In one of my communications, I mentioned that free market capitalism was dead. What I meant was that it is in suspension, having been replaced by crony capitalism (also called corporatism or fascism), which is generally an unsavory public private partnership with government which can as such be manipulate at will by politicians.
We can revive the free market if we have the will and understanding, but that means firing a whole slew of politicians. I got a response (see below) from a banker who has followed the financial crash and subprime crisis since the beginning. What he says about mark-to-market is important. The mark-to-market rule means, if I understand it right, that the assets held by companies and institutions, esp banks, are evaluated by the government according to their actual market value at the time in question rather than their face value.
The problem is: the values are calculated on the forced-sale value, which is usually artificially low. Imagine your home at sheriff sale price versus the value calculated by a professional appraiser to get an idea of this. We’re talking a major undervaluation. So in some cases, financially sound institutions are rated as bankrupt when they are not. This was another of the major factors that brought down banks. Also please note what he says about the HUD affordable housing initiative — we’re talking trillions — it seems designed to destroy banks. — Don Hank
My understanding is that it hasn’t been a free market for quite some time and that it is not any healthier than is the federal government which is riddled with incompetence, arrogance both in its elected and embedded members.
The HUD Affordable Housing Initiative and the imposition of Mark-to-Market accounting are two key examples.
Suffice it to say the HUD AHI force fed 2.4 Trillion dollars into low income housing markets over a ten year span, surely more than anything else, causing the bubble-metastasis in housing and credit markets. The housing bubble and the sub-prime metastasis were not the result of “greedy mortgage brokers” and dirty private sector dealings as is duplicitously presented by many in government, but rather it is the result of a crazed $2.4 Trillion Dollar imposition of mortgage housing quotas in low-income housing markets which began in 1999 under Clinton, being introduced by Andrew Cuomo. [I believe this is closely related to the CRA, which imposed loans to “underserved” communities — read: people rated as marginally capable or in some cases incapable of paying their mortgages in the long term. — Don]
The imposition and the crazed quotas [forcing banks to lend to many who they KNEW could not pay back the loan! Don] led to much of the activity in the private sector, and even at Freddie and Fannie, that is presented as having been motivated by greed, but was really motivated by fear, fear of the coercive force of government: fines, penalties, prosecution, and “the wrath of congress.”
And, the Mark-to-Market accounting rules turned a bubble situation into a nightmarish depression in capital markets, causing a full-fledged panic. The imposition of mark-to-market was absolutely unjustified. In essence, mark-to-market was a formula or device which used the forced sale pricing of some securities to arrive at forced sale pricing of other securities–which were then forced to be sold because the assumption was: they were of no more value than were those securities which were used to establish the value of the securities being valued, despite the real values present and manifest in the performing assets of those portfolios that were being valued.
In effect, in a deviant way mark-to-market devalued and discredited securities under the cover that it “brought transparency to capital markets” by establishing their fair market values (fair values), despite the fact that to do so, it trashed the longstanding and revered rules for valuation as outlined in Internal Revenue Service Revenue Ruling for Valuation of Securities that are not actively traded! It’s vital to understand that the securities it purported to value fairly were especially vulnerable to catastrophic losses, if they are liquidated/sold under forced sale conditions, and the mark-to-market rules assured that they were dispatched under forced sale conditions. [Sure, because many investors hold on to a security even though it has lost market value lately, believing — or even knowing — that the value will raise, based on intrinsic worth from returns vs liabilities, assets held, etc. The temporary loss in value could be cyclical or seasonal. — Don]
Both HUD’s AHI which could be said to have created the bubble and mark-to-market which clearly shredded market credibility and collapsed financial markets were monstrous government impositions which did grave harm to our markets, only to have those who were responsible for these unholy impositions blame the financial problems on the failure of free markets and get away with it.
Had the markets been free as they should have been none of this nonsense would have happened. Many more heads need to roll in congress in 2012 and this administration has got to go. The time for passive acceptance of foolish, asinine ideas served up by the left is past. They truly threaten us all, both the rich and the poor of us.
From 1971 to 2009, Don Hank was the owner and operator of a technical translation agency. He has translated professionally from over 20 languages and is the author of Japanese-to-English Technical Translation Manual and French-English Dictionary of Aluminum Manufacturing Terms. Since 2006, he has been the owner/operator of the Christian news and views site Laigle’s Forum (http://laiglesforum.com). His straightforward and common-sense articles on politics, economics, science, government and culture have been published in WorldNetDaily, Canada Free Press, Christian Worldview Network, Etherzone, FedUpUSA, Renew America, Desert Conservative and Midia Sem Mascara.