Archive for April, 2012
Despotism or Tyranny?

Much of the developed world will descend into despotism. The failure of mainstream policies will fatally weaken mainstream politicians, parties and institutions. People will turn to the extreme left or the extreme right to restore their declining living standards. Vested interests benefiting from the status quo and those opposed to these extremes will fight to retain what they have, democracy be damned. Advocates of the left, right and status quo will all believe they are acting “for the good of the people” as they destroy our democracy and trash our way of life.

It matters little to the millions of dead whether they died in a NAZI concentration camp, Soviet Gulag or Cambodian killing field. They are just as dead. Treated as dispensable slabs of meat, to be used and abused so someone could create their version of a better tomorrow. Falling for the left to stop the right or for the right to stop the left is simply succumbing to the rhetoric of potential despotic tyrants. Psychopathic ideologues will deprive you of your life, liberty and property as readily as they always have. We denizens of the West have not escaped histories bloody embrace.

But the descent into tyranny is not inevitable. It is just the most likely outcome given how much the worldview of the spineless curs in positions of power diverges from reality. Churchill could have accepted the inevitability of a German victory in World War II. He did not do so. Instead he rallied the people, not by telling them to go shopping, not by claiming things were going well when they were not. But by telling the people what a hard time they had before them:

We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering.

We too have dark days ahead. At this stage it is economic rather than military Armageddon we face. The latter may well come, but in the near term it is a lower probability outcome than one of debts being defaulted on and expectations not being met. For many the economic adjustment will be a disaster. People led their lives and made their plans according to a false set of societal operating assumptions. Our leaders need to explain this fact to prepare us for the hard times ahead. The money diverted to financial vested interests is money needed to feed, clothe and provide warmth to the poor. Our experiment in crony capitalism must end.

Churchill in telling people of the hard times ahead, knew just how bad they would be:

For the first time, the people had hope but Churchill commented to General Ismay: “Poor people, poor people. They trust me, and I can give them nothing but disaster for quite a long time.”

The march of the extremes into the mainstream is  but the first step in the unraveling of  our politically correct Joseph Goebbels like big lie:

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”.

Politically correct Western states are losing the ability to shield their people from the effects of the big lie. The shock of the adjustment will be large. We need to prepare people for it. Otherwise the shock may shatter our societies, enabling extremists or existing vested interests to seize control. But the mainstream media’s reiteration of politically correct perspectives amplifies the big lie. It befuddles much of our richer, better educated and empowered population segments. This has created a leadership class unaware of the need to prepare for the tough times ahead. Their ignorance and denial is effectively paving the way for the extremes and existing vested interests to seize the State.

Denizens of the developed world may think they have stepped out of history. Wars, famines, pestilence and mass poverty do not happen to us. They exist in history books or happen to other peoples. It’s natural for those in poor countries to slave away making trinkets and material items for our amusement. It’s natural for the majority of our “children” to spend the first quarter of their life studying and the last quarter in retirement. The half of our lives spent  working is punctuated by frequent holidays. The working day is not too long or onerous.

Well history has started again. States can not make good on their promises to their people. Governments are trying not to admit this. In so doing they are putting off the inevitable, at the cost of making it worse. Their policies can not work:

My Speech Delivered at the New York Federal Reserve Bank:  The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out.

Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.

Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats. – Read the whole speech.

The failure of mainstream policies will undermine the standing of all institutions associated with them. The appearance of corruption and rampant fraud will destroy the trust on which our society is built. Once gone it will be sorely missed. Without trust we will soon be poor. It is more than the value of the dollar in our pocket that is dependent on it. It is the foundation of civil society. Without it there will not be much innovation or affluence. Recreating widespread trust once lost could be a task of decades or generations. Its loss is worth resisting.

It may not be too late to avoid a period of persecution, anarchy and mass impoverishment.  But the only hope of doing so it to restore integrity. Integrity to our institutions, our budgets, our leaders and our laws. Without this, all roads lead to misery and tyranny.

Graphic courtesy of Zerohedge – read the post.

 
Free speech

Australian Government Response to Freedom of Information Request on Copyright Meeting.

There are moves afoot to fight for free speech in Australia:

Keith Windschuttle: So we come well within Finkelstein’s scope. If his oppressive scheme is ever implemented, we would feel compelled to defend the long tradition of press freedom by engaging in civil disobedience. While ever I am editor, Quadrant would not recognise the News Media Council’s authority, we would not observe its restrictions, and we would not obey its instructions, whatever the price. We hope other publishers will take a similar stand.

It’s great to stand on principle, but will he also defend press freedom from legislative assault at the bequest establishment media vested interests:

Australia’s government won’t disclose its secret copyright meetings because knowing what went on isn’t in the public interest: The government also claims that it can’t release a list of attendees because it doesn’t have such a list — that is, the government doesn’t know who was invited to its secret, eyes-only copyright meeting.

The changes to copyright attack the same fundamental freedom. But in Australia they are at an earlier stage in their assault. It is also subtler, with the nature of the evil impositions somewhat camouflaged under legitimate business interests. Even normally sound groups such as the IPA have been seduced by the rhetoric around copyright protection.

While the IPA is to be applauded for its moves to defend free speech, it needs to recognize that government acting on behalf of vested corporate interests is no less of a threat than when it is acting on behalf of vested ideological ones. Vested interests will always use the rhetoric they believe most likely to be effective. They also tend not to give up after a defeat:

MPAA boss: we’re cooking up a new SOPA behind the scenes: Former Senator Chris Dodd, head of the MPAA, has hinted to the Hollywood Reporter that he’s already greasing the wheels for a new version of SOPA, though he’s shy about revealing details because of the public outcry that might ensue. Dodd is the guy who went on the record to tell Obama that he would instruct his members to stop donating to the Democratic party because Obama didn’t usher in the laws they wanted.

and

Understanding TPP, ACTA’s nastier, more secret little brother: A new report by Carrie Ellen Sager of infojustice.org that compares the provisions in ACTA, the secretly negotiated copyright treaty currently up for adoption in Europe, the USA and other countries; and the Trans-Pacific Partnership (TPP), a more extreme, more secretive version of ACTA being negotiated by various Pacific Rim countries.

 On “Technological Protection Measures” TPP has two nasty turns of the infringement screw:

 TPP goes beyond ACTA by applying provisions on technological protection where circumvention is carried out unknowingly or without reasonable grounds to know.

 and

 TPP goes beyond ACTA by explicitly limiting the possible limitations and exclusions to the TPM circumvention rules, while ACTA gives a country free reign to create exceptions and limitations it finds reasonable.

 The second of those is particularly troublesome, since it reduces the scope for signatories to introduce more balanced copyright laws even if they wanted to.

 

Perhaps Andrew Bolt will weigh in? He is not legally restricted from doing so.  Sadly I expected human cognitive failings will come into play. We all have our blind spots. Traditional defenders of free markets sometimes miss the fact that corporations are incentivized to get laws changed to maximize their profits, not our welfare or freedom – be it of speech or anythings else.

Introducing an Australia carbon dioxide tax or emissions trading scheme will enrich many, but it will impoverish more. Legislative imposts are imposts, even if they benefit some people and corporations. Bastiat’s broken windows parable made that clear enough. Let’s not allow our liberty to be crushed. Resist restrictions on our ability to espouse our views. It is fundamental to Western civilization. Without it we will slip back into despotism and a new economic dark age. One technology will make hard to escape from.

The price of liberty is eternal vigilance. Don’t let the state deny you the ability to even know what is going on, let alone voice your objection. Let’s delay the return of terror and slaughter.

The Gods Of The Copybook Headings

AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: “Stick to the Devil you know.”

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: “The Wages of Sin is Death.”

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

 
Trust and leadership

It’s good to see the issue of trust and leadership being promulgated by a main street bank to its shareholders. If we are to change course before our societies experience the equivalent of an “alcoholic hitting bottom” we need more messages of the type sent by Robert G. Wilmers to his shareholders. Highlights include:

The economic crisis that began in the fall of 2007 implicated a wide range of institutions – not only bankers but their regulators, not only investors but those paid to advise them, not only private finance but its government-sponsored kin. The wide spectrum of the culpable has left the U.S. and the world with a problem which, although related to the financial crisis, transcends it and must be confronted: the decimation of public trust in once-respected institutions and their leaders. This has created a fear among those responsible for forming the rules and standards that shape the American financial services industry. And the outcome of this fear-driven rulemaking is likely to burden the efficiency of the American financial system for years to come and will potentially have broader implications for the overall economy.
Page xii

and

These trends all came together in 2008 with the sub-prime crisis, characterized by Wall Street banks betting on and borrowing against increasingly opaque financial instruments, built on algorithms rather than underwriting. Like the institutions of the ’80s, the major banks created investments they did not understand – and, indeed it seems nobody really understood. In the process, they contorted the overall American economy. The unnatural growth in the industry led the portion of GDP dedicated to insurance, finance and real estate to rise from 11.5 percent in 1950 to 20.6 percent during the decade that began in 2000. Page xv

and

Since 2002, the six largest banks have been hit by at least 207 separate fines, sanctions or legal awards totaling $47.8 billion. None of these xvi banks had fewer than 22 infractions; in fact one had 39 across seven countries, on three different continents. The public, moreover, has been made well aware of such wrongdoing. According to a study done by M&T, over the past two years, the top six banks have been cited 1,150 times by The Wall Street Journal and The New York Times in articles about their improper activities….

Public cynicism about the major banks has been further reinforced by the salaries of their top executives, in large part fueled not by lending but by trading. At a time when the American economy is stuck in the doldrums and so many are unemployed or under-employed, the average compensation for the chief executives of four of the six largest banks in 2010 was $17.3 million – more than 262 times that of the average American worker. One bank with 33,000 employees earned a 3.7% return on common equity in 2011, yet its employees received an average compensation of $367,000 – more than five times that of the average U.S. worker. Thus, it is hardly surprising that the public would judge the banking industry harshly – and view Wall Street’s executives and their intentions with skepticism. Page xvi

and

The Wall Street banks continue to fight against regulation that would limit their capacity to trade for their own accounts – while enjoying the backing of deposit insurance – and thus seek to keep in place a system which puts taxpayers at high risk. In 2011, the six largest banks spent $31.5 million on lobbying activities. All told, the six firms employed 234 registered lobbyists. Because the Wall Street juggernaut has tarnished the reputation of banking as a whole, it is difficult if not impossible for bankers – who once were viewed as thoughtful stewards of the overall economy – to plausibly play a leadership role today. Inevitably, their ideas and proposals to help right our financial system will be viewed as self-interested, not high-minded. As noted before, however, the major banks were not the only ones implicated in and tainted by the financial crisis. One can, sadly, go on in this vein to discuss a great many other institutions which have disappointed the American public in similar ways, in the process compromising their own leadership status. Page xvii

and

The crisis was orchestrated by so many who should have, instead, been sounding the alarm – not only bankers but also regulators, rating firms, government agencies, private enterprises and investors. That a former U.S. Senator, Governor and CEO of a big six financial institution was at the helm of xix MF Global on the eve of its demise due to trading losses, or that the largest-ever Ponzi scheme was run by the former chairman of a major stock exchange will long be remembered by the public. The repercussions have stretched beyond banking, creating an atmosphere of fear affecting and inhibiting those who should be leading us toward a better post-crisis economy. Page xix.

and

In designing regulations, the sort of informal conversations with private institutions and individuals, which were once routine, might now be viewed as suspect, leaving regulators to operate in isolation, without thoughtful guidance as to the overall impact of their actions. When all are suspect, no conversation can be viewed as benign. Ultimately, however, this is neither a recipe to improve public confidence nor a situation likely to facilitate the expeditious design of a regulatory structure which will not hobble the extension of credit. One must be concerned that a lack of leadership and trust, and an overreliance, instead, on the development of policies, procedures and protocols, has created a level of complexity that will decrease the efficiency of the U.S. financial system for years to come – and hamper the flow of trade and commerce for the foreseeable future.

The effects on a community bank such as M&T prove to be significant. The cost of compliance with the multiplicity of statutes, standards, and other government mandates under which a comparatively uncomplicated bank like xx M&T must operate has been tracked and discussed in these Messages for nearly a decade. The news, however, is not getting better. These costs have risen from roughly $50 million in 2003 to $95.1 million in 2011. Add to this, the insurance premium we pay to the FDIC, to maintain and replenish the Deposit Insurance Fund used to liquidate failed banks and repay insured depositors, which increased from just $4.5 million in 2006 to an annualized rate of $107.7 million at the end of 2011. New edicts, which limit our ability to pay overdrafts incurred by customers (Regulation E) and impose price controls on debit card interchange fees (the Durbin Amendment), will reduce our revenues by an estimated $139.8 million on an annualized basis. In total, our likely tally of annual compliance cost and revenue lost from these regulations is $342.6 million and would have represented 28% of pre-tax income in 2011. Page xix

and

By virtue of having more than $50 billion in assets, a measure of size, with no consideration given to the activities in which we engage nor the merits of our actions, M&T has been deemed to be a “systemically important” financial institution and will be subject to higher capital standards as well as costly new liquidity requirements.

A common feature of many of these new directives is a higher order of complexity than had heretofore been typical, particularly for Main Street banks like M&T which do not engage in excessive risk-taking and rely on fundamental banking services as their primary source of income. Utilization of these opaque and intricate methods as a means to prevent a crisis is at best questionable. It is worth keeping in mind that prior to the financial crisis, the Basel Committee had introduced Basel II international banking standards, which among other things xxi endorsed the use of complex financial models to measure the risks associated with on and off-balance sheet exposures – so-called advanced measurement approaches. These standards proved wholly inadequate in the crucible of the financial crisis. Yet today, despite these failures, models have become more embedded into both regulation and basic accounting, a change which implies substantial increased cost.

It is no small irony – it is, dare I say, a bitter one – that these costly requirements have been visited on a company such as ours and hundreds, if not thousands, like us who did little or nothing to cause the financial crisis – and were, in fact, in many ways victims of it. And, of course, the higher costs along with higher capital and liquidity requirements will inevitably diminish the availability and increase the cost of credit to business owners, entrepreneurs and innovators of our community.Page xxi

and

The proposed Basel III liquidity rules, for instance, call for banks to significantly increase their investments in government securities, leaving less capital for community-based loans which hold the most promise for potential economic progress. Such an unintended outcome is reminiscent of that which emerged from the 1992 Basel Accord, providing an incentive to invest in government debt, whether domestic or foreign, and in highly-rated derivative securities of all types including those backed by residential mortgages – all of which turned out to be more, not less, risky. The presumption that certain prescribed assets would inherently carry less risk, a thesis clearly disproved in the recent crisis, along with the new proposed minimum level of government bond holdings, would continue the trend of driving resources away from commercial lending – with negative ramifications for fulfilling legitimate credit needs.

New formulae from the FDIC are likely to have similar inadvertent consequences for the economy. Last spring, the FDIC began assessing insurance premiums based on assets rather than deposits, which it had done since its inception in 1933. As a result, a loan to finance the construction of a company’s new building, an activity that produces jobs, carries insurance premiums that are three to four times as high as for commercial loans extended for unspecified purposes with no need for employment creation – arguably the greatest necessity of the current economy. Even more troubling is the fact that, under this formula, the mere association with real estate deems construction lending more risky regardless of how sturdy one’s underwriting or how much “skin in the game” the entrepreneur is willing to commit. Page xxii

I can’t in good conscience paste more.  Read the whole thing from Reflections on the State of Banking and the Leadership Crisis on page x.  Don’t forget many of the community banks argued against TARP. They wanted capitalism to do its thing and punish those who made poor decisions and reward those who made correct ones. Silly them, in modern America wise decisions are those which capture the regulatory and legislative class, not those which efficiently deliver products in a free market. It’s so much more profitable to suckle on the taxpayer teat than earn your rewards in a free market. Manipulating structure in which you operate is just one more area of competition. But unlike competition in a market it often results in a consumer loss rather than a consumer surplus.

Wilmers analysis highlights a fundamental problem with both national and international banking regulatory frameworks. They centralize decision making. As such they suffer from the faults flagged by Hayek and manifested in the disasters of centralized socialist planners everywhere. In life there are inevitably unforeseen consequences. A centrally imposed solution means all make the same mistakes; while in a free market some will have done something different and will profit from the unforeseen state of the world. Devolved systems are inherently more robust than centralized ones. Global regulations like Basel of necessity create global systemic risks which inevitably manifest themselves in global catastrophes. It is just a matter of time. This failing is not limited to finance. It is generally applicable and provides one more reason to oppose moves toward one world government. Measures such as the embryonic global carbon dioxide emissions trading schemes and United Nations anti copyright measures will almost certainly be fundamentally flawed.

As for the current state of financial regulation, shame on our legislators and shame on the economists who gave them cover. Being the lackeys of bankrupt ideologies is nothing to be proud of. It certainly does not warrant comfortable sinecures. It’s time to clean out the academic and political Augean stables. When people realize what what we have lost there will be rivers of tears to divert to the task.