November 09, 2009

Notes from a degenerate

Newsweek was kind enough to print an amateurish book review from Mark Sanford about a new bio of Rand by Anne Heller. I was privileged to read it on the internet, created in no small part through the efforts of the US government which he so blissfully dismisses as worthless and oppressive. Why is it that degenerates like Sanford are usually the most vocal regarding their hatred of government and most ignorant regarding what the government actually does? If you can answer that, I'll buy you dinner at the restaurant of your choice. As long as it's any Carl's Jr. location.

Mark loves him some Rand.

When I first read The Fountainhead and Atlas Shrugged in the 1980s, I was blown away. Those books portray the power of the free individual in ways I had never thought about before.

He does acknowledge that Rand's philosophy is fundamentally flawed since it doesn't jive with human nature which I have to admit is awfully large of him. Where he goes off the rails is his bullshit about government being the problem and the free market solving all problems.

Why? I think at a fundamental level many people recognize Rand's essential truth—government doesn't know best. Those in power in Washington—or indeed in Columbia, S.C.—often lead themselves to believe that our prosperity depends on their wisdom. It doesn't. The prosperity and opportunity we enjoy comes ultimately from the creative energies of the country's businessmen, entrepreneurs, investors, marketers, and inventors. The longer it takes this country to reawaken to this reality, the worse we—and in turn, our children's standard of living—will be.

Rand's essential truth? How ridiculous. As if any of her pedestrian writing and thin plots contain more than fleeting moments of truth on the subject of greed. Altruism is wholly absent from Rand's world as are notions of shared sacrifice (or even responsibility) toward achieving a common goal. But she was a hater of government and always bore an irrational fear of it which isn't surprising since she spent her formative years in the early Soviet Union. Had she been here, she might have taken in a little more of what we did... WE are the government. WE are the country. WE depend on one another to keep the United States healthy and strong. It's a, hold your hats Randians, COOPERATIVE EFFORT.

When the economy took a nosedive a year ago—a series of events that arguably began when the government-sponsored corporations Fannie Mae and Freddie Mac went broke—many Americans, myself included, watched in disbelief as members of Congress placed blame on everyone and everything but government. This wasn't new in 2008. It's an act we've seen over and over since the beginning of the New Deal in 1933. For that reason, I think, those passages in Atlas Shrugged foreshadow what might happen to our country if there is no change in direction. As Rand shows in her book, when the government is deprived of the free market's best minds, it staggers toward collapse.

And this is what makes me think Mark needs the stupid beat out of him. He's either too ignorant of the markets to know this all started in 2007 or he's just lying to make a point. Either way, it's really infuriating to those of us who were there before and are still here now. We knew what was happening though none of us had any idea how bad it would all get as a result of a few strategic errors on the part of a guy we thought would be a great Secretary of the Treasury but who, in fact, ended up being another Randian ideologue masquerading, like Alan Greenspan did for decades, as a real capitalist.

This started with the collapse of hedge funds and CDO's which were largely unregulated by the government. This started when the loans inside those CDO's started to perform like B&C credits which is exactly what they were. The investors lost faith in the instruments because they thought all along they were getting A credits and never really understood the structure of the CDO's. The final straw was all the insurance fraud going on with credit default swaps when insurance wrote far more coverage than they could possibly provide. And, within months, Bear Stearns had collapsed and that really kicked things off.

Even today the private markets are still in disarray, more than a year after the collapse of Lehman Bros. Sanford assigns the beginning of the collapse to the takeover of FNMC and FHLMC, better known as Fannie Mae and Freddie Mac. This incredibly questionable nationalization was executed by a Secretary Paulson who entered office as a common sense businessman and who quickly showed his true colors as a partisan ideologue. Neither Fannie nor Freddie were in any real danger of collapse. Both are turning rather large profits even today on continuing operations mostly due to massive delivery fees imposed in the wake of the crisis and still in effect today. Both Agencies have current losses due in large part to mortgages in their portfolios that are being modified because of Administration programs AND, of course, the loans on their books many of which were securitizations purchased from (you had to see it coming) WALL STREET BANKS. Exclusive of those losses, FNMA for example would have posted a profit of almost $4bn. In point of fact, the only mortgages being done in the US are those written to guidelines promulgated by Fannie, Freddie or the Federal Housing Administration. The government IS the market in residential financing because the free market which Gov. Sanford lauds is still balled up in the corner crying.

Could things have gone differently? Sure. At any time we could have stopped the slide and cut the crisis off at the knees because, in the end, it's a crisis of confidence just like any other crisis. The actual flaws in the financial system (aside from the ridiculous underwriting standards of many now deceased companies) were only deadly when everything spun out of control and massive layoffs ensued. It wasn't necessary, it didn't have to happen this way. For one thing, had we not been running such large deficits for so long the dollar never would have collapsed as low as it did which, coupled with some common sense regulation of commodities speculators, would have kept oil far lower than the roughly $150/bbl at which it traded as the disaster unfolded in 2008. That one thing could have averted a lot of the disaster and I wasn't the only who saw that piece.

However, high oil prices cause a recession, they don't cause an economic collapse. What really turned the crisis into a full blow panic was the decision of Secretary Paulson to kill Lehman Bros. For that decision, the Secretary should go to jail. As soon as he did that, it was a signal to investors around the world in debt markets : WE'RE READY TO LET THE WHOLE THING GO DOWN THE DRAIN. Investors rapidly got the message and much to Paulson's dismay even started tearing down Goldman Sachs. Where Mark Sanford, once upon a time, used to work. Mark's so blinded by that old loyalty even now he can't bring himself to see the very part Paulson played in all this.

If you want to read a GOOD review of Heller's book that doesn't have all the partisan sniping and factually incorrect information about extraneous events, click here.

Posted by mcblogger at November 9, 2009 03:13 PM

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