In 'Port-of-Call' - a subsidiary Newsletter (March issue) of Intertel, the top 1% IQ society, I had published an article entitled 'The Tattered Illusions of Knowledge', examining in depth the basis for what are called "toxic assets". I was specifically addressing one Libertarian's claim that there was no such thing and that the term "toxic assets" amounted to a travesty of language.
My original article and the Editor's response can be found here:
The Editor, Kort Patterson, also a hardcore Libertarian, totally missed the boat in his remarks - but never published my reply to his off-base criticisms. I presume because he didn't wish to carry on the debate further. Not wishing to let a good response go to waste, I therefore provide it below in its entirety:
As usual, Editor Kort amuses me with his rejoinder to my recent article (‘The Tattered Illusions of Knowledge’, March) and his claims that I have evinced little demonstration that I know what Libertarianism is about. Well, Kort, I do – but to have put all that into perspective would have required about doubling the article.
But let me stick to the basics here: I regard Libertarianism (after its main progenitor, Ayn Rand) as little more than an economic creed. Roughly the political-economic equivalent to creationism.
Before I go on to Libertarianism proper I want to demolish a few of the Editor’s early claims made to do with regulation, deregulation and “free markets”.
Kort avers (page 7): “there hasn’t been any meaningful deregulation of the American economy in the last half century”
Evidently he conveniently forgets (or perhaps doesn’t know – since we are on the topic of illusions of knowledge) that massive deregulation was ushered in under the Reagan administration, from the Bank Holding Act(1984) to rescinding “Regulation Q” – for which, as G.P. Brockway notes (‘The End of Economic Man’, pp. 156-57) state usury laws were suspended and banks were allowed to sell money market funds. There was also massive relaxation of restrictions on branch banks and – by 1984, “the New Deal reforms were in a shambles”. (Brockway, ibid.)
Brockway further points out (p. 157):
“Competition is by no means a universal good and in the case of banking it is almost a universal disaster. Ordinary businesses compete with each other more at the selling end than at the supply end. The competition at the selling end forces them to exert downward pressure on the prices they pay for supplies. In the case of banking, the shape of competition is significantly different – because its supply (money) is different.”
As Brockway goes on to note, the core competition in banking is for deposits, and this means banks try to out-do each other in interest rates offered. The dealie here is you don’t want the interest rate offered to Joe or Jane Public to be anywhere near the “spread” or interbank rate.
As he observes (ibid.)
“Competition forces banks to pay higher and higher interest rates and to offer more and more expensive services. As their costs of funds increases, so also rates charged borrowers must increase.”
Of course, Kort ignores or forgets the most egregious deregulation of them all, which paved the way for CDS (credit default swaps) to multiply in the first place: the repeal of the Glass –Steagall depression era law that prohibited mixing investment banking with commercial banking.
This leads into Kort’s next charge that the selling and dispensing of these (CDS) derivatives was simple “fraud”. No, it wasn’t – once the Glass-Steagall Act was repealed (unless one interjects the assignment of ‘AAA’ bond ratings as I noted in my article) all such inventions were allowed. The cruel fact and irony of the matter was that Glass-Steagall's revocation ok’d all activities that would be common to an investment bank and that included the creation of novel instruments to enhance yields or returns.
The tragedy is that Glass-Steagall’s repeal enabled the contamination to spread to commercial banking as well. And, as I noted, they are now holding $55 trillion of these toxic assets.
Kort may be further amazed to know that in a number of financial quarters (e.g. The Financial Times, The Economist) clarion calls have been made NOT to outlaw CDS!! If the calls have been made not to outlaw them then clearly they are still valid and legal instruments. You do not demand entities not be outlawed if in fact they are ALREADY outlawed. Hence, their creation cannot be “fraud” and in particular cannot be “willful and intentional fraud”. (Though I do agree that the bond rating of the SIVs or structured investment vehicles – by insurance companies like AIG, most likely was!)
To reinforce this, I refer the Editor to John Dizard’s column on ‘Wealth’ in The Financial Times of Dec. 30 (page 6). Dizard observes:
“Just because we have had a global financial crash caused by a credit meltdown, accelerated by the workings of credit default swaps and their unholy offspring, doesn’t make it quite fair to condemn a whole risk management program”
Dizard instead argues for more transparent information on bond issuers, and rating agencies. As he puts it, if this is done, along with small “lot trading size” then the demand for CDS as a hedging tool will diminish. Again, the point is the existing CDS are not “fraudulent” as Kort makes them out to be, but their hidden use in SIVs and instruments is, if bond ratings do not reflect the risk.
Let’s try to understand what is happening here: the dismantling of a Depression-era law (based on the then experience of investment banks – especially in offering certain vehicles then, known as "investment trusts”) prohibited mixing investment banking and commercial banking. This is deregulation no matter how one (even a Libertarian believer) chooses to parse it.
With the Glass-Steagall regulation gone the way of the dodo, there was nothing to hold back the flood, a point reaffirmed in the FORTUNE article I cited (‘The $55 TRILLION Question', October).
Kort in another paragraph displays a gross misunderstanding of the issue and perhaps this is my fault for not making myself clearer, or expatiating at more length, in my article. He asserts the victims “did not know what they were buying”. But my point was they didn’t know what they were buying because the derivatives were buried (concealed) in the legal instruments or CDOs. (collateralized debt obligations) comprising the quite legit bond funds purchased.(For the gory details on this I recommend Kort and others interested get hold of The Financial Times from Monday, December 17, 2008, wherein they will find – on page 8- the Analysis, ‘Out of the Shadows: How Banking’s Hidden System Broke Down’)
In the same way, I am 100% certain that neither Kort nor any of his Libertarian friends know the extent to which they own untold $$$$ of derivatives (all unregulated by the SEC) in the mutual funds they currently have! These derivatives are so obscure that not even the highest ranking financial advisors are able to fully explain where and how they are integrated into a typical fund or its components. Does this lack of knowledge make Kort cease to purchase mutual funds? I doubt it. Does their lack of SEC regulation and transparency make him scream “Fraud!”? I doubt that too. Since like most other Americans’ he has been conditioned to believe that only by owning equities (usually via mutuals) will he be able to afford retirement. Never mind how the equities as mutual funds are constructed. We don’t wanna know ‘bout that!
As Kort so aptly puts it:
“Hardly a free market of VOLUNTARY transactions based on real value and accountability”
And, of course, inhering in this insight is the core defect of all Libertarianism: that in order to really work to any effect it requires 100% transparency in all transactions and markets. Something that is totally and ultimately a fantasy. It can never happen, nor would ever happen – even if the country were now being run by Ron Paul as President and Jacob Sullum as Veep instead of Obama-Biden whom Kort casts as “authoritarians” – one of the most astounding pieces of hyperbolic aspersion ever rendered. (He also lamely tries to disparage FDR as being the culprit who “prolonged” the Great Depression, totally oblivious to the fact that the Fed’s then deflationary interest rate policy was at the crux. I refer him to Chris Farrell’s excellent monograph: ‘Deflation’, page 103, the Chapter, ‘The Great Depression’)
Another beef I have is this notion, permeating Kort’s remarks, that a “free market” exists. It does not. More Libertarian delusions. What we have is a coercive market. In this sort of perverse artifact, corporations create demand via the gimmick of mass market advertising. They can also create artificial shortages and hence, spike higher costs (say for oil) whenever they want. Having worked in an oil company once, in the late 60s, I can first hand vouch for that. I used to hear the laughter of the honchos echoing from their 7th floor offices as I made my rounds as a geologist’s assistant.
William Wolman and Anne Colamosca in their book: The Judas Economy: The Triumph of Capital and the Betrayal of Work, Addison-Wesley, 1997, detail the coercive market in labor and the horrific costs it has imposed. Chief culprit is the usurpation of the productive economy’ by the speculative one on Wall Street. From the era of “Chainsaw” Al Dunlap companies have had to tow the Street’s line and that usually means cutting workforce to the bone to increase share value. Never mind the poor slobs laid off, in the Libertarians’ dream world they can land on their feet if resourceful enough.
Exhibit A: the de-regulation of the energy industry ca. 1997 and later. Hyped as the greatest benefit of the “free market” ever for the small, residential consumers, since now - for once - the great market would determine cost, and not "greedy local utility companies." But no one could have foreseen or predicted how the likes of Enron would manipulate the energy markets - by shutting down access, energy in one state - and re-selling it in other states at robbery rates. This energy manipulation cost the state of CA more than $4 billion over 2000-001 alone. Not to mention untold customer misery, even as Enron shylocks were caught on tape laughing about how many 'grannies' they managed to get thrown out of their homes'.So much for your great “free” markets.
Kort’s most glaring and egregious misstep is saved for later when he insists:
“the citizens of the Weimar Republic failed to understand that their crisis was the result of government inflicted corruption of the free market”.
He compounds that with an earlier canard that “the Weimar Republic suffered from aggressive interference in its economy by a socialist popular government”
The truer story, as noted by Ian Kershaw in his magnificent account of Hitler’s rise to power (‘Hitler Nemesis’) is that Weimar constituted a weak democracy which had little or no control over the most radical Rightists, especially Hitler’s NSDAP party. They would regularly beat Marxists, socialist, any leftists on the streets while holding up signs that read: “Tot dem Marxem” (Death to Marxists)
With no strong government (a kind of Libertarian ideal, no?) Weimar was hit from pillar to post by the polarizing forces unleashed between Left and Right, after World War I. As Kershaw puts it, a “political culture of violence” had taken root. A political law of the jungle dominated, since inevitably the biggest, baddest and strongest were the ones who wielded power. Who were these bullies? Not any “Socialists” (more often then not the victims along with Jews) but the NDSAP party of Hitler and crew. 
Kershaw (p. 328, ‘Hitler Hubris’ – the first volume of his Hitler history) notes that the Nazi leaders didn’t immediately recognize the significance of the stock market crash in the U.S. in 1929. The newspaper, Volkischer Beobachter, did not even mention Black Friday, according to Kershaw. (ibid.)
This didn’t halt the financial carnage, since before long the reverberations struck - given Germany’s dependence on American short term loans. Within weeks, as Kershaw points out, “industrial output, prices and wages began the steep drop that would reach its calamitous low point in 1932.” Coincidentally, it was on July 31, 1932 Hitler and the Nazis achieved their highest ever vote totals in the Reichstag, 13,745,800 votes or 37.4 percent.
A result of Socialist “meddling” in free markets? Hardly. Rather an inevitable result based on a canny understanding of Weimar’s inherent political instability and the exploitation of brute force and propaganda to gain total power and intimidate the actual government. (Another reason why as an unabashed “statist” I advocate powerful central power- with the instant ability to take down bullies in whatever form they may appear) Hitler nonetheless kowtowed to the capitalists and industrialists to finally gain the measure of support he needed to finally attain the Chancellorship (with the unwitting help of Paul von Hindenburg)
How happy were the capitalists and German industrialists? Kershaw again (‘Hitler Nemesis’, p. xxxiii):
“Leaders of big business, though often harboring private concerns about current difficulties and looming future problems for the economy, for their part were grateful to Hitler for the destruction of the left-wing parties and trade unions. They were again ‘masters in the house’ in their dealings with their work force”
Well, looks like a Libertarian capitalist’s wet dream to me! And how exactly did the assorted industries of high capital fare under der Fuhrer? Well, boffo times were afoot except for one little segment. Now, let us hear from Clive Ponting (‘Armageddon: The Reality Behind the Distortions, Myths, Lies and Illusions of World War II', p. 333):
“The only major purge was in the newspaper industry “
Of course, this is the industry charged with reporting the truth to the people. I don’t think it needs to be added that the journalists were also among the first to be dispatched to the concentration camps!
Let’s now move on to Libertarianism itself. Truth is there are so many assorted Libertarian voices of the past and present, one never knows who speaks for most current day followers. One can perhaps look at Ayn Rand, in her treatise ‘The Virtue of Selfishness’, but I’ve had freethinkers Libertarians at cocktail parties tell me in no certain terms I should not use her as the standard for their credos. Rand herself once insisted she was “not a Libertarian”. So who else?
Well, how about Charles Murray writes in What it means to be a Libertarian (p. 6):
“It is wrong for me to use force against you, because it violates your right to control of your person....I may have the purest motive in the world. I may even have the best idea in the world. But even these give me no right to make you do something just because I think it's a good idea. This truth translates into the first libertarian principle of governance: In a free society individuals may not initiate the use of force against any other individual or group”
Of course, this is also undoubtedly where the pet Libertarian canard that “taxes = theft’ comes from. But look at it objectively (not to be confused with ‘Objectivism’) this is arrant twaddle and illogical to boot.
I mean “libertarian principle of governance”! This is an oxymoron! Governance presumes and demands the non-passive act of governing, which means someone is actively setting standards of expected action, and also providing the means to uphold them. Else, what’s the point? It’s all an exercise in mental masturbation. In other words, unless someone (coercively) enforces governance, it will be meaningless. Now, maybe there IS a docile libertarian principle of “governing suggestion”- but this in no way is the same as “governance”!
Anti-statism is a central tenet of libertarianism, but it rests on no foundations, other than the so-called libertarian principles babbled by Murray and others. For example, Frank Chodorov, quoted by David Boaz of CATO Inst. in ‘Libertarianism: A Primer’, goes so far as to write:
“Society is a collective concept and nothing else; it is a convenience for designating a number of people... The concept of Society as a metaphysical concept falls flat when we observe that Society disappears when the component parts disperse”
Boaz himself joins in on what the “individual” means:
“For libertarians, the basic unit of social analysis is the individual.... Individuals are, in all cases, the source and foundation of creativity, activity, and society. Only individuals can think, love, pursue projects, act. Groups don’t have plans or intentions”
But, as Prof. Ernest Partridge puts it in his blog piece on ‘Liberals and Libertarians’ cited in my earlier article:
“Now consider the implications of this denial of the "independent existence" of "the public" and "society." If there is no "public," then there are no "public goods" and there is no "public interest." If there is no "society," then there is no "social harm," or "social injustice" or "social (and public) responsibility." It then follows that government has no role in mitigating "social injustice" or promoting "the public interest," since these terms are fundamentally meaningless. Poverty and racial discrimination, for example, are individual problems requiring individual solutions”.
I can assure Kort and his brethren that if Boaz’ concept held sway and government force was not used in Alabama in Sept. 1963 (JFK nationalizing the Alabama National Guard to enforce school integration) we would still be a segregated nation, with blacks sitting in the back of the bus, ‘colored’ water coolers and restrooms, and the rest. Only someone totally divorced from reality would claim individual African-Americans could have obtained their civil rights with mere individual effort and no government input.
Meanwhile, The Libertarian Party Principles state:
“We hold that all individuals have the right to exercise sole dominion over their own lives, and have the right to live in whatever manner they choose, so long as they do not forcibly interfere with the equal right of others to live in whatever manner they choose.”
Again, more inherently contradictory twaddle and piffle. Interference with the lives of others is permitted, so long as it’s not “forcible interference”. Anti-coercion libertarians do not simply oppose coercion they also claim to legitimately define it. Their definition excludes much that others would see as coercion. To me, the TABOR law in Colorado, because it continuously and aggressively scales back tax support for the public domain (based on the past year’s population and growth) is coercion and very vicious besides. Right now, thousands of disabled people across the state stand to lose their services thanks to TABOR and controls like it. All with the best intentions of course, that we not “take by force” those hard-earned gains of the filthy rich bastards ensconced in one of several of their 45.000 square foot mansions in Aspen!
As one critic has put it (to do with Libertarians’ convoluted principles):
“Libertarians make exceptions for defense of property and prosecution of fraud, and call them ‘retaliatory force’ But retaliation can be the initiation of force: I don't need force to commit theft or fraud. This is a bit of rhetorical sleight of hand that libbies like to play so that they can pretend they are different from government”.
Libertarianism clearly posits initiation of force for what it identifies as its minions interests and calls it righteous retaliation, and uses the big lie technique to define everything else as “evil initiation of force". (As they would certainly call JFK’s nationalization of the AL guard in ’63 to force school integration) They support the initial force that has already taken place in the formation of the system of property (e.g. the seizure of Native American lands and violation of umpteen treaties), and wish to continue to use force to perpetuate it and make it more rigid. It is this inchoate ethics that translates into the system’s weakness and exposes Libertarians as true hypocrites – just maybe a slight cut under the fundagelicals.
The long and short of it is every belief system has its evangelistic “scriptures”, designed to help proselytize the unwashed masses to their cause. The Campus Crusade for Christ uses Josh McDowell’s ‘Evidence That Demands A Verdict’, Scientology uses Ron Hubbard’s ‘Dianetics’, and Libertarians use ‘Libertarianism in One Lesson"’ (I am also cracking up just writing the words)
In the absence of counterargument all these tracts are semi-convincing. However, they can all be easily rebutted because of their weak, exposed flanks: the many exceptions that must be omitted in order for their so-called principles and dogmas to be convincing.
I warrant Libertarianism and its fanciful world of minimal force might work, in a fantasy world-universe where all citizens are equally educated and have equal access to facts and information, and equal opportunities to advance their social-economic station. But that is emphatically not the world we inhabit, whether Kort concedes it or not. This is why Libertarianism will remain the province of the very few, though it is disturbing to behold all the inroads it’s made into the high IQ societies like Mensa and Intertel lately. To read some of the letters or articles is almost like witnessing a collective mind-virus unleashed, and by people whose “bible” is ‘Atlas Shrugged’.
Thankfully there are still many of us who don’t buy this bunkum, no matter who tries to peddle it. Call us proud “statists” if you will, but we will continue to advocate expanding government so that it serves all citizens – not merely the corporations, the rich, and not so rich, or any who can afford the luxury of Libertarian codswallop.
Finally, to anyone out there whose mind hasn’t been infected by the Libertarian mind virus, I commend Paul Kurtz’s excellent Editorial (‘Overcoming the Global Economic Tsunami’) in the February-March issue of ‘Free Inquiry’ magazine, page 4. Kurtz has it exactly right in his proposals, especially when he avers:
“Effective regulation must be reintroduced to protect the public interest”.
 It is a somewhat tragic fact that too many Americans, full of naivete and very little historical or political comprehension, mistakenly believe the “National Socialist Party” (NSDAP) of Hitler were valid Socialists. Nothing could be further from the truth! They were out and out FASCISTS who detested Socialists, as well as their kin, the Marxists. Amazing how language misuse can pervert the careless brain!