Monday, Nov 24, 2014
Columns

Reiniers: Boys will be Boys - voters will be voters


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Most of us will agree with the old adage that boys will be boys. They really are different than girls. Girls will be girls. They are different than boys. (Thank God! Somebody has to carry on civilized culture.)

My wife used to talk about playing dress-up as a little girl. Girls still do. Boys used to play cops and robbers. Nowadays they play Grand Theft Auto V. Gender differences result in distinctive behavioral patterns much like the immutable laws of physics.

This brings me to capitalism. Stay with me a minute.

Financial crises are an inevitable outcome of capitalism. And like the conduct of boys, economists accept this annoying behavior. Yet we don't want video-game inspired boys to go around shooting people, so parents and teachers try to "regulate" their conduct. For the same reason regulators try to reign in the excesses of the financial sector which periodically does violence to the financial system.

Look at modern history. The panic of 1901, a New York Stock Exchange crash, was followed by another panic in 1907 which precipitated another panic and recession. Then the European war depression of 1914, the Great Depression that began in 1929, the Kennedy slide of 1962, the market panic of 1987; the savings and loan crisis in 1989-99, the Clinton dot-com bubble in 2001, the recession caused by the Sept. 11, 2001, terrorist bombings, and finally the Great Recession, the effects of which still remain largely because of the economic policies of Barrack Obama.

Financial meltdowns happen in authoritarian regimes, too. Because these forms of governments do not accept the natural frailties of people (greed) or the flaws in any economic system, they may exile or imprison a designated fall guy to take the blame, alleging corruption. Yet the country's leaders themselves are moving all the money they can, as fast as they can, out of their country to Swiss bank accounts before the worm turns.

While it is astonishing the numbers of Wall Street titans and government officials who escaped accountability for their questionable or criminal conduct in the financial crisis, the underlying causes of financial failures in modern America are usually twofold: First, no reserve requirements or restrictions on investments in risky loans - say subprime mortgage derivatives - and, secondly, creative financial gimmicks or instruments these brilliant Wall Street wizards devise to inflate their bonuses. (Boys will be boys.)

Thousands of pages of regulations will not solve this problem. (That just creates a need for more bureaucrats.) These cunning guys will always finagle their way around new rules. What is needed is black letter law establishing reserve requirements and curtailing leverage. Dream on. The Treasury department, the Securities and Exchange Commission and Wall Street are the same people.

Because most of what we know we learn from the media, we are very quick to criticize the fast and loose mentality of Wall Street, but not ourselves and our own government which in many respects is nothing but a reflection of ourselves.

Politicians generally do what they have to do to get our vote - not because they are principled. What does that say about us?

In its simplest terms, leverage means any technique to multiply gains; the belief being that the income will more than pay for the cost of borrowing. An IOU is an example of a handy financial instrument.

Leverage aptly describes the $2.5 trillion Social Security surplus made up of government IOUs in the infamous lock box. In reality there's nothing there but a promise. Just as Wall Street was betting that the real estate market was all roses and not inflated, the naive liberal wing of Congress believed the economy would grow more than enough to pay the principal and interest on all that cash they confiscated from Social Security to pay for all the stuff the government dependent class demanded. This is simply another debt load government has put on the backs of future generations.

Another form of debt obligation is the government bond. These are issued by state and locals governments, not just the feds. The issuer agrees to pay interest on the principal and within a certain time frame.

Because of out-of-control unfunded state retirement funds - including public employee health care as well as pensions - states have relied on issuing pension obligation bonds, which are another healthy chunk of debt government has dumped on future generations. These unfunded obligations are estimated at $3 trillion - two years' worth of all the income of all 50 states.

This is what politicians do. A majority of Americans enthusiastically elect these people. They spend tax dollars and incur debt. The ever growing liberal progressive base of the Democratic Party will continue to support politicians who promise the world and drive us farther into bankruptcy.

Well, politicians will be politicians, but as George Will observed: "Voters don't decide issues; they decide who will decide issues." And the "Where's mine?" wing of the Democratic Party gives credence to another immutable law of human behavior: Voters will be voters.

John Reiniers is a retired attorney and regular contributor who lives in Spring Hill.

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