The Forbes 400 Richest Americans
Wednesday, September 30, 2009provided by
Almost all of America's wealthiest citizens are poorer this year.
America's super rich are getting poorer. For only the fifth time since 1982, the collective net worth of The Forbes 400 — our annual tally of the nation's richest people — has declined, falling $300 billion in the past 12 months from $1.57 trillion to $1.27 trillion.
Faltering capital markets and real estate prices, along with divorce and fraud, pushed the fortunes of 314 members down and drove 32 plutocrats off the rankings.
Hurt the most: Warren Buffett, America's second-richest citizen. The Oracle of Omaha dropped $10 billion from his personal balance sheet as shares of Berkshire Hathaway fell 20% in 12 months. He is now worth (only) $40 billion.
Beating out Buffett for the 16th straight year as America's richest man is Microsoft co-founder Bill Gates. Sluggish Microsoft shares and declining outside investments pushed the software visionary's net worth down $7 billion in 12 months.
Rounding out the top 10 on The Forbes 400: Oracle founder Larry Ellison ($27 billion); Wal-Mart heirs Christy Walton ($21.5 billion), Jim C. Walton ($19.6 billion), Alice Walton ($19.3 billion), and S. Robson Walton ($19 billion); media maven Michael Bloomberg ($17.5 billion) and energy titans Charles and David Koch ($16 billion each).
The 10 richest Americans lost a combined $39.2 billion in the past 12 months, a 14% decline.
Other big losers include casino mogul Kirk Kerkorian, whose nest egg shed $8.2 billion in the past year. Shares of his gambling giant MGM Mirage have fallen 90% from their October 2007 high.
Also hitting the brakes: Enterprise Rent-A-Car founder Jack C. Taylor. The rental car titan's fortune is down $7 billion in a year as the travel industry slows and private-company valuations fall.
The biggest gainer is banker Andrew Beal, who tripled his net worth to $4.5 billion buying up cheap loans and assets as the markets crumbled last fall.
Membership on the list was made easier as the price of admission dropped $350 million, from $1.3 billion last year to $950 million this year, paving the way for 19 new members and 19 returnees.
Newcomers to the list include Marvel Entertainment chief Isaac Perlmutter, whose net worth soared to $1.55 billion after Disney agreed to buy the superhero outfit in August for $4 billion in cash and stock.
Other new members include Bloomberg LP co-founder Charles Zegar ($1 billion), mapping-software magnate Jack Dangermond ($2 billion) and trading titan Steven Schonfeld ($1 billion).
Former New York lawyer and accountant Jeffry Picower makes his debut on The Forbes 400 with a net worth of $1 billion. A longtime investor with Bernard Madoff, he is likely worth billions more (Picower is alleged to have extracted billions of dollars from Madoff's fund before it collapsed).
Picower and his foundation are named in a lawsuit by the liquidator for Madoff's investment business, who is seeking to recover funds allegedly obtained through "fraudulent activity." Picower claims if he knew Madoff was a fraud he would not have transferred money into Madoff accounts.
In December 2008, the Picower Foundation shut down after losing its $1 billion endowment in Madoff's Ponzi scheme. The charity had given millions to MIT, Human Rights First and the New York Public Library. Picower made his first fortune selling medical device maker Alaris in 2004.
Among those returning is venture capitalist Michael Moritz, who rode Amazon's purchase of online shoe retailer Zappos and surging Google stock back onto the list.
Divorce forced Google exec Omid Kordestani from the rankings, while R. Allen Stanford lost his billionaire status when the feds froze his assets after charging him with allegedly running an $8 billion Ponzi scheme.
Several Forbes 400 mainstays also fell off the list, including former Citigroup czar Sanford Weill, mall developer Matthew Bucksbaum and condo kingpin Jorge Perez.
Six members died, including glass giant William Davidson and newspaper maven Frank Batten Sr.
The Forbes 400 is a snapshot of wealth on Sept. 10, 2009. Gap co-founder Donald Fisher, who ranks No. 296 on our list, died Sept. 27 at his home in San Francisco at age 81.
Edited by Matthew Miller and Duncan Greenberg
The Top 21 Richest Americans
© Ryan Pierse/Getty Images 1. William H. Gates III
Net Worth: $50 billion
Source: Microsoft
Residence: Medina, Wash.
Age: 53
Despite losing $7 billion in 12 months, software man retains his title as America’s richest person for the 16th straight year.
Microsoft shares down 8% in past year but up 65% from March lows. He sells stock every quarter, redeploys proceeds via personal investment outfit Cascade.
More than 60% of fortune held outside Microsoft; investments include Four Seasons hotels, Televisa, AutoNation.
Stepped down from day-to-day duties at Microsoft last summer to focus on philanthropy.
Bill & Melinda Gates Foundation dedicated to fighting hunger, improving education in America’s high schools, developing vaccines against malaria, tuberculosis and AIDS. Endowment: $30 billion.
Penned first report on foundation’s projects in January. Touted progress made on preventing fatal childhood diseases; confessed frustration at challenge of creating an affordable, effective AIDS vaccine.
Ramping up personal contributions: donating $3.8 billion this year, $500 million more than in 2008.
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© Michael Buckner/Getty Images 2. Warren Buffett
Net Worth: $40 billion
Source: Berkshire Hathaway
Residence: Omaha
Age: 79
America’s favorite investor lost $10 billion in past 12 months on his Berkshire Hathaway shares.
Provided calming guidance to panic-stricken investors during financial crisis last fall; avowed enduring faith in U.S. economy, advised bargain hunting: “Be fearful when others are greedy, and be greedy when others are fearful.”
Shrewdly invested $5 billion in Goldman Sachs and $3 billion in General Electric last fall.
Suffered a $1.5 billion loss in first-quarter 2009; Berkshire notched $3.3 billion profit in second quarter thanks in part to bet on Goldman.
Son of Nebraska politician filed first tax return at age 13, claiming $35 deduction for bicycle bought for paper route.
Met value investor Benjamin Graham while studying economics at Columbia.
Took over textile firm Berkshire Hathaway 1965, used as vehicle to invest in insurance (Geico), food (Dairy Queen), utilities (MidAmerican Energy) and recently green tech (electric-car maker BYD).
Believed to be grooming NetJets Chief David Sokol to eventually take over Berkshire.
Appearing in cartoon form on upcoming online-tutor series The Secret Millionaires Club.
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http://finance.yahoo.com/career-work/article/107844/the-forbes-400.html?mod=career-leadership
Wednesday, September 30, 2009
Wednesday, August 12, 2009
Hedge funders' suit claims money went to porn investment, swingers' resort
BY Jose Martinez
DAILY NEWS STAFF WRITER
Wednesday, August 12th 2009, 4:00 AM
A swingers' resort was one of the investments, a suit claims Milton (Todd) Ault 3rd invested their money in.
A California moneyman with X-rated interests is being sued by several hedge funds who accuse him of shoveling their millions into porn and a planned Catskills swingers ranch.
Milton (Todd) Ault 3rd is charged with stiffing a dozen hedge funds on a $4.2 million investment with his firm Zealous Inc.
The Manhattan Supreme Court suit says the money was supposed to be steered to an "integrated global community of trading partners."
"The financing was a scam," the suit says. "He intended to, and did, use plaintiffs' money to fund [his] lifestyle, which included the development of a 'swingers ranch' in the Catskills and other pornographic-related endeavors."
Ault, whose online bio boasts that he has traded stocks since he was 11, has dabbled in adult entertainment, and his company co-produced a porn flick based on Sarah Palin.
He declared the suit "worthless" and said any talk of a swinger hideaway in New Lebanon, N.Y., was a "joke."
"We were subdividing it into eight lots," Ault said. "There was never going to be a swingers club."
Ault, who worked at Dean Witter Reynolds and Prudential Securities before starting Zealous, said the money was always earmarked for the creation of a platform for the trading of securities.
"These hedge funds didn't do their homework when they made their investment," said Ault, adding that the funds have already recouped a chunk of the money.
He said the 130-acre plot of land on Wadsworth Road was purchased long before the hedge funds invested in his company.
Last September, Ault merged Zealous into Adult Entertainment Capital Inc., a publicly traded firm that issued a press release about plans for a 140-acre East Coast project for the "fast-growing swingers lifestyle."
Ault insisted yesterday a swingers ranch was never seriously planned for woodsy Columbia County.
"That was simply a joke," he said.
A lawyer for the hedge funds did not return calls.
jmartinez@edit..nydailynews.com
Read more: http://www.nydailynews.com/money/2009/08/12/2009-08-12_stiffed_for_porn_sez_hedge_funders_suit.html#ixzz0NyE8ZdNB
http://www.nydailynews.com/money/2009/08/12/2009-08-12_stiffed_for_porn_sez_hedge_funders_suit.html
Tuesday, August 11, 2009
Uncle Sam Manipulating Bond Market
Originally Posted in "Freedoms Phoenix" News That Matters or Should Matter to YOU!
08/08/2009 • Market Skeptic
Uncle Sam is goosing the bond market just like he is the stock market. Take a look at Treasury's latest bit of chicanery which was stuffed in the back pages of the Wall Street Journal back in June: "The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems. When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit. But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners."
Reported by Lori Smith
Click on title above for full article as appeared in "Freedoms Phoenix" ;
http://www.freedomsphoenix.com/Find-Freedom.htm?At=0066750&From=News
08/08/2009 • Market Skeptic
Uncle Sam is goosing the bond market just like he is the stock market. Take a look at Treasury's latest bit of chicanery which was stuffed in the back pages of the Wall Street Journal back in June: "The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems. When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit. But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners."
Reported by Lori Smith
Click on title above for full article as appeared in "Freedoms Phoenix" ;
http://www.freedomsphoenix.com/Find-Freedom.htm?At=0066750&From=News
Laundering Money through the Big Banks: Bernanke's Quid Pro Quo
Global Research, August 3, 2009
by Mike Whitney
Fed Chairman Ben Bernanke is a man who knows how Washington works and uses that knowledge to great effect. His appearances on Capital Hill are always worth watching. He sits politely with his hands folded in front of him playing the bashful professor while one one preening congressman after another makes a fool out of themself. In contrast, Bernanke looks like a modest and thoughtful academic faithfully upholding the public's trust. But things aren't always as they seem. The Fed chief is sticking it to the American people big-time and no one seems to have any idea of what's really going on. Former hedge fund manager Andy Kessler sums it up in a recent Wall Street Journal article, "The Bernanke Market". Here's a clip:
"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."
What does it mean?
It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.
Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45% surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6 month stock rally.
Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!
Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer who net equity was almost negative on March 31, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more."
So, the magical "Green Shoots" stock market rally was fueled by a mere $400 billion from the money markets. The rest ($2.3 trillion) was main-lined into the market via Bernanke's quantitative easing (QE) program, of which Krugman and others speak so highly.
Wouldn't you like to know if Bernanke sat down with G-Sax and JPM executives and mapped out the details of this swindle before the printing presses ever started rolling?
So, how long can this kind of fakery go on before our creditors grow weary of dealing with chiselers and stop buying US Treasuries altogether? Here's a blurp from Friday's Wall Street Journal on that very topic:
"Shaky auctions of Treasury notes this week reignited concerns about whether the government can attract buyers from China and elsewhere to soak up trillions in new debt.
A fuse was lit this week when traders noted China's apparent absence from direct participation in two Treasury bond auctions. While China may have bought Treasurys just before the auctions, market participants read the country's actions as a worrying sign that China and other foreign investors may be ratcheting back purchases at a time when the U.S. is seeking to fund a $1.8 trillion budget deficit.
This week alone, the U.S. deluged the bond market with more than $200 billion in record-size sales. The U.S. has had little trouble finding buyers in recent months. But that demand is fading, and the Treasury market has become volatile."
Uncle Sam is goosing the bond market just like he is the stock market. Take a look at Treasury's latest bit of chicanery which was stuffed in the back pages of the Wall Street Journal back in June:
"The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.
When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.
But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners." ("Is foreign Demand as Solid as it Looks, Min zeng)
Nice touch, eh? So, someone doesn't want you and me to know when foreign demand drops off a cliff, so they just bend-and-twist the definitions so they meet the Fed's requirements. How's that for transparency?. Apparently, Bernanke et al. don't believe the Chinese have translators who can make sense of all this subterfuge. That may be a miscalculation, however, given recent rumblings from the Orient.
Mike Whitney is a frequent contributor to Global Research. Global Research Articles by Mike Whitney
--------------------------------------------------------------------------------
http://globalresearch.ca/index.php?context=va&aid=14625
Ill Winds Blowing Fast & Hard
Things Grow Worse So Fast These Days
Posted by Neal McCluskey
This morning, Forbes.com posted an op-ed I wrote on the Student Aid and Fiscal Responsbility Act (SAFRA). It lays out a lot of the problems with this horrible bill, but given the blistering pace at which Congress is trying to blow stuff by the public, op-eds can’t be written and posted quickly enough to keep up with all the latest news. Indeed, congressional leaders are moving so fast their own budget office can’t keep up.
In my op-ed, I offer the following warning about the likely, true impact of the bill, which supporters say won’t end up costing a new dime thanks to $87 billion in savings to be achieved by ending federal guaranteed student lending and going completely to direct lending:
Finally, roughly $10 billion is supposed to go toward reducing the federal government’s deficit, a ludicrously small figure considering that it recently surpassed $1 trillion for fiscal year 2009 and the SAFRA bill supposedly creates savings without causing current beneficiaries any pain. If all the proclaimed savings don’t appear, the last two words in ‘Student Aid and Fiscal Responsibility’ become an even bigger joke.
Well, reading the bill, and then taking in two CBO analyses of it released after the House Education and Labor Committee passed it, shows that the latter half of the bill’s title really is laughable.
First off, the bill doesn’t say one word about reserving bucks for deficit reduction.
Next, looking at the first CBO estimate released after Education and Labor passed the bill, it’s clear that once one considers all the new spending in it, SAFRA will cost taxpayers many additional ducats. While the bill is expected to save a net $7.8 billion in direct spending over ten years, it’s expected to cost $13.5 billion in additional appropriated funding, such as administrative costs, for a net new cost to taxpayers of $5.7 billion. And that’s not all….
In a letter to Senator Judd Gregg (R-NH) written a few days after the official cost estimate, the CBO said that had its estimate fully accounted for additional risk to the government of doing all direct lending, the projected savings would have been about $33 billion lower than projected. Add that greatly reduced savings to the net costs in the previous estimate, and suddenly a bill being touted as a deficit reducer is a deficit grower, to the estimated tune of almost $40 billion!
Of course, those probably won’t be the final numbers, so there will no doubt be more news on this bill to come.
http://www.cato-at-liberty.org/2009/08/11/things-grow-worse-so-fast-these-days/
Posted by Neal McCluskey
This morning, Forbes.com posted an op-ed I wrote on the Student Aid and Fiscal Responsbility Act (SAFRA). It lays out a lot of the problems with this horrible bill, but given the blistering pace at which Congress is trying to blow stuff by the public, op-eds can’t be written and posted quickly enough to keep up with all the latest news. Indeed, congressional leaders are moving so fast their own budget office can’t keep up.
In my op-ed, I offer the following warning about the likely, true impact of the bill, which supporters say won’t end up costing a new dime thanks to $87 billion in savings to be achieved by ending federal guaranteed student lending and going completely to direct lending:
Finally, roughly $10 billion is supposed to go toward reducing the federal government’s deficit, a ludicrously small figure considering that it recently surpassed $1 trillion for fiscal year 2009 and the SAFRA bill supposedly creates savings without causing current beneficiaries any pain. If all the proclaimed savings don’t appear, the last two words in ‘Student Aid and Fiscal Responsibility’ become an even bigger joke.
Well, reading the bill, and then taking in two CBO analyses of it released after the House Education and Labor Committee passed it, shows that the latter half of the bill’s title really is laughable.
First off, the bill doesn’t say one word about reserving bucks for deficit reduction.
Next, looking at the first CBO estimate released after Education and Labor passed the bill, it’s clear that once one considers all the new spending in it, SAFRA will cost taxpayers many additional ducats. While the bill is expected to save a net $7.8 billion in direct spending over ten years, it’s expected to cost $13.5 billion in additional appropriated funding, such as administrative costs, for a net new cost to taxpayers of $5.7 billion. And that’s not all….
In a letter to Senator Judd Gregg (R-NH) written a few days after the official cost estimate, the CBO said that had its estimate fully accounted for additional risk to the government of doing all direct lending, the projected savings would have been about $33 billion lower than projected. Add that greatly reduced savings to the net costs in the previous estimate, and suddenly a bill being touted as a deficit reducer is a deficit grower, to the estimated tune of almost $40 billion!
Of course, those probably won’t be the final numbers, so there will no doubt be more news on this bill to come.
http://www.cato-at-liberty.org/2009/08/11/things-grow-worse-so-fast-these-days/
Monday, August 10, 2009
During Crisis, Paulson's Calls to Goldman Posed Ethics Test
Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.
But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.
“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.
“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”
Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.
That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.
It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.
While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.
During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.
On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.
Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.
Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.
But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.
And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.
“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.
He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”
Inevitable Questions
Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.
Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted. Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating A.I.G.’s trading partners, continue to confound some market participants and members of Congress.
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“I think it’s clear he had a conflict of interest,” Mr. Stearns, the congressman, said in an interview. “He was covering himself with this waiver because he knew he had a conflict of interest with his telephone calls and with his actions. Even though he had no money in Goldman, he had a vested interest in Goldman’s success, in terms of his own reputation and historical perspective.”
Adding to questions about Mr. Paulson’s role, critics say, is the fact that Goldman Sachs was among a group of banks that received substantial government assistance during the turmoil. Goldman not only received $13 billion in taxpayer money as a result of the A.I.G. bailout, but also was given permission at the height of the crisis to convert from an investment firm to a national bank, giving it easier access to federal financing in the event it came under greater financial pressure.
Goldman also won federal debt guarantees and received $10 billion under the Troubled Asset Relief Program. It benefited further when the Securities and Exchange Commission suddenly changed its rules governing stock trading, barring investors from being able to bet against Goldman’s shares by selling them short.
Now that the company’s crisis has passed, Goldman has rebounded more markedly than its rivals. It has paid back the $10 billion in government assistance, with interest, and exited the federal debt guarantee program. It recently reported second-quarter profit of $3.44 billion, putting its employees on track to earn record bonuses this year: about $700,000 each, on average.
Ms. Davis, the spokeswoman for Mr. Paulson, said Goldman never received special treatment from the Treasury. Mr. Paulson’s calendars do not disclose any details about his conversations with Mr. Blankfein, and Ms. Davis said Mr. Paulson always maintained a proper regulatory distance from his old firm.
A spokesman for Goldman, Lucas van Praag, said: “Lloyd Blankfein, like the C.E.O.’s of other major financial institutions, received calls from, and made calls to, Treasury to provide a market perspective on conditions and events as they were unfolding. Given what was happening in the world, it would have been shocking if such conversations hadn’t taken place.”
Although federal officials were concerned that Goldman Sachs might collapse that week, Mr. van Praag said the only topics of discussion between Mr. Blankfein and Mr. Paulson at the time involved Lehman Brothers’ troubled London operations and “disarray in the money markets.” Mr. van Praag said Goldman was fully insulated from financial fallout related to a possible A.I.G. collapse in mid-September of last year.
However, Mr. Paulson believed he needed to request the ethics waivers during that tumultuous week, after regulators had become concerned that the same crisis of confidence that felled Bear Stearns and Lehman might spread to the remaining investment banks, including Goldman Sachs.
At a conference call scheduled for 3 p.m. on Sept. 17, 2008, Fed officials intended to discuss the financial soundness of Goldman Sachs, Merrill Lynch and Morgan Stanley, and they had asked Mr. Paulson to participate, according to Mr. Paulson’s calendars and his spokeswoman.
That was the first time during the crisis that Mr. Paulson’s involvement required a waiver, Ms. Davis said. The waiver was requested that morning and granted orally that afternoon, just before the 3 p.m. conference call.
A few minutes later, in an e-mail message to Mr. Paulson, Bernard J. Knight Jr., assistant general counsel at the Treasury, outlined the agency’s rationale for granting the waiver.
“I have determined that the magnitude of the government’s interest in your participation in matters that might affect or involve Goldman Sachs clearly outweighs the concern that your participation may cause a reasonable person to question the integrity of the government’s programs and operations,” Mr. Knight wrote.
Goldman’s Windfall
For investors in the United States and around the world, the days after the A.I.G. rescue were perilous and uncertain; the Dow Jones industrial average fell 4 percent on Sept. 17 as credit markets froze and investors absorbed the implications of the insurance giant’s collapse. That day, Mr. Paulson and his colleagues at the Federal Reserve were scrambling to contain the damage and shore up investor confidence.
But Mr. Paulson has disavowed any involvement in the decision to use taxpayer funds to make Goldman and A.I.G.’s trading partners whole. In his July testimony to the House, he said: “I want you to know that I had no role whatsoever in any of the Fed’s decision regarding payments to any of A.I.G.’s creditors or counterparties.”
Ms. Davis reiterated this, saying that Mr. Paulson’s involvement in the A.I.G. bailout was meant to forestall a collapse of the entire financial system and not to rescue any individual firms exposed to A.I.G., like Goldman. However, she said, federal officials were worried that both Goldman and Morgan Stanley were in danger themselves of failing later in the week and it was in that context that Mr. Paulson received a waiver.
“The waiver was in anticipation of a need to rescue Goldman Sachs,” Ms. Davis said, “not to bail out A.I.G.”
Treasury Department lawyers said a waiver for Mr. Paulson regarding A.I.G. was not necessary, Ms. Davis said, because the A.I.G. rescue was conducted by the Federal Reserve. The Treasury had no power to rescue A.I.G., she said. Only the Fed could make such a loan.
But according to two senior government officials involved in the discussions about an A.I.G. bailout and several other people who attended those meetings and requested anonymity because of confidentiality agreements, the government’s decision to rescue A.I.G was made collectively by Mr. Paulson, officials from the Federal Reserve and other financial regulators in meetings at the New York Fed over the weekend of Sept. 13-14, 2008.
These people said Mr. Paulson played a major role in the A.I.G. rescue discussions over that weekend and that it was well known among the participants that a loan to A.I.G. would be used to pay Goldman and the insurer’s other trading partners.
Over that weekend, according to a former senior government official involved in the discussions, Mr. Paulson said that he had been warned by lawyers for the Treasury Department not to contact Goldman executives directly. But he said Mr. Paulson told him he had disregarded the advice because the “crisis” required action.
Ms. Davis said: “Hank doesn’t recall saying that. Staff had advised that he interact one on one with Goldman as little as possible, not because it would be a violation but for appearances, recognizing someone would likely attempt to read too much into it.”
On Sept. 16, 2008, the day that the government agreed to inject billions into A.I.G., Mr. Paulson personally called Robert B. Willumstad, A.I.G.’s chief executive, and dismissed him. Mr. Paulson’s involvement in the decision to rescue A.I.G. is also supported by an e-mail message sent by Scott G. Alvarez, general counsel at the Federal Reserve Board, to Robert Hoyt, a Treasury legal counsel, that same day.
The subject of the message, acquired under the Freedom of Information Act, is “AIG Letter,” and it contains a reference to a document called “AIG.Paulson.Letter.draft2.09.16.2008.doc.” The letter itself was not released.
Ms. Davis said this letter was intended to confirm that the Treasury and Mr. Paulson supported the loan to A.I.G. and that its officials recognized that any Fed losses would be absorbed by taxpayers. She said the existence of the letter did not confirm that Mr. Paulson was extensively involved in discussions about an A.I.G. bailout.
Since last September, the government’s commitment to A.I.G. has swelled to $173 billion. A recent report from the Government Accountability Office questioned whether taxpayers would ever be repaid the money loaned to what was once the world’s largest insurance company.
Constant Contact
In the ethics agreement that Mr. Paulson signed in 2006, he wrote: “I believe that these steps will ensure that I avoid even the appearance of a conflict of interest in the performance of my duties as Secretary of the Treasury.”
While that agreement barred him from dealing on specific matters involving Goldman, he spoke with Mr. Blankfein at other pivotal moments in the crisis before receiving waivers.
Mr. Paulson’s schedules from 2007 and 2008 show that he spoke with Mr. Blankfein, who was his successor as Goldman’s chief, 26 times before receiving a waiver.
On the morning of Sept. 16, 2008, the day the A.I.G. rescue was announced, Mr. Paulson’s calendars show that he took a call from Mr. Blankfein at 9:40 a.m. Mr. Paulson received the ethics waiver regarding contacts with Goldman between 2:30 and 3 the next afternoon. According to his calendar, he called Mr. Blankfein five times that day. The first call was placed at 9:10 a.m.; the second at 12:15 p.m.; and there were two more calls later that day. That evening, after taking a call from President Bush, Mr. Paulson called Mr. Blankfein again.
When the Treasury secretary reached his office the next day, on Sept. 18, his first call, at 6:55 a.m., went to Mr. Blankfein. That was followed by a call from Mr. Blankfein. All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times.
At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.
The calls between Mr. Paulson and Mr. Blankfein, especially those surrounding the A.I.G. bailout, are disturbing to Samuel L. Hayes, a professor emeritus at Harvard Business School and a consultant in the past for government agencies, including the Treasury Department.
“We don’t know what they talked about,” Mr. Hayes said. “Obviously there was an enormous amount at stake for Goldman in whether or not the A.I.G. contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for A.I.G.’s contracts.”
In a letter accompanying the government’s production of Mr. Paulson’s calendar under the Freedom of Information Act request, Kevin M. Downey, a lawyer for Mr. Paulson, raised questions about how comprehensive the schedules were. He noted, for example, that the calendars did not reflect the Treasury secretary’s attendance at several public events. Mr. Downey did not return phone calls or e-mail messages seeking further comment.
Moreover, because the schedules include only phone calls made through Mr. Paulson’s office at Treasury, they provide only a partial picture of his communications. They do not reflect calls he made on his cellphone or from his home telephone.
According to the schedules, Mr. Paulson’s contacts with Mr. Blankfein began even before the height of the crisis last fall. During August 2007, for example, when the market for asset-backed commercial paper was seizing up, Mr. Paulson spoke with Mr. Blankfein 13 times. Mr. Paulson placed 12 of those calls.
By contrast, Mr. Paulson spoke six times that August with Richard S. Fuld Jr. of Lehman, four times with Jamie Dimon of JPMorgan Chase and only twice with John Thain of Merrill Lynch.
http://www.nytimes.com/2009/08/09/business/09paulson.html?_r=2&partner=rss&emc=rss
But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.
“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.
“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”
Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.
That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.
It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.
While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.
During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.
On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.
Michele Davis, a spokeswoman for Mr. Paulson, said that the former Treasury secretary was busy writing his memoirs and that his publisher had barred him from granting interviews until his manuscript was done. She pointed out that the ethics agreement Mr. Paulson agreed to when he joined the Treasury did not prevent him from talking to Goldman executives like Mr. Blankfein in order to keep abreast of market developments.
Ms. Davis also said that Federal Reserve officials, not Mr. Paulson, played the lead role in shaping and financing the A.I.G. bailout.
But Mr. Paulson was closely involved in decisions to rescue A.I.G., according to two senior government officials who requested anonymity because the negotiations were supposed to be confidential.
And government ethics specialists say that the timing of Mr. Paulson’s waivers, and the circumstances surrounding it, are troubling.
“I think that when you have a person in a high government position who has been with one of the major financial institutions, things like this have to happen more publicly and they have to happen more in the normal course of business rather than privately, quietly and on the fly,” said Peter Bienstock, the former executive director of the New York State Commission on Government Integrity and a partner at the law firm of Cohen Hennessey Bienstock & Rabin.
He went on: “If it can happen on a phone call and can happen without public scrutiny, it destroys the standard because then anything can happen in that fashion and any waiver can happen.”
Inevitable Questions
Concerns about potential conflicts of interest were perhaps inevitable during this financial crisis, the worst since the Great Depression. In the weeks before Mr. Paulson obtained the waivers, Treasury lawyers raised questions about whether he had conflicts of interest, a senior government official said.
Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted. Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating A.I.G.’s trading partners, continue to confound some market participants and members of Congress.
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“I think it’s clear he had a conflict of interest,” Mr. Stearns, the congressman, said in an interview. “He was covering himself with this waiver because he knew he had a conflict of interest with his telephone calls and with his actions. Even though he had no money in Goldman, he had a vested interest in Goldman’s success, in terms of his own reputation and historical perspective.”
Adding to questions about Mr. Paulson’s role, critics say, is the fact that Goldman Sachs was among a group of banks that received substantial government assistance during the turmoil. Goldman not only received $13 billion in taxpayer money as a result of the A.I.G. bailout, but also was given permission at the height of the crisis to convert from an investment firm to a national bank, giving it easier access to federal financing in the event it came under greater financial pressure.
Goldman also won federal debt guarantees and received $10 billion under the Troubled Asset Relief Program. It benefited further when the Securities and Exchange Commission suddenly changed its rules governing stock trading, barring investors from being able to bet against Goldman’s shares by selling them short.
Now that the company’s crisis has passed, Goldman has rebounded more markedly than its rivals. It has paid back the $10 billion in government assistance, with interest, and exited the federal debt guarantee program. It recently reported second-quarter profit of $3.44 billion, putting its employees on track to earn record bonuses this year: about $700,000 each, on average.
Ms. Davis, the spokeswoman for Mr. Paulson, said Goldman never received special treatment from the Treasury. Mr. Paulson’s calendars do not disclose any details about his conversations with Mr. Blankfein, and Ms. Davis said Mr. Paulson always maintained a proper regulatory distance from his old firm.
A spokesman for Goldman, Lucas van Praag, said: “Lloyd Blankfein, like the C.E.O.’s of other major financial institutions, received calls from, and made calls to, Treasury to provide a market perspective on conditions and events as they were unfolding. Given what was happening in the world, it would have been shocking if such conversations hadn’t taken place.”
Although federal officials were concerned that Goldman Sachs might collapse that week, Mr. van Praag said the only topics of discussion between Mr. Blankfein and Mr. Paulson at the time involved Lehman Brothers’ troubled London operations and “disarray in the money markets.” Mr. van Praag said Goldman was fully insulated from financial fallout related to a possible A.I.G. collapse in mid-September of last year.
However, Mr. Paulson believed he needed to request the ethics waivers during that tumultuous week, after regulators had become concerned that the same crisis of confidence that felled Bear Stearns and Lehman might spread to the remaining investment banks, including Goldman Sachs.
At a conference call scheduled for 3 p.m. on Sept. 17, 2008, Fed officials intended to discuss the financial soundness of Goldman Sachs, Merrill Lynch and Morgan Stanley, and they had asked Mr. Paulson to participate, according to Mr. Paulson’s calendars and his spokeswoman.
That was the first time during the crisis that Mr. Paulson’s involvement required a waiver, Ms. Davis said. The waiver was requested that morning and granted orally that afternoon, just before the 3 p.m. conference call.
A few minutes later, in an e-mail message to Mr. Paulson, Bernard J. Knight Jr., assistant general counsel at the Treasury, outlined the agency’s rationale for granting the waiver.
“I have determined that the magnitude of the government’s interest in your participation in matters that might affect or involve Goldman Sachs clearly outweighs the concern that your participation may cause a reasonable person to question the integrity of the government’s programs and operations,” Mr. Knight wrote.
Goldman’s Windfall
For investors in the United States and around the world, the days after the A.I.G. rescue were perilous and uncertain; the Dow Jones industrial average fell 4 percent on Sept. 17 as credit markets froze and investors absorbed the implications of the insurance giant’s collapse. That day, Mr. Paulson and his colleagues at the Federal Reserve were scrambling to contain the damage and shore up investor confidence.
But Mr. Paulson has disavowed any involvement in the decision to use taxpayer funds to make Goldman and A.I.G.’s trading partners whole. In his July testimony to the House, he said: “I want you to know that I had no role whatsoever in any of the Fed’s decision regarding payments to any of A.I.G.’s creditors or counterparties.”
Ms. Davis reiterated this, saying that Mr. Paulson’s involvement in the A.I.G. bailout was meant to forestall a collapse of the entire financial system and not to rescue any individual firms exposed to A.I.G., like Goldman. However, she said, federal officials were worried that both Goldman and Morgan Stanley were in danger themselves of failing later in the week and it was in that context that Mr. Paulson received a waiver.
“The waiver was in anticipation of a need to rescue Goldman Sachs,” Ms. Davis said, “not to bail out A.I.G.”
Treasury Department lawyers said a waiver for Mr. Paulson regarding A.I.G. was not necessary, Ms. Davis said, because the A.I.G. rescue was conducted by the Federal Reserve. The Treasury had no power to rescue A.I.G., she said. Only the Fed could make such a loan.
But according to two senior government officials involved in the discussions about an A.I.G. bailout and several other people who attended those meetings and requested anonymity because of confidentiality agreements, the government’s decision to rescue A.I.G was made collectively by Mr. Paulson, officials from the Federal Reserve and other financial regulators in meetings at the New York Fed over the weekend of Sept. 13-14, 2008.
These people said Mr. Paulson played a major role in the A.I.G. rescue discussions over that weekend and that it was well known among the participants that a loan to A.I.G. would be used to pay Goldman and the insurer’s other trading partners.
Over that weekend, according to a former senior government official involved in the discussions, Mr. Paulson said that he had been warned by lawyers for the Treasury Department not to contact Goldman executives directly. But he said Mr. Paulson told him he had disregarded the advice because the “crisis” required action.
Ms. Davis said: “Hank doesn’t recall saying that. Staff had advised that he interact one on one with Goldman as little as possible, not because it would be a violation but for appearances, recognizing someone would likely attempt to read too much into it.”
On Sept. 16, 2008, the day that the government agreed to inject billions into A.I.G., Mr. Paulson personally called Robert B. Willumstad, A.I.G.’s chief executive, and dismissed him. Mr. Paulson’s involvement in the decision to rescue A.I.G. is also supported by an e-mail message sent by Scott G. Alvarez, general counsel at the Federal Reserve Board, to Robert Hoyt, a Treasury legal counsel, that same day.
The subject of the message, acquired under the Freedom of Information Act, is “AIG Letter,” and it contains a reference to a document called “AIG.Paulson.Letter.draft2.09.16.2008.doc.” The letter itself was not released.
Ms. Davis said this letter was intended to confirm that the Treasury and Mr. Paulson supported the loan to A.I.G. and that its officials recognized that any Fed losses would be absorbed by taxpayers. She said the existence of the letter did not confirm that Mr. Paulson was extensively involved in discussions about an A.I.G. bailout.
Since last September, the government’s commitment to A.I.G. has swelled to $173 billion. A recent report from the Government Accountability Office questioned whether taxpayers would ever be repaid the money loaned to what was once the world’s largest insurance company.
Constant Contact
In the ethics agreement that Mr. Paulson signed in 2006, he wrote: “I believe that these steps will ensure that I avoid even the appearance of a conflict of interest in the performance of my duties as Secretary of the Treasury.”
While that agreement barred him from dealing on specific matters involving Goldman, he spoke with Mr. Blankfein at other pivotal moments in the crisis before receiving waivers.
Mr. Paulson’s schedules from 2007 and 2008 show that he spoke with Mr. Blankfein, who was his successor as Goldman’s chief, 26 times before receiving a waiver.
On the morning of Sept. 16, 2008, the day the A.I.G. rescue was announced, Mr. Paulson’s calendars show that he took a call from Mr. Blankfein at 9:40 a.m. Mr. Paulson received the ethics waiver regarding contacts with Goldman between 2:30 and 3 the next afternoon. According to his calendar, he called Mr. Blankfein five times that day. The first call was placed at 9:10 a.m.; the second at 12:15 p.m.; and there were two more calls later that day. That evening, after taking a call from President Bush, Mr. Paulson called Mr. Blankfein again.
When the Treasury secretary reached his office the next day, on Sept. 18, his first call, at 6:55 a.m., went to Mr. Blankfein. That was followed by a call from Mr. Blankfein. All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times.
At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.
The calls between Mr. Paulson and Mr. Blankfein, especially those surrounding the A.I.G. bailout, are disturbing to Samuel L. Hayes, a professor emeritus at Harvard Business School and a consultant in the past for government agencies, including the Treasury Department.
“We don’t know what they talked about,” Mr. Hayes said. “Obviously there was an enormous amount at stake for Goldman in whether or not the A.I.G. contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for A.I.G.’s contracts.”
In a letter accompanying the government’s production of Mr. Paulson’s calendar under the Freedom of Information Act request, Kevin M. Downey, a lawyer for Mr. Paulson, raised questions about how comprehensive the schedules were. He noted, for example, that the calendars did not reflect the Treasury secretary’s attendance at several public events. Mr. Downey did not return phone calls or e-mail messages seeking further comment.
Moreover, because the schedules include only phone calls made through Mr. Paulson’s office at Treasury, they provide only a partial picture of his communications. They do not reflect calls he made on his cellphone or from his home telephone.
According to the schedules, Mr. Paulson’s contacts with Mr. Blankfein began even before the height of the crisis last fall. During August 2007, for example, when the market for asset-backed commercial paper was seizing up, Mr. Paulson spoke with Mr. Blankfein 13 times. Mr. Paulson placed 12 of those calls.
By contrast, Mr. Paulson spoke six times that August with Richard S. Fuld Jr. of Lehman, four times with Jamie Dimon of JPMorgan Chase and only twice with John Thain of Merrill Lynch.
http://www.nytimes.com/2009/08/09/business/09paulson.html?_r=2&partner=rss&emc=rss
Sunday, August 9, 2009
What Is This "Free Market" We Keep Hearing About?
By Tom Mullen
Published 08/08/09
"... every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interests his own way and to bring both his industry and capital into competition with those of other men."
— Adam Smith (1776)
As President Obama and his pet Congress continue their crusade to expand the reach of government into our lives, "conventional wisdom" continues to tell us that socialized medicine, rampant wealth redistribution, and government control over one industry after another is "necessary" because of the supposed failure of the free market to adequately address the needs of society. The way the "free market" is characterized by politicians and media pundits, it is not surprising that most Americans seem to regard it as some sort of special interest group (Mr. Undersecretary, the gentlemen from the free market are here to see you). Doubtless, when most Americans hear the words "free market," they picture the CEO’s of Detroit automakers flying in on corporate jets or Wall Street financiers busy mastering the universe. This mischaracterization of the free market is ironic, seeing as both of these groups have recently sought and obtained capital from people who were not free to refuse (taxpayers).
So, before trying to ascertain whether or not the free market has failed society, it is necessary to define exactly what it is. This is not so much difficult as it is inconvenient for those who either wish to exert control over our lives or who wish to be controlled by those that they believe can offer them security in exchange for their liberty - even if it means destroying liberty for everyone. For both of these groups, the "free market" is something that must be characterized as something that it is not. To recognize it for what it is would both threaten their own ability to justify their positions and concede to their victims that what they advocate is in fact abject slavery. Neither result is palatable to opponents of the free market, so gibberish is necessary for them from both a moral and practical perspective.
So, let us say here what it seems that no one anywhere wants to come out and say: the free market is nothing more than all members of society exercising their inalienable rights. It is nothing more and nothing less. Any other system, by definition, violates some or all of these rights.
Every individual has a natural right to labor and to keep the fruits of his labor (his property). This is his only means of pursuing his happiness. There is only one role for government in this area: to defend the property of each individual against theft by another person or group. A truly free market limits government’s role in regards to property to this natural boundary — for any further role constitutes government committing the very crime it exists to prohibit.
Every individual has a natural right to liberty — to do as he pleases as long as he does not commit aggression against the equal rights of another. In a free market, there can be no "regulation" (as we incorrectly understand the term today). The laws that restrict human action must be limited to those few necessary to ensure that no individual is forced or defrauded while participating in an exchange of property nor forced to accept any terms that he does not freely consent to. As the quote from Adam Smith illustrates, one cannot talk about "free markets" without at the same time incorporating the Non-Aggression Principle of Liberty. While Smith is generally regarded as the "father of capitalism," he never actually called his economic system by that name. Instead, he referred to it as "a system of natural liberty." Given the confusion that now accompanies the word "capitalism," it might be better to revert to Smith’s terminology.
Since a free market is by definition the only system that allows individuals to exercise their rights, to say that an unfettered free market does not work is to say that society will not work unless those rights are systematically violated and that those violations must be protected by the law. A greater perversion of justice is unimaginable. Yet, the majority of our elected officials champion exactly this. Sadly, the majority of their constituents blindly parrot their horrific slogans.
In response to this argument, the more cunning opponents of liberty will say that we have given the free market a chance to work and it has failed. False prophet of freedom Alan Greenspan is notable among this gang of vipers. However, any lucid analysis of the difficulties that we find ourselves in now can indisputably be traced to the aspects of our society that prevent free markets. Bad mortgage loans were made because government committed the fraud of monetary inflation combined with the theft of guaranteeing loans with taxpayer money. The skyrocketing cost of health care is a result of government committing the theft of taking money from one individual and using it to buy health care for another, suspending the natural law of supply and demand with artificial demand. Contrary to the idea that individual rights must be balanced with societal needs, it is the violation of individual rights that causes all of our societal problems, most pervasively our economic problems.
As it is merely the economic application of the Non-Aggression Principle of Liberty, the free market is the only system that allows individuals the ability to exercise their right to pursue their happiness. By doing so, they naturally seek to profit from their labor and compete with each other without committing aggression against each other’s rights. History shows that individuals acting in this manner produce enormous benefits for their fellow human beings. The steam engine, the automobile, the airplane, the telephone, and virtually every other technological advance that provides a tangible improvement in the quality of human life have been the result of human beings peacefully competing with each other for profit.
Conversely, the atomic bomb, the concentration camp, and every other technology which serves the purpose of death, destruction, and enslavement have been the result of governments forcefully confiscating property from their citizens which would otherwise have been put to productive use.[2] It has only been by violating the individual, inalienable rights to life, liberty, and property that any of these horrors were able to come to fruition.
The free market has not failed. The free market is Freedom itself, and while it has only occurred for brief moments throughout history, it has never, will never, and can never fail. When we are confronted with gibberish about the failure of free markets and the need for government to "play a role in the economy," or for a "public-private partnership," let us not let ourselves be led into a carefully framed argument about what might provide more health care, produce more automobiles, or save more jobs. Let us recognize these arguments for what they are: a declaration of war upon our inalienable rights.
As our Declaration of Independence states, government’s purpose is to secure our rights, including our inalienable right to a free market within which to exchange our property. Whenever any Form of Government becomes destructive of this end, it is our right and our duty to alter or abolish it. Not only must we resist further government expansion into our economy, we must begin dismantling the institutions of tyranny that government has already established over the past century. Our representatives must hear this from us every day until they call off their attack upon our rights or until they can be removed from office. There is nothing in any of our lives that is more important than this right now.
1. Smith, Adam An Inquiry into the Wealth of Nations from An Inquiry into the Wealth of Nations: Selections edited by Laurance Winant Dickey Hackett Publishing Indianapolis, IN 1993 pg. 165
2. The reader should avoid confusing private companies developing weapons for the government with "the free market." The fact that the companies are privately owned does not mean that they are operating in a free market. Quite the contrary. Since the buyers of their products do so involuntarily (taxes), the development of new weapons and subsequent sale of them to the government has nothing to do with a free market.
Copyright © 2009 Thomas Mullen
http://www.campaignforliberty.com/article.php?view=161
Published 08/08/09
"... every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interests his own way and to bring both his industry and capital into competition with those of other men."
— Adam Smith (1776)
As President Obama and his pet Congress continue their crusade to expand the reach of government into our lives, "conventional wisdom" continues to tell us that socialized medicine, rampant wealth redistribution, and government control over one industry after another is "necessary" because of the supposed failure of the free market to adequately address the needs of society. The way the "free market" is characterized by politicians and media pundits, it is not surprising that most Americans seem to regard it as some sort of special interest group (Mr. Undersecretary, the gentlemen from the free market are here to see you). Doubtless, when most Americans hear the words "free market," they picture the CEO’s of Detroit automakers flying in on corporate jets or Wall Street financiers busy mastering the universe. This mischaracterization of the free market is ironic, seeing as both of these groups have recently sought and obtained capital from people who were not free to refuse (taxpayers).
So, before trying to ascertain whether or not the free market has failed society, it is necessary to define exactly what it is. This is not so much difficult as it is inconvenient for those who either wish to exert control over our lives or who wish to be controlled by those that they believe can offer them security in exchange for their liberty - even if it means destroying liberty for everyone. For both of these groups, the "free market" is something that must be characterized as something that it is not. To recognize it for what it is would both threaten their own ability to justify their positions and concede to their victims that what they advocate is in fact abject slavery. Neither result is palatable to opponents of the free market, so gibberish is necessary for them from both a moral and practical perspective.
So, let us say here what it seems that no one anywhere wants to come out and say: the free market is nothing more than all members of society exercising their inalienable rights. It is nothing more and nothing less. Any other system, by definition, violates some or all of these rights.
Every individual has a natural right to labor and to keep the fruits of his labor (his property). This is his only means of pursuing his happiness. There is only one role for government in this area: to defend the property of each individual against theft by another person or group. A truly free market limits government’s role in regards to property to this natural boundary — for any further role constitutes government committing the very crime it exists to prohibit.
Every individual has a natural right to liberty — to do as he pleases as long as he does not commit aggression against the equal rights of another. In a free market, there can be no "regulation" (as we incorrectly understand the term today). The laws that restrict human action must be limited to those few necessary to ensure that no individual is forced or defrauded while participating in an exchange of property nor forced to accept any terms that he does not freely consent to. As the quote from Adam Smith illustrates, one cannot talk about "free markets" without at the same time incorporating the Non-Aggression Principle of Liberty. While Smith is generally regarded as the "father of capitalism," he never actually called his economic system by that name. Instead, he referred to it as "a system of natural liberty." Given the confusion that now accompanies the word "capitalism," it might be better to revert to Smith’s terminology.
Since a free market is by definition the only system that allows individuals to exercise their rights, to say that an unfettered free market does not work is to say that society will not work unless those rights are systematically violated and that those violations must be protected by the law. A greater perversion of justice is unimaginable. Yet, the majority of our elected officials champion exactly this. Sadly, the majority of their constituents blindly parrot their horrific slogans.
In response to this argument, the more cunning opponents of liberty will say that we have given the free market a chance to work and it has failed. False prophet of freedom Alan Greenspan is notable among this gang of vipers. However, any lucid analysis of the difficulties that we find ourselves in now can indisputably be traced to the aspects of our society that prevent free markets. Bad mortgage loans were made because government committed the fraud of monetary inflation combined with the theft of guaranteeing loans with taxpayer money. The skyrocketing cost of health care is a result of government committing the theft of taking money from one individual and using it to buy health care for another, suspending the natural law of supply and demand with artificial demand. Contrary to the idea that individual rights must be balanced with societal needs, it is the violation of individual rights that causes all of our societal problems, most pervasively our economic problems.
As it is merely the economic application of the Non-Aggression Principle of Liberty, the free market is the only system that allows individuals the ability to exercise their right to pursue their happiness. By doing so, they naturally seek to profit from their labor and compete with each other without committing aggression against each other’s rights. History shows that individuals acting in this manner produce enormous benefits for their fellow human beings. The steam engine, the automobile, the airplane, the telephone, and virtually every other technological advance that provides a tangible improvement in the quality of human life have been the result of human beings peacefully competing with each other for profit.
Conversely, the atomic bomb, the concentration camp, and every other technology which serves the purpose of death, destruction, and enslavement have been the result of governments forcefully confiscating property from their citizens which would otherwise have been put to productive use.[2] It has only been by violating the individual, inalienable rights to life, liberty, and property that any of these horrors were able to come to fruition.
The free market has not failed. The free market is Freedom itself, and while it has only occurred for brief moments throughout history, it has never, will never, and can never fail. When we are confronted with gibberish about the failure of free markets and the need for government to "play a role in the economy," or for a "public-private partnership," let us not let ourselves be led into a carefully framed argument about what might provide more health care, produce more automobiles, or save more jobs. Let us recognize these arguments for what they are: a declaration of war upon our inalienable rights.
As our Declaration of Independence states, government’s purpose is to secure our rights, including our inalienable right to a free market within which to exchange our property. Whenever any Form of Government becomes destructive of this end, it is our right and our duty to alter or abolish it. Not only must we resist further government expansion into our economy, we must begin dismantling the institutions of tyranny that government has already established over the past century. Our representatives must hear this from us every day until they call off their attack upon our rights or until they can be removed from office. There is nothing in any of our lives that is more important than this right now.
1. Smith, Adam An Inquiry into the Wealth of Nations from An Inquiry into the Wealth of Nations: Selections edited by Laurance Winant Dickey Hackett Publishing Indianapolis, IN 1993 pg. 165
2. The reader should avoid confusing private companies developing weapons for the government with "the free market." The fact that the companies are privately owned does not mean that they are operating in a free market. Quite the contrary. Since the buyers of their products do so involuntarily (taxes), the development of new weapons and subsequent sale of them to the government has nothing to do with a free market.
Copyright © 2009 Thomas Mullen
http://www.campaignforliberty.com/article.php?view=161
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