Civilian Disarmament: Here it comes

 

This just in:

 

As President Obama indicated during the campaign, there are a few gun related changes that we would like to make, and among them would be to reinstitute the ban on the sale of assault weapons, Holder told reporters.

 

Then there’s this gem:

 

“I think that will have a positive impact in Mexico, at a minimum.” Holder said at a news conference on the arrest of more than 700 people in a drug enforcement crackdown on Mexican drug cartels operating in the U.S.

Mexican government officials have complained that the availability of sophisticated guns from the United States have emboldened drug traffickers to fight over access routes into the U.S.

A State Department travel warning issued Feb. 20, 2009, reflected government concerns about the violence.

‘Some recent Mexican army and police confrontations with drug cartels have resembled small-unit combat, with cartels employing automatic weapons and grenades,’ the warning said. ‘Large firefights have taken place in many towns and cities across Mexico, but most recently in northern Mexico, including Tijuana, Chihuahua City and Ciudad Juarez.’”

 

So let me understand this: because cartels in Mexico have been employing automatic weapons and hand grenades – weapons unavailable for civilian purchase in the United States – we should be banning the sale of semi-automatic ‘assault’ weapons?  This appears to be the ‘pitch’ the state will make.  Doubtless it will resonate with those ‘moderates’ who can understand ‘common sense gun control’.

 

But wait, it gets better.  The ABC news article does not tell the whole story

 

H.R. 45 would require a federal license for all handguns and semiautomatics, including those you currently possess;

 

And it would require handgun and semi-auto owners to be thumb-printed at the police station and to sign a certificate that, effectively, the firearm will not be kept in a place where it would be available for the defense of the gun owner’s family.

 

A federal firearms database with no grandfathering.  Restrictions on storage within one’s own home.  Registration with the police.  Presumably restrictions on carry.

 

Remember you read it here on January 27th:

 

As discussed previously, one of the most fundamental ploys of the state is to disarm the people and make self defense a crime. In the United States we are half way to the former and most of the way to the latter. Yes, there has been resurgence in ‘castle doctrine’ laws recently, but use a firearm to defend yourself against an assailant inside or outside of your home and expect to be arrested, questioned and detained while the state determines whether your action was ‘justified’.

 

Once the people are largely disarmed and disincented, if not outright prohibited from defending themselves, the state will then create a permanent, full-time police force to provide for your defense. Bureaucracies and taxes will be then be expanded to support such a force. Over time, the force will be expanded to include various specialist divisions – drugs, traffic, undercover secret police, etc – and bureaucracies will expand and overlap accordingly – federal, state, county and local – until the people suffer a vast web of agencies each in charge of policing the same group: the people. Fortunately for the agents of the state, its various bodies will be busy legislating and regulating away the people’s liberties and creating new ‘crimes’ against which they might then police.

 

If passed, what if one resists this law based on one’s Constitutional rights (2^nd and 4^th amendments) and, more importantly, one’s God-given right to self-defense? 

 

That’s when the agents of the state come in – you know, the ‘friendly officers’ of ‘law enforcement’.  First come ‘officers’ at your door with guns drawn.  Then come the tasers.  Then come the hand-cuffs.  Then comes prison.  Think this is an exaggeration?  I’ve been down this road personally.  Test the current firearms restrictions and let me know what happens.  I think you can email from the prison library under certain circumstances.

 

From January 21^st:

 

The state disarms you, and makes it functionally illegal to defend yourself.  Then, through its near-monopoly on force, the state confiscates your income in the form of wage taxation in order to protect you.  When that is not enough, and the state machine is once again hungry for more money, the state will create new crimes… in order to sustain and expand its various agencies.  These agents of the state will then seek to sustain and expand their role in regulating the people.

 

Where are all those who emailed me regarding my drawing attention to the National Guard’s recently planned training for door-to-door searches of American households?  Where are those who called me a ‘propagandist’?

 

Wake up Patriots!  Don’t say nobody warned you. 

 

Orwellian Nationalization: ‘no plan’ for Credit Default Swaps

Today, regarding GM, Reuter’s reports:

 

GM posted a deeper-than-expected quarterly loss as revenue plunged by more than a third.  The automaker warned its pension plans for hourly and salaried workers were underfunded by about $12.4 billion as of the end of 2008.

 

The company, which has been kept afloat with emergency loans from the U.S. government since the start of the year, posted a net loss of $30.9 billion for 2008.  That ranked as the second largest annual loss for the 100-year-old automaker on record behind only the $38.7 billion loss recorded in 2007.

 

GM has asked for a total of up to $30 billion in total aid from the U.S. government to survive a plunge in sales in the global auto market.

 

GMs senior management team and board of directors remain in place.

 

Today, regarding Citigroup, Fox business news reports:

 

Citigroup Inc.’s bid to boost its equity capital could result in the federal government raising its stake in the troubled bank this week to as much as 40 percent…

 

Citigroup has already received $45 billion in U.S. bailout money made up primarily of debt-like preferred shares, plus federal guarantees to cover losses on some $300 billion in risky investments.

 

Citigroup’s senior management team and board of directors remain in place.

 

Today, regarding AIG, the Financial times reports:

 

AIG and the US authorities are in advanced discussions over a radical restructuring that would split the stricken insurer into at least three government-controlled division in an attempt to keep it afloat…

 

Under the plan, the government would swap its current 80 per cent holding in the insurer for larger stakes in three units…

 

However, people close to the situation said AIG was on track to… report a $60 billion loss with its fourth-quarter results.

 

AIG’s senior management team and board of directors remain in place.

 

All of this begs the question – what is the difference between pumping hundreds of billions of dollars in taxpayer money into these companies and simply nationalizing them?  There are two differences, and each one is bad news for the taxpayer. 

 

The first difference is that, under the current plan, directors and management continue to earn compensation, set strategy and execute tactics.  The taxpayer, through the federal government, is on the hook for the money, but has no direct say in how the company is run.  The main difference, however, has to do with controlling interest and credit default swaps.

 

Controlling interest and credit default swaps

 

First, let’s look at GM.  I quote an observation made on this site on January 21^st:

 

Here is the real story, the one you won’t hear on the news:

As you now know, after weeks of downplaying the issue, Treasury, a few days before the bailout was finalized, hinted it may actually be willing to use TARP funds to fund a short-term bail-out for the Big Three. You may ask yourself why the reversal.

If you remember, GM brought in the BK attorneys about a week before ‘to consult’. This move was aimed at squarely at the capital markets: GM has roughly $1 trillion in outstanding credit default swaps.

There are tens of trillions in unresolved CDS out there. The problem of unwinding these swaps in the absence of a CDS exchange (to monitor liquidity or carry out liquidations to cover positions) is at the heart of this financial crisis. As many of the original readers (pre-wordpress) remember me saying over a year ago, this crisis has little to do with mortgages. This is a capital markets crisis.

This is why reorganization through a BK court has not seriously been entertained.

If a BK court was allowed to resolve credit default swaps, it would rattle the financial markets beyond the control of the central banks. The decisions of the BK court would set precedent that could then be used to challenge CDS agreements in court. Further, these precedents would stand in other BK proceedings (think Lehman) and major financial institutions (already functionally insolvent) would collapse.

Next, let’s look at Citi and AIG, both the insurers and the insured, of hundreds of billions of dollars in notional credit default swaps.  The reason why this pseudo-nationalization is occurring (all of the exposure of nationalization without the controlling interest) is that nationalizing a bank or major financial corporation would create a ‘credit event’, or event of default, that would trigger payouts of debt insurance contracts beyond any insurer’s capacity to pay.  In the absence of an exchange to manage the unwinding of CDS contracts and liquidate insolvent market participants, there is simply no way to unwind the mess – in other words, complete seizure and potential collapse of the global ‘FIRE’ economy (finance, insurance, real estate) that is central to the central-banking, fiat money, fractional reserve lending, modern state-controlled economy.

 

Therefore, as if nationalization weren’t bad enough, we now have Orwellian Nationalization: the taxpayer is on the hook for the bad debt, but the same geniuses are still running the show – at GM, at AIG, at Citi, at Bank of America, et. al.

 

There are essentially three options for dealing with insolvent financial firms.

 

1. Bankruptcy and liquidation: this is the only effective solution, one for which ample precedent already exists and the only one I favor.  Under this scenario, insolvent financial firms simply go out of business.  Equity holders are wiped out (the ‘risk’ portion of the risk/reward stock market dynamic).  The company is broken up and assets of any value are sold to pay creditors.  Stronger firms may opt to purchase pieces of the broken-up, bankrupt organization and often get good deals on segments that still have value.

 

2. Nationalization: this is final and decisive act by government and includes variations such the creation of a ‘bad bank’ model.  In a pure nationalization, government may directly run the nationalized firms as ‘government banks’ – look for these types of solutions in Europe as the crisis worsens.  Another variation is the ‘bad bank’ model, such as the Resolution Trust Corporation the federal government employed during the S&L crisis.  In this variation, insolvent financial firms are taken over by the government and assets are split: performing assets are sold off to liquid competitors, while the illiquid assets are maintained in a government-run holding company and slowly liquidated.  Direct nationalization is a disaster as government has neither the expertise nor managerial ability to effectively run a large, global bank.  The ‘good bank/bad bank’ scenario would be a disaster due to the sheer dollars involved and the lack of oversight on the trillions of dollars spent so far.  What typically happens is that investors, creditors and senior management own the good bank.  You, the tax payer, end up owning the bad bank.  Naturally, investors, creditors and senior executives favor this solution.

 

3.  Orwellian Nationalization: in an effort to kick the CDS can down the road, this is what we have today.  The way this works is that government guarantees the bad debt of insolvent financial institutions ad infinitum.  First, hundreds of billions of dollars are pumped into these firms.  When this ‘investment’ by government changes nothing, hundreds of billions more dollars are fed into the meat grinder.  Soon, billions turn into trillions.  And the status quo remains – insolvent institutions with hundreds of billions in non-performing tier 3 assets remain insolvent.  Unfortunately, a new, perverse dynamic is created.  Capital flows to where it perceives it is most protected.  With implicit government guarantees turning explicit by the day, investors abandon good, solvent banks in favor of government-guaranteed banks.  Why not?  Why take the risk with a free-standing, private bank when you can invest in one that is backed by the printing press of the federal reserve?  In this manner is perverse incentive laid upon perverse incentive.

 

The important thing to remember here, as frequent readers know, is that the federal government does not have any money.  The only money the federal government can spend is that which is confiscated from productive citizens in the various forms of overt taxation, or that which it can borrow.  The interest on that borrowed money is inflation – the covert tax on every private, fiat dollar earned or owned, in perpetuity.

 

And so George Orwell would be proud.  Bernanke has “no plans” to nationalize insolvent American banks.  There is much truth to this statement.  While insolvent banks will eventually be nationalized, it is true that Bernanke has ‘no plan’ on how to do this without triggering uncontrollable events in the international, state-controlled, fractional reserve, fiat money economy.