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Source link: http://archive.mises.org/9401/show-trials-with-capitalist-defendants-in-shackles/

Show Trials with Capitalist Defendants in Shackles

February 8, 2009 by

The companies bailed out expected to go on operating as private businesses, but with government money. That’s how the bailouts were advertised. But that is impossible.

Once government money enters the picture, the firms are effectively nationalized, even though the outward guise and appearance of private ownership may remain. This is because their operations are no longer based on profit-and-loss considerations but on satisfying the government and whatever sectors of public opinion are loud enough at the moment to influence the government’s decisions. FULL ARTICLE

{ 25 comments }

Dick Fox February 8, 2009 at 11:07 am

The turn of the 21st Century will prove to be the time the United States fully embraced the Fascist state. I simply do not see any turning back from the Fascism that has gripped our nation and if anything we are rushing headlong into the era of jack-booted thugs.

I remember when I thought that right and left were degrees along a line of thought. Today I realize the line is actually a circle and that right and left are simply which direction you walk around the circle toward central planning.

Kaimu February 8, 2009 at 11:48 am

ALoHa !!

Show Trials … the George Reisman article on CAPITALISM perhaps needs to delve into the “Heirarchy Reports” of some of the “so called” capitalist banks that have been allowed to flourish via the US FED and its cohort the US government. I believe “real and true” CAPITALISM died in 1913 when the US FED came into being. Anytime you have a monopoly of any sort aligned with the US government you have been disqualified as a “CAPITALIST”!!! This is the very entity that exists today and the best label we can afford such institutions is “crony privateers”! So here we are bailing out banks that have been given every unconstitutional favor since 1913. Banks that now sport “Heirarchy Reports” that number subsidiaries and shell companies in the thousands. JP MORGAN alone has over 5,000 separate entities attached to the parent company. The top three companies JP MORGAN, CITIBANK and BANK AMERICA between them have over 11,000 worldwide entities who in turn have their own subsidiaries of subsidiaries. What sort of management could ever manage such huge numbers of “paper shufflers” in a viable manner? This is the consequence of “globalization gone wild”! The unending creation of money that has exponentially risen since 1971 and that is now in line to exponentially rise on top of exponential proportions … Where can this all end except in a monetary crisis where no CAPITALIST will be able to exist. In this case a complete 100% collapse of money and economies will be the only way to rid the World of currencies backed by government promises. Perhaps only then will CAPTIALISM return to favor …

CAPITALISM died in 1913 … everything ever since has been US FED intervention!!

To view Heirarchy Reports of Peer Group #1 banks go to this link: http://tinyurl.com/758nmf

Link to NIC(National Information Center)at the US Federal Reserve go to this link: http://tinyurl.com/dkwcg7

Bill R February 8, 2009 at 12:46 pm

“Each time the tired business man has settled down to his business, with a somewhat happier smile on his face, he has been roused by a new threat of government antagonism–much as the Egyptians used to carry around a mummy with the last course of every banquet to indicate that death was never very far away.” — Wendell Willkie in 1939 from this AMAZING speech http://www.federalobserver.com/words.php?words=1107

pairunoyd February 8, 2009 at 1:27 pm

This reminds me of the article I posted at Mises’ boards, Unchained Man Ruins Freedom.

pairunoyd February 8, 2009 at 1:27 pm

This reminds me of the article I posted at Mises’ boards, Unchained Man Ruins Freedom.

pairunoyd February 8, 2009 at 1:30 pm

Let’s show emaciated statist shills withering in concentration camps. That would be so awesome.

ehmoran February 8, 2009 at 1:51 pm

Not to defend what’s happening in America, however, if you read the Federalists and Anti-Federalists Papers (Late 1700′s), read the financial transformations that occurred in the US from late 1800′s to the late 1930′s, and others, you’ll realize that the US Government was designed to protect the Wealthy. Protecting national, and thus personal, wealth is the only protection from invasion and conquest by other less moral Governments.

liberranter February 8, 2009 at 3:37 pm

While I’m glad that George took the time to provide a first-rate analysis of a situation that is completely misunderstood by both the public at large and “mainstream” economists, I’m a bit dismayed at his citation of Maureen Dowd’s pseudo-journalistic screed. Such a citation confers upon her a dignity that neither she nor her work deserve. I find it difficult to swallow the idea that any human being with even a single functioning brain cell takes anything Dowd says seriously. The fact that the NYT still gives her space in which to spew her fatuous nonsense represents a major symptom of that paper’s much-deserved collapse.

All of that said, I think George did his usual superb job of demolishing myths and misconceptions perpetuated by MSM outlets like the NYT. May he keep up the great work!

Chad Rushing February 8, 2009 at 4:20 pm

Dick Fox: “I remember when I thought that right and left were degrees along a line of thought. Today I realize the line is actually a circle and that right and left are simply which direction you walk around the circle toward central planning.”

I had a similar epiphany not very long ago, too. The public motives of the two sides may differ (“the State for the people” vs. “the people for the State”), but the authoritarian means used by both are effectively identical in practice: expansion of the State’s powers and sphere of influence.

That is why I now contrast “libertarianism” with “authoritarianism” rather than “conservatism” on the right with (modern) “liberalism” on the left when discussing political theory with others.

Cybertarian February 8, 2009 at 5:39 pm

Dick Fox,

“I simply do not see any turning back from the Fascism that has gripped our nation and if anything we are rushing headlong into the era of jack-booted thugs.”

How about we fight back against government and WIN using CYBERTARIANISM ???

Here is my bet, governments are too large, clumsy and narrow minded to adapt to the rapid and fast pace of technological progress in the 21st century.

Governments will insist that business keeps being done as usual and will refuse to adapt.

Darwin has proven to us that those who can’t adapt DIE !

I predict that the concept of the nation state will not survive the advent of artificial intelligence and how it will enable people and businesses to do free commerce between themselves and shield them against government and social interference.

Technologies employing artificial intelligence to encrypt and hash commercial transactions into billions of encrypted subtransactions impossible to trace back.

That way, people could do commerce between themselves hidden from government and society’s regulation and taxes.

We could post medical advice, sell drugs and arms.

Also, the software would promote libertarianism, progress, free market capitalism by debating with people and telling them to adopt freedom.

Also, this virtual entity would verify users and testify to their trustworthiness.

This virtual entity would be the ultimate mediator between men in the name of free commerce capitalism.

Free market capitalism needs a defender, I propose we build a virtual defender.

thesprot February 8, 2009 at 6:26 pm

Ms. Dowd does have a valid point or at least from the point of view of what she, and I assume, the majority of americans perceive as capitalism.
After all bailouts and selective favors from corrupt government and FED officials are being disguised as being part of the free market and capitalism.

It is not surprising that she buys into this, and attacks these companies bonuses jet purchases etc as being unjust and unfair, which they are. At the end of the day this companies are basically bankrupt, it was them that asked to be bailed out, it is only fair that people look upon their activities with scepticism.

We have to remember that the bailout was seen as favoritism from the government to their banking buddies, it was rejected by the public in the first place, it only happen thanks to the bipartisan determination of the Bankers and government crooks. It is only normal that people feel let down angry cheated and manipulated.

All we can do at this point is explain the simple truth that the US is not nor it has been in a long time a capitalist economy. Instead it is a National Socialist society and economy and a very deceitful one of that. So if anything, Socialism has let people down yet again.

Barry February 8, 2009 at 7:14 pm

Mr. Reisman, I am looking forward to reading some of your work. But, the problem I have isn’t so much with the bonuses in general, but the bailouts. In the 1980′s, they wiped the major Texas banking business out and brought in outside ownership, despite the fact that the big banks of the US, the ones still operating today, were quite possibly even more insolvent, due to international loans. It is clear the big bonuses on Wall Street were created as part of this bubble in general, basically created by these very entities that are being bailed out along with the Federal Reserve. Clearly, these banks are being kept alive selectively, due to what you point out as political favors. Many foreign free marketers as Marc Faber and Jimmy Rogers propose as I do that they wipe out the ownership of these institutions and start over with new capital and leave the current ownership and bond holders to sort out what is left. I haven’t read of anything in Austrian economics that would contradict this position. I believe the bad bank/good bank game going on now is going to sweep even more taxpayer weatth into the hands of these losing parties. The point is that Merrill’s employees would have received the same bonuses that Enrons received in 2001. Also, I highly doubt that their partner in crime, Goldman would have been solvent either.

I venture the that the relative pay for upper level executives was 5% or less 25 years ago on Wall Street, meaning inflation adjusted. I recall reading that Henry Kaufman of Solomon was the highest paid guy back in the 1980′s at $2 million a year. The bonuses received were quite like the salary of a punch and judy hitter built up by steroids into a powr hitter in the major leagues, a 5 HR guy made into a 30 HR monster and thus we were witnessing an industry was reaping huge rewards while using illusion of our time to appear to be more than mortal. I have read indications that the only other time in history that compensation in this business was at this level was the last time Wall Street magically manufactured credit and collapsed the economy, the late 1920′s.

There is a lot said about moral hazard and much of this applies. If these banks were allowed to operate in the 1980′s secretly insolvent, those in the know would clearly take risks up the food chain figuring that the fix would be put in again. The act of creating credit without sufficient capital to take losses is as much or more theft as going into the same operation with a gang of men with tommy guns and taking the money out of the front door. The men who awarded themselves and others bonuses, including those that received them weren’t much different than the armed gang I mentioned. If they were so ignorant of the mess they were creating, then it is clear that their talents were overstated and overcompensated.

The past 25 years has turned the whole system upside down. I recall a man named Welch that ran GE and how he is now nominated for sainthood. Was he really that good or did he merely leave the building before his wiring shorted out? Those of us that knew about the brewing financial bubble knew that GE would face extreme problems in just a few years, not because he was gone, but because they where now anchored into the financial game too deeply to extract themselves. In a widespread media, my comments here might attract thousands of protests, but I stand by them all the same. My point is that corporate managment and board members have quite often used stockholder capital to gamble and reap the rewards of the gamble as if the property was theirs. I don’t believe employees were ever meant to be rewarded for losing other people’s money. Wall Street used to be partnerships and once they dumped the risk off on the public and loaded themselves up with options, they gambled.

S. Keeling February 8, 2009 at 7:15 pm

Damn, this is taking a long time.

My copy of the gov’t against the economy is ©’79. It should not be taking that long for this stuff to sink into common understanding.

We need a better (or less distracted) version of people. Add another millenium to the bottom line for freedom’s price. Damn.

Thanks George.

Jeremy February 8, 2009 at 7:44 pm

I agree with much of what Barry says above.

Without the Federal Reserve (and now without the bailouts), great swaths of the financial industry would either not exist or exist in a much reduced form. Bonuses even in good times come directly from the effects of fractional reserve banking. Those bonuses shouldn’t exist, period.

Even many marginally profitable non-financial companies wouldn’t be in business without the cheaper financing made available through fractional reserve banking in combination with the policies of the Federal Reserve, and the added benefits of spending this new money first and being able to pay it back by selling goods priced higher than they would in the absence of FRB and the Federal Reserve.

The distinction needs to be made between companies that drive the economy and those that drag it down. And once you understand ABCT and have thought about it a bit, it should be clear that a good number of companies exist at the expense of dollar holders.

But bonuses & benefits being paid to unleveraged companies that earn a lot of money (and don’t rely on government privilege in other forms)? Those are lower than they would be in a a true laissez faire economy (if only because such companies would be able to expand even more in such an environment, and because the value of bonuses would not lose value as soon as they went out thanks to FRB)

ehmoran February 8, 2009 at 8:14 pm

thespot,

You hit it hard!

Since Hamilton’s issuance of Treasuries, passing of the Federal Reserve Act, the Gold Confiscation Act, and other political decisions, which most Americans have no clue about, aligning and connecting the dots definitively would show a Govt “Invisible Hand” deep within this so-called “Free Market”.

As you point out, the US Govt has once again proven that Socialism is a total failure and can never succeed; just a shame this point can’t be expounded upon by the Media and other influential sources. Our debt, which might surely become our insolvency and dissolution, purely is a result of establishing and attempted maintenance of an always disastrous Welfare State.

Govt’s need to refuse admission of having designed then orchestrated such a system of foretold failure has lead to our ever increasing but denied inflation, the propensity of WAR, and a debt burden on future generations that, in my observations, will require class, or caste, designations to maintain order.

Nicksuno February 8, 2009 at 8:53 pm
Dmitry Chernikov February 8, 2009 at 10:51 pm

There is a difference between a company’s losing money overall and particular people who, despite that unfortunate fact, nevertheless have contributed more to the company’s product than they cost in their compensation. These people may deserve bonuses even if the majority of the company’s employees do not. And it is perfectly possible that it was the top executives who were the most productive employees. In fact, it is precisely during tough times that paying your best workers something extra is especially important, because of the psychological fact that nobody likes to work for a market loser. The rats tend to abandon the sinking ship. Moreover, he says, if various fringe benefits to chief executives can be offset by lower salaries given to them, and if at the same time they make those executive more productive, then having them makes a good business sense. In addition, a benefit such as a corporate jet might bring more pleasure to the executives than an increase in their salaries by the amount of money that the jet costs and so is justified for that reason, as well. (Remember that we are talking not about the personal jets of the CEOs, as Dowd makes it appear, but about a collectively owned corporate asset used by those whose business needs are the greatest. Even if the jet were sold and the money distributed to all of the jet’s potential users within the company, both the company and its employees may well lose as a result.)

Interestingly, capping executive salaries may easily result in more perks such as, indeed, jets, if firms cannot attract top talent with high salaries, just as today workers’ salaries come bundled with health insurance.

Robert February 9, 2009 at 7:52 am

This is an excellent article. It proves that mob rule is the order of the day. People think by being angry towards “Wall Street” will improve their personal financial situation. This behavior improves nothing. The average mob participant wants to limit CEO salaries, but they DONT want to lose money in their Qualified Retirement Accounts(401k). A CEO has the fiduciary responsibility to the shareholders to provide strong leadership because of the stockholders financial interest in a company. Strong Leadership is how a publicly traded company can become profitable. The connection for the average person has not been made because of the irresponsible reporting of types like Ms. Dowd and our power hungry politicians. I want companies to make HUGE profits and pay the best people very well. Some of my retirement portfolio likes a CEO that make huge returns on my shares.

Sally C. February 9, 2009 at 8:06 am

George Orwell’s ‘Animal Farm’ springs to mind. Making school children regularly pledge allegiance to the flag will inevitably create a pool of adults who are more likely to agree with the government than to criticise it. This brings us to another George Orwell novel ’1984′.

Barry L. February 9, 2009 at 11:32 am

From “Requiem for the Left” on ABCDunlimited.com/ideas:

While many adherents of the Left made their peace with the poverty and tyranny of the Communist bloc, some did not, which to this day poses the question: How can these people continue to believe socialism a corrective for all the wrongs they denounce — we can recall Ralph Miliband’s classic Marxoid list of exploitation, poverty, war, imperialism, and the “crimes of the ruling classes” — when these always exist pervasively in those People’s Republics where every drop of capitalism, their hypothesized source, has been wrung from the social fabric? It’s not so much that they close their eyes as it is that they avert them — towards a sight in which they believe they find confirmation: the presence of these wrongs in the “capitalist West.”

And who can deny it? Who can deny, say, the West’s imperialism? But with this and the other stated evils, we must ask: What element of the semi-capitalist West was responsible — the free market or the coercive state? In Britain, who thundered the loudest against colonialism? The classical liberal advocates of laissez faire, who condemned imperialism long before the birth of the founder of the Soviet Empire. It was the “Tory socialism” of Disraeli, not the free market, that sent British troops overseas.

And the “crimes of the ruling classes”? What were these ever but the deeds, not of truly private businessmen, but of the State? What does Ralph Nader’s denunciation of “corporate socialism” concede except that the corporations owe their current privileges, not to laissez faire, but to government intervention? Which leads us to now ask: What exactly is the “capitalism” of these anti-capitalists? Is it “Little England”-ism or mercantilist imperialism? Free trade or protectionism? Laissez faire or interventionism — A or non-A? Just as theocracy cannot denote both the union and the separation of Church and State, so capitalism cannot be both the union and the separation of Firm and State.

Orthodox Marxism cynically — amorally — rejected the possibility of neutrality and equity in political matters. All government was the special interest of one “class” or another. Just as capitalism ushered in the rule of the bourgeoisie, so would socialism bring about the “dictatorship of the proletariat.” But how does capitalism — that is, the free market — represent the special interest of “capitalists” (i.e., nonmanual laborers)? If respect for property rights favors “capitalists,” then why do corporations seek subsidies (each for its own self, mind you, not for the entirety of its purported “class”)? If unregulated commerce leads to monopolization by these “capitalists,” then why do real-world businessmen turn to government to provide them with monopoly entitlements (optimally, only for their own company, not for all “capitalists” including their competitors)? And if free trade benefits this class and no other, then why do each country’s business leaders — and union members — lobby for tariffs on imports? We seem to forget that the classical liberals formulated their principles of private property, laissez faire, and free trade — rejected by the Left and Big Business alike — not against the graspings of the have-nots, but in opposition to policies that favored the few over the common good. All of the classic Marxoid evils existed before the advent of liberal capitalism, which arose specifically to eliminate them — and did so most impressively. Social scientist Thomas Sowell sums up capitalism’s economic and political contributions by the end of the nineteenth century:

Science and technology had brought undreamed-of progress to the lives of millions of human beings. Whether in agriculture or industry, output was growing by leaps and bounds. Mass killer diseases like smallpox were being defeated by medical science. The last great war to ravage the whole continent of Europe ended 85 years earlier, at Waterloo — and such horrors were considered permanently behind us. Advances in the relationships among peoples showed similar signs of progress. Slavery, which had lasted for thousands of years on all continents, was wiped out throughout Western civilization, in a matter of decades.
He laments: “The high hopes and expectations with which the twentieth century began gave no inkling” of what was to come — the abandonment of limited government and the adoption, the bloody rise, of unlimited statism, most notably (in various forms) that of Marx, whose attributing of ancient evils to the emergent liberal order (and its “sham-liberty”) was as absolutely insane as attributing polio to the Salk vaccine.

Equally mad are those Marxists who point to the very real problems of partial statism (“state capitalism”) but then perversely propose a tried-and-false “solution” — total statism (socialism) — that would only exacerbate those problems. It’s as if having recognized the danger of drinking polluted water but misidentifying the dangerous element, the Left advocated consumption of the undiluted pollutant. The failings of the mixed economy don’t confirm but confute the claims of socialism. It is the State, not the free market, that doles out political privileges — whether to the nomenklatura or the corporations. And it is the State that condemns whole populations to poverty — as witness activist Russell Means’ comparison of Native Americans, our country’s most socialized community, to the citizens of the Soviet Empire.

In the conflict between monopoly statism and the many organs of the body social (i.e., of a free people), the Left habitually made the malignant choice.

Willabus February 9, 2009 at 11:39 am

Mr Reisman,

I believe you made one mistake in this article when you referred to the Declaration of Independence as the founding document of the United States. This is not true. The Declaration of Independence turned the 13 original colonies into sovereign states. The United States was not formed until ratification of the Constitution.

This, however, does nothing to undermine your correct argument that the United States was created to protect the rights of the individual.

Per-Olof Samuelsson February 9, 2009 at 11:51 am

With regard to bonuses, there is also a short and concise blog post by Stefan Karlsson here:

http://stefanmikarlsson.blogspot.com/2009/02/wall-street-ceo-pay-issue-revisited.html

ehmoran February 9, 2009 at 11:13 pm

thespot,

You hit it hard!

Since Hamilton’s issuance of Treasuries, passing of the Federal Reserve Act, the Gold Confiscation Act, and other political decisions, which most Americans have no clue about, aligning and connecting the dots definitively would show a Govt “Invisible Hand” deep within this so-called “Free Market”.

As you point out, the US Govt has once again proven that Socialism is a total failure and can never succeed; just a shame this point can’t be expounded upon by the Media and other influential sources. Our debt, which might surely become our insolvency and dissolution, purely is a result of establishing and attempted maintenance of an always disastrous Welfare State.

Govt’s need to refuse admission of having designed then orchestrated such a system of foretold failure has lead to our ever increasing but denied inflation, the propensity of WAR, and a debt burden on future generations that, in my observations, will require class, or caste, designations to maintain order.

pbergn February 12, 2009 at 1:44 pm

Great article…

Nice exposé of the topsy-turvy world we live in…

TokyoTom February 14, 2009 at 8:49 am

While having the government nationalize the banks and micromanage their compensation schemes is clearly wrong and counterproductive, I have no sympathy for the bankers, who were far to busy giving themselves bonuses and passing risks onto quiescent shareholders and to taxpayers.

Michael Lewis, the former trader who wrote “Liar`s Poker”, has a tongue-in-cheek take on it here:

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_lewis&sid=aZruAW7s2eLI/apps/news?pid=20601039&refer=columnist_lewis&sid=aZruAW7s2eLI.

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