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How Out-of-Control Credit Markets Threaten Liberty, Democracy and Economic Security

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By Ed Harrison, the founder of Credit Writedowns. Cross posted from Alternet.

The awful experience of the Great Depression made clear to many economists and laymen alike that credit is at the heart of a functioning capitalist system. Without access to credit, many businesses die and many individuals and households run out of money and go bankrupt.

Yet in popular media accounts from the Great Depression, the focus is almost always on the stock market and the Great Crash of 1929. You hardly ever hear that it was the contraction of credit and the seizing up of credit markets that made the Great Depression so traumatic.

In 1932, Hoover acknowledged the importance of credit to a crowd in Des Moines, Iowa: "Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs." He was right about the vital part credit plays in the economy. But he got a whole lot else wrong. His speech was part of a campaign of anti-foreigner rhetoric designed to insulate himself from blame for America's economic depression building on his watch.

In his Des Moines address, Hoover cited the strangulation of credit caused by "foreign countries" which "drained nearly a billion dollars of gold and a vast amount of other exchange from our coffers." The president further blamed "some of our own people who, becoming infected with world fear and panic, withdrew vast sums from our own banks and hoarded it from the use of our own people." That's why the Great Depression happened, Hoover said.

Hoover was way off about who and what was at fault. He had been told so a year earlier in 1931, when he tried to blame the depression on a lack of liquidity and proposed that the government make funds available to banks to alleviate their liquidity problems.

The response from an official at the New York Fed:

"…In this district, where I happen to be more familiar with the situation than in other sections of the country, the principal cause of bank failures has not been a lack of liquidity but rather insolvency caused by need for a drastic write-off in bond portfolios. In other districts, I understand, many banks are threatened with insolvency because of losses in real estate loans as well as bonds."

Sound familiar? It should. We've been dealing with many of the same problems in the current banking era.

During the Great Depression, Hoover just let the big financial institutions go under, causing credit to contract much further. That mistake has taught us what mass bank failures can do and has conditioned us to avoid them. Unfortunately, we have made our own mistake this time around. Like the banks of the earlier era, today's banks have risked insolvency because of their reckless real estate loans and bond exposure. By perpetrating the Great Bailout, we have allowed our largest banks to escape any repercussions for their recklessness and get off virtually scot-free.

The big banks created the mortgage-backed securities, the credit default swaps, and a hundred other dangerous derivative products that blew up the global financial system and the world economy with it. The big banks created the Byzantine maze of interconnections that made them too big to fail. The big banks created the disgraceful mortgage system that continues to wrongfully charge erroneous nonexistent fees and wrongfully foreclose on homeowners.

Apologists for the status quo like to pretend that our economy allows anyone who needs and deserves credit to get it.  But after the bust, it all feels so arbitrary for most people, like a roll of the dice whether you get access to credit or not. And almost all of the bailout money has gone straight to these very same big banks that created the crisis for fear of another Great Depression like the one Hoover presided over.

Credit is indeed the lifeblood of business. Modern economies can't work without credit markets. But when they are opaque, dysfunctional and corrupt as they are now, it can only lead to economic disaster, as we have witnessed over the past five years. Worse still, there is no assurance that we are through the worst of it, either in terms of financial scandal or economic damage.

The question, then, is what we should do about it. If we want to keep the American democratic system and a form of capitalism alive and functioning well, we will need to make changes to our credit markets.

As I see it, our economic system and our democracy are both based on upholding and safeguarding individual liberty — the innate and natural rights we all have. And so to get our credit markets back to some modicum of normalcy and respectability, we should start there. Over the past few decades we have been leaning the other way. An ideology has seeped into every corner of American life which says corporations are just like individuals, with the same innate, natural and inalienable rights to liberty as real living and breathing human beings.

I'll give you an example I like to use. Say I'm walking down the street and I see this store and I am thinking, "They have Kettle Korn? Wow, I love this stuff. Let me get some." The problem: the owner of the store wants no black people inside. That's his policy. This isn’t a government policy since discrimination based on race or ethnicity is illegal in the United States. But, this business owner doesn’t want blacks in his store. So when I enter, he tells me to leave because I am violating his store’s "liberty." I would argue that my individual liberty trumps his business liberty. A corporatist would say that the business owner can do as he pleases.

I have called this false ideology, "Corporatism masquerading as Liberty," because it is a sort of crony capitalism steeped in the language of liberty that some are using to remove the protections we have built up to uphold and safeguard our individual rights. The goal of this corporatism is to give corporations the sorts of liberties that permit them to use their size, influence and money to tilt the playing field to their advantage. Absent any kind of regulatory oversight, these behemoths can run roughshod over individuals, trampling their rights and liberties in the process.

The burgeoning LIBOR price-fixing scandal is just the latest example of how out-of-control our credit markets have become because of this false notion that subjecting corporations to regulatory oversight is bad. LIBOR was supposed to be a way of figuring how much banks have to pay to borrow from each other based on daily price quotes from a group of the world's biggest banks. This is the very core of our credit markets. And it affects everything from private students loans to variable rate credit cards. But after Lehman Brothers went bust, banks started submitting "fake" numbers for fear that "real" numbers would make them look bad. Apparently everyone was doing it. Recently, the scandal caught up with British giant Barclays, which was forced to pay a fine for its misdeeds. Many more banks will be found out for manipulating LIBOR interest rates before this is over.

Think back to the Great Depression. What we lost then and now and what we need to regain is trust. To be frank, I don't know how we can win that trust in our system back. But, when it comes to credit markets, I know where we can start.

First, we need to make sure there are no more bailouts. While the bailouts have prevented a Great Depression for now, they have engendered a deep sense of cynicism and resentment which has negatively impacted credit and growth. Second, we need to know that our largest financial institutions are well-capitalized enough to withstand large economic shocks. Without this knowledge, no one can separate liquidity from solvency — exactly the problems banks had during the Great Depression. Third, we need to enforce regulations through sound regulatory oversight and civil or criminal penalties. Self-regulation is a pipedream promoted by corporatists. And we see that time and again where regulations are not enforced, financial institutions turn to excess that leads to panic and crisis.

Doing these three things will not magically turn our economy around and get credit flowing again. But these steps are essential to restoring trust in our financial institutions and government. Restoring that trust is the first and most important step in getting our credit markets to work the way they are supposed to — in a way that enhances and insures our individual liberty, rather than the false privileges of corrupt financial institutions.

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47 comments

  1. F. Beard

    Credit is indeed the lifeblood of business. Modern economies can’t work without credit markets. Ed Harrison

    Wrong. That’s like saying modern economies cannot work without usury for stolen purchasing power which is what credit is. Need I remind you, Mr. Harrison, that that stolen purchasing power often came from blacks and other minorities who were typically considered less “credit-worthy” than whites?

    What modern economies need is ethical money creation. Between borrowing existing fiat at honest interest rates (especially after a massive bailout of the entire population with new fiat) and the ability to create their own money supplies (including common stock) business should easily be able to finance itself without resorting to theft of purchasing power.

    1. Ray Phenicie

      I would like an outline of how business owners would create money-except in the larger sense perhaps of issuing stocks and bonds. However in the day to day higgeldy-piggedly of daily transactions, even the most successful of businesses needs loans and credits. I see your statement as overdrawn and overly reactive.

      1. F. Beard

        I would like an outline of how business owners would create money-except in the larger sense perhaps of issuing stocks and bonds. Ray Phenicie

        Some potential private money forms:

        1) Common stock
        2) Futures contracts.
        3) Store coupons.
        4) Who knows what else?

        However in the day to day higgeldy-piggedly of daily transactions, even the most successful of businesses needs loans and credits. Ray Phenicie

        A universal bailout, including non-debtors, would provide plenty of real fiat to lend out at true free market interest rates.

        I see your statement as overdrawn and overly reactive. Ray Phenicie

        Well, the last Great Depression was a (the?) major cause of WWII which 50-86 million people, most of whom were not bankers. Banking has been condemned for centuries by some of history’s greatest people. It’s time it be abolished.

        What? We are not smart enough to implement ethical money creation?

        1. Mansoor H. Khan

          F. Beard,

          Don’t forget:

          Various levels of government can also issue currency which would lubricate trade in general. Federal government, state governments and even local governments can create currency based on their taxing powers.

          There is no need for banks to issue currency as a cartel with government privileges (deposit insurance, legal tender laws and lender of last resort privileges) . Private industry and various levels of government can do it just as well and even better without usury and theft of purchasing power from the public.

          Here is how the bankers’ game works:

          http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

          mansoor h. khan

          1. jake chase

            I would begin with a bailout of the 99%, then dismember all the megabanks, restore Glass Steagall, hire 5 million bank examiners to sniff out all the fraud, incarcerate all the executives and traders, claw back ten years of compensation and bonuses, liquidate bank stock and bond holders, outlaw derivative trading, impose a tax on financial transactions, reorganize the banking system on the North Dakota model, authorize the federal government to issue ten trillion greenbacks, but only for capital improvements. This might not work but at least it would be democratic. That’s a start.

      2. redleg

        In store credit. Like “Joe – i need this tool but I’m short cash today.” “That’s OK Jeanne, I know you’re good for it.”

        There you go. Might not show up in the M’s, but it is credit.

        1. F. Beard

          I have no problem with people extending credit in their OWN goods and services. However, the banks extend credit in OTHER people’s goods and services. That’s theft, be it legal or no.

  2. Warren Celli

    This article is a classic Vanilla Greed (Evilism) lament with no substantive remedial plan.

    Remedies from the Xtrevilist captured government are pipedreams promoted by folks smoking hopium. Ain’t gonna happen! You have far better odds with a lottery ticket.

    Rationalizing a return to the lesser sociopathic Vanilla Greed for Profit by invoking that it will insure our “individual liberty, democracy and economic security” makes this post a bit extra odious.

    Deception is the strongest political force on the planet.

    1. Historicaecon

      Exactly. No Bailouts. Recapitalize financial institutions. Regulate some things. Very insightful… not to mention potentially contradictory. It’s a testament to the quality of Naked Capitalism that this is one of the lamest conclusions I’ve ever seen on the site.

  3. Brent Eubanks

    I’ll give you an example I like to use. Say I’m walking down the street and I see this store and I am thinking, “They have Kettle Korn? Wow, I love this stuff. Let me get some.” The problem: the owner of the store wants no black people inside. That’s his policy. This isn’t a government policy since discrimination based on race or ethnicity is illegal in the United States. But, this business owner doesn’t want blacks in his store. So when I enter, he tells me to leave because I am violating his store’s “liberty.” I would argue that my individual liberty trumps his business liberty. A corporatist would say that the business owner can do as he pleases.

    This is a very unfortunate choice of analogy, and plays right into the hands of the right-wing pseudo-libertarians who promote the corporatist agenda.

    It is a common thing for “libertarians” to object to regulation of businesses on the basis that they violate the rights of the business owners. They invariably invoke the example of the sole-proprietor small-business owner as the aggrieved party, hemmed in by unfair regulation. And their point has some legitimacy, as far as it goes: the business owner is an individual with rights, including the right to self-determination, and the right to choose for whom, where, and how he works. It is also worth noting that a sole proprietorship or partnership has no corporate liability shield, and so the individuals are subject to direct personal liability for any misbehavior or abuse of power.

    This example plays precisely into the hands of this framing.

    The problem is, this framing of the situation is completely false, for all practical purposes. The businesses which have the most power, and which are potentially the most dangerous, are not the mom-and-pop business which are owned by a small number of identifiable individuals and operate without a corporate liability shield. The entities which are dangerous, and which need to be regulated, are exactly the opposite: large organizations, usually owned by public shareholders or private equity investors who have no other involvement in the business, which are corporate entities able to hide their executives behind the many layers of liability protection provided by corporate law.

    Those are the entities which are buying elections. Those are the entities which are a threat to democracy. Those are the entities that commit wholesale environmental rape and get away with it, or that abuse the public trust and then look to the taxpayer for handouts in hard times.

    It’s past time to recognize the fundamental moral and legal differences between an individually-owned small business and a corporate behemoth. The former create opportunities, while the latter largely exist to exploit them. The former are largely (by virtue of small size) subject to the rule of market and of law, while the latter have the power to escape the consequences of their actions through their tremendous legal and extra-legal influence.

    And it is long past time for progressive thinkers to stop supporting the right-wing framing, identify these differences, and call bullshit on the anti-regulation arguments which rely on them.

    1. davidgmills

      It is long past time to examine the for profit corporate entity. Limited liability is a euphemism for privitizing profits and socializing losses. It is the corporate entity that allows for the vast accumulation of wealth in the hands of a few while the rest of society gets stuck with the bills corporations avoid by virtue of their limitied liability.

      I think we need much more of the non-profit corporate model. The non-profit model highly restricts managerial pay and “profits” are plowed back into the company usually resulting in higher pay for workers, better benefits, better working conditions and more R&D. Of course, how we get banks to finance non-profit entities is the major question.

      1. Greg Taylor

        How did the NYSEs not-for-profit status enable them to restrict Dick Grasso’s pay? The non-profit and not-for-profit limited liability corporate models are nice vehicles for management looting. I don’t see the entry-level workers compensated better at nonprofits either.

    2. JTFaraday

      “And it is long past time for progressive thinkers to stop supporting the right-wing framing, identify these differences, and call bullshit on the anti-regulation arguments which rely on them.”

      Good comment.

  4. Hugh

    The problem of credit seems beside the point in the kleptocracy we live under. You can not instill confidence in credit without creating confidence in the economic/political system, and you can only do that by replacing it.

    Beyond that, what is the point of putting in place the conditions for getting credit flowing, if everyone is so indebted that they can’t create any new demand that would justify increasing credit flows?

  5. F. Beard

    First, we need to make sure there are no more bailouts. Ed Harrison

    Actually, Steve Keen’s universal bailout (which he calls “A Modern Jubilee”) is exactly what we need. Keen’s bailout would go to the victims of the banks, the entire adult population, including non-debtors, instead of the villains, the banks.

    1. davidgmills

      Bondholders need a haircut equivalent to the loss in equity people have had on their homes and other assets. the moral and just solution is that if these rascals have cost me 50% loss in the equity of my home, they should reduce my note by the amount of my equity loss. Same goes for other losses in assets such as pension funds, stocks, etc.

      1. F. Beard

        If further credit creation was banned then the entire over 18 US population, including non-debtors, could be given a substantial chunk of change every month for a long time WITHOUT an increase in the total money supply (reserves + credit). For example, assuming $40 trillion in private US debt, 250,000,000 US adults and an average APR of 3% then every US adult could be given $702/mo initially rising to a final payment of $1120/mo for 15 years with no significant price deflation or price inflation risk.

        Moreover, as the Austrians never cease pointing out (while ignoring debtors), credit creation cheats non-debtors too.

        So would you rather have revenge or cold cash?

          1. Nathanael

            Legally, the government is giving the money.

            In real terms, the multi-billionaires are giving the money. (They’re the ones who are having their purchasing power cut back.)

  6. craazyman

    Banking is the only American sport where the referees don’t enforce the rules and the fans get severely injured when the players cheat. They’d never tolerate this in the NFL. Not for one second on the play clock. It’s long past time to kick some ass.

    1. beowulf

      “Banking is the only American sport where the referees don’t enforce the rules and the fans get severely injured when the players cheat.”

      I dunno, sometimes I think professional wrestling refs are missing a lot of fouls and/or thrown chairs.
      :o)

      1. Grendel

        I’m agonna get you, you dirty Beowulf. You cheat. I am the GREATEST! You should be quivering in fear! And the fans should too, cause I’m going to throw a lot of chairs.

        You will lose! I will WIN this time.
        And if I don’t I’m gonna tell my MOM!

  7. scraping_by

    The bailout’s not prevented a new Depression, it’s just put it off a few years. Say, when austerity in the real economy undercuts the infinite backstop in the financial economy. Nationalization and resolution would have prevented the next one, but at the cost of the social position of some very well connected individuals.

    Now it’s a race between the exhaustion of the workers and the devaluation of the dollar. Or whatever proximate cause of the collapse, which is really caused by sequestering all value in the pockets of the elite.

    A post-collapse reordering has been history’s only real solution. The growing police state might be able to put that off a few years. Until the police figure out they’re getting screwed, too.

  8. Min

    “But after the bust, it all feels so arbitrary for most people, like a roll of the dice whether you get access to credit or not.”

    I don’t think that most people find the question of who gets credit or not arbitrary or random. As usual, the people who get credit are those who do not need it.

    1. F. Beard

      As usual, the people who get credit are those who do not need it. Min

      Exactly. And since credit is essentially new purchasing power which dilutes existing purchasing power then the “credit-worthy” (typically the rich) are allowed to steal purchasing power from the less or non “credit-worthy” (typically the poor).

      Now one might excuse credit creation IF it was an entirely private process but credit creation to any large extent REQUIRES extensive government privileges such as deposit insurance, a lender of last resort, Federal borrowing, etc.

  9. Min

    “But, when it comes to credit markets, I know where we can start.

    “First, we need to make sure there are no more bailouts. While the bailouts have prevented a Great Depression for now, they have engendered a deep sense of cynicism and resentment which has negatively impacted credit and growth.”

    First, we bailed out the creditors. Now we need to bail out the debtors. Even if we are only exchanging private debt for gov’t debt, if it was good enough for Wall Street, it’s good enough for Main Street. Debt relief would help to rebalance our economy. It’s consumers who create jobs. :)

    1. F. Beard

      Agree!

      But that creates “moral hazard” – the hazard that the population figures out that government backed banking is immoral. Except it’s too late for that or soon will be.

  10. sleeper

    Perhaps a 4th and 5th step ?

    Stand prepared to nationalize the commercial credit market n this way the FED could loan directly to businesses at FED rates to stimulate or slow the credit market without the banks. Such a stance would go far in diminishing the present strangle hold the banks now have on the economy and remove the threat that the banks invariably make.

    And nationalize the mortgage market as above. The existing folks at Freddie and Fannie (less management)could act directly in the mortgage market lowering rates and extending credit directly without the banks. After all Freddie and Fannie hold most of the mortgages any way and are basically federal entities.

  11. Capo Regime

    The conception of a market per John Gray is just that a conception which requires strong government to actually function. What we have is actually predation–and not “markets”. Much of the “market activity” is not that of free and willing participants entering into exchange but rather its analagous to serfs being compelled to buy back their produce at a premium and to pay taxes to benefit the peerage etc. The idea of a market was an idea posited as a concept by smith and Mill. It has become a powerful totem but its misleading to say that our problems are due to free markets. Our problems stem from the rapacity of modern day crown monopolies backed up by the “law” and guys with guns.

  12. PQS

    No. First there need to be investigations of wrongdoing. If the Justice Department can waste time and millions of dollars telling medical marijuana dispensaries that they are going to sieze their property, they can easily be directed to investigate LIBOR, Fraudclosure, MERS, and any of the 5,000 other scandals and boondoggles we’ve seen paraded before us for the past four years.

    It is way past time to bring the hammer on these thieves and malcontents. As was noted the other day on another blog, Jeff Skilling of Enron is serving 24 years for his crimes, yet Goldman Sachs is “rumored” to be involved in rigging the energy markets. One of their own is rotting for 24 years, and they still think they’re invincible. Time to tell them with action that they are not.

    I don’t doubt that a few very highly publicized prosecutions and perp walks would do wonders for attitudes the world over.

  13. PQS

    And I, for one, will NEVER trust big banks or their sociopathic employees, ever, in my lifetime. And am raising my kid not to trust them, either. These people have destroyed trust in them by their own actions.

    1. F. Beard

      The pity is that you have to trust ANY bank or credit union. Monetarily sovereign governments should themselves provide free (up to certain limits) risk-free fiat storage and transaction services and CANCEL deposit insurance.

  14. Mafer

    You can put the straightjacket on power, but it will eventually find a way to bribe itself out.

    How many times will history have to repeat itself (first time as a tragedy, second time as a farse)?

  15. Carol Sterritt

    In terms of an article that is well written and references history, I’d like to pull back the curtain on a bit of that history.

    It is a powerful story that is told by journalist George Seldes. Seldes was an international journalist hired by the Chicago Tribune to report on many major stories from the 1918 era on to the early forties.

    At one point, Seldes has a colleague named Dorothy Thompson. (She was married to Sinclair Lewis.) Anyway, Dorothy was on board a ship going from Le Havre to New York. The year was 1935. One of the guys aboard who befriended her was quite well known in Big Banking circles, one F. Harry Sinclair.

    Mr Sinclair is telling Dorothy, “See those people that ate dinner with us? Those six people pretty much control every election since the early nineteen teens.”

    Among the people Mr Sinclair is pointing out is one of the Giannini’s, of Bank of America.

    “How did they get their control?” Dorothy asked.

    “Well, it’s money. They make sure they have from five to fifteen million dollars set up to ensure certain people that they pick from both parties to run against one another. And that way they ensure that the agenda will be set by them, regardless of which party wins.”

    “What about FDR? He doesn’t seem to be doing the bidding of the Big Bankers.”

    “Oh they chose FDR, okay, you’re right, but they had no idea he would end up acting independently of them. I mean, they knew he would say the kinds of things he says. They just never thought he would ACT on those things. So they plan to add at least five million dollars into the coffers of whomever is willing to oppose him in 1936. And they’ll see this opponent defeats him”

    ####

    Luckily the guy was quite wrong about FDR’s defeat. But this conversation explains much of why things are the way they are.

    And in our current age, the voters in 2008 felt Obama was going to do as he said he would do. When all along, the five to ten people pulling the strings knew he would never do anything to disagree with them. That’s why Obama was so conciliatory and used the phrase “Bipartisanship” so much. He was only a puppet, and he doesn’t mind being that. And it’s obvious to most of us that he works for Geithner, rather than Geithner working for him.

    1. Jack M. Hoff

      Carol, you’re right on when you wrote;
      “And in our current age, the voters in 2008 felt Obama was going to do as he said he would do. When all along, the five to ten people pulling the strings knew he would never do anything to disagree with them.”
      Its always amusing to me how people say Bush did this, Obama did that, and on and on, way back to Carter. How fucking dumb can they really be? All of the cocksuckers get their slip of paper each morning directing them what to say and do that day. It probably goes right to the details of what clothing to wear. If you think about it at all, what are the policy differences between them? The thing that does make me hate the evil bastards isn’t their acting ability, its their obvious glee in killing and maiming people worldwide. But that’s what makes them the perfect puppets for their master. They’re sociopaths completely devoid of any conscious. However it’s their master that needs to be unveiled and taken down. Till people do that, things ain’t gonna change.

      1. psychohistorian

        I agree with your statement: “However it’s their master that needs to be unveiled and taken down.”

        The global inherited rich need to be take out of control of society and inheritance limited to insure another cadre of global inherited rich does not get created.

    2. Nathanael

      This anecdote reminds us that Obama has no ambition.

      FDR had *ambition*, so once he got into power, he knifed the “big money elite” in the back, did things which helped the average person, made sure the average person knew it, and thus created a new power base so large that there was not a damned thing the big money elite could do about it; their power just didn’t compare.

      Others who have taken that opportunity to seize power and remove that power from an existing elite included Napoleon, Napoleon III, several of the emperors of Rome, and other examples too numerous to mention, on greater or smaller scales.

      Obama had that opportunity and didn’t take it. No ambition.

  16. Anarcissie

    I think it’s kind of sad that people keep thinking that there is some way to rejigger capitalism so that it will be nice. I don’t see any reason why a normal capitalist economy will do anything different from what they have always done, to wit, go through explosive booms and crashes, wreck stuff, ruin people’s lives, and so forth. Yes, it’s very creative, like a drunken artist beating his wife in a garret. But far more cunning.

  17. Tom

    The great sore spot in our modern commercial life is found on the speculative side. Under present laws, which foster and encourage speculation, business life is largely a gamble, and to “get something for nothing” is too often considered the keynote to “success”. The great fortunes of today are nearly all speculative fortunes; and the ambitious young man just starting out in life thinks far less of producing or rendering service than he does of “putting it over” on the other fellow. This may seem a broad statement to some: but thirty years of business life in the heart of American commercial activity convinces me that it is absolutely true.
    If, however, the speculative incentive in modern commercial life were eliminated, and no man could become rich or successful unless he gave “value received” and rendered service for service, then indeed a profound change would have been brought in our whole commercial system, and it would be a change which no honest man would regret.- John Moody, Wall Street Publisher, and President of Moody’s Investors’ Service. Dated 1924

    In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
    If a man earns his income by producing wealth, nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
    If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
    If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
    Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.

    1. JTFaraday

      “If a man earns his income by producing wealth, nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption?”

      I don’t know, has he? You ask it like it’s not a real question. Steve “Jobs” had slaves at Foxconn.

      1. JTFaraday

        Oh, yeah. I almost forgot.

        And then he arose up off his death bed to go spank the first black President of the US for not making the US the more like China.

        Nice legacy, a******.

  18. mike

    What is needed is draconian penalties for CEO’s, board members and executives who break the law and put the economic system at risk.

    At one time forging money or coins was punishable by execution.

    If some executives got executed, perhaps publicly by hanging so their tounge hangs out, they crap their pants and perhaps pull a few heads off, maybe the rest might not ignore laws so blatently.

    I say it’s worth a try. Or ten or twenty tries.

  19. Nathanael

    Make it simpler, Mr. Harrison.

    We need to replace the *failed, insolvent banks* with *new banks* run by people who aren’t incompetent and aren’t criminals.

    *This is a large part of what FDR did* — he started an alphabet soup of new government-controlled, government-owned, government-run banks, as an alternative to the broken private banks.

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