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All Da King's Men

By All Means, Let's Regulate Systemic Risk

By Da King Published: March 27, 2009

As Treasury Secretary Tim Geithner outlined his broad principles for regulatory reform, which included government takeover and divestiture of private firms that posed a "systemic risk" to the economy, I started counting up all the private firms that posed a systemic risk in the current financial crisis. I came up with one - AIG. The only other systemic risk sized outfit I could think of was Fannie Mae, formerly a quasi-government firm, now completely a government firm. Fannie Mae bundled and securitized half the mortgage loans in the country, which included the lion's share of the subprime mortgages that melted down and are now referred to as "toxic assets."

What do you think the chances are that Fannie Mae will be broken up and divested ? Because it is a government entity, I would say the chances of that happening are near zero. I'm also waiting to hear when subprime mortgages are going to be outlawed so this won't happen again. I haven't heard a peep from the government about that either.

This brings me to the one entity that poses the greatest systemic risk to the economy by far - the federal government itself. There are plenty of alarm bells going off regarding the danger posed by this entity known as the federal government. It is $11 trillion in debt, and the debt is projected to soon double and triple, as Obamanomics parts ways with fiscal sanity. The federal government is printing money out of thin air to cover up it's state of complete bankruptcy. And it's growing by leaps and bounds, consuming an ever larger portion of our GDP. The systemic risk associated with the federal government makes the systemic risk associated with AIG look like child's play. I think we better tear up our contracts with the federal government, divest it, and sell off the pieces to recoup some of our losses. It's far past time for us to admit that the federal government has been a miserable failure, and it's only getting miserabler and miserabler. The federal government also needs to be heavily regulated. It is way out of control. We used to have a regulatory framework to oversee government, to reign in it's excesses. It was called the Constitution Of The United States, but the regulators of the government (the people) haven't done their jobs. We the people have been much like the Securities And Exchange Commission. The rules were there, we just didn't enforce them. As a result, the federal government runs around acting like Bernie Madoff, stealing our money and running crazy Ponzi schemes.

Mentioning Ponzi schemes reminds me of one particular government entity (of many) that is posing a systemic risk to our economy - the Social Security Administration. Most people know that SS, the biggest Ponzi scheme ever devised, is on the road to bankruptcy. What most people don't know is that the current recession has brought the day of reckoning for SS much closer. It may even go into the red THIS YEAR. SS revenue is decreasing as unemployment is increasing, and as more people are taking disability and early retirement. Watch the following video:

Only Democrats pretend not to know that SS is just a hidden income tax. When SS payroll tax revenue flows into the federal government, current retirees are paid from those funds. What is left over goes into the general fund and is spent (bye, bye trust fund). IOU's in the form of Treasury Bonds are written back to the imaginary "trust fund." That's what makes SS a Ponzi scheme. Due to the recession, there is much less revenue left over after the retirees are paid. When the revenue can't keep pace with the payouts, SS is in the red. We're almost there.

If you watched the video, you heard the announcer and somebody named Barbara Kennelly claim that there is $2.5 trillion in the SS "trust fund," enough to pay retirees FOR YEARS. Kennelly's comments in the video were pure Bernie Madoff-type rubbish. It was the biggest bunch of voodoo economic baloney you will ever hear. There is NOTHING in the "trust fund" except those bonds (the IOU's). To redeem those bonds, the government would have to CREATE $2.5 trillion out of thin air, drastically devaluing the dollar, or it would have to borrow another $2.5 trillion and add it to the deficit. Either way, future taxpayers will have to pay for the "trust fund" all over again (after they already paid for the trust fund the first time and Congress spent/stole the money). The taxpayers will be subject to endless bailouts of SS (we've already had about 20 of these SS bailouts, in the form of tax increases and/or benefit cuts). In order to believe there is $2.5 trillion in the SS trust fund, you have to literally believe you can spend money and save money at the same time, an impossibility.

SS is but one example of the substantial systemic risk our federal government is posing to our economy. There are lots more examples, but I only have so much space.



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