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No Man is Safe

“This country has come to feel the same when Congress is in session as when a baby gets hold of a hammer” –Will Rogers

“Things in our country run in spite of government, not by aid of it.” –Will Rogers

I teach a course annually for MBA students on the impact of the federal government on business. As part of the course, my students accompany me to Washington for a week to meet with members of Congress, a federal district court judge, agency officials, lobbyists, lawyers, defense specialists and academics who specialize in federal affairs including both liberal and conservative think tanks and to officials of international financing organizations. We do cram a lot into our week, pick up calluses from miles of corridor and pavement and come back to Charleston exhausted and for the students a little amazed that this world, so different from ours, is on the same planet, let alone only 600 miles away.

For me, having been weaned in that world, it reaffirms my decision to live in Charleston, but it also gives me an annual barometer of the nation’s health. I am sad to say, as I prepare for this year’s trip, I am not expecting to return to Charleston anything but alarmed at the Nation’s welfare. Nothing has changed for the better since my last column with our country left hanging over a precipice.

At no previous time was there a truer aphorism than, “No Man’s life liberty or property is safe while the legislature is in session.” Long attributed to Mark Twain and various other nationally prominent humorists, the quote is actually the invention of Judge Gideon Tucker, formerly of the New York legislature, and my source suggests it was soon appropriated by Mr. Clemens for his Twain persona. Whoever said it first, neither would disagree that today we have boldly strode where no man has before, right onto thin ice and national jeopardy.

While many in the Nation would like to publicly hang those who worked on deal swaps for AIG, passage by Congress of a confiscatory tax for all or almost all of those funds would clearly violate Article 1 section 9 of the Constitution as a Bill of Attainder and ex post facto law. No less authorities than James Madison in Federalist 44 and Alexander Hamilton in Federalist 84 strongly assert the protections provided by that provision. Madison says “Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation.” And Hamilton cites Blackstone for the perfidy caused by the exercise of unlimited powers at an earlier time while reaffirming this provision in our Constitution as a bulwark against such actions in our Republic.

I have real doubts that this provision will make it into law, but increasingly, Congress appears to be Nero fiddling while Rome burns, and the Administration is caught up in activities that distract our attention from much larger payments by AIG to investment banks and others that participated in these deals and have already received substantial federal funding. I wager that the Administration does not have a clue what to do or how to do it. What is clear is that all the actions of the new Congress and the Administration point to disrespect for the basic principles of the private market system required to making it work. Looking for heads for their pikes will only discourage anyone from bidding on TARP assets that are at the core of our malaise. What is truly toxic in Washington today is the atmosphere. That Congress would even entertain such a thought gives pause to all. What WON’T they do? Are any of our founding principles sacrosanct?

What we hear is that the Toxic Asset Sale Program being worked on by Treasury is designed to lure three or four qualified groups of bidders composed of hedge funds and investment bankers working together as bidding entities to bid on bundled asset packages with significant downside guarantees by Treasury to bolster their bids on these asset groups. If the “mere” 165 million dollars of the bonus pool has Congress and the Nation in an uproar, the potential profits required to lure private capital from the sidelines to rid the taxpayers of these toxic assets will bring a firestorm of outrage by a public totally inflamed by political rhetoric that has failed to put our national situation into perspective for a fed up public that wants its government to have no part of rescues for the financial sector.

As for the potential bidders, you can well imagine they are watching the current fiasco with a jaundiced eye. They couldn’t help but think, “Are we, after having successfully gotten these assets off the government’s books, (at a public profit or at least an acceptable cost,) going to face an enraged public? Will we have to move to a foreign country to protect our families?” After the activities of the past few weeks, they have cause to feel the answer is yes.

Governments are ill equipped to fashion private sector solutions. They should leave well enough alone. Once we the people own the business, it has 300 million shareholders and a board of directors of 535 voting members of Congress. No business can operate that way, nor should it. These entities need to be gotten off the government’s books as quickly as possible.

The Federal Government needs to get about the adoption of regulations that will forever ban mixing insured depository institutions with investment banks. Glass Steagall is a good place to look for a model. Hedge funds should have only the wealthiest participants who can afford the loss of their capital without jeopardizing the financial system on which our nation relies. There should not be any banking institution too big to fail, and those we have must operate under complete transparency. The financial sector is a public utility making it possible for free enterprise to provide the wealth that has propelled our growth. It is to that task government should direct its skills. It is apparent as entrepreneurs they are entirely unsuited.

Copyright © 2009 by Robert E. Freer, Jr. All rights reserved

About the author: Robert E. Freer, Jr. is President of The Free Enterprise Foundation. He is a Visiting Professor, at The Citadel and elected in 2005 to be their first John S. Grinalds Leader in Residence. A regular contributor to the Mercury, He can be reached by E-mail at The Citadel . Copies of his earlier columns can be found The Free Enterprise Foundation.

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