The great economists Frederick Hayek and Milton Friedman taught us that economic and political liberty are the two inseparable sides of a single coin and that the greatest guarantor of individual liberty is to arrange our economic affairs by the efficient mechanism of free-market capitalism and our political system as a constitutional republic with limited and clearly enumerated powers. This, not coincidentally, was the very system given to us by our nations framers and defended ruthlessly by her brave and valiant warriors ever since.
This system is under sustained assault today by liberals in corporate boardrooms across the country and in the corridors of power in Washington. This war on free market capitalism and individual liberty is being waged by guilt-ridden liberal baby boomers who have risen to positions of great power and wealth in corporate America, then leveraged those positions, along with their kindred spirits in government, in the pursuit of social justice. And since it was at this nexus of political activism and crony capitalism that the last great market bubble was created (and burst) and which today threatens to create the next one, these activists inside and outside of government must be stopped before the next market meltdown does even further violence to our liberty and our wealth.
The seeds of the housing bubble which sparked the current global financial crisis were planted in the 1990’s when the very liberal Robert Rubin, Bill Clinton’s Treasury Secretary and former chairman of Goldman Sachs, pushed the administration to expand and aggressively enforce the Community Reinvestment Act (CRA) the primary purpose of which was to force banks and other lenders to give mortgage loans to un-credit-worthy borrowers (many of whom were minorities) in the interest of “fairness.” After leaving government, Bob Rubin went on to lead banking behemoth Citigroup, which was bailed-out by taxpayers (for the sixth time) during the credit crunch even as it laid off tens of thousands of employees.
The CRA, signed into law by Jimmy Carter in the 1970’s was first conceived on the streets of Chicago by community activists such as Gale Cincotta and then pushed by radical organizations such as Barack Obama’s ACORN and Jesse Jackson’s Rainbow/PUSH Coalition as a way to achieve the Marxist dream of wealth re-distribution. Among these radical groups biggest corporate benefactors were financial giants Goldman Sachs, Citigroup, and Bank of America.
After expanding CRA the Clinton administration encouraged the Government Sponsored Enterprise’s (GSE’s) such as Fannie Mae, then run by James Johnson, like Rubin a former Goldman Sachs executive, to purchase these risky loans from lenders. The sale of these loans to the GSE’s not only served to free up capital to enable the banks to make even more sub-prime loans, but since the US taxpayer implicitly guaranteed principal and interest payments on them it also gave lenders the illusion that they were virtually risk-free. Soon enough lenders across the financial industry began chasing borrowers with poor credit with abandon. These loans were then pooled into mortgage-backed securities which would be resold and leveraged over and over by Wall Street traders.
As interest rates rose dramatically from 1% in June 2003 to 5.25% in June 2006 and home prices fell, millions of people with Adjustable Rate Mortgages (ARM’s) could not sell their homes to cover their mortgage as their home’s value fell below the loan balance. This led to a flood of foreclosures, which devastated the value of the mortgage backed securities which by this time had spread like a cancer throughout the global financial system. Due to the wide dispersion and complex nature of these opaque financial instruments credit markets seized threatening to derail the global economy.
This kind of manipulation of the housing market by joined-at-the-hip liberals in corporate America and the federal government caused the housing bubble and led to the bailout designed by Henry Paulson, Bush’s Treasury Secretary, like Rubin and Johnson a former executive (Chairman) of Goldman Sachs.
The TARP portion of the bailout was administered by Neel Kashkari, who likewise worked for Goldman Sachs. Goldman would go on to receive 14 billion in tax dollars as a result of the bailout of AIG in an unprecedented 100 cents-on-the-dollar payout to a counter-party in a credit default swap during the debt restructuring of the failed company. The NY Fed, instrumental in structuring the AIG bailout, was chaired by Stephen Friedman, who was actually on Goldman’s board of directors at the time – a clear and illegal conflict of interest. TARP’s inspector general, Neil Barofsky, and congress are both investigating this portion of the bailout.
CRA, which began as a clever, if cynical, idea hatched by community activists to increase minority home ownership, was adopted by the ruling liberal elite in government who thought they could pursue this laudable social goal without taxpayer funds by partnering with like-minded corporate titans who saw the chance to earn massive, risk-free profits while assuaging their own sense of liberal guilt. They saw it as a no-lose scenario. The only problem was that it was from the very beginning a great Ponzi scheme bound to eventually collapse as interest rates rose. And when it did collapse it would devastate broad swaths of the global economy, ironically hitting hardest the very poor and minority borrowers the activists in and out of government intended to help as these borrowers were stuck with unaffordable sub-prime loans, foreclosed homes, and credit scores as shattered as their American dreams.
What’s more, some 200 small to mid-sized banks have folded since the big bank CEO’s conspired with an all-too willing government to force all lenders to make increasingly risky loans. The too-big-to-fail banks that helped cause the crisis were bailed out; the hapless and relatively blameless small banks (and taxpayers) paid the price. Not a bad business model for a ruthless corporate liberal: create and profit from artificial market bubbles which bankrupt your smaller competitors, then get a bailout to cover your own losses. They then move on to the next profitable and risk-free bubble.
The latest example of crony capitalism and political activism endangering us all is a bill in congress being pushed by General Electric which mandates that by the year 2020, 20 percent of electricity generated in the US come from “clean energy” sources. This mandate rises to 50 percent by the year 2050. GE of course has the market on “green energy” production virtually all to itself and thus stands to earn billions in profits from the scheme.
As I described in a previous article, this is an example of liberal corporate behemoths getting in bed with the government to require us to buy their products in the pursuit of social goals (or in this case environmental goals). These are often products we would not otherwise buy unless under government mandate and would thus not survive on their own in the open market.
This comes on the heels of both GE and Goldman Sachs pushing congress to enact “cap and trade” legislation which would dramatically raise the price of virtually every product you buy, particularly electricity, oil, and gas. Guess who stands to make hundreds of billions of dollars as the market maker in the trading of carbon offsets? Goldman Sachs. (Keep in mind that man-made global warming as the result of CO2 emissions is a myth.)
These initiatives – in addition to being corrupt, unfair, and unconstitutional – will eventually lead to the next market bubble. Market bubbles happen primarily when an outside force (usually the government) warps the free market, diverting capital from places where it may be more efficiently deployed and in the process driving up the price of an asset well beyond its true market or intrinsic value. Of course, “Carbon offsets” have no intrinsic value unto themselves and are thus automatically a bubble waiting to burst.
Think of buyers and sellers in a warped marketplace as tectonic plates meeting at a fault line: pressure will slowly build there over time until, with little warning, it snaps unleashing massive energy and destruction. We just witnessed it in the housing crash; just wait till the carbon market detonates.
And guess who loses? The middle class working stiff loses. The leaders of corporations run by crony capitalist liberals (such as GE’s Jeff Immelt and every top Goldman executive for the past 140 years) who inflated the bubble will, after profiting handsomely from it for years, be bailed out by you and me after the bubble inevitably bursts. Politically connected executives will pay themselves huge salary and bonus packages even as they lay off tens of thousands of low-wage workers. And big government liberals will use the ensuing crisis to further consolidate power in the hands of government bureaucrats and unions while handing you the bill.
Speaking of unions, let’s not leave big-labor out of our discussion of those raping the middle class and the constitution. Crony capitalism is, after all a stool with three legs: big government, big business, and big labor. Recently, the liberal leaders of big labor arranged a sweetheart deal with congress to exempt unions from a tax on expensive “Cadillac” health care plans under Obama care. You and I are entitled to no such exemption.
Another example happened during the GM bailout (itself arranged by the United Auto Workers) when the UAW (along with the government itself, the primary cause of the firm’s troubles) got a sweetheart deal in GM’s debt re-structuring relative to bond holders in violation of contract law. The practical result of which was that holders of GM corporate debt (individual investors, pension funds, etc.), legally first in line for remuneration in bankruptcy proceedings got a fraction of that which the UAW received. This was the direct result of Obama’s arm-twisting on behalf of his union supporters.
Now that the US government owns GM and Chrysler, the Obama administration is urging Americans not to drive Toyota’s while congress investigates the company! How long before Ford, the only private US automaker left in the country, finds itself in the governments cross-hairs?
The type of insider deals made by the corrupt liberal leaders of big business, big labor, and big-government pose a very real and very present danger to liberty and the security of our nation.
In 1787, after toiling for months in the stifling Philadelphia heat, Benjamin Franklin was asked what kind of government system the delegates to the Constitutional Convention had decided upon. His famous answer was “a republic, if you can keep it.” Some years later, Thomas Jefferson observed, “The natural order of things is for the government to gain ground and for liberty to yield.”
Today, thanks in part to the toxic combination of crony capitalism and liberal political activism, we see vivid proof that Mr. Jefferson’s observation was eerily accurate. The question before us now is the same one posed by Mr. Franklin: can we preserve the republic and the blessings of liberty so many brave and honorable men toiled, fought, and died to pass on to us? Will posterity look back upon our generation with the same admiration with which we reverence those of the Revolution, the Civil War, and World War II ? Or will they curse us for squandering, in our greed and complacency, the world’s last best hope for liberty? The choice is ours.