The Elites Have Lost the Right to Rule

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War is the
growth hormone of the cancer that is big government.

~ Alex Jones

A government
always finds itself obliged to resort to inflationary measures when
it cannot negotiate loans and dare not levy taxes, because it has
reason to fear that it will forfeit approval of the policy it is
following if it reveals too soon the financial and general economic
consequences of that policy. Thus inflation becomes the most important
psychological resource of any economic policy whose consequences
have to be concealed; and so in this sense it can be called an instrument
of unpopular, that is, of antidemocratic policy, since by misleading
public opinion it makes possible the continued existence of a system
of government that would have no hope of the consent of the people
if the circumstances were clearly laid before them. That is the
political function of inflation. When governments do not think it
necessary to accommodate their expenditure and arrogate to themselves
the right of making up the deficit by issuing notes, their ideology
is merely a disguised absolutism.

~ Ludwig von
Mises

How Wall
Street Died

Let me take
you back to the fall of 1999. I was a senior in college without
a clue what I wanted to do with my life. Wall Street was in a boom
and seemed exciting. I had always loved the financial markets since
I had first discovered them years earlier; however, I wasn’t
convinced this was the profession I wanted. I had majored in Economics
at school for practical purposes but I found almost all of the courses
to be extraordinarily uninspiring with the exception of a few like
Corporate Finance and the Economic History of China. It was the
general micro and macro economics courses that I found the most
painful to sit through. I wasn’t alone in this assessment.
Many of my close friends were Economics majors as well and we all
felt the same way (I later found out this was because we were being
indoctrinated in voodoo Keynesian economics). So even with the Economics
degree I wasn’t sure that I wanted to pursue a career in finance
given the fact that I found myself more interested in subjects such
as English, History and Philosophy. Nevertheless, the firms were
hiring, I had the degree and it would allow me to move back to New
York City without living at home.

What I discovered
as I interviewed for jobs disturbed me right away. Every single
firm with the exception of one was completely obsessed with math.
Entire interviews revolved around “how quantitative are you”
and the like. Although I hadn’t had much experience with investing
I had enough to know this line of thinking seemed preposterous.
It seemed to me only basic math skills are necessary to be a successful
equity investor. Besides that, it seemed that the key is understanding
that the world is always changing rapidly under the surface and
therefore what is a good business today might be bankrupt tomorrow
and what is a start up today could be the next Microsoft. This seems
obvious but the skill set to figuring all this out is more geared
to an appreciation of human psychology, historical cycles and cultural
shifts (both fads and structural changes) than math. What I realized
later is the reason they were so focused on mathematicians and Phd’s
is that Wall Street was moving away from what it was always meant
to be – a conduit between the holders of capital and those
that wish to deploy that capital in productive economic activity.
Rather than trying to hire a well rounded workforce of intelligent
college graduates the firms were hiring a cadre of quantitative
robots that would play an instrumental roll in blowing up the world’s
financial system.

When you get
too many people of a particular mindset (in this case highly quantitative
and academic) to aggregate in a field that is very much a people
business and one where “street smart” common sense is
of extreme importance you are asking for serious trouble. When you
couple that with a Federal Reserve that keeps interest rates too
low what you get is a bunch of quants inventing products that provide
a yield sufficient for pensions and others struggling to earn a
return. Products that are completely mispriced for the risk inherent
in them. I am not placing all of the blame on the Wall Street firms
(although they deserve a lot and the fact people haven’t been
punished severely is a huge reason why there is no confidence on
main street), rather I believe the Federal Reserve deserves 95%
of it. If it wasn’t for them manipulating the price of money
to absurdly low levels you wouldn’t have had the rush into
toxic products in a search for yield. While the newly enthroned
Wall Street quant army would surely have done their damage nonetheless
it wouldn’t have resulted in the complete destruction of the
financial and monetary system that we face today. In a nutshell,
this is how I think Wall Street died and until it gets its act together
will remain a corpse.

The Elites
Have Lost Their Right to Rule

One of my favorite
quotes is from Joseph Schumpeter who said “everyone has elites
the important thing is to change them from time to time.” Of
course, this is what happens in a well functioning democracy. The
problem today and the reason why the United States is on the verge
of some sort of revolution (I believe it will manifest as a revolution
of ideas and not an armed one) is that the election of Obama has
proven to everyone watching with an unbiased eye that no matter
who the President is they continue to prop up an elite at the top
that has been running things into the ground for years. The appointment
of Larry Summers and Tiny Turbo-Tax Timmy Geithner provided the
most obvious sign that something was seriously not kosher. Then
there was the reappointment of Ben Bernanke. While the Republicans
like to simplify him as merely a socialist he represents something
far worse.

Read
the rest of the article

August
30, 2010

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