" /> I write: May 2011
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May 30, 2011

The Myth of the Robber Barons

A New Look at the Rise of Big Business in America
Burton W. Folsom, Jr. - ISBN - 978-0963020314

This book has been reissued from time to time over 25 years, and takes a look at the "Robber Baron" school of historians who, by and large, got some of the story right, and much of it wrong, but were never able to discriminate between the good guys and the bad. To be sure there were "robbers," but they did not include most of the people identified, as such: Carnegie, Rockefeller, Frick, Ford, Mellon, etal. Rather, Cunard and Collins (bad guys in boat-mail transport to California) used their government authorized monopolies to hamstring mail deliveries while Vanderbilt moved around them and beat them in their game despite their subsidies; he became the primary passenger line as well, beginning in New York. Vanderbilt (definitely one of the good guys) became the richest man in America, proving that federal aid was a curse which killed the competitive spirit. The book offers detailed information.

So it was with the transcontinental railroads. Some insisted that if such was to be, the government would have to subsidize it, or build it. The UP and the CP battled over subsidies and built a railroad full of errors and marked by substandard construction, which rail/bridges/etc. had to be rebuilt while lines were in service at a later date, costing still more money. There was, however, a man named James J. Hill who was building his transcontinental line from St. Paul to Seattle with no federal aid. His proved to be the best built and the least corrupt, not to mention the best run. After initial construction was completed, the UP and CP, even with 44 million acres of free land and over $61 million in loans were nearly bankrupt. Meanwhile Hill was chugging along quite profitably--with lower fares. The primary difference was that the UP and CP undertook to get over/thru hostile territory and environments rapidly (and at government expense); Hill expanded slowly and profitably, since he developed the areas along the way so that there was, at each new termination, a market for his service. He gave settlers free cattle so that he could later move the beef back East. He facilitated wheat farming in order to handle the product for export. As well, he was on site when routes were determined and construction being done. No poor choices of distance, curvatures or grade; no inferior materials or shoddy construction. (It was, after all, his and his investor's money.) In later years this added up to fewer repairs and delays; better service and more loyal customers. And he escaped the regulations which congress imposed upon the others using "government money,"

Political promotion of economic development is futile, for it invariably rewards incompetence. Adam Smith authored this concept over 200 years ago, and all one needs to do today to confirm it is to honestly view what government has subsidized in recent years. Fannie Mae and Freddie Mack brought the world economy low; wind power is enormously expensive and largely unproductive; Carter wasted billions on synfuels; solar power is a joke--it has almost single-handedly bankrupted Spain, etc. One does need to be honest, however !!

Read the book and be enlightened. Therein are multiple examples of why government is seldom the answer to questions beyond its ken, which doesn't include business.

Posted by Curmudgeon at 11:39 AM

May 23, 2011

The Big Short

Inside the Doomsday Machine
Michael Lewis - ISBN-978-0383338829

Well, for those who haven't discovered yet, Lewis has done it again. He debuted on the scene ten years ago with Liars Poker, a sharp-edged tale of Wall Street greed and manipulation which he felt would pull back drapes and open windows for some fresh air and sunlight. It didn't work (though I strongly recommend the book, now re-issued in paperback.) Instead, according to the Wall Street tycoons, he became a pariah and a pusillanimous back-stabber. Not only did it not hurt them, it didn't even faze them. No one paid any attention save some of us flunkies.

In his new contribution, he delivers an astounding take on the 2007-08 credit crisis, and how a few fund managers masterfully discovered the mortgage bond bubble, and exploited it to the fullest, making themselves and their investors very rich. But he first exposes their incredulity that anyone in charge of this debacle could be that stupid; as well, he analyzes the mechanisms behind it. These are the same charges about which he wrote a decade ago: reckless greed, dishonesty, mindless ineptitude, and unquenchable hubris.

In simple terms he explores how the industry massaged and masked the credit risks by wrapping up low-quality subprime mortgages into complicated securities that could be manipulated to receive high credit ratings while burying the real risks involved.

As well, homeowners were encouraged with teaser rates to enter into mortgages far beyond their ability to repay. They were able, initially, to pay the 1-2% interest, and were later able to refinance before the larger interest rates kicked in. The brokers were able to sneak in another transaction or two and collect their commissions and/or refinance "costs and considerations." When someone defaulted, the built in property inflation permitted the home to be resold for what was owed. No one was hurt--well, at least not until it all came down like the house of cards that it always was. Some of the examples he gives are beyond comprehension: a Mexican lawn care guy with a push mower and a mortgage on a home bought for over a million dollars; then there was the nurse with four condo mortgages on properties "valued" in the millions.

"Short" is an mammoth don't say I didn't warn you, dealing with "the street" and exposing the fact that sleazy insiders knew damned well (or should have) what was going on with the mortgage markets and the inflation of real estate, and they knew (or should have) they would crash. Experience had taught them that Washington would bail them out. They were right. Now we see them profiting mightily as institutions and rewarding themselves with mammoth bonuses for their genius; back on top of the too big to fail game, when in fact anything too big to fail should be too big to exist! (And that, in my opinion, includes the government.) Frighteningly, the recent government bailouts simply made fewer of them bigger still (along with the government.)

He describes this alchemy as equivalent to turning lead into gold in the Middle Ages. (It didn't work then, either.) Incautious investors looked at little more than the ratings, which the authors of these scams controlled by "influencing" the bond raters. The whole scheme was "floated" on the backs of the rating agencies. S&P didn't complain to the bankers for fear that they would just take their business to Moody's. Lots of "Indians" didn't really understand the situation(s), but the chiefs really did; if they didn't, they shouldn't have been in charge. One presumes some only suspected, but didn't want to enquire, since they were profiting handsomely. Who wants to question the rewards when the dough is rolling in? (And of course one can rationalize that it is a consequence of one's brilliant money-managing talent on parade.)

When the scheme began to collapse, they all thought they'd get out before the structure burned down; only Goldman-Sachs made it, and "closed the door behind it." They, along with others, disdain regulation in good times, but demand to be rescued in bad ones. Thus, success is an individual achievement while failure is a social problem. Unfortunately, government agrees and acts accordingly. Goldman lies and cheats, along with others, and government bails them out. Worse, they were given money to buy up the cadaverized firms, and after resurrection was achieved they paid back the loans and came away bigger and more profitable than ever. Now, it seems, the few survivors are too-too big to fail. Bear-Sterns, Salomon Bros., Wachovia and Lehman Bros. are "all gone," but not really. They're just a part of Goldman and Wells-Fargo, courtesy of gummint loans. "Pretty much all the important people on both sides of the gamble left the table rich."

This is the stuff of viciously corrupt crony capitalism, and it has to stop. But it won't unless we demand that it stop. Somebody really oughta hang!

The people who could have prevented or cushioned these events were exactly the people who failed to see the train coming at them in the tunnel, conditioned as they were by hubris and prior successes; protected by Washington, which one could argue they own. (Virtually all of the big men in government funds advice and management are, and for years have been, Goldman graduates, or men swayed by Goldman.) They've proven themselves incapable of--or unwilling to--act upon the basic truths at the heart of the U.S. financial system. Lewis remarks that it is easy to understand why Goldman-Sachs would want to be included in the conversation about what to do about Wall Street, but it is impossible to get your mind around any reason anyone would want to listen to them.

In 2008 reality overwhelmed the perceptions (dreams? / hubris?) on Wall Street that everything was o.k. Every major firm was either bankrupted or fatally intertwined with the bankrupt system. Without government intervention every single one of the banks would have gone under; every single executive would have been discredited and lost his chair at the table, and probably a lot of their own money. Gordon Gekko famously announced that "greed is good." No one on Wall Street ought to have been trusted, nor should they be now--especially now. Had the problem been approached after the publication of Liar's Poker it likely would have been different. If it isn't approached now--and it probably will not be--we'll have the same thing again, and next time it'll be much worse. Even the 30s depression might look like a pauper's Christmas party!

Posted by Curmudgeon at 12:06 PM

May 17, 2011


From Islam to America
A Personal Journey Through the Clash of Civilizations
Ayaan Hirsi Ali - ISBN = 978-1439157329

Ayaan was the young Somali Muslim on her way to an arranged marriage in Canada when she defected to Holland. There she learned Dutch--her 4th language--acquired a Western education, became a translator between cultures, a Dutch citizen and member of the government. When she became a political risk Holland evicted her. Dutch Muslims were threatening to kill her as they had her counterpart, Theo Van Gogh, who produced her play: Submission. She immigrated to the U.S. where she is now productively ensconced in The American Enterprise Institute, albeit under heavy personal protection. As well, she has created her own AHA foundation. She is a brilliant, outspoken critic of Islam, and a convert to western philosophy. Nomad chronicles her travels and travails as it expounds upon her "journey through the clash of civilizations." It is every bit as good as The Caged Virgin, and Infidel which preceded it.

It is an opus to freedom in which, amongst other things, she discusses the "three obstacles to the integration of people like [her] own family [and by extension, most Muslims] in three words: sex, money and violence." These three traits embody the clash between the tribal culture of Islam and Western modernity. She is skeptical regarding Muslim integration into western societies, and spends little time searching for the near mythical moderate Muslim. It's not in the genes; it's in the religion, which she unsparingly dissects. "The West urgently needs to compete with the jihadis . . . for the hearts and minds of its own Muslim immigrant populations." These immigrants have left their own countries, but they did not, have not, and likely will not leave behind their cultures unless they are deliberately caused to. (Australian style eviction may be a viable option if they will not.) In America the radicalization of Muslim youth is still in the early stages, but the threats are real and need be addressed vigorously.

These immigrants have not been educated in the ways of the West; even those from large cities. They are not prepared for life as a modern, let alone a modern in the west. American liberals, she opines, are reluctant to acknowledge differences between cultures, and rarely register a preference for one over the other. She exposes differences in expectations of immigrants to European countries as opposed to America. American Muslims are more inclined to assimilate, while the European Muslims tend to remain foreigners for generations. American immigrants usually come for freedom; European immigrants usually come for welfare benefits. Her observations about the differences are both acute and fascinating. America is more different than most of us are aware.

She expounds on her family relationships, using them as examples of the world's problems with Muslim culture: the ruinous male vanity, the self delusion and escapist defense mechanisms as well as the oppression--even violent abuse--of women, all of which she insists to be cultural norms, not aberrations. Well-meaning Westerners promoting tolerance and respect ignore the practices of Islam, and in so harm the vulnerable--especially the females--whom they should be protecting.

It is difficult for Westerners, inheritors of the legacy of rational thought, to understand the phenomenon of group thinking; it is both primitive and controlling. Social workers incorrectly insist that immigrants need to maintain group cohesion for their mental health, but this maintenance creates victim groups which require accommodation, reinforcing demands for their own system of law and garb, separate from the adopted country. We must not support their insistence on maintaining diversity. It serves no one well.

All human beings may well be equal, but most certainly all cultures and religions are not.

Islam exhibits some noble traits, but it is a culture that mutilates girls' genitals* and confines them behind walls and veils or flogs them for falling in love; it justifies the oppression of women and supports all manner of violence; it encourages child marriage and condones marital rape. A culture which celebrates femininity and considers women to be masters of their own lives is superior. The West should legislate against these abominable practices from its own societies and move against them everywhere else, as it did with slavery. It cannot be done without first acknowledging that there is something within the religion which justifies such practices. Christianity in the West is more humane, more restrained, and more accepting of criticism and debate. The Christian concept of God today is more benign and more tolerant of dissent.

Still, the most important difference between the two cultures is the exit option. A person who chooses to opt out of Christianity may be excommunicated, but not harmed; a Muslim who leaves the faith is supposed to be killed. The Christian presumption that interfaith dialogue will magically bring Islam into the fold of Western civilization is mistaken. It will not happen.

In the real world, equal respect for all cultures doesn't translate into a rich mosaic of colorful and proud peoples interacting peacefully while maintaining a delightful diversity of food and craftwork. It translates into closed pockets of oppression, ignorance and abuse. She's lived it; she said it; she's right. Read the book. Listen up !

*The Quran does not mention such mutilation, but most of the 130 million women alive worldwide who have undergone this brutal ritual are Muslim women.

Posted by Curmudgeon at 1:43 PM

May 11, 2011

Intellectuals and Society

Thomas Sowell - ISBN - 978-0465019489

"Intellect is not wisdom." Thus the master begins his latest tract on the deleterious effects of "intellectuals" on society. As in A Conflict of Visions, and The Vision of the Anointed, his lacerating observations are plainly explained in his characteristically acerbic style, and with such clarity that there can really be no argument with his conclusions--at least none that is rational.

He characterizes intellectuals (for the purposes of this book) as people whose work "begins and ends with ideas." Thus scientists, engineers, physicians, etc. are eliminated from the discussion: people who are subject to definitive proof of the effectiveness of their discipline and its facts. The principal difference is the intellectual's approach to virtually all problems. There are discussions of opinions, observations and feelings: conclusions are drawn from the groups of individuals who are privy to the determination. Scientific verification is never a consideration.

He discriminates between "notions" and facts; explains the necessity of studying the results of attitudes and policies in order to determine their impact, worth and relevance. Facts are determined by a scientific approach to problems, and are not subject to "feelings," "attitudes," or "hopes;" thus do they become notions. As well, these notions are oriented toward making the originator(s) seem more noble, moral, intelligent or creative. "The great problem . . . with purely internal criteria is that they can easily become sealed off from feedback from the external world of reality, and remain circular in their methods of validation. . . . If they are simply people who are like-minded . . . then the consensus of the group about a particular new idea depends on what that group already believes--and says nothing about the empirical validity of that idea in the external world."

People are considered knowledgeable when they have some special grasp of specific knowledge. More mundane crafts--auto repair, golf, plumbing--are not associated with knowledge by the intellectuals since what they don't know is not considered knowledge. Or even worthwhile. Yet there are many hidden truths in those things intellectuals cannot be bothered to know. And they impact in the real world. "The ignorance, prejudices and groupthink of an educated elite are still ignorance, prejudice and groupthink."

Intellectuals, having no other place to go and nothing else to do beyond creating ideas, are inclined toward careers in the media, academia and government, and not rarely in that order. Since they have few other skills, they are predisposed to rationalize that lack by delegitimizing, at least in their own minds, those without the facility to masterfully challenge such ideas with bonafide, real world experience. Worse, and unlike intelligent beings more fully engaged in their own particular professions (again, engineering, medicine, chemistry, etc.) they have no real world experience to prevent them from generalizing their knowledge of the arcane into a respect for those who do other things well. When a professional masters his real world craft he comes to understand how difficult it is to perform within his own sphere, and imputes to other specialists the knowledge they have accumulated to master their own field. This tends not to be so with intellectuals. They presume that their knowledge endows them with superior powers in all fields. Since their areas of expertise are rarely challenged by real world experience, they have nothing whatsoever to dissuade them from their presumed exactitude, even if they were so inclined.

With this background Sowell explores the reality of impact of the intellectuals upon government, war, philosophy, science (e.g. Gore on global warming), and a host of other spheres where their influence can be, and often is cataclysmic. Their "vision of society" is that there are many "problems" to be considered and "solved." This they do without the slightest nod to human nature, human experience, history or common sense. Those with the anointed visions simply declare how things are or ought to be, and prescribe the solution. They never inquire whether or not their ideas work. Consequently erroneous paths are repeated regularly, with the same results.

Take peace. It is presumed that war is the unspeakable atrocity. No one wants war! Hence we must just accept that we are to sit down and discuss our differences and work out a solution. Alternative opinions, even if supported by the facts, are not admitted into conversations. Worse, people who hold these positions are considered inferior, immoral, unfit, and even stupid.
• Bill Buckley opined decades ago that such people feel everyone has a right to his opinion, only to be shocked that there are opinions which differ from their own. Who knew ? !
• Several decades ago the New York Times headlined that even as crime in the city was declining, criminals continued to be incarcerated. Duh !
• One might now include the assassination of OBL in the discussion. It's altogether right and fitting that he was trapped and shot in the head: this is war! Yet water-boarding in the same endeavor is criminal and non-reflective of "our values." Go figure.

The book is a recitation of exactly where, when and why intellectuals have been wrong for decades--nay, centuries. They never consult history or common sense, and since the rest of the world is occupied with reality and survival, intellectuals have been left, unchallenged, to ponder what they will. They have taken over education at all levels and impact heavily on the media, government and politics, including intelligence agencies, police and prisons. Their nostrums survive by virtue of ineffective counter-forces, and the inherent willingness of many of the unwashed to accept and believe what they hope for, as wonderfully expressed by the anointed, rather than seeing things as they are. Worse, they've been "teaching" our young for several generations. As the world has become more prosperous there are more such intellectuals, and they are creating even more problems than they did in prior times.

It's not necessarily that the intelligentsia are mistaken or ill-informed on particular issues, though that is not unusually the case, but: "The more fundamental point is that, by thinking in terms of abstract people in an abstract world, intellectuals evade the responsibility and the arduous work of learning the real facts about real people in the real world--facts which often explain the discrepancies between what intellectuals see and what they would prefer to see." That is, their filtering and slanting can create fictitious facts and people, and when their story fits the vision, they do not always find it necessary to check whether it also fits the facts.

Read the book. It is fascinating as well as all-encompassing. Sowell is the greatest living philosopher-essayist; he writes with unsurpassed concision.

Posted by Curmudgeon at 2:34 PM