The Washington Cesspool

September 29, 2011 08:57

Self-interest of the political class triumphs over the good of society. A society then becomes subject to the whims of corrupt and increasingly powerful officials. The rule of man subtly and slowly replaces the rule of law.

From Monty Pelerin’s World

The immorality of the US government should, by now, be apparent to most. Designed to be an independent referee, government is instead an active participant in the game. It has vested interests in outcomes including favorite winners and losers. The deterioration from independent referee to self-interested participant is not unique to the US. It is a natural tendency of government, independent of time, party or place.

“Self-interest” as described by Adam Smith was a concept not limited to markets. Smith’s “invisible hand” had positive aspects that resulted from the natural constraints imposed by markets. Government concentrates power with no opposing constraints other than written documents like laws or constitutions. As final enforcer of these and other laws, governments tend to assume more and more power over time. As written constraints become binding, they are increasingly ignored.

Lord Acton’s described the principle reason why:

Power corrupts; absolute power corrupts absolutely.

“Good men” are not enough to protect citizens from government corruption. “Good men” become “bad men” when endowed with power. Unfortunately, a government that ignores time-honored constraints and codes becomes a law unto itself. Self-interest of the political class triumphs over the good of society. A society then becomes subject to the whims of corrupt and increasingly powerful officials. The rule of man subtly and slowly replaces the rule of law.

Tyler Durden posted an article titled TARPed, RETARPed, And Then DETARPed which reveals the stupidity, corruption and bankruptcy of the banking system. The same stupidity and corruption applies at least as much to the government. Bankruptcy is inevitable for both the financial system and the Federal government. Regarding the role of government oversight, Durden states (all emphasis his):

We are truly shocked that 3 years after Fannie and Freddie were made wards of the state that the government is only NOW discovering the lies involved in this whole process. One wonders where they were in 2004, 2005, 2006…….? From the FHFA filing against Merrill Lynch pg.95

Former Merrill Lynch CEO John Thain accurately described the problem to the FCIC in September 2010:

“when you have a system where you pay someone for originating mortgages simply on volume and nothing happens to them if the credit quality is bad, and nothing happens to them if the borrower is fraudulent on his loan application, and nothing happens to him if the appraisal’s fraudulent, then that’s probably not a very smart system.”

This matter is disgraceful. It is a microcosm of government. It is ineptness and corruption all paid for by the taxpayer. Government intervention of any kind creates bigger problems than the ones intended to solve (cover up). Here is an example of how twisted the financial situation has become:

We use the walk down memory lane to demonstrate, that the same government that begged, lied, and basically broke the law to get Ken Lewis to buy Merrill Lynch, is now suing this entity possibly all the way to bankruptcy court (if one believes that TBTF can actually, you know, fail).

While Bank of America is clearly at fault, Durden believes they are not the real culprit:

Incidentally, if any of the shareholders of BAC wish to trace the ultimate guilty party for the downfall of Bank of America, they should focus their ire not so much on Moynihan, who was merely the planted fall guy, nor so much his predecessor, Ken Lewis, although his purchase of Countrywide is now the single worst M&A transaction in history, but the man who broke every fiduciary law imaginable and then some, and who forced Bank of America to bite off ten times more than it could chew, all while operating under the pretense of prosecutorial immunity on grounds of “saving the world.”

It is time someone finally put an end to this farce on and handed a summons to Hank [Paulson] and his “crony communism” buddies, who ended up bailing out mother Merrill’s multi-millionaire stakeholders and managers, at the expense of hundreds of billions in wiped out Bank of America equity value, and soon to be, deposit impairments, as America’s biggest bank is first taken to edge, and then, beyond.

It is impossible to accurately measure the degree of government corruption. One approximation can be obtained by comparing the current banking mess to the prior S&L crisis. Ken Kappel describes William Black, a bank regulator in the 1990s:

William Black, is a former Federal banking regulator (S&L crisis where he was largely responsible for several thousand indictments and successful prosecutions of S&L Executives; yes Virginia, in the olden days (1990?s) S&L bank officers actually went to jail for fraud ? really!)

“Several thousand indictments” occurred in the savings and loan crisis which was a mere fraction of the size of today’s banking crisis.  Speaker of the House, 34-year Congressman Jim Wright, resigned after being implicated in the scandal. While some might not be satisfied with the results, the government then reacted and prosecuted wrongdoing. Just twenty years later, the banking crisis dwarfs the S&L matter in every respect. Yet nothing has been done to investigate and prosecute.

Contrast that with the pathetic Anthony Weiner. He was forced to resign over childish, crude behavior. Congress was willing to sacrifice him apparently because they believed that under-educated voters could understand his indiscretions. Mass theft via a corrupt financial system, however is complicated enough that it can be covered up via complex double-talk regarding causes and effects. In the one case (Weiner), taxpayers are not looted but Congress is shown for the fallible nature of their members. In the second, a massive crime has impoverished millions, but can be covered up by economic foo foo dust. Of course the monetary support Congress receives from bankers and other Wall Street types might influence Congress and make their benefactors indispensable and untouchable.

The utter corruption of Congress and government is captured in the actions of the past few years. Stealing trillions from taxpayers to bail out friends is considered appropriate only because it is assumed that it can be camouflaged under fancy economic terms and apocalyptic images. No need for the hoi polloi to waste any time trying to understand this problem. It’s too complicated. They should just trust their wise elected superiors rather than fret over this situation. Just move along and look at something important like ATM fees going up or credit card interest rates rising. Congress will take care of these for you as well.

There has been a massive cover-up of Congress’ role in the financial crisis. There have been no prosecutions of bankers because that would implicate government officials. The taxpayer is raped to protect the banks and their Washington enablers/benefactors. The oversight system is corrupt as are the agencies which are supposed to enforce regulations. Banksters, in partnership with the political class, caused this crisis.

Durden concludes his post:

So to sum up: first the taxpayers were asked to save Freddie and Fannie, then they were asked to save the banks, now when it is politically expedient to do so, the first entity which is still being saved ($200B of taxpayer funded capital injections later) is suing the second saved entity.

All of these charades involve taxpayer funds.

Washington DC has become little more than a corrupt clown house. It is one thing to take money from taxpayers, it is quite another to spend it or allow it to be spent in ways that will harm taxpayers further. The political class has perfected both actions.

“Monty Pelerin” is a pseudonym derived from The Mont Pelerin Society. The man behind the pseudonym retired to Asheville, NC from a corporate and academic background. The corporate background was primarily in the corporate financial field in several CFO positions. The academic background includes AB, MBA and PhD degrees from Duke University, the University of Chicago and Syracuse University in finance and economics. College and graduate level teaching lasted about 10 years.

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