Control of Results

 Generally accepted explanations of various economic systems are these:

Capitalism:  a country's trade and industry are conducted and controlled by private owners with minimal interference from government.

At the opposite extreme is Communism:  all property is publicly owned (i.e., by the people).  Each worker is paid according to their needs, not by their productivity, ingenuity, dedication or skill.  There are no truly communist countries on this planet currently… and never have been.

Near communism in the political/economic spectrum is Socialism:  the means of production, distribution, and exchange is owned and regulated by the community as a whole (i.e., the government, not the ‘people’).  The government owns all property and dictates all aspects of commerce.  The Union of Soviet Socialist Republics, the People’s Republic of China, the Republic of Cuba and the Democratic People's Republic of Korea (North Korea) are (or were) socialist countries.  Socialist countries are all effectively dictatorships.

Some people believe Fascism is a right-wing philosophy.  It is not.  In this system industry is owned by private entities yet the government controls all aspects of the economy.  Fascism is a form of socialism.  Benito Mussolini was a Fascist.  Adolf Hitler’s National Socialist Party was Fascist – note the word ‘Socialist’ in the party name.  There was another Fascist ruling during that same period.  I will get to him in a later article.


Article 1, Section 8 of the Constitution of the United States of America defines specific responsibilities of the Congress.  Many of the vital responsibilities of Congress involve providing for the defense of the country.  Many other equally important responsibilities involve ensuring a well structured, smoothly operating economy.

Of these, the ‘Commerce Clause’ of Article 1, Section 8, Clause 3, granting to the Congress the “…Power… To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes” is probably the most often cited, used and abused to base much of what the American federal government does in modern (starting about the year 1900) times.

Article 1, Section 8, Clause 4 gives Congress the Power “To establish… uniform Laws on the subject of Bankruptcies throughout the United States

Article 1, Section 8, Clause 5 establishes that Congress has the Power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

And Article 1, Section 8, Clause 8 bestows Congress with the Power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

Section 9 of Article 1 lists prohibitions to which Congress is subject.

Among these, Article 1, Section 9, Clause 6 says:  No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.


Alexander Hamilton in Federalist Paper  #11 wrote, “An unrestrained intercourse between the States themselves will advance the trade of each by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part.”  And in Federalist paper #12, he reiterated, “The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth”.  He clearly intended a more laissez faire approach to economics.

Thomas Jefferson agreed:  Agriculture, manufactures, commerce, and navigation, the four pillars of our prosperity, are then most thriving when left most free to individual enterprise.”


It is not in the American federal government’s purview to direct commerce.  To do so would make the USA a fascist regime.  There is a not so fine line between regulating a thing versus manipulating and constricting it.  There are several instances among very many that I would like to discuss today.


First permit me to go off on a slight tangent:

Suppose you found yourself in a casino with all manner of games of chance upon which to hazard bets.  You have $1000 with which to gamble.  It’s your money, you worked hard and saved to accumulate that sum.  If you lose, you go home poorer.  I presume you would have a reasonable strategy to select which games and what sums to risk carefully so as to not lose it all quickly, if at all and hopefully grow the sum.

Now suppose you found yourself in that casino with the same sum – but you are offered a guarantee.  And at the end of your gambling foray, you could keep your winnings, or should you lose your stake, the entire $1000 would be replaced.   My wager is that you would be not be so careful with the original purse since you literally have nothing to lose.


When failure is rewarded, failure has no threat and risks are not considered seriously.  When there are no penalties for corruption, corruption multiplies.  This is how very risky and corrupt actions that damage and debilitate the nation continue to occur.


Let me first point out the Chrysler bailout of 1979.

Chrysler had failed to respond to market forces and economic conditions during the 1970s.  Japanese vehicle quality improved significantly and their gas mileage was far better then American branded cars at the time.  Crude oil prices skyrocketed in the 1970s.  Chrysler’s product quality plummeted.  [I can attest to this personally, but I won’t go into details here.]  As Chrysler’s woes increased, the United Automobile Workers union (UAW) refused to accept any concessions in their contract.  Plainly and bluntly, Chrysler had been mismanaged to the point of bankruptcy and the union was complicit.  If any company deserved to suffer the consequences of incompetence, arrogance and stubbornness thus submitting to bankruptcy, Chrysler was a prime candidate.

Instead, Chrysler pleaded with Congress for a bailout.  Congress passed and President James Earl Carter signed the Chrysler Corporation Loan Guarantee Act of 1979.  The story had a happy (temporary) ending as Chrysler got required concessions from the unions, the loans they needed, new management and a new lease on life: they thrived… for a while.  The government ended up making a profit, too.

Despite the happy ending, they managed to fail again and filed for Chapter 11 Bankruptcy in 2009 after merging with and then splitting from Daimler-Benz. 

Congress has no right to interfere with the natural processes of business.  Ford, General Motors and American Motors did get the same benefits in 1979.

Thomas A. Murphy was the Chairman and CEO of General Motors in 1979.  A New York Times article reporting on his death in 2006 said this:

Marina Whitman, a professor at the University of Michigan who was one of G.M.'s first senior female executives, recalled Mr. Murphy's candor.

"It was kind of G.M. lore," Ms. Whitman said, "that when Chrysler first got a government bailout and he was asked what he thought of it, his first reaction was the government shouldn't have done that - that government bailouts had no place in a situation like that, and it would simply make life harder for all the competitors."


Which brings us to the irony of General Motors (GM) itself.

Here’s another analogy:

You and a friend get together to play a game.  He tells you the rules and you begin playing.  You are winning the game and your friend changes the rules, putting you at a disadvantage.  You change strategy to accommodate the new rules and again are winning.  Your friend then changes the rules to yet again increase your disadvantage.  Would you continue playing?  Would you likely ever play with this friend again?

A legal structure, honestly run and adhering to the established rules, is mandatory for any economic system to be successfully sustained.  Otherwise people will lose faith in the system and cease to participate or will likely participate with little integrity.

A shareholder of a corporation owns part of the enterprise. One share may be one-billionth of the company, but it is ownership.  If the company does well, the value of that share should rise.  If the company does poorly to the point of bankruptcy or dissolution the share becomes worthless.

When a company borrows money, it often borrows with collateral offered so that if it defaults, the collateral is seized in lieu of the lost principal.  Most loans to corporations are collateralized:  the company puts up its buildings, equipment, land, intellectual property, inventory, etc. to ensure the lender will be repaid.  If a company does fail to repay the loan, the bondholder takes possession of an equal amount of assets, or has the assets sold by proper authorities to raise sufficient funds for repayment.

If a company goes bankrupt, the laws enacted by Congress, as empowered in Article 1, Section 8, Clause 4 of the American Constitution cited above, provide a structure and process for disbursing and liquidating the company’s assets.  Any contracts or other legal agreements the company may have entered into become null and void, because there is no company to fulfill the agreement.


So what does all this have to do with GM?  For years, GM was also mismanaged.  They made contracts with their unions that shackled them to wages and benefits that they could not afford.  They lost money on every car they sold.  They lost more than $10 Billion in 2005 and nearly $31 Billion ($53 per share!) in 2008.  They owed almost $95 Billion to their bondholders.  As in the Chrysler case above, the unions would not make concessions.  Bridge loans from the federal government only dug the hole deeper.

When GM finally admitted their plight and filed for bankruptcy, what SHOULD have happened according to bankruptcy laws is that all union contracts would be voided, all bondholders paid off as much as possible with GM assets being liquidated to raise the funds either by selling the corporation as a whole or piecemeal,  (Were their factories, etc. worth anywhere near $95 Billion at the time?) and if anything was left over (not likely), the shareholders would get the remnants.  The unions would get the scraps, if anything.

What actually happened was the bondholders were stiffed.  They received pennies on the dollar.  Instead of having their contracts voided and renegotiated with GM’s successor, the union ended up with 17.5% ownership and their contracts intact.   The American federal government took 61% ownership for its $51 billion it put up which returned about $39 billion when it sold the stock it took as collateral.

It is not the American federal government’s (or any government’s) job to reward incompetence or rescue bad management.


And then we have the infamous government ‘investment’ in ‘alternative/renewable energy’.  According to the USA Department of Energy, there are more than 1300 companies involved in alternative/renewable energy.  The company A123 received a $249 million Department of Energy grant to build two factories in Michigan to manufacture batteries for electric cars.  The company declared bankruptcy and Johnson Controls bought the plants… in the facilities constructed at taxpayer expense.  Ener1 received a $118.5 million grant to build two plants outside Indianapolis to manufacture batteries for electric cars.  Ener1 declared bankruptcy and was bought by a Russian investor. The plants in Indianapolis continue to make batteries in facilities built with taxpayer money.  Solyndra, the most famous fiasco in this realm, was the manufacturer of advanced solar panels.  They got a $535 million loan guarantee from the federal government to build a factory outside of San Francisco.  It went bankrupt in 2011.  Its assets were auctioned off, and DOE is not expected to recover much money.

Now the argument might be made that only 8% of alternative energy companies fail.  But why should the American federal government pick and choose which will get help over their competitors?  If a business cannot get funding from lenders or the equities markets on its own merits, it does not deserve to exist.   These instances are not ‘regulation’ of commerce.  They are intervention and direction of commerce as a fascist government would do.  It is up to the capitalist free market to determine the value and feasibility of any new company or technology.


The Federal government’s Export Import Bank is another unfair manipulation of commerce by the federal government.  The ‘Ex-Im Bank’ was created unconstitutionally by Executive Order 6581.  It was later codified by Congress.  Congress funds this entity and in 2012, 82% of its activity was for customers of Boeing.  There is no Constitutional support for the federal government assisting the trade of one company over its competitors, or all other businesses for that matter.


Barack Hussein 0bama has stated publicly that he intends to bankrupt the coal industry in America.  Yes, coal burns ‘dirtier’ than natural gas and petroleum fuel oil.  And, yes, nuclear reactors, hydroelectric dams, wind turbines and solar panels produce no emissions as they generate electricity.  However, each has its own issues:  Nuclear produces incredibly long-lived radioactive wastes.  Dams flood productive farmland and disrupt river ecologies.  Wind turbines do not turn constantly, are noisy and, to some people, are a ‘blight’ on the landscape.  Photovoltaic solar panels are expensive and energy intensive to produce and only work when the sun is shining on them.  Natural gas increasingly comes from wells that incorporate hydraulic fracturing of gas-bearing rock strata (‘fracking’).  Fuel oil comes from foreign crude oil imports which produces a trade imbalance and entangles the USA in geopolitical webs.

In the process of destroying the coal industry Mr. 0bama is willing to kill 170,000+ jobs.  Coal accounts for almost 40% of the electricity produced in the USA.  Is Mr. Obama happy to cripple the American economy by a proportional amount?  Is this a prudent – or sane – strategy?


Mr. 0bama has also restricted energy production in the USA by opposing the Keystone Pipeline and severely restricting drilling in the Gulf of Mexico and western lands.


And finally, there are all the disruptions, losses and mayhem caused by the clearly criminal and corrupt financial shenanigans that caused the financial crisis of 2008. For example, MF Global Holdings, led by politically connected former CEO of Goldman Sachs and Democrat senator and governor of New Jersey, Jon Corzine, comingled clients’ funds with their corporate trading funds.  When the company folded, clients lost millions.  No one went to jail or was even charged in a clear case of malfeasance and breach of fiduciary responsibility and no one within the company lost any money.

And Goldman Sachs was caught helping Greece falsify financial documents that led to the ongoing Greek financial fiasco.  Several banks were caught bundling low quality mortgages (i.e., loans made to people who were at a very high risk of default) and reselling them as top quality investments. NO ONE has ever been even indicted for any of the corruption that led to the near collapse of the global economy in 2008.

I mention this item because it illustrates that the federal government is not doing the things it is supposed to do (either constitutionally or otherwise) while sticking its nose into places it does not belong.


One last point:  The federal government forced the dismemberment of giant monopolies like Standard Oil and American Telephone & Telegraph to promote competition and protect the American consumer, but they have been allowing mergers of cable companies, airlines and, most egregiously and dangerously, large financial institutions.  The first regulatory moves were designed to increase competition, the latter counter ones decrease competition and make the general economy and country more unstable and precarious.


So what is the point of this discussion?  The American federal government is Constitutionally instructed to ‘regulate’ commerce.  It does a poor job at it by allowing to flourish – some would say rewarding – mismanagement, corruption and cronyism.  It is not empowered to pick winners among an industry’s competitors or promote one industry or technology over others.  It is not empowered to promote one segment of the economy over another.  It is not empowered to own any portion of the private economy, whether it be a vehicle manufacturer or insurance provider.  The Constitution was written to promote a free market capitalist system, not a controlled socialist or fascist system.


How do you earn your living?  Will government decide your company is undesirable? (See this article<Due Process 02 - Choke Point>.) Will they move to give your competitor an unfair advantage over you?

This manipulation and interference in private industry is unconstitutional and very often counterproductive.  It must end for America to survive.


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