giving the federal government legal permission to use general revenues to pay Social Security benefits, when current Social Security taxes are insufficient to pay current benefits–something that will happen in 2016.”
However it should be noted that hundreds on millions of Americans socking away gold in this manner would surely have forced gold priced substantially higher over this period. Consequently, this is a very conservative estimate.
The tribal wisdom of the Lakota Indians, passed on from generation to generation, says that when you discover that you are riding a dead horse, the best strategy is to dismount. However in government they employ more advanced strategies, such as: buying a stronger whip, changing riders, harnessing several dead horses together to increase speed, and of course, promoting the dead horse to a supervisory position.
e instant replay of the last few years, shall we? Our federal government passed adjunct legislation with the Community Reinvestment Act in 1995 that forced banks to make subprime mortgage loans to people who rightfully couldn’t qualify for a Discover card. The “con men” running our most prestigious investment banks perpetrated the greatest fraud in recorded history, with the help of our nationally accredited rating agency “shills.” They conspired to sell pools of these worthless loans to the collective Belgian widows and orphans funds of the world, which were their “marks.” The whole fraud collapsed, sending the world into a recession that will, in all likelihood, end in a worldwide economic depression. And yet, somehow, spending our hard-earned tax dollars to pay these same subprime borrowers’ mortgages for the next two years without any prospect of repayment makes good sense? All I can say is, “I must be living in Crazy Town, or I guess it’s time to saddle up!”