E!! The True Conservative Story™

I highly recommend this long but excellent piece, “Wall Street Lays Another Egg,” by Niall Ferguson in Vanity Fair. You’ll be smarter if you read even half.

Hat Tip: Ralph Hancock on the Postmodern Conservative blog @ Culture11

This post on the values of capitalism over on Overcoming Bias is just excellent.

It starts with this quote:

“The financial crisis is not the crisis of capitalism.  It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism.”
        — Nicolas Sarkozy

and includes gems like:

The fundamental morality of capitalism lies in the voluntary nature of its trades, consented to by all parties, and therefore providing a gain to all.

and

Vigorous work is praiseworthy but should be accompanied by equally vigorous results.

and

No one has a right to their job.  Not the janitor, not the CEO, no one.  It would be like a rationalist having a right to their own opinion.  At some point you’ve got to fire the saddle-makers and close down the industry. 

and

No company has a right to its continued existence.  Change happens.

and

A high standard of living is the just reward of hard work and intelligence.  If other people or other places have lower standards of living, then the problem is the lower standard, not the higher one.  Raise others up, don’t lower yourself.  A high standard of living is a good thing, not a bad one – a universal moral generalization that includes you in particular.  If you’ve earned your wealth honestly, enjoy it without regrets.

and

People safeguard, nourish, and improve that which they know will not be taken away from them.  Tax a little if you must, but at some point you must let people own what they buy.

and

In countries that are lawful and just, the government is the referee, not a player.  If the referee runs onto the field and kicks the football, things are starting to get scary.

and

Making money is a virtuous endeavor, despite all the lies that have been told about it, and should properly be found in the company of other virtues.  Those who set out to make money should not think of themselves as fallen, but should rather conduct themselves with honor, pride, and self-respect, as part of the grand pageantry of human civilization rising up from the dirt, and continuing forward into the future.

Amen!

Victor Davis Hanson is always worth the read.  Today’s column is on the basic lessons we can learn from the financial mess.

An excerpt:

The new national gospel became charge now/pay later and speculate, rather than put something away in case of a downturn. To provide more goodies that we hadn’t earned, politicians ignored soaring annual budget deficits and staggering national debt and kept spending.

The lessons:

First, cash really is king. For all the talk of a trillion here or billions there, when the crunch came, many of these investment houses and their once-strutting managers found themselves with a minus net worth. They were desperate to find liquidity — any money anywhere they could find it. Pedestrian passbook savings accounts proved wiser investments than all the clever hedge funds, derivatives, and sub-prime schemes put together.

And:

Second, wisdom and blue-chip college educations are not quite the same thing. The fools in Washington and New York who blew up Wall Street had degrees from our finest professional schools.

And:

Third, we as a nation need to relearn the old notion of shame — as in “shame on you!” Firms like Lehman Brothers and Bear Stearns were once responsible Wall Street institutions, built up over decades by sober men. But their far-lesser successors in just a few months have bankrupted these venerable brokerage houses — with seemingly no shame at what they have done to the image of Wall Street.

Americans used to pay their debts. Somewhere in all the blame-gaming about the crooks and liars in New York and Washington, we never hear that real people borrowed real money that they should not have. And they then defaulted on what they owed to others. Walking away from debts may have been understandable, but it was also a violation of trust — and wrong.

My Uncle David, who lives in the state with the best motto – Live Free or Die – just forwarded this to me; I assume it came to him the same way (not sure the source).

CEO –Chief Embezzlement Officer

CFO– Corporate Fraud Officer

BULL MARKET — A random market movement causing an investor to
mistake himself for a financial genius

BEAR MARKET — A 6 to 18 month period when the kids get no
allowance, the wife gets no jewelry, and the husband gets no sex

VALUE INVESTING — The art of buying low and selling lower

P/E RATIO — The percentage of investors wetting their pants
as the market keeps crashing

BROKER — What my broker has made me

STANDARD & POOR — Your life in a nutshell

STOCK ANALYST — Idiot who just downgraded your stock

STOCK SPLIT — When your ex-wife and her lawyer split your
assets equally between themselves

FINANCIAL PLANNER — A guy whose phone has been disconnected

MARKET CORRECTION — The day after you buy stocks

CASH FLOW– The movement your money makes as it disappears
down the toilet

YAHOO — What you yell after selling it to some poor sucker
for $240 per share

WINDOWS — What you jump out of when you’re the sucker who
bought Yahoo @ $240 per share

INSTITUTIONAL INVESTOR — Past year investor who’s now locked
up in a nuthouse

PROFIT — An archaic word no longer in use

From the CNN op-ed page (emphasis mine):

Commentary: Bankruptcy, not bailout, is the right answer

I’m borrowing my post header from P.J. O’Rourke.  (VERY funny book if you have never enjoyed it.)

I do wish names would be Named, no matter the party affiliation:  who started and voted for all of the federal legislation, who harassed the lenders to conform, which lenders not only conformed but went above and beyond the call, and who made big bucks.

It won’t happen, of course, because they are all in bed together to some degree.

As Anne of Idaho quipped, “Someone needs to go to Washington and Wall Street and close down the whorehouses.”

If no bailout bill is passed and no other/better solution can be agreed upon, I am just fine with having us (and the rest of the world) go into a recession where everyone becomes more financially conservative and/or moderate. 

If I personally have to lose a little in the short term, so be it.  It’s what is best and wisest in the big picture that matters.  “Principle over pain.”

(Note to Chris Matthews on his statement that Dems “overwhelmingly” voted for the bailout bill:  sixty percent is not overwhelming.  In fact, I’d say it’s rather underwhelming.)

Roll Call is reporting that the House “voted 228-205 to reject the financial sector bailout bill crafted over the weekend by a bipartisan group of House and Senate negotiators. Speaker Nancy Pelosi (D-Calif.), Majority Leader Steny Hoyer (D-Md.) and Minority Leader John Boehner (R-Ohio) all had urged Members to support the bill. But House Republicans rejected it by a 2-1 margin, and more than 90 Democrats voted no.”

I’m reading accounts that Senator Chris Dodd’s weighty remarks and swelling ego nearly crushed a few innocent bystanders this morning as he bemoaned the Wall Street greed that got us into this mess.

The Chairman of the Senate Banking Committee uttered not one peep, though, re: his acceptance of $165K in contributions from failing Fannie and Freddie (presumably as payback for his opposition to properly overseeing and regulating them).

No mention either, that he benefitted from VIP insider discounted loans from the (now defunct) Countrywide Financial.

The following letter was sent yesterday to Treasury Secretary Henry Paulson:

September 24, 2008

The Honorable Henry Paulson
Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220

Dear Secretary Paulson:

As you continue to craft a financial stabilization plan with Congressional policymakers, I wanted to once again urge you to consider a move that could be executed unilaterally by the Treasury Department: indexing the basis of capital assets to inflation for purposes of calculating gain or loss.

There is a body of legal opinion which holds that the Treasury Department has the power to define “cost basis” when taxpayers calculate capital gain or loss. To date, Treasury secretaries of both parties have chosen to define “cost” as nominal purchase price.

This creates a situation whereby an asset held for many years and later sold may generate a capital gains tax liability when much or all of that gain is purely from inflation. For example, a stock purchased in 1990 for $1000 and sold today for $1676 would face a capital gains tax liability on the $676 “profit.” But in reality, 100% of that “gain” is attributable to inflation.

If the Treasury Department were to re-define “basis” to discount the effects of inflation, it would have a timely and pertinent effect on the current financial challenges. Households and businesses would be able to sell assets, unlock liquidity, and pay a much lower level of taxes. This liquidity is badly needed by capital markets. Best of all, this can be done by you unilaterally, substituting Congressional permission in favor of mere consultation.

Sincerely,
Grover Norquist

– E!! says:  This is better than nothing, but I’d like it much more if we eliminated the capital gains tax altogether.  (Yes, I realize that is probably a pipe dream.  That being the case, Grover’s suggestion is excellent.)

I had the honor of meeting and assisting Pat Toomey last week at the Conservative Leadership Conference here in Las Vegas.  This morning, Club for Growth says/releases the following (excerpted):

Eighteen months into the credit crunch, many largely capitalized financial services firms are experiencing serious difficulties but the overall economy continues to grow.  GDP growth over the past 12 months was 2.25 percent and 3.5 percent when excluding the drag imposed by the housing sector.  Even within the financial sector, many banks are doing well.  Regional bank indices had risen significantly since the lows of last July—prior to the bailout announcement—and thousands of community banks are thriving.  It is extraordinary that a massive government intervention in the economy is considered inevitable when the economy is not even in a recession.

Indeed it is.  On what is the panic of Wall Street types based?  Could it be fear that lack of liquidity and credit in the market will affect their own bank accounts?

At the same time, socializing economic risks come at a great cost to the American economy by misallocating capital, inviting political manipulation, and putting taxpayers on the hook for possibly a trillion dollars.  Such a large takeover by the government will surely be accompanied by adverse, unintended consequences.  Already, other companies and industries are lining up at government’s door asking for their own bailout.  And if the government incurs $700 billion in debt to finance the purchase of bad bank assets, the danger that it will eventually monetize that debt and trigger dramatic inflation is very worrisome.

“Unintended consequences.”  This concept is one of the great underlying tenets of conservative thought.  The idea is that when one makes broad, sweeping changes there are always unplanned effects, and they are often worse than the problem with which you began.

Our Do Nothing Congress should, in this case, do nothing (other than what Newt said yesterday).  We ought to free things up where we can, allow the market to self-correct, and let those who must (and should) take their proverbial Lumps. 

Access to unlimited cash and credit is not a “human right,” and we should stop behaving as if it is.