Robert Taft on the New Dealers

[The New Dealers] are willing to sacrifice individual freedom in order supposedly to improve the condition of the poor and increase their material welfare. But in this purpopse the policy has completely failed. There are more than 10,000,000 people unemployed today, and the largest relief expense this year, 10 years after the depression, than any in the history of the United States. Farm prices are lower than they have been for 6 years. Businessmen are discouraged and indignant. Deposits have piled up in the banks because rich and poor alike are afraid to put their time or money into private enterprise, because they fear that Government regulation will prevent success and Government taxation will take whatever profit there might be. The New Deal policy is the only one which has ever plunged us into a second depression before we were out of the first. If any policy leads backward and not forward, it is the policy of spending billions of borrowed money and piling up a tremendous debt for future generations to pay. A policy which leads inevitably to the bankruptcy and inflation of the currency will not only make the poor people poorer, but it is likely to force a socialism which will utterly deprive them of individual freedom.

~ Senator Robert Taft, late 1930s, from a series of radio debates with Rep. T.V. Smith

David Stockman on Bill Gross, Pimco, crony capitalism, and gaming the drive to homeownership

Some raids on the US Treasury by America's crony capitalists are so egregious as to provoke a rant -- even if you aren't Rick Santelli. One such rant-worthy provocation is Pimco latest scheme to loot Uncle Sam's depleted exchequer.

According to Bill Gross, who heads what appears to be the firm's squad of public policy front runners, the American economy can be saved only through "full nationalization" of the mortgage finance system and a massive "jubilee" of debt forgiveness for millions of underwater homeowners. If nothing else, these blatantly self-serving recommendations demonstrate that Matt Taibbi was slightly off the mark in his famed Rolling Stone diatribe. It turns out that the real vampire squid wrapped around the face of the American taxpayer isn't Goldman Sachs (GS) after all. Instead, it's surely the Pacific Investment Management Co.

As overlord of the fixed-income finance market, the latter generates billions annually in effort-free profits from its trove of essentially riskless US Treasury securities and federally guaranteed housing paper. Now Pimco wants to swell Uncle Sam's supply of this no-brainer paper even further -- adding upward of $2 trillion per year of what would be "government-issue" mortgages on top of the existing $1.5 trillion in general fund deficits.

This final transformation of American taxpayers into indentured servants of HIDC (the Housing Investment & Debt Complex) has been underway for a long time, and is now unstoppable because all principled political opposition to Pimco-style crony capitalism has been extinguished. Indeed, the magnitude of the burden already created is staggering. Before Richard Nixon initiated the era of Republican "me-too" Big Government in the early 1970s -- including his massive expansion of subsidized housing programs -- there was about $475 billion of real estate mortgage debt outstanding, representing a little more than 47% of GDP.

Had sound risk management and financial rectitude, as it had come to be defined under the relatively relaxed standards of post-war America, remained in tact, mortgage debt today would be about $7 trillion at the pre-Nixon GDP ratio. In fact, at $14 trillion or 100% of GDP the current figure is double that, implying that American real estate owners have been induced to shoulder an incremental mortgage burden that amounts to nearly half the nation's current economic output.

There's no mystery as to how America got hooked on this 40-year mortgage debt binge. At the heart of the matter is the statist Big Lie trumpeting the alleged public welfare benefits of the home-ownership society and subsidized real estate finance. Once the conservative party embraced this alluring but dangerously destructive idea, the cronies of capitalism have had a field day conducting a Washington bidding war between the two parties which is now in its fifth decade

During this time span all of the congregates of the HIDC lobby -- homebuilders, mortgage bankers, real estate brokers, Wall Street securitizers, property appraisers and lawyers, landscapers and land speculators, home improvement retailers and the rest -- have gotten their fill at the Federal trough. But the most senseless gift -- the extra-fat risk-free spread on Freddie and Fannie paper -- went to the great enablers of the mortgage debt boom, that is, the mega-funds like Pimco, which did little more than hang out an "open to buy" shingle as billions poured in year after year. Sadly, there isn't a shred of evidence that all of this largese serves any legitimate public purpose whatsoever, and plenty of evidence that the HIDC boom has been deeply destructive. But the intellectual cobwebs spun by the housing cronies so obfuscate these truths that the only way to grasp them is through an examination of the contra-factual -- a postulated world without Freddie/Fannie/FHA and the $100 billion annual tax subsidy on mortgage interest.

In that world, households would be tax-indifferent as to whether they acquired shelter services through renting or owning, and appropriately so. There's simply no evidence that home ownership produces any externality or "public good," such as making people better citizens, causing them to work harder or aspire higher, turning them into better neighbors, or even growing hair on their chests. Housing is a commodity like furniture and automobiles, and inducing citizens to buy more of it is no business of the state.

~ David Stockman, "How Pimco Is Holding American Homeowners Hostage," Minyanville.com, August 27, 2010

FDR on politics

In politics, nothing happens by accident. If it happens, you can bet it was planned that way.

~ Franklin D. Roosevelt

Gary Shilling on ignoring Treasury yields (2010)

I've been a bull on 30-year Treasuries since 1981 since I said, in print, "We're entering the bond rally of a lifetime." Yields were at 15% then, they're now down, of course, to 3.7%, my goal is 3%. If that happens, you make another 14% appreciation in the coupon bond, and 24% on the 30-year zero. I've never, never, never bought Treasury bonds for yield. I couldn't care less what the yield is as long as it's going down. I buy for the same reason the professor [Jeremy Siegel] buys stocks-- appreciation.

The yield is insignificant, as far as I am concerned, as long as it's going down.

If we suddenly saw the economy take off like a scalded dog, consumers go from a savings spree back to their spendthrift ways, if we saw a rage of inflation rather than the deflation that I am forecasting, 3% deflation, you'd have to see a complete revival of the economy and an end of the deleveraging which has now taken over after three decades of leveraging up for the consumers and four decades for the financial sector [we could see bond yields go up].

~ Gary Shilling, president, A. Gary Shilling & Co., CNBC's Fast Money, August 18th, 2010

Ralph Waldo Emerson on blazing your own trail

It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.

~ Ralph Waldo Emerson, poet

Alan Greenspan predicts a rosy future for the US economy and equities markets (1973)

It's very rare that you can be as unqualifiedly bullish as you can now.

~Alan Greenspan, then future-Federal Reserve Chairman, The New York Times "Economic Survey", January 7, 1973

(1973 and 1974 turned out to be the worst years for economic growth and the stock market since the Great Depression, as noted in Jason Zweig's commentary in "The Intelligent Investor")

Forbes magazine of the 1930s committing the broken window fallacy

The drought was a Godsend. So was the rain that followed it. The prolonged dry spell brought distress to hundreds of thousands of families and has hurt business over a wide area, but it has restored the food markets of the nation to a new basis of stability.

~ "The Editors", commentary in Forbes magazine, September 1st, 1930