Dear Friends,
It seems to me that capitalism is based on trust. Without trust markets close down and money becomes just a bunch of paper. Trust is the lubricant that allows our modern market system to function. It is built by years of honest dealings of market players. Trust takes years to establish but merely seconds to destroy. Today we are seeing the destruction of trust, that will lower the standard of living of men, women and children all over the World… and possibly leading to a new world recession.
Most people work very hard for their money. After all, money is as much a representation of labor, as it is a unit of exchange and a store of value. Those who have worked hard and seek to store up that labor, so they can use it when they retire, to buy the means of production or even just as a source of insurance against the exigencies of life, are personally damaged when it is stolen. This is a strong disincentive to save and leads to a whole host of economic problems.
The banking system in our modern economies have a fundamental role in the growth of GDP. Money can be said to follow a circle. Wage earners work and then save some of their money in banks. Those banks amass that capital then lend money to people, who want to buy a home, start a business, or upgrade plant and equipment. Those companies then hire workers and the circle is complete. This entire system rests on trust in money, institutions and government.
Keeping trust in our financial institutions is a valid role of government. If we look at countries whose governments have coddled wrongdoers and recoiled at punishing their oligarchs, we see that they, universally, have very low standards of living coupled with overly powerful governments. GDP growth in countries is drastically reduced, when government is in bed with a small cadre of Elite, that are above moral behavior.
Lack of trust in institutions is a strong incentive for people to elect socialists and communists to government. This is another fact we see in third world countries. The people have lost trust in their institutions and government. It is ironic then, that the people turn to an oppressor, to stop the financial oppression. But the fact is, when someone is drowning, they will turn to anyone or anything no matter how dangerous. If nothing can be trusted, grasping for anything, we turn to the cult of personality. The cultish figure claims to have the answer, in our terror, we believe him. We ignorantly and foolishly run into his open arms… and right into the embrace of tyranny.
Today we see a constant barrage of Elite financial institutions gaming the system and no real negative consequences for them. Government regulators have dropped the ball in the US on the Madoff scandal, Enron, MF Global and now the LIBOR scandal and PFG Best. These scandals have one thing in common, they all should have been seen by the regulators but were overlooked. Remember that the SEC was asleep at the switch when the 2008 financial crisis hit. In the case of Enron, there were jail sentences passed out, but in the case of MF Global, Jon Corzine is walking free in the Hamptons. Not only free to enjoy his ill gotten gains, Congress, his fellow Elite, expressed sadness, that such a good man was damaged by the scandal. Now, with the LIBOR and PFG Best, we see that again our government has dropped the ball.
The poor showing of the world’s stock markets is in part a reflection of the pernicious corruption in our institutions and markets that has led to our distrust in them. The answer of government is to increase regulation, but there were regulations on the books… that were ignored. Had they been followed, and effectively enforced, the scandals wouldn’t have happened in the first place. But the SEC and other oversight agencies failed miserably. The upshot is, the Elite, who fail us time after time, will ask for more and more power to regulate, regulations that will, doubtlessly, not be enforced. This will lead to greater and greater oppression of us, and lowering of our living standards, with no positive outcome… for us.
The answer is not to give those who keep failing us more power, but to replace them with people who will do their job… and make them answerable to us. Giving a corrupt man more power to fight corruption is like trying to put out a fire with gasoline. In this case, it is not only our prosperity that provides the tinder, it is also our liberty and posterity. But the eyes of the Elite glitter as they douse us with gas and the reality is ugly to behold. The heads that should roll are the ones on the officials who never fail to choke in the clutch. If they don’t… tyranny befalls the foolishly naive.
Sincerely,
John Pepin
