Today’s FreeCapitalist Radio show marks the fourth iteration of FreeCapitalist Radio first started by Rick Koerber on October 31, 2005.  New features of the show include an “ask Rick” section where listeners who email radio@freecapitalist.com with questions can have their topic fully discussed.  Also those interested in being on the show to discuss their questions are encouraged to apply.   

To give Bush his due, he prevented a recurrence of 9/11, a notable feat when you realize how desperately the Islamics wanted it to happen again and again. However, he did nothing to prevent the financial crisis from taking place. What’s more, when it did occur, he, like McCain, never laid the blame for it at the feet of people like Obama, Chris Dodd and Barney Frank. I never could figure that out. Were they afraid they wouldn’t be invited to the really cool Christmas parties?

God knows I kept trying to give sound advice to McCain ever since he got the nomination, but I guess he was too busy studying the campaign strategies of George McGovern, Michael Dukakis and Bob Dole, to notice.

If there is one thing that the next Republican presidential candidate should take away from this latest debacle it’s that,>>>>Read the Full Article

The Presidential electoral climate is changing. A recent Reuters/Zogby poll shows John McCain with a 5-point lead on Democrat Barrack Obama. This is an amazing turn around attributed to several factors: Russia’s militaristic expansion into Georgia, success in Iraq, the microscope on Obama’s liberal policies and his no-solution energy proposals and John McCain’s aggressive, proactive campaign.

The nation now will be focusing on the Democrat and Republican National Conventions and who Messrs. McCain and Obama pick as their running mates. As McCain has brilliantly taken the offensive, besides picking his Vice Presidential candidate he should go one step further — announcing an even more bold and meaningful list of job applicants who may serve in his cabinet. This may be a bold, but significant strategy that may be his ticket to electoral success.

Wouldn’t it be helpful for the voters to know what kind of people the potential President might pick to fulfill his Cabinet and Near Cabinet roles? And couldn’t it be helpful to the potential President to garner favor with certain constituencies by announcing now who his choices may be?

This is especially true for Senator McCain as he battles not just against Senator Obama, but the negative Republican Party and Bush Administration perceptions as the gang that can’t shoot straight. With the right picks, announcing his Cabinet now could enliven the McCain campaign more, engage the base, highlight his priorities for a successful “get-things-done” administration and most of all, force Senator Obama to either do the same or explain why he’s not being as forthcoming.

A cabinet of strong egos, successful resumes and well-known faces who represent a huge change from the Bush Administration’s cabinet members who seem less visible than participants in witness protection. (Can you name the Secretary of Energy or Education?)

But who would the right picks be?

If the goals are to be different from the current Bush Administration, show competency, gain politically, satisfy diversity and most of all get the voters to actually notice (an important factor with McCain being outspent probably 2-to-1) what is at stake in November; here are some suggestions.

Agriculture – Missouri Governor Matt Blunt or Minnesota Governor Tim Pawlenty: Both bring executive experience in a farm state. Both are young. Both could use some Washington bona fides for their in-a-hurry political careers and their energy will be needed as America becomes a larger bread basket for the world.

Commerce – E-Bay CEO Meg Whitman: Brings new commerce corporate success with the ability to relate to common customers. She will focus on innovation and entrepreneurship, not just another old economy CEO eager to help big business.

Drug Control – Arizona Sheriff Joe Arpaio: This office lives largely on publicity and no one is a bigger publicity hound than America’s toughest sheriff. He would send a chilling message to those who pimp their tools of destruction on our children.

Education – California Angels Owner Arte Moreno or Overstock.com CEO, Patrick Byrne: Mr. Moreno is self-made billionaire can help focus education policy towards entrepreneurial choice, fiscal discipline and Hispanic high school drop-out rates. Dr. Byrne is devoted education advocate who has been in the trenches nationally as former Chairman of First Class Education and currently Chairman of the Milton and Rose D. Friedman Foundation. They both know that the American Dream is only reached through a quality education.

EPA – California Governor Arnold Schwarzenegger: Puts a green, recognizable face on the GOP…and lots of television coverage.

Energy – FedEx Founder Fred Smith: The “absolutely positively” guy for the absolutely positively has to be accomplished task. His passion for American energy independence is well chronicled. If tasked with setting a national energy policy and reducing government use of energy by 10% in the next four years, the voters will believe Smith can get it done.

Health & Human Services – Either Connecticut Governor Judi Rell or former Congresswoman Nancy Johnson. Both of these Connecticut women understand health care and can work across party lines for compromise action rather than partisan gridlock.

Homeland Security – Former New York Mayor Rudy Giulliani: Bring in the tough guy to get tough with the terrorists and the bloated, ineffective bureaucracy.

Housing & Urban Development – Darden CEO Clarence Otis, Jr.: From growing up in Watts to leading 1,400 of America’s best-known restaurants, Otis is the success story that can bring entrepreneurial thinking to the problems of the inner city.

Interior – Alaska Governor Sarah Palin: No one but the Interior Secretary oversees more land than Palin. This western conservative has a strong, if not a well-known record, as a real reformer.

Justice – Coca Cola Legal Counsel Larry Thompson: This African American conservative was an assistant AG in the early Bush Administration. If he cannot be swayed to re-enter public service, choose Michigan AG Mike Cox to help in this critical swing state.

Labor – Former Oklahoma Governor Frank Keating: With likely Democratic gains in Congress, the Administration will need a warrior to battle the Union’s agenda. As Governor, Keating led the fight to pass right-to-work. The Unions hate him, which is why he’s the right choice, even if by recess appointment.

Office of Management & Budget – Former Texas Senator Phil Gramm: There’s no bigger deficit hawk than the man whose name is on most meaningful spending constraint legislation in a generation – The Gramm-Rudman Act. Small business owners and independent voters need to know that run-a-way spending is over in a McCain Administration.

Treasury – Former Massachusetts Governor Mitt Romney: Brings economic savvy, Wall Street credibility and potential help in the critical swing states of Colorado, Michigan and Nevada.

State – Senator Joe Lieberman: Shows that a bi-partisan approach to foreign policy is desired…so long as it’s still in agreement with the boss.

Trade Representative – Former Hewlett Packard CEO Carly Fiorina: Well-spoken and a McCain favorite, better her here where Fiorina’s experience is helpful, than elsewhere in the administration where her unknown political philosophies can disappoint.

Transportation – Former United Parcel Service CEO Mike Eskew: No one knows roads, traffic and business efficiencies better than the Eskew. He should be tasked to build 10% more roads at 10% less cost while making traffic run 10% more efficiently. If anyone can do that, UPS can.

Veterans Affairs – Fisher House Chair, Ken Fisher: Having built privately funded housing for families of injured veterans across the country, appointing Fisher will signal real change. Would the Walter Reed scandal have happened with this guy in charge?

War – We know it’s called Defense, but we’re at war and that’s the job. And that’s why we would keep Robert Gates in the position. He’s won grudging respect from all sides as a straight-shooter. Like US Grant, it took a while to get the right man. Let’s keep him.

The cynical voters and the dispassionate activists both want action, not promises. Highlighting a visible, competent, successful McCain cabinet would be a first reassuring step in that direction. This kind of a McCain line-up would give voters some confidence that the next administration might actually accomplish something.

Key Points

• HLV determines the value of things. If every human ceased to exchange, the value of items in the market would drop to zero, as became apparent last week in Flint, Michigan, where a house that sold three years ago for $110,000 could not be sold for $6,900. This is a perfect example of how property values are worthless without the human element.
• People are driven either by fear or faith. When on fear, people usually refuse to act or begin to act very irrationally. We see that with the panic stricken lines in front of Indy Mac and other banks as they are forced to close their doors. (Funny how the government and others are playing games lately with these bank closings to reduce these panic lines, but that is a discussion for another time.) When people check their emotions with more rational thinking, faith has a better chance of setting in and people may find better solutions to their challenges.

Conclusion

There is really only one cause of recession and price deflation. That is the human element. When human beings exchange, those involved in the exchange become enriched. When exchange slows down, poverty and scarcity set in. The problem with all of thee fantastic gadgets to predict trends and explain conditions is that they tend to become self-fulfilling prophecies. When indicators show a slow down, people tend to panic. Panic reduces action and productivity, which in turn restricts exchange.

Humans determine value. Those who will profit the most in these economically difficult times, will be those who most successfully get others to exchange with them. This will require a lot of cool-headed thinking, a high degree of persuasion, and ideas that make life easier for those whom one wishes to exchange with. In short, the higher the HLV, the greater the value there will be in exchanging with that person.

Action Items

1. Whatever your chosen field may be, seek to increase your HLV by looking for ways to increase people’s willingness to exchange with you.
2. If third party lending is usually a catalyst to the exchange, like it is in real estate, seek for ways not to need that part of the equation for the exchange.
3. Improve your communication skills in order to persuade prospective people to exchange with you.
4. Specifically related to real estate, consider ways of exchanging while still holding onto that property until more people are willing to exchange, thus increasing perceived value in the market.
5. Seek other areas to create value in to offset your losses in real estate.

MRFC Principles: 6 (2, 4, 5, 6, 8 )

Sources

Lesley Wroughton, U.S. house prices overvalued by up to 20 percent: IMF paper, Yahoo! News, July 25, 2008.

Valdimir Klyuev, What Goes Up Must Come Down? House Price Dynamics in the United States,imf.org, July 25, 2008.

Bob Ivry and Sharon L. Lynch, Fannie mae Unsold $5 Billion Homes Brings Peril to Shareholders, Bloomberg.com, July 23, 2008.

They are the 800-pound gorillas of home ownership: Fannie Mae and Freddie Mac, the biggest owners of mortgages in the country.

In order to understand how such trusted institutions could sink to the notoriety of tabloid fodder, shocking the country with revelations of their default-ridden mortgage portfolios, let’s use an imaginary example. While it is helpful to study their historic origins, a hypothetical situation will demonstrate the cause of their tragic fate…

Imagine you started a company that loaned money to people. In order to raise capital, you pitched your business plan to potential investors, who would be interested in knowing how you would manage the risk of borrowers defaulting on their loans. If you were like every other private company, you would provide a effective strategy that would reassure your investors of the relative safety of their investment. Obviously, no plan would be foolproof, thus investors would determine if they valued the potential gains more than the potential risk of defaults that could cause your business to fail and their investment to go up in smoke.

Now imagine that next door, a new business is formed to provide the same service, only this one makes a unique promise to investors: if for any reason they fail to operate profitably, they have access to financial reserves unlike any other –  an enormous pile of cash replenished annually by every taxpayer in America (not to mention a fine collection of special printing presses). Other companies might have large insurance policies, or additional streams of revenue, but what could compare with the ability to extract money from millions of people under threat of force?

Which company do you think will attract the most investors over time? Which company would possess a nearly unlimited ability to increase their loan portfolio? Which company do you think will eventually cease to exist, leaving its competitor to absorb nearly the entire market for lending in America? Which would you choose if you were the investor?

In a free marketplace, where force was only used to punish fraud and enforce contracts (and not reassigned to the job of eliminating risk), the growth and success of any financial services company would be directly tied to their ability to demonstrate fiscal responsibility and profitability over time. They would be limited in their ability to raise capital in that all funds would have to come from voluntary sources – no guarantee other than that of their capability to manage risk and operate profitably would be possible. Such a company would have a vested interest in carefully scrutinizing every transaction, knowing that their very future depended on it. No investor would voluntarily invest in a company that had a reputation for poor stewardship.

But a company with the advantage of an armed, wealthy godfather like the one in our story has no such incentive to personally insure the solvency of its business. Additional funds could always be extracted from taxpayers, who had no say in the matter (and thus had no interest in evaluating the safety of their “investment”). There would occasionally be complaints and concerns, voiced in committee hearings, but other than enduring some boring meetings, no real threat would be posed to the existence of the company. Even the bureaucrats, prodded by their angry constituencies would be unable to stop feeding the unprofitable beast  – especially now that the company is “too big to fail”.

And thus another naturally corrective process would be suspended by force: the process of failure, in which losses are experienced, lessons are learned, and ideas are re-evaluated. In an attempt to avoid the pain, the benevolent godfather would step in and make the consequences of the original bad idea seemingly disappear (through another violation of principle).

Some are crying that Fannie Mae and Freddie Mac were originally “good” institutions, created for the purpose of helping the poor and underprivileged acquire home financing they would not otherwise have qualified for. Ironically, the very violation of principle that made those companies so attractive in the housing market (reducing risk by promising security with funds taken by force, thus removing the possibility of failure) made them appealing to everyone in the housing market – and reduced the incentive for Fannie and Freddie to be more careful about the risk they purchased so rampantly. Even if Fannie and Freddie never purchased a single sub-prime loan, their very existence as an unlimited source of funds had an enormous effect on the availability of easy money for home financing, which in turn influenced the rise in real estate values that was the enabler for much of the speculative and sub-prime transactions in recent years.

By creating a company that was perceived to be protected from the risks that would challenge any private mortgage buyer or insurer, a distortion was created in the marketplace. Such a company has an artificial advantage, having the sanction and protection of the only entity in America with the legal power to use force to provide funding for its endeavors – the U.S. government.

In a recent article in the New York Times, the following explanation was given:

The case against Fannie and Freddie begins with their peculiar status: although they’re private companies with stockholders and profits, they’re “government-sponsored enterprises” established by federal law, which means that they receive special privileges. The most important of these privileges is implicit: it’s the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

Such one-way bets can encourage the taking of bad risks, because the downside is someone else’s problem. The classic example of how this can happen is the savings-and-loan crisis of the 1980s: S.& L. owners offered high interest rates to attract lots of federally insured deposits, then essentially gambled with the money. When many of their bets went bad, the feds ended up holding the bag. The eventual cleanup cost taxpayers more than $100 billion.

This particular author, who clearly describes the contradiction inherent in the business model of Fannie and Freddie, is nevertheless adamant that they should not be allowed to fail. Despite his articulation of the system of “privatized profits and socialized losses”, he acknowledges no violation of principle, and advocates continued support of the flawed enterprises, while blaming greedy speculators for dragging down the whole housing market, and causing defaults in the “good mortgages” that Fannie and Freddie hold. In other words, no one would have noticed that the emperor has no clothes if it wasn’t for everyone else losing their shirts.

The only thing the current crisis has done to Fannie and Freddie is reveal the fatal flaw in their very foundations. It has simply sped up a process that cannot be stopped, only delayed. Violating principle, even for a “good cause” has consequences that cannot be avoided, but are often hidden from view for years in an attempt to defy reality. The very birth of Fannie Mae and Freddie Mac, as institutions wishfully set apart from the rules that would govern every other private endeavor, held the seeds of their own destruction.

Many critics today cry foul at lenders who provided the “easy money” to those who they claim should never have been given money due to their “sub-prime” status – in other words, the likelihood that they would default. What they forget is that those lenders and the investors that supported their efforts are now paying the price for their decisions. Loss is the natural consequence of their bad ideas. In an attempt to ease the pain of loss, little tyrants everywhere are calling for regulations to keep people from making such “risky” investments. But government has no place telling people how to invest their money. Such efforts to revise government regulations would be better spent removing the poison in the well that perverted the minds of irrational investors – those institutions that stood as the bastions of the illusion of security in the housing market, Fannie Mae and Freddie Mac.

Action Steps

1. Learn more about how Fannie Mac and Freddie Mac were formed and what their role is in the housing market. Learn about how the mortgage market works, how liquidity affects it, and what 
2. Write your Congressmen and Senators to express your opinion of a taxpayer bailout of Fannie and Freddie – include your view of the violations of principle involved in the current situation and the very existence of the institutions.
3. Share what you have learned with your friends and family. Teaching principles helps us to live by them, as we strive to advocate principles effectively.

MRFC Principles:  (5,6,7,8,12)

Sources

Julie Creswell, Protected by Washington, Companies Ballooned, New York Times, July 13, 2008.

Making Sense of Problems at Fannie and Freddie (informative graphic showing how Fannie and Freddit supply liquidity to the mortgage market), New York Times, July 11, 2008.

Paul Krugman, Fannie, Freddie and the Threat of Economic Meltdown, New York Times, Reprinted on alternet.org, July 15, 2008.

Paulson: Support for mortgage giants needed, MSNBC, July 22, 2008.

What has changed to cause these people to panic? Certainly, the general economic conditions of the day aren’t favorable, and the bank has shown a lack solvency, neither of which would muster much confidence in the average consumer. Even so, weren’t these distinct possibilities when accounts were opened and monies were deposited? No one likes to lose out and good stewardship demands that we do what we can to protect and increase our resources. But, when things do go differently than we hoped or planned, what should we do as good stewards to rectify the situation?

Key Points

• Faith begins with self interest. Fear is the enemy of faith, and therefore, acting out of fear is never an act of faith and can never produce the needed or desired result. Fear is an emotion that is meant to warn us of potential dangers and help us determine how to handle those dangers. It is meant to help us consider the options before us and navigate our course rationally. But, most people allow fear to lead to panic and irrationality. In the name of protecting their prosperity, people make moves that will almost certainly lock them into a life without prosperity.
• Panic and irrationality lead people to forget where real value lies. If the bank fails, if the dollar fails, if the entire system fails, each of us will still have the talents and knowledge that we have always had. We may have to adapt how we apply our talents and knowledge in our new situation, but we will still have the ability to create value, exchange it with others, and find value in the ensuing relationships.
• People standing in line will likely get their money back, but will either cling to it and not put it to good productive use (the hoarding mentality of so many of the Depression Era), or they will put the money at continued risk, speculating in other areas in hopes of recouping lost profits. Neither option has the power to create prosperity for these people. Both options place value in the physical reality of dollars—an option which leaves these people as slaves. They have no ability to control the market value of those dollars, and are therefore captive to the market swings of those dollars. If the dollar becomes completely devalued, they will be left with worthless papers and the big question of who is to blame for their bitter situation.

Conclusion

Loss hurts. But the amount that it hurts is entirely up to us. We can choose to be victims of bad situations and be tossed about by them. Or, we can take stock of that which we still have and determine how to produce with it. Money, the great distracter, has nothing to do with that decision. Which kind of makes sitting in line at a bank seem a little silly.

Action Items

1. Learn to eliminate fear and apply true faith to your financial decisions. (This DOES NOT MEAN hoping really hard that an investment will work the way you want it to.)
2. As best possible, know the potential positive and negative outcomes of an investment before you choose to make it.
3. Determine if the worst case scenario is something that you could live with and learn from.
4. Determine how you will recognize if the investment is faltering. What leading indicators should warn you that things are heading south?
5. Determine what your exit strategy would be if leading indicators showed the likelihood of the worst case scenario coming to fruition.
6. Recognize from the get-go that whether you recoup all of your money and expected profits or not, the risk of the investment was something that you chose to assume. In similar fashion to John Galt’s refusal to accept unearned guilt or profits, vow to never blame others for your gains or your losses on any investment.

MRFC Principles: (2, 3, 4, 5, 6, 7, 8 )

Source: Hundreds Demand Money From Failed California Bank, Associated Press, as seen on FoxNews.com, July 15, 2008 http://www.foxnews.com/story/0,2933,383341,00.html

In 1938, the Federal National Mortgage Association (Fannie Mae or FNMA) was created as a government agency to create liquidity in the failing mortgage market. Then, in 1968, Fannie Mae was privatized—not because the government shouldn’t be messing in private market matters, but because Fannie Mae’s numbers were messing up the Federal Budget. In the same year, congress chartered the Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) as a private corporation to provide competition to Fannie Mae’s 30 year monopoly on the secondary mortgage market. Nothing like fair, open-market competition between Uncle Sam’s step children, is there?

While both Fannie Mae and Freddie Mac hold the status of being Government Sponsored Entities (GSE), they are technically private institutions. As GSE’s, both enjoy relaxed regulatory guidelines, so they hold an obvious upper hand in the competitive market place. So much so that virtually all privately owned lending companies base their guidelines on standards set by Fannie and Freddie.

And now, even with that competitive advantage, both organizations are on the verge of collapse. Ironically, their collapse is being blamed on current mortgage market conditions, when in reality, the presence of GSE’s in the market-place is one of the leading factors in the meltdown. Lenders, borrowers, and investors have poured money into the system based on the mistaken belief that FNMA and FHLMC are backed by the government. They are not. That false sense of confidence and security has led to over-extension of credit and speculation. FNMA and FHLMC are companies that were created by a government inexperienced in that field, with dollars that weren’t theirs to spend in the first place. Had either company had an honest start in the market place, they would have likely collapsed decades ago. Instead, we have an entire market segment that is based entirely on unsustainable foundations. The foolish man built his house upon the sand.

Yesterday’s news was that if the two lending giants were to collapse, there was little that the government could or would do for them. This morning’s news is that, in rethinking the ramifications of that collapse, the government feels we need to preserve these tumors. The foolish man tried to rebuild his house on the sand.

Key Points

• The creation of FNMA and FHLMC using tax payer dollars was an extreme violation of principle (Principle 9, to be specific), and was therefore destined to fail.
• The government is saying that the cost of bailing out either or both groups will have to be passed on to tax payers because it doesn’t have the money.
• The bailouts will only provide a temporary fix and will simply delay the inevitable at an extreme cost to the American people.
• To put this in greater perspective:
  • The total cost of war on terror through end of 2008 is estimated at $752 billion.
  • The high-end potential cost of bailing out private mortgage companies is estimated at $250 billion.
  • No one knows the exact cost of bailing out Fannie and Freddie yet, but they own and/or guarantee around $6 Trillion in loans. That’s 8 times larger than the current cost of the war on terror, and 24 times the cost of bailing out private mortgage banks.
  • While it is not likely that both organizations would be bailed out for every dollar they owe, the level of their insolvency is growing daily.

Conclusion

Allowing FNMA and FHLMC to fail will bring dire ramifications. The entire lending industry and all investments tied to that industry will experience major setbacks. This will affect other seemingly stable industries (such as the insurance industry) that invest heavily in mortgage-backed securities, and it will have direct impact on the stock market and value of the U.S. dollar. Trying to save FNMA and FHLMC, however, will bring much greater problems. Both organizations will still likely fail in time. They will just do so at a much greater cost to tax payers.

Action Items

1. Learn more about seller-carried financing and other lending options that aren’t connected to government lending agencies.
2. Write your congressman and express your concern that spending more to save a dying patient will only multiply the problem.
3. Develop greater levels of self reliance in your life by studying the Principles of Prosperity and learning to effectively apply them.

MRFC Principles: (4, 5, 7, 9, 10, 11, 12)

Sources

Letter to Committee on the Budget, Congressional Budget Office, February 11, 2008.

Mark Zandi, A Mortgage Bailout Would Cost up to $250 Billion, Wall Street Journal, February 27, 2008.

Independence Day is also a day to reflect. Do we recognize the price our Founders paid to win their independence? Do we know of the struggle leading up to that great event? What do we know about those men? Do we buy in to the image so prevalent today that they were philandering old men or have we done our homework and recognize their virtue? Do we just spend our day lounging around, getting drunk, and exercising the inner urge to blow things up?

The Founders started a revolution, but they did not complete it. They recognized it would take many generations to complete what they started. Yes, they were able to validate their declaration of political sovereignty; but their revolution was so much more. They subsequently created a government to transcend the ages, one which had never been tried before. One which honored the individual and allowed the individual to govern himself.

The Founders revolution included three areas. The first, most well-known is the political revolution, discussed above. The basic premise is that man is able to govern himself and doesn’t need a king or elected officials to tell him what to think and how to act. How are you doing? Do you govern yourself or do you allow others (political leaders, bosses, Kommissars*, etc.) to control your life? Second, this revolution was one of religious freedom, or freedom of conscience. Finally, to be a citizen of a nation an individual did not have to be the member of a certain church. He could choose for himself, according to the personal belief system within his own mind. The third portion of the revolution is economic. Through capitalism people can freely exchange with one another, individuals can do more than just live paycheck to paycheck. They are free to discover their life’s missions and to pursue those with that same freedom of conscience and to strive to leave the world better than when they entered it.

This revolution—all three portions of it—are not intended only as a collective revolution; it is a personal revolution. So how are you doing? Do you understand the purpose of the revolution? Do you live the revolution, or are you just living paycheck to paycheck, getting up when others say you should, going places others say you should, thinking the ideas others say you should? Or do you practice your own autonomy? Are you actively engaged in a personal revolution? Do you celebrate independence all year long, or is it a 0.27% of the year?

MRFC Principle:

*German spelling used intentionally for effect.

Alpine, UT | June 23, 2008| It’s time to vote. Tomorrow, Utahan’s will once again have an opportunity to send a political message to the country. It’s this capitalist’s hope that tomorrow-before we vote-we might all remember to “wake-up” and “turn our brains on” as I remind my radio listeners everyday at the beginning of my AM talk show.

The question before voters in Utah’s 3rd Congressional District is who to nominate for the Republican ticket. Once the emotion of a closely contested election is appropriately set aside, the thoughtful choice is obvious.

Having spent significant one-on-one face time with each of the candidates, it is my firm judgment that Congressman Chris Cannon is the superior choice. He is a leader, a teacher, and the best Representative for Utah’s 3rd Congressional District. Mr. Chaffetz, as ambitious, capable, and clever spoken as he is, is still an aspiring student in the fight for freedom, prosperity and peace.

While there is still a general election in November, for all practical purposes, the winner of tomorrow’s contest among Republicans will head to Washington as a member of the newest Congress and once all the campaign adrenaline subsides, there is no rational reason for Utah Republican’s to abandon Representative Chris Cannon. There are several obvious reasons to support him, and electing his contender, Mr. Chaffetz, will only weaken the Republican cause.

While the nuances of debate could go on and on, these three overarching arguments create a simple framework for clearly making the best decision for Republicans in the primary election tomorrow.

Argument #1 – There is no rational reason to abandon Representative Cannon.

Republicans, and conservatives more particularly, are reeling from poorly executed political strategies over the last several years. The Democrats currently control both branches of the US Congress, a majority of state governorships and a plurality of state legislatures. In national polls Barack Obama is currently polling at 15 points ahead of Republican John McCain. At a time like this, should Republicans in Utah be looking to change horses in the middle of the battle?

Congressman Cannon has earned one of the most conservative voting records in the entire Congress by think tanks, media surveys, and independent vote tracking organizations alike. He has received the strong endorsements of Republican leaders both nationally and locally (both Utah Senators Hatch and Bennett have been extremely generous and complimentary of Cannon). These endorsements don’t come easy or without consequence. Republicans in Utah might consider if they have a specific reason that bests these recommendations when viewed alongside Congressman Cannon’s actual voting record.

What are the supposed “deal breakers” that his challenger suggests would justify Utahan’s abandoning Cannon?

Challenger Jason Chaffetz offers four key points for Utahan’s to consider.

1. Immigration

Many Republicans rightly consider illegal immigration a hot-button issue. Chaffetz criticizes Cannon for his supposed failures – but what are they actually? I had the opportunity to visit personally with Mr. Chaffetz, and when pressed, his argument boiled down to an example where Congressman Cannon missed one of perhaps twenty immigration related votes. This supposedly demonstrates, according to Chaffetz, that Cannon doesn’t really want to solve the immigration problem.

The funny thing about this argument however, is that if you were to ask one hundred registered Republicans what the vote was, and what policy was so critical that missing the vote would cost him his seat – I’ll wager that not one could accurately respond.

While most of the registered Republicans voting in tomorrow’s election would find it difficult to describe (even after a diligent effort by the Chaffetz campaign) the actual policy differences between the candidates, the deeper questions are even more pointedly in Cannon’s favor.

Consider, Chaffetz is claiming to take a “harder” stand on sending “illegals” back to their country of origin. Okay. But, this is easy political rhetoric that scores points with the frustrated right wing of the party- but ironically-when pressed for details about how to accomplish this hard line approach, Chaffetz fails to demonstrate a) that he has a specific plan, b) that he has any strategy with a realistic chance of rallying other Republicans to his position; or, c) that having Cannon back home here in Utah while Chaffetz is in D.C. touting his highly abstract-even if pleasant-solutions to his congressional colleagues would have any more of a realistic chance for legislative progress than we’ve had so far.

To make the point more clearly, there is a difference between Mr. Chaffetz stating a principled answer to a policy question on immigration (which position I tend to agree with by the way) and actually knowing what to do about it. Governing-Republicans must not forget-is about more than the “right answers.” Getting things done in Washington takes more than articulate speech making, it takes leadership- and that is precisely what Utah would be loosing by abandoning Mr. Cannon.

Now, to get even more to the point. Even if Utahan’s were to consider Cannon’s performance on immigration poor- as Chaffetz suggests-the real question is, does unseating one of the most Conservative voting Congressmen in a Democratically controlled Congress increase or decrease the likelihood of real immigration reform happening in the near future? The answer is obvious.

2. Defense

This is perhaps one of Chaffetz’s most disappointing arguments. While suggesting that national defense is a serious issue to which he brings a more sound policy approach-Chaffetz fails, during direct questioning, to identify one single policy difference between his proposed course and Cannon’s actual record.

Chaffetz does decry issues such as poor health care and education benefits for veterans. However, when pressed, Chaffetz even admits he was completely unaware of the significant debate going on right now in the Congress over the new G.I. Bill passed last week by Rep. Nancy Pelosi 416 votes to 12. How would Mr. Chaffetz’s leadership affect the issue? It apparently wouldn’t if, as he admitted, he was completely unaware of the bill.

Congressman Cannon has a 98.7% favorable rating for voting to keep America’s military strong and national defense as a priority. Why would Utah Republicans be interested in changing course?

3. Education

Cutting past the tag lines, the only major issue repeatedly raised regarding education, that supposedly distinguishes Cannon and Chaffetz, is Mr. Cannon’s previous support of No Child Left Behind. This is ironic given that Mr. Cannon has explained his past vote, changed his position and has repeatedly been sent back to Washington by Utah voters since that vote.

I asked Mr. Cannon about this issue, the first time he appeared on FreeCapitalist radio. He spoke openly and candidly about the situation. First, he suggested he regretted the vote. Second, he suggested that the implementation of the law was what made the situation far worse than could have been predicted before hand. Finally, he offered suggestions for how to move forward with education reform and detailed his efforts since that vote several terms ago.

Mr. Cannon’s explanation was thoughtful and his willingness to speak candidly about an issue that has come to bite many Republicans over the years was refreshing. Chaffetz, however, appears stuck in the past on the issue. The Provo Daily Herald recently offered the following insightful conclusion on the situation:

“For Chaffetz to hammer Cannon for his initial support of No Child Left Behind is unfair. After all, Cannon isn’t hammering Chaffetz for campaigning for Micheal Dukakis not so many years ago.”

4. Spending

Perhaps most striking is Mr. Chaffetz criticism that fiscal discipline needs to be returned to Washington. His argument is of course true. What candidate couldn’t say this?

Strangely, Mr. Chaffetz’s ideas on the subject are revealing-in odd ways-of a deeper intention. For example, he charges that in order to change fiscal spending we’ve “got to elect different people” but he forgets that the different people argument only works if you remember that the Democrats are controlling the Congress and the way to change the discipline of the Congress is to send people from the other side. Cannon has a 92% voting record when it comes to fiscal discipline – perhaps Chaffetz is thinking he could muster 95% or even 100% but without more Republicans in D.C., exactly how does this matter?

When Mr. Chaffetz suggests that for Utahan’s to get different results in Washington we should send different people, my suggestion is that we send one fewer Representative from the Democratic side of the isle. If Mr. Chaffetz or any other future contender wants to make a stand, take on the Democrats first – or at least a left leaning Republican. By taking on Mr. Cannon, Chaffetz demonstrates its more about his political future than it is about fighting the good fight.

Finally, in the arena of finance, Chaffetz has jumped on the McCain bandwagon of demonizing “earmarks.” This is ironic given that Mr. Cannon is consistently rated as being more conservative than the left of center ratings commonly applied to Mr. McCain.

Voters would do well to remember that earmarks are an elected representative’s tool for exacting financial discipline against professional bureaucrats. Earmarks are instructions for money already authorized, not votes for increased spending. Chaffetz suggests he won’t use earmarks, which is to say, he won’t provide specific leadership or discipline over the regulators who implement the laws he would vote to pass. Interesting.

Argument #2 – There are several obvious reasons to support Representative Cannon.

First, consider his actual record. While almost any Utah Republican might find a vote or even several that he or she might disagree with Representative Cannon about, is anyone so naïve as to believe the same wouldn’t be the case with Mr. Chaffetz? Is it ever different with any elected official?

The reason we have a representative government is that American’s put their elected officials in a position to know more about the larger political interplay and the consequences of individual decisions. Congressman Cannon has one of the most conservative and consistent voting records of any elected official. When compared to his predecessors in Utah, when evaluated by bills sponsored, attendance at critical votes, and leadership in committee assignments Congressman Cannon compares favorably by almost all measures.

Second, the endorsements received by Congressman Cannon do not come easily. Not only has he been endorsed and supported by his colleagues in the Congress, and by the President of the United States, he has also been supported by pro-free enterprise organizations including those with a pro-emigration reform interest such as the world’s largest organized effort for businesses and free-enterprise in America, the U.S. Chamber of Commerce. Should Utahan’s take no stock of these endorsements because of an emotional, and at times insatiable, desire for “change?”

Third, Congressman Cannon has a firm grasp on both the political philosophy and legislative reality of core American principles. Have Utahan’s listened to Congressman Cannon articulate his understanding of conservative principles? On FreeCapitalist Radio over the years there have been very few guests who can compare to Mr. Cannon’s level of passion and concern, informed advocacy, and mature grasp on the very real battle going on in Washington.

Mr. Chaffetz may indeed be sincere, but when I visited with him in my home after the state Republican Convention – he came off as a policy minded aspirant, more than a principle grounded advocate for freedom. I mean no insult to Mr. Chaffetz, I would prefer him representing Utah to, lets say, your average Democrat. But, he did not strike me as a man who had a grasp on the intellectual foundations of freedom.

Like I say on the radio, being right is only half the battle. Being right for the right reason – now that is a more powerful formula. In all seriousness, do Utah Republicans really want to send Chris Cannon packing when Mr. Chaffetz has not yet read, let alone grappled with, Bastiat’s “The Law” or von Mises’ “Human Action?”

Argument #3 – Electing Mr. Chaffetz will only weaken the Republican cause.

The biggest reason Republicans have failed strategically, and why Conservatives have failed to ever control a majority in the US Congress is because Republican voters have too often been apt to change course-without regard to a more mature understanding of the battle we are facing in America. First and foremost what Republican’s should be concerned about in 2008 is increasing their numbers in Washington. Mr. Chaffetz chose to campaign against Congressman Cannon rather than Democrat Matheson because, by his own admission, he didn’t think he could beat Matheson. I would argue this is part of the problem.

Let me explain in more detail. Shortly after the FreeCapitalists helped ward off his near upset of Mr. Cannon at the state Republican Convention I invited Mr. Chaffetz to my home. I wanted to visit with him about his agenda, his motivations and to discuss the mission of the FreeCapitalist Project and our interest in freedom, prosperity and peace.

We spent several hours visiting about all sorts of issues. I found Mr. Chaffetz to be intelligent, sincere, and authentic. I like Jason. But, a few things stick out in my mind from that meeting.

First, I asked Mr. Chaffetz what he would do if he should lose this election. His response was that he anticipated he would return to the private sector. I asked about other political possibilities to which he responded, “this is kind of a one-hit wonder” situation for me. He referenced that in his mind efforts like those of former candidate John Swallow demonstrated that it was a one shot opportunity for him to “make his mark.” I probed him and asked him, if he was so serious about fighting for freedom why he would give up after only one shot. He did not provide a substantive answer. I choose note to support a candidate whose commitment to freedom is limited to serving in elected office.

Second, after letting Mr. Chaffetz know that while I was the founder and President of the FreeCapitalist Project (we have approximately 12,000 FreeCapitalist minded constituents in Utah) all of our members were free to make up their own minds about how to vote, I invited him to visit our online community. I suggested that he could post his position statements there, engage in discussion on our forums, etc. To my knowledge he did not take advantage of that opportunity. I thought that was rather odd given that FreeCapitalists fielded over 10% of the delegates to the state Republican convention and that we represent a particularly active political segment of the population. I think his behavior is reflective of the tribalistic mentality that suggests its important to be the head of the tribe, but at the same time shows little interest in leading in other arenas. This problem has plagued Conservatives for generations.

Congressman Cannon has a business, legal, and public service background before and during his time in office that demonstrates his commitment to the principles of prosperity. Mr. Chaffetz is handicap here because of his lack of political experience, his lack of civic service in the interests of freedom outside of politics, and a lack of any endorsement from his previous boss, Utah Governor Huntsman. I asked him about this, and about his commitment to the cause of freedom, despite holding elective office, his answer was still that it was this election or nothing. I find that answer troubling.

Finally, I tried to ask Mr. Chaffetz about his own agenda. I asked him about his political philosophy, who he enjoyed reading, and about some of his key influences. I was surprised that he could be so policy sharp and yet have so little philosophical depth.

Quite frankly, it worried me. I was sitting there thinking to myself that he might indeed come to represent Utah in the US Congress, and here again would be another Republican who did not understand the intellectual history and the consequences of the monumental, ideological, war being waged across the world for the last eighty years.

I was even more surprised that in over two hours visiting one-on-one Mr. Chaffetz did not try even one time to learn anything about me or the FreeCapitalist organization. I don’t remember him asking me one question. Nor has he followed up since then. I don’t have any personal feelings that are negative, but it seemed to demonstrate to me that he was more interested in winning my support than he was in earning the respect of my associates. This again seemed to me to be a collectivist mentality that suggests that voters might be persuaded to make a good decision during an election year (through pull, strategy, marketing, and cleverness) but once the election is over-the consequence of this kind of thinking tends to bring about a more tyrannical government-not a more free one.

I think Mr. Chaffetz has demonstrated extraordinary ability during this campaign. But, he is far less qualified to Represent Utah today than is Mr. Cannon. His experience and political convictions have amounted, so far, to nothing more than opportunism.

I sincerely think Jason wants to win-but I’m not convinced of his commitment. Depending on the future course he pursues, I consider it a very real possibility that, I could consider him an ally and even be a supporter. But, not today.

Today Jason Chaffetz would not be a good choice for Utah, and certainly not when compared to Congressman Chris Cannon.

Congressman Cannon is a man – like all of us – with faults. However, in his capacity as an elected Representative, he stands head and shoulders above his challenger. This is why even a number of his former opponents have regularly endorsed him.

The reader may be interested to note-it was Congressman Cannon who initially sought out the FreeCapitalist Project. We had been publishing a free, monthly newsletter called the “FreeCapitalist” and he walked into our offices and asked who was responsible for publishing such information. On our first meeting he expressed sincere interest in helping support the message of prosperity and freedom. He demonstrated a great interested in our cause. He maintained the endorsement of some of our other supporters such as the late Dr. W. Cleon Skousen and the late H. Les McGuire.

From that first day in our office, Congressman Cannon has maintained an open channel of communication to FreeCapitalists and other freedom minded individuals. He has repeatedly been our guest on the radio and open for discussion with almost no difficulty whatsoever. In my own experience, I have personally watched him go the extra mile to reach out to those who have at one time or another disagreed with him.

Congressman Cannon understands the principles of freedom and prosperity. He has represented Utah. While I sympathize with several of those who are frustrated with government, and even with Mr. Cannon-I suggest he is a great asset for the state of Utah and we should count ourselves fortunate that he is willing to endure the heavy price of being our Representative.

If Mr. Chaffetz is the victor tomorrow, it will send yet another message to America that Utah cannot yet discern her place as a leader in the movement for liberty and prosperity. All will not be lost, but the first thing I’ll do is send Mr. Chaffetz another copy of our Primer along with Bastiat’s The Law.

Congressman Cannon, if he is the victor, won’t need either, being thoroughly familiar with each. I recommend to all FreeCapitalists, to all of our associates, and to all Utah Republicans voting in the 3rd Congressional district – vote for Chris Cannon.

Let’s hope that tomorrow the voters show up, awake and with their brains-on. Congressman Cannon has much work to do, and much left to accomplish in Washington as we carry forward in the cause of freedom, prosperity and peace.

Two stories recently—one this weekend and another about a month ago—tell about merchants who are working to increase exchange. Hotels want people to come and stay, but because of the relatively high price of gas, fewer people are currently traveling. They are offering fuel credits to guests as an enticement. The other, a real estate development company in San Diego, is offering 2 for 1 houses. If a customer will buy an upper-end home, for which the development company is asking $1.6 million, the company will throw in a 2000 square foot city-scape home worth $400,000. A representative of the company is reported as explaining, “It’s our way of dealing with current market conditions to move some inventory.” This sentiment indicates an understanding, even if only subconscious, of several principles of prosperity.

Key Points

• People are assets. This development company recognizes that it has far too many properties in its inventory. They are all worthless unless people take possession of them and begin to exercise their agency over them.
• Human Life Value is the source and creator of all property value. Again, and very closely related to the statement above, these properties—all properties—have zero value. The development company, through its marketing campaign is searching for the level at which humans value the properties the company currently holds.
• The development company is also learning another very valuable lesson about Human Life Value. They, along with a myriad other developers in Southern California and all over the country, are discovering that people are beginning to value less the higher end homes. Certainly, the plight of the lenders is an influence but the people, in general, have ceased to value these homes as well. This does not bode well for the developers in the near future. But as they continue to search for the perceived value of the potential buyers, they will eventually effect an exchange.
• Exchange creates wealth. This is probably one of the most well-understood of the 13 principles. If two people do not strike hands and make a deal, the perceived value creation does not exist. It is merely an illusion.
• Faith begins with self-interest. Market conditions that go sour breed fear which destroys faith. The developers are currently seeking for the self-interest of individuals in the marketplace. When they find that individuals will begin to act again.

Conclusion

Market slow downs are often difficult to deal with, whether an individual is a producer or a consumer. The idea, however is to help create certainty in the marketplace. Those most able to help others realize that certainty stand to prosper well during these questionable times.

Action Items

1. If you have fear regarding the current market, recognize that fear and strive to replace it with faith. This may not be an easy task. The best way to alleviate fear is to act. Identify where you see certainty and act upon it.
2. maintain an open mind to new ideas.
3. Encourage those within your personal sphere of influence to also maintain such a mental state.
4. Begin today to create certainty in your market by learning the motivations of those you wish to exchange with and then create value in those areas.

MRFC Principles: 8 (2, 5, 6, 8 )

Sources

Peter Viles, “In Escondido: Buy one (house), get one free”Los Angeles Times/Blogs, June 1, 2008.

Steve Hargreaves, “Hotels offer gas rebates amid record prices,”CNNMoney.com, April 21, 2008.