So Friday night, I leave on HBO after a preview of Cowboys and Aliens… Film looks great, but big mistake for not hitting the power button after the preview was over…

Eyes blood shot and in the final sentences of my graduate thesis, I look up. There’s Bill Maher sitting with three guests representing the nation’s political spectrum.

I shake my head when FreedomWorks’ Matt Kippe struggles to explain his Tea Party’s stance on spending prior to TARP. I roll my eyes when Republican Margaret Hoover can’t get any numbers right on the national debt…

And then, the real prize…

Representing the Democrat brand is Eliot Spitzer, a former Wall Street regulator, turned New York Governor, turned john, turned TV host, turned unemployed talking head.

And while defending the President and praising Bill Clinton for leaving a surplus (at the peak of another financial bubble… he leaves that part out), Spitzer blames Bush for the current debt problem…

Of course.

Forget that we’re 30 months into Obama’s first term and $4 trillion deeper in debt.

No… According to Client Number 9, our current crisis is the result of Bush giving America “the deregulatory craziness that led us over the cliff.” My eyebrows rise. I stop typing. I lean in.
Moments later, Spitzer tells the other panelists something even more perplexing… He is an “old school Democrat” because he knows and “believes in facts.”

Irony abounds. The mind reels. Spitzer is rewriting history and fueling the greatest myth of the financial crisis.

Now I’m no Bush apologist, believe me… but W is not responsible for “deregulatory craziness.” And the debate ends quickly when you know the facts and don’t make them up to fit your talking points.

The Web of Myth

Spitzer’s trapped in a myth for two reasons: First, the deregulatory efforts that fueled the financial downturn came in two Acts passed in 1999 and 2000, before George W. Bush entered office. This can’t be disputed because Bill Clinton’s handwriting is on the Financial Services Modernization Act of 1999 (FSMA) and the Commodity Futures Modernization Act of 2000 (CFMA).

Bill Clinton is not George Bush… and George Bush is not Bill Clinton. One is a Democrat, and the other a Republican… One has an affinity for cigars; the other, a preternatural ability to mispronounce words.

Glass-Steagall (The Banking Act of 1933) largely banned proprietary trading by Wall Street banks with only a few exemptions 80 years ago. But the FSMA repealed Glass-Steagall provisions and allowed banks to invest their own money in whatever they wanted: Other banks… risky loans…credit swaps… skulls… probably arms trading… I mean really, who even knows anymore? We’re still finding these things out as we sort the carnage of balance statements.

The CFMA on the other hand guaranteed that the government would not regulate derivatives, those pesky financial instruments that helped sink Lehman Brothers, Bear Stearns, AIG, Citigroup and a slew of hedge funds and financial institutions. That bill was a different monster brought forth by champions of the mid-90s.

In 1997 Clinton’s ex-Treasury secretary, Robert Rubin and super friends Alan Greenspan and Larry Summers, led the charge against Brooksley Born to prevent the Commodities Futures Trading Commission (CFTC) from monitoring derivatives markets. Greenspan eventually won a bitter war of words. Born left the CFTC in 1999, shipped out of Washington on a rail. Meanwhile, as Time magazine put it, Rubin and his team went on to “Save the World” during the Asian and Latin American crises.

So, isn’t it ironic that 10 years later, while Rubin was the Chairman of the Board at Citigroup, the company lost more than $50 billion on subprime derivatives trades? And now Citigroup represents the third largest individual bailout and loan guarantee in U.S. history at $280 billion?

I suppose you have to save the world, before you can destroy it. Still, Rubin went on to pocket $126 million in eight years… which is a fitting, yet average, payday for a former Goldman Sachs Co-chair.
But according to Eliot Spitzer, all of this is the sole fault of George Bush… because… Spitzer needed to set up Maher for a punch line about the Tea Party?

The “deregulation” that put the brick on the pedal on the car on the road that accelerated off the cliff? These Acts were signed by Bill Clinton and had overwhelming support from a bipartisan Congress…
And the argument could end there.

But that’s just part one of the George W. Deregulation myth… It’s the second part where Spitzer really gets it wrong. And here is what is so incredibly bizarre about Democrats constantly claiming that Bush’s deregulatory practices sank the economy.

Prior to the Swiss cheese that is the Dodd-Frank Act, the biggest regulatory effort in 70 years occurred under Bush in the passage of the Sarbanes Oxley Act. Now say what you want about Sarbanes Oxley, and then I’ll go even further. It was a terrible, costly, backward-looking piece of regulation that was designed in haste to reduce illicit accounting practices at public companies… And it failed miserably.

One of the principle problems during the crisis were illicit off-balance accounting practices at Lehman, Bear, and Citigroup (among others), which allowed companies to turn massive debts into report footnotes and shield their derivative exposures and leverage from the markets and their own investors. Sarbanes Oxley should have prevented these practices… but auditors never held companies accountable and the regulation never addressed the off-balance accounting standards that had been a part of nearly every crisis dating back to the early 1990s.

But failure or not, Sarbanes Oxley was not a “deregulatory effort.” In fact, SOX and Eliot Spitzer himself were the two greatest agents of Wall Street regulation since Roosevelt.

Before Eliot Spitzer became New York’s 54th governor, he was Eliot Spitzer, Attorney General and Sheriff of Wall Street. He himself was a part of the biggest litigation effort in the nation’s financial history, so his argument is dismissed by his own actions. Spitzer made a name for himself by tackling Wall Street firms under the 1921 Martin Act. This antifraud statute is so ambiguous that the state government didn’t even require Spitzer to demonstrate criminal intent before investigating stock inflation schemes. Anyone was guilty before being investigated.

Spitzer rose to fame as an aggressive regulatory champion, one who legally bludgeoned costly settlements out of numerous firms and shelled stock prices in the process. Specifically, he targeted Wall Street’s bread-and-butter business of underwriting initial public offerings. There was a craze of those in the Dotcom Era, right around the time that Bill Clinton was giving America those surpluses. But Spitzer’s efforts years later, combined with SOX, has made it far less enterprising and far more expensive to underwrite IPOs…

And as a result, we’ve had fewer IPOs than in the pre-Bush years on the backs of these efforts. Still neither can be called “deregulation.”

The only time during Bush’s tenure that we can actually say markets were “deregulated” was in 2004 when the SEC lifted the cap on how much leverage a bank can use. At the time, the SEC was being run by William Donaldson, a former Nixon adviser who is actually older than the Security Exchange Commission itself…

Though people blame Bush for his SEC’s decision, and it is damning, that’s practically impossible because no one at the SEC has had any clue what they doing for 80 years… Plus, the person who earns the most blame, according to Dylan Rattigan of all people, is Henry Paulson for leading efforts to make this possible for a decade…

But while SOX and Spitzer took an axe to the Wall Street IPO engine and drove off business to London, Spitzer’s actions and government intervention diverted Wall Street capital from stocks to the housing sector.

But deregulation hasn’t been the housing market’s problem in the past decade and a half. It’s been overregulated toward damn near centralized planning. Three decades of government tinkering (Fannie and Freddie, the Community Reinvestment Act, Tax Subsidies for Second Mortgages) placed incredible pressures and perverse incentives on lenders to reduce loan standards and increase credit availability.

But make that factual argument and Barney Frank will step out of an alternative universe and brand you a liar… In a Democrat’s world, this is the fault of Bush’s deregulatory blood lust.

I’m not even sure if Spitzer or half the people who voted for any of these bills know what “deregulation” actually means anymore. Deregulation should be defined as the elimination of government barriers to entry in a sector… not forcing banks to make loans through wishful social engineering. The Bush Administration, if anything, helped fueled government stimulation in the housing markets.

And what’s worse, the Obama administration recently pushed initiatives to drive increased lending to under-qualified buyers… again. What is the definition of insanity, by the way?

The new administration that blames Bush for deregulation doesn’t see the lesson from government involvement in the private housing sector… It thinks government can fix this… it’s doubling down on failed policies.

I’ve spent three years of my life investigating the root causes of this financial crisis. A Lexus worth of student loans says that I’m not here just trying to get a degree because I’m a glutton for academia… When the world melted down around me in New York in 2008, I had no clue what had happened. So I checked into grad school and wrapped my head around the past 20 years of this economic drama … Tonight, I’m submitting my thesis on the impacts of the housing crisis on public policy and corporate leadership.

My research dates all the way back to the New Community Reinvestment Act of 1995 and the Taxpayer Relief Act of 1997… Two more faulty, centralized initiatives under President Clinton that helped fuel Wall Street speculation while two other bills predating Bush deregulated the behavior of banks… The 2004 increase in leverage standards was the final gallon of gas on a bonfire built in the Clinton years as a strong wind created by crippled IPO operations and government mandates stoked the flames of crisis…

So, if I get anything out of this experience, let it be that I can tell you with full confidence that “Bush is responsible for this deregulatory craziness” is the most inaccurate thing I’ve heard out of a former politician’s mouth since… well… Friday morning.

But, then again… I’m not on TV, and Spitzer is. So his version will live on… Why let facts get in the way of a successful talking point?

Regards,

Garrett Baldwin
for Whiskey & Gunpowder

Client Number 9 And The Myth of Deregulation was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

If we were using numbers instead of metaphors, we’d say the CRB Reuters/Jeffries Index had its biggest monthly rally in 34 years. It was up 14% on the month. That was the best performance since July of 1974.

A monthly performance like that can only mean one thing. We’re just not sure what one thing it is. It could mean commodities have rebounded from being oversold, as they were in late 2008. It could mean that markets are less pessimistic about the global economy than your editor at the Old Hat Factory (though we doubt that).

It could also mean that investors increasingly prefer tangible assets as a long-term growth strategy over financial assets. Even after $1.465 trillion in realized losses by global banks and financial institutions, there are trillions more to come. Commercial real estate…the option-ARM recast period in the U.S. housing market…European banks…any or all of these things could conspire to lead to more losses and more capital raisings in the financial sector.

Perhaps that is what explains crude oil’s biggest monthly gain in a decade. July crude futures traded at $66.52 in Friday’s New York action. The U.S. dollar price of gold powered to $981.20, before sliding back a bit $975.

The Aussie gold price is fighting its way up despite the fact that the Aussie dollar keeps gaining on the greenback. While the Aussie gold price is up just $1.71 in the last 30 days (0.14%), the U.S. gold price is up nearly nine percent. We reckon the Aussie gold price will begin moving up closer to $1,500 again on a combination of events (weakness against the greenback for one.)

There are also two data releases this week that will affect the Aussie dollar. The RBA meets today to decide the price of money in Australia (set interest rates). And then Wednesday, the March quarter GDP figures come out. This will tell us how bad the recession is, although not how bad it may become.

It’s no use predicting these things, but for what it’s worth, our view is that we’re in a bit of a plateau between down moves. The “down moves” will come again in financial stocks, although they may not be as “down” as before, and employment. Mostly, the indices are going to have to price in very slow GDP growth for the remainder of the year and more job losses.

The wildcard for Australia is trade. Its proximity to Asia means that a rebound in that part of the world provides some cushion to resource companies. But then, we thought the resource stocks would be pretty well insulated from the first round of deleveraging too, and we were wrong about that. And the second time around?

Well, even if the long-term underlying demand for Aussie resources is real and growing, it still takes real money to make new projects happen. The financing of resource projects will continue to be a key issue in your stock selection. The other issue, obviously, is the direction of commodity prices.

Take LNG, for example. Last year the Australian Petroleum Production and Exploration Association said it wanted to triple Australia’s LNG output to sixty million tons per year. Meeting this weekend in Darwin, the group says 50 million is a more realistic target, given both the slump in energy prices and tight credit markets.

If LNG prices track oil prices-as they did in the big run up to $150 per barrel for crude-the economics of big Aussie projects get a lot better. Our view is that energy prices are going structurally higher anyway. Global recession aside, the big plunge in energy capital spending virtually guarantees a supply shortage in the coming years anyway.

Besides, you have to wonder why big international energy firms would be investing in conventional and unconventional Australian LNG projects if they weren’t convinced that a) oil prices were going higher, or b) more carbon-friendly fuels like gas would gain as coal gets politically demonized and punished with cap-and-trade or emissions-trading-schemes.

Obviously, if global trade continues to contract and a second round of losses in the global banking industry triggers another financial crisis, demand for energy is going to fall. And while we’re at it, stocks would probably test the 2003 lows too. We enter a new stage of grimness.

In the meantime, energy and precious metals stocks are riding higher commodity prices. And there’s a distinctly 2007 mind-set in the air. It’s vogue to be long-commodities and indifferent to risks in the financial system. It’s enough to make an investor with a short memory nervous.

Regards,
Dan Denning
Daily Reckoning Australia

June 2, 2009

What Are Commodities Saying About the Financial Crisis? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Now that it’s here, we turn our attention to trying to discern, “How bad can it get?” and “How long can it last?”

While such questions can never be answered with anything approaching absolute certainty, there are methods that can be used to assess what may lurk over the horizon. With that goal in mind, this article focuses on – and then expands upon – the recent work of two economists who painstakingly analyzed a substantial number of previous banking and currency crises in an attempt to derive potentially useful lessons. I have then taken their data and applied them to the current circumstances to see where we are, relative to those other experiences.

The Data

The data are from a study called “The Aftermath of Financial Crises” by Carmen M. Reinhart of University of Maryland and Kenneth S. Rogoff of Harvard University. In their study, the authors summarize the results of a broad sampling of banking crises, with between 13 to 22 crises analyzed for each of the variables.

The Reinhart/Rogoff study is based, in turn, on data extracted from an even more comprehensive study of events in 66 countries, titled “This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises,” by the same authors.

I’ve summarized the findings from the latest study in the table below:

The economic measures in the left column show how far the U.S. situation has deteriorated so far. The next columns show the average historical deterioration and the worst case of the crisis analyzed.

I then applied these data to calculate the levels that the U.S. could reach if it followed the path of the historical examples. The projected level is based on the measure analyzed, either from the peak prior to the downturn (e.g., the S&P 500) or from the bottom prior to the downturn (e.g., the lows in unemployment). Thus, as you can see in the table here, the S&P 500 has already dropped from its October 2007 peak of 1565 down to 766. If this crisis were to end up being only “average,” then it would drop to 690.

If, however, the worst case of a 90% drop were to occur, as it did in Iceland last year, then the S&P 500 would trade down to the shocking level of 157. For further reference, if the current crisis were to cause the stock market to fall as sharply as in the Great Depression, the S&P would touch 469.

Duration of Crisis

As you can see in the summary table below, it took 3.4 years, on average, for the stock market to fall from the peak to the bottom. In the worst case, it took five years. With the recent peak in the S&P 500 occurring in October 2007 – just one and a half years ago – the crisis is likely to have some time to go before reaching even an average duration. More specifically, if this crisis turns out to be just “average,” we would not expect to see the low before the first quarter of 2011.

Crisis Horizon: Some Conclusions

The global economic situation continues to deteriorate on all fronts (see charts below).

Housing prices are down 28% from their bubble peak in 2006 but still have a ways down to go to get back to their pre-bubble levels. Even an average downturn will mean that housing remains a problem for several more years. Unless, of course, the government steps in to stave off those resets… a “solution” that carries with it a separate set of problems, making things worse. We continue to expect very serious problems in the commercial real estate sector.

The stock market is approaching a 50% decline, the average of what has been observed in past crises. Further slowing in U.S. corporate activities and profits means additional increases in unemployment, establishing a negative feedback loop that pushes corporate profits – and stock prices – even lower.

The only growth trend at this point is in government bailouts, which are in high gear, indicating we’ll experience the serious growth of outstanding debt seen in other crises. The elevated levels of government borrowing required to fund that spending are absorbing all available credit from foreigners, directly competing with business in need of the new financing that will be required to expand the economy. The combination of declining business activity, coupled with declining levels of household income, will result in declining tax revenues, increasing the budget deficit beyond the size of the new bailout programs. State and municipal governments across the nation are already being confronted with large shortfalls in their budgets, shortfalls that will only widen as the crisis worsens.

The combined business slowing and jobs contraction assure that the GDP will decline. Components of GDP having to do with necessities like food and shelter will continue to bump along regardless of the economic conditions, but the lack of growth in GDP could extend for years as it did in Japan and as it did after the 1929 stock crash.

Inflation/Deflation

Given that we are currently in a deflationary phase, it is easy to dismiss the case for inflation – and many do. We think that is a mistake. Even a summary tabulation of the unprecedented increases in government debt at this relatively early stage in the crisis make a compelling case for higher inflation, if for no other reason than that it shows clear intent on the part of the government to spend “whatever it takes” to offset the deflationary forces now stalking the land.

The research paints a dismal story of years of economic stagnation. In our view, the trend is now firmly established for dollar debasement, a debasement that will eventually overwhelm the deflationary pressures from collapsing asset values. Therefore, don’t listen to the happy faces on CNBC spouting off, for the umpteenth time since this crisis began, that now is the time to jump back in and buy stocks. It isn’t.

Be extremely skeptical when you hear some pundit pronouncing that this piece of short-term good news or another is an “all clear” signal. Until we start seeing a systematic improvement in the economic fundamentals – for example, an upward movement in consumer confidence – the only signal the economy will be hearing is that of a runaway train coming straight at it.

Regards,
Bud Conrad

April 23, 2009

Assessing How Serious the Financial Crisis Can Get was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Now that investment banking, proprietary trading and various other seven-figure Wall Street professions are losing a digit or two, funding is drying up for high-maintenance, extra-marital relationships.

During the go-go days (and nights) of the late nineties and early aughts, Manhattan’s “kept women” enjoyed 5-star lifestyles. But the disappearance of over-the-top pay packages has crimped the economics of under-the-covers liaisons. As Wall Street’s pampered professionals lose their perks, so do their girlfriends. Many of these privileged ladies must now adjust their lifestyles “down island,” so to speak. The posh, Upper East Side digs of 2007 are yielding to Lower East Side lofts and studios.

Some of these gals are suffering such a severe drop in income and lifestyle that they are starting to resemble, dare I say, prostitutes. It’s humiliating. Sadly, these voiceless victims of the financial crisis possess almost no recourse. Either they accept a cut in pay or choose a new line of work, just like their boyfriends must do. But the transition away from high-priced prostitution to less lucrative lines of work can be very stressful. And it’s not easy for the girls to change their professions either.

Even the fortunate members of the girlfriend elite who have survived this initial wave of layoffs face new stresses. They must now carefully consider the security of their revenue stream, and contemplate a vast new range of potential risks. They must ask themselves, “Does my boyfriend work for one of the big banks or does he work for a hedge fund? If he works for a bank, is the bank receiving TARP funding? If yes, is my boyfriend’s bonus ‘contractually obligated’ or discretionary? If no, can my boyfriend’s bank survive without bailout monies? If my boyfriend works for a hedge fund, is the fund suffering from poor performance in 2008? Or, if the fund’s numbers were good in 2008, were they also real? Who’s auditing this thing anyway? Is the auditing firm reputable or does it operate out of a small, dingy office in Florida?”

Younger members of the girlfriend elite will also want to contemplate long-term economic trends, like the prospective path of the U.S. dollar relative to foreign currencies or gold. There’s almost nothing more tragic than devoting a lifetime to backbreaking labor, only to accumulate savings in a fatally flawed currency. Sure, you get to keep all the memories from a career of faithful service, but what happens to your golden years?

So every highly compensated girlfriend owes it to herself to ask, “Would it be best to save money in dollars or euros or yen…or perhaps something more exotic like Brazilian reals?” After all, this is business.

“According to a survey by Prince & Associates, a Connecticut-based wealth-research firm, the average ‘price’ that men and women demand to marry for money these days is $1.5 million,” reports Robert Frank in a fascinating column for the Wall Street Journal entitled, “Marrying for Love…of Money.”

“The survey polled 1,134 people nationwide with incomes ranging between $30,000 to $60,000 (squarely in the median range for nationwide incomes),” Frank continues. “The survey asked: ‘How willing are you to marry an average-looking person that you liked, if they had money?’

“Fully two-thirds of women and half of the men said they were ‘very’ or ‘extremely’ willing to marry for money. The answers varied by age: Women in their 30s were the most likely to say they would marry for money (74%) while men in their 20s were the least likely (41%). The matrimonial price tag varies by gender and age. Asked how much a potential spouse would need to have to be money-marriage material, women in their 20s said $2.5 million.”

Let’s think about this; $2.5 million seems like a lot of money. But it seems like a lot less money if you’re a 20-year old facing a new cycle of hyper-inflation. Therefore, given the crisis of the last 24 months, and the Fed’s inflationary response to that crisis, every forward-looking gold-digger has reason to wonder if $2.5 million is really enough…and whether the dollar is really the best store of value.

And one final note gals; PLEASE know your counterparty! Contracts – both actual and implied – are only as good as your counterparty. Specifically, examine the size of prospective “senior claims,” like the divorce settlement that might ensue from your first chance encounter with Mrs. Investment Banker. Additionally, be certain that your counterparty has not issued multiple, redundant claims on the identical underlying asset.

The “Risk Factors” section of the prospectus may not include all the relevant disclosures.

Regards,
Eric Fry

April 9, 2009

Coping with the Financial Crisis as a Kept Woman was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Don’t like slavery? Let’s fight a war, even though slavery was disappearing rapidly and it had been illegal for 55 years to import more slaves. Let’s call the power grab “Saving the Union.” That sounds good, doesn’t it? (When dishonest Abe got elected, as the first Republican, six states instantly seceded, as they knew what was coming). Don’t like roads? Let’s build an interstate highway system at taxpayer expense, charge no tolls, and kill tens of thousands of businesses, kill railroads, escalate the price of fuel to pay for them forever, and change the cities, face, air, and oil consumption of America. Want to give a lot of power to big shots? Let’s form the Federal Reserve, which isn’t federal, and has no reserves. Let it print money created out of thin air, loan it to the taxpayers at interest, and make them pay through the gills with inflation.

Yes, I can literally go on and on. They write an infinite number of bureaucratic prescriptions, which are all force fed to the citizenry, who, in the main, seem to think that it is all so wonderful, while the nation is flooded with trash, lazy, non-productive people, living off the thousands of welfare schemes. The masses become so drugged with fake hopes, fake money, empty promises, and non-education that they finally actually voted in Adolph Hitler, FDR, LBJ, and now Obama. The drugs and prescriptions of government and bureaucracy, have worked well by making D.C. the absolutely most stupid, power mad, idiotic, corrupt city in the world. And we all anxiously awaited the outcome of the elections. I did, and so did you, even though one was about as bad as the other, and the Congress is hopeless, no matter who gets elected…except Ron Paul possibly.

What is now happening happened in the 1930s, and is absolutely like a carbon copy. The Fed floods the market with tons of cash, which makes the stock market and real estate bloom like flowers in spring, with banks loaning on slim or no margin, thereby creating a huge bubble, which has to eventually bust. It did then, and has currently burst. Then they tried to “fix” the broken economy, like they are trying to do now, only at the expense of the taxpayer. Didn’t work then, and old FDR finally got us out of it by means of WWII. The morons of D.C. are literally printing $2.7 TRILLION un-backed pieces of paper, to “fix” the economy, and it won’t work. FDR’s dollars had to be backed by gold, so he told everyone to turn in their gold so he could print more dollars, which didn’t solve the depression, but robbed the populace of hundreds of billions of bucks, when he raised the price of gold from $20.67 to $35, overnight. Today, there’s no backing, they need no gold to back dollars, so they merrily will print and print and print till who knows when? Will the buck collapse, thanks to printing? I don’t think so, because everyone’s doing it!

If something works well for politicians, other politicians will glom onto it, and do it also, which they are. The world’s a big printing press. All governments are printing their respective currencies like there is no tomorrow…except there is. Hyper-inflation is what it is called, even though the time delay between printing and hyper-inflation fools most. It will come. How to fix the current situation? Not easy, because as each depression comes along, they might get worse, thanks to government. The way to fix this, is to simply let the cards fall where they may. No interference of any kind. No bailouts, no subsidies, and no ‘help’ from governments anywhere. Failures? Lots of them, but they probably should have failed anyway. Broke people and corporations? Can’t be helped. They have done it to themselves or are caught in a bad place. Everyone has to help themselves, no matter the cost.

Cruel? Yes, but when government ‘helps,’ in any situation, the ‘help’ instantly turns to ‘hurt’ of the productive class, whose taxes pay for government, which is hurting them. Obama has promised to ‘help’ the poor, at the expense of the producers who pay his salary. This is known as biting the hand that feeds you. When government endlessly subsidizes, ‘helps,’ and hires tens of thousands of money-ingesting bureaucrats to regulate the producers and hand out scrip to the non-producers, calamity is the obvious result.

The nations of Earth, with America being no exception, are flooded with trash, non-productive people, who have no real reason to exist, other than to suck the very life’s blood out of the productive class. The entire continent of Africa, to make a generalization, is classic. Ask the Germans about the Turks. How about North Philly, East St. Louis, Detroit, or South Central LA? How to get rid of them? Other than letting them self-destruct, I have no idea, but at least I know the problem. Government handouts gave us the underclass, and now we have to put up with them, while they continue to suck at the government teat. Suppose all ‘help’ ceased? Suppose 85% of federal bureaucrats were fired, the IRS eliminated, and their offices sold to productive businesses? Suppose 85% of all federal government were disbanded, and D.C. was turned into a virtual, temporary, ghost town, till producers could come in? But then, I speak of a Constitutional government, and that is old-fashioned, I realize.

The Constitution tells government what it can do, and that range of permissions has been so totally ignored and violated, that it is no wonder we are where we are now. What to do? There is no better place on earth to live, so we must stay here, preferably in small towns with sound banks, small governments, and no severe weather. And of course, we must protect ourselves. I can offer no other solutions, because the decay has so thoroughly infected the patient, that more prescriptions will only harm us more.

Regards,
Don Stott

November 25, 2008

Stop Fixing It was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.