Archive for the ‘government powers’ Category

On Bail Outs and Bail Ins

OnBailOutsAndBailIns  <– PDF version

Are you tired of seeing the government rescuing wealthy bankers from their errors with your tax money?  Are you tired of watching banks creating questionable securities, then making large profits by selling them to unsuspecting customers based on risk ratings that were bought and paid for by the banks who created the suspect securities?  Meanwhile, when the bad securities crashed, the bankers took your tax money from the government to continue and expand their gambling racket.  Are you tired of watching your friends and neighbors lose their houses and jobs while the politically well-connected bankers are compensated and rewarded for failure?  In short, are you tired of seeing these Wall Street losers line up to take bailouts to save them from their own incompetence while the taxpayers take the loss?  Well cheer up chumps, in addition to future recurring bail-outs, there will come a day when you will be “invited” to “participate” in a bail-in.  Here’s how the scam will work.

When you make a deposit at a bank, you receive in return a demand deposit in the form of either a savings account or checking account entry.  Likewise, when you purchase a certificate of deposit, you receive a document, which is, like the savings and checking accounts, a receipt showing that the bank owes you the deposited amount upon presentation of a claim.  In other words, the bank does not sequester the money you deposited; it simply issues you a future right to a certain amount of money in the future, namely, the amount you deposited in one of the account types.  You are actually lending those assets to the bank, and the bank may do with it as it pleases.  The bank is merely obligated to fulfill its promise return it to you upon demand, and likewise with all other depositors.  The bank therefore keeps a small amount of cash on hand to disburse to its depositors from day to day; the rest is loaned out at a profit to the bank.  (Yes it’s true: banks make their profits by lending out something they do not actually own: your deposit).

But what if the bank engages in shady real-estate transactions, or lends money to people who refuse to pay back, or who cannot pay back; or if the bank over-extends itself through highly leveraged investments that decline in value?  There may come a time when the bank’s cash flow is insufficient to meet the daily demands by its depositors; in that case, it will have to obtain more capital to cover those losses and make good on its promises to the depositors.  But what if it cannot raise the required capital?  Remember, banks do not make money by risking their money; only by risking yours.  The CEO of the bank is not going to pony up $300 million of his own money to cover the depositors: he will inform the government that a bailout is needed.  If enough banks make the same mistakes, and the entire cartel becomes insolvent, then they get a very large bailout because they can claim that the entire financial system will collapse.  So it becomes an extension of the old rubric, which goes: “If you owe the bank $100 and can’t pay, you have a problem.  If you owe the bank $1,000,000 and can’t pay, the bank has a problem”.  To which we now add, “If the banks owe $1,000,000,000,000 and can’t pay, then the taxpayers have a problem.”  Hence the need for the government to bail out the bankers; the funds to do so are created by the central bank (the Federal Reserve in the U. S.), and the repayment is made by future tax increases to pay off the new debt created by the central bank.  A bail-out is when the bank is rescued by some external entity, usually the central bank acting on behalf of the government.

A bail-in is different.  A bail-in is when bankers are rescued by internal entities, which is to say, the depositors.  This is done by getting the government to allow the banks to refuse to honor claims by depositors, or prevent risk of capital loss to the bank by depositors demanding their own property back.  The bankers are unable to understand the colossal nerve of depositors, demanding to exercise their rights, formerly issued by the bank, to retrieve their own property on demand.  To the bankers, you are nothing more than an ingrate if you still insist that the bank uphold its end of the deal.  A bail-in is manifested by “capital controls”, (not on the banks since they do not risk their capital), but on its depositors.  It comes in the form of limitations upon depositors on how much can be withdrawn per day or week; a prohibition on the cashing of checks, limitations on how much currency can taken out of the country, limitations on overall volume of transactions, etc.  It matters not that a depositor needs money to pay for groceries or the mortgage: what matters is that the bank, by exercising a bail-in, gets to keep their money as long as it needs to, thus avoiding default, until it can coerce, bribe, or intimidate a government or other banks to give it a bail-out.  Now banks do not have the legal power to invoke a bail-in unilaterally: it has thus far required a conspiracy with the government to transfer such a power to the bank; for which consideration, the politicians are of course rewarded with favorable loan terms or even forgiveness of existing loans.  A bail-in generally does not permit the banks to pilfer the contents of “safe deposit” boxes, but it would be naive to exclude such a future possibility.

Lest you think this is all idle speculation, be advised that it already happened in Cyprus in 2013.  When the Cypriot national banks got into trouble, it negotiated a bailout with the IMF and other European central banks, but the deal was contingent upon the government of Cyprus to allow a bail-in binding on depositors.  So, in March of 2013, Cypriot depositors were saddled with the following restrictions on their own property [1, 2], some of which are still in effect:

a.  withdrawals limited to 300 euros per day

b.  cashing of checks prohibited

c.  Persons exiting Cyprus could take no more than 1000 euros with them

d.  Payments or transfers to foreign accounts limited to 5000 euros per month

e.  A 9.9% tax levied on depositors with balances greater then 100,00 euros, and a 6.75% tax on deposits less than 100,000 euros

What happened when the government imposed these violations of rights upon its own citizens in order to save the incompetent and/or corrupt bankers?  Did the people reach for the pitchforks and torches and descend upon the bankers and politicians?  No; they patiently waited in long lines like sheep; they raised no protest at the violation of their rights; they did not question the merits of the government’s actions against them.  You may be sure that this quiet acquiescence did not go unnoticed by the bankers and their political cronies.  When U. S. banks get in trouble again, as they are sure to do, it will create the perfect excuse for the government to restrict most cash transactions, allow the banks to prosper without risk, and track your every economic move electronically.

[1]  BBC News Europe, “Cyprus eases some bank restrictions after bailout”, 29 Mar 2013, http://www.bbc.co.uk/news/world-europe-21978286

[2]  Edward Harrison, “Cyprus’ Bank Deposit Bail-In”, 16 Mar 2013, http://www.nakedcapitalism.com/2013/03/cyprus-bank-deposit-bail-in.html

 

Posted in Economics, government powers | No Comments »

The Antics of the Government Shutdown, Oct 2013

AnticsOfTheShutdownOct2013  <– PDF version

So we’ve had another “partial shutdown” of the federal government.  As usual, the administration did what it could to inconvenience the people for political gain; “essential” government employees worked as usual; and “non-essential” government employees received a two-week taxpayer-paid vacation.  Meanwhile, non-government employees who suffered from slowdowns and furloughs went without.  Situation normal: the ruling elite always look out for themselves and their non-essential government colleagues, first and foremost.  Finally the Democratic faction of the ruling elite came up with a temporary fix on 16 Oct 2013 which will cause the same debate to recur in Jan 2014.  In return, the Republican faction received a promise to negotiate spending cuts from the elitist President that would not even talk to them during the partial shutdown.

This shutdown started when the Republican faction attempted to link de-funding of Obamacare to a continuing resolution; they later reduced their demands to a delay in the individual mandate, but failed in the end to achieve even that.  The Democratic faction spent the two weeks busily claiming the shutdown was a conspiracy by the Republican faction, whimpering non-stop that it was unfair to link Obamacare modifications to a continuing resolution.  But, in their never-ending hypocrisy, the Democratic faction ignored the fact that Obamacare was passed originally as part of a budget resolution.  Therefore every budget bill would naturally allow a challenge to Obamacare.  The blame-stream media of course castigated the Republican faction at every turn.  What else should be expected from institutions that behave as if they were entirely owned and operated by the Democratic faction?

But the Republican faction is equally hypocritical when they pretend that they would behave any differently than the Democrats if Obamacare had been their idea.  After all, the main purpose of the law is to transfer power to the government by regulating the distribution of health care services, and the Republican faction desires the expansion of government power just as much as the Democratic faction.  As always, it is the people who lose out; in this case, the people will, in the long run, end up with lower quality or lesser quantity at a higher cost, typical of every one-size-fits-all government program.  If the problems signing up for Obamacare so far are any indication, the law is even worse than the analysts concluded.  Good thing the Democrats didn’t read it before they passed it — now they have plausible deniability.

The ruling elite cannot or will not do their jobs because they do not have the discipline to impose a budget process, hence the need for continuing resolutions.  This is especially true of the Republicans, who control the House of Representatives from whence all funding bills must originate.  In this instance the budget problem was coupled with a need to raise the debt limit because the government would be technically unable to meet all its obligations around the 17th of Oct 2013.  Once again, the hypocrisy of the administration was in full vigor, claiming that the U. S. would have defaulted on Treasury obligations (i.e., to pay interest on the debt) on that date.  But there is sufficient cash flow from the never-ending cascade of federal taxes being paid every month to cover those interest payments.  What Mr. Obama really meant was that the government would not be able to both service the debt and make full payouts on all the social programs, corporate welfare, and excessive regulation which the ruling elite together has imposed on the people.

In reality, both factions wanted a shutdown.  The Republicans wanted it for two reasons: a) to embarrass the President into allowing a cancellation of his signature “achievement”; and 2) draw attention to the excessive government spending (except for the part they voted for).  The Democrats also wanted it for two reasons: a) to distract attention from the scandal-of-the-week; and b) let the blame-stream media paint the Republicans as extremists for political advantage.

Look no further to the ruling elites in Washington for “leadership” or “solutions”.  If it’s not in the Marxist Handbook, the Democrats cannot understand it.  If it requires working together for a sensible objective, the Republicans cannot pull it off.  The good news is that they get to do it all again in a few months.

Tags:
Posted in Congress, federal budget, government powers | No Comments »

Toward a Progressive America: IRS Reform

TowardAProgressiveAmericaIRSReform   <– PDF version

We have all heard by now of the infamous Internal Revenue Service Inspector General’s (IG) report, in which the IRS routinely targeted Christians, TEA Party organizations, and non-progressives in general. The cause of the targeting was allegedly to prevent or delay tax-exempt status to those opposed to the current progressive regime, and to harass contributors to those organizations through IRS audits.  It appeared at first that it may have been limited to “one or two rogue agents in Cincinnati”, but to our relief it has recently become apparent that this progressive policy was enacted throughout the IRS.  But the media attention has gotten so bad that some people are actually making derogatory comments about the IRS.  This is not a good situation.  It is very important in a progressive society that the regulatory employees of government institutions be perceived as trusted servants of the people.  After all, if the people can’t trust an organization with absolute arbitrary power like the IRS, who can they trust?  As one of the most successful progressives of the 20th century said [1, 2]:

All our cadres, whatever their rank, are servants of the people, and whatever we do is to serve the people.  How then can we be reluctant to discard any of our bad traits?

Our duty is to hold ourselves responsible to the people.  Every word, every act, and every policy must conform to the people’s interests, and if mistakes occur, they must be corrected — that is what being responsible to the people means.

The blind unwavering trust in government, so necessary in progressive societies, has been compromised by these recent rumors of misconduct within the IRS.  We must hold the IRS responsible in a progressive way.  It is evident that the IG (Mr. J. Russell George) has failed in his duty to uphold the prestige of the IRS, whose primary goal is to promote freedom among the American people.  If we are going to have a progressive society, this is the thing that must be corrected.  I believe a small organizational change will suffice.

The core of the problem is that the IRS is a very large organization.  It is simply not possible even for senior managers and leaders to know about and control all the activities that may be the subject of a complaint by reactionary taxpayers.  When these problems do occur, or when the exceedingly rare mistake is actually made, they should be handled privately outside the hearing of non-progressive reactionaries and their media accomplices.  It should be a simple matter for the IRS to simply abolish the Office of Inspector General; but the least that should be done is to centralize the handling of all complaints in a single department capable of coordinating a unified defensive response among the various divisions of the IRS.  Its main function would be to give the people confidence that the IRS is performing its duties with the utmost integrity.  It is the most efficient way consistent with progressive principles to correct “mistakes” and be “responsible to the people”.  Another benefit is that the FBI will not have to be inconvenienced by “investigating” the alleged abuses of power in the IRS.  After all, there will be no need for investigations once the IRS has taken the above steps to eradicate all of its “bad traits”.

[1]        Mao Tse-Tung, “The Tasks for 1945″, 15 Dec 1944

[2]        Mao Tse-Tung, “The Situation and Our Policy After the Victory in the War of Resistance Against Japan”, Selected Works, Vol. IV, p. 16 (13 Aug 1945)

Tags: ,
Posted in government powers, progressive | No Comments »

The Supreme Court Ruling on “Obamacare”

TheSupremeCourtRulingOnObamaCare   <=== PDF version

On 28 Jun 2012, the U. S. Supreme Court issued its ruling regarding the constitutionality of the individual mandate under The Patient Protection and Affordable Care Act (PPACA) of 2010, a.k.a. “Obamacare”. The court’s majority (5-4) opinion, led by Chief Justice John Roberts, found that the individual mandate, requiring every citizen to prove they have health insurance, is constitutional because the penalty for failure to do so is regarded as a tax.  Therefore, they said, the mandate conforms to the Constitution because of Congress’ unlimited power to tax.  It rejected the authority to impose the mandate under the Interstate Commerce Clause.

I had published a paper [1] three weeks prior to this ruling in which I speculated that the Court may in fact uphold Obamacare on the grounds that it would be regarded as a non-voluntary tax.  I had claimed then that the Court might use the mandatory Social Security tax as a precedent.  Although the Obamacare ruling did not in fact justify it in that manner, I am content with being more than half-right on the speculation that a tax argument would be used to uphold it.

Some critics claim the Justice Roberts “re-wrote” the law to give it the illusion of conforming to the Constitution, since the President and Congress all claimed that the individual mandate penalty was not a tax.  I do not see what they are alarmed about.  If Roberts “re-wrote” the law, it means that he must have “read” it, which is more than the members of Congress did before they voted for it.  No member of Congress who voted for it should be offended by having the Court explain it to them, so long as it was upheld.  The mandate penalty being cast as a tax should also not offend any member of Congress.  Remember, all the members of Congress, their families, their staff, and their families are all exempt from Obamacare.  At least they had enough common sense to protect themselves from this law, but what about you?

The net result of this ruling is that the Court found a way to justify an expansion of the arbitrary powers claimed by the federal government.  If the individual mandate is a permitted tax, then the funding is secure; the funding is the means of establishing and consolidating the new power. Without the “tax” or “penalty”, or more accurately, the coercive economic method, the new power over the entire health care system would necessarily become inoperative.

The Republicans are now claiming that this ruling will energize the people to elect Governor Mitt Romney to the Presidency on the grounds that he has promised to “repeal” it.  He is either using the wrong word or Mr. Romney hasn’t read the Constitution either, since a President does not have the power to “repeal” Congressional legislation.  The most he could do in this case is issue an Executive Order exempting all the states.  If that is what he means, he should say so.  But it will be a difficult argument for Romney, since he is the godfather of the individual mandate established while he was Governor of Massachusetts (“he was for it before he was against it”, as Senator John Kerry ofMassachusettsonce said).

Even if the Republicans take control of the Senate, retain control of the House, and Mr. Romney becomes President, I do not think Obamacare will be repealed.  There are a lot of tactical reasons involving the proportional allocation of “federal money” to the states, but I think the main reason it will never be repealed is because the Republicans like the expansion of government power just as much as the Democrats do.  Maybe they will prove me wrong, but it is better to prepare for the full onslaught of Obamacare rather than count on politicians to keep their promises.

[1]        Edward D. Duvall, “Why The Supreme Court May Validate Obamacare”, 4 Jun 2012, http://edduvall.com

Posted in government powers, U. S. Constitution | No Comments »