The View From 1776

Quote:

“We cannot give the appearance of using tax dollars to reward leaders who have done a poor job,” said Obama. “The message is clear. If you take billions from the taxpayers you answer to a new boss—the chief executive. In November, I inherited a failed banking system, a failed auto industry and a failed Congress. Americans demand action. Heads will continue to roll.”

The president said Reid and Pelosi have “overseen an unprecedented spending binge, while some of their major brands have nearly collapsed through mismanagement, malfeasance and plain old stupidity.”

“Their insurance products—Social Security, Medicare and Medicaid—are actually elaborate Ponzi schemes,” he said, “paying early investors with cash from later investors without creating an ongoing insurance fund. Bernie Madoff is behind bars for doing the same thing.”

Obama said at least two other divisions have created “no measurable positive results” and yet continue to consume billions of dollars annually.

“The Energy Department was created in the 1970s to decrease dependence on foreign oil which then accounted for 20 percent of domestic consumption,” the president said. “They spend $25 billion per year, and now 60 percent of our oil is from other nations. Reid and Pelosi continue to pump money into this failed enterprise, and then come to taxpayers with hat in hand for a bailout.”

The president also noted that the Education Department spends about $57 billion per year on public schools that continue to produce substandard, in many cases unmarketable, products.

“Harry and Nancy have failed to adapt their organization to economic reality,” said Obama. “And yet, year after year, they demand increased prices for decreased quality. It’s time for some drastic change.”

Read the whole piece:

David Airth, a reader who frequently posts thought-provoking ripostes to articles appearing on this website, commented in response to AIG Employees’ Side of the Story.

He wrote, in part:

It has always been government that first establishes the favorable circumstances and the common sense in which a healthy economy can and will flourish.

The validity of Mr. Airth’s assertion depends upon how one defines a healthy economy.  If by healthy economy is meant one in which production of useful goods is maximized and individual standards of living rise significantly from generation to generation, then I do not believe one can find any such economy prior to the 17th century.  Certainly not always has Mr. Airth’s assertion been valid.

Mr. Airth also comments:

Today’s politicians don’t want the job of creating a health economy. They just want to reestablish the environment in which ordinary people will themselves recreate a healthy economy...

Were that true, we would not have President Obama’s stimulus plan and his budget, both necessitating a vast growth of government and far-reaching extension of collectivized bureaucratic regulation, funded by the greatest proposed increase of inflationary government deficit financing in world history.

Mr. Airth’s further comment suggests that “favorable circumstances and common sense in which a healthy economy can and will flourish” are the collectivized, bureaucratic rule that is socialism:

I am thinking of Reaganomics, which virtually laid the groundwork for today’s economic crisis, with it supply-side economics. It started the ball rolling towards the excesses that have now hobbled the economy.

The universal political condition prior to the 17th century in England and Holland, was one that gave rise to the view that history revolved in a perpetual cycle, always returning to earlier conditions.  While the Catholic Church succeeded in getting temporal rulers in Western Europe to eliminate the slavery that prevailed during the Roman Empire, slavery was replaced by feudalism.  Feudalism guaranteed that the mass of subjects, the serfs, would remain perpetually bound to their feudally-granted land parcels, generally groaning under the weight of taxes, in the form of produce and labor, at the whim of the local sovereign.

Mr. Airth’s implicit view of government’s socialistic role is nearly indistinguishable from the conditions of medieval serfdom.  That’s why Friedrich Hayek named his well-known and on-target predictions about British socialism The Road to Serfdom.

Collectivistic government of the sort that Democrat/Socialists favor in the United States has always been at the core of socialist doctrine, from its beginning in mid-18th century France: the theory that only intellectual councils have the mental capacity and knowledge to structure an economy that will produce their conception of social justice.  Social justice is defined as equal distribution of income and wealth, evidenced in free access by every citizens to the fruits of the economy’s labor, without regard to whether those individuals have contributed anything to the production of those fruits.

Prior to the French Revolution of 1789, with two notable exceptions, the prevailing political and economic doctrine was that the ruler’s word was law.  The boldest statement thereof was in Thomas Hobbes’s Leviathan, ca. 1651, in rebuttal to the English Civil War and the English Puritans’ execution of Charles I.  In that doctrine, as expressed by Hobbes, without the iron fist of the ruler, society would be chaotic, with life nasty, brutish, and short. 

Socialistic doctrine substitutes socialist intellectual councils for the iron-fisted sovereign, which opens the door to seizure of power by the supreme political counsellor.  Hence the inescapable tendency of socialism is to some degree of tyranny, the extreme examples being the Soviet Union, Hitler’s National Socialism, and Mao’s Red China.

Anyone who does not recognize that President Obama’s budget proposals entail great losses of individual economic and political freedom is blind or self-deluded.

The two notable exceptions to the collectivistic, authoritarian government were Holland, after its 1648 independence from Spanish and Hapsburg rule, and England after the 1689 Glorious Revolution that ousted tyrannical James II and established the principle that even the sovereign is subject to the natural law individual liberties ordained by God.

Thereafter, both nations were increasingly open to individual economic initiative, with a very light hand of government.  In England, that took the form of laissez-faire, free-trade economic policies, which are anathema to our own Democrat/Socialists.

First Holland, then England flourished and attained the highest level of economic well-being for individuals ever experienced in history, as individuals’ private property rights increasingly curtailed the sovereign’s arbitrary power.

Only such conditions qualify as “the favorable circumstances and the common sense in which a healthy economy can and will flourish.”

The following op-ed piece piece from the New York Times presents aspects of the bonus payments that got overrun as the President, Congress, and the public rushed to lynch AIG bonus recipients. 

March 25, 2009
OP-ED CONTRIBUTOR

Dear A.I.G., I Quit!

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter.

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.
This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Sincerely,
Jake DeSantis

The Wall Street Journal, in its March 25th edition, reports:

China has voiced concerns about its dollar-denominated assets in recent weeks as the U.S. government prepares to bring a mountain of new debt to market to finance its economic-recovery plans. The Federal Reserve said last week that it will buy longer-term Treasury securities to keep borrowing costs low, but light demand for government paper could fan interest rates, possibly complicating the U.S. recovery…

Arthur Bass, a bond-futures trader at the brokerage firm Newedge USA in New York, said that he saw Wednesday’s Treasury sell-off as a continued correction from the rally last week after the announcement of the Fed’s plans. He said that Wednesday’s humdrum auction clearly contributes to the declines and that participants should be on the lookout for inflation over the longer haul. But he doesn’t believe that such a trend is imminent quite yet.

“The main issue right now is that there’s just a lot of supply out there,” said Mr. Bass. “The Treasury is selling a lot more than the Fed is buying.”

The weak U.S. auction came after a sale of U.K. government debt Thursday failed, the first failed auction of conventional U.K. government bonds since 1995. Like the U.S., the U.K. is hoping to sell a large quantity of new debt as it looks to stimulate its economy, but there are signs that investors are balking.

The fear is an “inability to control interest rates by governments, which is the next unintended consequence of the huge printing, and is coming earlier than expected,” said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.

Britain’s socialist Prime Minister Gordon Brown is calling for steps toward unified world regulatory control of financial institutions.  Naturally, under the direction of socialist European nations.

The Wall Street Journal reports on the Prime Minister’s speech before the European Parliament:

Europe should take a central role in establishing a new global financial system and work more closely with the U.S., the U.K. Prime Minister Gordon Brown told the European Parliament Tuesday.

“I propose that we as Europe take a central role in replacing what was once called the old Washington consensus with a new and principled economic consensus for our times,” he said in a session held in preparation for the summit of the Group of 20 nations in London April 2.

Mr. Brown has been trying to persuade leaders of the G-20 to back calls by U.S. President Barack Obama for significant new spending measures to try to jump-start the world economy.

“Never in recent years have we had an American leadership so keen to cooperate at all levels with Europe on financial stability, on climate change, on security, on development,” said Mr. Brown.

The model for the Prime Minister’s desiderata is the stultifying EU bureaucracy in Brussels, which seeks to override member nations’ culture and history and homogenize them into obedient satrapies under a collectivized overlordship.

Prime Minister Brown is also, like President Obama, a strong advocate of imposing crippling business taxes and hamstringing regulations to promote “green” programs that will impose Al Gore’s mythology of man-made global warming.

There you have it, folks: when the socialists bring the world’s financial institutions and energy sources under their collectivist councils, they will own the world.

The Constitution created a government that people expected to defend them against foreign aggression and to protect the natural law rights of individuals to life, political liberty, and free exercise of private property rights.  Today, instead of protecting individual rights against mob will, we have a Federal government that follows the mob and presumes the power to force people to conform to the schemes of academic state-planners.

Decades of left-wing judicial activism and, now, Congressional rage enacted in punitive, ex post facto taxation, are inexorably undermining the Constitution’s intent. 

Whatever you may think about the propriety of large bonuses paid to AIG employees, whether you like it or not, the bonuses were paid in accordance with legal contracts executed before AIG received bailout money.  Those individuals had a legal right to the money.  If the company or the Federal government wished to abrogate the contracts, the spirit infusing the Bill of Rights required them to adjudicate the matter in the courts of law.  Among other things, the 14th Amendment declares “...No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” Those are also limitations upon the Federal government, which Madison, Hamilton, and Jay, in the Federalist papers, argued were implicit in the Constitution.

As the Anti-Federalists vigorously asserted in the debate over ratification of the Constitution from 1787 to 1789, the citizens of the United States did not fight a war against the arbitrary tyranny of George III and Parliament only to replace them with a powerful Federal government, which they feared could ride roughshod over the people’s individual rights. 

In the early decades of Constitutional government, as a bulwark against collectivization of power at the Federal level, the states retained and exercised the largest share of powers affecting citizens in their everyday conduct.  In the 20th century, particularly after 1932, the states increasingly were relegated to minor roles as the Federal government usurped more and more tax revenues.  The number of Federal regulatory agencies was expanded exponentially and hundreds of thousands of pages of regulations were added.  Individuals and businesses found themselves ensnared in a web of red tape. 

For a wide-ranging indictment of the mob-spirit tyranny displayed by our current Congress, with the tacit support of the President, read George F. Will’s column in the Washington Post, The Toxic Assets We Elected.

I am indebted to Tom Emerson, who alerted me to Mr. Will’s column.