Saturday, November 5, 2011
Public Fears of a Gangster Government
By Alan Caruba
Even though it has changed ownership over the years, I still go to the bank branch where I have conducted my affairs since I was in my teens and that is a long time ago. Bank of America runs it now and, by all reports, it is financially sound. Even so, these days, people tend to worry about such things.
A check on the number of banks that have failed thus far in 2011 reveals that it is in excess of a hundred and the year is not over yet. The process is overseen by the FDIC or Federal Deposit Insurance Corporation.
The U.S. government has layers of agencies responsible for the regulation and oversight of the financial community, but it doesn’t look like they’re doing a good job of it.
There’s the Treasury Department and the Federal Reserve. The latter regulates the U.S. monetary system along with monitoring the operations of holding companies that include traditional banks and banking groups.
Most famously, the Securities Exchange Commission which, despite having serious concerns called to its attention, totally missed identifying Bernard Madoff’s $50 billion Ponzi scheme. That is called lax enforcement and it appears to be the case across the spectrum of government's financial regulatory entities.
The Commodities Futures Trading Commission has regulatory responsibilities over the market for futures contracts. The traders it regulates formerly dealt primarily with commodities, but now they speculate on government securities like Treasury bonds and those of other nations. It is called sovereign debt.
The recent collapse of MF Global would have fallen under their purview. Reportedly there are major questions regarding about $633 million that is missing from MF Global’s customer accounts. A subpoena seeking information from its auditor, PricewaterhouseCoopers LLP. has been issued.
What makes MF Global stand out is the fact that the firm was one of a handful of prime dealers with the Federal Reserve, purchasing and selling U.S. treasury bonds in addition to speculating on foreign ones. Reports indicate that the firm had bet big on the soundness of Europe’s financial state. Some of the European Union’s nations have been in serious trouble for many years.
As I noted in an earlier commentary, the European Union may well come apart as a result of the monetary problems of Greece along with Spain, Italy, and others. In financial terms, what sank MF Global was that it was over-leveraged and unable to meet obligations to its investors. It was reportedly “worth” $41 billion when it closed its doors.
Here’s where it really gets scary. At one time Jon Corzine, the chairman and chief executive officer of MF Global, was under serious consideration to be Obama’s Secretary of the Treasury. That job went to Timothy Geithner who had managed to “accidentally” underpay his income taxes despite an impressive resume. Between Obama, Geithner, and Congress the national debt and deficit has skyrocketed.
The Obama administration and the Congress in which both branches were controlled by Democrats until 2010 is now famous for excessive spending of the national treasury, crony-capitalism, massive unemployment. The business community is understandably reluctant to expand or invest until Obama is long gone and Republicans control the Senate as well as the House.
For example, instead of allowing General Motors to go through bankruptcy and restructuring, the Obama administration intervened with a huge bailout, leaving its creditors unprotected against the loss of their investment. The Chevy Volt, an electric car whose production was foisted on GM continues to go begging for buyers.
Solyndra investors, for the most part, were similarly shafted when it declared bankruptcy, sticking taxpayers with the cost of a half billion dollar loan guarantee. At the end of October, Beacon Power which received a $43 million loan guarantee declared bankruptcy. This looks to repeat itself with other “renewable energy” companies that advanced claims for wind and solar energy, but cannot compete with traditional energy providers without various government mandates for the use of the pitiably small amount of electricity they generate.
Meanwhile, according to the U.S. Bureau of Labor Statistics, one in five jobs created since 2003 have come in the energy sector, specifically oil and gas drilling!
The Constitution does say the federal government should “promote the general welfare” that that has been so twisted beyond its original meaning and intent that we now have a federal government that is literally out of control; one that has become a speculative investor with our money.
Social Security, Medicare and Medicaid are either broke or soon will be. Was this ever truly a function of government?
Meanwhile, under Obamacare, the federal government has asserted the right to require Americans to purchase health insurance or face a stiff fine for failing to do so. That issue has been challenged by 26 states and is making its way to the Supreme Court. If it agrees that it is constitutional, look for massive state-by-state nullification efforts. It would be a major crisis.
The collapse of the housing market predates the Obama administration and was the most predicable crash of the modern era. By 2008, Fannie Mae and Freddie Mac, two “government entities”—meaning their credit was backed by taxpayers even though they acted as private financial entities—owns about 50% of all the mortgages in the nation. After 2008, the federal government seized control of both.
As Bill O’Reilly recently noted, “Now we learn that the mortgage agencies Freddie Mac and Fannie Mae, in business with the federal government, paid almost $13 million in bonuses to their top executives in 2010. That is an outrage because those agencies currently owe the American taxpayer $141 billion.”
Why wasn’t this function left solely to banking institutions? Why did the federal government intervene in the housing market? The answer is the progressive belief in “social justice” as a function of the federal government. The programs instituted in its name are now broke and a huge burden on states and citizens alike. Blame has been assigned to the banks, a favorite whipping boy, but it is misplaced.
Like everyone with savings accounts, living off their pension funds and watching their 401K plans decline in value many are beginning to worry about an Obama administration that would happily seize those personal assets by declaring some kind of national emergency.
How bad is it? The liberal New York Times recently published an article, “New Poll Finds a Deep Distrust of Government”, noting that “Not only do 89 percent of Americans say they distrust government to do the right thing, but 74 percent say the country is on the wrong track and 84 percent disapprove of Congress—warnings for Democrats and Republicans alike.”
The Republicans, however, unanimously opposed the passage of Stimulus I and the latest “jobs bill” otherwise known as Stimulus II. Indeed, even the Democrats have opposed Stimulus II despite an absurd joint session of Congress in which Obama demanded “pass this bill now.” In the House, Republicans have led the effort to repeal Obamacare. Harry Reid, the Democrat Majority Leader in the Senate has thwarted consideration of the bill there.
As conservatives are known to opine, the government has to become much smaller and that taxes, particularly in a time of recession, be lowered. Meanwhile, the Obama administration has already redefined “millionaires” to include your local dry cleaner.
© Alan Caruba, 2011