Tuesday, December 27, 2011


Wall Street Protesters
They were in the news big time a few weeks ago. Now things seem to have calmed down. I copied the following article a few weeks ago and never go around to posting it. It was written by David Moon, an investment manager in Knoxville, TN. I think you might enjoy it.

Wall Street protesters should blame democracy

After dinner two Fridays ago, one of the Knoxville variants of the Occupy Wall Street protesters explained to my family and me that capitalism caused the eco­nomic collapse in 2008 and its continuing malaise. He was wrong. It was not a failure of capitalism. It was a failure of democracy.

Our current problems began in a mortgage mar­ket run amok, at both the individual and institutional level. Fannie Mae and Fred­die Mac were created by elected officials to pursue certain social goals. Con­gress subsidized mortgage rates with the stated pur­pose of encouraging home­ownership.

The unintended con­sequence was that peo­ple bought homes who shouldn’t have. Others bought much more house than they should have.That wasn’t a result of capitalism. It happened because Congress was at­tempting to bribe voters with their own money. The federal government nationalizing General Mo­tors wasn’t capitalism, nor was the suspension of bank­ruptcy liquidation prefer­ences. It was a way to curry favor with certain groups who were socially favored by Washington decision­ makers.

Bailing out AIG was, among other things, a way to curry favor with Gold­man Sachs, one of AIG’s largest creditors.

Allowing Lehman to fail likely also pleased the folks at Goldman Sachs. Yet the same government that al­lowed Lehman to fail also provided more than $182 billion to AIG, almost $13 billion of which ultimately ended up in Goldman’s cof­fers as a result of credit de­fault swap obligations.

Hank Paulson, a treasury secretary under former President George W. Bush, was CEO at Goldman before his stint in public service. Investment banks pack­aged and resold Fannie Mae-guaranteed mort­gages, pretending that put­ting a bunch of risky assets together would magically make the risk disappear. It doesn’t. As Charlie Munger says, when you mix raisins and turds, you get turds.

Capitalism, however, honors the rights of private ownership of property, in­cluding the right to waste or lose it. Capitalism would have allowed all of them to fail. Goldman, Lehman, AIG and General Motors. And the folks underwater on their mortgages. Neither JP Morgan nor Ford needed government bailouts. It is not free mar­ket capitalism when the tax­payers subsidize Ford’s and JP Morgan’s competitors.

Nor is it capitalism when debt-free homeowners or those who pay their mort­gages subsidize those who can’t or won’t. Joseph Stiglitz is a Nobel laureate economist who was invited to speak to the Occupy Wall Street protest­ers in New York City. The nuance of his comments was probably lost on the group, as they appeared more interested in prepar­ing for the next Bonnaroo than understanding an eco­nomic system they claimed to protest. Stiglitz explicitly noted that their problem was not capitalism, saying, “It is not capitalism when you so­cialize losses and privatize gains.”

Even Stiglitz, a guy sup­porting the protesters, ac­knowledges that capital­ism would not have allowed businesses and individuals to “share” their losses and poor decisions with society. As long as the protesters look externally for a solu­tion to their economic ills, they will remain impotent. Once a man blames oth­ers for his problems, he has given away the ability to change his condition.

David Moon is president of Moon Capital Management, a Knoxville­based investment management firm. He may be contacted at http://www.davidmoon.com.


Tennessee Granddaddy Says:
I don’t want to get too serious this week, but we must remember that life is serious. A new year is about to dawn. We all hope it will be better than the last year. The best thing we can do is to pray more earnestly in the coming year.
Someone said that our prayers to God
should always contain 3 things,
1)Thanksgiving, 2) I’m Sorry, and 3) Please Help me

Quote of the Day
People are so worried about what they eat between Christmas and the New Year, but they really should be worried about what they eat between the
New Year and Christmas.
~Author Unknown

Joke of the Day

A Senator in the USA was once asked about his attitude toward whisky.

'If you mean the demon drink that poisons the mind, pollutes the body, desecrates family life, and inflames sinners, then I'm against it.  But if you mean the elixir of a New Year toast, the shield against winter chill, the taxable potion that puts needed funds into public coffers to comfort little crippled children, then I'm for it.  This is my position, and I will not compromise.'

(Don’t Drink and Drive,
but it might be better just to not drink.

Add your thoughts & ideas to this blog by clicking on the "comments" below

No comments: