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.
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.
should always contain 3 things,
1)Thanksgiving, 2) I’m Sorry, and 3) Please Help me
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.
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.)