Asset Values vs. Standards of Living #3… The Corruption of Democracy!
Disclaimer:
As always AND before I go on, I’m not offering financial advice; you should always get qualified professional advice when making financial decisions. What I am doing is letting you know what has worked for me and giving you the opportunity to check it out for yourself. This message is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this message as a substitute for specific legal or financial advice. All material is copyright 2008
Please read on with the understanding that I am not agreeing or disagreeing with this article only sharing it with you and you can reach whatever conclusion you want.
However, I know unless people keep raising their awareness and appreciate that things are not what we are lead to believe, then at least you may join the select few who can no longer use ignorance as an excuse…
Below is a summary of Glenns’ recent email sent to myselfl… Enjoy!
Now you might think I have gone off the deep end here, but I believe one of the fundamental causes of the world financial crisis is the corruption of “free enterprise democracy”, especially in the
In the
Lobbyist’s funds, and the votes they influence, corrupt the fundamental political process.
How is this responsible (in part) for the global financial crisis!
The root cause of the global financial crisis was the securitization of subprime debt in the
Let’s look at the political decisions that were relevant.
I shall not go into detail, readers can do there own homework.
1930’s The US Housing Loan Association introduced “red lining”, areas on city maps that were marked in red.
Mortgage lending to those areas if not banned was grossly discouraged. This was apparently a racially based decision.
These areas fell into disrepair over time, some became ghetto’s and attracted the disadvantaged and poor, predominantly black people.
1970’s President Carter decides something must be done about this and introduced the “Community Reinvestment Act” (CRA).
The CRA required every bank to make a certain percentage of loans to the disadvantaged in these areas.
That is lend to persons who could not repay. The banks of course thought this was a particularly dumb idea.
The penalty for banks not making these loans was that they could not open new branches or merge with other banks.
This was not high on the agenda for many banks as after the Great Depression banks were only allowed to operate in one state.
This law was enacted in the 30’s to “protect the financial system as whole”.
1990’s President Clinton’s terms in office begins. He determines that not enough is being done with regard to the CRA.
Orders Fanny May and Freddie Mac to meet targets re CRA lending. Banks complain they can’t lend because the Reserves Rules don’t allow lending to people who can’t pay. The lending rules are changed. The banks still don’t lend.
The law is changed to allow banks to operate in all states; merger frenzy is on the cards. But the banks still had to meet the CRA requirements. Legislation was introduced to permit the “securitisation” of loans.
This meant banks could package up the loans and sell them, and get the bad debt off balance sheet! But some banks could not meet the requirements of making CRA Loans, because they did not have branches through which to make the loans in “poor” areas. So then to meet the CRA requirements the government allowed banks to buy the “securitised” paper that replaced the subprime loans (known as CDO’s credit default obligations). Once the requirements were met then banks could merge and open new branches.
I’m not sure which presidency was responsible for this, but the final straw that broke the camel’s back was legislation that required certain types of funds (certain pension funds etc) to hold a percentage of investments that were rated at certain grade).
Only four ratings agency’s (I think that they are, Moody’s, Standard and Poor’s, Fitches and one other, but I’m not sure) were allowed to rate the debt under the legislation, and no one else.
These ratings agencies were paid by the issuer of the “securities”. So even those funds that preferred ratings agency’s that charged the fund fees, instead of the issuer, were forced to purchase securities rated by the big four.
Off course they found a way to rate subprime loans “AAA”. Some of our own state governments are rated lower than debt issued to persons who could not repay it!
2000’s… Now we get to good old George W. Everything turned to S… while he was at the helm.
To give him some credit though he went congress early in his term, recommending changes to “subprime” (the CRA) but was rebuked on the basis that “he didn’t care about housing for the lower class”.
Again later he went to congress with the concern that Freddie Mac and Fannie Mae were cooking the books and investors were being misled, but was rebuked once again. Financial disaster was locked in.
2008 Obama at the helm. He blames the “Greed of Wall Street” for the crisis.
Although he knows all about the CRA and used it as a tool with banks in
He also blames lack of oversight and regulation as a reason for that greed not being kept in check.
There is no doubt that “Wall Street Greed” was a major factor, and while the above is extremely over simplified it was law that enabled (even guaranteed) that a financial crisis would occur!
In a modern free enterprise society the rule of law with regard to business should focus on the “prevention” of harmful business practices. These are practices that can harm the individual, nation, or even other business.
Where laws are enacted to force business to carry out a political agenda, or where laws create an artificial business environment, ultimately the individual and nation suffers.
Subprime lending is a “prime” example of this, but there are many others.
In this case the world is suffering the consequences, but as is usually the case, those often suffering the most, are those that were specifically intended to benefit from the loans.
In
Both parties have enacted laws over the years that have had major positive impacts upon the country.
For example labour, introduced Medicare, dividend imputation, the floating of the currency and most importantly Superannuation Guarantee, all laws that have been of great benefit to the population.
And had Treasurer Keating had his way Labour would have introduced the GST as well!
On the other hand it is difficult to think of similar legislation introduced by the liberal party (work choices maybe, but the liberals were outspent (advertising) by labour which had more money gratis union contributions.).
But the labour party has an agenda. Goto http://www.alp.org.au/platform/chapter_17.php#17objectives to find the party’s constitution, and objectives. The labour party has an agenda,
1. The Australian Labor Party had its origins in:
· the aspirations of the Australian people for a decent, secure, dignified and constructive way of life;
· the recognition by the trade union movement of the necessity for a political voice to take forward the struggle of the working class against the excesses, injustices and inequalities of capitalism; and
· the commitment by the Australian people to the creation of an independent, free and enlightened
2. The Australian Labor Party is a democratic socialist party and has the objective of the democratic socialisation of industry, production, distribution and exchange, to the extent necessary to eliminate exploitation and other anti-social features in these fields.
The underlying theme that influences labour decisions is the promotion of democratic socialism.
If we look at the Liberal Party constitution (http://www.liberal.org.au/about/documents/constitution.pdf) this is what one will find,
Part II - Objectives
2. The objectives of the Organisation shall be to have an Australian nation:-
(a) dedicated to political liberty and the freedom and dignity of man;
(b) safe from external aggression and living in the closest communion with fellow members of the Commonwealth, playing its part in a world security order which maintains the necessary force to defend peace;
(c) in which national defence is a matter of universal duty, and in which the spirit of patriotism is fostered and all Australians united in the common service of their country;
(d) in which an intelligent, free and liberal Australian democracy shall be maintained by:-
i) a Parliament controlling the Executive and the Law controlling all;
ii) independence of the Judiciary;
iii) freedom of speech, religion and association;
iv) freedom of citizens to choose their own way of living and of life, subject to the rights of others;
v) protecting the people against exploitation;
vi) looking primarily to the encouragement of individual initiative and enterprise as the dynamic force of progress;
vii) developing to the fullest extent a national spirit in
The difference between the two constitutions is apparent (you should read them both). The liberal party’s objectives are in reality little different to those of labour. But the labour constitution has agenda via which they should be achieved.
For example the liberal party’s objective is to “protect people from exploitation” and Labour’s to “eliminate exploitation in the fields of industry, production, distribution, and exchange by the democratic socialization of these fields.”
The nation may be facing tougher economic times than it has for many years. A government that has no ideological agenda, and is not beholding to ideology, or beholding financially to any person, corporation or trade union is in the best position to freely make decisions to help the nation and it’s citizens through possible times of hardship.
Let us be clear here, we are stating best position to make decisions, not necessarily the one that will make the best decisions. Whenever government has attempted to run, industry, production, distribution, and exchange it has invariably eventually failed. There is a global trend for democratic governments to interfere directly with the free enterprise system (instead of simply legislating its control) I for one hope that this interference does not have the same consequences that has usually occurred in the past.
Cheers.
Well I’m Back now…
Remember Live with Passion and Ethics
George Mihos
Disclaimer:
As always AND before I go on, I’m not offering financial advice; you should always get qualified professional advice when making financial decisions. What I am doing is letting you know what has worked for me and giving you the opportunity to check it out for yourself. This message is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this message as a substitute for specific legal or financial advice. All material is copyright 2008
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Hi George
2 years have past since I have attended any of your live seminars but you won’t believe that I am still getting a lot of value out of the video recordings that I got from TNTI.
Thanks a lot.
Satin