US taxpayers' kids will pay

First came the effective renationalisation of Fannie Mae and Freddie Mac, both Frankenstein monster creations of the US Federal Government in the first place. Then came the monster loan to AIG, effectively nationalising one of the world’s biggest insurers and now the US Federal Government is taking off the dud loans of banks.

This from the Bush Administration, long hated by the left internationally – it has now grown the size of the US Federal Government beyond recognition, in effect printing more money and engaging in what may be the largest action of intergenerational theft seen in history.

The banking sector has been bailed out, the losses have been socialised and will be born by this and succeeding generations of taxpayers. The profits remain private. If ever an event in recent history could fire up the critics of capitalism this is it – and it is because anything but capitalism has been applied to the banking sector.

The Bush Administration has decided to borrow from future generations to avoid a wholesale collapse of the mortgage market and several US banks. What that collapse would have meant has largely been glossed over as “disaster”, because it would mean banks folding, their shareholders losing out, depositors (a key political concern) also losing out, but debtors to banks having new creditors who may call in the assets to sell. That would have meant homeowners with worthless mortgages (those worth more than the property), but also airlines leasing planes from ILFC - a subsidiary of AIG - (although it is hard to believe that they would’ve been sold themselves given the same companies would be using them).

The result would have been significant deflation of many assets, in particular bank shares and properties – the housing bubbles would certainly be over, mortgages would be far harder to get, but prices would have dropped.

Of course there would have been winners from it, those banks which were far more prudent, those wanting to purchase properties, and other prudent investors. The wise would have won, the foolish would have lost – but that would have included many householders with dud mortgages, and not a few depositors. Bush politically knew that if that happened, McCain would have been finished, as would the Republican Party for at least two more elections. He renationalised for political reasons, and passed the bill onto everyone’s children.

The left will blame loose banking regulations, and “greed” – but wont say that same greed applies to those on modest incomes seeking to buy properties with 100% mortgages. The left will want to constrain the buying and selling of shares, and the availability of credit, with the sort of mindlessness of those who don’t understand economics and finance. Yet failing to note the state’s role in what is a boom/bust cycle. Both US and UK governments have long continued to borrow from their own and foreign economies, injecting inflationary spending into their economies, fuelling property inflation with central banks anxious to always avoid recession, on top of regulations requiring financial institutions to lend a proportion of mortgages to the “less well off”.

It’s notable that John McCain has been distinctively uncomfortable with the bailouts – they go against his own political instinct. Barack Obama is swimming in it though, because he mindlessly blames the Bush Administration, ignoring the Clinton Administration when so much of this started to happen. Lying being the standard stock in trade for politics. However McCain would have hardly done any different. The bigger question is how quickly McCain or Obama would privatise these new enormous liability companies – have a guess who would be slowest.

In the UK, Gordon Brown looks distinctly on the sidelines, as the banking sector itself responds to the crisis through mergers and acquisitions, but also taking the US taxpayers’ injection of their future earnings as a boost to confidence.

Sadly the worst part of all of this is not the bailing out of shareholders, not the bailing out of debtors, not the billions of US dollars worth of intergenerational debt that taxpayers will be forced to bear, but the erosion of a core capitalist principle by the US Federal Government’s actions. Those involved in investment and business take risks daily, whether it be farmers, shopkeepers, taxi drivers, publishers, radio stations, food processors, furniture manufacturers, trucking firms, hotels or charter airlines – the owners, their employees and customers rise and fall on the risks taken. Such businesses fold daily, with not a sign of taxpayer bailout – which is appropriate. Banking is different. The bigger the bank or insurance firm, the better equipped it should be to manage risk, but the bigger likelihood the state will bail them out – if only because the state fears the fallout from all those who deposit with and borrow from them.

This of course means that mortgages, finance and bank shares are clearly less risky than other investments in other sectors. It also means that if the revival of share prices flows onto property finance, the property bubble will return and shares will rise on the back of a massive injection of future taxpayers’ money.

It will happen again.

As Gareth Morgan says in the Dominion Post - the tendency for governments to "save the world" on these occasions is only increasing the frequency at which it will need to happen, and the cost to be met in later years.

Loser Labour candidate number 2 - Paul Chalmers

He is the Whangarei electorate candidate. He was the candidate last time. He got 27.9% of the electorate vote against Phil Heatley on 53.8%.

The profile on the website says:

"The National Party will simply serve the interests of the already wealthy and ignore the aspirations of those less well off. "

Such mindless rhetoric suits a man who has no chance of getting elected. Keep your day job Paul.

Poor Labour candidate of the day - Sam Yau

OK, he seems a nice enough chap. He's the electorate candidate for Ilam (not on the list) but he is so heavily deluded it isn't funny. He claims on his profile that National sold assets to fund tax cuts - absolute bollocks - it ran surpluses. The profile on the Labour website talks how the Labour government led the world on nuclear free policy -um, Sam, that was the PREVIOUS one. The one with Roger Douglas in it.

Sorry Sam, Ilam is well served with you being a JP and being self-employed. Good for you. However, the Labour Party just likes taking from the self-employed and telling people how to run their lives, and wanting to buy their education, healthcare and pensions for them.

However we needn't worry, Gerry Brownlee isn't going to be shifted by Sam. That will be good for both Sam and New Zealand.

Compulsory training or what Helen?

So Helen Clark will make 16 and 17yos be at school, in training or on apprenticeship.

So if you have a job at such ages, you'll also be forced to be in training! You could be working in a family business, but no Auntie Helen wants your life.

So what happens if they don't? Will you get arrested if you're not in training?

Now I'd simply abolish welfare benefits for those under 18 - but that's a separate issue. Since when has Clark decided she can control 16 and 17yos?

Don't let the financial crisis damage capitalism

According to the Financial Times, UK Conservative Leader David Cameron has said that it is important to not let the left use the financial crisis as a reason to undermine capitalism:

“We must not let the left use this as an excuse to wreck an important part of the British and world economy"

Indeed. He further rejects calls for tighter regulation of financial markets and higher taxes, saying centre-right leaders should unite in defence of capitalism.

Remarkable - look forward to John Key doing this then right?

Meanwhile, the Conservatives are on 52% in the polls, and Labour at 24% (Lib Dems at 12%) look convincing winners - if the election was not two years out. The Tories are getting a little bolder with policies the wider the gap grows - and it seems to be working. Education vouchers are mainstream policy in the UK - but not in NZ.