THE CURMUDGEON CHRONICLE - #252

THE CURMUDGEON CHRONICLE ©

AN IRREVERENT VIEW


Time Line: January 14, 2009
Date Line: Flemington New Jersey

The economic gloom in the world is the result of burst bubbles, carelessness, and theft.

The United States is about to try to save its economy. It will mortgage its future by as much as eight trillion dollars. Assuming that does the job, our great-grandchildren should be assured their lives will be free of a recurrence of this set of problems.

We cannot change the way entrepreneurs operate or criminals contrive. We can make it difficult for them to harm the body politic. We can regulate their activities and enforce the regulations stringently. Despite the mantra of deregulation chanted by those who would be regulated, time has proven that the changes wrought by regulation adopted during 1932- 1949 had long lasting, positive results.

Termination of regulation and strict enforcement is responsible for most of the current crises. Industry’s concentration on short term profits and out-sourcing US jobs and industrial capacity and the failure to rebuild the infrastructure accounts for the rest.

The arguments for deregulation really boil down to a single complaint: regulation stops business from doing whatever it wants to do regardless of the effect on the environment, customers and shareholders, the country at large, and the government that makes it pay taxes.
The language of the argument is not that clear. It speaks of efficiency and opening new markets; lower prices and global participation; free markets that self-correct without the need for intervention, and the rest of the obfuscation that it’s Spinmeisters develop.

The fact is that those who are regulated don’t like it because it sets a standard of citizenship that makes chicanery difficult. Industry and its political servants have had a run at deregulation. We are left with an $8 trillion cost because of their excesses.

Examples are legion, but consider these five:

….a Chairman of the Federal Reserve Bank who says that he did not act (though he had the means and power to do so) to rein in irresponsible lending and bank excesses because it “never occurred” to him that the banks would not self regulate.

…Banks underwrote transactions as principals while acting as brokers to their customers, without independent review to protect customers’ interests. That practice had been stopped in the 1930’s and saved a lot of grief for depositors and investors until the Glass Steagall Act was eliminated.

…. Banks issued guarantees (derivatives) assuming obligations they could never pay. There was once a rule, stringently enforced, regarding the leverage that banks and brokerage firms were permitted to employ. Lack of regulation and enforcement created the derivative mess.

….Investment bankers operate a revolving door between Wall Street and Washington. It is a rare government enforcement official who can withstand the lure of Wall Street’s salaries and bonuses.

….Deregulation of Public Utilities increased energy costs for California by 1000%. Enron knew what the results would be and fought for deregulation. Enron was the seventh largest company in the US; politically savvy and connected at the hip to the administration. It should have been named Lola; whatever it wanted, it got.

If we do not regulate the securities and banking industries, and those engaged in them; the public utilities and the natural monopolies that we have permitted to exist, we can never free ourselves and future generations from the risks that brought us to our knees in 2008.
It is said that there were no atheists in foxholes. Similarly, there is no wealth in a country that has industries bankrupt morally and financially.

I don’t know how much money $8 trillion is but it is enough debt to scare any other country away from lending us anymore than they already have or extending our commitments as a debtor. I fear those consequences and hope that someone can provide an answer like that given by Abe Levine, CPA

At the end of WW II Britain was in terrible financial condition. No one in the country had a workable idea for the future of Sterling and the place of the UK in the financial world. Churchill recalled that a friend in New York had sung the praises of Abraham Levine, (his accountant), as a wizard who always found the way out of any financial problem. With no other options available Churchill asked Levine to come to Downing Street and look at the problem. Levine complied: asked for the books of account; a private work room with a coffee maker; six corned beef sandwiches on rye, and no disturbances.

On the third day, just as Churchill was about to order the door broken down, Levine emerged, rolling down his shirt sleeves and said, “I got it in hand”.

“What shall we do?” asked the PM.

Levine said as he put on his topcoat, “Tell the King to put Canada in the Queen’s name. I’ll send a bill in the mail”

Howard Stamer