The New Big Bang

“Shares may slip as U.S. mood gets darker,” reports Allison Jackson in today’s Australian. Indeed. We’ve had some dark days in the last year here at the Old Hat Factory. But for whatever reason, today is one of the darkest that we can recall.

Here’s a warning. Today’s Markets and Money is largely about the growing tension between individual liberty and the coercive power of governments. If that’s not your cup of tea, you may want to duck out and have a coffee and join us tomorrow.

But we believe politics and government are fair game for a financial newsletter. How you get and keep money depends on the kind of government you have and how much legal protection you have from government power. So that’s our beat today.

First, though, there is the purely financial bad news. In the States, Fannie Mae reported a US$29 billion third quarter loss. But the more notable bad news came from insurance giant AIG. AIG reported a $24 billion third quarter loss. And then the U.S. government announced a new US$150 billion bailout plan.

Another week, another bailout plan at AIG. Just how bad is the credit default swap problem at AIG? Pretty bad, apparently. Remember, AIG collected premia by writing credit default insurance policies against all sorts of securities, but mostly residential mortgage backed securities. It is now engaged in a mad rush to post collateral as its balance sheet falls apart.

It’s the U.S. taxpayer who’s paying off AIG’s credit default swap policies. And the bill just keeps getting bigger. But that doesn’t seem to bother anyone.

After all, the Federal Reserve has loaned out over US$2 trillion through its various new lending facilities. It’s refusing to tell Bloomberg who got how much money and for how long. This doesn’t appear to bother anyone, except Bloomberg, which has filed a Freedom of Information Act request to force the Fed to be more transparent.

Good on ya Bloomberg.

Without more transparency, no one knows what collateral these borrowers have posted to borrow from the Fed. And we don’t know what price the Fed has slapped on that collateral, or how it even came up with a price for illiquid assets used as collateral.

None of it would matter too much if the Fed wasn’t, you know, taking on obligations on behalf of the U.S. taxpayer and his money. The Fed has increased its lending by 140% since September 14th, from $1.17 trillion to over $2 trillion now. The Fed has eleven separate lending programs (helicopters) set up to hose money into the financial system. Eight of them are new in the last 15 months alone.

Shills for the non-transparency in Congress and the media say that if the Fed published who was borrowing what, it would lead to lack of confidence in vulnerable financial institutions, bank runs, and short selling-all of which would nullify the purpose of the programs to begin with.

That’s right…you’re better off not knowing who you’re money has been given to. If you did know, you’d probably vomit…or want to break something. As if your own government was actually accountable to you. Ha.

Are Gordon Brown and Barrack Obama reading from the same hymnal? Obama and his team are advocating a ‘big bang’ approach to their first 100 days in office. This approach uses the epic financial crisis as an excuse for the broadest expansion of government involvement in the economy and private life since LBJ’s Great Society and Roosevelt’s New Deal.

What’s with Obama? You mean it’s not enough for him to be a secular Messiah? A kind of second coming of JFK? Apparently not. Not content with being the second coming on Earth, Obama wants to be the author of the entire Universe and become the Prime Mover in a Statist “Big Bang.”

Gordon Brown has more terrestrial ambitions. Brown is preparing to steal some of Obama’s messianic thunder by laying out his vision for a Great and Just Global Society built from the ashes of the financial crisis. Speaking in London, Brow said, “The alliance between Britain and the U.S. and more broadly between Europe and the U.S. can and must provide leadership, not in order to make the rules ourselves, but to lead the global effort to build a stronger and more just international order.”

But wait, there’s more.

” Uniquely in this global age,” he continued, “it is now in our power to come together so that 2008 is remembered not just for the failure of a financial crash that engulfed the world but for the resilience and optimism with which we faced the storm, endured it and prevailed.”

Delusional. But let’s hear him out.

“If we learn from our experience of turning unity of purpose into unity of action, we can together seize this moment of change in our world to create a truly global society… My message is that we must be: internationalist not protectionist; interventionist not neutral; progressive not reactive; and forward looking not frozen by events. We can seize the moment and in doing so build a truly global society.”

What is a truly global society? Does this mean we can have cocktails with Posh and Becks down at the George Public Bar on Fitzroy Street in St. Kilda? Is Putin coming over for tea? Will the U.S. soccer team win the World Cup?

We don’t know what it means, dear reader. But it doesn’t sound good to us. At all. It sounds, in fact, like the financial crisis is being used at the excuse for an enormous push toward more integration of government at the international level. One world government, you might say.

This is the most serious campaign against individual liberty in a long time. And it’s just getting started. The Statists of the world (both Left and Right) will be dusting off all their favourite plans for more expansions of government power into commerce and private life. We feel compelled to mention in today because in their moral righteousness and fervour, the advocates of this huge expansion are not bothering to hide their real objectives, their motives, or their methods.

The objective? Bigger, more intrusive government. The motive? Moral righteousness that people smarter than you know better what you should do with your money and your life. The method? Coercion, both through taxation and suppression of individual action (thought, expression, movement).

Which brings us to Australia. A few readers have written to ask if we are aware of the internet censorship legislation being proposed by Communications Minister Stephen Conroy. Yes, we are.

The government wants to “filter out” content that is already illegal in Australia by forcing internet service providers to censor content which you can access from your computer. The original legislation would have filtered content for households and schools. The next version of it applied to all internet users, but would have allowed users to opt-out of the filter. The latest version is compulsory for everyone, everywhere, no questions asked.

What websites would be blacklisted? Well, we asked around at the Australian Communications and Media Authority (ACMA), the agency in charge of the list, and didn’t receive an answer. Is the list maintained by a person? By an algorithm? By a modern day Joe McCarthy? No answers as of yet.

And does ISP-level filtering it even work? An in-house government trial of the filtering software showed that the filters don’t prevent access to content deemed to be illegal, block content that is legal, and slow down network speeds dramatically. Based on that poor result, the government is proceeding with a live, voluntary trial conducted by real Aussie ISPs.

Like all campaigns that take away a measure of your freedom, you’re being told this is done to protect “the children.” For example, Conroy told a national radio Audience that, “Labor makes no apologies to those that argue that any regulation of the Internet is like going down the Chinese road…If people equate freedom of speech with watching child pornography, then the Rudd Labor government is going to disagree.”

Right Minister (moron). Because so many people equate freedom of speech with child pornography. You could not possibly defend civil liberties and freedom of speech without being a pervert, a drug user, or a terrorist. Could you?

The trouble is, there is no protection of freedom of speech at the Commonwealth level in Australia; at least none that we’re aware of. According to a June 2002 research note by the Parliamentary Library in Canberra, Australia is a signatory to the Universal Declaration of Human Rights (UDHR), passed by the U.N. in 1948.

Article 19th of the UDHR affirms that, “Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.”

No specific Act of Parliament has been passed at the Commonwealth level to incorporate this article into Australian law and “no government has implemented the free speech provisions and therefore they are not enforceable by Australian courts.” Why don’t you get on that Malcolm Turnbull?

In early 2006, Victoria passed a kind of Bill of Rights called the Charter of Human Rights and Responsibilities which DOES include freedom of expression (see page 15). You should also note that Victoria’s Act isn’t like a Constitutional right to free expression. It says the right of free expression, “may be subject to lawful restrictions reasonably necessary,” such as “for the protection of national security, public order, public health or public morality.”

The Australian Capital Territory passed its own Bill of Rights in 2004. Its language does not suggest that freedom of expression is proscribed by any limits at all. On page 13 it states, “Everyone has the right to freedom of expression. This right includes the freedom to seek, receive and impart information and ideas of all kinds, regardless of borders, whether orally, in writing or in print, by way of art, or in another way chosen by him or her.”

–Maybe it’s time the Commonwealth of Australia had a Bill of Rights. From our early investigations, we see that the subject has been debated on and off throughout Australian history. Maybe it’s time for a new debate.

The big advantage of having constitutional protection for freedom of expression is that it stands over and above common law. Public tastes and morality change with the times, and common law generally reflects these gradual changes in tastes. But certain rights ought not to be subject to the passing whims of legislators. There are very few such rights, but that’s why they are enshrined and protected in a Bill of Rights.

Constitutions and Bills of Rights do not exist to spell out what the government allows you to do as a private individual. They are not lists of legal and illegal private behaviour. Just the opposite in fact.

The U.S. Constitution and Bill of Rights describe the precise limits of Federal power. They do not list what you and I can or cannot do. But they do specify acts which the government must almost always refrain from doing. They exist to define and limit government power, not to define and circumscribe individual liberty.

Most people forget that these days because they are used to being bossed around by the government at all levels. But Bills of Rights generally prevent the government from telling people how to worship, what they can or cannot say, and who they can or cannot assemble with in public. In the U.S., it also includes the right to bear arms.

To the extent that the Bill of Rights describes what the government can do, it’s usually things the government HAS to do once it’s already infringed on individual liberty. This includes a trial by jury, right to confront accusers, and the right to counsel. But these again are designed to guarantee the private individual’s rights are respected by the government.

Why the long digression into liberties, rights, and law? It seems like a timely subject these days. So many things that are described as “rights” by legislators are not rights at all, in the strictly legal sense. They are morally and politically desirable outcomes. But the government has no legal responsibility or authority to guarantee those outcomes through coercion.

Would it be better if there was no child pornography on the Internet? Of course. Does the government have the right to try and guarantee that outcome by restricting and censoring internet access for all Australians? Maybe so.

But if there’s any decent opposition party left in Australia, perhaps it should begin asking the question and treating Australians like adults and free people, instead of children who must protected from themselves and the world at large.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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10 Comments on "The New Big Bang"

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Adam Stanway
While I respect the author’s desire to defend civil liberties, I cannot think of even one country where a Bill of Rights has achieved this. Weimar Germany had a Bill of Rights comparable to that found in the United States Constitution, sans the Second Amendment. What a happy time the Jews had with that! The US Bill of Rights has been watered down by successive Supreme Courts. The Gitmo detainees have had endless fun attempting to enforce what is perhaps the most basic right: habeas corpus. Even the Soviet Union was possessed of a sort of Bill of Rights, where… Read more »
There was an interesting conversation on JJJ’s hack last week about this legislation. It’s not just that they are filtering and not telling us what is on the “blacklist” they are also adding a whole host of sites to the blacklist, such as torrent search engines and anything about piracy or illegal activities..without anyone having any input or knowledge of the actual list. Sounds like China’s firewall to me. The problem is that the state are making these decisions for us, and the loss of personal power and freedom is the single most important change of this century. Most of… Read more »

And of course politicians never avail themselves of the varied and unusual personal services that always seem to be especially prevalent in close proximity to parliaments the world over. We know this because they are so busy being our moral guardians.

Please,Dan,don’t encourage them to foist a Bill of Rights upon us. It’s bad enough with the politicians, but at least we have a chance to recycle them every few years. We are stuck with the judges for ever. The ‘new’ debate has been underway for some time. It was a strong theme at the shambles of the 2020 summit which in itself should be enough to deter a thinking person. The chances of a referendum succeeding range from almost impossible to absolutely impossible so there would be no Constitutional guarantees. We would receive a legislated version and they would get… Read more »
Anthony Teamson
Unfortunately Dan, individual liberty is being eclipsed in the Western Societies by the peasant mentality. You know this is the case when people working 40 – 60 hours a week have no problem with their government spending their tax dollars keeping wealthy people wealthy. The peasant mentality, similar to the slave mentality described by Roman Rhetors, holds that their lot in life is what it is, and their is nothing they can do to change it. They believe that the political class will make decisions to help them (free medical care, free housing, free food) and all they have to… Read more »
Joe Hill
It is hard to say how the out come will be from all of the money troubles not only in the U.S.A., BUT the world. I do not think that Governments should try and BAILOUT all of these troubled industries without a FULL AND ACCOUNTABLE DISCLOSURE of who it is they are bailing out, and to what degree. Regulations should be passed to prevent all of these bonuses. The U.S. Fed and Treasury Secretary seem to think that they are above the law. Both men are appointed and accountability is the responsibility of not only the U.S. Congress {who seem… Read more »
Oh Anthony, “liberty or bust” attracts a similarly patterned reaction from the herders & the herd. Don’t be just another highlander Scot dragged off to be hung drawn and quartered. I will look up Roman Rhetors, cheers. And talking about those still willing to go to the barricades Dan … any Australian draft of a bill of rights always turns out being a pinko’s bill of deprivation of rights and natural justice. Bills of rights also hit issues like pushes to deny a heterosexuals right to retain their own unique institution of marriage. Gays pushing beyond judicial espousal rights and… Read more »
Coffee Addict
Dan and Bill make me sound like a supreme optimist these days! All anyone can do is hang in there, up their skill sets and lower their financial expectations. By the way, I don’t believe there will be a “suckers” rally any more because the so called “suckers” have their cash in guaranteed bank accounts. 2008 is different to 1929. Yeah … we should probably do some political lobbying on the issues Dan raises. I would actually start with the Greens because, in spite of their lack of economic credentials, they have a capacity to listen exert considerable influence in… Read more »
Jon Bain

When are you going to run for government, Dan?

Rici Smith
mmm maybe i am a simplistic investor. I dont engage in arbitrage, covered short selling, writing options over my investments. But basically i like to see my dividends flow, the higher the dividends the happier i am. I would be quite happy for the government to ban permanantly all forms of short selling. So the market is not 100% efficient, who cares. I thought at the end of the day buying stocks is investing in a business. Has anyone thought that maybe finance has become ‘too smart’. A bit like securitising property loans diversifies risk. Looks good in theory and… Read more »
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