Professor Igor Panarin said in an interview with the respected daily IZVESTIA published on Monday: “The dollar is not secured by anything. The country’s foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse.”

The paper said Panarin’s dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year’s events.

When asked when the U.S. economy would collapse, Panarin said: “It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world’s financial regulator.”

When asked who would replace the U.S. in regulating world markets, he said: “Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia.”

Asked why he expected the U.S. to break up into separate parts, he said: “A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles.”

He also cited the “vulnerable political setup”, “lack of unified national laws”, and “divisions among the elite, which have become clear in these crisis conditions.”

He predicted that the U.S. will break up into six parts…>>>>Read the Rest of the Story

In the words of Ludwig von Mises, 

There is an inherent tendency in all governmental power to recognize no restraints on its operation and to extend the sphere of its dominance as much as possible. To control everything, to leave no room for anything to happen of its own accord without the interference of the authorities – this is the goal for which every ruler secretly strives.

Even the least educated in regards to freedom and its foundations recognize this tendency, especially when the lengthy arm of governmental power affects their person. Yet, for all of society’s complaints about ever increasing government control, they continue to hand freedoms to their rulers in exchange for favors and handouts that seldom bring the expected results.

A story in the news last week shows a perfect example of this non-profitable exchange. The Salt Lake Tribune reported Tuesday that after an arduous process, Rocky Mountain Power (RMP) finally received approval for a rate hike. RMP originally asked for a rate hike of $160 million and then reduced that request to $74.4 million. After looking at third party findings that “argued the company deserved an increase of only $8.5 million”, the Utah Public Service Commission “decided the company was entitled to raise its rates $33.3 million.” That Rocky Mountain Power should even have to ask permission to set pricings is a sad statement about government intervention leading to lost freedom. And, not surprisingly, the rate hike isn’t anywhere near the amount RMP says it needs to be able to maintain profit margins and keep up with the demand from growing Utah communities.

While the story in the Tribune focused a great deal on how the rate hike will affect the end consumers’ pocketbooks, it is more important to focus on how government involvement and interference in what should be a private company will lead to that company’s demise.

Key Points

• The government’s interference in this situation is not an all out compulsory dominion over Rocky Mountain Power. Like most utility companies, RMP inadvertently agreed to government intervention by accepting tax breaks, grants, and subsidies.
• Whether or not the company fully acknowledged that help would have strings attached, it likely underestimated the degree of control that the government would exercise.
• Today, as it feels that control in its fullness, it finds itself greatly hindered in its ability to operate freely and protect its self-interest.
• When one gives up all or part of their agency to another, they are not excused from the accompanying stewardship, even if the loss of agency hampers their ability to fulfill that stewardship. Responsibility lies solely with the original steward, regardless of the regulations and bureaucracy that they may now face.
• Rocky Mountain Power now finds itself in the predicament of needing funds that exceed its projected budgets. So long as the government dictates allowable profit margins to the company, the company remains in jeopardy.
• The irony here is that the government wants companies like RMP to meet consumer demands at a price that seems reasonable to the consumer. In trying to regulate that price, they limit supply—a company that is short on resources will not be able to produce sufficiently. They also limit the ability of the company to meet the consumer demand, which will eventually drive prices higher.
• As has happened in the medical field and in many other areas, government intervention has artificially suppressed prices and has led the consumer to expect services for less than they cost to provide. Requests to raise prices are painted as attacks on consumers, but letting the status quo drive the power company out of business isn’t a viable option either. Where’s the utility in a defunct company?
• Government intervention in public utilities has become so common place that most fail to see the dangers in it. And, when utility companies fail, it will be to the government that the people run.

Conclusion

Utility companies have grown to rely on the crutch of the government, and in so doing have cut themselves short. So long as this practice continues, they will never know their own capabilities and potential nor will they know the true taste of freedom. In speaking to Congress on August 12, 1974, Gerald Ford echoed sentiments of Jefferson in saying, “A government big enough to give you everything you want is a government big enough to take from you everything you have.” Rocky Mountain Power’s choice of dependence and the consequent lack of freedom could cause them to lose everything that they have.

Action Items

1. Take a look at your attitudes regarding utility companies and other industries that have become dependent on the government’s help. Do you see the inherent dangers, or do you simply accept the current set up as the way things are?
2. Open a discussion with your peers in the FreeCapitalist Project on the proper role of government. Discuss how companies that appear to be inseparably intertwined with the government could wean themselves from dependency. Discuss the beneficial effects that self-reliance would have on those businesses.
3. Consider areas in which you are less self-reliant than you should be (especially areas where lack of self-reliance leads to dependence on government). What steps can you take to be more self-reliant in those areas?
4. Consider the freedoms you would lose by failing to maintain self-reliance in those areas.

MRFC Principles:  (1, 3, 9, 11)

Sources

Steven Oberbeck, Rocky Mountain Power gets OK for rate hike — but not near what it wanted, Salt Lake Tribune, August 12, 2008.

Ludwig von Mises, Liberalism in the Classical Tradition, Ludwig von Mises Institute, 2000.

Key Points

• When a government uses force of law trying to entice new business into an area by restricting other businesses in that area, it demonstrates that it has no problem regulating, restricting, and violating the rights of citizens who move into the given area.

• The law is written with subjective definitions, thus taking on an arbitrary air, which can lead to favors, corruption, and graft.

• No matter how it tries, government cannot legislate skinny, healthy citizens into existence.

• It is not the responsibility of the government to dictate eating habits.

• The free market solution for healthier food is a much better idea, as we have seen fast food chains adapt their menus to accommodate those seeking healthier alternatives.

• Profit is the tool of validation, therefore the fact that there are many fast food restaurants that are profitable, obviously validates their existence, if other types of food service establishments would be profitable in that section of the city, then they too would probably exist.

Conclusion

Certainly eating healthy and exercising are beneficial for our bodies, but it is a very scary thing to see the liberty and the rights of the people trampled on by the government in a completely ridiculous attempt to force health upon the citizens. It is our right as citizens of the United States to decide for ourselves the level of health that we prefer. The only way that people will be happy and healthy is by their own free will, not by adhering to some strange new law. Let’s hope that the law makers in California will soon wake up form this corrupt, poisonous dream that the non-thinkers in the rest of the country seem so quick to idolize.

Further, we have already witnessed the free market creating a much more realistic solution to the apparent obesity problem. Fast food restaurants have begun to offer a much healthier menu, offering fruit instead of fries, milk and juice instead of soda, and salads instead of burgers. Isn’t it incredible that without any type of law being passed these businesses have responded to the market and have found additional ways to create value for their customers? Also we have seen many new healthier fast food businesses spring up in competition to the traditional burger joint. By allowing this competition to happen, rather than allowing government to stifle it to maintain the status quo, the citizens of L.A. will be free to choose whatever type of food and eating habits they desire, which by the way, is one of the many benefits of living under the protection of the Constitution.

Action Items

1. Attend your local city council meetings and become aware of proposed actions, and make sure that your voice and position is heard.
2. Decide what your health and food preferences are, and then use your dollars to vote for them.
3. Read Atlas Shrugged by Ayn Rand and see what this type of thinking will ultimately lead to.
4. Help others around you turn their brain on by having discussions with them regarding liberty and rights.
5. Create a blog or website and regularly post your feelings about liberty and individual rights.
6. Become familiar with the Constitution and Principles of Prosperity so that you can easily articulate the ideas of liberty and freedom when having discussions with others.
7. Join the FreeCapitalist Project and invite others to join, so that our efforts to preserve freedom can be organized and effective.

Principles that apply: (9, 11)

Resources:

Tami Abdollah, A strict order for fast food, Los Angeles Times, September 10, 2007.

Molly Hennessy-Fisk and David Zahniser, Council bans new fast food outlets in South L.A., Los Angeles Times, July 30, 2008.

Today’s work-at-home environment poses new challenges that yesteryear’s work-at-homers perhaps didn’t have to deal with. Sue Shellenbarger, of the Wall Street Journal, reports that employers fear workers will take advantage of the lack of personal supervision and squander valuable time. The solution? Employing monitoring devices in employees’ computers to “look over their shoulders.” Naturally, questions of “Big Brother” arise both from employees and from critics of the process. So, is an employer justified in placing such monitoring devices? Or should the work-at-home employee have the right to work as he sees fit without the close electronic supervision? Several principles are at play in this this interaction.

Most recognize almost immediately in this story that force destroys freedom and that perhaps by using the monitoring devices employers are using force over their employees and therefore destroying their freedom. But other principles come into play that reveal a much deeper issue involved in the interaction between employer and employee: Productivity is the standard, and agency implies stewardship.

Key Points

• Employers own the businesses people work in.
• They own the equipment, the buildings, the hardware and the software associated with the business.
• They own the projects pertaining to the profitability of the business.
• They own the labor their employees have agreed to sell them.
• Owners recognize that labor rightly ordered (or as Napoleon Hill puts it, organized effort) is required to be profitable.
• Therefore, they have the right to monitor the productivity and effectiveness of the labor they have purchased from employees.
• To be honest, employees should be the most productive they can be during the times they sold their labor to employers.
• Employees often squawk about the monitoring of labor from their employers. They claim the employers take away their agency in this process.
• The best way to recognize where agency rightly exists is to answer the question: Who has stewardship in the matter? Regarding Employer/Employee exchanges agency and stewardship changes hands at different times.
  • Prior to the agreement, both parties have stewardship over their own self-interest—their personal and family welfare, business concerns, etc.
  • In the process of coming to an agreement both parties essentially say, “I see what you are wanting to do. My self-interest aligns with yours in ____ area, and I want to create value for you by ____.” The employee agrees to sell a portion of his life (time and labor) to the employer in order to accomplish both sets of self-interests. Or in other words, the employee sells a portion of his agency to the employer.
  • After the contract has been signed, the employee no longer has stewardship or agency over that portion of his life (time and labor). He must therefore fulfill his obligations in the contract by laboring in the manner and at the time his employer and he agreed upon.
  • The employer still carries the ultimate stewardship of the business, and has the right to monitor the employee’s productivity while on the job.
• Often employers like to share the responsibility of stewardship with their employees. Along with that responsibility, when properly executed by the boss, comes added agency for the employee. The employee then is able to make a few decisions regarding his time and labor.

Conclusion

Ms. Shellenbarger’s story dealt mostly with employers monitoring employees. Based upon the items listed above, this process appears perfectly right. However, often the comment was made that employers wish to monitor free-lance and contract workers at home as well. These types of individuals clearly fit into a more free category. While they have sold their time and labor to others, they generally do not sell those items in the same way an employee does. They have usually preserved for themselves a little of the agency and stewardship that the employee gives up. It would therefore be against principle for the employer to monitor the productivity of these people.  

The challenges between employer and employee have been around for generations. The boss wants the utmost productivity from his workers. The worker wants mostly to be left alone while working and to have the freedom to work as, how and when he chooses. A FreeCapitalist society—one in which both employer and employee choose voluntarily to live according to ancient principles of prosperity—can peacefully and easily solve these challenges by exploring the myriad solutions available to those whose brains are awake and switched to on.

Action Items

1. Review your own situation for creating value in the world, whether it be business owner, self-employed, freelance, contract worker, or employee.
2. Study out the level of agency and stewardship you possess by reviewing the agreements you have made for the exchange.
3. Resolve to stick to those agreements. If you do not like your agreement, stick with it until the opportunity presents itself to alter or abolish that agreement in advantage of a new one.
4. If you are the boss of work-at-home employees and you suspect that you are not receiving the level of productivity you desire or think is reasonable, discuss alternatives with your employees. Perhaps some of the following questions could be of help.
   1. What is the nature of the agreement you have with your employee?
   2. How much agency and stewardship have you afforded to your employee?
   3. Have you allowed the amount of agency and stewardship you intended?
   4. Is the amount of agency and stewardship facilitating or restricting the amount of productivity you desire?
   5. If no on #4, how can you make arrangements—including monitoring, or changing the employment status to freelancers or contract workers, etc.—with your employee to incite higher productivity?
5. If you are the employee in a similar situation, and you are dissatisfied with the current arrangements, it is also healthy for you to explore the answers to the above questions. If they are not to your liking, consider some of the following.
   1. Go into business for yourself.
   2. Seek to become a freelancer where you have control over your time and labor and whom you sell them to. Perhaps selling time and labor to several employers on a piece-rate method would be better than selling your productive time to just one employer.
   3. Become a contract worker, which carries a little more agency than an employee but not as much as a freelancer or a self-employed individual.

MRFC Principles:  (3, 7, 9, 10, 13) 

Sources

Sue Shellenbarger, Work at Home? Your Employer May Be Watching, Wall Street Journal, July 30, 2008.

Well, some consumers are concerned that this has been happening at the grocery store. As prices have continued to rise, some food companies have recognized that there is a threshold price for any given commodity. When the price reaches that threshold, consumers will simply stop buying that product. Rather than continue to push the price to the threshold point, food companies have decided to change tactics. They have repackaged items in smaller amounts and still charge the same price. The end result is the same—a gallon of ice cream will cost you more than it used to. But, consumers aren’t used to thinking in terms of “product decreases”, and some feel that the practice is a little deceptive.

Key Points

• Consumers enter transactions freely. While it is frustrating to get less than you thought you were getting, that is the consequence of your choice. As the agent in the transaction, it is the consumer’s stewardship to verify the facts before paying for anything. (Makes grocery shopping sound fun, doesn’t it?)
• The beauty of the invisible hand in the free market system is that it leads entrepreneurs to find better, more efficient ways to create value. Deception (a form of force) hinders that process, and ultimately destroys freedom.
• If the market doesn’t continue to support your product, deception will never substitute for a sustainable marketing plan. Dollars follow value, and if the value you present doesn’t attract dollars, then it’s time to re-think your value proposition.
• Consumer-minded people believe that remaining competitive is solely a function of pricing. “If competition gets tight, find a way to give less or charge less.” This scarcity-based mentality is an unsustainable lose-lose situation where neither party really feels that it is getting what it needs from the exchange.
• A better idea, as suggested in “Blue Ocean Strategy”, is to figure out ways of tailoring the value you offer to match the value that the market place is looking for. When my wife and I go to our favorite restaurant, the price isn’t our focus. We go because the quality of the food and the experience are exactly what we are looking for.

Conclusion

Food producers have a bottom line to focus on. That bottom line has to include the costs of raw materials, transport of those materials, production and processing, product marketing, and transportation to their vendors. The costs in all of those areas have increased significantly in recent months, and that leaves the companies with a difficult choice. While consumers are responsible for the choices they make when spending their money, grocery companies should let the invisible hand work its magic. Exchange creates wealth only when both parties are getting what they think they are getting from a transaction. If there is a need to change pricing structures, make it obvious to the consumer. Rather than hope that consumers don’t catch on to what they are doing, food producers should be up front and let the market decide. Otherwise, deceptive marketing practices will almost certainly make that decision for them.

Action Items

1. Before entering any transaction, see that your expectations are being met. Failure to do so does not entitle you to play the victim card later.
2. When your obligations become difficult to meet, determine that you will never try to deceive others in an attempt to give less than is expected.
3. Read “Blue Ocean Strategy—How to Create Uncontested Market Space and Make the Competition Irrelevant”.
4. Realize that productivity, not pricing, is the standard.
5. Consider how you can increase and customize the value that you offer to your family relationships and your business relationships.

MRFC Principles: (4, 7, 8, 9, 10, 11)

Sources

Four Points Media, “Incredible Shrinking Consumer Products”, KUTV 2 News, July 22, 2008.

(Matthew Pilling is a member of the FreeCapitalist movement known as the Canadian Capitalist. Despite his time in the Great White North, Matthew loves America and all that it stands for. He lives with his wife and two children in Taylorsville and works in finance.)

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.

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.

Most people view entitlement benefits from the patient’s perspective. Very few, perhaps, view the angle of the doctors. With those benefits coming down, the doctors receive less profits which makes treating older Americans less attractive. Several Prosperity Principles come into play as one considers this situation throughout the country.

Key Points

• With the current cuts, doctors no longer see the profit center they once saw, but this is fallacy. What they thought of as profit was actually government subsidies that gave doctors a false sense of validation. The unintended result was two-fold. First, doctors became addicted to a fiat source of revenue. Whether they knew it or not this source would ultimately dry up. Second, this drove prices higher as the medical field recognized the government would pay any amount to guarantee health care to the older generations of our country (a right that does not exist). These two unintended consequences tend to feed off each other until the revenue source becomes overburdened and ceases to supply the profits. This results in lazy doctors who have no idea how to work for true profits.
• This is the economic side. The moral side, the side carrying the most important equations reveal that even if the government just continues to print more currency it results in stealing property from Americans and cankers the souls of all those involved. This behavior gives false prosperity to doctors who don’t use their minds to create value for their customers. It creates a sense of entitlement in their customers who falsely believe it is a God-given right to live healthy lives. Those in government usurp more and more power over the citizens. And the common citizen’s resentment grows as his prosperity mysteriously slips through his fingers in ways he cannot account for.

Conclusion

Medicare alone will not cause the moral and economic demise of this nation, but it is a piece of the puzzle that robs each individual of that moral and economic prosperity. As Jay Perry so aptly expressed:

A careful analysis of U.S. history reveals that virtually every serious problem now confronting American society can be traced to a departure from the sound principles taught by these great statesmen.

The unstated solution is only a return to those ideas will solve those problems. Though difficult and painful, scaling back and eventually completely discontinuing such entitlement programs as medicare is the only solution to bringing this country back to a principled lifestyle of prosperity.

Action Items

1. Study the Founders—what did they believe about government dole?
2. Seek to regulate your own actions according to the Founders’ ideas, whether you are a consumer of products (i.e. a patient) or a producer (such as a doctor).
3. Take responsibility for your own life by living according to self-reliant principles.

MRFC Principles: (3, 4, 6, 9)

Sources

Robert Pear, Doctors Press Senate to Undo Medicare Cuts, New York Times, July 7, 2008.

Jay Perry, The Real George Washington, NCCS, p. xv.

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.

As Congressional Democrats and Republicans fight over the energy issue, private property has come to the forefront of the battle. Republicans want to open up ANWR and other home-front oil fields while Democrats want to preserve these areas and force oil companies into exploring alternative energy methods. Meanwhile, the windfall profits obtained by these companies is caught in the middle. For months now, members of Congress have hauled in the executives of these companies and forced them to justify their recent profits. They have threatened to raise taxes on oil-based products to rob these profits from them. And presidential candidates have overtly and blatantly disclosed in shrill voices that they want to “take those profits” and do with them what they think is more appropriate. This is nothing less than a classic property grab, reminiscent of Lenin, Stalin, Castro and others.

As late as last week, Congressional members announced they wish to nationalize the oil refinery industry because they think they can do a better job than those in the profession. Perhaps the Washingtonians should read Atlas Shrugged one more time before they make such a destructive blunder.

Key Points

• Oil refineries and profits are private property. They are owned by individuals and the corporations they formed in order to help protect those assets.
• Any attempted usurpation of these properties by the government amounts to legalized plunder.
• Profits validate a transaction, let the producer know that the value he created for the world was legitimate.
• If left in the hands of its rightful owner, properties may be employed to allow the producer to create more value. If seized by another, they go to someone other than who created the value and creates a false stewardship. If, for example, the profits of “Big Oil” go to others who attempt to create alternative fuels, these others will become dependent upon the false validation and will generally not produce value in the market place. And those to whom the property rightfully belongs, lose their drive to produce value because their self-interest is continually robbed from them.
• Value in the market place is indicated by actual exchange taking place.
• The Founders used the phrase “the people,” to identify the citizens of the United States; such as in the Preamble to the Constitution: “We the people of the United States…”
• “The people” has become a perverted phrase by Marxists and other socialists. They make the phrase sound really good, but the phrase really means that no one owns property, but it is controlled by the government.
• “The people” may act collectively, but they may not generally own property collectively. Ask yourself this question: If, as is Congressional Democrats’ desire, oil refineries can be nationalized and then owned and controlled, by “the people,” can you walk in to a fuel refinery plant and demand that the process be done in a certain way? Do you even have a say in how it will be refined, shipped, stored, sold, consumed? If the answer is no, then you begin to get a glimpse of who does not own that property.

Conclusion

If a government uses its strength to force one individual to illegitimately relinquish his property, that government then has the power to force any and all individuals to illegitimately relinquish all their properties. This ultimately leads to a Marxist-Leninist style of government. The history of the twentieth century is replete with many examples of nations that have seized property from producers. In Marxist theory, modeled by the Hegelian dialectic, this process begins with class struggle in which a consumer class grows weary of “exploitation” by a producer class. Throughout history, opportunists have manufactured these exploitative feelings in order to speed the process along. Similar signs are currently manifest in American politics, with candidates “screaming” about windfall profits and Big Oil taking advantage of the little guy. These manipulations are only damaging to our ability to follow correct principles, the only way to permanently solve this nation’s political maladies.

Many look at other countries around the world that have recently nationalized their oil refinery processes. They may tell the story of improved efficiency and higher production, but do not be fooled. “Mussolini got the trains running on time.” Hitler accomplished similar achievements. But efficiency accomplished immorally is still immorality. A fundamentally capitalist society often appears disheveled and chaotic. This is often disconcerting to many. This should, however, not be confused with the lack of efficiency. The Free Market is the best and only venue in which true, moral efficiency may be manifest.

Action Items

1. Read John Locke’s essay on property ownership in his Second Treatise on Government.
2. Review the governmental take over of Francisco’s copper mine in Ayn Rand’s Atlas Shrugged. What were the general attitudes of the those who acted for celebrated in that take over.
3. Write to your Representative in Congress expressing your opinions of even a hint at nationalizing the oil refineries in this country.

MRFC Principles: 13 (9, 11, 13)

Sources

Rep. Hinchey Steps Off Idea of Oil Refinery Nationalization,Foxnews.com, June 19, 2008.

House Dems Call to Nationalize Oil Industry, Stop the ACLU, June 18, 2008.

Hillary Clinton on Oil Profits,youtube.com, Originally aired on C-SPAN2.

Ayn Rand, Atlas Shrugged

John Locke, Second Treatise on Government, Chapter 5, “On Property.”