Saturday, November 15, 2008
Forbes, Capitalist Fool
"Belatedly, but thankfully, governments recognized that the only way to get credit flowing again was for them to make quick and direct massive infusions of new equity into beleaguered banks, as well as commit to other emergency measures hitherto unimaginable. ... Between the early 1980s and 2007 we lived in an economic Golden Age. ... Until the credit crisis, 70 million people a year were joining the middle class. ... (If the Big Three defaulted on their debts, holders of credit default swaps--which in recent years have grown like toxic weeds--would demand payment from those who wrote the insurance on the automakers' bonds. This would create another wave of losses for financial institutions.) ... A chilling result of the crisis will be futhering the deadly process of criminalizing business failures. ... One notorious case was the IRS' attempt to prosecute KPMG and a number of its partners and employees for alleged tax fraud. The shelters KPMG sold in the 1990s were not illegal. ... Lost in all this will be the fact that Lehman and AIG didn't know they were in mortal peril until almost the very end. There will be indictments. ... In 2004, the [Fed] made a fateful miscalculation. It thought the U.S. economy was much weaker than it was and therefore pumped out excessive liquidity and kept interest rates artificially low. ... Finally, this summer, the Fed ceased spraying money like a fire hose. ... Even with Fannie and Freddie inflating the bubble and the Fed and the rest of the Bush administration weakening the dollar, the crisis would never have become so unprecedently destructive but for a seemingly acrcane accounting principle called mark-to-market, or fair value accounting. ... If this accounting asininity had been in effect during the banking trouble in the early 1990s, almost every major commerical bank in the U.S. would have collapsed. ... The final factor in this perfect storm was short-sellers. ... A formal strong-dollar policy is essential. Economists gag at the thought, but the best barometer of monetary disturbances is gold. The Fed should tie the dollar to a gold price range of say, $500 to $550. ... The big change--the [Fed] should have only two missions. They are: keeping the dollar as good as gold and dealing with financial panics. ... The dollar must be a fixed measure of value. ... But the pernicious idea that manipulating money is a sound economic tool has repeatedly wrought havoc", my emphasis, Steve Forbes (SF) at Forbes, 10 November 2008.
I haven't taught SF anything since I last blasted SF 4 May 2008: http://skepticaltexascpa.blogspot.com/2008/05/doublethink-from-steve-forbes.html. Can the Fed simultaneously pursue two missions? Did not the master say, "No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon", Matthew 6:24 (NKJV). SF, you, born in 1947 are older than me. You graduated from Princeton, howdy do. Do you remember Charles DeGaulle? I do. In the late 1960s, when you were at Princeton, "Le Grande Charlie" told Uncle Sam he would buy all the gold Unc would sell at $35. Unc fumfered and sold virtually none. Henry Reuss told us when the Treasury stopped supporting gold's price, it would fall to $6. In 1966, I believed this. I believed Treasury demand kept gold's price up! Now SF, I don't know what you studied at Princeton, but assume it was not: mathematics, the sciences, or economics, so I'll do the arithmetic. Unc has 261.5 million ounces of gold. At $550 each, that's $143.8 billion. What will you do SF, if the Chinese take a page from DeGaulle's book and show up with $143.8 billion, trucks and armed guards and ask to cart it all away? Well? Your piece is so bad I didn't bother to pick it apart line-by-line. I remember somewhere learning you can control price or quantity, not both. Why can Unc can do this with gold? Were you a Princeton legacy admit? Your father Malcom went to Princeton too! I agree, banks would have failed in the early 1990s; they should have! Our banking sector is bloated and inefficient. It needs major bloodletting. WE NEED MORE BANK FAILURES! We need Goldman Sachs to rent its "CNC guillotine" to all the major investment and commerical banks. I am familiar with the KPMG tax shelters in question and thought them illegal in 1999! How do you know what and when Lehman and AIG knew what they did? No one needs the Fed to have a dollar "as good as gold". In fact, having such a dollar precludes the Fed's existence! SF, get lost.
I read pieces like SF and think of the Wizard of Oz (WOZ). WOZ? In inverting the scarecrow's story we have: SF, Henry Paulson (HP), John Fitzgerald Kennedy (JFK) and others. The scarecrow thought he had no brain; but he could solve problems. Eventually the Wizard gave the scarecrow a degree. Today we have the Ivy League certifying ignoramuses with third rate intellects like: SF, HP and JFK among others.