Random Thoughts

Keystone Cops, Collapsing Nations & Caveat Emptor

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.


More by :  Gaurang Bhatt, MD

Top | Random Thoughts

Views: 3866      Comments: 0

Name *

Email ID

Comment *
Verification Code*

Can't read? Reload

Please fill the above code for verification.