Recent economic data show that U.S. job growth in May was negligible, while the official unemployment figure-- at least the figure the Labor Department admits to-- rose to 9.1%. The real unemployment figure, however, as compiled by economist John Williams, may well be higher than 20%. It is clear the U.S. economy is in terrible shape, and that no amount of government spending or Federal Reserve quantitative easing can reduce unemployment, increase real productivity, or address our debt fiasco.U.S. jobs and productivity are dependent on the accumulation of private capital to finance existing businesses or fund new entrepreneurial activity. Private capital-- whether accumulated by profitable U.S. businesses, invested by private equity and venture capital firms, or attracted from abroad-- is the key to economic growth and new jobs. But we cannot create jobs if we demonize profits, punish risk-taking capitalists, and stay hostile to foreign investment.
The steps to encouraging capital investment and creating new jobs in America are simple, though not easy:
· First and foremost, we must create a sound U.S. currency backed by gold or some other commodity respected by the market. No nation in history with a rapidly depreciating currency has attracted private capital. Unless and until we prohibit the Treasury and Federal Reserve from essentially creating money and credit from thin air, we cannot restore the U.S. economy.
· Second, we must create a favorable regulatory environment for U.S. business. This cannot be stressed enough. When businesses don’t know what’s coming next from the EPA, when Obamacare spikes their healthcare costs, or when the Dodd-Frank bill adds almost unknowable regulatory compliance burdens, businesses simply will not expand and hire. It is time to start shrinking the federal register.
· Third, we must stop spending trillions of dollars overseas on foreign wars. There is no point in debating a foreign policy we cannot afford. It no longer matters what neoconservatives want. Our interventionist foreign policy is financed on credit, and our credit limit has been reached. Our economy would be infinitely better off if those trillions of dollars had never been removed from the private economy or added to our debt.
· Finally, we must completely revamp the U.S. tax system and move to a territorial model that does not tax foreign source income. U.S. corporations are sitting on more than a trillion dollars in foreign earnings that cannot be repatriated to the U.S. because of taxes. We need to stop taxing unpatriated funds to bring those earnings home. Better yet, we need to abolish the income tax altogether.
The U.S. economy is in deep trouble. Congress needs to act immediately to restore the rule of law and create an environment that rewards, rather than punishes, the critical components of any healthy economy: capital accumulation and investment.
In this struggling economy it is essential for politicians to take a step back and think about what government has been doing to business in this country. In less than 200 years, the free market, property rights, and respect for the rule of law took this nation from a rough frontier to a global economic superpower. Today, however, our nation and our economy clearly are headed in the wrong direction.
Of course, America has never enjoyed absolute free-market capitalism: creeping government intrusion and special interest political patronage have existed and increased since our founding. But America historically has permitted free markets to operate with less government interference than other nations, while showing greater respect for property rights and the rule of law. Less government, respect for private property, and a relatively stable legal environment allowed America to become the wealthiest nation on earth.
By contrast, the poorest nations almost always demonstrate hostility for free markets, private property, and the rule of law. Capital formation, entrepreneurship, credit, and wealth accumulation are uniformly discouraged in poor countries. Private contracts are not reliably enforced, and private property is not secure in the hands of owners. The predictable result is widespread poverty and misery.
Monday
Friday
WHAT I THINK......LEW ROCKWELL
This country had the chance to avoid the disastrous meltdown of 2008 and following, the one that has led to the nationalization of industries, the creation of oceans of paper money, and the destruction of so many American dreams. The answer that might have been is the one you hold in your hands: the minority report of the US Gold Commission of 1982, written by Ron Paul and signed by Lewis E. Lehrman. It provides an outstanding history, wonderful theoretical analytics, and a proposal for the return of sound money, which is gold.
Alas, it was the minority report and therefore killed by political forces. Of course, the fix was in from the beginning. The commission only came to exist in the first place as payoff to certain "goldbugs" in the Republican Party in those years. Ronald Reagan was one of them. So his influence was part of the reason the Commission was created. But it wasn't created to institute a gold standard. It was created to bury the idea once and for all.
Ron Paul wouldn't let it happen. The result was this book, which remains a mighty case for sound money and the blessings that change would bring to this country. A gold currency would restore economic stability and growth. It would eliminate unemployment. It would force government to spend only what it can collect in taxes. It would rein in the welfare state and the warfare state. It would give the people control of money again. It would restore what we used to call freedom, which is a core of social and civic life that is impenetrable and inaccessible to government planners.
With a gold standard, the Fed could disappear. The banking industry would become an industry like any other, subject to the profit and loss test and given no guaranteed bailouts at taxpayer expense. The financial industry would be forced to surrender its love of socialism (for losses, not gains) and become honest again. We would all start living within our means and thriving off private wealth rather than depending on the public sector to save us.
Trade with other nations would benefit. Protectionist wars rooted in currency manipulation would cease. Policy options in Washington would be mercifully restricted to only what Washington could afford to do and afford to enforce. Vast swaths of the public sector as we know it would have to just pack up and go home. This would be the greatest blessing visited on this country in a century. But can you see why Washington isn't interested? It has nothing to do with disagreements over economic theory. It is all about who has power in society. Paper money gives power to tyrants. Sound money – that is gold – gives power to the people and the free markets they control.
So, yes, we should have listened to Ron in 1982. The thing is that he – wisely and bravely – never stopped talking about this issue. It turns out that this book, this minority report, is the work of a prophet. It tells the truth and shows the way. It should be our manifesto again. This timeless statement on behalf of economic truth can be our guide.
They didn't listen then. But maybe they'll listen now. We need monetary freedom more than anything else. The way digital markets are advancing, it might come about with or without Washington's permission. As Ron has always known, paper money cannot last. Either it has to go, or the American dream has to go. They cannot forever live side by side.
Alas, it was the minority report and therefore killed by political forces. Of course, the fix was in from the beginning. The commission only came to exist in the first place as payoff to certain "goldbugs" in the Republican Party in those years. Ronald Reagan was one of them. So his influence was part of the reason the Commission was created. But it wasn't created to institute a gold standard. It was created to bury the idea once and for all.
Ron Paul wouldn't let it happen. The result was this book, which remains a mighty case for sound money and the blessings that change would bring to this country. A gold currency would restore economic stability and growth. It would eliminate unemployment. It would force government to spend only what it can collect in taxes. It would rein in the welfare state and the warfare state. It would give the people control of money again. It would restore what we used to call freedom, which is a core of social and civic life that is impenetrable and inaccessible to government planners.
With a gold standard, the Fed could disappear. The banking industry would become an industry like any other, subject to the profit and loss test and given no guaranteed bailouts at taxpayer expense. The financial industry would be forced to surrender its love of socialism (for losses, not gains) and become honest again. We would all start living within our means and thriving off private wealth rather than depending on the public sector to save us.
Trade with other nations would benefit. Protectionist wars rooted in currency manipulation would cease. Policy options in Washington would be mercifully restricted to only what Washington could afford to do and afford to enforce. Vast swaths of the public sector as we know it would have to just pack up and go home. This would be the greatest blessing visited on this country in a century. But can you see why Washington isn't interested? It has nothing to do with disagreements over economic theory. It is all about who has power in society. Paper money gives power to tyrants. Sound money – that is gold – gives power to the people and the free markets they control.
So, yes, we should have listened to Ron in 1982. The thing is that he – wisely and bravely – never stopped talking about this issue. It turns out that this book, this minority report, is the work of a prophet. It tells the truth and shows the way. It should be our manifesto again. This timeless statement on behalf of economic truth can be our guide.
They didn't listen then. But maybe they'll listen now. We need monetary freedom more than anything else. The way digital markets are advancing, it might come about with or without Washington's permission. As Ron has always known, paper money cannot last. Either it has to go, or the American dream has to go. They cannot forever live side by side.
Thursday
WHAT I THINK.......SUSAN WESTFALL
Recently, I was asked to explain whether or not it was "a common libertarian belief that any government is bad." This sticking point was one that in the questioners' own words caused them to "lose interest," and despite being "in agreement with a lot of libertarian thinking...talking about deregulating everything," turned them off. I was asked this because of my support for and recent article about Ron Paul, who despite decades of serving as a Republican Congressman, is still consistently labeled as a libertarian in almost every media interview with him or discussion about him. The subtle, and sometimes not so subtle, implication by the media is that either the word libertarian in and of itself (or perhaps just the idea of being a libertarian) is somehow not quite right, maybe even unacceptable, and most certainly not electable.
At this point I would like to make it clear that the people posing their questions seemed genuinely concerned with simply understanding better the issue of greatly reducing the size of government and not with deriding libertarianism. In fact, they assured me that they "like a lot of libertarian principles," but deregulation and "pursuing an idealized notion of a free market," is not an answer they understand and this, I assume, could affect their vote in 2012. However, their wording of the overarching question first asked shows how successful the media campaign against libertarian ideals over the years has been. The application of the label "libertarian" to someone's political character these days insinuates that said person is not only promoting an absence of any government whatsoever, but is almost eagerly awaiting the advent of anarchy and its chaotic and bloody results. Somalia is often used to demonstrate how such kooky libertarian ideals will end.
Libertarians, as with any other group, have beliefs that are wide and varied. I won't pretend to know them all, or purport to having done a deep or intensive study of the matter. "Libertarian ideas are like stones dropping into a body of water, making waves in so many directions that no one is sure where they come from," says Lew Rockwell in The Case for Libertarian Hope. An exact list of what libertarians believe in, stand for, or wish to attain might theoretically be compiled, but in reality would not be applicable to all its advocates. That said, there are at least two basic concepts that appear to be foundational to libertarianism: individual liberty and doing no harm. Everything else, in my opinion, is just extrapolation and lends to a general confusion that inevitably dilutes their strength.
Individual liberty is based on two concepts: life and property. Your life and your property are yours, and yours alone. You are free to do with them what you will, as long as you don't harm another with your doings. We exercise the choices we make regarding life and property through an ideal held dear by ALL people, no matter the political or religious label attached to them: that of free will. We choose what to eat and drink, where to live and how, what to think and believe, who to befriend or not, whether to be honest or lie, if we will act morally or immorally...the list could fill tomes. All individuals, regardless of race or gender, are born with this gift by which, at the very least, they are able to think, rationalize, and create. It is an accepted fact that free will is dictated by no person other than the one exercising it. If people are religious, they exercise their free will to adhere to God's laws. However, I doubt any of them seriously believe that a bolt of lightening will shoot out of the Walmart ceiling tiles to strike them dead should they decide to shoplift. God does not compel mankind through force to follow His laws regarding morality, the treatment of fellow man, or any other of His dictates. God gifts mankind with individual liberty and extolls us to use it to exercise our free will, follow His guidance, and choose wisely in all things. If we choose unwisely, we and we alone will suffer the consequences – not our parents, not our neighbors, and not the rich people who have more than us. Does government then deem itself more powerful, more all-knowing than God? It must. Through legislation written by Congress the federal government: denies us the liberty to exercise our free will and dictates our choices for us; takes our wealth through taxation and redistributes it to others; and forces us to comply with its dictates through threats of imprisonment and/or fines. Pretty presumptuous, not to mention overbearing. As Ron Paul is fond of saying, "It makes no sense whatsoever." It makes even less sense to label people who believe in the right of individual liberty to exercise free will as kooks, anarchists, or extremists.
So since government is most assuredly not God, what is the role and purpose of government? Thankfully, we have a document that lays out just exactly those things. Article I, Section 8 of the Constitution enumerates specifically the 21 duties the federal government is authorized to perform. Unfortunately, the legislative branch ignores it, the executive branch appends it, the judicial branch undermines it, the States are remiss in their duty to guard against all of the latter, and the people have forgotten that they ARE the government. So instead of a Constitutional Republic that would restrain bureaucracy, protect liberty, and enforce laws, we now have a 'democracy' that is so gargantuan in size that it is unsustainable. One grows dizzy trying to count the number of departments, programs, bureaus, divisions, sub-departments, and offices instituted to enact all the unconstitutional legislation written over the last one hundred years to regulate and restrain the people. But will Congress cut it back? Not unless the people insist, and too many still don't understand that most of what government does is not really beneficial, but in actuality detrimental to the peoples' well-being and in direct opposition to the general welfare of their Republic.
The mere mention of cutting government back to a Constitutional, and thus affordable size, gives rise to immediate cries of doom, gloom, and destruction. Without the benign munificence of whatever sacred department or program targeted for removal it is intimated that: old people will be dropping like flies in the streets; no one will have a home; all our children will starve; the country will be overcome with unbearable pollution; everyone will die from poisoned food and bad medicine; and so on till the cows come home. Used to fuel the peoples' fears and maintain the status-quo, reporters seldom question whether any of these programs or departments are efficient or even worthy of expending scarce tax dollars on. Take for example the Environmental Protection Agency. This hallowed body purports to protect us from polluting corporations through tough regulations without which, supposedly, America would be wallowing in untold amounts of toxic pollution and all life would perish. In reality, its very policies often encourage corporations to continue polluting. If it costs less to pay a fine for polluting than it does to make renovations needed to meet regulation standards, then corporations will pay the fines and continue polluting. The government collects the fine money, no reform occurs, and the pollution continues on for years. What marvelous protection! If the EPA really wanted to protect the environment by enforcing tough regulations, there would be no optional fine payments or the fines would exceed renovation costs. And why do we need an agency for this anyway? Constitutionally, that's what the court system is for...to protect property from pollution or any other damage and to fairly decide compensation and punishment. Strictly and properly enforced court decisions would soon force corporations to curtail bad habits they are now actually encouraged to continue, by the very same agency supposedly protecting us.
Another fine example of government proficiency is the Food and Drug Administration. It ensures that we have safe medicines and food. Right? Surely it's worth the expended dollars to keep us safe from death and injury. Economist Randall Holcombe begs to differ. "The policy experts who have evaluated the costs and benefits of drug regulation have almost uniformly concluded that the costs of the regulations are not worth their benefits," quotes Thomas Woods in his book Rollback. Shouldn't we at least listen to these experts on FDA policy? It's not like, as Mr. Woods says, "a free people would...stand around scratching their heads...[wondering] what to do about [food and] drug safety." He proposes, and rightly so, that private firms such as Underwriters Laboratories could easily take over the job of informing customers of safe products, and at no cost to the taxpayer. In addition, at recent hearings on the Hill arguments were heard regarding the FDA's over-regulation of medical devices and an approval process that stifles innovation. Once again we find government is not always efficient. Why expend tax dollars on something private companies and the market could probably do better?
Even if people don't always agree why, in light of the fact that there is simply no money to continue funding them, the need to cut many of these regulating bodies is fast becoming an accepted norm. However, since the answer to the question "But, but how would we protect everyone?" is often the free market, another hurdle is quickly rolled out by the media for people to stumble upon. Horrors! The free market is the harbinger of all disasters that have befallen us, both old and new. As such we certainly can't trust it to regulate anything. Hogwash! "The free market" has not been free since 1913, when the FED began centrally planning our economy and intervening in the market. Any intervention in the market disrupts the natural balance maintained by demand and production. The market, if left to operate free of restrictions, reflects real consumer demands for goods and services. This in turn is used to set the price of goods based on ease and speed of production. If we understand that economic value can only be placed on an object based on whether consumers need or want it enough to pay for it, and that needs and wants change arbitrarily with social circumstances and can't be predicted accurately, then the idea that any regulating body could possibly out-perform the natural balance the market achieves is ludicrous. As soon as any restrictions are placed on the market, either through legislative regulations or central planning controls, the balance shifts away from the consumer towards the producer. This imbalance quickly leads to big businesses and corporations rapidly beating a path to Congress to purchase special favors that will benefit them, but never their consumers. No wonder government jumped so quickly into the Keynesian fueled vehicle for intervention provided by his scientific rational for central economic planning. It placed them firmly in the driver's seat, big producers in the back seat paying the fare, and consumers in the trunk...if they were lucky. More often than not the consumers find themselves choking on dust at the road side. "The free market protects consumers and restrains government and big business," Ron Paul articulates when asked how free markets could protect us. Big government advocates were more than happy to throw off those restraints and invite their cronies along for the ride.
The federal government's role in the market is to ensure that trade in goods produced remains regular and unrestricted between whatever parties want to have commerce, and to enforce and uphold contracts between those parties. It is not to control through legislation what can be produced in the name of regulating commerce. Nor is it, or has it ever been, to legislate into being an entity to plan the economy for the general welfare of the people. Intervention in the free markets by government created bodies based on Keynes's theory for central planning is the actual harbinger, and true culprit, of all our present woes. This understanding is becoming clearer to people, and is evidenced by a growing resurgence of belief in the idea that more government seldom translates to better government. One need not believe in any particular political theory to find the idea of smaller government attractive. In fact conservatives, republicans, constitutionalists, independents, and tea party people, as well as many dreaded libertarians, easily find common ground in advocating for smaller government. When asked about the size of government recently on the Diane Rehm show, Ron Paul commented, "[It should be] as small as possible." During that interview he further explained, "There is nothing wrong with describing conservatism as protecting the Constitution, protecting all things that limit government. Government is the enemy of liberty. Government should be very restrained." Growing support at the polls for Dr. Paul demonstrates that people are not finding his defense of liberty and small government such unacceptable ideas, despite his being labeled a libertarian by the media. In fact, judging by how frequently we now hear similar platitudes pass the lips of many a politician who previously derided Ron Paul for his stance, I would say his ideas are very acceptable to a majority of people. So much so that it seems quite sensible to proclaim that, "If we believe in having the liberty to exercise our free will and if we believe in smaller government, then perhaps we are all libertarians now."
At this point I would like to make it clear that the people posing their questions seemed genuinely concerned with simply understanding better the issue of greatly reducing the size of government and not with deriding libertarianism. In fact, they assured me that they "like a lot of libertarian principles," but deregulation and "pursuing an idealized notion of a free market," is not an answer they understand and this, I assume, could affect their vote in 2012. However, their wording of the overarching question first asked shows how successful the media campaign against libertarian ideals over the years has been. The application of the label "libertarian" to someone's political character these days insinuates that said person is not only promoting an absence of any government whatsoever, but is almost eagerly awaiting the advent of anarchy and its chaotic and bloody results. Somalia is often used to demonstrate how such kooky libertarian ideals will end.
Libertarians, as with any other group, have beliefs that are wide and varied. I won't pretend to know them all, or purport to having done a deep or intensive study of the matter. "Libertarian ideas are like stones dropping into a body of water, making waves in so many directions that no one is sure where they come from," says Lew Rockwell in The Case for Libertarian Hope. An exact list of what libertarians believe in, stand for, or wish to attain might theoretically be compiled, but in reality would not be applicable to all its advocates. That said, there are at least two basic concepts that appear to be foundational to libertarianism: individual liberty and doing no harm. Everything else, in my opinion, is just extrapolation and lends to a general confusion that inevitably dilutes their strength.
Individual liberty is based on two concepts: life and property. Your life and your property are yours, and yours alone. You are free to do with them what you will, as long as you don't harm another with your doings. We exercise the choices we make regarding life and property through an ideal held dear by ALL people, no matter the political or religious label attached to them: that of free will. We choose what to eat and drink, where to live and how, what to think and believe, who to befriend or not, whether to be honest or lie, if we will act morally or immorally...the list could fill tomes. All individuals, regardless of race or gender, are born with this gift by which, at the very least, they are able to think, rationalize, and create. It is an accepted fact that free will is dictated by no person other than the one exercising it. If people are religious, they exercise their free will to adhere to God's laws. However, I doubt any of them seriously believe that a bolt of lightening will shoot out of the Walmart ceiling tiles to strike them dead should they decide to shoplift. God does not compel mankind through force to follow His laws regarding morality, the treatment of fellow man, or any other of His dictates. God gifts mankind with individual liberty and extolls us to use it to exercise our free will, follow His guidance, and choose wisely in all things. If we choose unwisely, we and we alone will suffer the consequences – not our parents, not our neighbors, and not the rich people who have more than us. Does government then deem itself more powerful, more all-knowing than God? It must. Through legislation written by Congress the federal government: denies us the liberty to exercise our free will and dictates our choices for us; takes our wealth through taxation and redistributes it to others; and forces us to comply with its dictates through threats of imprisonment and/or fines. Pretty presumptuous, not to mention overbearing. As Ron Paul is fond of saying, "It makes no sense whatsoever." It makes even less sense to label people who believe in the right of individual liberty to exercise free will as kooks, anarchists, or extremists.
So since government is most assuredly not God, what is the role and purpose of government? Thankfully, we have a document that lays out just exactly those things. Article I, Section 8 of the Constitution enumerates specifically the 21 duties the federal government is authorized to perform. Unfortunately, the legislative branch ignores it, the executive branch appends it, the judicial branch undermines it, the States are remiss in their duty to guard against all of the latter, and the people have forgotten that they ARE the government. So instead of a Constitutional Republic that would restrain bureaucracy, protect liberty, and enforce laws, we now have a 'democracy' that is so gargantuan in size that it is unsustainable. One grows dizzy trying to count the number of departments, programs, bureaus, divisions, sub-departments, and offices instituted to enact all the unconstitutional legislation written over the last one hundred years to regulate and restrain the people. But will Congress cut it back? Not unless the people insist, and too many still don't understand that most of what government does is not really beneficial, but in actuality detrimental to the peoples' well-being and in direct opposition to the general welfare of their Republic.
The mere mention of cutting government back to a Constitutional, and thus affordable size, gives rise to immediate cries of doom, gloom, and destruction. Without the benign munificence of whatever sacred department or program targeted for removal it is intimated that: old people will be dropping like flies in the streets; no one will have a home; all our children will starve; the country will be overcome with unbearable pollution; everyone will die from poisoned food and bad medicine; and so on till the cows come home. Used to fuel the peoples' fears and maintain the status-quo, reporters seldom question whether any of these programs or departments are efficient or even worthy of expending scarce tax dollars on. Take for example the Environmental Protection Agency. This hallowed body purports to protect us from polluting corporations through tough regulations without which, supposedly, America would be wallowing in untold amounts of toxic pollution and all life would perish. In reality, its very policies often encourage corporations to continue polluting. If it costs less to pay a fine for polluting than it does to make renovations needed to meet regulation standards, then corporations will pay the fines and continue polluting. The government collects the fine money, no reform occurs, and the pollution continues on for years. What marvelous protection! If the EPA really wanted to protect the environment by enforcing tough regulations, there would be no optional fine payments or the fines would exceed renovation costs. And why do we need an agency for this anyway? Constitutionally, that's what the court system is for...to protect property from pollution or any other damage and to fairly decide compensation and punishment. Strictly and properly enforced court decisions would soon force corporations to curtail bad habits they are now actually encouraged to continue, by the very same agency supposedly protecting us.
Another fine example of government proficiency is the Food and Drug Administration. It ensures that we have safe medicines and food. Right? Surely it's worth the expended dollars to keep us safe from death and injury. Economist Randall Holcombe begs to differ. "The policy experts who have evaluated the costs and benefits of drug regulation have almost uniformly concluded that the costs of the regulations are not worth their benefits," quotes Thomas Woods in his book Rollback. Shouldn't we at least listen to these experts on FDA policy? It's not like, as Mr. Woods says, "a free people would...stand around scratching their heads...[wondering] what to do about [food and] drug safety." He proposes, and rightly so, that private firms such as Underwriters Laboratories could easily take over the job of informing customers of safe products, and at no cost to the taxpayer. In addition, at recent hearings on the Hill arguments were heard regarding the FDA's over-regulation of medical devices and an approval process that stifles innovation. Once again we find government is not always efficient. Why expend tax dollars on something private companies and the market could probably do better?
Even if people don't always agree why, in light of the fact that there is simply no money to continue funding them, the need to cut many of these regulating bodies is fast becoming an accepted norm. However, since the answer to the question "But, but how would we protect everyone?" is often the free market, another hurdle is quickly rolled out by the media for people to stumble upon. Horrors! The free market is the harbinger of all disasters that have befallen us, both old and new. As such we certainly can't trust it to regulate anything. Hogwash! "The free market" has not been free since 1913, when the FED began centrally planning our economy and intervening in the market. Any intervention in the market disrupts the natural balance maintained by demand and production. The market, if left to operate free of restrictions, reflects real consumer demands for goods and services. This in turn is used to set the price of goods based on ease and speed of production. If we understand that economic value can only be placed on an object based on whether consumers need or want it enough to pay for it, and that needs and wants change arbitrarily with social circumstances and can't be predicted accurately, then the idea that any regulating body could possibly out-perform the natural balance the market achieves is ludicrous. As soon as any restrictions are placed on the market, either through legislative regulations or central planning controls, the balance shifts away from the consumer towards the producer. This imbalance quickly leads to big businesses and corporations rapidly beating a path to Congress to purchase special favors that will benefit them, but never their consumers. No wonder government jumped so quickly into the Keynesian fueled vehicle for intervention provided by his scientific rational for central economic planning. It placed them firmly in the driver's seat, big producers in the back seat paying the fare, and consumers in the trunk...if they were lucky. More often than not the consumers find themselves choking on dust at the road side. "The free market protects consumers and restrains government and big business," Ron Paul articulates when asked how free markets could protect us. Big government advocates were more than happy to throw off those restraints and invite their cronies along for the ride.
The federal government's role in the market is to ensure that trade in goods produced remains regular and unrestricted between whatever parties want to have commerce, and to enforce and uphold contracts between those parties. It is not to control through legislation what can be produced in the name of regulating commerce. Nor is it, or has it ever been, to legislate into being an entity to plan the economy for the general welfare of the people. Intervention in the free markets by government created bodies based on Keynes's theory for central planning is the actual harbinger, and true culprit, of all our present woes. This understanding is becoming clearer to people, and is evidenced by a growing resurgence of belief in the idea that more government seldom translates to better government. One need not believe in any particular political theory to find the idea of smaller government attractive. In fact conservatives, republicans, constitutionalists, independents, and tea party people, as well as many dreaded libertarians, easily find common ground in advocating for smaller government. When asked about the size of government recently on the Diane Rehm show, Ron Paul commented, "[It should be] as small as possible." During that interview he further explained, "There is nothing wrong with describing conservatism as protecting the Constitution, protecting all things that limit government. Government is the enemy of liberty. Government should be very restrained." Growing support at the polls for Dr. Paul demonstrates that people are not finding his defense of liberty and small government such unacceptable ideas, despite his being labeled a libertarian by the media. In fact, judging by how frequently we now hear similar platitudes pass the lips of many a politician who previously derided Ron Paul for his stance, I would say his ideas are very acceptable to a majority of people. So much so that it seems quite sensible to proclaim that, "If we believe in having the liberty to exercise our free will and if we believe in smaller government, then perhaps we are all libertarians now."
WHAT I THINK.......JUSTIN RAIMONDO
As libertarianism becomes more visible, politically, and gains ground in the GOP, the enemies of freedom are poised – on both the right and the left – for the attack. Libertarians have never had to deal with this problem before, in the main because their movement was considered marginal, if it was considered at all. Today, however, the situation is quite different: a wave of “anti-government” (i.e. pro-freedom) sentiment is sweeping the country, and the realization that libertarians were the original tea-partiers – coupled with the electoral success of that populist upsurge – has the Establishment in a panic. What we’re seeing is a two-pronged, left-right attack on libertarians, with the initial forays in the foreign policy realm.
The main thrust of the attack is naturally directed at the leader of the libertarian movement, the man who has done the most to make libertarianism a significant political force in the modern world, and that man is Rep. Ron Paul (R-Texas). Ron has single-handedly raised the profile of the movement way beyond what anyone imagined only a few years ago. A lot of this has to do with Ron’s prescient warnings about the state of the economy, and the bursting of the real estate bubble, which have given him the kind of authority he never enjoyed in all the years spent crying in the wilderness.
However, Ron’s prescience isn’t limited to economics: unlike most conservatives, Ron was clear from the very beginning that our foreign policy of global intervention would blow back in our faces some day, and the 9/11 terrorist attacks confirmed his view in a way that was not, at first, readily apparent. Yet Ron kept making this point, even in the wake of the war hysteria that followed the attacks, and ten years anon – as a war-weary and dead broke America staggers and seems about to fall – his views are seen as prophetic rather than marginal.
This is precisely what terrifies the Republican party Establishment, and positively enrages the neoconservatives, whose entire philosophy is predicated on the glorification of war. As might be expected, they are sharpening their knives and hoping to go in for the kill, but they can’t do what Rudy Giuliani tried to do the last time around when he got up on his high horse and demanded Ron “take back” his statement that the 9/11 attacks were “blowback,” in CIA parlance, an unintended consequence of our foreign policy adventurism in the Middle East. Rudy, for his trouble, got a grand total of one delegate in the 2008 Republican primaries, and this time around – he’s made noises about entering the fray again – I wouldn’t be surprised if he got less than that. Ron, on the other hand, went on to become the grand old man of the populist Tea Party movement, a candidate whose million-dollar “money-bombs” are a fundraiser’s dream and whose political prospects brighten by the day.
No, this time around the neocons have to be a bit more subtle, while cashing in on the last dregs of the post-9/11 war hysteria. And the only way to do that is to completely misconstrue his words, and twist them to mean something other than what was intended – and then spread the “Ron-said-this” meme far and wide. The latest such attempt was an interview with Simon Conway, a British import with a radio show in Iowa, in which Ron was asked if, given his opposition to violating the sovereignty of other countries, he would have ordered the raid that assassinated Osama bin Laden. Ron answered that, if he were President, “Things would be done somewhat differently.” You’ll note he didn’t say there would have been no raid: instead, he cited the case of Khalid Sheikh Mohammed, the actual mastermind of the 9/11 attacks, who was found and arrested by the Pakistanis, as an example of US-Pakistani cooperation.
Conway follows up by saying “I don’t want to put words in your mouth” and then proceeds to put words in Ron’s mouth by stating that “you would not have ordered the raid.” Ron then says: “No. No, it was absolutely not necessary” – in this locution, “it” refers, not to the option of a joint US-Pakistani raid, but to a unilateral raid kept secret from the Pakistani government. Once again, Conway goes into his “I don’t want to put words in your mouth” routine, and reiterates that Ron is saying he wouldn’t have ordered any raid whatsoever. Ron answers: “Not the way it took place.”
Naturally, the neocons jumped all over this, with a short piece in National Review claiming in a headline “Ron Paul Wouldn’t Have Ordered Bin Laden Raid,” and quoting only a single sentence – “It was absolutely not necessary” – torn out of context. NR followed this up with an extended riff on the same theme, by one Marion Smith, who starts out his polemic with a lie – “Last month, Ron Paul said he would not have ordered the military action that ended in the death of Osama Bin Laden. In his view, ‘It was absolutely not necessary’” – and then goes into a lengthy historical disquisition about the Barbary pirates and other irrelevant topics. Before careening off on that tangent, however, Smith briefly touches on the real issue:
“In the case of the bin Laden raid, Paul argues that the United States had no more right to violate Pakistan’s sovereignty than to violate England’s, had Bin Laden hypothetically been lodged in London instead of Abbottabad. But bin Laden was not in London, and for an obvious reason: The United Kingdom is an ally, in the true sense of the word. Pakistan, it seems, is not. Nevertheless, the strict non-interventionist argues that the U.S. should have respected Pakistan’s sovereignty.”
Marion’s argument is based on the dubious assumption that President Obama was telling us the truth, the whole truth, and nothing but the truth about the raid being a “secret” withheld from Pakistani authorities. This is certainly odd coming from a magazine that spends the rest of its column inches questioning the President’s credibility. How do we really know who knew about the bin Laden operation in advance and who didn’t? This Guardian news report avers that an agreement had been made, well in advance, that such a raid conducted in Pakistani territory would be immediately disavowed by the authorities in Islamabad, although it would be carried out with their consent. As the Guardian put it:
“The US and Pakistan struck a secret deal almost a decade ago permitting a US operation against Osama bin Laden on Pakistani soil similar to last week’s raid that killed the al-Qaida leader, the Guardian has learned.
“The deal was struck between the military leader General Pervez Musharraf and President George Bush after Bin Laden escaped US forces in the mountains of Tora Bora in late 2001, according to serving and retired Pakistani and US officials.
“Under its terms, Pakistan would allow US forces to conduct a unilateral raid inside Pakistan in search of Bin Laden, his deputy, Ayman al-Zawahiri, and the al-Qaida No3. Afterwards, both sides agreed, Pakistan would vociferously protest the incursion.”
Although Antiwar.com ran this story when it appeared – and Ron, I know, is one of our regular readers – he must have missed this one. In any case, the Musharraf-Bush deal was no doubt still in effect when the raid that killed bin Laden was launched – or else why are we sending them billions of US taxpayer dollars? – and so the entire dispute is simply a lot of hot air. The raid was indeed carried out with the cooperation of Pakistan, no violation of Pakistani sovereignty took place, and the President was simply telling a half truth when he said the operation was kept secret from Pakistan: we may not have told them when we were going to launch it, but they had agreed to it in advance anyway.
Ron’s point about the importance of respecting the national sovereignty of our allies is, here, underscored by what actually took place: the reality is that we didn’t just barge in, without any legal or moral justification, and simply take out bin Laden. Islamabad was in on it from the start, and – as the President noted in his address to the nation – intelligence provided by Pakistan played an important role in the operation’s success.
If you go to YouTube and listen to the Conway interview, or the part which deals with foreign policy, Ron gives precisely the right answer when asked if we should get out of Afghanistan (and Pakistan) now that bin Laden is dead: “We should’ve done that a long time ago,” he said. “I’ve been saying that all along.” Indeed, we could have pulled off the raid on bin Laden’s Abbottabad headquarters without invading either Iraq or Afghanistan: both invasions were a typically American over-reaction to what should have been an operation focused on intelligence-gathering and what boils down to ordinary police work.
The Mafia, too, was a terrorist organization, one that, at the height of its power, killed a great many people on American soil – and yet we didn’t have to invade Italy to neutralize them.
At a time when even Republicans are learning the lesson of what happens to empires that allow themselves to become over-extended, the War Party lives in mortal fear of Ron Paul’s message of a peaceful, non-interventionist foreign policy. They are desperate to convince the public that Paul is against defending the country, and even that he sympathizes with the terrorists. This was Giuliani’s failed tactic, and they’re trying it again. It won’t work any better this time around: more and more conservatives are questioning the neoconservative dogma that all war all the time is a sane or sustainable foreign policy for a republic. The impending bankruptcy of the US has imbued this lesson with a new urgency – and that accounts for the urgency of the smear campaign against Paul, which is only just beginning to unfold.
The main thrust of the attack is naturally directed at the leader of the libertarian movement, the man who has done the most to make libertarianism a significant political force in the modern world, and that man is Rep. Ron Paul (R-Texas). Ron has single-handedly raised the profile of the movement way beyond what anyone imagined only a few years ago. A lot of this has to do with Ron’s prescient warnings about the state of the economy, and the bursting of the real estate bubble, which have given him the kind of authority he never enjoyed in all the years spent crying in the wilderness.
However, Ron’s prescience isn’t limited to economics: unlike most conservatives, Ron was clear from the very beginning that our foreign policy of global intervention would blow back in our faces some day, and the 9/11 terrorist attacks confirmed his view in a way that was not, at first, readily apparent. Yet Ron kept making this point, even in the wake of the war hysteria that followed the attacks, and ten years anon – as a war-weary and dead broke America staggers and seems about to fall – his views are seen as prophetic rather than marginal.
This is precisely what terrifies the Republican party Establishment, and positively enrages the neoconservatives, whose entire philosophy is predicated on the glorification of war. As might be expected, they are sharpening their knives and hoping to go in for the kill, but they can’t do what Rudy Giuliani tried to do the last time around when he got up on his high horse and demanded Ron “take back” his statement that the 9/11 attacks were “blowback,” in CIA parlance, an unintended consequence of our foreign policy adventurism in the Middle East. Rudy, for his trouble, got a grand total of one delegate in the 2008 Republican primaries, and this time around – he’s made noises about entering the fray again – I wouldn’t be surprised if he got less than that. Ron, on the other hand, went on to become the grand old man of the populist Tea Party movement, a candidate whose million-dollar “money-bombs” are a fundraiser’s dream and whose political prospects brighten by the day.
No, this time around the neocons have to be a bit more subtle, while cashing in on the last dregs of the post-9/11 war hysteria. And the only way to do that is to completely misconstrue his words, and twist them to mean something other than what was intended – and then spread the “Ron-said-this” meme far and wide. The latest such attempt was an interview with Simon Conway, a British import with a radio show in Iowa, in which Ron was asked if, given his opposition to violating the sovereignty of other countries, he would have ordered the raid that assassinated Osama bin Laden. Ron answered that, if he were President, “Things would be done somewhat differently.” You’ll note he didn’t say there would have been no raid: instead, he cited the case of Khalid Sheikh Mohammed, the actual mastermind of the 9/11 attacks, who was found and arrested by the Pakistanis, as an example of US-Pakistani cooperation.
Conway follows up by saying “I don’t want to put words in your mouth” and then proceeds to put words in Ron’s mouth by stating that “you would not have ordered the raid.” Ron then says: “No. No, it was absolutely not necessary” – in this locution, “it” refers, not to the option of a joint US-Pakistani raid, but to a unilateral raid kept secret from the Pakistani government. Once again, Conway goes into his “I don’t want to put words in your mouth” routine, and reiterates that Ron is saying he wouldn’t have ordered any raid whatsoever. Ron answers: “Not the way it took place.”
Naturally, the neocons jumped all over this, with a short piece in National Review claiming in a headline “Ron Paul Wouldn’t Have Ordered Bin Laden Raid,” and quoting only a single sentence – “It was absolutely not necessary” – torn out of context. NR followed this up with an extended riff on the same theme, by one Marion Smith, who starts out his polemic with a lie – “Last month, Ron Paul said he would not have ordered the military action that ended in the death of Osama Bin Laden. In his view, ‘It was absolutely not necessary’” – and then goes into a lengthy historical disquisition about the Barbary pirates and other irrelevant topics. Before careening off on that tangent, however, Smith briefly touches on the real issue:
“In the case of the bin Laden raid, Paul argues that the United States had no more right to violate Pakistan’s sovereignty than to violate England’s, had Bin Laden hypothetically been lodged in London instead of Abbottabad. But bin Laden was not in London, and for an obvious reason: The United Kingdom is an ally, in the true sense of the word. Pakistan, it seems, is not. Nevertheless, the strict non-interventionist argues that the U.S. should have respected Pakistan’s sovereignty.”
Marion’s argument is based on the dubious assumption that President Obama was telling us the truth, the whole truth, and nothing but the truth about the raid being a “secret” withheld from Pakistani authorities. This is certainly odd coming from a magazine that spends the rest of its column inches questioning the President’s credibility. How do we really know who knew about the bin Laden operation in advance and who didn’t? This Guardian news report avers that an agreement had been made, well in advance, that such a raid conducted in Pakistani territory would be immediately disavowed by the authorities in Islamabad, although it would be carried out with their consent. As the Guardian put it:
“The US and Pakistan struck a secret deal almost a decade ago permitting a US operation against Osama bin Laden on Pakistani soil similar to last week’s raid that killed the al-Qaida leader, the Guardian has learned.
“The deal was struck between the military leader General Pervez Musharraf and President George Bush after Bin Laden escaped US forces in the mountains of Tora Bora in late 2001, according to serving and retired Pakistani and US officials.
“Under its terms, Pakistan would allow US forces to conduct a unilateral raid inside Pakistan in search of Bin Laden, his deputy, Ayman al-Zawahiri, and the al-Qaida No3. Afterwards, both sides agreed, Pakistan would vociferously protest the incursion.”
Although Antiwar.com ran this story when it appeared – and Ron, I know, is one of our regular readers – he must have missed this one. In any case, the Musharraf-Bush deal was no doubt still in effect when the raid that killed bin Laden was launched – or else why are we sending them billions of US taxpayer dollars? – and so the entire dispute is simply a lot of hot air. The raid was indeed carried out with the cooperation of Pakistan, no violation of Pakistani sovereignty took place, and the President was simply telling a half truth when he said the operation was kept secret from Pakistan: we may not have told them when we were going to launch it, but they had agreed to it in advance anyway.
Ron’s point about the importance of respecting the national sovereignty of our allies is, here, underscored by what actually took place: the reality is that we didn’t just barge in, without any legal or moral justification, and simply take out bin Laden. Islamabad was in on it from the start, and – as the President noted in his address to the nation – intelligence provided by Pakistan played an important role in the operation’s success.
If you go to YouTube and listen to the Conway interview, or the part which deals with foreign policy, Ron gives precisely the right answer when asked if we should get out of Afghanistan (and Pakistan) now that bin Laden is dead: “We should’ve done that a long time ago,” he said. “I’ve been saying that all along.” Indeed, we could have pulled off the raid on bin Laden’s Abbottabad headquarters without invading either Iraq or Afghanistan: both invasions were a typically American over-reaction to what should have been an operation focused on intelligence-gathering and what boils down to ordinary police work.
The Mafia, too, was a terrorist organization, one that, at the height of its power, killed a great many people on American soil – and yet we didn’t have to invade Italy to neutralize them.
At a time when even Republicans are learning the lesson of what happens to empires that allow themselves to become over-extended, the War Party lives in mortal fear of Ron Paul’s message of a peaceful, non-interventionist foreign policy. They are desperate to convince the public that Paul is against defending the country, and even that he sympathizes with the terrorists. This was Giuliani’s failed tactic, and they’re trying it again. It won’t work any better this time around: more and more conservatives are questioning the neoconservative dogma that all war all the time is a sane or sustainable foreign policy for a republic. The impending bankruptcy of the US has imbued this lesson with a new urgency – and that accounts for the urgency of the smear campaign against Paul, which is only just beginning to unfold.
Tuesday
HOLDING THE PRESIDENT ACCOUNTABLE ON LIBYA
Last week, more than 70 days after President Obama sent our military to attack Libya without a congressional declaration of war, the House of Representatives finally voted on two resolutions attempting to rein in the president. This debate was long overdue, as polls show Americans increasingly are frustrated by congressional inaction. According to a CNN poll last week, 55 percent of the American people believe that Congress, not the president, should have the final authority to decide whether the U.S. should continue its military mission in Libya. Yet for more than 70 days Congress has ignored its constitutional obligations and allowed the president to usurp its authority.
Finally, Congressman Dennis Kucinich was able to bring to the floor a resolution asserting that proper constitutional war power authority resides with Congress. His resolution simply stated that "Congress directs the President to remove the United States Armed Forces from Libya by not later than the date that is 15 days after the date of the adoption of this concurrent resolution."
Opponents of the withdrawal resolution said the 15 day deadline was too abrupt. But as I pointed out during debate, the president attacked Libya abruptly – he didn't even bother to consult Congress – so why can't he order an end to military action just as abruptly? When members of Congress took an oath of office to defend the Constitution, we did not pledge to defend it only gradually, a little bit at a time. On the contrary, we must defend it vigorously and completely from the moment we take that oath. I was pleased that 87 Republicans were able to put the Constitution first and support this resolution.
House Speaker John Boehner offered his own resolution on the same day, which declared that Congress would not support the insertion of US ground troops into Libya. Although this unfortunately was far from adequate to satisfy our constitutional obligations, it certainly was a step in the right direction and I am pleased that it passed in the House. Just days before Speaker Boehner's resolution, an amendment to the defense authorization act prohibited the president from using any funds in the bill to insert US troops into Libya. A separate amendment last week prohibiting any funds appropriated to the Department of Homeland Security from being used to attack Libya came within just a handful of votes from passing. All of these votes demonstrate that members of Congress increasingly understand that our foreign wars are deeply unpopular with their constituents. We are broke, and the American people know it. They expect Congress to focus on fixing America's economic problems, rather than rubber stamping yet another open-ended military intervention in Libya.
I believe these resolutions and amendments indicate that the tide is turning in the right direction. I am confident we will see Congress move toward ending our unconstitutional wars. The American people are demanding no less. The president's attack on Libya was unconstitutional and thus unlawful. This policy must be reversed.
Finally, Congressman Dennis Kucinich was able to bring to the floor a resolution asserting that proper constitutional war power authority resides with Congress. His resolution simply stated that "Congress directs the President to remove the United States Armed Forces from Libya by not later than the date that is 15 days after the date of the adoption of this concurrent resolution."
Opponents of the withdrawal resolution said the 15 day deadline was too abrupt. But as I pointed out during debate, the president attacked Libya abruptly – he didn't even bother to consult Congress – so why can't he order an end to military action just as abruptly? When members of Congress took an oath of office to defend the Constitution, we did not pledge to defend it only gradually, a little bit at a time. On the contrary, we must defend it vigorously and completely from the moment we take that oath. I was pleased that 87 Republicans were able to put the Constitution first and support this resolution.
House Speaker John Boehner offered his own resolution on the same day, which declared that Congress would not support the insertion of US ground troops into Libya. Although this unfortunately was far from adequate to satisfy our constitutional obligations, it certainly was a step in the right direction and I am pleased that it passed in the House. Just days before Speaker Boehner's resolution, an amendment to the defense authorization act prohibited the president from using any funds in the bill to insert US troops into Libya. A separate amendment last week prohibiting any funds appropriated to the Department of Homeland Security from being used to attack Libya came within just a handful of votes from passing. All of these votes demonstrate that members of Congress increasingly understand that our foreign wars are deeply unpopular with their constituents. We are broke, and the American people know it. They expect Congress to focus on fixing America's economic problems, rather than rubber stamping yet another open-ended military intervention in Libya.
I believe these resolutions and amendments indicate that the tide is turning in the right direction. I am confident we will see Congress move toward ending our unconstitutional wars. The American people are demanding no less. The president's attack on Libya was unconstitutional and thus unlawful. This policy must be reversed.
Friday
FESS UP
While the Federal Reserve is still far less transparent than it should be, recent disclosures of the Federal Reserve’s lending programs have greatly increased our knowledge of the Fed's monetary policy during the height of the financial crisis.
In December 2010 and March 2011, a remarkable thing happened: the Fed disclosed information on its lending facilities and discount window operations, including who borrowed money, what amounts were loaned, maturity dates, interest rates, and collateral. It took an act of Congress, the Dodd-Frank Act, to bring about the December releases that discovered the details of the emergency lending facilities set up by the Fed during the crisis. The March 2011 disclosures covered discount window lending, the oldest Fed lending tool, whose operations had never before been disclosed. It took a three year legal battle regarding the Freedom of Information Act’s (FOIA) applicability to the Fed in order to gain access to this information. The suits brought by Bloomberg and Fox News resulted in 29,000 pages of unorganized, heavily redacted documents being provided. Combining these two data releases has given us a fuller, if still woefully incomplete, picture of the Fed’s operations during the financial crisis and the nearly $3 trillion balance sheet it has built up.
On November 25, 2008, the Fed created the Term Asset-Backed Securities Loan Facility (TALF) which was intended to "lend up to $200 billion... to holders of certain AAA-rated ABS [asset-backed securities]." When the Fed released TALF data in December of 2010, 18% of TALF loans were backed by subprime credit card and auto loan securities, 17% of TALF loans were backed by "legacy", a.k.a. troubled, commercial real estate securities, and 13% of TALF loans were backed by student loan securities. On March 11, 2008, the Fed created the Term Securities Lending Facility (TSLF) to "lend up to $200 billion...to primary dealers... secured... by... securities, including federal agency debt, federal agency residential mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS." When the Fed released TSLF data in December of 2010, 26% of loans were backed by AAA/Aaa-rated securities, 17% were backed by non-AAA-rated securities, and 57% of loans were backed by collateral whose rating was not published by the Fed.
Recent news reports have brought to light the existence of a previously undisclosed Fed lending program known as "single-tranche open market operations" (ST OMO). This program loaned money at rates as low as 0.01% to major firms such as Goldman Sachs, and was essentially a free loan to these politically well-connected firms. Data about this program was not published, but instead was gleaned through examination of charts published in March as a result of the Fed's Freedom of Information Act (FOIA) disclosure. The charts were found within a 327-page document which had 81% of its content redacted.
Out of the funds loaned through the Fed's credit facilities, nearly one-third was loaned to foreign banks. Some facilities and programs, such as the Mortgage-Backed Securities Purchase Program, the Commercial Paper Funding Facility, and the TSLF, provided more than half of their funding to foreign banks. During the peak of the financial crisis, up to 88% of overall discount window lending went to foreign banks, and nearly 100% of the New York Fed's discount window lending went to foreign banks.
Not surprisingly, these data disclosures have raised significant new questions about the Fed's behavior. Among many questions raised are: Why did foreign firms receive such a large percentage of Fed lending? What advantages were given to large financial institutions that had access to multiple lending facilities for prolonged periods of time? Did extending loans to non-financial firms go beyond the Fed’s emergency lending authority? Why did investors who participated in TALF have to have a relationship with the Fed’s primary dealers, and did this give an unfair advantage to wealthy investors, such as the wives of two Morgan Stanley executives? Why did the Fed set up single-tranche open-market operations (ST OMO) which gave primary dealers access to $80 billion at rates as low as 0.01%, essentially providing a direct government subsidy to these firms, and why did the Fed only disclose this information in chart form? Are there other programs that have yet to be disclosed? Why were so many pages redacted in the 327-page document that alluded to ST OMO? Can you really claim to be in compliance with FOIA when such significant portions of documents are redacted? How can we trust that this data was "not responsive" to the FOIA request? Are we to trust the non-transparent Fed that we really don't need to see that information? If the Fed claims to lend against AAA collateral and then does not, can we trust anything the Fed publishes in a press release? Can we trust that collateral classified by the Fed as AAA really is AAA?
More issues emerge from the Fed’s handling of the FOIA requests brought by Bloomberg and Fox News. The Fed used several arguments in refusing to comply. Among them was the Fed’s claim that it was a private institution and not subject to FOIA, since the documents requested were held by the New York Fed, a private bank, and thus exempt. Fortunately for the American people, the court rejected that assertion. But what exactly is the legal relationship between the private regional banks and the Board of Governors? The Fed also claimed that lending records of discount window borrowers were privileged or confidential information that could cause imminent competitive harm if disclosed, or even cause a run on banks, and therefore should be exempt from FOIA. This has been the Fed’s long-standing defense of the secrecy of the discount window. One of the judges in the case summed up the Fed’s secrecy succinctly: "[T]he risk of looking weak to competitors and shareholders is an inherent risk of market participation; information tending to increase that risk does not make the information privileged or confidential."
Given the massive amount of data released last December and this March, and the fact that much information in the March data release was redacted, it is all but certain that there remains much to be discovered about the Fed's bailouts through the discount window and its credit facilities. The Federal Reserve's actions in bailing out Wall Street through credit facilities and quantitative easing provoked a backlash among the American people and among many members of Congress. Trillions of dollars worth of loans and guarantees were provided to rich bankers and their worthless holdings of mortgage debt were snapped up by the Fed, while Main Street Americans continued to suffocate under harsh taxation and the prospect of increasing inflation. These events have awakened many Americans to the problems with the Fed's loose monetary policy, the bubbles it has created in the past, and the potential hyperinflation it might cause in the future. We should not neglect the fundamental need for more transparency of the Fed and a thorough audit that can help shed light on operations of the Federal Reserve System. We need stronger audit authority over the Fed, both looking back at previous market interventions and also ensuring that any future credit facilities, bailout vehicles, or large-scale asset purchase programs are subject to oversight.
At this hearing we hope to receive substantive answers from the Fed about its lending behavior during the worst part of the financial crisis, and we hope to receive assurances about the Fed's future compliance with the Dodd-Frank bill's requirements for public access to lending information. Aside from our ability to ask questions at the hearing, the hearing record will remain open for 30 days to allow the Fed time to respond to our written questions. At a time when the Fed's balance sheet is rapidly approaching the $3 trillion dollar mark, it is absolutely imperative that the Fed come clean with the details of its open market operations, lending operations, and asset purchases. Pumping trillions of dollars into the banking system with no oversight by Congress and no accountability to the American people cannot be allowed to continue.
In December 2010 and March 2011, a remarkable thing happened: the Fed disclosed information on its lending facilities and discount window operations, including who borrowed money, what amounts were loaned, maturity dates, interest rates, and collateral. It took an act of Congress, the Dodd-Frank Act, to bring about the December releases that discovered the details of the emergency lending facilities set up by the Fed during the crisis. The March 2011 disclosures covered discount window lending, the oldest Fed lending tool, whose operations had never before been disclosed. It took a three year legal battle regarding the Freedom of Information Act’s (FOIA) applicability to the Fed in order to gain access to this information. The suits brought by Bloomberg and Fox News resulted in 29,000 pages of unorganized, heavily redacted documents being provided. Combining these two data releases has given us a fuller, if still woefully incomplete, picture of the Fed’s operations during the financial crisis and the nearly $3 trillion balance sheet it has built up.
On November 25, 2008, the Fed created the Term Asset-Backed Securities Loan Facility (TALF) which was intended to "lend up to $200 billion... to holders of certain AAA-rated ABS [asset-backed securities]." When the Fed released TALF data in December of 2010, 18% of TALF loans were backed by subprime credit card and auto loan securities, 17% of TALF loans were backed by "legacy", a.k.a. troubled, commercial real estate securities, and 13% of TALF loans were backed by student loan securities. On March 11, 2008, the Fed created the Term Securities Lending Facility (TSLF) to "lend up to $200 billion...to primary dealers... secured... by... securities, including federal agency debt, federal agency residential mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS." When the Fed released TSLF data in December of 2010, 26% of loans were backed by AAA/Aaa-rated securities, 17% were backed by non-AAA-rated securities, and 57% of loans were backed by collateral whose rating was not published by the Fed.
Recent news reports have brought to light the existence of a previously undisclosed Fed lending program known as "single-tranche open market operations" (ST OMO). This program loaned money at rates as low as 0.01% to major firms such as Goldman Sachs, and was essentially a free loan to these politically well-connected firms. Data about this program was not published, but instead was gleaned through examination of charts published in March as a result of the Fed's Freedom of Information Act (FOIA) disclosure. The charts were found within a 327-page document which had 81% of its content redacted.
Out of the funds loaned through the Fed's credit facilities, nearly one-third was loaned to foreign banks. Some facilities and programs, such as the Mortgage-Backed Securities Purchase Program, the Commercial Paper Funding Facility, and the TSLF, provided more than half of their funding to foreign banks. During the peak of the financial crisis, up to 88% of overall discount window lending went to foreign banks, and nearly 100% of the New York Fed's discount window lending went to foreign banks.
Not surprisingly, these data disclosures have raised significant new questions about the Fed's behavior. Among many questions raised are: Why did foreign firms receive such a large percentage of Fed lending? What advantages were given to large financial institutions that had access to multiple lending facilities for prolonged periods of time? Did extending loans to non-financial firms go beyond the Fed’s emergency lending authority? Why did investors who participated in TALF have to have a relationship with the Fed’s primary dealers, and did this give an unfair advantage to wealthy investors, such as the wives of two Morgan Stanley executives? Why did the Fed set up single-tranche open-market operations (ST OMO) which gave primary dealers access to $80 billion at rates as low as 0.01%, essentially providing a direct government subsidy to these firms, and why did the Fed only disclose this information in chart form? Are there other programs that have yet to be disclosed? Why were so many pages redacted in the 327-page document that alluded to ST OMO? Can you really claim to be in compliance with FOIA when such significant portions of documents are redacted? How can we trust that this data was "not responsive" to the FOIA request? Are we to trust the non-transparent Fed that we really don't need to see that information? If the Fed claims to lend against AAA collateral and then does not, can we trust anything the Fed publishes in a press release? Can we trust that collateral classified by the Fed as AAA really is AAA?
More issues emerge from the Fed’s handling of the FOIA requests brought by Bloomberg and Fox News. The Fed used several arguments in refusing to comply. Among them was the Fed’s claim that it was a private institution and not subject to FOIA, since the documents requested were held by the New York Fed, a private bank, and thus exempt. Fortunately for the American people, the court rejected that assertion. But what exactly is the legal relationship between the private regional banks and the Board of Governors? The Fed also claimed that lending records of discount window borrowers were privileged or confidential information that could cause imminent competitive harm if disclosed, or even cause a run on banks, and therefore should be exempt from FOIA. This has been the Fed’s long-standing defense of the secrecy of the discount window. One of the judges in the case summed up the Fed’s secrecy succinctly: "[T]he risk of looking weak to competitors and shareholders is an inherent risk of market participation; information tending to increase that risk does not make the information privileged or confidential."
Given the massive amount of data released last December and this March, and the fact that much information in the March data release was redacted, it is all but certain that there remains much to be discovered about the Fed's bailouts through the discount window and its credit facilities. The Federal Reserve's actions in bailing out Wall Street through credit facilities and quantitative easing provoked a backlash among the American people and among many members of Congress. Trillions of dollars worth of loans and guarantees were provided to rich bankers and their worthless holdings of mortgage debt were snapped up by the Fed, while Main Street Americans continued to suffocate under harsh taxation and the prospect of increasing inflation. These events have awakened many Americans to the problems with the Fed's loose monetary policy, the bubbles it has created in the past, and the potential hyperinflation it might cause in the future. We should not neglect the fundamental need for more transparency of the Fed and a thorough audit that can help shed light on operations of the Federal Reserve System. We need stronger audit authority over the Fed, both looking back at previous market interventions and also ensuring that any future credit facilities, bailout vehicles, or large-scale asset purchase programs are subject to oversight.
At this hearing we hope to receive substantive answers from the Fed about its lending behavior during the worst part of the financial crisis, and we hope to receive assurances about the Fed's future compliance with the Dodd-Frank bill's requirements for public access to lending information. Aside from our ability to ask questions at the hearing, the hearing record will remain open for 30 days to allow the Fed time to respond to our written questions. At a time when the Fed's balance sheet is rapidly approaching the $3 trillion dollar mark, it is absolutely imperative that the Fed come clean with the details of its open market operations, lending operations, and asset purchases. Pumping trillions of dollars into the banking system with no oversight by Congress and no accountability to the American people cannot be allowed to continue.
Subscribe to:
Posts (Atom)
