Lawson for Congress

Today we celebrate the Fed’s balance sheet topping $2 trillion, led by purchases of commercial paper that may include a stealth, alternative mechanism for bailing out AIG:

Just two weeks into its operation, the Fed’s commercial paper facility expanded by nearly $100 billion. The Fed now owns something like 20% of all the commercial paper outstanding, holding a total of $243 billion of the short term loans.

It’s unclear who is selling the commercial paper to the Fed. One guess is that it’s AIG, which has not been borrowing as much from the dedicated AIG facility as may have been anticipated given the size of its liabilities. AIG’s borrowings under the special facility actually dropped from $83.5 billion to $81.2 billion. In a sense, the Fed’s commercial paper facility may be operating as a hidden bailout of AIG.

It was hoped that these commercial paper purchases would save companies and preserve jobs. But it’s going to take more than the Fed helping out with short-term corporate financing needs to save jobs.

Our economy is currently a patient with multi-organ system failure. Unlike medicine, however, where one can triage problems in a rational way, our American form of corporate socialism prioritizes industries for government assistance based upon lobbyist clout.

The automobile industry is currently at the head of the line:

The obvious and easy first move for President-Elect Barack Obama is to put some money into the automobile industry to save a large number of jobs, financier Wilbur Ross said Wednesday.

General Motors and Chrysler “need something like $10 billion to pay the one-time cost of merging, that’s a very cheap investment,” Ross said.

Just stabilizing the auto industry will save a large numbers of manufacturing and auto supplier jobs and “do an awful lot of good for the economy,” he said.

It would also be a consistent with the support Obama has with labor unions, Ross added.

“It would be a very quick, easy thing,” Ross said. “I can’t imagine a cheaper way to protect a very, very large number of jobs.”

Nancy Pelosi was being lobbied today by the CEOs of Chrysler, Ford, and GM, and she managed to pay lip service to “green collar jobs”:

“We must work together to ensure the viability of the U.S. auto industry,” Pelosi said in welcoming the CEOs and Ron Gettelfinger, president of the United Auto Workers, to the meeting.

Another priority, she said, was to help “transform blue-collar jobs to green collar jobs.” The meeting was mainly a listening session for Pelosi to get the views of the auto industry, which is facing an unprecedented financial crisis due in large part recently to the global credit crunch that has choked off borrowing by consumers for auto purchases.

In a statement, GM said the session was constructive and that it would work closely with Democratic leaders to ensure “immediate” funding to keep the industry viable.

So let’s get this straight — auto sales have tanked, and manufacturers are going to the government for help. Let’s assume the manufacturers convince our government to borrow yet more money to keep them in business — at taxpayer expense. Consumers, however, still can’t afford to buy new cars. We’re still making them, but who’s going to buy them?

Should the government then start giving us money so we can buy these new cars as they roll off the assembly line?

Why spend taxpayer money to subsidize building wasteful contraptions that burn nonrenewable imported fuels at ridiculously low efficiency, clogging highways and polluting the air, when consumers are leveraged far past the point of being able to handle a new car payment?

I’ve got a cheaper and much more environmentally-sensitive idea. My wife and I were in China last year and saw a great example of green collar jobs in action — folks who were hired to cut grass in Beijing parks using hand clippers.

The sun makes the grass grow. Just pay people to cut it by hand. Presto, green collar jobs.

While we haven’t broken down the results by precinct, we do have some county-based comparisons based upon Obama’s sweep of the district, and the last presidential election. Here goes:

I did some empirical research. B.J. did a pretty miraculous job. Consider that:

• In Wake County, Obama beat McCain by 15 points. We only lost to Price by 3 points in Wake. To put this in historical perspective, in 2004, Bush beat Kerry by 2 points in Wake, while Price beat Batchelor by 4. So despite a 17 point swing in Wake County, we did better there than Batchelor did in 2004.
• In Orange County, Obama beat McCain by 45 points, whereas we lost by 43 points. In 2004, Kerry beat Bush by 35 points, while Price beat Batchelor by 48 points. So despite a 10 point swing for Obama, we did better than Batchelor did in 2004.
• In Durham County, Obama beat McCain by 42 points, whereas we lost by 44. In 2004, Kerry beat Bush by 36 points, while Price beat Batchelor by 42 points. While we did worse than Batchelor did in 2004, Obama turned out close to 28,000 more votes than did Kerry in 2004.

Obama turned out:

• 78,000 more votes in Wake than did Kerry in 2004. Price gained about 19,000 votes in Wake.
• Almost 11,000 more votes in Orange than did Kerry in 2004
• Almost 28,000 more votes in Durham than did Kerry in 2004

This adds up to 57,755 votes. We lost by just over 111,000 votes, whereas Batchelor lost by 95,724 (but got a lower percentage than we did). On top of this, we had 30,000 more votes this year than Batchelor did in 2004. We had 19,109 more votes in Wake, 4,214 more votes in Orange, and 4,460 votes more in Durham.

This is while McCain was stagnant in Orange and Durham counties from Bush’s totals in 2004. I’ll put good money on our gains coming from split Obama tickets, not newly registered Republicans.

You take away those 57,755 new Obama votes, and this is a 58-42 race.

Given all of the circumstances, you really knocked this one out of the park for a Republican.

We’ll post some pictures from last night’s event so everyone can enjoy the real success of this race. I guarantee there was not another victory party in the District with such a wide spectrum of people genuinely excited about liberty, freedom from corporate socialism, and a government that serves the people instead of corporate interests.

Our country remains at a delicate place, and those serving in Congress in the next two years will be challenged to meet the high expectations for change given our current economic predicament. Ultimately, however, the work to save our country must start locally — within our community.

I’ve been so busy with the campaign that I’ve neglected to write about our continued economic challenges. Our national debt now stands at over $10.5 trillion, and suffice it to say that fulfilling the promises made during this election while attempting to prop up our banking system will test the patience of our international lenders:

So how much has our financial catastrophe cost taxpayers? Even leaving aside the damage to investment portfolios, job losses, home foreclosures and diminished business prospects, the financial depression of 2008 has been immensely costly for taxpayers. The Treasury Department has had to issue more than three times as much debt than it anticipated even as late as last July. [Emphasis mine.]

Why has borrowing skyrocketed? You already know the answers. The government is spending money hand over fist to prop up the financial system at the same time it collects less from depressed taxpayers.

The government also expects to borrow $368 billion in the first quarter of next year. Let’s hope the government is getting better at these estimates. If it’s as bad at estimating future borrowings as it was in July, we’re looking at a government that might need to borrow more than $2.5 trillion over the next two quarters, which would mean that the Treasury would be borrowing more than one-third of total Gross Domestic Product.

I imagine that many folks who appreciate the gravity of this situation will start playing a new game: how can I maximize my standard of living for things that really matter — time with family, enjoying healthy, locally-grown food, working with and supporting those who create real value in our community — while minimizing my need for and dependence upon the usurious, war-mongering debt money known as Federal Reserve Notes?

It is time for creativity, and finding new ways to advance sustainable local economies. We must learn how to prosper through equity-based, cooperative capitalism instead of continuing to hook ourselves to the yoke of debt-based competitive capitalism that changes a world of natural abundance into a world of artificial scarcity and injustice.

I’ll close by quoting an email that was mistakenly sent to me from a Price supporter. Turns out this Price supporter working early voting with me in Morrisville was forwarding my emails to Price’s campaign. In this case, however, instead of hitting “forward”, he hit “reply”:

BTW, BJ’s spiel was essentially “I’m BJ Lawson.  I’m running for Congress.  We have a 20-year incumbent who isn’t serving our interests.”

BJ is an odd combination of progressive and Libertarian, as well as being attractive and young.  People who are attracted to part of him are able to deny the part they don’t like.  He won’t go away after next week.  Expect a rematch.

I don’t think BJ goes to the same site regularly, but I can tell you there were a lot of voters from 11 am on.  They came in groups, and they wore badges, so this was the crowd that lives somewhere else and works in and near RTP.  The parkng lot was jammed the entire time I was there.  Might be the place for David Fri. (if BJ isn’t there).

Our educational challenge is reflected by this gentleman’s characterizing Constitutionalism as “odd.” It’s refreshing, however, to see him recognize that Constitutionalism is both progressive and libertarian.

Here’s to continued progress in the fight for liberty, and thanks to everyone for your support.

I’m grateful that Dr. Tom DiLorenzo, professor of economics at Loyola College, took the time to write a rebuttal to an inexplicably ignorant hit-piece recently published in the Wall Street Journal entitled “A Short Banking History of the United States.”

The author of this article, Mr. John Steele Gordon, makes a number of spurious claims in an attempt to discredit the economic philosophy of sound money controlled by the people, and defend Alexander Hamilton’s loyalty to banking interests in the drive to create a private central bank to own our money supply.

Beneath Mr. Gordon’s flowery rhetoric, however, is a profound ignorance of a fundamental problem in our money and banking system: fractional reserve lending. As I noted in an article last August, this ignorance in the mainstream media is nothing new, and par for the course:

http://blog.lawsonforcongress.com/2007/08/29/what-cnn-doesnt-understand-fractional-reserve-banking/

What’s wrong with fractional reserve lending? This article from June outlines the details:

http://blog.lawsonforcongress.com/2008/06/04/whats-the-problem-with-banks/

Once you understand the root of the problem, namely that banks are given a monopoly on the ability to create money out of nothing based solely out of someone’s promise to pay it back with interest, the tragic absurdity of our current situation becomes clear:

http://blog.lawsonforcongress.com/2008/07/11/may-you-live-in-interesting-times/

I’m especially grateful, though, for Dr. DiLorenzo’s rebuttal that puts Mr. Gordon’s revisionist history in the proper context:

The system of financial regulatory dictatorship that Gordon praises, and which is about to be forced down the throats of the American public, has been tried before in other countries. During one of its own periodic financial crises, Italian government officials complained bitterly, as Gordon does, of regulation that has been “disorganic” and “case by case, as the need arises.” The Italian regime altered its regulatory system so that it could pursue “certain fixed objectives,” just as Gordon argues for a “unified and coherent regulatory system.” This highly centralized or even dictatorial regulatory system, the Italians argued, would supposedly “introduce order in the economic field” and achieve the goal of “unity of aim” with regard to government regulation of industry.

All of the words in quotation marks in the preceding paragraph, except for the last ones, are the words of Benito Mussolini. The “unity of aim” phrase was from Mussolini apologist/propagandist Fausto Pitigliani. There is, after all, a very keen similarity between Hamiltonian mercantilism — or an economy directed and controlled by government, supposedly “in the public interest” but in reality for the benefit of a privileged few — and the economic fascism of Italy (and Germany) of the 1920s and ’30s.

I encourage you to read the rest of Dr. DiLorenzo’s article, and to evaluate the credentials of those who praise our Federal Reserve and banking system carefully — including my opponent. As with many corporate interests in Washington, the fox has been left guarding the henhouse.

Once you’ve read the explanations of how banking works, you’ll really enjoy the below cartoon (from Sinfest) that beautifully explains the bailout in action:

Ladies and gentlemen, we’ve been jacked.

I received the following email tonight:

Please pray for my family. I got word today that [large national bank that got itself bailed out] declined my well-documented plea for a mortgage restructure. I had numerous state and non-profit organizations working to help me get the terms of the predatory loan normalized so we can afford to stay in our home. I cannot bear to tell my children and am praying for a miracle even yet…

Here’s why I am sad, and angry: this bank created the money to lend to this person out of NOTHING. There was no value created by the bank — the bank simply has an unconstitutional monopoly on the ability to create money out of nothing.

Yet the bank has the gall to refuse a restructuring for this debt, while We the People let our administration bail out this bank (among others) at the cost of hundreds of billions of dollars borrowed from this very same banking system!

Oh, and now this bank can take this family’s home.

Is that right?

No, it is despicably wrong.

How did we get to the point where we accept “money” that is a token of debt instead of wealth? How did we get to the point where we accept a monopoly on money that is lent into circulation based upon the borrower’s promise to pay it back with interest?

Andrew Jackson was no friend of human rights with respect to Native Americans, but the following excerpt from his Farewell Address is a timely read in these uncertain times:

In reviewing the conflicts which have taken place between different interests in the United States and the policy pursued since the adoption of our present form of Government, we find nothing that has produced such deep-seated evil as the course of legislation in relation to the currency. The Constitution of the United States unquestionably intended to secure to the people a circulating medium of gold and silver. But the establishment of a national bank by Congress, with the privilege of issuing paper money receivable in the payment of the public dues, and the unfortunate course of legislation in the several States upon the same subject, drove from general circulation the constitutional currency and substituted one of paper in its place.

It was not easy for men engaged in the ordinary pursuits of business, whose attention had not been particularly drawn to the subject, to foresee all the consequences of a currency exclusively of paper, and we ought not on that account to be surprised at the facility with which laws were obtained to carry into effect the paper system. Honest and even enlightened men are sometimes misled by the specious and plausible statements of the designing. But experience has now proved the mischiefs and dangers of a paper currency, and it rests with you to determine whether the proper remedy shall be applied.

The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain. The corporations which create the paper money can not be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business; and when these issues have been pushed on from day to day, until public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues, and produce an unexpected and ruinous contraction of the circulating medium, which is felt by the whole community. The banks by this means save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public. Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation injurious to the habits and character of the people. We have already seen its effects in the wild spirit of speculation in the public lands and various kinds of stock which within the last year or two seized upon such a multitude of our citizens and threatened to pervade all classes of society and to withdraw their attention from the sober pursuits of honest industry. It is not by encouraging this spirit that we shall best preserve public virtue and promote the true interests of our country; but if your currency continues as exclusively paper as it now is, it will foster this eager desire to amass wealth without labor; it will multiply the number of dependents on bank accommodations and bank favors; the temptation to obtain money at any sacrifice will become stronger and stronger, and inevitably lead to corruption, which will find its way into your public councils and destroy at no distant day the purity of your Government. Some of the evils which arise from this system of paper press with peculiar hardship upon the class of society least able to bear it. A portion of this currency frequently becomes depreciated or worthless, and all of it is easily counterfeited in such a manner as to require peculiar skill and much experience to distinguish the counterfeit from the genuine note. These frauds are most generally perpetrated in the smaller notes, which are used in the daily transactions of ordinary business, and the losses occasioned by them are commonly thrown upon the laboring classes of society, whose situation and pursuits put it out of their power to guard themselves from these impositions, and whose daily wages are necessary for their subsistence. It is the duty of every government so to regulate its currency as to protect this numerous class, as far as practicable, from the impositions of avarice and fraud. It is more especially the duty of the United States, where the Government is emphatically the Government of the people, and where this respectable portion of our citizens are so proudly distinguished from the laboring classes of all other nations by their independent spirit, their love of liberty, their intelligence, and their high tone of moral character. Their industry in peace is the source of our wealth and their bravery in war has covered us with glory; and the Government of the United States will but ill discharge its duties if it leaves them a prey to such dishonest impositions. Yet it is evident that their interests can not be effectually protected unless silver and gold are restored to circulation.

These views alone of the paper currency are sufficient to call for immediate reform; but there is another consideration which should still more strongly press it upon your attention.

Recent events have proved that the paper-money system of this country may be used as an engine to undermine your free institutions, and that those who desire to engross all power in the hands of the few and to govern by corruption or force are aware of its power and prepared to employ it. Your banks now furnish your only circulating medium, and money is plenty or scarce according to the quantity of notes issued by them. While they have capitals not greatly disproportioned to each other, they are competitors in business, and no one of them can exercise dominion over the rest; and although in the present state of the currency these banks may and do operate injuriously upon the habits of business, the pecuniary concerns, and the moral tone of society, yet, from their number and dispersed situation, they can not combine for the purposes of political influence, and whatever may be the dispositions of some of them their power of mischief must necessarily be confined to a narrow space and felt only in their immediate neighborhoods.

But when the charter for the Bank of the United States was obtained from Congress it perfected the schemes of the paper system and gave to its advocates the position they have struggled to obtain from the commencement of the Federal Government to the present hour. The immense capital and peculiar privileges bestowed upon it enabled it to exercise despotic sway over the other banks in every part of the country. From its superior strength it could seriously injure, if not destroy, the business of any one of them which might incur its resentment; and it openly claimed for itself the power of regulating the currency throughout the United States. In other words, it asserted (and it undoubtedly possessed) the power to make money plenty or scarce at its pleasure, at any time and in any quarter of the Union, by controlling the issues of other banks and permitting an expansion or compelling a general contraction of the circulating medium, according to its own will. The other banking institutions were sensible of its strength, and they soon generally became its obedient instruments, ready at all times to execute its mandates; and with the banks necessarily went also that numerous class of persons in our commercial cities who depend altogether on bank credits for their solvency and means of business, and who are therefore obliged, for their own safety, to propitiate the favor of the money power by distinguished zeal and devotion in its service. The result of the ill-advised legislation which established this great monopoly was to concentrate the whole moneyed power of the Union, with its boundless means of corruption and its numerous dependents, under the direction and command of one acknowledged head, thus organizing this particular interest as one body and securing to it unity and concert of action throughout the United States, and enabling it to bring forward upon any occasion its entire and undivided strength to support or defeat any measure of the Government. In the hands of this formidable power, thus perfectly organized, was also placed unlimited dominion over the amount of the circulating medium, giving it the power to regulate the value of property and the fruits of labor in every quarter of the Union, and to bestow prosperity or bring ruin upon any city or section of the country as might best comport with its own interest or policy.

We are not left to conjecture how the moneyed power, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands can not yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors? No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes. The forms of your Government might for a time have remained, but its living spirit would have departed from it.

The distress and sufferings inflicted on the people by the bank are some of the fruits of that system of policy which is continually striving to enlarge the authority of the Federal Government beyond the limits fixed by the Constitution. The powers enumerated in that instrument do not confer on Congress the right to establish such a corporation as the Bank of the United States, and the evil consequences which followed may warn us of the danger of departing from the true rule of construction and of permitting temporary circumstances or the hope of better promoting the public welfare to influence in any degree our decisions upon the extent of the authority of the General Government. Let us abide by the Constitution as it is written, or amend it in the constitutional mode if it is found to be defective.

The severe lessons of experience will, I doubt not, be sufficient to prevent Congress from again chartering such a monopoly, even if the Constitution did not present an insuperable objection to it. But you must remember, my fellow-citizens, that eternal vigilance by the people is the price of liberty, and that you must pay the price if you wish to secure the blessing. It behooves you, therefore, to be watchful in your States as well as in the Federal Government. The power which the moneyed interest can exercise, when concentrated under a single head and with our present system of currency, was sufficiently demonstrated in the struggle made by the Bank of the United States. Defeated in the General Government, tho same class of intriguers and politicians will now resort to the States and endeavor to obtain there the same organization which they failed to perpetuate in the Union; and with specious and deceitful plans of public advantages and State interests and State pride they will endeavor to establish in the different States one moneyed institution with overgrown capital and exclusive privileges sufficient to enable it to control the operations of the other banks. Such an institution will be pregnant with the same evils produced by the Bank of the United States, although its sphere of action is more confined, and in the State in which it is chartered the money power will be able to embody its whole strength and to move together with undivided force to accomplish any object it may wish to attain. You have already had abundant evidence of its power to inflict injury upon the agricultural, mechanical, and laboring classes of society, and over those whose engagements in trade or speculation render them dependent on bank facilities the dominion of the State monopoly will be absolute and their obedience unlimited. With such a bank and a paper currency the money power would in a few years govern the State and control its measures, and if a sufficient number of States can be induced to create such establishments the time will soon come when it will again take the field against the United States and succeed in perfecting and perpetuating its organization by a charter from Congress.

It is one of the serious evils of our present system of banking that it enables one class of society–and that by no means a numerous one–by its control over the currency, to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs. The agricultural, the mechanical, and the laboring classes have little or no share in the direction of the great moneyed corporations, and from their habits and the nature of their pursuits they are incapable of forming extensive combinations to act together with united force. Such concert of action may sometimes be produced in a single city or in a small district of country by means of personal communications with each other, but they have no regular or active correspondence with those who are engaged in similar pursuits in distant places; they have but little patronage to give to the press, and exercise but a small share of influence over it; they have no crowd of dependents about them who hope to grow rich without labor by their countenance and favor, and who are therefore always ready to execute their wishes. The planter, the farmer, the mechanic, and the laborer all know that their success depends upon their own industry and economy, and that they must not expect to become suddenly rich by the fruits of their toil. Yet these classes of society form the great body of the people of the United States; they are the bone and sinew of the country–men who love liberty and desire nothing but equal rights and equal laws, and who, moreover, hold the great mass of our national wealth, although it is distributed in moderate amounts among the millions of freemen who possess it. But with overwhelming numbers and wealth on their side they are in constant danger of losing their fair influence in the Government, and with difficulty maintain their just rights against the incessant efforts daily made to encroach upon them. The mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different States, and which are employed altogether for their benefit; and unless you become more watchful in your States and check this spirit of monopoly and thirst for exclusive privileges you will in the end find that the most important powers of Government have been given or bartered away, and the control over your dearest interests has passed into the hands of these corporations.

The paper-money system and its natural associations–monopoly and exclusive privileges–have already struck their roots too deep in the soil, and it will require all your efforts to check its further growth and to eradicate the evil. The men who profit by the abuses and desire to perpetuate them will continue to besiege the halls of legislation in the General Government as well as in the States, and will seek by every artifice to mislead and deceive the public servants. It is to yourselves that you must look for safety and the means of guarding and perpetuating your free institutions. In your hands is rightfully placed the sovereignty of the country, and to you everyone placed in authority is ultimately responsible. It is always in your power to see that the wishes of the people are carried into faithful execution, and their will, when once made known, must sooner or later be obeyed; and while the people remain, as I trust they ever will, uncorrupted and incorruptible, and continue watchful and jealous of their rights, the Government is safe, and the cause of freedom will continue to triumph over all its enemies.

But it will require steady and persevering exertions on your part to rid yourselves of the iniquities and mischiefs of the paper system and to check the spirit of monopoly and other abuses which have sprung up with it, and of which it is the main support. So many interests are united to resist all reform on this subject that you must not hope the conflict will be a short one nor success easy. My humble efforts have not been spared during my administration of the Government to restore the constitutional currency of gold and silver, and something, I trust, has been done toward the accomplishment of this most desirable object; but enough yet remains to require all your energy and perseverance. The power, however, is in your hands, and the remedy must and will be applied if you determine upon it.

These are historic times. Please pray for our country, and our leaders.

When I started this campaign last November, the national debt was tipping the scales at $9.3 trillion. Today it is over $10.1 trillion.

To add insult to this obvious injury, our Senate and then House just passed a juiced-up bailout package that includes an additional $150 billion of random acts of fiscal irresponsibility beyond the $700 billion revolving credit line to be used by our Treasury to buy questionable assets from troubled banks.

The vast majority of Americans were against this bailout, and for good reason — it is not going to work. Economists and those who understand the banking system understand that the administration’s plan will not fix the underlying problems of trust and solvency. Instead, it simply allows our Treasury secretary to pay above-market prices for troubled assets to bailout out foreign and domestic banks. It creates no jobs, gives no significant relief to struggling homeowners, and severely threatens our sovereign credit rating.

Why, then, did Congress commit this act of gross negligence? Why did our incumbent vote twice to support a measure that is ineffective, unconstitutional, and overwhelmingly despised?

He, and they, just followed orders.

I happened to be in Washington this past Wedensday, and was attending a breakfast with a number of other “conservatives” (whatever that means). Among the people at this breakfast were fresh-faced twentysomething staffers playing the power game, including staffers from the White House as well as various political campaigns and think tanks. These staffers know nothing about economics or banking, yet they are sent on a mission to amplify the administration’s message. In particular, they each stood up to address the group and said that the bailout plan was “as good as it was going to get,” and that everyone needed to get behind it for the “good of the country.”

Of course, attempts to engage in discussion were futile — the staffers don’t know the topic, they’re just carrying a message.

Keep in mind that our twenty-year incumbent also voted for this bailout — twice. Yet despite his expressed disagreements with this administration, he continually takes orders from them on critical issues like the bailout and our declining civil liberties.

What conclusion can we draw from these troubling events? We do not live in a Constitutional Republic. At this point, we do not even live in a totalitarian democracy, as the overwhelming majority of constituents were vehemently opposed to this trillion-dollar boondoggle. At best, we are living in a mild form of corporate socialism with a ruling oligarchy that is completely unresponsive to the people.

So where does this leave us?

We’re in a tough spot, and Friday’s economic data left little to the imagination. We had our ninth straight month of job losses, and further corporate consolidations and layoff announcements show further challenges ahead.

Our challenges don’t end in Washington, either. States like California and New York are approaching insolvency, to the point that California is asking for a $7 billion rescue package from the federal government so they can make payroll. More locally, I had the opportunity to interview our North Carolina auditor, Les Merritt, to discuss our state’s situation:

If you live in North Carolina, pay attention to this interview — especially Auditor Merritt’s warnings about so-called “COPs”, or Certificates of Participation. It seems that our state legislators have figured out how to violate our state Constitution by using a means of debt financing for pet projects that avoids the hassle of getting voter approval.

COPs are troubling, as our state Constitution in North Carolina requires that all debt (such as general obligation bonds) be specifically approved by voter referendum. How have they done this? Like our federal representatives, they apparently just don’t care. Unfortunately, things are about to get rough as we continue to live beyond our means in North Carolina, as well as the United States. It’s up to us to remind our representatives at every level how important it is that they follow the rules.

Finally, I’d like to make one more observation about this “new and improved” bailout that was railroaded through the Senate and then passed back through the House. Not only were there $150 billion in new enticements, but CNET is reporting that the bailout bill expands and makes permanent IRS surveillance capabilities, as well:

IRS undercover operations: Privacy invasion?
The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on. (Think IRS agents posing as accountants or tax preparers and saying, “I’m not sure if that deduction is entirely legal, but it’ll save you $1,000. Want to take it?”) That section had expired as of January 1, 2008, and would now be renewed.

Starting with the so-called Anti-Drug Abuse Act in 1988, the IRS has possessed this authority temporarily, with occasional multiple-year lapses. A 1999 internal report said the IRS had 126 “trained undercover agents” working in field offices at the time. This is the first time that such undercover authority would be made permanent.

Sens. Max Baucus (D) and Chuck Grassley (R) have been pushing to make it permanent for a while, claiming (PDF) in April that: “Undercover operations are an integral part of IRS efforts to detect and prove noncompliance. The temporary status of this provision creates uncertainty, as the IRS plans its undercover efforts from year to year.”

There’s another section of the bailout bill worth noting. It lets the IRS give information from individual tax returns to any federal law enforcement agency investigating suspected “terrorist” activity, which can, in turn, share it with local and state police. Intelligence agencies such as the CIA and the National Security Agency can also receive that information.

The information that can be shared includes “a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return.”

That provision had already existed in federal law and automatically expired on January 1, 2008.

What’s a little odd is that there’s been little to no discussion of the IRS sections of the bailout bill, even though they raise privacy concerns. Treasury Secretary Henry Paulson said this week: “I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy.” He never mentioned the necessity of additional IRS undercover operations.

Last week was a historic, but bad, week for our nation. It’s time to Be the Change, vote Lawson for Congress, and insist on principled representation in Washington.

I corresponded with many voters regarding the bailout package yesterday. Here is my typical response, with some points to consider:

Those folks who are just interested in rising asset prices (CNBC talking heads and stock newsletter writers) generally like the plan, which those who are concerned with the foundation of the banking and economic system don’t like it.

The Paulson plan might deal with “liquidity”, but liquidity *isn’t* the problem. The problems are trust and solvency. There are a number of feasible options to deal with the fundamental issues — trust (among banking institutions) and solvency (of banking institutions).

Responsible plans focus specifically on recapitalizing viable banks instead of just allowing banks to offload questionable assets. But before you can even recapitalize a viable bank, you need to “drain the swamp” and figure out exactly what’s on the balance sheet — that’s key to restoring trust.

I’ve detailed/summarized these points, and more responsible approaches, here:

http://blog.lawsonforcongress.com/2008/09/27/the-height-of-arrogance/

What should also be concerning is the *way* in which this legislation was put forth — complete subversion of the typical legislative process, although they wasted over a week from initial proposal to vote:

http://blog.lawsonforcongress.com/2008/09/28/a-bipartisan-drama-resuscitating-a-dying-republic/

Also, the conflicts of interest present in the current administration are staggering:

http://www.nakedcapitalism.com/2008/09/mussolini-style-corporatism-in-action.html

The media chorus in favor of the bailout continues to grow. Interestingly enough, much of the chorus is international. This makes sense when you understand that Paulson’s legislation encourages us to bail out foreign investors, and foreign banks as well:

European Central Bank President Jean- Claude Trichet said U.S. lawmakers must pass a $700 billion rescue package for banks to shore up confidence in the global financial system.

“It has to go, for the sake of the U.S. and for the sake of global finance,” Trichet said in an interview in Frankfurt with Bloomberg Television late yesterday. “I am confident, but of course it is the decision of the U.S. Congress.”

Trichet said a pan-European approach to the banking crisis was unlikely, saying “we are not a fully-fledged federation with a federal budget.”

“Each country has to mobilize its own efforts,” said Trichet. “But of course there is a European spirit and that is the spirit of the single market.”

This point was hammered home by California Rep. Brad Sherman in an interview with Larry Kudlow, as documented by Mike Shedlock:

Rep. Brad Sherman, D California:

Larry I am glad you have a few seconds to talk to someone who voted against this bill. I am not changing my mind. I want to thank my colleagues who stood up to the purveyors of panic and voted against a very bad bill and voted with 400 eminent economists including three Nobel laureates who wrote to us and said don’t panic, don’t act hastily, hold hearings, work carefully. The fact is Larry if you read this bill, even you would have voted against it.

It provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson’s power. There is a critique board but not really a board that can step in and change what he does. It’s a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries.

Larry Kudlow:

Let me just ask you one question. I think you are referring to foreign banks headquartered in the United States. I do not see how foreign investors get bailed out.

Rep. Brad Sherman:

Larry you have to read the bill. It’s very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn’t owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can’t buy it. It was rejected.

The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can’t be sold to the Treasury.

Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure that can happen.

We don’t just need to “do something” here, folks. We need to do something that will work.

First, Rep. Marcy Kaptur, Democrat from Ohio:

Next, Rep. Michael Burgess, Republican from Texas:

The rule of law and process of good government are taking a beating this weekend.

I’ve reviewed the “Discussion Draft” of bailout legislation, available here.

Any Representatives or Senators feeling pressured to accept this power grab by our Treasury and Federal Reserve need to understand that they are negotiating with terrorists. It was my recollection that we do not negotiate with terrorists.

Again, what should we do?

First, we should embrace every effort to restore transparency, trust, and the rule of law to our capital markets.

But we must also remember that we are at a critical inflection point, and the banking institutions hold all the cards. Bernanke and Paulson are predicting terrible things if we do not bail out the banks at our expense. Their predictions are well on their way to becoming self-fulfilling prophecy, since the banks ultimately control access to credit.

Many have documented why the bailout plan is unlikely to work as proposed. It is time for principled leaders in Congress to go on offense. So Paulson wants $700 billion to buy toxic assets, “restore confidence”, and get banks lending again?

Why not just round up to $1 trillion, but issue it in United States Notes directly from the Treasury, instead of Federal Reserve Notes?

What’s a United States Note? That’s debt-free currency printed by our Treasury that carries the same legal tender status as the private debt money issued by the Federal Reserve. Except our government doesn’t need to borrow from foreign lenders or the Federal Reserve to put it into circulation. We’d just create it, and exchange this debt-free paper money for the banks’ toxic assets.

Sound odd? It’s not unprecedented — check out how Lincoln funded the Civil War when foreign lenders were only offering financing at usurious interest rates. That’s how U.S. Notes were born, at which time they were given the popular name “greenbacks”. They circulated alongside Federal Reserve Notes from 1913 until 1971.

It’s basically a way to be “helpful” and go along with what the Fed and Treasury are suggesting, but make them play by our rules. In other words, “Sure, we’ll give you the money you’re asking for, but we’re absolutely not going to pay you interest for the privilege of bailing you out.”

Put it this way — having Congress empower the Treasury to issue our nation’s own fiat currency is more Constitutional than delegating the issuance of our currency to a private central bank where all money is created through the people and our government(s) taking on debt.

We’ve used public money to preserve the union before, maybe it’s time to try again.

I think Dennis Kucinich (D-OH) would agree:

Key quote:

“Why aren’t we helping homeowners directly with their debt burden? Why aren’t we helping American families faced with bankruptcy. Why aren’t we reducing debt for Main Street instead of Wall Street? Isn’t it time for fundamental change in our debt-based monetary system, so we can free ourselves from the manipulation of the Federal Reserve and the banks?“

The proposed $700 million bailout is unlikely to increase trust between banks, will threaten our sovereign credit rating, and may even collapse our currency.

It only attempts to protect favored banks, and ignores the reality that trillions of dollars in bad debt must be liquidated before we can recover from this crisis. For every lender there is a borrower, and our borrowers have simply assumed too much debt relative to their income.

Objections from a variety of perspectives are expressed by others:

• Dallas Federal Reserve Governor Richard Fisher - Bank Rescue Plan Would Worsen Fiscal Chasm
• Former Treasury Secretary Paul O’Neill - Bush Doesn’t Get Financial Crisis
• Former FDIC Chair William Isaac - A Better Way to Aid Banks
• BB&T CEO John Allison - Paulson Plan Aimed at Helping “Poorly Run” Banks
• NYU economist Nouriel Roubini - Why the Treasury TARP Bailout is flawed
• New IMF Study Contradicts Bailout Bill Premise and Details
• Over 150 economists - Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

Of particular interest are comments in the last article about the game theory implications of vastly increased central bank lending as well as expectations of a bailout. In short, we’re making the problem worse:

Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.

“I suspect that part of what we’re seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,” said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

Makes sense, doesn’t it? As also stated by Yves Smith:

Now consider the bailout version of this problem. Yes, the market for bad bank assets wasn’t so hot, but the big reason is not lack of buyers, but unwillingness of banks to accept the lousy realistic prices on offer.

But the government is now moving towards a plan to buy that paper for something closer, maybe a heck of a lot closer, to your price. You now have no incentive to try to unload those assets, so what little trading there was in them has probably gone into a deep freeze.

In other words, “We need a bailout, or else lending is going to freeze up and the financial system is going to collapse” becomes “We expect a bailout, so we’re going to just sit here until we get one.” It’s a self-fulfilling prophecy. Depending on your level of cynicism, one might also consider it a hostage crisis with our economy as the hostage.

Most importantly, also at stake is trust in our nation’s financial system and capital markets. Karl Denninger eloquently makes that point here:

The government cannot simply keep changing the rules to benefit a privileged few.

Focusing on the banks, the current crisis has four related ingredients: liquidity, solvency, capital, and trust. There is plenty of central bank liquidity available for threatened institutions, and due to lack of trust and transparency, banks will not lend to each other — each prefers to go to the central bank for relief. This tendency to look to the central bank for relief appears to be finally threatening the balance sheet at the Fed itself, according to Brad Setser:

In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:

Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b);

Increased its “other assets” by about $80b (from $98.67b to $183.89b);

Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b);

That works out to the provision of something like $370b of credit to the financial system in a two week period. That may be a bit too high: the outstanding stock of repos felll by $40b (from $126b to $ 86b), leaving a $330b net change in these line items. But that is still enormous.

The most that the IMF ever lent out to cash strapped emerging economies in a year?

$30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis).

The most the IMF ever lend out over two years?

$40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey)

This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lend out these kinds of sums over such a short-period.

For another look at the Fed’s balance sheet, see this visual map provided by Cumberland Advisers.

Solvency is a problem as threatened institutions are finding it difficult to access additional financing and service their debt. Capital is a problem because creative accounting and assets of unknown value have led to balance sheets (and off-balance-sheet vehicles) that encouraged wishful thinking and reduced trust.

The administration’s proposal to buy toxic assets doesn’t address all of these problems, may make solvency issues worse, and most importantly, it does not address the lack of trust between market participants:

Non-financial private debt is $32.4 trillion dollars as of 2Q 2008. Household debt is $14.0 trillion. Households lost 400 billion dollars last quarter. You wish to add $700 billion more in losses (via government obligations that taxpayers must cover) this quarter; this package is insignificant against the total bad credit outstanding. Federal capacity to “bail the system out” is insufficient.

It will not and cannot work because the issue is trust, not money. There is lots of money (and credit) but it is being hoarded throughout the system. Consumer savings have gone from nothing to the highest rate ever in American history – in the space of a few months. Money is flying into Treasuries because of lack of trust, not lack of money. You must fix the cause of the problem, not apply band-aids.

Despite all this evidence to the contrary, this evening’s New York Times article shows to what lengths our elected representatives will go to do the wrong thing. Allow me to translate:

Officials said there were still more than a dozen points of disagreement, though the centerpiece of the rescue effort remained intact: a plan for the government to purchase up to $700 billion in troubled assets from financial firms as a way to free their balance sheets of bad debts and to help restore a healthy flow of credit through the economy. It could become the largest government bailout in the nation’s history.

We’ve been pretending to object to the administration’s plan, and we’re making a lot of noise, but we’re not really changing anything. We’re still going to pistol-whip the American taxpayer to bail out poorly-run banks, and we hope credit starts flowing again even though this bailout does nothing to support property markets, improve the ability of borrowers to service their debt, or increase trust in the integrity of the capital markets. But hey, we’re all about hope.

Republicans, under pressure from Democrats to deliver 70 to 100 votes from their side, were scouring the ranks and focusing on the two dozen Republicans who were retiring this year.

Both parties were also scouring the political map to identify lawmakers who face little or no opposition for re-election in November, knowing they would be more willing to vote yes.

We’re looking for representatives who can afford to blow off their constituents.

Democratic officials said that despite having control of both chambers in Congress, they were far from having a majority sufficient to pass the measure just from their ranks. And they also warned that Democrats in potentially tough races could not be counted on to provide the votes to put the package over the top when, and if, it reaches the floor.

If David Price ends up voting against this bailout, it will be because he’s getting the message that 4th District voters are ready for principled representation that serves the people instead of corporate interests.

The ultimate cost of the rescue plan to taxpayers is virtually impossible to know. Because the government would be buying assets of value — potentially worth much more than the government will pay for them — there is even a chance the rescue effort would eventually return a profit.

We’re calling it a “rescue plan” because folks don’t like the word “bailout”. There’s no chance this rescue will return a profit, since banks are only going to dump the most toxic of their assets — they’ll hold on to the good stuff. Furthermore, if there was a reasonable chance of a profitable investment, Warren Buffett would be all over the deal himself.

The administration had initially requested nearly unfettered authority to run the rescue program. But in negotiations over the last week, the White House agreed to accept strict oversight of the program by an independent board, as well as a requirement that the government increase its efforts to prevent home foreclosures.

We’ll give the impression of resisting tyranny with empty gestures of “oversight” and some empty pandering about bailing out borrowers. But we allocated the big money to bail out lenders.

I should mention that I tried to visit David Price’s Chapel Hill office on Thursday to express my sentiments as a constituent, not even as a candidate. But when I arrived, the office was closed:

I received word from folks calling his Durham office that there was no one available to answer the phone, and no way to leave a message.

The behavior of so-called Congressional leaders, our deeply-conflicted administration, and my opponent demonstrate supreme arrogance and disrespect for the rule of law.

Washington, you’re fired.

I have tried to maintain a sense of decorum and respect for the August Institutions that comprise Our Nation’s Government. I have tried valiantly to speak respectfully of My Opponent, who has Served His Country as a Public Servant for twenty of the past twenty-two years.

But the cognitive dissonance required to maintain that respect is rapidly eroding.

Yesterday, my opponent was interviewed by Bill LuMaye, a popular talk show host on AM 680 WPTF. You can tell my opponent is running for re-election — he has been on Mr. LuMaye’s show about four times in the past two months. My opponent was asked to talk about the financial crisis, and the Paulson/Bernanke bailout plan.

Here’s where I have a problem: all my opponent was able to accomplish in thirty minutes was wringing his hands in sober tones about how terrible the current crisis is, stating how we need to do some kind of bailout, and then blaming The Administration for putting this questionable bailout plan in front of him.

I have one question for my opponent: Are you a Lawmaker, or a Lawpasser?

Do we hire you to watch out for our interests by authoring legislation, or to complain about the quality of legislation that you are provided by the Executive branch?

Why do you wring your hands and bloviate about legislation WRITTEN BY THE EXECUTIVE BRANCH, when the Constitution clearly states that Congress should be writing legislation?

If you don’t know enough to actually write legislation yourself concerning this topic, why should we value your opinions, and what gives you the right to complain?

Why are we paying you anything just so you can sit up in Washington and collect over $40,000 (since 2000) in PAC donations from banks and the American Banker Association?

Why are you echoing The Administration’s Sense of Panic and Urgency, when it is now being reported that this bailout plan has been in the works for a long time?

The White House today is drumming up extraordinary pressure on Congress to approve its plan to enact a $700 billion mortgage bailout fund, suggesting the markets cannot wait much longer and dispatching Vice President Cheney and other top officials up Pennsylvania Avenue to jawbone lawmakers.

But Bush himself continues to do little to explain his plan, and he has refused to be questioned about it.

Asked during a telephone briefing for reporters today whether Bush was speaking with lawmakers, White House Deputy Press Secretary Tony Fratto said the president is aware of their concerns but that Paulson is the salesman.

“It shouldn’t take much analysis to remember what happened last week, which was a very serious freeze-up in our credit markets,” Fratto said. “Our financial markets right now do not need uncertainty, they need increased certainty as to how this rescue plan is going to go forward — and that they can be sure that there is a plan to go forward — and that will begin the correction in our financial markets.”

Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.

In October of 2001, in an environment of fear and coercion by the Executive Branch, you voted for The Administration’s last-minute substitute version of the PATRIOT Act and shredded our Bill of Rights.

Now, as a consequence of your fear and ignorance, you are threatening to vote for The Administration’s bailout bill, known as “Cash for Trash” or “No Banker Left Behind” — thus shredding working Americans, feet first.

David, you’re fired.

This has been a historic week in our financial services industry, and markets. Last night I was joined by David Williams, a financial planner and long-time student of the markets, to discuss the current turmoil and the root causes behind them.

This episode will air as Taking the Pulse, but we wanted to make it available immediately as this situation continues to unfold.