I believe Mr. Brooks is also right that the socialist onslaught that is Barack Obama confronts us not only with challenges but also with opportunities. Battle lines, philosophical difference, moral alternatives are being drawn more sharply now than in decades. As Mr. Brooks concludes, “This is an exhilarating time for proponents of freedom and individual opportunity.”
The last several years have brought malaise, in which the “conservative” politicians in power paid little more than lip service to free enterprise. Today, as in the late 1970s, we have an administration, Congress and media-academic complex openly working to change American culture in ways that most mainstream Americans will not like. Like the Carter era, this adversity offers the first opportunity in years for true cultural renewal.
If this seems abstract to you, consider this letter, titled “Unafraid In Greenwich Connecticut,” which was sent to me by a friend and is making the cyber-space rounds. It’s by Clifford S. Asness, Managing and Founding Principal of a fund called AQR Capital Management, LLC, in Greenwich, Conneticut. “The President,” writes Mr. Asness, “has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds.”
He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”
The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a “group letter”, was the superb note from “The Committee of Chrysler Non-TARP Lenders” some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.
I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President’s comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called “Not Afraid Enough” as I am indeed fearful writing this. . . . It’s really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I’m entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally “sacrifice” their money without their permission.
Good stuff, is it not? And Mr. Asness provides some illuminating context:
The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.
Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won’t work because of this irresponsible hectoring.
Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people’s money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.
This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.
I am ready for my “personalized” tax rate now.
Are you ready for yours?
Roger, it may behoove Clifford to reconsider getting in line …literally and figuratively with the present administration.
If he reads the SIGTARP quarterly report from April, he may want to pool $500 million dollars and join the more than 100 applicants for participation in a program that has the following traits:
In announcing the details of PPIP, Treasury has indicated that PPIFs under the Legacy Securities Program could, in turn, use the leveraged PPIF funds (two-thirds of which will likely be taxpayer money ) to purchase legacy MBS through TALF, greatly increasing taxpayer exposure to losses with no corresponding increase of potential profits.
By way of example, a PPIF manager could raise $500 million of
private equity, which would be matched with $500 million of TARP funds, and a loan of an additional $500 million from TARP funds (according to the term sheet, loans will only be given up to 50% of the total equity if investments will be made through TALF rather than 100% otherwise).
The PPIF could then take the total $1.5 billion, bring it to the TALF window, and effectively use that money as the “haircut” amount in a TALF financing to purchase legacy RMBS.
Assuming that the haircut will be 20% (larger than any existing haircut), the PPIF will be able to receive a non-recourse loan from FRBNY for an additional $6 billion, enabling the PPIF to purchase $7.5 billion in legacy RMBS.
The private investors would thus enjoy 50% of the profits from this enhanced buying power, but only be exposed to less than 7% of the total losses if the fund were wiped out.
Aside from potential unfairness to the taxpayer, this leverage upon leverage on legacy RMBS raises other significant issues. First, it only magnifies the dangerous incentives discussed above (the conflicts of interest and collusion issues), because the fund manager now has up to five times the buying power than it would if it participated in the Legacy Securities PPIF alone.
Moreover, it severely undermines the validity of the methodology that the Federal Reserve has used to build the haircut percentages in TALF thus far. The Federal Reserve has told SIGTARP that it has determined its haircut percentage based at least in part on the fact that the
haircut represents a TALF borrower’s “skin in the game” — someone’s own capital at risk — that incentivizes appropriate due diligence on the borrower’s part.
If leveraged PPIFs are permitted to participate in TALF, that effectively lowers the private equity’s skin in the game by at least the amount of money borrowed from TARP, materially diminishing the incentive to do due diligence. Put in simpler terms, an
investor who is funding 100% of the haircut amount with his own money (as is typical in TALF) can logically be expected to be far more careful than one only putting up 33% (as would occur under this example).
Many aspects of PPIP could make it inherently vulnerable to fraud, waste, and abuse. First, PPIP deals with assets that have recently been illiquid, making valuation difficult, therefore raising the danger that the Government will overpay for the assets. Second, many of the participants in these markets, such as hedge funds, are substantially unregulated and the internal oversight and compliance capability at those institutions vary widely.
Next, the interrelationships between the market participants can be extremely complex and difficult to anticipate: the same entity might buy and sell toxic assets for its own benefit and manage portfolios of toxic assets for others, all while holding or managing equity or debt securities of the banks and other institutions that have large positions in the same toxic assets.
Finally, the sheer size of the program — up to a trillion dollars for the PPIFs and up to another trillion dollars for the expansion of TALF — is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives.
As an extremely simplified example from the Legacy Securities Program, assume that the fund manager of the PPIF owns 1 million bonds of MBS X in its own account. MBS X is currently valued on the fund manager’s books at 20% of its original value, or $20 per bond, for a total of $20 million. The fund manager does an estimate and believes that, in a fully functioning market, MBS X is actually worth 30% of face value, or $30 per bond.
In the absence of a conflict of interest, the fund manager, using PPIF funds, might be willing to pay up to $30 per bond in the market. However, the fund manager realizes that it can make more money for itself if it drives the price even higher. It thus uses the funds it controls in the PPIF to buy 1 million MBS X bonds from someone else at $40 per bond, or $40 million. This transaction has the potential, in the current illiquid market, of setting the market price for that MBS X at $40, even though that price is far above what the MBS is actually worth.
As a result, the fund manager could sell the MBS on its own books and recognize a profit of $20 million. Over time, however, the price of MBS X declines to its actual value, $30 per bond, and results in a $10 million loss to the PPIF fund. This loss has no negative impact to the fund manager, however, because it did not have any of its own money invested in the fund. Indeed, the fund manager has made money on the PPIF, because it has received fees from both Treasury and the private investors based only on the total size of the PPIF. In other words, the conflict results in an enormous profit for the fund manager at the expense of the taxpayer.
http://www.sigtarp.gov/reports/congress/2009/April2009_Quarterly_Report_to_Congress.pdf
A more significant moral issue is relevent here. At this time in history, we are no longer a people who have a government. Now, the government has a people. People afraid to speak their minds about the issues for fear of retribution by the president is an outrage, but the vainglorious bastards populating the Washington-NY media-obamaworship-congressional entitlement complex, who couldn’t find their behinds with both their hands, a map, flashlight and GPS coordinates, are too caught up in their own myths to sound the alarm.
Could it be they are afraid as well?
and a sense that the government is too willing to prop up those who engaged in corporate malfeasance and mortgage fraud.
The mortgage fraud is the direct result of the CRA and the malfeasance of Fannie and Freddie with their “mortgage-backed securities”. Without those foundations, the whole subprime disaster could not have begun nor metastasized nor crashed – leaving the country in the hands of the Democrats. Which, incidentally, is the party whose efforts created the foundations of the subprime disaster noted above, and whose politicians at Fannie and Freddie engorged themselves with obscene salaries and bonuses for a decade, while fighting off all Republican attempts to regulate some stability before the oncoming crash.
The Tea Parties are not directed particularly at this particular facet of economic chicanery, largely because the MSM has so coyly glossed over the facts while misdirecting public outrage. But there’s plenty of malfeasance to go around, and the ‘productive classes’ are waking up despite MSM fawning over our new economic fascist government. So come one and all, extend your pinkie (um, my first thought was another finger) and come enjoy a dozen or so nice Tea Parties.
“Advocates of free enterprise must learn from the growing grass-roots protests, and make the moral case for freedom and entrepreneurship. They have to declare that it is a moral issue to confiscate more income from the minority simply because the government can.”
..and make the parasitic class see itself for what it is. THAT’s going to be a tough sell.
I am reminded of the 1972 American Independent party platform:
“Those who work ought to be able to live better than those who won’t!”
Every day President “Jack-in-the-Box” makes my head reel with some new idiotic plan of his.
Barack Obama is most certainly not the “new FDR.” The “new Hoover” may be a much more apt description of the man I already call “The Accidental President.”
New Hoover? New FDR? Carter on steroids? Whatever sound bite you choose, it is still amazing that we elected a President who is anti-free-market, anti-business, AND (most amazingly) anti-American.
I have begun to wonder this: maybe we are barking up the wrong tree worrying about Socialism. Socialism is a demonstrably weak, ineffective economic system. The only thing keeping it alive is the dream of the “free lunch”. Yes, it’s free but it comes with a cost.
What we may be seeing is a different kind of economic shift than that, a move to an Americanized version of Crony Capitalism. And what is Crony Capitalism but corruption by another name. Government officials protect favored businesses. They jigger tax laws, steer contracts and public money into the right accounts, and everybody on the A-list makes bushels of money.
If you are inclined to believe that hanky-panky has always gone on, you’re right. But not on the scale that is coming. Not even close. If you want a preview take a look at how things are done in Barack Obama’s home town, Chicago.
Those Americans who believe the country could stand a little Socialism are dreaming.
For the moment, Obama seems to be surfing a populist wave, of a kind not unprecedented in history, using strong arm tactics which also have been seen before.
Can the USA become a banana republic? If we don’t react , it will. Okay, so you are going to be labelled as “reactionaries”, right? That has happened before, too.
Paul Revere was not warning the early Americans about the arrival of the Bolsheviks, but if he was here today, I think he would. The individual energies behind the growing momentum of today’s tea party movement shows that he has been heard again.
Walter Williams said essentiallythat several years ago, and I think he was quoting someone else. That’s the rock bottom line. If freedom isn’t righteous in its own right, it’s headed for the scrap heap of history.
For the left, freedom is a tool; every time they argue for freedom, it’s in a context that has something to do with sex. When it comes to what matters, freedom is disposable.
The Soviets could screw themselves silly. I guess that means that they were free people, since none of the other freedoms matter.
Culture War? Dude, they are just stealing, with both hands, anything that isn’t nailed down, and quite a bit that is.
Mr. Brooks is right, the crisis we face is a moral one: self-sacrifice vs. rational selfishness.
Or, Judeo-Christianity and/or secular statism vs. capitalism.
Which morality does religious conservative (a redundancy, I know) Mr. Brooks favor?
Bravo! Bravo! If only there were a few more brave voices like Mr. Asness.
Well said. Von Mises successfully characterized the psychology of these socialists in ” The Anti-Capitalist Mentality”; a magnificent read, especially in these times.
I was reading the forward to the book “Brave New World” yesterday and was struck by Huxley’s insights. Many good observations made even more interesting by the fact they were written in the post WWII era, around 1945-1952….the same time as another great book on totalitarianism “1984.” From many good quotes (from the forward):
“The most important Manhattan Projects of the future will be vast government-sponsored inquiries into what the politicians and the participating scientists will call ‘the problem of happiness’ – in other words, the problem of making people love their servitude. Without economic security, the love of servitude cannot possibly come into existence…”
Here’s another (apologies for the lengthy ramble):
“A really efficient totalitarian state would be one in which the all-powerful executive of political bosses and their army of managers control a population of slaves who do not have to be coerced, because they love their servitude. To make them love it is the task assigned, in present-day totalitarian states, to ministries of propaganda, newspaper editors and schoolteachers…”
Greetings:
It’s time for conservatives to get themselves a copy of F.A. Hayek’s “The Road to Serfdom” and give it a couple of good reads.
Ditto Fat Man. Effendi Baraka Hussein O. is in it for the loot. Getting paid is what he is about.
Now what are we going to do about it? We are not going to recover by stabbing one another on the back, not by plotting to read one another out of the movement.
We had a winning coalition and we can do it again, but it is going to take a gung ho–pulling together–effort. The way to build and maintain a winning coaition is to practice deference to our coalition partners with respect to each respective sunject of concern.
Some place the lives of the unborn above all else, others cling bitterly to their guns; others pursue economic freedom and an ownership society; still others, a vigorous conception of their country’s place in the world–it goes on and on.
We need to drop the dream of winning without any of our compoents. To be dropped also is the pipe-dream of winning by poaching the other side’s players. Peace-creeps, affirmative action parasites, gun-grabbers, Aztlan revanchists and yes, perverts, cannot be bought at any price we could possibly pay.
The only thing to be accomplished by pretending to try would be to demoralize our own people which would result in a right-schism and the end of our only chance.
Remember all those silly people saying ‘You are trying to impose your morality on me.’ Well, yes, I am.
I’m not going to try to impose godliness, but certain basic moral precepts have to be accepted by the vast majority of the population.
Thou shalt not covet. Thou shalt not steal. Thou shalt not bear false witness.
And, Thou shalt not murder (abortion).
Also, Thou shalt not have any other gods before Me.
Its time and past time for the ‘Business is God’ people to realize that their primitive morality is not the whole Book. Its only a part of the Truth. And without the other parts, eventually the businessman will go down to defeat as well.
Its past time to stop trying to bargain with the Devil. “I want to be wicked, except in business where I wish an honest system.” The Devil will swear this contract with you, but he doesn’t deliver. See the Governator. Nice liberal social values, but he was going to be a good fiscal conservative. Didn’t happen.
If you find someone in Congress who’s hard core in defense of capitalism, you almost always find a social conservative.
And yet, people keep trying to repeal the Law of Gravity.
The government found a way to spend as much as it wanted, by guaranteeing the debts of the off-budget government agencies (GSEs) Fannie Mae and Freddie Mac. The GSE’s also provided highly paid, prestigious positions for a stream of government elite.
The beauty of a guarantee is that it seems to involve no money, and need not be budgeted by the government. Eventually, there is a sudden need to pay out billions when you find that the guaranteed parties have borrowed at low interest rates and can’t pay anything back. The unexpected disaster was that building too many houses wrecked the market value of housing, to the surprise of left-leaning economists and politicians.
The current bailouts and huge budgets continue to serve the self-interest of politicians and government aligned groups. The government continues to leverage its ability to use guarantees, to borrow what it wants by promising repayment. It couldn’t possibly do this if it had to raise the money immediately through taxes. It won’t be able to raise the full amounts through taxes, even in the future. The result will be high taxes AND inflation.
We Guarantee It
The government is guaranteeing us into poverty. The story of the housing and economic crisis.
It has struck me that this bunch in the WH is a just a gang of thieves, thugs and shakedown artists. They’re the WH Crips. This is what is running this country now. Terrifying.
Clifford Asness embodies the American Dream as we understand it. What Obama perceives as the American Dream is our nightmare. I don’t see this ending well and I mean that in the ugliest fashion you can imagine.
From my point of view, it does not matter at all.