Thursday, February 26, 2009

Financial Stability, or Fascist Decline?

Increased state control in response to economic turmoil is nothing new. After the First World War, the resultant economic depression in Europe was used as a springboard by both Germany and Italy to embrace a fascist form of government. While the word "fascist" has fallen into disuse today (except as a political insult invariably hurled by the Left at the Right) its corporatist methodologies are front-and-center stage in the nation's capital. And it's time to reexamine their origins-and impact.

While most Americans are no doubt familiar with the militaristic facet of fascism, the economic side tends to be neglected-likely in part because those principles are shared by many in government today. The primary economic principles behind fascism focus on state intervention in private industry. In fascist economies, private individuals continue to run private industry, but only under the firm control of the government. This differs from socialism, where the state actually owns the industry.

A quick glance at history may make the pattern clear: As the inter-war economy worsened, so too did statist policies that destroyed innovation and initiative. In the mid-1920s, Italy's monarchical government was confronted with the rise of fascism, partly spurred by a fear of the rise of communism and partly from festering discontent over the way Italians perceived they had been slighted after WWI. Benito Mussolini, the leader of the Italian fascists, began to introduce state-centric policies. Il Duce (sound familiar?) was particularly infatuated with large public works projects to cope with the worldwide depression that hit.

In the early 1930s, he founded the Institute for the Industrial Reconstruction, whose purpose was to bail out debt-laden corporations. By the end of the 1930s, the Institute for Industrial Reconstruction had become a tool for the state to push its policies amongst the industries. Columnist Michael Ledeen, in his chilling piece, "We are all Fascists Now," states that fascism's "most durable consequence was the expansion of the ability of the state to give orders to more and more citizens, in more and more corners of their lives."

Similarly, in the late 1980s, Congress created the Resolution Trust Corporation (RTC), as a result of the savings and loan crisis. The RTC was a government agency intended to temporarily bail out bad assets. Its role, however, was taken over by the Federal Deposit Insurance Corporation (FDIC) in the mid-1990s, which has had to continue doling out cash to failing banks, as seen over the past year. The FDIC's individual account coverage rose from $100,000 to $250,000 last year, thanks to the TARP, putting taxpayers on the hook that much more. As ALG News previously reported, in the aggregate FDIC assurances rose some $2 Trillion in 2008.

And this same state-centric philosophy is behind President Obama's recently announced $2.8 Trillion Financial "Stability" Plan-a plan that demonstrates a strong affinity towards state control of private industry. In the fine print, firms that take TARP dollars will be forced to prove that they will use it to lend money. Yet such a policy does not learn the lessons of history. Mandatory lending and excessive credit by the Fed, the exact problem that put America into the current economic mess, is now proposed as the solution-and the government's prying hand will reach farther than ever into the nation's economic engine.

Already, Citigroup and Bank of America are rumored to be considered for nationalization. Investors are not taking the rumors kindly, and have responded by selling off as much stock as possible. The banks have been given a combined $95 billion since September, according to, yet now they appear to be coming back for more. And the stock market is continuing to plunge with each new intervention.

So why is this government subsidy not working? The reason is that, as the government becomes more and more involved with the financial institutions, investors show less and less inclination to throw good money after bad. In short, they do not want to invest in companies that will be run by the federal government, for fear of failure. That in turn forces the federal government to purchase yet more shares to keep companies from going under. Ultimately, the government ends up owning the entire corporation. Corporatist fascism leads to socialism, in that sense.

History is not on the side of state-centric economic systems. Yet as long as those in Washington continue to insist on a government solution, so long will the market continue to flounder and corporations fail. And the blame will rest securely on a government which will have manipulated the economic crisis for its own benefit. After all, as President Obama's Chief of Staff Rahm Emanuel stated so eloquently, "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." Unfortunately, it has all been done before. And thereby hangs a tale of woe.



Taxpayer-fed fat cats

Last year, crippling pension and benefits costs caused the city of Vallejo, California to declare bankruptcy. In this year of compounded economic crisis, more towns and cities may follow Vallejo's lead, pushed over the edge by an accounting and financial-reporting provision known as GASB (pronounced "gaz-bee") 45. "It's a perfect storm of pension liabilities hitting us at a time when the economy is tanking and revenues are tanking," says David Edwards, the senior policy advisor to Atlanta's mayor. "It's unprecedented."

Localities that have already complied with GASB 45 have had to disclose the compromising long-term costs of lifetime health care and other retiree benefits. In New York City, which began compliance in 2007, the accounting measure has placed a new $63 billion liability on the books. Atlanta's pension- and benefit-related expenses exploded from $44.5 million in 2005 to $118 million today, even while the city cut its personnel headcount by 8.6 percent. In Vallejo's case, the city's declaration of bankruptcy last May was due to the fact that it was spending 74 percent of its $80 million general-fund budget on public-sector salaries and benefits. Police captains were entitled to receive $306,000 annually in pay and benefits, while 21 firefighters earned more than $200,000 a year, including overtime. After five years on the job, all were entitled to lifetime health benefits.

The culprit, of course, isn't GASB 45 itself but the ugly reality that it exposes. There are 22.5 million public-sector employees in the United States. The average state and local government employee now makes 46 percent more in combined salary and benefits than his private-sector counterpart does, according to the Employee Benefit Research Institute-including 128 percent more on health care and 162 percent more on retirement benefits. Four out of five public-sector workers have lifetime pensions. Paying for such lavish treatment is difficult; in 2007, Credit Suisse estimated that state and local governments owed more than $1.5 trillion in unfunded health-care and non-pension benefits. Further, the market meltdown has erased $1 trillion from municipal pension funds, according to Boston College's Center for Retirement Research.

New York City now spends an average of $107,000 for each of its 281,000 current employees-a whopping 63 percent increase since 2000. At the same time, its direct pension expenses each year have increased from $615 million to $5.6 billion. And New York isn't alone. Forty states estimate that their liabilities for public-sector health-care and other benefits exceed $400 billion-more than their entire public debt, according to Standard and Poor's. New Jersey has dug a particularly deep hole for itself. Its state pension fund lost half its value in 2008 but pays out $5.2 billion each year in benefits. "The state of New Jersey is insolvent," writes bond analyst Mike Shedlock. "Bankrupt might be a better word."

More here



Private sector wisdom: Koch Industries is a legend in modern American enterprise. It is the the largest private company in America, based in the heartland at Wichita, Kansas (originally an agricultural business). Activities include refining and chemicals; process and pollution control equipment and technologies; minerals and fertilizers; polymers and fibers; commodity and financial trading and services; and forest and consumer products. The companies have branches in nearly 60 countries and employ about 70,000 people. Two of the things that make Koch different. First, they put many millions into the free enterprise movement at the level of teaching and research at universities, notably the George Mason Uni. Second, they have an explicit committment to the moral values of classical liberalism. "At Koch Industries, we are firmly focused on long-term success. We believe in creating real value, rather than just the illusion of value. To do so, we strive to live by core values and guiding principles that include integrity, humility, respect and Principled Entrepreneurship". Their current newsletter has two striking pieces, one on the steps that they took twelve months ago to prepare for the disaster that they could see was coming. The other is a statement on the dangers of government intervention."

Winners in Life's Lottery: "Dick Gephardt was famous for calling the rich the "winners in life's lottery". He was of course implying that all those that were rich were simply undeserving trust-fund leeches, and that of course is unfair to the other 95% of America. Never mind that most of these 'winners' worked hard to get where they were...that gets in the way of the meme... Interestingly though, we now have a new class of folks who are more deserving of the label "winners in life's lottery." I refer of course to those 9 million mortgage defaulters who will be the beneficiaries of President Obama's Mortgage plan. Lets see.....get a mortgage you can't afford, get nailed by a nasty financial downturn, and get bailed out and keep your home. Wow! I can't think of anyone else who might be worthy of being called "winners in life's lottery". Talk about something that is is unfair to the other 95% of America...."

Jindal calls stimulus `irresponsible' in GOP response : "Tapped by the Republican party to deliver the GOP's response to President Barack Obama's congressional address Tuesday night, Louisiana Gov. Bobby Jindal took on the massive stimulus package and big government - and pledged that his party would regain the nation's trust. `In the end, it comes down to an honest and fundamental disagreement about the proper role of government,' Jindal said."

Brown vs. monkey: Where's the outrage?: "A political cartoon is misinterpreted and African-American organizations and their talking heads immediately see an opportunity to make noise. Meanwhile, a famous black woman is beaten down by her equally famous black boyfriend and commentary in the black community centers around, `What did she do to cause it?' Why are some African-Americans so cowardly when it comes to addressing black-on-black violence? . Rupert Murdoch may be public enemy number one for the progressive community, but he and his posse at The New York Post are not sanctioning the abuse and killing of black women. The beating Rihanna experienced at the hands of Chris Brown was tragic, but definitely not uncommon. . Where is the outrage? Where is the boycott? Where is the speech?"

ALG Hails Supreme Court Ruling Upholding Idaho Law Prohibiting Union Payroll Deductions from Being Used for Political Purposes: "Bill Wilson, President of Americans for Limited Government, hailed the Supreme Court's 7-2 decision in Ysursa v. Pocatello Education Association. "We at ALG are extremely gratified that the Supreme Court agreed with us," said Wilson. "This a victory for taxpayers who do not wish to be forced to fund union politics," he added. The decision determined that a state government may prohibit its counties, cities, and towns from subsidizing union political activities via its government payroll systems. "This is a great win. The First Amendment does not require government to devote taxpayer resources to facilitating the speech of its workers, their preferred political organizations, or anyone else," said Wilson. "This sets the table for states across the nation to set up similar prohibitions," Wilson added.

Democrats Halted Recovery, Derailed Economy Last Summer: "January's [1] Employment Situation Report from Uncle Sam's Bureau of Labor Statistics (BLS) was even worse than expected. Seasonally adjusted employment fell by 598,000 jobs and the unemployment rate rose to 7.6%. In [2] his Saturday address that followed this news, President Barack Obama was correct in pointing out that 3.6 million jobs have been lost since the recession, at least as "defined" [3] by the National Bureau of Economic Research (NBER), began. The recession, [4] as normal people define it ("a decline in gross domestic product [GDP] for two or more consecutive quarters"), began in the third quarter of 2008 and became official late last month when [5] the fourth quarter came in negative. What Mr. Obama "somehow" forgot to tell us is that almost 1.8 million of those seasonally adjusted job losses have occurred since his election, when his non-stop economic [6] no-confidence game went into high gear, and that 2.8 million jobs have gone away during the seven months that began in July 2008, the first full month of [7] the POR (Pelosi-Obama-Reid) economy. Beyond that, in comparing the raw month-to-month figures, i.e., before seasonal adjustment, it's clear that conditions on the ground in the real economy are in a worse state of decay than the seasonally adjusted data would indicate. The November 2008 to January 2009 economy underperformed the same months of the previous year by over 2.2 million jobs"


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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