St. LOUIS () -- Are there any titans of industry left in America? Apparently not if the line outside the taxpayer soup kitchen is to be believed.
Oh, for an actual living, breathing Robber Baron.
How about Warren Buffett? Not so much. He is a booster of government grabbing private inheritances and hyper progressive personal tax rates. Could it be T. Boone Pickens? No, he's too busy shilling for taxpayers to underwrite his windy alternative energy plan. And right beside him is self-described "good friend", Aubrey K. McClendon, of Chesapeake Energy advertising for taxpayers to "demand" to be tagged with the cost of creating CNG infrastructure. Might it be the brave hearts at PIMCO? No, because they're busy baying for "the sovereign" (a dangerously quaint euphemism for taxpayer) to "put its capital at risk" so that PIMCO's capital is made safe again. Could it be Jamie Dimon at JP Morgan Chase? Not him either, because he already grabbed a $29 billion welfare chit and will be only too happy to offload his bad bets into the impending resolution trust corporation. Could it be Jim Cramer? Never. He was hollerin' (and is now wearing YouTube reruns as if they're a badge of honor) for the Fed to save his overleveraged pals from themselves right at the outset of the crisis. Could it be Rick Waggoner of GM? Nope, because he's already salivating over a taxpayer trough filled with a multi billion dollar bailout.
When you poke around senior American industries you see that a new class of rent seekers has displaced business men. These puffed up egos love to boast about how they've crushed small and emerging competitors, or done deals amongst themselves, or confounded Main Street with black box models. But put them up against a market reality that is not subsidized, regulated or dominated, and they fold quickly.
It's a class more comfortable batting policy ideas about in the salons of the World Economic Forum than competing for market share that isn't inherited or designated. They are reflexively encouraged by egalitarianism and mediocrity.
Regional and city banks are flourishing all over America. Why should they be prevented from making a play to fill the space of a Lehman or AIG which have failed by any measure you apply?
Anglo-Saxon Capitalism is now an endangered system practiced in remote colonial outposts like Singapore and Australia.
America's flag-bearing capitalists have capitulated. Wall Street is a church of hurt feelings as it railroads the free market all the way to Washington D.C.
You may as well load up on real estate in D.C. because there are only so many bankers who will be able to tolerate daily round trips on Joe Biden's favorite subsidized government monopoly, Amtrak.
There is at least the scheudenfreude of witnessing the New York money trust era coming to an ignominious end. Merrill Lynch is now a Charlotte, North Carolina outfit! That must rub some Northeastern sensibilities very raw.
The causes and culprits of the credit crisis are well known and don't need to be rehashed here. The cures being offered are a toxin that will make this credit virus a minor aggravation.
The root cause in every single failure we have seen is government - over-regulation government, cheap money government, easy credit government, corrupt Congress and Senate government, incompetent bureaucracy government, save-the-failed government, spend-more-than-you-receive government, redistribute wealth government, always expanding government, unaccountable government, under-performing government, unfunded liabilities off the balance sheet government, no term limits government, wipe your nose government.
Taxpayers have just been put on the hook for an estimated $1 trillion (hey, look on the bright side, it's only 1% of America's unfunded liabilities!) in new instant corporate welfare, but without any right to control the boardrooms and cultures sucking up the cash.
Take away the Blackberries, the jets, the marbled skyscrapers, business class lodging and travel, the company apartments and services, the limousines. Most of all, take away compensation paid before maturity. Finally, fire every board member and senior executive of a company that takes any bailout dollars, and ban them from returning to similar positions for 7 years.
The solutions being touted represent a merger of the worst of the past - the big government royalty of Theodore Roosevelt with the bigger government fascism of his cousin, Franklin D. Roosevelt.
John McCain and Barack Obama represent the Teddy and F.D.R. traditions respectively. Neither understands markets, Obama least of all, and both are proposing solutions that will serve only to defer the eventual day of reckoning.
That day arrives when the United States cannot bear the burden of its liabilities, especially the unfunded ones that will be monetized exactly as Freddie Mac, Fannie Mae and AIG have been even though the experts told us it would never happen.
The claim is that allowing liquidation would hurt too many people and that only a monster would allow AIG and its dominoes to pay full price. Yet President Hoover's Treasury Secretary, Andrew Mellon was right when he urged, "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." By not liquidating all the excesses the Depression was deepened, extended and widened, and it was cured only with a World War...
If America cannot endure the pain of this deferred liquidation, how exactly will it handle breaking the buck on its entitlement programs? And let us not forget that what has just happened with the mass nationalization is an acceleration of the payment-due date.
We must also not forget the broad chorus from America that castigated Japan for loving its zombie banks for ever.
This is what needs to happen to fix this problem for good:
- Government accounting based on International Financial Reporting Standards (IFRS).
- Term limits on Congressman, Senators and senior bureaucrats.
- Outlaw Congressional and Senate Committee members, their relatives and close associates from receiving contributions from industries affected by their oversight.
- Prohibit lobbying at state or federal levels or any political contributions at those levels by any entity receiving government loans or financial assurances.
- Prohibit members of Congress and family members from investing in companies either receiving a subsidy, tax break, etc. or affected by their oversight and/or legislation, e.g. natural gas, while in office and for a five year period thereafter.
- Outlaw Committee members, their relatives and close associates from working in industries affected by their oversight for 10 years after leaving office.
- Dissolve Freddie and Fannie, and permanently outlaw the establishment of any similar GSEs.
- Remove the boards and senior executives of Moody's and Standard & Poors.
- Outlaw the creation of aggregate securities with mismatched maturities.
- Outlaw commercial trading in securities whose pricing cannot be reported in real-time.
- Outlaw naked short-selling of any security.
- Reinstate the up-tick rule for short-selling.
- Abandon the Basel II agreement.
- Set much tighter leverage ratios for fractional reserve lending institutions, especially those involved in speculative activity (defined by the duration of asset ownership).
- Impose lending criteria that are impervious to political influence (if a bank wants to redline, let it.).
- Require that all executive golden parachutes be approved by the shareholders. If same is done before said approval only 5% can be paid out before the next shareholder meeting approves or rejects said severance; and that's subject to 'claw back' by the company if disapproved by the shareholders.
- Moral Hazard must be unambiguously enforced. Force financial disclosure that is transparent enough such that investors and regulators alike can ascertain the risk level of the entity's assets. In other words, avoid the "too reckless (to be allowed) to fail" syndrome (a.k.a. too big to fail).
- Reduce corporate tax rates to match the lowest rate in Europe.
- Reduce personal marginal tax rates to match the lowest rate in Europe.