Apr 30, 2008

Jim Cramer on Countrywide Financial (2005)

I think Countrywide Financial is dirt cheap. They’ve just come through an incredibly tough tightening cycle.

~ Jim Cramer, CNBC’s "Mad Money," December 16, 2005

(Countrywide closed at 35.44.)

Bear Stearns co-president on financial downturns (2006)

We are not afraid of a bear market. We've gained market share in these cycles.

~ Warren Spector, Bear Stearns co-president, "Dealer's Choice," Institutional Investor, November 2006, by Pierre Paulden

Joseph Campbell on history

And I can see no reason why anyone should suppose that in the future the same motifs already heard will not be sounding still … put to use by reasonable men, or by madmen to nonsense and disaster.

~ Joseph Campbell in his Foreword to The Masks of God: Primitive Mythology (1969)

T.B. MacAulay on Habeas Corpus

The most stringent curb that ever legislation imposed on tyranny.

~ T.B. MacAulay, commenting on Habeas Corpus, History of England, I (1848)

Murray Rothbard on government intervention to stave off depression

If government wishes to alleviate, rather than aggravate, a depression, its only valid course is laissez-faire – to leave the economy alone. Only if there is no interference, direct or threatened, with prices, wage rates, and business liquidation will the necessary adjustment proceed with smooth dispatch.

~ Murray Rothbard, America's Great Depression (1963)

Apr 29, 2008

Thomas Sowell on equality

If you have always believed that everyone should play by the same rules and be judged by the same standards, that would have gotten you labeled a radical 50 years ago, a liberal 25 years ago, and a racist today.

~ Thomas Sowell

Bill Miller: "The worst is behind us" (2008)

I think we will do better from here on, and that by far the worst is behind us. I think the credit panic ended with the collapse of Bear Stearns, and credit spreads are already much improved. Although the economy is likely to struggle as it did in the early 1990s, the market can move higher, as it did back then.

Most housing stocks are up double digits this year despite dismal headlines, a sign the market had already priced in the current malaise. I think likewise we have seen the bottom in financials and consumer stocks, but not necessarily the bottom in headlines about the woes in those sectors.

~ Bill Miller, portfolio manager, Legg Mason Value Trust, "Legg Mason's Miller sees recovery for stocks," MarketWatch, April 23, 2008

Apr 28, 2008

Jeremy Grantham on Fed bailouts and $300,000 speaking engagements for former Fed chairmen

Even Fed chairmen get bullied and have their faces slapped if they stick to their guns, which will, not surprisingly, be rare since everyone values his career or does not want to be replaced à la Volcker. So, be as optimistic as possible, be nice to everyone, bail everyone out, and hope for the best. If all goes well after all, you will have a lot of grateful bailees who will happily hire you for $300,000 a pop. By the way, that such payments to prior Fed officials are in themselves a moral hazard and an obvious conflict of interest that could moderate their prior behavior, is apparently too crude an accusation even to have surfaced yet. Well it should surface. Selling services to financial interests whose fates have been in your hands should simply not be tolerated as acceptable or ethical behavior by a former Fed Chairman.

~ Jeremy Grantham, "Immoral Hazard," GMO Quarterly Letter, April 2008

Jeremy Grantham on 20 years of moral hazard

At the time that Paul Volcker broke the back of inflation in early 1980s, the recognition that risk and leverage had consequences was baked into the pie: if you were to take excessive risk you had better win the bet. If you missed the target, the expected result would be more or less total failure, and that seemed then and for decades earlier a reasonable law of nature. Now in contrast we get ready to celebrate the 20th anniversary of the era of the Great Moral Hazard. Slowly at first, but with steadily growing traction, the idea was planted that asset bubbles would be tolerated, but consequences of their bursting would be moderated or avoided entirely by increasingly vigorous actions sometimes, like now, bordering on the hysterical. This is to say that if all went well, enormous profits could be made by speculators – largely the great financial firms, including some formerly conservative blue chip banks – by riding and leveraging the bubbles. If all went badly, then the costs would be passed on to others.

~ Jeremy Grantham, "Immoral Hazard," GMO Quarterly Letter, April 2008

Jeremy Grantham on Alan Greenspan

Greenspan came onto my radar screen in the late sixties as a seller of economic and financial advice to the investment industry. To be brutally honest, he was considered run of the mill by anyone I knew then or have met later who knew his service then. His high point in most memories, certainly mine, was a famous call in January 1973 that, “it is rare that you can be as unqualifiedly bullish as you now can,” a few days before a market decline of over 60% in real terms, second only to the Great Crash in a century, accompanied also by a bitter recession. This was one of the first of a long line of terrible prognostications for which he has remarkably not been remembered, except by a handful of us amateur historians. Then in the mid seventies he disappeared into some government job, of which I was barely aware, until he re-emerged with a bang in 1987, without as far as I can find having done anything documentably very well.

~ Jeremy Grantham, "Immoral Hazard," GMO Quarterly Letter, April 2008

Edward R. Murrow on government

A Nation of Sheep will beget a Government of Wolves.

~ Edward R. Murrow, pioneer of television news broadcasting

Victor Hugo on ideas and violence

No army can stop an idea who’s time has come.

~ Victor Hugo, author of Les Miserables

Edward Abbey on patriotism

A patriot must be ready to defend his country against his government.

~ Edward Abbey, American author and essayist, known as the "Thoreau of the American West," one of his novels inspired the radical environmentalist group Earth First!

Apr 26, 2008

Goethe on knowledge

Knowing is not enough. We must apply.

~ ~ Johann Wolfgang von Goethe

Gary Shilling on biofuel schemes

With global recession, demand for industrial commodities and oil will fade. It will become clear that much of China's demand for commodities was not primarily to supply its citizens but to supply its export market.

No one will be talking anymore about how oil production is peaking. Look at Petrobras' huge oilfield discovery off Brazil and consider the gigantic energy supplies that will come from tar sands, nuclear, coal liquefaction and maybe shale. More supply equals lower prices.

Good weather and weak ethanol prices may knock down ag prices. A recent report in Science magazine has discredited many biofuel schemes as environmental salvations. We're going to stop fueling our cars with taco ingredients.

~ A. Gary Shilling, "Sell Commodities," Forbes, March 10, 2008

Texas Governor Rick Perry on ethanol mandates

We appreciate the good intentions behind the push for renewable fuels. In fact we're diversifying our state's energy portfolio at a rapid rate, but this misguided mandate is significantly affecting Texans' family food bill.

Texas Governor Rick Perry, "Texas seeks EPA ethanol waiver over high food," MarketWatch, April 25, 2008, by Wallace Witkowski

(Governor Perry asked the Environmental Protection Agency for an immediate waiver on the state's requirements under a federal ethanol mandate because of "skyrocketing food costs," according to a release on the state's Web site Friday. Perry asked the EPA to reduce the state's federal renewable fuel standard mandate by 50% for ethanol produced from grain. The governor also noted that the grain-to-ethanol requirement is hurting the state's cattle industry, particularly small family ranches.)

Frederic Bastiat on government theft

The state is the great fiction by which everybody tries to live at the expense of everyone else.

~ Frederic Bastiat

Apr 24, 2008

Abba Eban on history lessons

History teaches us that men and nations behave wisely once they have exhausted all other alternatives.

~ Abba Eban, Speech in London, December 16, 1970

Count Palatine on liberty with danger

Malo periculosam libertatem quam quietum servitium.
(I prefer liberty with danger to peace with slavery.)

~ Attributed to Count Palatine in the Polish Diet, by Jean-Jacques Rousseau in his Social Contract, Book III, Chapter 4, Democracy

Apr 23, 2008

Albert Einstein on evil

The world is a dangerous place to live, not because of the people who are evil, but because of the people who don't do anything about it.

~ Albert Einstein

Warren Buffett on the 2008 election

Q: How do you feel about the election?

A: Way before they both filed, I told Hillary that I would support her if she ran, and I told Barack I would support him if he ran. So I am now a political bigamist. But I feel either would be great. And actually, I feel that if a Republican wins, John McCain would be the one I would prefer. I think we've got three unusually good candidates this time.

~ Warren Buffett, "What Warren thinks...," Fortune (cover article), April 14, 2008

Apr 21, 2008

Thomas Sowell on voting for John McCain

Senator John McCain could never convince me to vote for him. Only Hillary Clinton or Barack Obama can cause me to vote for McCain.

~ Thomas Sowell, April 2008

Murray Rothbard on the libertarian movement and two major forms of surrender: selling out and retreatism

In the conservative and libertarian movements there have been two major forms of surrender, of abandonment of the cause. The most common and most glaringly obvious form is one we are all too familiar with: the sellout. The young libertarian or conservative arrives in Washington, at some think-tank or in Congress or as an administrative aide, ready and eager to do battle, to roll back the State in service to his cherished radical cause. And then something happens: sometimes gradually, sometimes with startling suddenness. You go to some cocktail parties, you find that the Enemy seems very pleasant, you start getting enmeshed in Beltway marginalia, and pretty soon you are placing the highest importance on some trivial committee vote, or on some piddling little tax cut or amendment, and eventually you are willing to abandon the battle altogether for a cushy contract, or a plush government job. And as this sellout process continues, you find that your major source of irritation is not the statist enemy, but the troublemakers out in the field who are always yapping about principle and even attacking you for selling out the cause. And pretty soon you and The Enemy have an indistinguishable face.

We are all too familiar with this sellout route and it is easy and proper to become indignant at this moral treason to a cause that is just, to the battle against evil, and to your own once cherished comrades. But there is another form of abandonment that is not as evident and is more insidious – and I don't mean simply loss of energy or interest. In this form, which has been common in the libertarian movement but is also prevalent in sectors of conservatism, the militant decides that the cause is hopeless, and gives up by deciding to abandon the corrupt and rotten world, and retreat in some way to a pure and noble community of one's own. To Randians, it's "Galt's Gulch," from Rand's novel, Atlas Shrugged. Other libertarians keep seeking to form some underground community, to "capture" a small town in the West, to go "underground" in the forest, or even to build a new libertarian country on an island, in the hills, or whatever. Conservatives have their own forms of retreatism. In each case, the call arises to abandon the wicked world, and to form some tiny alternative community in some backwoods retreat. Long ago, I labeled this view, "retreatism." You could call this strategy "neo-Amish," except that the Amish are productive farmers, and these groups, I'm afraid, never make it up to that stage.

The rationale for retreatism always comes couched in High Moral as well as pseudo-psychological terms. These "purists," for example, claim that they, in contrast to us benighted fighters, are "living liberty," that they are emphasizing "the positive" instead of focusing on the "negative," that they are "living liberty" and living a "pure libertarian life," whereas we grubby souls are still living in the corrupt and contaminated real world. For years, I have been replying to these sets of retreatists that the real world, after all, is good; that we libertarians may be anti-State, but that we are emphatically not anti-society or opposed to the real world, however contaminated it might be. We propose to continue to fight to save the values and the principles and the people we hold dear, even though the battlefield may get muddy. Also, I would cite the great libertarian Randolph Bourne, who proclaimed that we are American patriots, not in the sense of patriotic adherents to the State but to the country, the nation, to our glorious traditions and culture that are under dire attack.

~ Murray Rothbard, "On Resisting Evil," from The Irrepressible Rothbard, Chapter 44

Apr 20, 2008

David Dreman: Bank stocks are bargains

Frightening as the markets look today, there will come a time when the liquidity crisis ends and today's prices for bank stocks look, in retrospect, like bargains.

~ David Dreman, "Looking Beyond the Bailout," Forbes, May 5, 2008

Jesse Eisinger: "Free-market ideology is in the process of imploding"

Crises create opportunities for political realignment. After years of chasing the New New Thing, we now need, in the phrase of the moment, a New New Deal. We have had our decades of celebrating financial deregulation and a Federal Reserve chairman, Alan Greenspan, who genuflected at the altar of the free market. But now Big Government has rushed to bail out banks and investment institutions. Free-market ideology is in the process of imploding. Liberals have longed for an opening to roll back what political scientist Jacob Hacker has called the "great risk shift."

~ Jesse Eisinger, "It's (Really) the Economy, Stupid," Portfolio, May 2008

Herb Greenberg endorses Thornton O'Glove's classic "Quality of Earnings"

If you haven't heard of [Thornton] Oglove, who recently turned 75, that is understandable. He retired from the investment industry in 1990, but not without leaving his mark in the form of a book, "Quality of Earnings: The Investor's Guide to How Much Money a Company Is Really Making." He wrote the book after years of co-authoring the monthly Quality of Earnings Report with Bob Olstein, who now runs Olstein Funds.

The book, which still sells several hundred copies a year, is considered by many to be a bible of forensic accounting. It is "among my favorite investment books," wrote Motley Fool's Tom Gardner in a preface to a 44-page interview he did several years ago with Oglove. Donn Vickrey, a former accounting professor and co-founder of Gradient Analytics, used Oglove's work as a motivation for his graduate dissertation.

"He has a wonderful sense of the history of Wall Street," says Hewitt Heiserman, of earningspower.com and author of "It's Earnings that Count." "He's seen the good times and the bad."

~ Herb Greenberg, "Thornton Oglove on investing," MarketWatch, April 20, 2008

IBD: 77% of homes bought a year ago are underwater in Stockton, CA

In Stockton, Calif., a "staggering" 77% of homes bought a year ago are "underwater" with negative equity, says Stan Humphries, vice president of data and analytics at real estate Web site Zillow.com. The percentage is nearly 60% in Las Vegas, above 40% in Miami and nearly 40% in Los Angeles.

~ IBD, "As Home Values Undercut Loans, More People Simply Walk Away," March 7, by Donna Howell

Agrium VP on the future of agriculture

I think the next 15 to 25 years are going to be the most exciting in agriculture history. There's an opportunity to help with the energy crisis as well as with increasing human consumption of food.

~ Tom Warner, vice president of Agrium, a Calgary, Alberta-based agricultural products retailer, "Facing Big Changes Down on the Farm," IBD, March 3, 2008

Ronald Reagan on vision

There are no such things as limits to growth, because there are no limits on the human capacity for intelligence, imagination and wonder.

~ Ronald Reagan, 40th president

JFK on immagination

Conformity is the jailer of freedom and the enemy of growth.

John F. Kennedy, 35th president

James Dean on living for today

Dream as if you'll live forever. Live as if you'll die today.

~ James Dean, actor

Government legislation

Banking:
  • Riegle-Neal Interstate Banking and Branching Efficiency Act (1994) - loosened up the regulatory barriers to bank mergers
  • Troubled Asset Relief Program, a.k.a. "TARP" (2008) - earmarked $800 billion to buy troubled assets of banks
Economy:
Energy:
  • Energy Policy Act (August, 2005) - mandates refiners blend an increasing amount of ethanol into gasoline mixes, with a minimum annual requirement of 7.5 billion gallons of ethanol in gasoline by 2012
  • Renewable Fuels Standard (December, 2007) - raises ethanol requirement to 9 billion gallons in gasoline mixes in 2008, and mandates 15 billion gallons a year by 2022
  • Energy Independence and Security Act (December 13, 2007) - new laws and standards regulating electric power use; forces computer/electronics device makers to turn to low power chips

Federal Reserve:

  • Accounting and Auditing Act of 1950 - the relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters"

Housing:

  • Community Reinvestment Act (1977) - pressures banks to make uneconomical loans to uncreditworthy borrowers (aka "subprime")
  • American Housing Rescue and Foreclosure Prevention Act (July 30, 2008) - provides unlimited authority to Treasury for 18 months to make emergency loans to Fannie Mae and Freddie Mac and possibly buy stakes in the two mortgage giants. The legislation also creates a new regulator to oversee Fannie and Freddie. George W. Bush signed the bill into law.

IBD on ethanol subsidies, winners and losers

Oil companies and meat producers cringed when the Energy Policy Act was signed into law in August 2005. The law mandated refiners blend an increasing amount of ethanol into gasoline mixes, with a minimum annual requirement of 7.5 billion gallons of ethanol in gasoline by 2012.

The Renewable Fuels Standard enacted in December upped the ante to 9 billion gallons of ethanol this year, and mandated 15 billion gallons a year by 2022. The two programs also included vast subsidies for refiners and ethanol producers, by some estimates as high as $1.38 per gallon of the corn-based biofuel.

For oil companies, the rules created an immediate dependence on corn producers and ethanol refiners, led by Archers Daniels Midland ADM and privately owned Poet. For beef producers, it promised a future of soaring feed prices. Corn growers and fertilizer producers read the edict as an all-aboard for the gravy train.

~ Investor's Business Daily, "Fuels Rush In; Ethanol Boom Faces Price Bust," February 11, 2008, by Alan R. Elliott

George Will on Wall Street bailouts from Chrysler to Bear Stearns

[S]uddenly the Fed is undergoing radical "mission creep." The description of the Fed as the "lender of last resort" is accurate without being informative. Lender to whom? For what purposes? Last resort before what? Did the bank "lend" $29 billion to Bear Stearns, or did it, in effect, buy some of the most problematic securities owned by Bear? If so, was this faux "loan" actually to J.P. Morgan Chase? The purpose of the money was to give Morgan an incentive to buy Bear -- at a price so low that an incentive should have been superfluous.

In 1979, when the government undertook to rescue Chrysler, conservatives worried not that the bailout would fail but that it would work, thereby inflaming government's interventionist proclivities and lowering public resistance to future flights of Wall Street socialism. It "worked": Chrysler has survived to endure its current crisis. The fallacious argument in 1979 was that Chrysler was then "too big to be allowed to fail."

Today's argument is that Bear Stearns was so connected to the financial system in opaque ways that no one could guess the radiating consequences of its failure -- the financial consequences or, which sometimes is much the same thing, psychological.

But what is now the principle by which other distressed firms will elicit Fed interventions in future uncertainties? By what criteria does Washington henceforth determine whether a large entity is "too connected to fail"?

The Fed has no mandate to be the dealmaker for Wall Street socialism. The Fed's mission is to preserve the currency as a store of value by preventing inflation. Its duty is not to avoid a recession at all costs; the way to get a big recession is to engage in frenzied improvisations because a small recession, aka a correction, is deemed intolerable. The Fed should not try to produce this or that rate of economic growth or unemployment.

After the tech bubble burst in 2000, the Fed opened the money spigot to lower interest rates and keep the economy humming. And since the bursting of the housing bubble, which was partly caused by that opened spigot, the Fed has again lowered interest rates, which for now are negative -- lower than the inflation rate, which the open spigot will aggravate.

~ George Will, "The Fed Muddles Through a Bailout," Townhall.com, April 20, 2008

George Will on consumer debt

Having maxed out many of their 1.4 billion credit cards, between 2001 and 2006 Americans tapped $1.2 trillion of their housing equity. Business Week reports that the middle-class debt-to-income ratio is now 141 percent, double that of 1983.

~ George Will, "The Fed Muddles Through a Bailout," Townhall.com, April 20, 2008

George Will on Wall Street bailouts

Republicans and Democrats promise cooperation, compromise and general niceness using other people's money. If Congress cannot suppress its itch to "do something" while markets are correcting the prices of housing and money, Congress could pass a law saying: No company benefiting from a substantial federal subvention (which would now include Morgan) may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

~ George Will, "The Fed Muddles Through a Bailout," Townhall.com, April 20, 2008

Apr 19, 2008

Davy Crockett on the Constitution

When the Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people.

~ Davy Crockett

Mary Bridges on urban congestion

The epidemic now threatening cities is traffic. Even urban centers with excellent mass transit, like Paris, are choking on cars. In 1959, economist William Vickrey urged members of Congress to charge D.C. motorists during peak hours. They declined, but Vickrey’s congestion-pricing concept eventually won acceptance—in Singapore (the first city to adopt it, in 1975); Oslo (1990); and London (2003)—and validation in Stockholm, where Vickrey was posthumously awarded the Nobel in economic science in 1996.

The New York Legislature has a March deadline to vote on a congestion-pricing plan for Manhattan being pushed by Mayor Michael Bloomberg.

~ Mary Bridges, "Sick Transit; Can congestion pricing save cities from auto asphyxiation?," Portfolio, March 2008

Dick Cheney on the eve of the Iraq War (2003)

My belief is we will, in fact, be greeted as liberators... I think it will go relatively quickly... weeks rather than months.

~ Vice President Dick Cheney, March 16, 2003

Christopher Manion on the HMS Cornwall incident (seizure of British sailors by Iran in Iraqi supposedly waters)

Remember when those poor Brits were captured in Iraqi waters last year, bringing Bush to the brink of war with Iran?

Well, it turns out they weren't Iraqi waters. The U.S. occupation force had changed the border between Iraq and Iran! Only -- and this exemplifies their crafty, twenty-first century strategic brilliance -- they didn't bother to tell Iran!

Of course, this blunder was kept secret for a year, and hats off to the London Times for its persistence -- the documents were released only after the Times lodged a Freedom of Information suit. The documents included this gem from Tony Blair's Defence Secretary -- who knew the whole thing was bogus a year ago! From April 13, 2007:

"[Top Secret] The exact coordinates to the Op Line have not been published to Iran."

"History will vindicate us," blurted Blair on one of his visits to Bush early in the war.

Tony, history is not vindicating you, it's convicting you.

~ Christopher Manion, LewRockwell.com blog, "What? More Lies? I'm Shocked, Shocked!," April 19, 2008

Apr 18, 2008

Dick Bove on Bear Stearns bailout

What the Fed did was absolutely necessary. If Bear Stearns had failed, it would have crashed the financial markets.

If a financial firm of this size fails, it pulls all the others with it.

~ Dick Bove, banking analyst at Punk Ziegel, "Bear Stearns Dives After Fed Steps In With Bailout Funds," IBD, March 17, 2008

(He added that Bear's woes threaten banks overseas that are tied to the firm via a web of reciprocal guarantees and agreements. )

Ron Paul on speculative bubbles and the fate of our political system (2002)

Speculative bubbles and all that we've been witnessing are a consequence of huge amounts of easy credit, created out of thin air by the Federal Reserve. We've had essentially no savings, which is one of the most significant driving forces in capitalism. The illusion created by low interest rates perpetuates the bubble and all the bad stuff that goes along with it. And that's not a fault of capitalism. We are dealing with a system of inflationism and interventionism that always produces a bubble economy that must end badly.

So far the assessment made by the administration, Congress, and the Fed bodes ill for our economic future. All they offer is more of the same, which can't possibly help. All it will do is drive us closer to national bankruptcy, a sharply lower dollar, and a lower standard of living for most Americans, as well as less freedom for everyone.

This is a bad scenario that need not happen. But preserving our system is impossible if the critics are allowed to blame capitalism and sound monetary policy is rejected. More spending, more debt, more easy credit, more distortion of interest rates, more regulations on everything, and more foreign meddling will soon force us into the very uncomfortable position of deciding the fate of our entire political system.

~ Congressman Ron Paul, "Has Capitalism Failed?," speech before the U.S. House of Representatives, July 9, 2002

Ron Paul on the post-Enron assault on capitalism

Corruption and fraud in the accounting practices of many companies are coming to light. There are those who would have us believe this is an integral part of free-market capitalism. If we did have free-market capitalism, there would be no guarantees that some fraud wouldn't occur. When it did, it would then be dealt with by local law-enforcement authority and not by the politicians in Congress, who had their chance to "prevent" such problems but chose instead to politicize the issue, while using the opportunity to promote more Keynesian useless regulations.

Capitalism should not be condemned, since we haven't had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It's not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!

To condemn free-market capitalism because of anything going on today makes no sense. There is no evidence that capitalism exists today. We are deeply involved in an interventionist-planned economy that allows major benefits to accrue to the politically connected of both political spectrums. One may condemn the fraud and the current system, but it must be called by its proper names – Keynesian inflationism, interventionism, and corporatism.

~ Congressman Ron Paul, "Has Capitalism Failed?," speech before the U.S. House of Representatives, July 9, 2002

David Friedman on coercion

The direct use of force is such a poor solution to any problem, it is generally employed only by small children and large nations.

~ David Friedman

Apr 17, 2008

Lenin on inflation

The surest way to overthrow an existing social order is to debauch the currency.

~ Vladimir Lenin

Apr 15, 2008

Rick Santelli on the Bear Stearns bailout

If this is how the U.S. government is going to operate in a democratic, free-market society, we might as well put a hammer and sickle on the flag.

~ Rick Santelli, CNBC Reporter, April 2, 2008

Apr 14, 2008

Robert Rubin: No one foresaw the financial crisis

Asked for the views on the origins of the financial market turmoil, [Robert] Rubin said it was a "confluence" of a series of events that no one foresaw.

A 3-4 year period where the markets under priced risk, some unsound financial engineering that created AAA rated complex securities and a large increase in housing prices "all came together," he said.

It has been much broader and lasted much longer than anyone imagined, he said.

Asked when the crisis might subside, Rubin replied: "I have no idea."

He said there shouldn't be "any let up" by economic policymakers working on solving the crisis.

~ MarketWatch, "Rubin: Unsound Bush fiscal policy hampering crisis relief; Former Treasury Secretary blasts White House for weak dollar," April 14, 2008, by Greg Robb

Jim Rogers on the credit bubble

We had the worst credit bubble ever in American history, perhaps world history. I can't remember anytime in history when people were able to buy a house with no money down -- sometimes with no income. You don't clean out a bubble like that in six months to a year.

~ Jim Rogers, "Light-Years Ahead of the Crowd," Barron's, April 14, 2008

Jim Rogers on bailing out the financial system

Q: You have been quoted as saying you don't think bailouts of troubled companies are a good idea. Is that still your view?

A: Yes, it is. If the government had not bailed out the hedge fund Long-Term Capital Management in 1998, I don't think we would have some of the problems we have now. Investment banks have been going bankrupt for hundreds of years. It is not the first time something like Bear Stearns has happened and the world has always survived.

If you had a few investment bankers go broke in 1998 or after the dot-com bust -- or if they lost hundreds of millions of dollars -- they probably would have had a different approach to their balance sheets. But since relatively few people got hurt with Long-Term Capital Management, in a few months everybody had forgotten the lessons that should have been learned about leverage or crazy products or crazy approaches. The government has been intervening to save all its friends for a decade or so rather than letting the market work properly.

Q: But isn't it so that a Bear Stearns bankruptcy would have devastated the financial system?

A: If the system is so fragile that the fifth-largest investment bank can bring it all down, then you better go ahead and have the problems now. What if three or five years from now it is the largest investment bank that fails or the largest five or six banks that fail? Then there will be a disaster.

Q: As an investor, you often allude to the importance of understanding history.

A: History will teach you that, first, we have seen all of this before, whether it's bubbles or panics or collapses. And yet, somehow, the world adapts.

~ Jim Rogers, "Light-Years Ahead of the Crowd," Barron's, April 14, 2008

Jim Grant on the negative amortization mortgage

Howard Hughes's 1966 sale of his controlling interest in Trans World Airlines for $566 million may not stand as the greatest exit in capitalism. A strong and rising contender for that honor is the 2006 sale of Golden West Financial to Wachovia for $25.5 billion. One important part of the success of Golden West management was innovation. It was the team of Herbert and Marion Sandler that helped to develop the negatively amortizing mortgage.

It's an iron law of financial innovation that every good idea is driven into the ground like a tomato stake. So it has gone with the neg-am mortgage.

~ Jim Grant, "Limits of Leverage," Grant's Interest Rate Observer, April 4, 2008

Apr 13, 2008

Sir Isaac Newton on the South Sea bubble

I can calculate the motions of heavenly bodies, but not the madness of people.

~ Sir Isaac Newton, 1721, comment made after losing his shirt in the South Sea bubble

Apr 12, 2008

Justin Raimondo on Israel's foreign policy

What is it with the Israelis? Why do they have a predilection for murderous tyrants? What seems, at first, like a pattern of sheer moral perversity may be broken down, in specific cases, into discrete economic, strategic, and diplomatic objectives. Yet one has to be astonished – and more than a little horrified – at the complete amorality that guides the Israeli government's actions around the world.

This record of Israeli support for dictators and despots worldwide is, perhaps, part of the reason for that country's growing unpopularity on a global scale: however, in the US, where the Israel lobby wields inordinate power in government and the media, it's quite a different story. Here, support for Israel is in the 70 percent range – a testament to the supposedly nonexistent power of the Lobby, and the relative ignorance of and indifference to world affairs exhibited by most Americans.

~ Justin Raimondo, "Israel Loves Mugabe; Why is that?," Antiwar.com, April 11, 2008

Lew Rockwell on inflation and the Fed

[T]he fundamental [problem] is the Fed itself, which purports to be the great savior of the money system but in fact is its destroyer. By flooding the economy with ever more paper money, it reduces the value of our money — an insidious tax that the governing elites levy in ways that keep the people in the dark.

~ Llewellyn H. Rockwell, Jr., “The Inflation Monster and Its Owner," LewRockwell.com, April 10, 2008

Apr 11, 2008

Martin Feldstein on Greenspan defending his role in creating a housing and credit bubble

There's lots and lots of blame to go around. The low interest rates contributed to it. The policies pushing subprime lending coming from the government contributed to it. Bad bank examining contributed to it. The rating agencies contributed to it. You could go on and on.

~ Martin Feldstein, National Bureau of Economic Research president/CEO, as appeared on CNBC, April 7, 2008

Thomas Jefferson on dissent

Dissention is the greatest form of patriotism.

~ Thomas Jefferson

Tony Dwyer: Stock market experiencing "historic risk aversion" (2008)

Tactically, the market has significant upside as some of the historic risk aversion gets reversed... Everybody's been out of the market. The opposite of love isn't hate; it's apathy. And I think investors are very apathetic as to what the potential is... To say that this has been a historic risk aversion is the understatement of the entire last century. It has been historic. And when you even reverse it a little bit, especially with nobody really invested in stocks, that could create an upside tactical trade.

~ Tony Dwyer, FTN Midwest Securities, as appeared on CNBC, April 7, 2008

Kevin Duffy on the central banking scam

There is a small group of people who subscribe to the view that central banking is just a slick combination of central planning and cronyism (Jim Grant, Jim Rogers, Marc Faber, Rep. Ron Paul). The Fed is essentially a criminal organization, owned by (and for) private banks, with little to no transparency or accountability. It is essentially a pyramid scheme on top of a counterfeiting operation. No private business could get away with what it does.

One of the Fed's stated goals is to "fight inflation," when in fact it causes inflation. Just look at its track record. From 1800-1914, consumer prices were basically flat under a quasi-gold standard. Since the Fed's founding in 1914, the dollar has lost over 95% of its value.

The Fed owes its existence to pure propaganda. Let's face it, Greenspan and Bernanke did little to distinguish themselves before becoming Fed chairmen - no outstanding forecasts, no great fortunes or enterprises built. But once appointed to rule the Fed roost they were treated like rock stars. Politicians either don't have a clue what the Fed does or look the way because the Fed allows them greater resources (via the printing press). The mainstream media has a statist/interventionist mindset so they fall into line. And of course the special interests at the trough - Wall Street and the big banks - do their best to convince everyone that life as we know it couldn't exist without the Fed. We can't possibly let the "system" fail, even though that system is corrupt and causes chronic bubbles and inflation.

With the Fed (and Treasury) desperately and blatantly trying to save their financial friends from their own folly, more people are pulling back the curtain on this scam.

~ Kevin Duffy, Bearing Asset Management, April 10, 2008

Apr 9, 2008

Wilhelm Röpke on the profit and loss guide to a "rational economy"

The individual is forced by competition to seek his own success in serving the market, that is, the consumer. Obedience to the market ruled by free prices is rewarded by profit, just as disobedience is punished by loss and eventual bankruptcy. The profits and losses of economic activity, calculated as precisely and correctly as possible by the methods of business economics, are thus at the same time the indispensable guide to a rational economy as a whole. Collectivist economies, of whatever degree of collectivism, try in vain to replace this guidance by planning.

~ Wilhelm Röpke, from a section titled "The Spiritual and Moral Setting," A Humane Economy

Apr 8, 2008

Mark Twain on history

History doesn't repeat itself - at best it sometimes rhymes.

Marie Parente on negotiation

When you sit down to negotiate on what you already have, you lose.

—Rep. Marie J. Parente

Samuel Adams on politics

It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds.

Apr 6, 2008

Goering on herding the sheep-like people

... the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

~ Field Marshall Hermann Goering, upon being interviewed by Gustave M. Gilbert, the German-speaking prison psychologist who had free access to all prisoners during the Nuremberg trails.

(This was reported in Robert Higgs, "How the State Leads People to Destruction." Higgs cites the Nuremberg Diary, pp. 278-279.)

General Douglas MacArthur on war hysteria

Our country is now geared to an arms economy which was bred in...war hysteria and nurtured upon an incessant propaganda of fear.

Apr 4, 2008

Mark Twain on Congress

There is no distinctly native American criminal class except Congress.

Apr 2, 2008

William F. Buckley's obituary of Murray Rothbard

Murray Rothbard RIP
MURRAY ROTHBARD, age 68, died on January 7. We extend condolences to his family, but not to the movement he inspired.

The academic and journalistic achievements of Professor Murray Rothbard of the University of Nevada were prodigious-25 books, including Man, Economy, and State, and a four-volume history of economic thought, the final two volumes of which will appear in the spring. He was the primary influence in founding the Libertarian. Party, whose godfather he continued to be until he broke with it a few years ago.

What reason, then, not to regret the end of his influence on the conservative-libertarian movement?

Murray Rothbard had defective judgment. It pains even to recall it, but in 1959 when Khrushchev arrived in New York, with much of America stunned by the visit of the butcher of Budapest-the Soviet protege of Stalin who was threatening a world war over BerlinRothbard physically applauded Khrushchev in his limousine as it passed by on the street. He gave as his reason for this that, after all, Khrushchev had killed fewer people than General Eisenhower, his host.

Murray couldn't handle moral priorities. In 1991 he decried the Cold War, which had just ended by liberatingthree hundred million people while maintaining our own independence. As president of the John Randolph Society, he spoke jubilantly at its convention in 1991 of his fancy, that we should "think the unthinkable and restore the good old Articles of Confederation." In recent years he disavowed Milton Friedman on the grounds that in endorsing the idea of school vouchers, Professor Friedman had sold out to the enemy, the State. James Burnham, the noble strategist and philosopher, he attacked bitterly in 1968 ("I can see Burnham now, helping the slavemasters of the South round up the slave rebels under Nat Turner"). In 1957, reviewing in NR a book by Murray Rothbard, Henry Hazlitt observed that he suffered from "extreme apriorism." Indeed he did, Rothbard retorted in an essay that defended categorical positions, leaving no room for qualifications however critical. We have not read his economic history, but if it is as reliable as his contemporary history, we warn against it a generation of scholars which, from all appearances, is paying it the attention it deserves. In his speech to the John Randolph Society Rothbard gave this rendition of the history of NATIONAL REVIEW: "And so the purges began. One after another, Buckley and NATIONAL REVIEW purged and excommunicated all the radicals, all the nonrespectables. Consider the roll call: isolationists (such as JOM T. Flynn), anti-Zionists, libertarians, Ayn Randians, the John Birch Society, and all those who continued, like the early NATIONAL REVIEW, to dare to oppose Martin Luther King and the civil-rights revolution." Anybody who could decipher this magazine's history as above, could also conclude that Khrushchev was morally preferable to Eisenhower.

Murray Rothbard was a wonderfully pleasant social companion. He had been a friend and colleague-he did the research for the passages in Up from Liberalism that dealt with economics. But in 1962, at an lSI-sponsored seminar at Yale, I spoke derisively, if with good humor, about Murray's proposal to privatize the lighthouses, suggesting that such a platform would persuade listeners less of the advantages of the private sector than of the disadvantages of knowing nothing about lighthouses. Rothbard was outraged and noisily denounced this journal, vowing never again to contribute to it.

We muddled through without him, and he got on with his own work, though the influence of the Libertarian Party did not correspond with its valuable insights- the American people, during the Cold War, were not going to welcome in large numbers a political party whose leader thought the defense of freedom through containment was a travesty.

It was a great pity, but his problem ought not to be thought of as tracing to the seamless integrity of libertarian principles. In Murray's case, much of what drove him was a contrarian spirit, the deranging scrupulosity that caused him to disdain such as Herbert Hoover, Ronald Reagan, Milton Friedman, and-yes-Newt Gingrich, while huffing and puffing in the little cloister whose walls he labored so strenuously to contract, leaving him, in the end, not as the father of a swelling movement that "rous [ed] the masses from their slumber," as he once stated his ambition, but with about as many disciples as David Koresh had in his little redoubt in Waco. Yes, Murray Rothbard believed in freedom, and yes, David Koresh believed in God.

~ William F. Buckley, Jr., "Murray Rothbard RIP," National Review, February 6, 1995

Lew Rockwell's rebuttal of William F. Buckley's obituary of Murray Rothbard

Buckley Defames Rothbard
In his obituary of Murray N. Rothbard, William F. Buckley, Jr., attempts to blacken a great man's life and work (*National Review*, 2/6/95). His essay, entitled "Murray Rothbard, RIP," should actually be called, "I Hate Rothbard and I'm Glad He's Dead." Worse, it is error-ridden, confused, and dishonest.

The day after Rothbard's death, Buckley received--through *National Review* and his personal machine--a three-page announcement on Rothbard's professional career, complete with citations to his major works. There can thus be no excuse for errors of fact, especially in an obituary, and *National Review* must correct them immediately.

Buckley claims that Rothbard wrote a "four-volume history of thought, the final two volumes of which will appear in the spring." "From all appearances," Buckley then announces, scholars
are "paying it the attention it deserves"--that is, they are ignoring it.

But Rothbard's *two volume* history of economic thought (published by Edward Elgar) appears this ~lVeek. Scholars can't ignore a work before it is available. Not even Rothbard lived to see it. What appears later this year is a much-awaited two-volume collection of Rothbard's best journal articles published in Elgar's "Economists of the Century" series.

Buckley may think such details are unimportant, but then he was wrong to feign an interest in scholarship, make up facts to suit his bias, and use them to defame a dead man whose life was
devoted to the highest academic ideals.

In a book review appearing "in 1957," Buckley writes, "Henry Hazlitt observed that [Rothbard] suffered from 'extreme apriorism. '" Hazlitt, a close friend and lifelong colleague of Rothbard's, cannot protest this mischaracterizatiofl. He died in 1993.

Hazlitt reviewed Rothbard's *Man, Economy, and State* in 1962, the year the book was published. By citing the year 1957, Buckley makes verification difficult, and for good reason.

Wrote Hazlitt (*National Review*, 9/29/62): Rothbard "has succeeded.... It is brilliant and original and profound.... It is in fact the most important general treatise on economic principles since Ludwig von Mises' *Human Action*."

Buckley also misquotes Hazlitt. The phrase "extreme apriorism" is not Hazlitt' s, but Rothbard's, as the original review made clear. It is drawn from his highly influential article published five years earlier in the *Southern Economic Journal*, "In Defense of Extreme Apriorisln."

Hazlitt's remark reflects his judgment that deductive methodology should apply to economics and not to legal theory; in the literature, *apriorism* is not a synonym for dogmatism, as Buckley seems to think.

Like one of Buckley's earlier attacks on Rothbard (*New York Times*, 2/16/71), this one falsely maintains that private lighthouses were central to Rothbard's economic program, and then
ridicules the idea. Most likely, Buckley has confused Rothbard with Ronald Coase, the Nobel laureate who showed that lighthouses have historically been private.

Buckley also claims that "in recent years [Rothbard] disavowed Milton Friedman on the grounds: that in endorsing the idea of school vouchers, Professor Friedman had sold out to the enemy, the State." In fact, Friedman and Rothbard clashed on the voucher question in 1974.

And vouchers trivialize their differences. As economics students know, Friedman is a Chicago School Monetarist and Rothbard is an Austrian School Misesian. They disagree on everything from monetary theory to methodology. But to understand this requires a modicum of study and intellectual patience.

There is also Buckley's claim, "which pains even to recall it," that "Rothbard physically applauded Khrushchev in his limousine as it passed by on the street." The year was 1959, and Dwight D. Eisenhower had invited Nikita Khrushchev--who had repudiated Stalin and emptied the Gulag of millions of political prisoners--to tour the U. S. The visit raised the possibility of peace. Said a young Richard M. Nixon: it was "justified and wise" (*New York Times*, 9/21/59).

But Buckley would have none of it. He devoted issue after issue of *National Review* to denouncing the event, sold "Khrushchev Not Welcome Here" bumper stickers, orchestrated a letter-writing drive, ran a press campaign on "What YOU Can Do About Khrushchev's Visit Now," and put on a rally the day of his arrival. In the pages of *National Review*, he attributed any anti-war sentiment to the tiny U. S. Communist Party.

Rothbard, in the tradition of the Old Right, saw the warfare state as part and parcel of the welfare state: both diminish our liberties. For Rothbard, peace might mean a return to normalcy, and an end to the "totalitarian bureaucracy" that Buckley had called necessary to fight the Cold War. Thus Rothbard, like Nixon, never signed on to Buckley's heated crusade.

But did Rothbard actually stand on the streets of New York to applaud Khrushchev? Of course not, and no one who knew him could imagine him fighting a crowd for a peek at a politician. The last time Buckley raised the issue-·-in the 1971 *New York Times* article--he wrote that "Rothbard broke with *National Review* eleven years ago on the question of Khrushchev's visit." There
was no claim that Rothbard "physically applauded." That is a posthumous invention.

Rothbard was the only *National Review* writer who refused to join Buckley's hopped-up effort. Yet far from having "broken" with *NR*, Rothbard reviewed economics books for the magazine until
1961; Khrushchev came in 1959.

The break actually occurred during the Vietnam War, and Rothbard wasn't the only one cast out. Buckley expelled all the skeptics of empire from his magazine and the conservative movement.

Once outside the *National Review* circle, Buckley concludes in his obituary, Rothbard died "huffing and puffing" with "as many disciples as David Koresh. "

That's a delusion. Rothbard became nlore prolific than ever, influencing three generations of economists, philosophers, historians, journalists, and activists the world over.

When historian and journalist E.J. Dionne deciphered the intellectual influences on the November 1994 election and the new Congress, he named Murray N. Rothbard and his mentor Ludwig von
Mises.

William F. Buckley's name didn't appear, and no one would expect it to. The Cold War, now over, was Buckley's life. Everyone else has moved on.

~ Lew Rockwell, "Buckley Defames Rothbard," January 30, 1995

Ben Bernanke on Bear Stearns

We did not bail out Bear Stearns. Bear Stearns' shareholders took a very significant loss. I don't think any company is interested in repeating the experience of Bear Stearns.

We did what we did because we felt it was necessary to preserve the integrity and viability of the American financial system, which in turn is critical for the health of the economy.

~Ben Bernanke, Federal Reserve Chairman, Rueters, April 2, 2008

Doug Casey on foreign aid

Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries.


~Douglas Casey

John Coffee on the credit crunch

I think we're looking at a market that looks a lot healthier than it did two weeks ago.

~ John Coffee, Columbia Law School Professor, as appeared on CNBC, April 2, 2008

Apr 1, 2008

Doug French on a Bill Bonner speech: "Mathematical modeling is based upon conceit and pretension"

Bill Bonner provided a clear analysis of how the current crisis was engendered in his speech played for the [Doug] Casey faithful during the Wednesday night banquet. When Richard Nixon closed the gold window, the US dollar was then "based upon a fraud," and with central bankers being human, from that point the dollar would be made worthless. The next villain in Bonner’s story is Eugene Fama, who formulated the "Efficient Market Hypothesis," or in other words, the market knows everything, prices just move randomly. Since Professor Fama’s work was published, securities prices became natural phenomena that are supposedly not influenced by human behavior. Thus, stock and bond price movements could be mathematically modeled, and that risk isn’t risk anymore, but volatility.

From this thinking came the derivatives industry that is based upon models devised on historical market statistics during time frames that didn’t include a fiat currency regime, let alone the presence of $500 trillion in derivatives. This mathematical modeling is based upon conceit and pretension, according to Bonner, and the turning of Level 3 assets into AAA-rated paper were "miracles that would stagger Jesus Christ."

~ Doug French, "V.I. Bernanke," LewRockwell.com, April 1, 2008