Newt Undermines GOP Arguments on Capitalism

A desperate and angry Newt Gingrich has relinquished his remaining grip on smart primary campaigning and unleashed an all out assault on Mitt Romney's economic record – and, by association, capitalism. Gingrich's attacks on Romney's experience, however, only serve to undermine Gingrich's stance as a responsible, non-negative campaigner and isolate him from the sensible Republican voters whom he needs to court to have any chance at receiving the GOP nomination.

However, aside from the damage that such attacks seem to be having on Gingrich's campaign, this anti-capitalist line of campaigning is causing monumental damage to the very economic basis that the Republicans are supposed to defend. In his quest to take down his rival, Gingrich is relying on the same Occupy Wall Street-style rhetoric that dominates the left. (To be fair, Governor Rick Perry has resorted to similar tactics, as the WSJ reports.)

The pernicious results are, at least, twofold. First, these attacks greatly help the Obama campaign. These are the precise attacks that the anti-freedom, anti-capitalist forces of the left will unleash on Romney come the general election. There could not be a better way to bolster their argument than by dishing it out for them. As the presumptive nominee, Romney will have an uphill battle to convince those who succumb to the easy anti-capitalist rhetoric that bashes the free market system. Obama can only be gleeful to have help in his mission in the form of Newt Gingrich.

Secondly, and arguably more importantly, Gingrich's attacks solidify misconceptions and distortions about how the free market works. The underlying assumption in his argument is the same as those held by the worst populists in OWS and the anti-Wall Street fringes of the Tea Party. The central argument is that somehow those who have money must justify their possession based on some social, communal good. This is simply false. The freedoms of the American political system guarantee that individuals have the right to their property. Provided they do not engage in illegal activities, individuals have no obligation to justify their earnings to the state in any regards. In other words, the rich, the middle-class, or the poor, need not demonstrate a social purpose or benefit from their occupation in order for the state to deem it acceptable. A free market functions precisely because no government body determines these things.

However many populists and the left implicitly rely upon this assumption when attacking the "rich." Accordingly, they argue that financiers cannot justify a socially-beneficial purpose and thus their "unjustly" earned wealth should be, at least partially, relinquished to the state. Gingrich has gone on record stating that the likes of Bill Gates, Steve Jobs, and Sam Walton deserve their billions because they invented something real. By contrast, goes the argument, Wall Street is just a "handful of rich people [who] manipulate the lives of thousands of other people and walk off with the money...."

This is a gross distortion of the role that finance plays in a capitalist system. Finance is an essential service – it moves capital from those who possess it to those who can use it best. It allows entrepreneurs, who do not possess the needed resources, to obtain them fairly and efficiently. And like anything in business, sometimes it succeeds and sometimes it fails. Capitalism's success is not because it always creates jobs, but that it allows resources to be successfully and most efficiently allocated to the right places, something no one person or institution (government) could do alone. This inherently implies hiring and firing, buying and selling, and investing and divesting. Firing, for instance, moves labor from an area that does not need it and thus frees it up to be used in a more productive fashion.

But Gingrich's attack plays into the leftist and populist rhetoric that ignores the importance of finance. Not only does it confuse voters who are unfamiliar with finance, providing fodder for the left to continue the myth that finance and Wall Street are greedy robbers that need to be stopped by the government (Progressive blogs have jumped on this Gingrich quote.) but it does a great disservice to the purported Republican goal of changing the direction of this country.

Gingrich should be ashamed at such low-brow politics. As an academic and a genuinely smart guy, he must know that the quest to hold political office should not undermine the long-term goals of righting the direction of this country. Relying upon political expediency rather than education only reinforces the anti-free market myths that dominate the public sphere. Republicans have unfortunately excelled far too much at this game. They choose to battle on the Democrats' terrain, using leftist arguments and thus continuously fighting on the defensive. The GOP will only be able to transform this country if it starts to think for itself, if it directly targets these sort of implicit assumptions that underline much of the political dialogue and replaces them with truth. Gingrich's behavior flies in the opposite direction by not just failing to break down the "Wall Street" is bad assumption but strengthening it.

Was It Wall Street or the Government?

A recent Securities Exchange Commission (SEC) investigation into Fannie Mae and Freddie Mac, the two government sponsored enterprises (GSEs) that were integral to the housing boom and bust, now formally argues that these two organizations committed massive fraud, which underrepresented their exposure to subprime mortgages and contributed to the economic meltdown.

The Wall Street Journal expounds how this investigation blows holes in the argument, often proffered by anti-capitalist Democrats, that Wall Street is solely to blame:

Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis. 

That's the story revealed Friday by the SEC's civil lawsuits against six former Fannie and Freddie executives, including a pair of CEOs. The SEC says the companies defrauded investors because they "knew and approved of misleading statements" about Fan and Fred's exposure to subprime loans, and it chronicles their push to expand the business.

And while the GSEs were somewhat independent from the legislature and the bureaucracy, the paper trail seems to go further back. At least some of the incentive for the alleged fraud was directly caused by government's social policy of getting every American his or her own house - regardless of the ability to afford it.

The Beltway story of the crisis claims that Congress's affordable housing mandates had nothing to do with it. But the SEC's lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, "Desktop Underwriter." Fannie did so as part of its "Say Yes" strategy to "provide more 'approve' messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted."

Unfortunately, this is what happens when the government meddles in private-markets for social engineering purposes - prices (and risk) get mispriced, bubbles are grown, and then busts bring the economy down. And while this does not fully absolve Wall Street (fraud did occur and non-criminal stupid decisions were made) or the consumer (the role that greedy homeowners played in buying too much house or refinancing to buy flat-screen TVs and BMWs is unfortunately overlooked), it does shed light on the harm government can do. Sometimes trying to help people ends up with a worse outcome than doing nothing, especially if all potential consequences are not considered from the outset.

The Economic Harm of OWS

For a movement that professes to be protesting the dismissal state of the economy, including the lack of jobs, Occupy Wall Street (OWS) appears to believe that hampering the mechanisms of capitalism is a smart move. Yesterday, members of Occupy Portland shut down the Port of Portland, preventing any trade from proceeding. The Port of Portland is the fifth largest port (by tonnage) in the United States and is thus responsible for an enormous amount of trade and jobs, both at the port and in markets that rely upon the trade.

Why the Occupy movement thinks that stopping economic flows is an intelligent tactic is beyond comprehension. Not only would it seemingly undermine any potential support they could garner from those who do not sit on the far-left of American politics, but such strategies undermine attempts to improve the economy. It is nonsensical to prevent people from working and interrupt economic activity in this economic climate.

OWS has had pernicious effects on small businesses, particularly those located in the vicinity of the protests. Shops, for instance, have been forced to close as protesters have driven away paying customers. Other businesses have had to lay-off employees in order to stay afloat. And many banks have been forced to close their doors for fears of potential violence. None of this helps the economy or the newly minted unemployed.

But the follies of OWS do end there. There have been reports, admittedly isolated for the time being, of Occupy protesters attacking banks, stores, and other institutions of "capitalism." While not yet the mainstream of the movement, which has largely been peaceful, such violent trends are worrisome. The last thing this country needs is to descend into further turmoil.

Some Sense Regarding the Housing Market

It is about time someone talks honestly about the economy. According to The Wall Street Journal, Mitt Romney commented about the housing market and foreclosure:

One is, don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up. Let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang.

Number two, the credit [that] was given to first time homebuyers was insufficient and inadequate to turn around the housing market. I think it was an ineffective idea. It was a little bit like the cash-for-clunkers program, throwing government money at something which was not market-oriented, did not staunch the decline in home values anymore than it encouraged the auto industry to take off.

The Journal went on to say:

How's that for refreshing? After five years of politicians trying without success to postpone disclosures and levitate the housing market, Mr. Romney dared to tell the truth. Parts of the U.S., including Nevada, still have too many homes, and that supply needs to be sold off and fixed up so the market can find a bottom before home prices can start to rise again. The faster that process proceeds, the faster the recovery will take hold.

While the personal plight of many individual Americans is heart-wrenching on the personal level, meddling in the housing markets is the sort of disastrous policy that helped push the economy to its current state. Why can so many correctly criticize the bailout of big banks, insurance companies, and auto manufacturers, but not realize a bailout of Main Street is just as dangerous? The government's expressed desire to "prop-up" or "boost" the ailing housing markets are simply other terms for "create a new bubble."

By distorting incentives the government encourages individuals and institutions to incorrectly calculate risk. Inevitably, this will lead to sub-optimal outcomes. As difficult as it may be to watch the nefarious outcome of poor risk management, it is sometimes better for all to simply do nothing. The government not only does not have the ability or resources to "help" everyone, but it creates awful drags on the economy, as current policies have demonstrated, and breed future problems when it foolishly tries to become a superhero.

Redistributing GPA

University students in California put accepted liberal wisdom to the test in a well-executed video. Posing as petitioners, they asked bewildered classmates to sign a petition that would mandate redistribution of GPA points from those fortunate enough to have high GPAs to those with low GPAs—in order to bring everyone closer to the university median. Unsurprisingly, most students demurred, claiming it was unfair to take what they had worked hard to earn and give it to others. Regrettably, most were then unable to reconcile this belief with their contradictory support of a "tax-the-rich" mentality. Its quite sad how so many Americans, particularly our budding scholars, accept such arguments whole-cloth without thinking through the underlying reasons and implications.

The video is a few months old, but highly poignant given the equally obtuse rhetoric coming from the Occupy Wall Street movement.

The Power of Lobbies

It is a common political pastime to disparage so-called “special interests.” Their association with the Big “You Fill in the Blanks” [Business, Insurance, Auto, Pharma, etc.] and their alleged corrupting influences on politics has made them an unremitting target of popular umbrage. Following the Citizens United decision, President Obama distinctively claimed that it was “a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.” However, a year after this infamous and contentious Supreme Court ruling, there has yet to be considerable, if any, focus on a key aspect of the special interest world.


The overlooked reality is that no lobby or special interest has any power save what is given to it by the government. Merriam-Webster defines a special interest as “a person or group seeking to influence legislative or government policy to further often narrowly defined interests.” Special interests gain clout not through their own power over a specific industry or market, but by influencing legislators or regulators to grant them undue sway. The real power lays with the government officials, who possess the ultimate command of coercion.

Surprisingly, this fact is frequently disregarded when populists want to attack special interests. However, if one takes a look at the industries where powerful lobbies exist there is an eerie correlation with government involvement. Seemingly, special interests would lose much of their influence if the government ceased arbitrarily meddling in private markets.

To be clear, this is not a claim that the problem of every special interest is rooted in government. For instance, simple vote- or seat-buying [Mr. Blagojevich] is often initiated by special interests and is unquestionably and inarguably wrong. There is little controversy that such behavior is unconscionable and must be eradicated. This is, of course, not a flaw in government as an institution but in government officials as corrupt individuals.

Nor is it a claim that government can have no constructive role in the private sector. Certain regulations and oversight are, at times, necessary. For instance, when non-legislatively caused monopolies exist and they are able, through illegal or unjust means, to deter competition (or in other words, cause severe distortions of the market) the government may have a limited role to play in deconstructing the firm’s market power.

Nevertheless, far too many of the problems (and there are many problems) in the private sector are the result of a conferral of power from the government to an undeserving group or individual. Critics miss the point when attacking lobbies, who like any other group or individual, are solely aiming to maximize their self-interest. Instead, the vitriol should be directed towards the regulators and politicians who continue to write laws and regulations that arbitrarily interfere in a world where the government does not belong. [To parallel, who is at fault when a demanding child is given one-too-many sweets– the relenting parent (who ultimately has the power) or the whining kid?]

Our government and our society need to change their outlook in this regard. If industries know that government will stand at arm’s length from the daily hubbub of a market and instead, solely create guiding rules (I.e. enforcement of contracts, prevent of abuse or fraud, etc.), the power of special interests will be severely limited if not eradicated. However, this is unfortunately not the case. Far too often, a tweak in a law can make or break a company’s bottom line. Right or wrong, this necessitates a strong response from an industry.

Republicans have a grand opportunity (and some say a mandate) to make this cultural shift. While so-far largely symbolic, the “repeal and replace” campaign against Obamacare is a prime testing ground. Regardless of whether the “replace” makes it anywhere in the next two years, it should be fundamentally based on the principle of clear, concise rules, that strengthen market forces and avoid noisome government meddling.  Avoiding unwarranted special interest power is as simple as prohibiting unjustifiable government forays into the private sector.

D'Souza on Obama

Dinesh D'Souza wrote a very interesting article in today's Washington Post.  He agrues that Obama is a classical anti-colonist who gets his ideas directly from his father, a man who once called for complete socialism (and a 100% tax rate) in Kenya.  His argument, that Obama focuses not on poverty and equality but upon "the rich, whom he accuses of not paying their 'fair share,'" has a ring of truth to it.  Obama certainly spends a lot of time stoking the populist flame by portraying the "rich" and "Wall Street" as greedy.  D'Souza's article certainly raises a new and interesting argument regarding this side of the President.

The Goldman Sachs Witch-Hunt

It is no shock that Goldman Sachs’s hearing before a Senate subcommittee yesterday was an episode in subterfuge and political posturing. However, the level of bipartisan vitriol and populist grandstanding was inexcusable.

The subcommittee, chaired by Senator Carl Levin (D-MI), hounded a number of Goldman Sachs executives for the better part of the day. This was no exercise in fact finding, but a brutal cross-examination by a biased plaintiff. Nearly every Senator (except at rare moments Tom Coburn (R-OK)) came with a pre-planned agenda to portray Goldman Sachs as an epitome of a rampant Wall Street-gone-bad that wrecked havoc on the poor innocent investor and America’s economy. The Senators repeatedly waved sensational, but otherwise meaningless, documents in the air, simplifying the extremely complex issues until they were a digestible, but un-nutritious mush ready to be consumed by the populist masses.

These politicians are not stupid. While their understanding of the financial markets is clearly limited, they obviously comprehend the intellectual dishonesty that they exhibited. It is hard to believe that such a display, coupled with the recent bogus charges brought against Goldman Sachs by the SEC (a decision which in relatively rare form was controversially split), was anything but motivated by the desire to force through a regulatory reform package. Even the Republicans, such as John McCain (R-AZ), who is in a tough reelection battle, walked to the ‘bash Wall Street’ drumbeat.

The fact of the matter is that there is little evidence that Goldman did anything wrong. While to the uninitiated it may be difficult to understand the market and readily easy to misconstrue it as misguided, this does not stand as evidence of wrongdoing.

To begin, Senator Levin attempted to cast Goldman as the bad guy for making a profit. It is ironic that those that realized the housing bubble was inflated (and thus helped to mitigate its wanton expansion), are now being chastised for being ahead of the curve. The Washington Post says it best,

[If Goldman did not bet against the market as early as it did t]he firm would have lost billions, and it might have wound up needing an even bigger bailout by U.S. taxpayers than it actually got. It could have ended up like Citigroup, which tried to ride the bubble until it was too late and had to be propped up with hundreds of billions of dollars in federal cash and credit guarantees.

There is nothing wrong with this behavior. It is done all the time and is, in fact, what keeps the markets going. Short sales are necessary and proper in markets – even if against a long-position controlled by the same entity. This sort of hedging protects institutions and the economy in the long-run. If the world of finance is too complicated in this regard, one only needs to look to that of farming or commodities to see the same practice. Farmers, for instance, will bet against agriculture to insure against the risk of crop failure.

Besides the criticism of profit-via-short, the committee also bashed Goldman for selling, what was termed in one of the infamous documents, a “shitty” product. Needless to say, the definition of “shitty” is subjective and quite unscientific, but even if a product could be objectively proven to be “shitty” is it wrong for a company to sell it? How many less-than-stellar consumer products are sold on a daily basis? It is up to the consumer – and in this case they were quite sophisticated investors – to evaluate their purchases. Ultimately, Goldman’s knowledge about how the product was constructed has no bearing on the ability of an individual investor to assess its quality.

Now to be clear, there were a myriad of mistakes made at all levels of the economy; however, the targeted witch-hunt is unfair. It misguides popular attention from the real issues. As a result simplistic solutions are proposed to solve non-existent problems, while the real issues are ignored. The characteristic problem is the desire to find the causation of bad outcomes in practices which only look odious with hindsight. This is poor logic. Fraud must be distinguished from both bad business and good business that had bad luck. Every decision relies upon an analysis of the probability of certain outcomes. Even if the analysis is done correctly sometimes that low-probability outcome will occur. Politicians inability to address this non-sound-bit ready fact and instead chose to bash Goldman Sachs is quite unfortunate.

The State of the Perpetual Campaign

“We can’t wage a perpetual campaign.” So said President Barak Obama in a State of the Union address that was arguably another stump speech in a long-line of campaign speeches. The address was mainly an attempt at resetting his presidency to a time, a little over a year ago, when the President was popular and perceived he had a mandate to govern. Rather than drastically alter his direction, Obama emphasized a number of trends that have been unvarying cornerstones of the past year, namely populism, an anti-Washington sentiment, and the call for more government.

His populist stance was evident throughout the speech. While he admirably accepted some responsibility and admitted to gaffes, he largely played to the misgivings of the masses. He continuously bashed Wall Street and banks, targeting bonuses and the bailout. He said, “[W]e all hated the bailout. I hated it….”  Even while appealing to the grand notion of bipartisanship he attempted to separate ‘the people’ from the ‘elite’ by, for instance, offering an end to capital gains taxes, but only for small businesses.

This populism is rather disingenuous and anti-intellectual, as most populism is, and will only serve to foment fault-lines in American politics. All of America is responsible for the economic meltdown, not just Wall Street. By refusing to indict the average citizen for his mistakes alongside Wall Street, Obama is reinforcing a culture that dismisses personal responsibility.

The second major theme was the continued attempt to portray himself as an outsider to Washington. His repeated mantra was “Washington has been unable or unwilling to solve any of our problems.” It is a time-tested tactic for campaigners to portray themselves as outsiders. America habitually wants new visions and ideas and elected Obama a year ago largely based on this successfully transmitted message.

However what worked during his ‘real’ campaign will largely fall on deaf ears now. After a year in office, Obama is Washington. He said this much when castigating his party for their failures, “To Democrats, I would remind you that we still have the largest majority in decades, and the people expect us to solve problems, not run for the hills.”

Obama’s insistence on railing against Washington is interesting to say the least. It shows that he has yet to fully leave the campaign trail. From his perspective, this should be worrying as America has shown that it does not appreciate this politicking. America wants a president that leads not one that is on the campaign-trail.

The final major theme was his insistence on Big Government. Roughly two-thirds of his speech focused on the economy and rightly so. However, his entire approach of a paternalistic big government saturated his rhetoric. While his healthcare discussion was moderated, his language elsewhere continued the same cadence that drove the healthcare issue during the first year.  A prime example of this misguided economic policy was his discussion on college affordability. He stated:

And let's tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.

Now this sounds noble and, on the surface, profound. After all, every America should have access to college and most understand the heavy load from student loans. However, if one spends a few seconds considering the ramifications of the plan the economics simply fail.

For starters, if debt is forgiven it means someone has to cover the costs. There seem to be three options – the taxpayer, the lenders, or the schools. If it falls on the lenders, well they simply will stop lending. No business will be willing to operate at a loss and so such a plan will reduce available loans. If it’s the taxpayers, well we all know the problems there. If the schools have to shoulder the burden it will reduce the quality of education as schools would be forced to cut programs, salaries, and other expenditures. Alternatively, it would give schools incentives to only admit those who could pay their own way, thereby restricting access to universities (particularly the elite) to the rich.

Likewise, Obama’s plan could create a perverse incentive for individuals to get frivolous degrees. Higher education is an investment in one’s future. While many enjoy learning, a higher degree should generally only be pursued if it offers a positive return. Such a program would encourage people to complete degrees that have little bearing on their career paths. While this is certainly noble and learning is a paramount value, it should not be done at the expense of demolishing our education system.

This is but one example of the administration’s warped economic perspective. Obama, while often pure in aims, far too often attempts to correct the symptoms rather than address the underlying problems. It is economically unwise to expand government in order to force changes in the price one pays without addressing the underlying cost of the product. This backward economic principle only serves to grow government and exacerbate problems.

However, despite the many flaws of the address, credit must be given where it is due. Obama did make a number of strong points and called for some positive changes. First he stated, “We need to make sure consumers and middle-class families have the information they need to make financial decisions.” The flow of information is a principal aspect of free competitive markets and should be applauded. Second, he called for off-shore drilling and the construction of nuclear plants (amongst other proposals) both which will create jobs and promote energy independence. Third, Obama invited both parties to offer ideas for healthcare reform. He stated, “But if anyone from either party has a better approach… let me know.” Hopefully this is not mere rhetoric and the Republicans will take advantage.

Obama has work to do. Hopefully, he can step up as a leader, dismiss the big government, partisan, and populist focus of his administration and end his political campaign. He seems to have learned some lessons from the past year, and particularly Massachusetts, but he is not quite there yet.

Fed Up!

The economic meltdown was caused by the underestimation and mispricing of risk. The small town broker,  the average family, and the Wall Street banker were all responsible for taking on too much risk. The government has correctly diagnosed the ailment – in part. While the Fed and Treasury both point to the excessive risk taking, they only seem to place the blame on Wall Street.

As The Financial Times reports, the Federal Reserve has unveiled new rules aimed at limiting and controlling executive pay at all institutions under its purview. This follows sharp controls from the Treasury for executive pay at institutions who still have bailout money.

The Fed defends the proposed rules by claiming they will reduce the excessive risk taking that caused the meltdown. Chairman Ben Bernanke, stated that “…compensation plans that encourage, even inadvertently, excessive risk-taking can pose a threat to safety and soundness.” The argument implies that economic downturn was the direct result of risk taking that was driven by high-pay packages for greedy executives.

This perspective is downright foolish. It is unquestionable that mismanagement and so-called ‘fat cat’ bankers played a role in causing the economic mess. However, they are no more culpable than ‘covetous’ housewives who took out a home-equity loan to buy the flat-screen TV or new Mercedes or the ‘greedy’ loan originator who turned a blind eye to the proper documentation in order to make a quick sale. The fact of the matter is all of America is to blame. Most Americans – individuals and companies – did not make smart investment decision.

The Fed’s new pay policy is simply an attempt to make it appear like the government is doing something productive. In reality, it is simply to appease voters who, egged-on by the finger-pointing Obama, are looking for a scapegoat. It is politically and logistically easier to go after a few, big-target banks, than a million or so credit card owners.

Unfortunately government meddling in executive pay will not make things better. It is the wrong medicine for the correct diagnosis. Such a narrow shot at poor risk-management completely misses the fundamental problem. It obscures the fact that the underlying issues are not and will not be addressed. Even more concerning is the fact that it nestles the government far too deep into the private sector.

Not only will the plan fail to address systemic problems, but it will most likely fail to solve the problem at companies. In fact, it is more likely to exacerbate problems. CBS News reports, that talent is already being driven from top firms. Furthermore, individual executives will find ways around the system. They will find alternative ways of compensation or establish unconventional institutions that do not fall under the purview of the Fed. This will move the main banking industry out of the regulatory eye of Bernanke. At the end of the day the risk will still be incorrectly accounted for and nothing will have changed.

Bernanke is correct that excessive risk is to blame. But let’s step back and stop pointing fingers. Smarter policy that is not punitive and spiteful needs to be designed. Flashy regulations that scapegoat a few individuals while absolving the rest of America from responsibility are counterproductive and will only lead to the next bubble and burst. This is particularly true if our government is simultaneously diminishing risk by bailing-out companies. Any market distortions will misprice risk – why doesn’t the Fed understand this?

What Are They Thinking?!! – Socializing and Destroying Our Economy

On Friday, the House voted to give the government sweeping control over pay in the private sector. This plan continues the radical-leftist Congress’s assault on free enterprise and the capitalist system. Essentially the bill, H.R. 3269, prevents large companies from rewarding their employees in ways that may cause excessive risk taking. What excessive risks are is undefined.

Such a power grab greatly hampers the abilities of companies to structure their businesses according to what works best. While companies certainly have, and will continue, to make mistakes, there is no reason to assume that the government can make better decisions. In fact, there is much reason to believe that government interest does not coincide with what is best for a company. Governments have a whole host of groups that they must pander to; including, constituents, lobbyists, party members, and others.

Government meddling in corporate business strategy can only lead to bad situations where politics trump good business sense, sapping initiative and dampening the industrious and innovative American spirit. In such instances, the government role is inefficient, impractical, and downright foolish. It brings politics into a realm where they don’t belong. The very motivation for greater government involvement is completely imbued with political motivations. Such bills are precisely motivated by the populist rage that the Congressional Democrats are nurturing and harnessing, rather than any objective logic. Destroying the fictitious ‘fat-cat Wall Street’ apparently wins votes, even if it hurts the very Americans who cry for blood.

The damage that this bill could cause is foreshadowed by the government’s meddling in the relationship between Citigroup and one of its prime breadwinners, Andrew Hall. Hall, who runs a division of Citigroup called Phibro, which often earns a large chunk of revenue for the company, is admittedly a well compensated man (he owns a castle). He is now demanding a contractually committed bonus of $100 million. Citigroup, which received a lot of taxpayer cash through the bailout, is under immense pressure to renege.

The tensions in this are obvious. However, whether he is right or wrong, Hall, and his massive amounts of revenue, will leave Citigroup if his contract is not upheld. Citigroup is naturally in a tough position– stuck between the same populist anger that is pressuring the government and a large capital outlay that may reap future rewards. This tough decision is only complicated by the presence of government decision makers who, motivated by reasons not necessarily in line with Citigroup’s financial success, can severely influence what happens.

Proponents argue that government intervention is necessary to mitigate excessive risk taking on Wall Street. However, the excessive risk taking that this bill attempts to eradicate, is the very same excessive risk taking that Congress has helped build into the system. The financial bailout and other such programs encourage risky behavior. After all, if one knows one will not have to suffer the consequences, one will be more likely to take risks. When the suffered consequences do not match the risk level it encourages individuals to have a surplus of hazard. The bailout encourages just that.

Congress is in the process of establishing such a backwards system. If a system cushions the consequences of missteps, it simultaneously encourages missteps to be taken. Ultimately, people and institutions need to be able to feel the pinch in order to learn to avoid behavior in the future. The only alternative to eradicate risk is to have one party dictate every action– compensation, production, consumption. This is a failed political system often called communism.