Surrender

The following quote, attributed to Plato, stands at the head of Popper’s “The Open Society and Its Enemies” (vol. 1, ch. 1)-

The greatest principle of all is that nobody, whether male or female, should be without a leader. Nor should the mind of anybody be habituated to letting him do anything at all on his own initiative; neither out of zeal, nor even playfully. But in war and in the midst of peace—to his leader he shall direct his eye and follow him faithfully. And even in the smallest matter he should stand under leadership. For example, he should get up, or move, or wash, or take his meals … only if he has been told to do so. In a word, he should teach his soul, by long habit, never to dream of acting independently, and to become utterly incapable of it.

Popper points to Grote’s work as the source of his quotation. It seems, however, that Popper has translated it himself from the original greek. The translation of Plato’s Laws at the Perseus project is similar in nature-

The main principle is this—that nobody, male or female, should ever be left without control, nor should anyone, whether at work or in play, grow habituated in mind to acting alone and on his own initiative, but he should live always, both in war and peace, with his eyes fixed constantly on his commander and following his lead; and he should be guided by him even in the smallest detail of his actions—for example, to stand at the word of command, and to march, and to exercise, to wash and eat …; and, in a word, he must instruct his soul by habituation to avoid all thought or idea of doing anything at all apart from the rest of his company, so that the life of all shall be lived en masse and in common.

Though Plato writes in the context of war, the “war and peace” gives the game away.

Statolatry and chaos

I was reading Ludwig von Mises’ “Planned Chaos” (also available from FEE) when I moved to his “Memoirs” some days back. This book is 90 odd pages of rhetoric, an unmasking of the “peaceful” nature of the Welfare State, a critique of interventionism and the “command economy” – a “planned” economy, and discusses the motives of the followers of communism and socialism, including the dictators of USSR, and Hitler. Basically its an analysis of the totalitarian political and economic philosophy. If such material were added as additional reading at the high school or junior college level, I have no doubt the State, which sings paeans to the “mixed economy,” would have an apoplectic fit. I could quote 10 different passages from the book and still not be able to quote everything I want. But then one has to draw the line somewhere.

—

From “Introductory Remarks”-

The dogma that the State or the Government is the embodiment of all that is good and beneficial and that the individuals are wretched underlings, exclusively intent upon inflicting harm upon one another and badly in need of a guardian, is almost unchallenged. It is taboo to question it in the slightest way. He who proclaims the godliness of the State and the infallibility of its priests, the bureaucrats, is considered as an impartial student of the social sciences. All those raising objections are branded as biased and narrow-minded. The supporters of the new religion of statolatry are no less fanatical and intolerant than were the Mohammedan conquerors of Africa and Spain.

History will call our age the age of the dictators and tyrants. We have witnessed in the last years the fall of two of these inflated supermen. But the spirit which raised these knaves to autocratic power survives. It permeates textbooks and periodicals, it speaks through the mouths of teachers and politicians, it manifests itself in party programmes and in plays and novels. As long as this spirit prevails there cannot be any hope of durable peace, of democracy, of the preservation of freedom or of a steady improvement in the nation’s economic well-being.

From “The Failure of Interventionism”-

No economist ever dared to assert that interventionism could result in anything else than in disaster and chaos. The advocates of interventionism–foremost among them the Prussian Historical School and the American Institutionalists—were not economists. On the contrary. In order to promote their plans they flatly denied that there is any such thing as economic law. In their opinion governments are free to achieve all they aim at without being restrained by an inexorable regularity in the sequence of economic phenomena Like the German socialist Ferdinand Lassalle, they maintain that the State is God.

The interventionists do not approach the study of economic matters with scientific disinterestedness. Most of them are driven by an envious resentment against those whose incomes are larger than their own. This bias makes it impossible for them to see things as they really are. For them the main thing is not to improve the conditions of the masses, but to harm the entrepreneurs and capitalists even if this policy victimizes the immense majority of the people.

In the eyes of the interventionists the mere existence of profits is objectionable. They speak of profit without dealing with its corollary, loss. They do not comprehend that profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. It is profit and loss that make the consumers supreme in the direction of business.It is absurd to contrast production for profit and production for use. On the unhampered market a man can earn profits only by supplying the consumers in the best and cheapest way with the goods they want to use. Profit and loss withdraw the material factors of production from the hands of the inefficient and place them in the hands of the more efficient. It is their social function to make a man the more influential in the conduct of business the better he succeeds in producing commodities for which people scramble. The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into “big business” was precisely their success in filling best the demand of the masses.

Anti-capitalistic policies sabotage the operation of the capitalist system of the market economy. The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. All those evils which the self-styled “progressives” interpret as evidence of the failure of capitalism are the outcome of their allegedly beneficial interference with the market. Only the ignorant, wrongly identifying interventionism and capitalism, believe that the remedy for these evils is socialism.

Mises says that it is important to differentiate between interventionism and socialism. Interventionism is when the state controls only certain sectors of the economy. Here the costs of inefficiency are still extracted from the end consumer in some way or the other. “The market and its inescapable law are supreme,” he says. Socialism, on the other hand comes in two varieties, the communist one, and the nazi one. The first is where all means of production are owned by the state. The second is where the ownership lies with the people, but the orders, on production and pricing, still emanate from the top.

All interventionism is bound to fail because as long as entrepreneurs have “some” choice, they will make that choice. Thus capitalism cannot be “protected” or “improved” by State intervention – its either capitalism or socialism. And therefore the following, from the second chapter, is one of the most important conclusions of the book-

The conflict between capitalism and socialism is not a contest between two groups of claimants concerning the size of the portions to be allotted to each of them out of a definite supply of goods. It is a dispute concerning what system of social organization best serves human welfare. Those fighting socialism do not reject socialism because they envy the workers the benefits they (the workers) could allegedly derive from the socialist mode of production. They fight socialism precisely because they are convinced that it would harm the masses in reducing them to the status of poor serfs entirely at the mercy of irresponsible dictators.

In this conflict of opinions everybody must make up his mind and take a definite stand. Everybody must side either with the advocates of economic freedom or with those of totalitarian socialism. One cannot evade this dilemma by adopting an allegedly middle-of-the-road position, namely interventionism. For interventionism is neither a middle way nor a compromise between capitalism and socialism. It is a third system. It is a system the absurdity and futility of which is agreed upon not only by all economists but even by the Marxians.

There is no such thing as an “excessive” advocacy of economic freedom. On the one hand, production can be directed by the efforts of each individual to adjust his conduct so as to fill the most urgent wants of the consumers in the most appropriate way. This is the market economy. On the other hand, production can be directed by authoritarian decree. If these decrees concern only some isolated items of the economic structure, they fail to attain the ends sought, and their own advocates do not like their outcome. If they come up to all-round regimentation, they mean totalitarian socialism.

Men must choose between the market economy and socialism. The state can preserve the market economy in protecting life, health and private property against violent or fraudulent aggression; or it can itself control the conduct of all production activities. Some agency must determine what should be produced. If it is not the consumers by means of demand and supply on the market, it must be the government by compulsion.

The rest of the book is interesting if one wants to know what is the difference between communism and socialism, and fascism and nazism, and about the murderous stupidity of Marx and his followers. Lenin and Stalin were no torch bearers of Marxism. They were your run-of-the-mill tin-pot dictators of your run-of-the-mill banana republic. That Indian communist parties, and those across the world licked their feet, only shows that their claim to intellectual superiority, or at least such a pretense, was nothing but a delusion of grandeur, an example of communist kookiness.

I will end with what Mises wrote about the Stalin-Trotsky rivalry, the race for, to paraphrase Marx, the dictatorship of the kooks-

As an exegetic of Marxian dogmas Stalin was certainly inferior to Trotsky. But he surpassed his rival by far as a politician. Bolshevism owes its successes in world policies to Stalin, not to Trotsky.

In the field of domestic policies, Trotsky resorted to the well-tried traditional tricks which Marxians had always applied in criticizing socialist measures adopted by other parties. Whatever Stalin did was not true socialism and communism, but, on the contrary, the very opposite of it, a monstrous perversion of the lofty principles of Marx and Lenin. All the disastrous features of public control of production and distribution as they appeared in Russia were, in Trotsky’s interpretation, brought about by Stalin’s policies. They were not unavoidable consequences of communist methods. They were attendant phenomena of Stalinism, not of communism. It was exclusively Stalin’s fault that an absolutist irresponsible bureaucracy was supreme, that a class of privileged oligarchs enjoyed luxuries while the masses lived on the verge of starvation, that a terrorist regime executed the old guard of revolutionaries and condemned millions to slave labour in concentration camps, that the secret police was omnipotent, that the labour unions were powerless, that the masses were deprived of all rights and liberties. Stalin was not a champion of the egalitarian classless society. He was the pioneer of a return to the worst methods of class rule and exploitation. A new ruling class of about 10 per cent of the population ruthlessly oppressed and exploited the immense majority of toiling proletarians.

Trotsky was at a loss to explain how all this could be achieved by only one man and his few sycophants. Where were the “material productive forces,” much talked about in Marxian historical materialism, which—”independent of the wills of individuals”—determine the course of human events “with the inexorability of a law of nature”? How could it happen that one man was in a position to alter the “juridical and political superstructure” which is uniquely and inalterably fixed by the economic structure of society? Even Trotsky agreed that there was no longer any private ownership of the means of production in Russia. In Stalin’s empire, production and distribution are entirely controlled by “society.” It is a fundamental dogma of Marxism that the superstructure of such a system must necessarily be the bliss of the earthly paradise. There is in Marxian doctrines no room for an interpretation blaming individuals for a degenerative process which could convert the blessing of public control of business into evil. A consistent Marxian—if consistency were compatible with Marxism—would have to admit that Stalin’s political system was the necessary superstructure of communism.

All essential items in Trotsky’s programme were in perfect agreement with the policies of Stalin. Trotsky advocated the industrialization of Russia. It was this that Stalin’s Five-Year Plans aimed at. Trotsky advocated the collectivization of agriculture. Stalin established the Kolkhoz and liquidated the Kulaks. Trotsky favoured the organization of a big army. Stalin organized such an army. Neither was Trotsky when still in power a friend of democracy. He was, on the contrary, a fanatical supporter of dictatorial oppression of all “saboteurs.” It is true, he did not anticipate that the dictator could consider him, Trotsky, author of Marxian tracts and veteran of the glorious extermination of the Romanovs, as the most wicked saboteur. Like all other advocates of dictatorship, he assumed that he himself or one of his intimate friends would be the dictator.

Trotsky was a critic of bureaucratism. But he did not suggest any other method for the conduct of affairs in a socialist system. There is no other alternative to profit-seeking private business than bureaucratic management.

The truth is that Trotsky found only one fault with Stalin: that he, Stalin, was the dictator and not himself, Trotsky. In their feud they both were right. Stalin was right in maintaining that his regime was the embodiment of socialist principles. Trotsky was right in asserting that Stalin’s regime had made Russia a hell.

The individual and the collective

Abheek Barman writes-

Over the years, Mumbai managed to redevelop its mill areas into bustling centres of trade, manufacturing and commerce. Bengal’s Left prefers to wait for decades before hawking off bits and pieces of the rust belt to property speculators and then go looking for farmland to set up industries, losing both worker and farmer along the way.

In 1930, the Soviet Union invited a unusually perceptive observer over for a guided tour. Instead of being impressed by what he saw, the visitor wrote: “It’s not clear to me whether they’ve understood the differences between individual and collective needs. In that respect they’re similar to fascists. They smother individual needs for the good of the collective. They forget that you can’t strengthen the collective by weakening the individual.” The visitor was Rabindranath Tagore. Bengal’s Left should listen.

Cho-speak

Cho Ramaswamy is a conservative Tamil editor-journalist, political commentator, advocate, actor and playwright who’s often seen on English news channels when issues relating to Tamil Nadu are debated. And this is a interview that Rediff did with him in 1997, the 50th year of India’s independence. Some quotes-

Communism and Capitalism
Q. Were you at any time influenced by Communism?
A. I have always been against Communism. In fact, one of the first series of articles which I wrote in Tuglaq 26 years back was titled ‘Moscow – our capital’ taking to task the then Indira Gandhi government for being subservient to Moscow. I have been against Communism because it is against the nature of man. A talented man cannot be asked to be satisfied with what a man totally devoid of talent is able to obtain from life. Communism makes machines of men.

Q. But what about social equality that is advocated by Communism?
A. There is no equality in nature. You cannot go against it. Have the Communists themselves been able to bring about the kind of equality in society? They have provided themselves and members of the Communist party with all comforts in Russia and in China. How then can you say that they have brought about equality?

Q. Capitalism has always been projected as anti-society and anti-poor because it widens the gap between members of society.
A. It is not anti-poor. When capitalism thrives, the poor get to be employed usefully and profitably.

Q. Why are our intellectuals against capitalism?
A. It is the other way around. Those who are against capitalism are supposed to be intellectuals. Those who advocate capitalism are supposed to be reactionaries and not intellectuals. A reactionary cannot be anything but an intellectual.

Undertrials
Q. We have so many undertrials in prisons in India.
A. So far I have not followed up on this. I feel sorry for that. These remand prisoners are kept with convicts. Is it right? These people who are yet to face a charge, a trial, yet to be convicted by a court are placed in the same cells with the convicts. There should be a separate arrangement for them. That could even be a multistoreyed apartment complex with all conveniences. It is totally unethical on the part of the State to keep them along with the convicts.

Secularism and BJP
Q. Why is it that all the other political parties see the BJP as a threat to the nation? They say the BJP is communal in outlook. At the same time they ally with casteist parties.
A. The other parties are casteist. As far as communalism is concerned, the BJP is not out to harm the Muslims. In my opinion, that is not the plan or idea of the party at all. The other parties perceive it (the BJP) as a common threat because if the other votes get split, in many northern states and probably in Karnataka, the BJP will be the largest vote getter. Not only the largest single party.

I would personally like the BJP to abandon this temple politics. It is not a very encouraging sight to see sadhus with huge big beards, holding tridents in their hands and asking you to vote for a particular party. It is not canvassing, it is threatening. The BJP should get rid of this association.

It might have helped them at a particular moment when V P Singh was trying to divide the BJP vote by promoting the Mandal concept. He succeeded to an extent, but it recoiled on him later.

At that particular time, the temple politics might have helped them but it is high time they gave it up. And I think the BJP leadership is aware of it, particularly Advani.

Q. Why are the so-called intellectuals and media anti-BJP?
A. Everyone is very much concerned about a secular image without understanding the concept of secularism. No editor would like to be called communal. The moment you support the BJP, you are branded communal. Secularism in India is defined as an anti-BJP stance. If you are anti-BJP, you are secular. You may hobnob with the Muslim League, still you are secular because you are opposed to the BJP.

Read the complete interview.

A “convincing explanation”

Jacob Weisberg of Slate writes (link through Antidote)-

A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from “redlining” minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

There are rebuttals to these claims and rejoinders to the rebuttals. But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong. The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.

First, any intellectually honest person will note that libertarians are simply saying “I told you so”. They are agitated and angry, but they are not “scurrying around” because they don’t need to – they are not in power and they didn’t run the economy into the ground. Its the likes of Bush, Brown, Sarkozy, Chidambaram, and (surprise surprise) Putin who are scurrying around, and Chavez and Co. are a bit uncomfortable because falling oil prices might derail his slick socialism. Second, libertarianism’s biggest flaw is its broad definition – the situation is comic, adjust a couple of definitions and Hitler might probably qualify. The libertarianism I believe in is – limited government, zero regulation, and an absolute right to life, property, speech and expression. To my knowledge most libertarian philosophies are in agreement with this; other flavors, I don’t care. As for Greenspan calling himself a libertarian – there is a huge difference between actions and words; Bush supposedly stands for freedom. Concentrate on the actions, and you will know the man.

I dislike (hate is a better word) utilitarianism and utilitarian defenses of liberty. Since a lot of liberals and weak kneed capitalists defended capitalism on utilitarian grounds and went on about how capitalism and free markets were good because they raised standards of living, brought about competition, etc, instead of saying that free markets are right because they are free, because freedom is right, because freedom is moral, these “defenders” find themselves unable to answer criticisms regarding “market failure”. Blaming bad laws and excessive regulation, though these are to blame, does not cut it. And the backlash led by some sections of the illiterate public and a “too literate” media has successfully convinced people that the”free market” is to blame.

Unlike dodo-nomics, the predominant economic theory of our age – pushed to the forefront by the greatest dodo of them all – John Maynard Keynes, and new dodo-nomics, something his worshipers adhere to (ad hominem? guilty), libertarianism believes that government intervention in the market is bad – unconscionable. And unlike some people who can only slot men into two categories – conservative or liberal, without recognizing other forces at play such as communism / socialism and fascism/ corporatism, libertarians understand both, and hence oppose both. Its a nice trick Weisberg plays – saying that Marxism and libertarianism are on the opposite sides and are stricken by the same illness – dogma.

Communism, the purest form of socialism, will never work without a despotic government and without force – the philosophy places society above man, and only an idiot will work watching others eat while others eat watching him work – “from each according to his ability, to each according to his need.” Its bound to fail, and it will kill many in the process. And Marxists cry that it failed because people are not good enough.

Libertarianism, on the other hand, places the individual above society. It derives individual rights and freedom from natural rights, not out of some fuzzy concepts like democracy (rule of the mob). It does not claim that it will lead to some kind of Utopia – such an event depends on how individuals interact with each other in a free society. And libertarianism does not claim that it can somehow control human behavior – it does not recommend selective lobotomy on people’s brains to meet its ends. So, if companies and employees gave out loans without checking the credentials of the borrowers, they were doing it either because they were stupid, or greedy or scared. And libertarianism does not have a cure for this behavior. The punishment, a harsh one, is provided by an “unfettered” (TRULY FREE) market where such companies will sink, such employees will lose their jobs and won’t get new ones (how did you sanction a loan to someone who does not have a regular income, Mr. X? No answer? Good bye.) and governments won’t have the power to bail them out. But the pragmatist that Weisberg is, he is not willing to let this happen, or give ordinary people who took bad decisions “a wonderful lesson in personal responsibility”, or tolerate the creation of “thousands of new jobs in the soup-kitchen and food-pantry industries,” a reference to a massive systemic collapse, depression, joblessness – 1929 redux. The difference between Marxism and libertarianism should be apparent – clear as daylight, at least to those who have not shut their eyes purposely.

Weisberg writes further, “any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.” But of course – you let the murderer go and catch hold of the one that called the cops while the murder was in progress – plot of Bollywood film #362 of 1986. Worse, the murderer is judge, jury and executioner. I say, go right ahead. It makes no difference. Tighten the screws as much as you want. When the most feared regulator in the world – the Soviet Union – couldn’t stop its economy from collapsing – what makes people think that more regulation will somehow prevent the next disaster? In Book II of Aristotle’s Politics, the greatest philosopher in the history of mankind defends the institution of private property from Plato’s totalitarian republic and its communal laws. And while his defense talks of “censure” (modern day regulation), and he feels that ethics and politics belong together, he points out a very important problem with human nature-

It is clearly better that property should be private, but the use of it common; and the special business of the legislator is to create in men this benevolent disposition. Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser’s love of money; for all, or almost all, men love money, and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property. The advantage is lost by the excessive unification of the state. Two virtues are annihilated in such a state : first, temperance towards women (for it is an honourable action to abstain from another’s wife for temperance sake) ; secondly, liberality in the matter of property. No one, when men have all things in common, will any longer set an example of liberality or do any liberal action ; for liberality consists in the use which is made of property.

Such legislation may have a specious appearance of benevolence ; men readily listen to it, and are easily induced to believe that in some wonderful manner everybody will become everybody’s friend, especially when some one is heard denouncing the evils now existing in states, suits about contracts, convictions for perjury, flatteries of rich men and the like, which are said to arise out of the possession of private property. These evils, however, are due to a very different cause — the wickedness of human nature. Indeed, we see that there is much more quarrelling among those who have all things in common, though there are not many of them when compared with the vast numbers who have private property.

The magic potion that cures wickedness (and if you read further, ambition and hedonism), where is it?

His final words-

The worst thing you can say about libertarians is that they are intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school.

Intellectually immature and frozen in a Randian world view. That’s right. In a constantly changing world, we need to be “pragmatic.” All doors should be kept open. If there is a heavy food shortage sometime in the future, we should institute rationing. If that doesn’t suffice, we could think about population “rationalization”. One should not be dogmatic about concepts like freedom and rights – only the foolish libertarians do that. We, on the other hand, are pragmatic because we have declared that we are ideologically bankrupt.
And you could do much worse than read Ayn Rand; read Jeremy Bentham. Rand is good. So are Mises, Bastiat, Rothbard, Hazlitt and Hayek.

Like other ideologues, libertarians react to the world’s failing to conform to their model by asking where the world went wrong. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitute a recipe for disaster.

Unlike the Marxists and the pragmatists, the libertarians don’t have a “model” beyond freedom and rights. They don’t plan to control the economy or society nor do they have some “desirable” ends in mind with people being the means to such an end.
Yes, they idolize capitalism – because its a system that guarantees freedom.
A market is not a person – reason is an attribute of a living person – a stone cannot be rational or irrational. But I am nitpicking; he meant irrational people, of course. Further, to know whether a market is “misallocating resources”, one should know what is the best allocation of resources; who decides that? Perhaps spending billions of dollars in Iraq by squeezing American taxpayers, or stealing from them through an inflationary monetary policy, or giving out loans to Wall Street based corporatists is. What is the definition of disaster and why is it so bad? What is “pragmatic intervention”? These are all undefinable concepts thrown up based on an assumption that there is someone out there who knows more about the market than its participants do – the government.

They are bankrupt, and this time, there will be no bailout.

Keep dreaming.

Now the question that I would have said blows a Titanic-sized hole in the “under-regulation is the root cause” theory, if this were not the case-

But Born was not questioning bets on pork bellies or wheat prices, the bedrock of futures trading in simpler times. Her focus was the arcane class of derivatives linked to fluctuations in currency and interest rates. She told a group of business lawyers in 1998 that the “lack of basic information” allowed traders in derivatives “to take positions that may threaten our regulated markets or, indeed, our economy, without the knowledge of any federal regulatory authority.”

The future that Born envisioned turned out to be even riskier than she imagined. The real estate boom and easy credit of the past decade gave birth to more complex securities and derivatives, this time linked to the inflated value of millions of homes bought by Americans ultimately unable to afford them. That created a new chain of risk, starting with the heavily indebted homebuyers and ending in a vast, unregulated web of contracts worldwide.

or this-

The 1933 Glass-Steagall Act, which set up the Federal Deposit Insurance Corporation and separated commercial from investment banking since the Great Depression in the US, was repealed in 1999. This meant that deposit-taking commercial banks like Citibank could underwrite and trade instruments such as MBS and collateralised debt obligations (CDOs), and set up structured investment vehicles (SIVs). In 2000, the elite investment bank J P Morgan which was reeling from an erosion of its traditional high margin investment banking business consolidated with Chase Bank.

or this, the innocuous “margin call”-

The AIG story illustrates two important aspects of the current crisis of confidence within the financial markets. First, AIG’s collapse in a matter of days resulted from the collateral requirements under the terms of contracts that are opaque, unregulated and difficult to track on corporate financial statements. As Buffett and others have suggested, the risk in the AIG derivatives portfolio was explosive — and ignored until it was too late.

Second, the AIG story illustrates how a collateral call under a CDS contract can have the effect of positioning the CDS counterparty — the institution on the other side that claims rights to the collateral — senior to the AIG policy holders and bondholders.

- while the crisis had its roots in sub prime loan defaults and the crazy proliferation of “unregulated” esoteric derivatives obliterated the “unregulated” investment banks, how did the “regulated” AIG suffer a near collapse and how did “regulated” banking behemoths like Citibank develop billion dollar leaks in their balance sheets?

The articles above give a clear answer – a combination of lack of regulation (derivatives) and failure of regulation (Greenspan). Monetary policy (government) and lending money to people who don’t deserve it (market, and government) still bear the primary responsibility. But lets try to understand the socialist view point – the government is ready to bear the risks related to monetary policy, and even that related to “housing for all”; what its not ready to bear is the cost of the havoc that has resulted from trillion dollar unregulated gambles. What answer does utilitarian libertarianism have to this problem? The socialists say if the derivatives market had been regulated, this bust would not have happened. Allowing for Murphy and the law of unintended consequences, I would agree with them purely on utilitarian grounds. Since the government is not going to give up economic stimulation or stop regulating or stop its bailouts anytime soon, the market will necessarily get distorted, and since the free market does not exist, it won’t be able to punish bad business decisions. The only utilitarian argument I can make is that if a “true” free market were to exist, it would be better for all concerned. But then as Weisberg says, that sounds just like the Marxists. The truth is this – you cannot defeat socialism by turning socialist yourself.

The argument is not about economics, its one about philosophy. The philosophy that lies at the heart of Weisberg’s writings and modern day government is pragmatism – the philosophy of compromise. A government based on such a philosophy does not care about rights; it simply want to serve an end that was conjured up centuries ago, and use people as a means to that end. You are not allowed to ask why that end, or, why should I be the means to such an end? The end is unfulfillable in a free society – rational people don’t enjoy self-flagellation, and so governments demand that it can only be fulfilled if people are “good”, or if they are forced into being good. People are told to be pragmatic. The end I refer to is egalitarianism – forcibly equalizing the unequal; and it has been actively pursued. Since making people rich is difficult (fiat money is not wealth; if it were, Mugabe would be the richest man on the planet), the policy has always been to steal from the rich – make them poor. This is where the idea of regulation comes from. Governments cannot create any value on their own, yet think that they know how to lecture others about the same, and how to “allocate” resources. And when people won’t agree to their diktats, or worse, question them, they come down to their real avatar – the brute brandishing a stick – if you don’t listen to me, I will beat you. A utilitarian defense of capitalism and free markets plays into their hands; that the “greatest happiness principle” is as bad as “from each according to his ability…”, if not worse, is a different matter altogether.

Any attempt at compromising with such an ideology necessarily means a destruction of your own.