Free Markets, Free People
Reports are out that Obama had this to say at a meeting of CEOs of major banks last week in the White House:
As first reported by Politico’s Eamon Javers, and confirmed by ABC News with industry sources, some bankers gave explanations for the industry’s high salaries, such as “competing for talent on an international market.”
But, President Obama cut them off.
“My administration is the only thing between you and the pitchforks,” the president told them.
The gall of that statement is staggering. Imagine the sheriff inciting a crowd against the businesses of a town and then running to the business owners and telling them, “I’m the only thing between you and the pitchforks”.
Obama’s fingerprints are all over those pitchforks.
The siege against capitalism continues unabated. Yesterday, leaders of the 20 largest national economies reached a consensus that they needed to reel in unfettered free markets, which they all agreed was the cause of the world’s economic crisis. The medicine consists of further funding of the IMF (to the tune of an addition $1 Trillion) and an increased regulatory state.
Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose freewheeling activities sparked the crisis. And they vowed renewed support for trade and more help for the globe’s poorest countries.
“The world’s leaders have responded today with an unprecedented set of comprehensive and coordinated actions,” Obama said, in the spotlight on his first overseas trip as president. “Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. . . . Today, we have learned the lessons of history.”
For some reason, the bulk of the reporting on the G-20 conference outcome is limited to describing how wonderful everyone feels about the loose agreements, and how industrious they all were to come to terms with one another. Very little press has been devoted to the actual agreements. The media seem to be under the collective impression that the most important aspect of these meetings is the conduct of the diplomacy. They could not be more wrong:
FINANCIAL market “cowboys” who wreaked havoc on the world economy will be brought undone by the G20 agreement, Prime Minister Kevin Rudd says.
Mr Rudd says the $US1 trillion ($A1.4 trillion) deal agreed on at the G20 summit in London, will benefit “tradies”, young people and small business with real commitments against real timelines.
“Today’s agreement begins to crack down on the sort of cowboys in global financial markets that have brought global markets undone with real impacts for jobs everywhere,” Mr Rudd told reporters at the conclusion of the summit overnight.
The summit has agreed to a restructure of the financial regulatory system, reform of and a trebling of funding for the International Monetary Fund (IMF) to $US750 billion ($A1.08 trillion), an extension until the end of next year of a ban on nations introducing trade protection measures, a curb of excessive executive payouts and agreement to co-ordinate further economic stimulus.
Make no mistake. What the G-20 leaders (as stated by PM Rudd above) are saying to world is that none of this would have happened if they had been in charge. “Financial market cowboys” (meaning US and UK bankers), the faces of capitalism, are entirely to blame for the woes of the world. If only there had been more government involvement, according to this theory, then the financial crisis would have been averted or severely curtailed. Accordingly, the G-20 have decided that the way to fix this mass is to assert greater control over the world economy. The immediate targets of this new world order? Tax havens of course:
Switzerland, Singapore, the Cayman Islands, Monaco, Luxembourg and Hong Kong are among 45 territories blacklisted on Thursday by the Organisation for Economic Co-operation and Development and now threatened with punitive financial retaliation for their banking secrecy.
Among the sanctions being considered by the G20 are the scrapping of tax treaty arrangements, imposing additional taxes on companies that operate in non-compliant countries, and tougher disclosure requirements for individuals and businesses that use shelters.
Illegal tax evasion through offshore shelters has been a long-standing irritation for Gordon Brown, President Barack Obama and French President Nicolas Sarkozy. An estimated $7 trillion of assets are held offshore and, according to pressure group Tax Justice Network, developed countries lose $180bn a year in evaded taxes.
Under the OECD definition, countries will be considered non-compliant if they have less than 12 bi-lateral agreements to exchange tax information with foreign governments on request. “Authorities should have access to the information to effectively crack down on tax evasion,” Andrew Watt, director at law firm Alvarez & Marsal Taxand, said.
Jeffrey Owens, director of the OECD’s centre for tax policy said: “This is the major breakthrough we have been trying to get for 13 years. If you intend to evade tax through offshore bases, you will think hard about it now you know tax authorities can trace you.”
Mr Sarkozy added: “Sixty percent of hedge funds are registered in tax havens. Putting hedge funds under supervision isn’t going to generate jobs in the textile industry. But we have to put behind us the madness of this time of total deregulation.”
The reactions of Owens and Sarkozy are like being annoyingly puzzled at why the whipping boy continues to move, seeking to avoid the lash.
Clearly the aim here is not at fixing anything other than the ability of wealthy nations to collect taxes. Small countries typically designated as “tax havens” tend to have one thing in common: they have no other means of competing in the world market place other than in the area of business taxation. If the economies of these countries were all dependent upon growing and selling corn, then the G-20 actions would be met with a much different response. Instead, companies that wish to minimize their tax burden, so that they may instead fund R&D, expand (create jobs), or re-invest, are treated as outlaws, unworthy of little more than scorn. And the small countries that have been willing to host these companies as a means of boosting their own economies, are labeled pariahs to be sanctioned by the wealthiest nations in the world. The message: “Don’t muscle in on our territory. That’s our tax money and we’re here to collect.”
In addition to punishing tax havens, the G-20 decided that the favorite whipping boys of statists needed to be better restrained so as to prevent their squirming:
Leaders agreed to craft tighter controls over hedge funds and establish more rigorous regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in and spread overseas.
The leaders agreed to set benchmarks for executive pay and make accounting standards more uniform across borders. Most would be drafted by a new Financial Stability Board, where central bankers, regulators and finance ministers from the more than 20 nations represented at the summit will eventually hash out the details.
Credit agencies — whose top-notch ratings of instruments linked to bad U.S. subprime mortgages gave false indications of their relatively safety — would be subjected to new oversight and regulations. But there was no call for a global regulator that could overrule decisions made by individual countries.
While I’m glad to see the ratings agencies (whom have inexplicably been absent from public criticism and ire) taking their turn at the post, everyone should be dismayed at what these sorts of agreements portend. The collective effort to rein in “cowboy capitalism” is little more than a barely disguised effort to place the European bit in the mouth of American (and, to a lesser extent, British) mouth. Business decisions are no longer to be made in the interests of the shareholders, but in favor of “public good.” What constitutes the “public good” will be determined by the special interests who exact the most influence upon, and best line the pockets of, the political forces in charge. In short, consumers no longer rule the market place; bureaucrats do.
As with all movements based on collective will, such as that which the G-20 has furthered, an unfettered free market is featured as the main culprit. America is widely considered to be an economic jungle where the capitalist beast roams freely, devouring the innocent and maiming cautious outsiders. Ironically, Leviathan himself has identified capitalism as an unrestrained beast in need of controlling. Yet, we have nothing like an uncontrolled free market here. It only appears that way because the remainder of the world has cloaked their industries in thick blankets of protectionism and shackled their businesses with an alarming array of bureaucratic chains. Comparatively, America does look like a free market jungle.
But therein lies the problem. As the Washington Post stated it:
Along with declarations of optimism came the recognition of at least a temporary shift in attitude away from two decades of intense reliance on free trade, deregulation and market-knows-best policies that fueled stunning growth across the planet.
Brown — the leader of a country closely associated with that philosophy — declared “the Washington Consensus” over, using a term that recognizes the American roots of an economic system seen by many in the world as unfair and unhealthy.
As far from a pure free market as we are, it is our relative distance from the nanny-statism of Europe and beyond that props up the economies of the world. That stunning growth was made possible precisely because of what the rest of the world refers to as “cowboy capitalism” and they were all happy to join in the ride. But now that woe times betide us, thanks primarily to government meddling (e.g. CRA, Fannie Mae, Freddie Mac, Fed policy, etc.), the world is ready to chop down the last pillar of capitalism, and assert government control over everything. With that final support gone, the capitalist beast will be brought to heel, confined to the zoo where it will live its remaining days as little more than a novelty. Unfortunately, it will take its wealth producing powers with it.
A couple of paragraphs from a story about Obama and Russia’s Medvedev which seem pretty telling to me:
Russia’s Dmitry Medvedev hailed Barack Obama as “my new comrade” Thursday after their first face-to-face talks, saying the US president “can listen” — even if little progress was made on substance.
The Russian president contrasted Obama as “totally different” to his predecessor George W. Bush, whom he blamed for the “mistake” of US missile shield plans fiercely opposed by Moscow.
Of course many on the right are making a big, if sarcastic, deal about Medvedev calling Obama “comrade”. To many that seems more than appropriate. However, there’s a lot of diplospeak in this which seems key.
First, although not much of substance was accomplished, note the Medvedev says that unlike Bush, Obama “can listen”. In diplospeak, that means he thinks he can roll Obama, while Bush, not so much.
Note too that it appears that Obama has caved on the missile defense. In his desire to reduce nuclear stockpiles, he’s given up something which our allies such as Poland and the Czech Republic were keen for in order to see warheads dropped from 2,200 to 1,500. That’s a laughably cheap price for Russia to pay to kill the missile defense they opposed so adamantly.
Yup, after a capitulation like that, I’d be clapping Obama on the back and hailing him as my comrade too, if I were Medvedev.
Russia sent a strong warning to the United States Thursday about supporting Georgia in the U.S. ally’s efforts to rebuild its military following last year’s war.
The Foreign Ministry said helping arm Georgia would be “extremely dangerous” and would amount to “nothing but the encouragement of the aggressor.”
Nope, apparently Obama just listened. That’s a comrade any Russian could love.
Yeah, yeah, I know, you’re tired of “budget talk”. Well too bad – this is extremely important stuff. It’s not just about the amount of money, which is monstrous, but the agenda it puts into place:
Congressional Democrats overwhelmingly embraced President Obama’s ambitious and expensive agenda for the nation yesterday, endorsing a $3.5 trillion spending plan that sets the stage for the president to pursue his most far-reaching priorities.
Voting along party lines, the House and Senate approved budget blueprints that would trim Obama’s spending proposals for the fiscal year that begins in October and curtail his plans to cut taxes. The blueprints, however, would permit work to begin on the central goals of Obama’s presidency: an expansion of health-care coverage for the uninsured, more money for college loans and a cap-and-trade system to reduce gases that contribute to global warming.
These are the paving stones for the road to hell and they’ve now been authorized by the Congress. Of course this is just the blueprint. The authorization of the funds will come in separate appropriation bills. And you had better believe Democrats are going to try to use every procedural trick in the book to ease their passage.
Just to leave you with the appropriate chill up your back, I leave you with an example of what is to come:
Sen. Benjamin L. Cardin (D-Md.) called cap-and-trade “the most significant revenue-generating proposal of our time,” and said it would be difficult to pass without reconciliation because Democrats would be forced to accommodate a handful of Republicans as they did in the debate over the president’s stimulus package.
And when it comes to “revenue-generating”, the Democrats want nothing standing in their way, especially a few Republicans. The third wave of liberalism (New Deal, Great Society and now the Raw Deal) is afoot.