[Peace-discuss] A venture capitalist who dissents against the bailout

[John W.]

<http://www.colventures.com/NoBailout/>

http://www.colventures.com/NoBailout/


I DISSENT


 An Essay Against A Government Bailout

September 23, 2008

By: Kenneth D. Peterson, Jr.


            I will not go softly! There is a terrible, horrible crisis
looming we are now told. But the Government will save us if only we will
allow the most extravagant intervention into private affairs that this
country has ever contemplated. The politicians and the media blare
breathless sound bites about fear of collapse, fear of the future, fear of
real estate, fear of failure. Have we forgotten that FDR said the only thing
we need to fear is fear itself? Have we forgotten that six years ago when
there was a similar full court press by the political and media elite to
exploit our fears the reality in Iraq did not live up to the hype?

The political classes of both parties said that in the face of this
unimaginable crisis they would take the weekend – imagine that, a whole
weekend! – to create a Solution. The Solution must now be implemented
immediately before we can even fully understand what it is. This is a
classic "rush to judgment" so that we may not notice that the Solution aims
to destroy the fundamental ideals of individual freedom, accountability and
responsibility that our nation's Constitution was meant to defend.

             I dissent and ask that you communicate your own dissent.

            Our financial situation has two issues: Liquidity and Solvency.
 If a bank lends money to someone and the person defaults and the collateral
is not worth the outstanding loan we can call this a "bad loan." Who should
suffer the loss? Should we make the renter who lives next door absorb the
loss? Should we make the shareholders of a bank that made good loans suffer
the loss? This seems ridiculous! To suggest, as do our earnest politicians,
that all the citizens of the United States should suffer the loss is
literally nonsense. The one who must suffer the loss is the one who made the
loan. Anything else is organized theft. If the bank did not inquire as to
whether the borrower could repay the loan, or if it did not require an
adequate equity cushion, then it must be responsible for such "stupid
loans". The same goes for those who bought those loans and thereby became
the lender. The result of enough such loans should be insolvency. Moreover,
a lender that leverages itself 30 to 1 and then pleads for a bailout when
values fall 4% does not define a national emergency and should not be taken
seriously.

            I dissent.

            On the liquidity side, let us first be clear that there is lots
of liquidity. Money Market Funds alone have more than $3 TRILLION in them.
This is a lot of money sitting at low interest rates waiting to be invested
in something that will return more. Cash deposits at banks adds more. Thus,
there is no fundamental problem with the *amount* of money around. The
political elite apparently feel this money should be allocated to a better
purpose. I agree from experience that lack of liquidity can have bad
consequences for those who are solvent.

            The lack of liquidity problem can be solved with patient money.
But this is hard to come by in an atmosphere of fear. When one cannot tell
whether any particular hardship is caused by illiquidity or insolvency the
resulting uncertainty demands a high price for patience. Are we to imagine,
however, that the people in the Treasury or Congress are somehow smarter or
wiser than the people at Bank of America, Morgan Stanley or Berkshire
Hathaway in differentiating the two? The real difference I see is that the
political elite can force millions of innocent citizens to underwrite
Government's power trip while private parties must persuade us to freely
part with our money. This is coercion, not liberty.

I dissent.

            If those in Government really are smarter they would perform a
greater service to the nation by starting a fund where they place their net
worth at risk, along with the President, the Fed Chairman, Senators Obama,
McCain, Biden and Clinton, Speaker Pelosi, Chairman Rangel and the other
leaders of Congress. They can accept co-investors who trust their investment
judgment and then make loans to those solvent financial institutions needing
liquidity. If they can correctly differentiate between the insolvent and the
illiquid they will make a lot of money, and they should. If they cannot,
they will lose their equity, as they should, but at least non-investor
citizens would not have been forced to bail out deadbeats and our
Constitution would not be shredded!

            I love the ideals America has stood for, like life, liberty and
the pursuit of happiness. I am proud that our Constitution makes us
different from the EU, China, Mexico or Russia. I am not ready to sell out
under panic pressure from our politicians for an "easy", but wrong,
Solution.

            I dissent and invite you to join me.

"Rage, rage against the dying of the light."


 Ken Peterson graduated Phi Beta Kappa from The College of William and Mary
in 1976 and from the Willamette University College of Law in 1980. He is now
the Chief Executive Officer of Columbia Ventures Corporation, a private
equity investor in Washington State. You can write to him at *
IDissent at colventures.com*.
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