An Economy of Liars

This title is something we can agree with 100%! Do we believe that the timing of the Goldman Sachs charges by the SEC was a coincidence? In politics there are no coincidences plus the people in this White House have a track record of not being honest.

Why should the American people be behind any bill that Democrat Senator Chris Dodd is handling (with lobbyists we would bet). Senator Susan Collins of Maine has said she will filibuster the current bill of Dodd's and that it needs another 2-3 weeks of work. Coming out of Senator Collins that she would filibuster translates into this bill of Dodd's is bad for America. We wish we could say we are shocked by Dodd, but it is more of the same shenanigans that have been going on with the Democrats since Obama took office. We have come to expect no less out of Senate Democrats as they have thrown all 'common sense' out the window to pander to Obama.

We learned yesterday that Goldman Sachs was a top contributor to Obama including employees and their families. Almost $1M -- $994,795 to be exact -- went to Obama's campaign for President. When is the Obama campaign going to give that money back since Goldman Sachs has been charged with a civil offense? Why not a criminal offense?

Now this White House expects the American people to believe anything they have to say about Goldman Sachs when this President received almost $1M in campaign contributions? Give back the donations and we might consider what they have to say, but we are not holding our breath they will give them back. This was the campaign that turned off security checks for credit cards that allowed someone to keep donating with a prepaid card. No way to check those donations so expecting this Administration to be honest now is a far stretch.

If the SEC is supposed to regulate, why are they so buddy, buddy with Wall Street? Why have they cut so many deals with Wall Street that are NOT transparent? Maybe Congress before it passes one more financial bill should take a hard bi-partisan look at the SEC and how they regulate have been handling Wall Street. Let the chips fall where they may but at least the American people would have the facts which we deserve since we are the ones footing the bill for their financial bailouts of their cronies.

If a member of Congress sits on a banking committee that passes and/or overseas anything to do with financial institutions like Goldman Sachs, they should not be accepting any contributions from the same people they pass laws to regulate or help. We call that a conflict of interest.

This is so wrong on so many levels. We think the SEC dropped the ball under President Bush but that may be small potatoes to what we are witnessing today.

An Economy of Liars

When government and business collude, it's called crony capitalism. Expect more of this from the financial reforms contemplated in Washington

By GERALD P. O'DRISCOLL JR.

Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm's accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as "anarchy plus a constable." As a romanticist, Carlyle hated the system—but described it accurately.

Classical liberals, whose modern counterparts are libertarians and small-government conservatives, believed that the state's duties should be limited (1) to provide for the national defense; (2) to protect persons and property against force and fraud; and (3) to provide public goods that markets cannot. That conception of government and its duties was articulated by the Declaration of Independence and embodied in the U.S. Constitution.


Modern liberals have greatly expanded the list of government functions, but, aside from totalitarian regimes, I know of no modern political movement that has shortened it. While protecting citizens against force, both at home and abroad, is the government's most basic function, protecting them against fraud is closely allied. By the use of force, a thief takes by arms what is not rightfully his; he who commits fraud takes secretly what is not rightfully his. It is the difference between a robber stealing brazenly on the street and a burglar stealing by stealth at night. The result is the same: the loss of property by its owner and the disordering of civil society. And government has failed miserably to perform this basic function.

Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the Securities and Exchange Commission the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff's. The SEC chose to ignore the evidence brought to its attention. Banking regulators allowed a kind of mortgage dubbed "liar loans" to flourish. And so on.

We have now learned of the creative way Lehman Brothers hid its leverage (how much money it was borrowing) by the use of a Repo 105. The Repo 105 meant Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner, a former federal prosecutor, last month.

Are we to believe that regulators were unaware? Last week Goldman Sachs was accused in a civil fraud suit of deceiving many clients for the benefit of another, hedge-fund operator John Paulson.

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.

Excerpt: Read More at Wall Street Journal