From The Wit and Wisdom of Will Rogers edited by Alex Ayres

When the nation plunged into the Great Depression in the late 1929, President Hoover swiftly took bold action.  He appointed a commission to investigate.

“I could have told him before sundown what’s changed our lives,” said Will Rogers. “Buying on credit, waiting for relief, Ford cars, too many Republicans, Notre Dame coaching methods and two-thirds of America, both old and young, thinking they possessed ‘it.’

“It’s not really depression, it’s just a return to normalcy.  It’s just getting back to two-bit meals and cotton underwear, and off those one-fifty steaks and silk rompers.  America has been just muscle bound from holding a steering wheel.  The only callous place we got on our body is the bottom of the driving toe.

“We are getting back to earth and it don’t look good to us after being away so long.

“We have watched the parade but we got no money to go to the show on, and we can’t make up our minds to go home and start saving till next year.”

Although the Republicans were in power, Will Rogers refused to blame them.  “I don’t want to lay the blame on the Republicans for the Depression.  They’re not smart enough to think up all those things that have happened.”

Rogers placed some of the blame for the Depression on the gambling fever of speculation.  The American dream of wealth through work has been replaced by the dream of wealth without work.  “Half our people are starving and the other half standing around a roulette wheel.  They going to get some easy money if they have to go broke to do it.”

Depression ain’t nothing but old man interest just gnawing away at us.

I use a money management firm, Banyan Capital Management , owned and run by Gary Watkins.  Douglas Ott, II  is a portfolio manager for Banyan, and like Gary is a real student of the market.  I have been very satisfied with their results and their integrity.

In their quarterly letter and report, Gary and Doug referred to an element of great disappointment in the financial reform bill making its way through Congress, though there were many other areas of concern.

Currently, not everyone in the financial industries are held to the same standards.  Money managers (like Gary) are required to defer to the client’s interests above other considerations. Conflicts of interest and compensation structure must be clearly disclosed. They are also required to disclose their regulatory history.

Insurance agents, brokers and bankers are held to a different standard. As long as an investment is considered suitable they are not subject to the same rules of disclosure.

In his course of due diligence Gary, in the rare instances where he even deals with a security salesman, has uncovered players who plead guilty to financial crimes and have been sued.  This disclosure of their regulatory history is not currently required.

A simple rule change to require the same disclosure and integrity from all financial parties that are now required of money managers was included in the original bill, but lobbyists from the financial industry have successfully gutted it in favor of a new watchdog bureaucracy. Gary noted in his letter “History has shown such government offices actually accomplish little toward such a mandate  and mostly serve as cover for spineless politicians unwilling to do what is truly meaningful.”

I have written frequently that the biggest cause of the impact of lobbying that the president and so many others deplore so publicly is the growth in regulations that allow the crony capitalists to game the system with political influence that is commonly unavailable to their smaller competitors.

Behind so many regulatory initiatives are large companies gaining competitive advantage not by better serving their customers, but by using their political influence to write rules in their own favor. Many of the elected leaders are ignorant dupes of their influence, played like a cheap violin.  Others are quite aware of the game and sell their influence like a street whore.

Instead of trying to control yet another industry and trying to create power by transferring the allocation of wealth from the market to the government , Congress should create clear rules that require disclosure and honesty.  By seeking power and control rather than true regulatory reform, Congress seeks to institutionalize rather than eliminate the deceit that plagues our financial markets.

About ten years ago I attended a national Metals Service Center  Convention in Palm Desert, California.  One of the programs featured Jeff McMahon, CEO of Enron Industrial Markets.  He shared the stage with Don McNeeley, CEO of Chicago Tube and Iron, a large Midwest tubing supplier and fabricator  and a Phd economist teaching at Northwestern.  Don is an old friend and colleague and the smartest man I know in my industry.

Enron was well known for their innovations in the energy market and they were making inroads into applying many of the same principles from the energy markets into the metals business and other industrial commodities.

What I remember about McMahon was the level of arrogance in his address. He spoke of his company bringing in radical sweeping changes to the industry.  He insinuated that all of the players in the room with decades of experience really did not know anything about the true needs of their customers.   Enron and its markets would control the inventory and the mills and distributors would be mere adjunct pawns in the steel game that Enron controlled.

Mill executives were noticeably irritated.

In a February 2002 article in the Metal Center News Don noted that the rapid growth of Enron raised “questions about its methodologies”,  and that the deregulation of the utilities placed their platform business in a very risky position. “Should the platform business implode, it was going to take every other spinoff business down the same sinkhole.”

Don’s view proved quite prescient. Enron’s demise was a record setting bankruptcy and many of its executives  went to prison.

I recall a few instances of people promising to bring changes to institutions and industries that they knew nothing about. Short term radical changes are rare.  Different industries have different characteristics that require experience to  understand.

People who promise or promote radical change without understanding the fundamentals of the hosting organizations, have a remarkable tendency to destroy the effective and productive  parts  without realizing it.

Most mergers are either far more difficult to execute than expected or just do not work (AOL & Time Warner is perhaps the biggest failure).  When  disparate cultures join there is a tendency to replicate the worst features rather than the best. Big changes to big organizations or industries are just very difficult.

Changes that happen incrementally have a chance to be tested and refined. Large scale reforms destroy too much of the organism.

The founding fathers created a radical system by expressly limiting radical change.  They created a system with divided powers that went beyond oppressive majority rule to protect essential principles. This is a republic.

The founding fathers were deeply  suspicious of radical and unobstructed change or reform.  So should we.

George Melloan writes in The Wall Street Journal,  The Lessons of Basel’s Bean Counters

Summarized:

In 1988 the banking regulators from  20 leading industrial nations of the International Monetary Fund met in Switzerland and created Basel I to create a common set of banking standards by setting risk based capital standards, and assigning degrees of risk.

But the Japanese banks were bragging about their compliance when they tanked in the 1990’s.

So they created Basel II.  Standards were toughened to include trading in securities and derivatives. All of this seemed irrelevant in stopping the meltdown of 2008.

Excerpt:

The international banking tumult of 2008 was not a result of insufficient rules or even primarily of noncompliance with the rules. Banking is perhaps the world’s most regulated major industry. As in Japan in 1990, the imperatives of politics simply overrode what the rule makers and rule enforcers were trying to accomplish, turning their labors to dust.

The 2008 crisis resulted when the Fed-created credit bubble collapsed and soaring housing prices deflated as well. To promote “affordable” housing, Bill Clinton had excused the two giant government-sponsored housing finance agencies, Fannie Mae and Freddie Mac, from normal banking rules, allowing them leverage ratios far in excess of the limits on ordinary lenders. Banks were forced to write risky mortgage loans, a large number of which were then folded into mortgage-backed securities that Fannie, Freddie and others sold internationally with triple-A ratings.

This business seized up, crippling banks throughout the world, when holders began to realize that the assets that backed the securities, home mortgages, were going under water at an alarming rate. One of the great ironies of our times is that the two strongest defenders of the Fannie-Freddie shell game, Chris Dodd and Barney Frank, are now in charge of reforming banking regulation.

The better solution is clear rules, commonly understood financial prudence, and control of debt.  Yet our current government administration, which practices none of this, proposes to fix our financial system. I have yet to hear a peep out of Congress taking any responsibility for our financial mess.  This will only increase the likelihood or repeating or worsening the next crash.

Zachary Adam Chesser

I am certainly not advocating any violent action, but I  wonder if  fanatics who publicly threaten the lives of America’s most popular cartoon creators would be in greater danger than Matt Stone and Trey Parker.

Can you imagine someone threatening Walt Disney?

Read story on Foxnews:  Road to Radicalism: The Man Behind the ‘South Park’ Threats

This merits a death threat?  Where is the outrage?