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Random Thoughts
Keystone Cops,
Collapsing Nations & Caveat Emptor
by
Gaurang Bhatt, MD
The rule of law is what separates a civil society from the jungle, where
might is right. Darwin�s theory of descent with modification (evolution)
was philosophically paraphrased as survival of the fittest by Herbert
Spencer. Despite poetic support from Tennyson�s verse of �nature red in
tooth and claw�, it was this concept of amorality, further amplified by
Nietzsche (god is dead and ubermensch is born), which raised the
ire of the Victorians and still continues to bother America, leading to
rejection of evolution and promotion of the stupid ideas of creationism
or its masquerading twin, intelligent design. Human history often begins
with the lawgiver or controller.
The
etymological derivation of the Hindu God of death �Yama� comes from its
literal meaning � curb, suppress, control. From this root are derived
the compound words �Niyama� and �Samyama� meaning law and self-control.
The human neo-cortex which accounts for our ruling the earth has more
inhibitory impulse connections than excitatory ones. For Hindus, Manu is
the lawgiver. The Sanskrit Manu shares origins with the English word man
and hence manual and mano of Italian. For the Jews, Moses is the
lawgiver. It is the primacy of law that makes Hammurabi�s code, Magna
Carta and the �Thingvellir�, history.
By accepting the law, society essentially cedes the monopoly of violent
force to the state. The legislators maybe elected, selected, dynastic or
usurpers. The first set maybe the best, but even they are not innocent
of the abuse of power. The very word tyrant is derived from the history
of Greece. In Lydia, the burdensome rule of nobles was overthrown by a
usurper using force. He also used brute force to perpetuate his rule and
such kings were named tyrants to distinguish them from hereditary
monarchs. Again history is replete with rules of tyrants overthrown by
heros or demigods in myth (Hiranyakashyapa by Nrusinha, Polydectes by
Perseus) or reality (British Civil War, French Revolution, Russian
Revolution, Iranian Revolution). In so-called elected governments, the
law is improperly or not administered and warlords usurp power to form
their smaller fiefdoms within the nation state. Such hiatuses occurred
in Egypt between the Old and Middle Kingdoms and the Middle and New
Kingdoms. Chinese history has periods of disorder, fragmentation of the
state and warlord rule. In modern times the drug lords of Colombia,
Mexico and Afghanistan are perfect examples. These are the results of a
dysfunctional government.
In previous articles I have criticized the SEC, Greenspan etc., my
present concern in this article is with legislators and executive
branch. Far from being vigilant and doing due diligence, they have
tipped the balance in favor of special interests for bribes or their
euphemistic equivalent, campaign contributions. In India every member of
parliament is given millions of rupees every year from the national
treasury to spend in the member�s constituency without adequate
supervision. Indian ministers and high officials often make important
decisions favoring specific industrialists in textiles,
telecommunications and other sectors and garner cash and other favors.
In America,
the congress allowed Fannie Mae and Freddie Mac to take on foolish risks
while emasculating regulators, because of campaign contributions. The
result is nearly 500 billion dollars loss to the taxpayer. Rescuing AIG
and its Goldman Sachs connected credit default swaps cost us 200 billion
dollars. 750 billion dollars was given to banks and wasted on toxic
assets. Geithner and Bernanke have come up with a plan to give
non-recourse loans to private equity firms to buy toxic assets from
banks. Hedge funds put up six dollars, TALF puts up six dollars and the
FDIC guarantees the rest to make it hundred. If the asset appreciates
and there is a profit, the private equity firm keeps 50% of the profit.
If the asset becomes worth zero, the private equity firm loses only six
dollars and we the taxpayer lose 94 dollars. This is a giveaway to the
congress and president�s potential campaign contributors who will
finance their next campaign.
Similar deals are done in the defense budget. According to Winslow
Wheeler, a former Pentagon and defense expense auditor, the F-22 Raptor
costs 250 to 350 million dollars a piece. It is supposed to be a stealth
aircraft but becomes detectable to enemy planes, as soon as it switches
on its radar, which it must do for combat. It is supposed to shoot down
enemy aircraft beyond visual range. If one cannot see the other
aircraft, how does one know if it is a friendly or enemy aircraft. It is
supposed to do that by identifying a signal that all friendly aircraft
are supposed to emit. The problem is that the emission of the signal by
the other aircraft and its certain identification by the Raptor have not
been adequately perfected. This makes its beyond visual range combat
effectiveness zero. Ditto for its stealth capabilities. It was meant to
counter fifth generation Soviet aircraft. Now it has none to counter and
it is so expensive to use and maintain that it has not even been used in
the Iraq and Afghanistan wars. Its high cost has allowed the nation to
buy less than 200 planes when nearly a thousand are needed. Defense
contractors spread their plants far and wide in many congressional
districts and use that in addition to campaign contributions, as a lever
to lobby the congress to give them cost plus contracts with huge
overruns.
The latest shameful behavior is the politicians twisting the arm of a
regulatory body, the Financial and Accounting Standards Board to
partially rescind the mark to market rule for toxic securities held by
financial institutions. The banks and insurance companies can now take
their thinly or not traded toxic securities of dubious value currently
choking their balance sheets and hidden under level3 assets and claim
them to be worth the same as their face value. They will be able to do
this retroactively to the March 31st quarter even though the rescinding
was in April. They will be able to report bogus profits for the first
quarter and the big boys will inflate their stock prices and lure in the
gullible public to recapitalize their balance sheets by a secondary
share offering which will tank after the underwriters have unloaded
their inventory at obscene profits.
A similar
tragedy occurred when Brookesley Born in charge of the CFTC was denied
regulation of the OTC derivative market which has landed us in the
current mess from credit default swaps. Obama�s reneging on his promise
to withdraw from Iraq and sinking deeper into the Afghanistan quagmire,
his refusal to have a single payer national health insurance, congress
exempting itself from social security contributions are all despicable
examples of subverting the rule of law or carving out selective
exemptions for the rich and powerful. These are just as damaging as
warlords, drug dealers and tyrants.
In other
countries like India, Pakistan, Afghanistan, China and the third world,
corruption of the police and petty government officials leads to anger,
hostility and black markets. Afghanistan cannot be saved because of this
burning of the candle at both ends. Eventually these lead to a collapse
of civil society. America has not reached that stage as yet, but if the
economy continues to deteriorate, unemployment worsens, we may be on
that path.
In the
meantime my age old warning is Caveat Emptor or buyer beware of this
market bazaar, guarded by the Keystone Cops including the SEC, CFTC,
FASB, Treasury, Federal Reserve, Congress and the President.
April 5,
2009
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