Saturday, March 21, 2009


If there is no such thing as a free lunch how can anyone believe there is such a thing as a free market? The concept of free flowing markets has been conflated, confused, and corrupted with the notion of a market free from regulation. No where else but in the mind set of American financial markets has the concept of less regulation been erroneously equated to more efficient markets. We are now paying the price of that.

There is no sport and even no society where even a single player is free of all rules. For anarchy can be defined as the albescence of all rules. Once fairness and orderliness has been reasonably addressed, only the degree and effectiveness of enforcement determines how well the title may fit of a free and fair market.

More than a decade ago, when President Clinton was granting China MFN (Most Favorite Nations) Trade Status, I was openly critical of that policy. How can USA expect a foreign dictatorship to abide by rules of fair trade? It should be obvious they will use much less restrictive environmental rules, much less restrictive labor practices, and probably more lax trade rule enforcement to unfairly undercut American jobs and industries while increasing their own treasury reserves at our expense? It has been said that we buy poisoned products from China in exchange for worthless U.S. debt.

Truth is U.S. government was not too worried because they had plenty of practice everywhere from Latin America to South East Asia. Getting right wing military dictators to open up their markets to foreign multinationals in exchange for American diplomatic recognition and military support against local “leftist movements” was modus operandi for decades. Because internationally, for even a long time now, our corporations’ best interests has become synonymous with our national security interest. Threfore it was our multinational corporations wanting access to China’s vast markets that pushed hardest for this change. Because a corporation’s first requirement is only to the bottom line, they do not care about providing jobs, saving the environment, protecting its employees from injury, or even fully complying with rules. All those things require a referee to insure the system work free and fair . And for system to be fair and effective those officials must be free of corruption and incompetence.

We are in a situation our Founding Fathers could not foresee, because back then corporations did not have virtually the same legal status that individuals have. Now days, corporations contribute the most to political campaigns and by far buy the most lobbyists. They bought the politicians, got them to re-write the rules and create a new reality to enhance their profitability. This happened from everything from pharmaceuticals to the elderly to oil companies writing energy policy to immunity for telecoms to bonus and bailouts for banks and AIG. Construction companies and military companies are the other biggest winners as the wars were outrageously outsourced and completely cost overrun. Should we expect anything better for allowing oil men to be selected to lead us and then let them lead us into a war of preemption and deception?

Wall Street broke and broke us because the biggest most successful companies would now be able to operate in wild west style markets with little funding for the sheriff and plenty of golden parachutes and revolving doors: to mix many metaphors. Corporate tax loopholes, salaries, and bonuses explode.

The Federal Reserve was the first to evaluate the situation at AIG. Without congressional authorization or consultation they started it was too big to fail and gave them $85 billion to maintain operations. Part of the justification in too big to fail is that there is value in the brand names of these companies. Well that is pretty damaged for Bank of America and completely gone for AIG. Employees have been told not to wear company logos, or travel alone at night. One unit of this triple A rated company found a way to legally bet about $450 billion they did not have. They realized about two years ago that they lost their bets but have stuck us, the U.S.. with the bill. They sold financial insurance but did so in an environment where they did not have to maintain any reserves or even have any real oversight.

Being distracted about bonus schedules only means we are not focusing on the 99% of the money we have given to that company and how we got that way and how we can stop it from continually happening. But it sure is the easiest spot to understand wrong doing and try to hold someone accountable for retained bonus of people that were not retained and led us into disaster.

In the Crash of 1929 the assets in U.S. financial system was about 50 percent of GDP. But now thanks mostly to loosely regulated derivatives that figure is now 150 percent of GDP. In now bankrupt Iceland the figure was 900 percent. It is no wonder the Federal Reserve just decided to create another trillion dollars of debt to try and stabilize our real estate market and by connection the overall economy. Good luck to us all.

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