Month: January 2009

Commissars in the Back Room at Citi

citigroup

One of the more troubling aspects of the structure of the TARP bailouts is the potential to have government officials and their political agendas influence the day-to-day operations of the corporations who received funds. Already we hear threats from politicians demanding that TARP funds be spent in certain ways. Now we see signs of actual influence in company operations. From yesterday’s Financial Times web article “Treasury pushes Citi to cancel jet order,”

The US financial sector’s new political masters began exerting their influence on Tuesday as Citigroup was forced to scrap the purchase of a $50m executive jet that was seen as a misuse of money at a time when the bank is reliant on public support.

Only a day earlier, Citi had insisted it would complete the acquisition of the aircraft. But it backed down after officials acting for Tim Geithner, the new Treasury secretary, expressed strong opposition to the move…

Mr Geithner and his colleagues know that any full-scale overhaul of the financial sector will almost certainly require more funds from Congress. So their immediate priority is to restore confidence in the recapitalisation process, which polls suggest is deeply unpopular. An essential element of this is convincing the public that the money is being used in ways that benefit the wider economy.

Continue reading

Economic Self-Defense

whats-in-it-for-me2

Many prominent American figures claim to be proponents of free markets but in practice advocate neomercantilist, corporate welfare policies. These policies eventually, and unsurprisingly, lead to disastrous economic and social consequences. These catastrophes are then blamed on capitalism, free markets, and deregulation, at which point, socialists are easily able to convince the distraught public that capitalism is a failed experiment and only massive government intervention in the markets can save them. Such is the way that capitalism dies.
–Briggs Armstrong “The Enemies of Capitalism” 01-27-09

“I’ve abandoned free-market principles in order to save the free-market system.”
—George Bush on CNN

“I’m a market-oriented guy, but not when I’m faced with the prospect of a global meltdown.” —George Bush before the G-20 summit.

Armstrong continues:

When one of the nation’s most visible proponents of capitalism claims that he has abandoned it, because, without big-government policies, capitalism itself would be destroyed, there remains little work for those who desire socialism. Thus it is easy to see how those who believe Bush to be a true capitalist could be persuaded to accept the propaganda that the free market has failed, and that government must step in to save the day.

Before we try to untangle the causes of financial crises, or attempt to project the effect of proposed remedies, let’s get our definitions straight.

Continue reading

Cycles of False Hope and Gloom

false-hope

Proposing almost $1 trillion in new spending, President-elect Obama said: “…at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy…

…only government can provide the short-term boost ...”: What he means is: sensible people are changing their spending to fit their new expectations. So, government will force them to spend, against their best rational judgment.

…boost necessary to lift us from a recession this deep and severe…“: Government has only three sources of finance: taxes, borrowing, and creating new fiat money. Taxes only divert money from one person to another; the same with debt borrowed within the U.S. The two remaining sources are: debt borrowed abroad and money-creation. To whatever extent new money provides a boost, it is short-lived. Then we get higher prices, and we’re back to square one.

Continue reading