September 22, 2008 An Open Letter to the U.S. Congress Regarding the Current Financial Crisis
John P. Hussman, Ph.D.
This article may be reprinted and distributed without further permission
Summary Of Principles
1) Public funds must function to increase the capital of distressed financial companies, not simply to take bad assets off of the balance sheet at market value……
2) In return for these funds, the government should NOT take equity (which is a subordinate claim and also creates potential conflicts of interest), but instead should take a SENIOR claim that precedes not only the stockholders but also the senior bondholders in the event the company defaults anyway…….
3) Ideally, the rate of interest on such funds should be relatively high (which will encourage these firms to substitute private financing as soon as possible), but actual payment should be made once the firms are again profitable so that the payment burden does not weaken them during the present recession.
4) The bill should allow for expedited bankruptcy resolution for these institutions, so that in the event of failure, the “good” bank (all assets and customer liabilities, but excluding debt to bondholders) can be cut away and liquidated to an acquirer as a “whole bank” sale.
5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount.…..
These are good ideas, with the exception of his support for interfering with speculation in CDS and short sales. However, his willingness to write this letter itself suggests that Mr. Hussman has an astonishingly naive view of government. If it were the case that the persons who run the State really have the public’s best interest in mind and simply don’t know the proper means to reach those ends… well, this would be a very different world indeed. (Forgive me for using the phrase ‘public’s best interest’ as though it was anything other than nonsense. What I should have said was ‘any interests other than their own’.)
Hmmm.
I do believe there is public interest.
It is for instance in everyone’s interests in a community to know their drinking water is clean and the air on the streets won’t make them ill.
And that if someone beats them up, they have recourse under the law.
Those are all examples of individual interests which everyone shares. ‘Public interest’ is a phrase which has the same meaning as the phrase ‘hopes of the color blue’. Colors and publics are abstractions, which cannot have hopes or interests because they do not have minds. Similarly meaningless phrases include: ‘popular will’, ‘national security’, etc.
Oh yes. In that sense. If you mean an aggregation of individual interests.
But that doesn’t mean that aggregation can’t be computed. You can’t reify, but you appeal to it. That only works for small groups though. Once you go beyond a city or at most a state or small country and become an empire – they are meaningless.
That’s why I am a firm advocate of state’s rights and decentralization at all levels….federalism, in other words.