By Monty Pelerin, posted March 12th, 2010 http://www.economicnoise.com/2010/03/12/freedom-vs-politics/ Tony Blankley captures the flavor of the American political scene in his piece “An American Obsession with Freedom.” Edward Burke referred to “… some favorite point which … becomes the criterion of their [the peoples’] happiness.” Blankley believes that point was crossed by the Democrats in their all-out surge to pass healthcare and expand the government to levels never before seen:
I believe that the rise of the Tea Party movement and the impassioned nature of American politics in 2009-10 is the result of the Obama administration’s having, probably inadvertently, intruded into “some favorite points which becomes the criterion of (our) happiness.”
Regarding the debt, Blankley states:
Similarly, the shift from less than $500 billion of annual deficit in the last George W. Bush year to a $1.5 trillion deficit in each of the first and second Obama years (and the proposed addition of almost $10 trillion of new public debt over the next decade) has — by the increase in quantity — changed the nature of public debt in such a way as to intrude into our sense of our fundamental liberty.
Blankley sees a way back from our current position:
The first hard step in that defense will be the election in November. The second, even harder step will be the rollback of already enacted debt and damage to our freedom. Defining the extent and detail of the rollback must be the agenda for the government’s loyal opposition in this year’s election. And the things to which we are loyal are our Constitution, our founding principles and the good institutions and social contrivances brought into being by those principles over our providential history.
  There obviously is a way back, but I am not as optimistic as Blankley that it will be taken. Our society has grown soft with increasing numbers of people sucking on the government teat. It is difficult to imagine how politicians will have the courage to do what is right. After all, “Vote for me, and these are the benefits I will take away from you” is not apt to be a winning political strategy. It has not been for the past century.
To regain freedom and to survive means a dismantling of the welfare state and government as we know it. Time is short, if indeed the task can be accomplished at all.
While everyone is for more freedom, no one willingly parts with his seat on the gravy train. We are in a race between the development of political courage and its proper use versus an oncoming financial collapse. At this stage, one appears to be an overwhelming favorite. I know which one I am putting my gold on.
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By Monty Pelerin, posted March 12th, 2010 http://www.economicnoise.com/2010/03/12/not-gridlock-but-brainlock/   Complaints about Washington abound. Most consider President Obama the problem. Others consider lack of cooperation or gridlock the problem. There is a problem, even if there is disagreement as to what it might be.
For me, gridlock is not a problem. It is a blessing! I think there should be more of it, rather than less. Pour more sand into the engine of government. Encapsulate all government buildings with impenetrable epoxy glue. Stop everything completely. Hooray!
President Obama is a problem, but he is not the problem. He is a symptom of a much larger problem. To further understand, one need only look at recent Presidential and Vice-Presidential candidates. How comfortable were you having to choose between McCain and Obama? Do the names Kerry, Bush, Gore, Clinton, Dole, Palin, Edwards, resonate with anyone as the best and brightest? Remember, these were the survivors from primaries that had even more motley characters.
A process that produces such inferior choices ensured that one day we would get an “oddball.” In many peoples’ minds that has now occurred. We elected a gifted orator whose only experience was a sophisticated form of Chicago-style street hustling. How is it possible that this man-child, with no experience, could attain the highest office in the land?
The problem is not Barack Obama. Nor is it the process that provides such flawed candidates. Both result from a democratic process driven by the people. Ultimately, the problem resides with the people.
An email from a friend contained the following explanation of the problem. An anonymous responder apparently produced this commentary in response to some Reuters article. I believe it describes the problem quite nicely:
“The danger to America is not Barack Obama but a citizenry capable of entrusting a man like him with the presidency.
It will be easier to limit and undo the follies of an Obama presidency than to restore the necessary common sense and good judgment to a depraved electorate willing to have such a man for their president.
The problem is much deeper and far more serious than Mr. Obama, who is a mere symptom of what ails us. Blaming the prince of the fools should not blind anyone to the vast confederacy of fools that made him their prince.
The republic can survive a Barack Obama, who is, after all, merely a fool. It is less likely to survive a multitude of fools such as those who made him their president.”
Monty Pelerin posted this originally on American Thinker
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By Monty Pelerin, posted March 12th, 2010 http://www.economicnoise.com/2010/03/12/the-wealthy-merely-seek-legal-redress/ The following represents a comment received on the post The Wealthy Beg. I thought it important enough to deserve a post. It provides an explanation of SIPC and how it works. The author corrects some impressions conveyed by my post that were originally reported in the Bloomberg article.
Thanks to Mr. Friedman for setting the record straight. His comment was included with the original post.
Thank you for allowing replies to your blog. The issues here are being somewhat distorted by your presentation of what you believe are the facts here. First, nobody is asking to be whole or beyond being made whole as you reported. There is a maximum limit, just like FDIC has a maximum limit as to what a person can possibly expect to be gotten back. Secondly, you must familiarize yourself with the SIPA law of 1970 that created SIPC before you are unduly influenced by the rantings of Stephen Harbeck, the President of SIPC.
In its 40 year history, and based upon the law, if a broker/dealer goes bankrupt, it is SIPC’s responsibility to first try to recover the shares of the investor and return it to them. If not all of the shares can be recovered (note: regardless of whether or not they were ever purchased), than it is SIPC’s responsibility to go out to the open market and purchase those shares. Nothing in the SIPC statute addresses what it cost those investors in the first place.
Let’s take a simple example. An investor bought 100 shares of IBM for $50. So, he paid $5,000. The broker goes bankrupt, and the shares cannot be recovered. SIPC comes in and buys 100 shares of IBM. If the share price is $25, then SIPC spends $2,500. If the share price is currently $100, then SIPC spends $10,000. There is no mention about how much the investor originally paid. It doesn’t matter, and they don’t care. SIPC “insures” what the balance was at the time of the default, not what the investor paid. So, if the investor had a losing position on the stock, they don’t get back their original cost, they get back the market value of the stock at the time SIPC buys it. There is no profiting on a bankruptcy.
When FDIC comes in when a bank folds, how much do the depositors get back (up to the maximum)? They get back their account statement on the day of default. That’s more than they originally invested. Right? Especially if they never took out the interest income. What if the bank had a Ponzi scheme going and all the interest earned was phony? How much would FDIC then pay? It would still be the account balance. Same with how SIPC was set up.
You should also be aware that while you are knocking the “well to do,” there are thousands of “Joe and Jill Sixpack” Madoff investors who were left destitute, who had worked hard all their lives and thought they were investing with a company that the SEC gave a clean bill of health to numerous times. They thought that the Chairman of the NASDAQ exhange was an honest person.
Please don’t throw around the word “Chutzpah” when the victims are trying to get the government to enforce on SIPC the laws that have always existed. Please be aware that the securities industry never complained when they sucked in millions of investors by promising them all SIPC protection up to $500,000 per account, when these same companies knew very well that all they paid PER COMPANY for 19 years was a mere $150. That’s NOT $150 per account, but one payment of $150 per company to supposedly protect all of their customers. You do the math. How can that possibly protect more than a few people? Only in a perfect world where there are no claims. Yet, people, not knowing any better felt protected, that they could leave the securities in street name.
The ultimate irony is that if there was no SIPC, there would never have been a “Madoff.” Madoff needed SIPC to pull off his scam.
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By Monty Pelerin, posted March 11th, 2010 http://www.economicnoise.com/2010/03/11/the-wealthy-beg/ In a further sign of the deterioration of society, the wealthy (or formerly wealthy) believe they are entitled to be bailed out for their losses. The victims of the Madoff and Stanford scams are appealing to Congress for a bailout. Bloomberg reports:
Together, the groups hope to persuade Congress to add a requirement to the regulatory overhaul bill, now under Senate consideration, that brokerage firms pay about $4 billion in additional fees to the Securities Investor Protection Corp. fund. SIPC protects U.S. investors’ accounts against fraud or bankruptcy. The victims also want Congress to require the fund to compensate them up to $500,000 each in losses.
We all should have sympathy for the victims of these two Ponzi schemes. After all, their lives have been adversely affected, in some instances irreparably. However, to believe that the rest of the country has an obligation to make them whole is a bit outrageous.
The lobbying initiative “gives new meaning to the word chutzpah,” said James Cox, a professor at Duke University School of Law. “This is just a tax increase. It’s levied on banks but customers end up paying.”
Their effort is natural. After all, in a society that bails out banks that created the economic crisis, why would others not believe they are entitled to the same treatment? When “victimology” becomes the code, all deserve to be recompensed for anything that is bad, or even unsatisfactory. No one should lose money, even when it is their fault.
The claimants seek more than to be made whole. Apparently they believe they should be compensated for the fictitious profits that were reported to them:
Stephen Harbeck, president of SIPC, said his fund has enough money to cover all legally permissible claims up to the $500,000 maximum. SIPC has agreed to pay more than $650 million to other Madoff claimants.
Harbeck declined to comment on the victims’ lobbying. “Speaking only for myself, I cannot see where it would be good policy to change the law to pay fictional, contrived investment profits in a Ponzi scheme,” Harbeck said.
  What has become of society when such claims can be entertained? Have we socialized all losses? No, only those losses for the rich or politically connected.
The madness of this game is obvious. Joe Sixpack, struggles with increased expenses and taxes. He tries to feed his family and save some money along the way. Yet he is increasingly being asked to divert his earnings to bail out others for their unwise decisions.
Sometimes bad things happen to good people. That is just a fact of life. When that happens, we tend to want to help out. But the way the government plays this game is different from how private charity would play it. Good people, in the eyes of the government, are defined as rich people or large corporations. When bad things happen to them, we must make them whole.
Joe and Jill Sixpack are not rich enough to be considered “good people.” When something bad happens to them, they must fend for themselves. One wonders how long this scam can continue. How long will the Joes and Jills of this country tolerate this abuse?
This post originally appeared on American Thinker.
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By Monty Pelerin, posted March 11th, 2010 http://www.economicnoise.com/2010/03/11/another-blow-to-air-passengers/
Washington is cleaning up the airline industry with more regulation. NOT!
This latest example of Washington intervention is more patently absurd than others. All are absurd; this example is just so simple that it is understandable without a complex chain of reasoning.
It is classic top-down management in a world that is run from the bottom up. It illustrates perfectly why reality cannot be legislated out of existence. Trying to do so always produces unintended consequences. In this, as in most examples to help consumers, your life has been made worse.
From the American Thinker:
Unintended Consequences of Regulatory Overreach: Airline Delays
Clarice Feldman
Hoping no doubt to curry favor with passengers beset by lengthy delays Administration bureaucrats set unconscionably high fines for delays. As a result airlines will simply cancel delayed flights rather than bear these punishing consequences for often unavoidable delay:
Under new federal guidelines that take effect next month, airlines can be fined up to $27,500 per passenger if a plane is stuck on the tarmac for longer than three hours.
“How can they say there is nothing wrong with having someone sit on a seat and run out of water and everything and sit on there for three, four, five hours? That’s ridiculous,” Kelly said.
With the new fines, a delayed MD-80 could cost American Airlines close to $4 million, and a fine for a full 757 could cost more than $5 million.
“It’s unavoidable that more flights will be canceled to avoid fines,” said American Airlines spokesman Steve Schlachter. “It’s one of the unintended consequences of a bill that has no flexibility.”
Reminds me of Stalin’s punishing factory managers as saboteurs when they could not meet the unrealistic goals set in Five Year Plans by state planners.
Thomas Lifson adds:
Continental Airlines CEO Jeff Smisek explicitly told an investor conference that the airline will cancel flights rather than delay them and suffer fines.
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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