Teddy Roosevelt on Printing Money

I'm currently reading a biography of Teddy Roosevelt and it's been a very interesting read. TR was very much pro-big government even though he was a republican. There were very few things he did not feel the federal government was best equipped to handle. That's why I was shocked when I read a quote from TR that occurred in 1907. Let me set the back drop a little first.

Roosevelt was admittedly lost when it came to handling financial crises and therefore depended very heavily on advisers to handle the economy. In 1907, severe economic problems were caused by the lack of a consistent money supply. Everyone agreed the US needed a more flexible money system that would provide better liquidity during crises. Republicans wanted to put more control of the money supply into the hands of bankers and the corporate sector while Democrats wanted government to have all the control (no different than today).

Roosevelt didn't know what to do. He didn't trust corporate America, but also realized that he was inept to handle the situation. So, he turned to one of his advisers, Tom Watson, who urged TR to issue $50,000,000 in greenbacks--notes unsecured by gold or anything else except the government's promise to pay. This was Roosevelt's response:

It seems to me that the trouble about issuing greenbacks as you suggest is that it is like a man temporarily relieving himself by issuing notes of indebtedness. He can do it with safety if he exercises severe self-control; but a government will not permanently exercise such self-control. I have no doubt that $50,000,000 of greenbacks, if it was absolutely certain that no more would be issued, would achieve something of the purpose that you have in mind; but I also believe that most people would think that it foretold an indefinite issuance of greenbacks and that in consequence it would have a frightening effect.

102 years ago...how prophetic!

Climate Change Idiocy

Check out this article about how eating certain foods contributes to climate change. Are these people insane or what?

Here's the first paragraph of the article:

"GIVE up lamb roasts and save the planet. Government advisers are developing menus to combat climate change by cutting out “high carbon” food such as meat from sheep, whose burping poses a serious threat to the environment."

Seriously! If I promise not to eat lamb, will the lambs agree to stop burping? Is that how this works?

Fortunately these lunatics are in the UK, but given our panting over all things European, I'm sure we're not too far behind. And, given the fact that our government is already telling us what kinds of cars we should drive, what companies we should invest in and what kinds of lifestyles we should embrace, it's not too far fetched that it will also begin telling us what foods we can eat.

Time to Buy a Home in River Oaks

Amanda and I were driving around town this weekend when I heard a news clip on the radio that quoted Timothy Geithner as saying the financial companies are getting stronger because the credit markets are clearing up and getting stronger. All of a sudden a light bulb clicked on in my brain as I realized for the first time that I could afford a home in River Oaks and so can you. Here's how you do it.

Pull together all of your financial data--assets, liabilities, sources of income, etc. Take your liabilities and magically convert them to assets. If you need an example, refer to the episode of The Office where Michael Scott "declares" bankruptcy (if you don't get this, you really need to start watching The Office). Now, take your assets and increase their value ten-fold. For instance, I have a 1999 Toyota Camry with 220,000 miles on it and a giant dent on the passenger side. My most optimistic guess at its true resale value is about $1000, but that's not nearly good enough to buy me a River Oaks home. So, I'm just going to adjust my books so that it's value is $10,000. Next, I'll take my current home and multiply its value by 10 making it worth well over $1 million. Of course, I'm not considering the outstanding mortgage on it as a liability because I've already converted that liability to an asset. I'll do this little exercise with all my assets and liabilities. I think that should bring my new net worth to somewhere in the $2.5 million range, enough to buy a decent home in the River Oaks area...or at least on the outskirts of River Oaks.

Now, I can feel your skepticism for my plan and ordinarily you would be correct in thinking I'm out of my mind. However, what I have described above is no different than what the banks are doing with the federal government's permission. I've mentioned the mark to market accounting rules several times in other posts. What the federal government has done is tell the banks, "We know you have billions and billions of toxic "assets" on your books in the form of default credit swaps and subprime mortgages. We know that even though we call them "assets" they are really liabilities because if those subprime borrowers default on their loans, and we all know they will, not only do you not get paid back, but the home serving as collateral for that mortgage is worth less than the outstanding balance of the mortgage so that you lose money. But, we really need the American people to believe that our financial system is strong. So, next time you go to balance your books, consider your subprime debt holdings to be assets, and even though those assets have no value because no investor in his/her/its right mind would purchase those "assets" from you, give them a "value" of your choosing so you can claim quarterly gains when you report to shareholders."

So, when I take my little plan to the bank to get a mortgage to buy my new River Oaks home and the loan officer tells me I don't have enough money to buy my dream home, I will simply tell him or her that it's all a matter of perspective. If his bank gets to value its assets any way it pleases, thereby deceiving its investors regarding the true value of the bank, then I should be able to value my assets any way I please in order to get the bank to invest in my dream of owning a River Oaks home. That seems fair to me. What do you think?

Does Anyone Really Think This is a Good Idea?

During my daily reading of the Drudge Report, I ran across the following article published in the Wall Street Journal:

U.S. Eyes Bank Pay Overhaul

But it was the subtitle that really caught my attention:

"Administration in Early Talks on Ways to Curb Compensation Across Finance"

The Obama administration is proposing the regulation of compensation at all financial institutions even if those institutions did not accept bailout funds. WHAT!?! If that didn't make your jaw drop, read it again and let it soak in.

The administration's so-called "authority" for the ability to do this is that the Federal Reserve and SEC have the power to supervise financial institutions and that these supervisory powers would allow them to "curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank." Obama and Geithner are using public outrage over bonus payments at financial institutions to nationalize the financial system!

Let's take a look at one of the biggest culprits--AIG. AIG got in big trouble with credit default swaps. A credit default swap is an insurance policy protecting against a borrower defaulting on his/her loan. At the time AIG received it's $170 billion bailout from the federal government, it had $372.3 billion in exposure from its risky investment. The only way it would have to pay that is if every single borrower covered by these swaps defaulted on their loan obligations. Regardless, that is a huge amount of liability exposure by any standard. For more in depth reading about what exactly was going on with AIG, click here.

AIG is a very large company. If you take a look at its balance sheet for 2008, it had total equity (assets - liabilities) of $52.71 billion. Of course, that number is a joke because the administration decided to get rid of the mark to market accounting rules which allows companies like AIG to give value to their subprime "assets" when everyone knows they have no market, and thus, no value.

But, back to my point. Obama and Geithner are seizing on the public outrage over AIG paying out $165 million in retention payments (which the media falsely brainwashed people into believing were bonuses. See my earlier post on this issue.) in order to try to take over the financial system. Does anyone really believe that AIG's payment of $165 million in executive compensation is what made the company less "safe and sound"? In light of the $372 billion debt exposure, I don't think it's the $165 million in compensation payments that has the company in deep doo-doo.

So, here's what's going to happen. If the government regulates how much financial institutions can pay its employees (this is communism in case anyone was wondering), the true talent will not work at those institutions. They'll go wherever they can to make as much money as they can. In the absence of talent, the government will fill those positions with its own picks and thereby have complete control over the institutions. It's already happening in the auto industry.

In our once free-market society, there were three distinct groups of people who controlled how businesses were run. First is the consumer--you and me. If we don't like a particular company's product, we don't buy it. The second group of people, the company's board of directors, is tasked with the responsibility of hiring people and making corporate decisions that convince the consumer that the company has a product worth buying. If the board of directors fails at that task, the third group of people--the stock holders...also known as the OWNERS--vote to fire the board members and replace them with people who can do the job. There is no room for, nor need for government intervention. Markets always work themselves out.

So far Obama has taken over the auto industry and is well on his way to taking over the financial industry. What's next?

Gangster Government

I would strongly encourage everyone to read these two articles. All I will say in the way of commentary is that apparently Obama is not even going to hide his communistic intentions anymore. The American people need to wake up and see what's going on here.

Hedge Funds Outraged At Obama Bullying But Also Cowering In Fear

White House puts UAW ahead of property rights

Transparency At Its Finest!

President Obama, our beacon of hope in troubling times, amidst all his promises of transparency which the American people deserve, is refusing to release the photos of the fake Air Force One buzzing New York a couple of weeks ago. He'll release photos of Gitmo prisoners and memos that tell our enemies exactly what we will and will not do to them in order to get information to prevent future acts of terrorism, but he won't release photos of his staged act of terrorism that make him look unbelievably insensitive to the people of New York--photos that everyone knows exist!

In case you can't figure out why--one of the disclosures vilifies President Bush, the other vilifies President Obama. Thanks for the transparency, Mr. President!