Come tomorrow or whatever, the government may not open. (They’re closing down all “non-essential” offices, such as the Department of State: we’ll be leading from way behind. Any office that doles out money will remain open.) Soon in this theater: the debt ceiling, and more needless contretemps. The easy solution comes (as often) from my buddy Alex Pollock. In this case, he cheerfully concedes that the idea wasn’t his but President Eisenhower’s, way back in 1954: In order to keep making payments, the Treasury increased its gold certificate deposits at the Federal Reserve, which it could do from its dollar “profits”…
My dear friend and former AEI colleague Alex Pollock, a one-time banker and an occasional guest on this site, is a great and learned man. He lives by and teaches hard-acquired wisdoms. Like, “Debts that cannot be paid will not be paid.” Or, apropos financial busts: “It will always happen again.” As my ten-year-old inquired of Alex: “Why does a wise man like you work with my dad?”
Perhaps because we both belong to a lost age. Pollock’s laws don’t encompass the new first law of finance, famously articulated by former Morgan Stanley CEO John Mack: “Your No. 1 client is the government.” Client No. 9 is, or was, Eliot Spitzer. Clients 2-8 are also government agents, such as state Treasurers. Clients 10-100 are trial lawyers. Borrowers, depositors, and investors are not clients; they are cannon fodder.
J.P. Morgan Chase head Jamie Dimon (on all accounts, an exceptionally honest and competent man) learned Mack’s law of finance the hard way. He moped about Dodd-Frank, and so the powers-that-be went after him and his bank. They’re not remotely done.
Once again, the Solons collectively known as the U.S. Senate are considering reforms of Fannie and Freddie, the government-sponsored enterprises (“GSE”) that substantially contributed—and on some accounts caused—the housing bubble and subsequent financial collapse lo these few years ago. Nothing will come of it. The predictable failure invites deeper and darker thoughts.
So I have a new book(let) out. It’s called The Constitution: Understanding America’s Founding Document (American Enterprise Institute/Rowman & Littlefield, 2013). I wouldn’t hold it out as a scholarly accomplishment; it’s not meant to be. The book is part of AEI’s well-conceived Values & Capitalism Project, which (among other things) publishes short, understandable books, targeted primarily at an audience of college students, that address matters of public concern—economics, social policy, American history and exceptionalism, etc. The Project has produced several terrific books. (My personal favorite is Alex Pollock’s Boom and Bust, containing much wisdom and insight on financial cycles.) Now…
It’s only a blog, so allow me to expound on a subject at the intersection of two fields I know nothing about: tax law, and presidential campaign politics. There’s been a lot of screeching about growing inequality and unfair tax loopholes for “the rich”; about Warren Buffett’s secretary, Mitt Romney’s tax returns (and dodges), etc etc. While most of this is populist demagogy, some tax practices that benefit (almost exclusively) very wealthy taxpayers lend it more credence than it deserves. I think.