Trillion Dollar Welfare

We're certain that you have seen the recent flap about Ms. Nadya Suleman, from whose loins recently sprung a brood of eight premature babies. We extend our condolences to the people of California, whose tax-dollars will go toward the bill Ms. Suleman's fourteen children are piling up.

Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...

But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.

Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.

Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.

Bailouts are the Ultimate Corruption

As we had suggested earlier in the month, a token bailout has been given to General Motors and Chrysler. $17.4 bullion may seem like a ton 'o cash, but its chump change for these sieve-like companies. The Big Three have hit the proverbial iceberg; it's only a matter of time until they go propellers-up. Unsurprisingly, six in ten Americans would prefer to see those propellers than have their tax-dollars go towards making more gas-sucking, barely-functional fashion excessories. And who could blame such sentiment?

Even more odious, in our opinion, is the use of TARP (i.e. taxpayer) money to fund bonuses on Wall Street. The complete hypocrisy of, say, AIG's Jay Wintrob getting $3 million in 'retention awards' is mind-numbing. We personally feel so disgusted that we look for the lynch mobs forming, hunting down Wall Street's finest and stringing them up in Central Park... but we instead see complacence. The American public seems content to whine vaguely about things, but do nothing to stop out-of-control lemon socialism.

These bailouts, besides unwise and reckless, are the signs of corruption so deep and pervasive it makes our head spin. For example, Mr. Henry Paulson, Jr. is a former Goldman Sachs CEO. As Secretary of Treasury and manager of TARP, Mr. Paulson has given his former employer $10 billion of unregulated cash. If this isn't a conflict of interest, we don't know what is. Mr. Paulson also helped remove Goldman Sachs from the old net-capital rule; last we checked, before its recent, cynical move to become a bank, this allowed Goldman to leverage their assets-to-capital to around 30:1 - a speculative foray which taxpayers are now expected to clean up the mess from.

Therein is the rotten core of the affair: public money has been usurped. Money which could have gone towards any number of productive things -- which would have given real, measurable benefits -- instead are going towards rewarding those who created the mess in the first place.

These people -- the bankers, the auto CEOs, Mr. Paulson, et al. -- are so obscenely greedy we feel ill sharing the same nationality. Even though the entire world is in the 2007 Depression, they will still try to milk the system for every last dollar they can get. The callous disregard for the misery and suffering they are helping to create is staggering, but yet it is apparently greeted with cheers and accolades.

"Say it ain't so, champ!"

A friend tells us this line comes from The Champ (1931), when the young Jackie Cooper finds that his hero isn't as heroic and upstanding as one would have hoped. So, too, are the best and brightest of Wall Street losing their stature. Today, for example, saw the discovery of what is probably the second biggest Ponzi scheme in financial history (bested only by the original, Charles Ponzi).

The mastermind? Bernard Madoff, former chairman of the NASDAQ. The grand total? Clocking in at around $50 billion or so. This tops the other Ponzi scheme recently ended, a measly $3.5 billion swindle orchestrated by Tom Petters, a Minnesota 'entrepreneur'-cum-felon. Both these men ran schemes which ripped off the gullible for fun and profit; both these men are criminals. Both these men were respected investors; the news of their unscrupulousness is "inconceivable" to their cohorts.

Hahahaha. As Bugs Bunny says, "aw, go on."

These two swindles are telling, however, for a trend of the 2007 Depression. A Ponzi scheme -- indeed, any confidence scam -- is inherently unstable, even in the best of times. The 2007 Depression is going to squeeze these sorts of swindles into non-functionality, and some may blow up spectacularly. There are, however, more swindles out there than just the average Ponzi scheme, and many of them come in forms one wouldn't necessarily expect.

Take banking: one puts one's money in an account, and then pretends it's still in the bank. Unfortunately, one's money does not simply sit in the bank's vault; it goes into, say... synthetic CDOs; or stock of Fannie Mae and Freddic Mac; or sub-prime loans. The point is, one's money is not in the bank anymore. In fact, we'd argue it probably isn't anywhere anymore. Yes, if one wanted to take out one's money, one can simply walk into a bank and withdraw it. But what if every depositor of the bank wanted their money? The bank never holds enough physical cash to cover its deposits; it can't afford to. The bank, like Mr. Madoff's and Mr. Petters' Ponzi schemes, would implode, and depositors would be left holding the bag, hoping that government insurance pays out.

But the biggest swindle, in our opinion, is money itself. We use it every day: these green pieces of paper get us our food, heat, and shiny, shiny gold. They're legal tender, all right -- every bill tells us so -- but who guarantees this? The Federal Reserve, we presume, since they're the ones who own them... but the Fed is just a bank. We ask: what happens when everyone metaphorically cashes in their dollar bills to hold something tangible? "Say it ain't so, champ!" will be the general cry.

Enabling Destructive Economic Behaviour

Although we ourselves are not of the socialist persuasion, we agree with socialists that there are cases where government can actually provide useful services, and at a reasonable cost. So reasonable in fact, that the case for privatisation is not particularly compelling.

Unfortunately, at the national level, the USA seems incapable of delivering that sort of socialism (with the possible exception of the Post Office). Instead it engages in malignant lemon-socialism, where destructive enterprises are rewarded with life-prolonging capital infusions, or outright government ownership.

Take, for example, a number of large banks, Fannie, Freddie, and Wall Street firms. These outfits swindled the world's investors. All issues of criminal fraud aside, their activities were and continue to be enormously destructive economically.

Investors lost confidence in them. Any sane governing authority would simply shut them down. In any sort of free market economy, they would be done already. There are thousands of better run competitors out there to take up the slack. But yet, the Federal Government saw fit to step in and keep them going. Not because no one else was providing some useful service they are. In fact, they aren't producing any useful service at all. Quite the contrary.

Another example is the bailout of the 'Big Three' automobile manufacturers. As stated in a previous post, there are many good, sound business reasons for these companies to go out of business. It's not like there aren't lots of other companies which can make cars. If the USA has a glut of car making capacity, then a fair chunk of it needs to go away.

The core economic problem of the failed Soviet Union was that its central planners took valuable natural resources and turned them into useless waste. Ignoring issues of quality and desirability, they measured output strictly in tonnage. This was socialism at its worst.

Unfortunately, the USA is following in the footsteps of the Soviet Union. Its central planners are diverting ever larger portions of the nation's income into operations that produce little or no benefit. The litany is extensive, but includes bloated 'Defense' and 'Homeland Security', subsidies for airlines, automakers, banks, construction, insurance, mortgage companies, prisons, and real estate brokers.

Spending by Governments at all levels in the USA is about 40% of total national income. Also, about 50% of the population is dependent primarily on government for its income. This is a country fairly deep into some kind of socialism. Is it getting a good value for its commitment? Does the USA have enviable public education? a low rate of incarceration? free health care for all? a first-rate passenger rail system? The answer to these questions is a resounding "No!"

On top of that, Government in the USA is quite involved with the private sector. Does the USA have a healthy industrial base? a healthy balance of payments with the rest of the world? energy security? well-paid, content workers? No, again.

We are profiling a country at the verge of leaving the club of wealthy, advanced nations, if not heading for outright collapse. The response of the political leadership to the 2007 Depression is very telling: bailouts, handouts, and more pork. This will do nothing to make the nation more productive and increase its citizens' income. On the contrary, it will make the nation less productive and exacerbate the decline in income.