LESSONS LEARNED #35: “Not only is ignorance bliss, but it’s a godsend to Big Government.” -Old Pithy

Posted by PITHOCRATES - October 14th, 2010

If Jefferson Could Talk from the Grave He’d Be Hoarse from Shouting by Now

Politicians.  They’re all the same.  Well, most of them.  They enter politics for one thing.  For a career.  And what do people want from a career?  Great success.  Great prestige.  Great wealth.  Great power.  And a little revenge.  The pencil-neck, computer-nerd geek takes great pleasure in seeing a jock from his high school days emptying his trash while boarding his private jet. “Those wedgies and swirlies were a bitch but look at us now.”  It’s true.  The best revenge is living well.

But some people lack any talent or ability.  Some of them will never amount to anything.  They’ll never know the joy of looking down on people better than them with sweet condescension.  So these people go into politics.  Where people with no talent or ability can live well.  It’s a simple formula.  Sell your soul.  Whore yourself out.  Shake down businesses with taxation and regulation (and get even with all those people who have far more talent and ability than you ever had).  Collect tribute.  Consolidate power.  Hold those you serve in contempt.

Lord Acton wrote in 1887, “Power tends to corrupt, and absolute power corrupts absolutely.”  A century earlier, Thomas Jefferson fought tirelessly to prevent great money and federal power from conjoining.  The Old World capitals consolidated money and power.  And this concentrated the money and power into fewer and fewer hands.  Kings ruled by whim.  And oppressed their hapless subjects.  It’s a story as old as time.  And is still true today.  To the great chagrin of Jefferson.

Go West, Young Man

The transcontinental railroad was making poor progress during the Civil War.  Because it was starved for capital.  No one would invest.  Few doubted that they could build it.  Even if they could, few doubted it would ever make money.  The West was mostly raw, unsettled land.  There was nothing to transport.  Nothing to earn revenue.  It was a huge investment with a huge risk.  Investors are smart when it comes to money.  And they saw the transcontinental railroad as a one-way road that their money would go down and never return.  They needed something.  Big Government.

When it comes to throwing money away on a losing investment there is but one place to go.  Uncle Sam.  With the power to tax, the federal government has huge piles of money to play with.  So here’s what happened to build that railroad.  Union Pacific (UP) created a shell company called Crédit Mobilier (CM) to finance and build the railroad.  These companies were one and the same.  Without getting too complicated, UP sold their ‘worthless’ stock to CM at par.  Now, CM being a finance and construction company, a train never had to run over the road they were building to make a profit.  Union Pacific, on the other hand, needed trains running on that new track.  They were a transportation company.  They earned a profit from transporting goods on their trains.  This meant it could take years before UP could even hope to earn a profit on the new transcontinental railroad.  CM, on the other hand, could start earning a profit with the first invoice they submitted for construction.  And they did.

CM had strong revenues.  They submitted grossly inflated construction invoices to UP.  UP added a small construction management fee and submitted them to the government.  The government paid UP.  UP paid CM.  With revenues far exceeding their costs, CM made obscene profits.  CM stock took off into the stratosphere.  Some of which was sold to Congressmen at a deep discount who in turn realized obscene capital gains if they sold their stock.  Or collected obscene dividends if they held onto their stock.  In return for this sweetheart deal, they approved all cost overruns.  Killed any legislation unfavorable to UP/CM.  Provided lucrative incentives to build track on the worst ground in the most indirect path (to maximize the railroad’s mineral rights).  Provided little to no oversight on the construction of the road (some track was built on ice, with cheap steel and flimsy wooden trestles wherever possible).  When east met west the different railroads kept on building, parallel to each other to keep billing Uncle Sam.  All paid by the public treasury.  By the taxpayer.  The little guy.  Being raped and pillaged by their own representatives.

Affordable Housing for Those Who Vote Democrat

Politicians buy votes.  Pad the federal payroll.  Steal from the treasury.  Break the law.  Violate our trust.  You know, politician stuff.  Because of the inconvenience of elections, they can’t be too blatant about their rape and pillage.  So they do things that are in the best interest of the public.  Or so they say.  Like affordable housing.  You see, the Left buys the votes of the poor and minorities by throwing bones to them.  And there are a lot of minorities in the inner cities of the bluest of blue cities.  So they threw big bones to them.  Houses.

Despite their War on Poverty, the Left just can’t help these people.  The truth is, of course, that they don’t want to help them.  If they’re poor and dependent on the government, the Left can count on their vote.  If they escape poverty and don’t need Big Government to provide for them, these people are of no use to the Left.  Ergo, they never escape poverty.

Of course, the problem of remaining in abject poverty is that you can’t qualify for a mortgage.  Banks are funny that way.  They only loan money to people who can pay them back.  So they declined a lot of mortgages to these poor inner city minorities.  Well, this was just too good for Big Government to pass up.  A large group of minorities (i.e., a large Democrat voting bloc) being denied mortgages?  Why, that’s racism.  So they drafted a lot of legislation and unleashed their justice department with extreme prejudice.  The message?  Approve these loans.  Or face the consequences (revoking a bank’s charter, a federal lawsuit, a public demonstration headed by Jesse Jackson, Charlie Rangel, et al, etc.).  So they found creative ways to approve loans.  And they got a little help from Uncle Sam.

The Subprime Mortgage Crisis is a Lot Like the Crédit Mobilier Scandal

By a little I mean a lot.  Uncle Sam screwed the mortgage bankers by making them approve extremely risky loans.  So, to help the mortgage bankers, Uncle Sam screwed the American people.  They guaranteed those highly risky mortgages, thus transferring the risk from them to us, the taxpayer.  And to further mitigate the bankers’ risks, they purchased a lot of those highly risky mortgages to remove them from the banks’ balance sheets.  It’s called the secondary mortgage market.  And the primary players are none other than Fannie Mae and Freddie Mac, ground zero of the subprime mortgage crisis.

Once upon a time, a mortgage was one of the safest investments.  People saved up to pay a 20% down payment.  With their life savings invested, people paid their mortgage payment and they paid them on time.  And if you could afford a 20% down payment, mortgage bankers had a lot of confidence that you would be able to service your mortgage.  But in the day of 5%, 3% and 0% down, a person doesn’t have a whole lot to lose.  This makes the first few years of these mortgages especially risky.  The introduction of ‘no documentation’ mortgages meant people could lie about their income (or include overtime earnings).  Add to that the Adjustable Rate Mortgage (ARM) and the interest-only mortgage and you just made these especially risky mortgages even more risky.  Sure, these will get almost anyone into a home, but they get in by the skin of their teeth.  But if they lose their overtime due to a weakened economy, if their interest rate on their ARM resets at a higher rate or a balloon payment is due on their interest-only loan, guess what?  That stream of mortgage payments could very well stop.

Now that would be a BIG problem.  Because of what Freddie and Fannie did with those mortgages they bought.  They sliced them up and built creative investment vehicles.  Derivatives.  Mortgage backed securities called collateralized debt obligations.  Wall Street repackaged all these risky mortgages into highly profitable investments.  Everybody bought them.  Pension funds.  Trust funds.  In America.  And throughout the world.  Big gains with a low risk.  Or so it would seem.  You see, they never eliminated the risk.  They only transferred it to someone else.  And once people couldn’t pay their mortgage payments anymore, the house of cards came crashing down.  We call it the subprime mortgage crisis of 2008.  It caused a worldwide recession.  And cost the American taxpayer dearly.  Even those not born yet.

Yes We Can…Screw the American Taxpayer

The subprime mortgage crisis of 2008 is a government creation.  Their quest of affordable housing to buy votes put more and more people into houses they couldn’t afford.  They created legislation akin to extortion of the banking industry.  They used the Justice Department to apply the muscle for that extortion.  They had their friends in the media and the activists for racial equality to further pressure the banking industry.  Their lack of oversight of Fannie and Freddie (thank you Barney Frank and Chris Dodd) let them make extremely risky loans.  And their policies of buying extremely risky mortgages ultimately transferred all risk to the taxpayer.  Why?  Because like all good government scandals, the seekers of favors rewarded our representatives well for their complicity with sweetheart mortgage deals, vacation junkets, fat contributions to their campaign war chests, etc.  In other words, politics as usual.  But on a grand scale.

Why do they do it?  Because they can.  They count on you being ignorant of history.  And accepting every lie they tell you.  Because they hold you in contempt.  They look down on you with sweet condescension.  These pencil-neck geeks who could never amount to anything on their own merit or ability.  But some sold souls later and they have finally gotten even with those who were better than them.  And here they are.  Still living well.  Even during the worst recession since the Great Depression.

www.PITHOCRATES.com

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LESSONS LEARNED #19: “Philosophical debates can be effective but character assassination is more expedient, especially when no one agrees with your philosophy.” -Old Pithy

Posted by PITHOCRATES - June 24th, 2010

THOMAS JEFFERSON HATED Alexander Hamilton.  So much so he hired Philip Freneau as a translator in his State Department in George Washington’s administration.  You see, Jefferson did not like confrontation.  So he needed a way to slander Hamilton, his policies and the Washington administration without getting his own hands dirty.  And that was what Freneau was supposed to do with the money he earned while working in the State Department.  Publish a newspaper (National Gazette) and attack Hamilton, his policies and the Washington administration.  Papers then were partisan.  More so than today.  Then, lies and libel were tools of the trade.  And they knew how to dig up the dirt.  Or make it up. 

Another scandalmonger, James Callender, was slinging dirt for Jefferson.  And he hit pay dirt.  Mr. and Mrs. Reynolds of Philadelphia had a lucrative business.  They were blackmailing Alexander Hamilton.  Mr. Reynolds had his wife seduce Hamilton.  Which she did.  And did well.  They had an affair.  And Mr. Reynolds then blackmailed him.  Jefferson pounced.  Or, rather, Callender did.  To keep Jefferson’s hands clean.  Hamilton, Callender said, was using his position at the Treasury Department for personal gain.  He was using public funds to pay the blackmailer.  They found no proof of this.  And they did look for it.  Hard.  But when they came up empty, Jefferson said that it just proved what a good thief Hamilton was.  He was so good that he didn’t leave any traces of his treachery behind.

Of course, when you lie down with dogs, you get up with fleas.  And Jefferson’s association with Callender would come back and bite him in the ass.  In a big way.  Upset because Jefferson didn’t appropriately compensate him for all his loyal dirt slinging (he wanted the postmaster’s job in Richmond), he publicized the Sally Hemings rumors.  And after breaking the true story of the Hamilton affair, many would believe this scoop.  That Jefferson was having an affair with one of his slaves.  It was a dark cloud that would forever hang over Jefferson.  And his legacy.

Hamilton admitted to his affair.  Jefferson admitted to no affair.  Hamilton would never hold public office again and would later die in a duel with Jefferson’s one-time toady, Aaron Burr.  This duel resulted because Hamilton was doing whatever he could to keep the amoral and unscrupulous Burr from public office (in this case, it was the governorship of New York).  When the election of 1800 resulted in a tie between Jefferson and Burr, Hamilton urged the House to vote for Jefferson, his archenemy.   Despite what had appeared in the press, Hamilton did have morals and scruples.  Unlike some.  Speaking of which, Jefferson would go on to serve 2 terms as president.  And all of that angst about Hamiltonian policies?  They all went out the window with the Louisiana Purchase (which was unconstitutional, Big Government and Big Finance).

RONALD REAGAN WAS routinely called old, senile and out of touch by the entertainment community, the media and his political foes.  But he bested Mikhail Gorbachev and the Soviet Union, something Jimmy Carter never did.  He said ‘no’ at Reykjavik because he told the American people that he wouldn’t give up the Strategic Defense Initiative (SDI).  He knew the Soviet Union was bleeding.  Communism was a farce.  It inhibited human capital.  And impoverished her people.  SDI may have been science fiction in the 1980s, but capitalism wasn’t.  It could do it all.  Including SDI.  The Soviet Union was on the ropes and Reagan would give no quarter.  The days of living in fear of the mushroom cloud were over.  And capitalism would deliver the knockout punch.

Reaganomics, of course, made this all possible.  Supply-side economics.  Which follows the Austrian school.  Say’s Law.  ‘Supply creates demand’.  You don’t stimulate the economy by taxing one group of people so another group can spend.  You stimulate it by creating incentives for risk takers to take risks.  And when they do, they create jobs.  And wealth.

Tax and spend is a failed Keynesian, zero-sum economic policy.  When you take from the earners and give to the non-earners, we just transfer purchasing power.  We don’t create it.  For some to spend more, others must spend less.  Hence, zero-sum.  The net some of goods and services people are purchasing remains the same.  Different people are just doing the purchasing.

When Apple invented the Macintosh personal computer (PC), few were demanding a PC with a graphical user interface (GUI).  But Apple was innovative.  They created something they thought the people would want.  And they did.  They took a risk.  And the Macintosh with its mouse and GUI took off.  Apple manufacturing increased and added jobs.  Retail outlets for the Macintosh expanded and created jobs.  Software firms hired more engineers to write code.  And other firms hired more people to engineer and manufacture PC accessories.  There was a net increase in jobs and wealth.  Just as Say’s Law predicts.  Supply-side economics works.

Of course, the Left hates Reagan and attacked Reaganomics with a vengeance.  They attacked Reagan for being pro-rich.  For not caring about the poor.  And they revised history.  They say the only thing the Reagan tax cuts gave us were record deficits.  Of course, what those tax cuts gave us were record tax receipts.  The government never collected more money.  The House of Representatives (who spends the money), awash in cash, just spent that money faster than the treasury collected it.  The record shows Reaganomics worked.  Lower tax rates spurred economic activity.  More activity generated more jobs and more personal wealth.  Which resulted in more people paying more taxes.  More people paying taxes at a lower rate equaled more tax revenue in the aggregate.  It works.  And it works every time people try it. 

Because Reaganomics worked and showed the Left’s policies were failures, they had to attack Reagan.  To discredit him.  They had to destroy the man.  Except when they’re running for elected office.  Then they strive to show how much more Reagan-like they are than their conservative opponents.  Because they know Reaganomics worked.  And they know that we know Reaganomics worked.

GEORGE W. BUSH was routinely called an ‘idiot’ by the entertainment community, the media and his political foes.  Yet this ‘idiot’ seems to have outwitted the elite of the liberal Left time and time again.  I mean, if their policies were winning, they would be no reason to have attacked Bush in the first place.  The Left hated him with such vitriol that they said he blew up the Twin Towers on 9/11 as a justification for invading Iraq for her oil.  It was Big Oil’s lust for profit, after all, that was driving this Texan’s Big Oil policies.  And taking Iraq’s oil would increase Big Oil’s sales and give her even more obscene profits.

If Bush was an idiot, he must have been an idiot genius to come up with a plan like that.  Then again, gasoline prices crept to $4/gallon following the Iraq War.  Had all that oil gone on the market according to plan, that wouldn’t have happened.  Unless the plan was to keep that oil OFF of the market, thus, by rules of supply and demand, the price of oil (and the gasoline we make from it) would go up thus enriching Big Oil through higher prices resulting from a lower sales volume.  My god, what evil genius.  For an idiot.  Of course, gas taxes, numerous summer gas blends (required by the government’s environmental policies), an aging and over-taxed pipeline infrastructure and insufficient refinery capacity (the government’s environmental policies make it too punishing even to consider building a new refinery) to meet increasing demand (soaring in India and China) had nothing to do with the rise in gas prices.

IS THE POLITICAL Left evil?  Probably not.  Just amoral.  They have an agenda.  They survive on political spoils and patronage.  Old time politics.  Enrich themselves through cronyism.  If tribute is paid they’ll extend favorable treatment.  If tribute is not paid, they will release their wrath via hostile regulation, litigation, Congressional investigation and punitive taxation.  Just like they did to Big Tobacco (and, no, it wasn’t about our health.  They could have just made tobacco illegal.  But they didn’t.  Why?  It just brings in way too much money to the government.  Via sin taxes.  And federal lawsuits.  And with it being addictive, it’s a frickin cash piñata for them.)

They know few agree with their philosophy.  But they don’t care.  It’s not about national prosperity.  It’s about power.  And they want it.  That’s why they can’t debate the issues.  They know they can’t win.  So they attack the messenger.  Not the message.  If you don’t believe that, you can ask Abraham Lincoln, Ronald Reagan, George W. Bush, Sarah Palin and just about any other Republican.  Well, you can’t ask Lincoln or Reagan.  But you can guess what they would say.

www.PITHOCRATES.com

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