The New Rules of Government Capitalism

To My Fellow Citizens:

Please be advised that effective immediately (i) the economic system heretofore known as "Capitalism" in the United States of America shall now be known as "Government Capitalism", and (ii) the following rules, to the extent not already in effect, shall be implemented immediately.

1. Any person who purchased a home or other real property without sufficient income to afford the mortgage payments and/or without sufficient documentation of his income, and/or who was advised by a mortgage broker or lender that his mortgage could be refinanced in the future because real estate values always go up in value (and without question accepted such assumption as valid because of greed, stupidity or ignorance), shall be entitled to a modification of his mortgage to the extent necessary to ensure that the owner will not only be able to make the modified loan payments based on a reduced principal amount, but also will be entitled to realize all of the profit generated from a future sale of the property without having to repay the amount of the reduction of the mortgage. The cost of the mortgage reduction shall be absorbed by such person's neighbors and other taxpayers, who have continued to pay their mortgages without government assistance and who only purchased properties they could actually afford based on their incomes.

2. All banks and other financial institutions that failed to properly manage their risk and instead sought to increase their profits by use of excessive leverage that was based on a continued increase in the value of real estate, and whose failure would cause "systemic risk", as arbitrarily defined by the Treasury Department and the Federal Reserve (since no written definition thereof exists, or if it does nobody knows how to apply it except arbitrarily), shall be entitled to billions if not trillions of dollars of government bailouts to create the artifice of solvency. The U.S. Government will increase the deficit by up to or exceeding $2 trillion in the next fiscal year (and trillions more in subsequent fiscal years) by borrowing money from the OPEC nations, China and Japan and other countries that currently maintain massive trade surpluses with the U.S.

3. In addition to U.S. Government borrowings, the Federal Reserve will print money to the extent necessary to fund any shortfall from the aforesaid borrowings. In addition, the Federal Reserve shall continue to loan trillions of dollars to the mismanaged financial institutions to guarantee that they make profits in the future at the expense of the American taxpayers and of retirees and other individuals who prudently saved money ("Risk-Averse Investors") on which they were anticipating a reasonable rate of return to fund their ongoing living expenses without having to deplete their principal balances.

4. Any financial institution that was insolvent based on FASB mark-to-market accounting rules in effect until FASB buckled under political pressure and quickly changed them, and which received U.S. Government and Federal Reserve assistance shall remain in existence. Shareholders whose interests were actually worth nothing and were not entitled to retain an ownership stake in such insolvent institutions without infusion of additional capital from them, will nevertheless continue to own their shares in such institution on a diluted basis. Such dilution shall be as little as possible even though private investors in such institutions received or would receive a much higher percentage ownership of in exchange for the same level government assistance in such institutions, whether in the form of bailouts or continuing policies to funnel money to such institutions by the manipulation of interest rates by the Federal Reserve at the expense of, among others, the Risk-Averse Investors.

5. If a federally-chartered bank is sufficiently large so as to possibly cause said systemic risk, the FDIC will not declare the bank insolvent under any circumstances. The U.S. Government via the Treasury Department, in conjunction with the Federal Reserve and and the FDIC will devise a plan to manipulate the bond market and the stock market to benefit those parties who are the least deserving of assistance.

6. In accordance with Rule 5 above and as alluded to elsewhere above, the U.S. will never wipe out shareholders and become the 100% owner of in an insolvent bank because to do so would require the exercise of honest judgment and transparent economic policies and equal treatment amongst all banks.

7. Any secured lender of an automotive company filing for bankruptcy protection such as Chrysler or General Motors, shall not be entitled to a greater return as a result of its secured position as compared to unsecured lenders or trade unions possessing unsecured claims. In fact, such a secured creditor requesting a greater return on account of its secured interest shall be ostracized by the Federal Government and shall be treated as a scapegoat by an over-reaching Executive Branch.

8. Any automotive company filing for bankruptcy due, in part, to rising health care costs, exorbitant union benefits as compared to non-bankrupt automotive companies and excessive corporate taxes, all of which costs impede the ability of U.S. car manufacturers to compete effectively in the global market, shall be entitled to sell all of their viable assets via a government-sponsored sale, the end result of which will ensure either majority control of the reorganized entity by the U.S. Government or the United Auto Workers or some combination of both.

9. Any government-sponsored bankruptcy sale in an automotive bankruptcy case shall not be required to distribute the proceeds thereof or such other value obtained for the bankrupt's assets pursuant to the the various contracts and agreements of the subject automotive company or the priorities established by the Bankruptcy Code and longstanding legal precedent unless the government, in its sole discretion, decides to abide by the law.

10. Any Risk-Averse Investor or responsible banking institution shall be required to bear the cost of the foregoing policies along with the American taxpayers. No Wall Street executive or other highly-compensated individual of those institutions shall be required to disgorge any bonus payments made with respect to highly speculative transactions which ultimately contributed to the insolvency of those institutions absent government bailouts.

11. In addition to the recent change of the FASB mark-to-market accounting rules that required an institution to write-down the value of real estate to the best estimate of its current market value based on actual real estate transactions occurring in the marketplace, all new accounting rules and regulations by FASB shall permit irresponsible banks to reflect real estate assets on their books based upon a fantasy model of the value of such assets in the future and the assumptions underlying such fantasy valuations shall remain within the sole discretion of such financial institutions that were unable to manage their risk properly in the first place.

12. The term "Generally Accepted Accounting Principles" shall be changed to "Sometimes We Feel Like A Nut And Sometimes We Don't Accepted Accounting Principles. The organization called the Financial Accounting Standards Board or FASB, as referred to above, shall hereafter be referred to as the Insipid Financial Board of Standards or "IF-B.S.".

13. This is just a preliminary list of the rules of new Government Capitalism that will go into effect. Additional rules will be adopted and implemented if and when any of either the U.S. Government, Treasury Department, Federal Reserve or FDIC have a wild hair up their respective posterior.

We welcome suggestions for further changes to the previous system of Capitalism in order to conform more closely with the principles and philosophical foundations of Government Capitalism. We look forward to working with you to develop as many regulations as possible so as to undermine the principles of Capitalism that have led to the unprecedented and unequalled economic success of the U.S. since its formation.

Good luck on surviving the new Government Capitalism without filing for bankruptcy, losing your job or the value of a substantial portion of your net worth due to massive inflation in the coming years,

Uncle Sam

Justice Ginsburg's Stay of Chrysler Sale Defends Rule of Law

The problem with politicians, whether Democrats or Republicans, is that when the law doesn't suit their objectives, they simply disregard it or try to find around the intent and spirit of the law. When the Democrats believed that the Bush Administration had illegally tortured prisoners at Guantanamo, they expressed moral outrage, demanded hearings and requested the Justice Department to investigate for possible criminal wrongdoing. And they were entirely right to do so despite Republican objections and Dick Cheney's recent attempts to finger the Democratic Congressional Leadership as completely aware of interrogation techniques being utilized there. That is the nature of a system where the law is supposed to mean something -- people are called to account for their actions under the law.

But for all the moral outraged expressed by Democrats concerning the Bush Administration's failure to adhere to "the rule of law", that outrage seemed have dissipated when the Obama Administration chose to abrogate contract law and the entire bankruptcy process in the Chrysler Chapter 11 proceedings. In that case, the President Obama and his Democratic cohorts had no problems labeling legitimate secured creditors as holdouts for a Government bailout and unwilling to make sacrifices commensurate with other creditors despite the fact that by contract they has bargained for a senior security interest in Chrysler's assets in exchange for billions of dollars of loans. Based on the comments and heavy-handed actions of the Obama Administration, unsecured bank debt and UAW claims should either be treated equally with the secured lenders (in the case of unsecured bank debt) or receive significantly better treatment in terms of significant stock ownership in the reorganized Chrysler (in the case of UAW debt). Despite the fact that the Bankruptcy Code and substantial legal precedent did not support or justify any of the proposals of the Obama Administration which, blatantly, trample on the priority rights of secured creditors, there has been virtual silence from the Congressional Democrats about adherence to the rule of law. Conversely, the Republican who generally supported Bush Administration interrogation techniques are outraged by the debasement of the law in the Chrysler case.

So what is the takeaway? Is the rule of law important to Democrats and Republicans all of the time or only when it suits their provincial interests. The evidence to date generally suggests the latter. That is what is particularly intriguing about Justice Ginsburg's decision to stay implementation of the Chrysler asset sale, at least for the moment. Justice Ginsburg is unquestionable a liberal member of the Supreme Court and was appointed to it by Bill Clinton, a Democratic president. Therefore, it cannot be argued that her issuance of a stay was politically motivated and simply a means to carry out the Republican agenda. While more details will certainly emerge in the coming days, her action indicates that perhaps further thought should be given to the rule of law as it pertains to the Chrysler case. That is not to suggest how she or the entire court might ultimately decide the question, but is should give pause to the Obama Administration as to the limits of Executive Branch not only with respect to Chrysler but also with respect to the General Motors bankruptcy.

Justice Ginsburg with the stroke of a pen has implicitly if not explicitly stood up for the system of checks and balances set forth in the U.S. Constitution. For the proper role of the courts is to ensure that the rule of law is upheld despite the expediencies of the political process. Moreover, events have been happening so rapidly that a time to reflect on the long-term legal ramifications of trouncing on longstanding legal rights of creditors and other stakeholders just because the politicians prefer to do it their way.

In a way it is startling that the Chrysler case had to end up before the Supreme Court because the lower courts lacked the fortitude to seriously tackle the obvious legal injustices being perpetuated. This is also quite disturbing because it indicates that President Obama, a constitutional lawyer himself, the Justice Department, the Treasury Department and the Democratic Congressional Leadership and the Judiciary Committees in both the House of Representative and the Senate were willing to sacrifice the rule of law to buttress their political objectives regardless of their nobility.

While it will be interesting to see how Justice Ginsburg and the Supreme Court resolve the stay and the pending appeal of the Chrysler sale order, none of us should feel comforted by the abuse of power at Guantanamo or in the Chrysler case. However, we can take some comfort in the fact that we do have a system of checks and balances between the branches of government and Justice Ginsburg apparently recognized that our very freedoms depend on the judiciary remaining independent and not swayed by the prevailing political winds. For in the end, adherence to the rule of law is all that prevents overreaching by the other separate but equal branches of government.

General Motors: The Failure of Government Policy

While the management of General Motors over the past quarter century or more doesn't deserve any awards for stellar performance, I do view the GM bankruptcy filing as just as much, if not more, a failure of patchwork, inconsistent and irreconcilable Government policies during that time span. From the second highest corporate tax rate in the world to the lack of a unified health care system, the Government has time and time again interfered with the ability of GM to remain competitive. While the Government has continually imposed standards on the auto industry to improve mileage and reduce pollution, however well-intended, these policies have never been well thought out. As a consequence, GM, in order to cover its ever-expanding financial and regulatory obligations, was left with little choice but to manufacture a greater proportion of larger vehicles with higher profit-margins to help pay the cost thereof than otherwise would have been necessary with a more enlightened Governmental approach. Stated differently, Government policy caused GM to concentrate its manufacturing operations on a narrow focus of the automobile market as opposed to developing a more complete and well-rounded portfolio of products.

Over the years, the Government has also thwarted efforts to drill for oil offshore or in Alaska due to exaggerated environmental concerns. The result: America became more and more reliant on foreign oil. Meanwhile, the rest of the world continued to exploit their oil resources wherever located, onshore or offshore. So, in effect, this country unilaterally withdrew from the oil exploration business in the most promising areas for development.

What would have happened if the United States had promoted its own oil industry until the transition to alternative energy was possible? One benefit would have been a significant reduction of billions of dollars paid to Saudi Arabia and other OPEC members and a corresponding salutary effect on the U.S. dollar as balance-of-trade deficits would have been significantly lower. Perhaps the original Gulf War, principally fought to preserve the flow of reasonably-priced oil from the Middle East, would not have occurred or at least in a more more limited form. Instead of striving to become energy independent from OPEC and to build up our own oil output through proven reserves, we chose to defend oil fields far away with American lives because environmentalists preferred pristine coastlines to economic independence. The environmentalists bear culpability for relegating our nation's overall national security to their provincial interests.

Of course, we would all prefer as little environmental impact as possible while achieving energy independence, but difficult choices sometimes have to be made. We have now seen what happens when this country is beholden to foreign interests for our energy consumption. We have turned the MIddle East into a bastion of radical Islam by the very fact that we and other Western democracies have funded the oil producers instead of controlling our destiny without them. The billions of dollars dispatched to the Middle East, instead of being used by the OPEC countries to advance their societies economically, educationally and politically, have been used as hush money to covertly fund terrorist groups intent on destroying America to preserve the concentration of power and wealth in despotic regimes. More recently, the wars in Afghanistan and Iraq over the past eight years likely would have been quite different as well. Had we developed our energy resources properly, our involvement in the Middle East would have been significantly lessened and Islamic terrorism and hatred against the U.S. would have had fewer seeds upon which to grow.

In addition to failing to develop our own natural resources, the Government has failed to develop a coherent policy to deal with social security and medicare. Every year, employers face increasing costs as these programs are headed for certain bankruptcy. The demographics simply do not support a system where in the not to distant future only two workers will be effectively supporting one retiree. In the initial stages of social security the ratio was 16:1. That ratio, by definition, had to decline unless U.S. population growth surged beyond any reasonable prognostication of birth rates. Moreover, increases in life expectancy continues to put a further economic strain on funding. But, the failure to adequately address this time bomb even now has certainly imposed great economic strains on businesses, particularly those which manufacture goods and are more subject to international competitive pressures.

I am not advocating a reduction of current retiree benefits, but I am advocating that the system has to be redesigned to maintain its solvency. Already, the retirement age is slowing increasing, but that should have been done years ago. The social security tax is like a quasi-flat tax with one glaring deficiency -- it is only assessed against a portion of an employee's personal service income. There is no reason for this. If social security taxes had been assessed against the entire portion of an earner's income from inception or gradually increased to that level over time, the system would be significantly more financially secure today. It is frankly outrageous that people earning hundreds of thousands, if not millions, of dollars are paying the exact maximum social security taxes of people earning a fraction of their incomes. Moreover, proportionally shifting the social security and medicare tax burden to the people who earn the most is not only logical but fair (to the extent one believes a flat tax is fair). Such a policy could also be structured to cap an employer's contribution per employee regardless of income level.