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Affluent Investor | June 26, 2017

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The Democrats and the Political Wilderness

President Barak Obama  Equal Pay Bill Signing East Room

President Barack Obama Equal Pay Bill Signing East Room

During a crisis, if one possesses a sufficient enough grasp of identity, you turn outward not inward. When the Republican’s lose bad they return from the wilderness stronger; having profound moral, political sources, the Republican party hardly suffers from renewal after a devastating loss. The same cannot be said of the Democratic party. The wilderness beckons and the turn isn’t so much inward as militant, archaic and bitter. This will not end until they confront their own enduring sources. My guess is the Democratic party will not return to leadership for at least a decade.

The 2008 Democratic win created a storm of controversy over legacy. Immediately upon inauguration pliable allies of the left sought to mark a near permanent ascendancy. Then it happened. Obama-no-drama doesn’t do politics. For anyone who makes a living off political craft, Obama’s grasp of his office left him and the milieu of D.C. wanting.

The sources the left used during Obama’s reign was palpable; it sought the outright expropriation of civil society. It wasn’t that regulation was overdone. The regulatory regime was used to accomplish what our Constitutional Republic refused to do, namely bend to majority rule in the executive. If old wags in D.C. could talk they would have revealed what everyone else knew, but was afraid to say: the political sources of the new left was alloyed outside the American Revolution.

Their is no way to address this problem, for the Democratic party seeks power in realist, Machiavellian terms.

And so do all the rent seekers that dominate the American political economy!

If we’ve learned anything since 2008, is this: we don’t live in the land of freedom. We live in an era of unmittigated militant equality. A time that few really know how to handle. A Tocqueville or Solzhenitsyn knows this terrain, the rest of us are to busy earning a living to find any place to resist the onslaught. What 2008 and the post-recovery period reveal is that American entrepreneurialism seeks a near permanent comity with the statism of the left.

The main culprit of the financial meltdown was Wall Streets compensation culture and the fair housing acts of Congress which sought to whipsaw entire financial, business fiefdoms as proxies of the progressive movement.

Obama did the same with Health care; get the hospitals, States and entire industries on board, then hammer away on expropriating civil society.

We’re a long way from Alexander Hamilton’s idea of having the federal government guarantee the full payment of its debt, thus establishing the unquestioned credit of the United States. This was sharply criticized as rewarding evil speculators, but hostility toward the financial community has a very long history.

Even a cursory reading of Hayek’s ‘extended order’ reveals complexity on a magnitude unimaginable. The role of finance in contemporary modern economy remains irreplaceable. How else can one explain the benefits we enjoy from the democratization of capital.

In distinguishing between finance and the politics of political economy, we forget how the degeneration of the U.S. political economy began. It started in 1969, when an investment bank named Donaldson, Lufkin & Jenrette sold equity to the public. All previous investment banks were partnerships whose capital originated from the net worth of the individual partners. They assumed moderate risk only because investment failure may endanger their own life savings. However, once a firms capital was increased by debt and equity financing (by other people’s money), the moral, ethical foundation of finance and its role in the U.S. political economy shifted.

Once these formidable institutions went public, they engendered a risk-reward culture that aimed for one thing: the big, year end, annual bonus.

Just ask Bear Stearns or Lehman Brothers: when they folded up, executive portfolio’s were capitalized with more than 30 parts debt to 1 part equity. Know what that’s called? Gambling.

Excessive leverage has sustained perverted incentives. Equity holders got all the gain, debt holders were fleeced.

How does this get fixed?  It gets addressed politically.

By addressing the ethically bankrupted compensation system of taking big bets with other peoples money while avoiding accountability; we begin by returning to a compensation system that resembles a partnership culture. We should require that Wall Street firms put their entire net worth on the line, their co-op apartments, their summer homes, art work and numerous other cash vaults in banks; all should be fodder for creditors.

Does anyone really believe that Congress and the SEC is capable of producing less burdensome regulations with a new compensation structure that penalizes bad behavior with permitting finance to do what it does best: allocate capital for high return.

Don’t hold your breath.  Remember Shakespeare:  when the King is dying the clowns cash in.

 

Originally published on William Holland’s blog.

William Holland a geopolitical analyst & North American recruiter for Wikistrat, specializing in monitoring the nuclear posture of the Indian-Pakistani rivalry.

 

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