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     Jun 6, 2009
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Principal over principle
By Chan Akya

"Those are my principles and if you don't like them ... well, I have others." - Groucho Marx
American comedian Groucho Marx well captured the fragility and even the existential angst of society's moral compass in the face of economic hardship. He certainly was an authority on the subject, having delivered some of his most memorable work during and in the aftermath of the 1929 stock market crash and the Great Depression that followed.

Well equipped with sharp observation skills and self-deprecating wit, Groucho practically invented one-liners that have since become the staple of comedy in the English-speaking world.

Something vastly different from one-liners now appears to


dominate the English-speaking world; this is the steady deterioration of the moral compass in each society. We have witnessed epochal events that highlight the abrupt nature of change in these societies: Americans now appear to endorse large-scale government intervention in their economy to the point where "Too big to fail" has become automatic if not official policy response to qualifying corporate crises; the British public are aghast at discovering that their parliamentarians had their hands in the proverbial tills; in Australia, events have taken a rather nasty turn with an increased incidence of attacks on students from Asia and in particular, India (ironically or otherwise, the Asian country with arguably the highest number of English speakers).

The word "principal" in finance is used to signify amounts of money involved; it appears that a careless word play could help translate problems with such principal amounts - as evidenced by the global financial crisis over the past few months - into the very core of society; a reordering of a moral compass that goes to the heart of the working principles in any society.

Prima facie, I would argue that the proximate motivation for these changes, be it in government policy, the actions of individuals or those of parliamentarians, is the deterioration of the economy. There have of course been historical parallels for such abrupt changes in societies that confront deteriorating prospects which are explained later in this article.

Before delving into the details of the above stories, I must perhaps highlight a point of major irritation in the financial media and especially blogs. This is the frequent incidence of errors on the use of "principal" and "principle". Far too many times, I have been told the following or variants of the same:
  • XYZ person has loose principals.
  • The bank wrote off its principle loan amount.
  • In principal, I agree with these comments.
  • Issuer X defaulted on their bond, principle amount of $Y.

    For the record, useful definitions of the two words follow:
    Principal: adjective First or highest in rank, importance, value, etc; chief, foremost. noun A chief or head of an organization; something of primary importance. law A person who authorizes another (an agent) to represent him or her. finance A capital sum, the main amount of a loan or investment - as distinguished from interest or profit.
    Principle: noun A fundamental assumption - The principles of physics dictate that you cannot travel faster than the speed of light. A generally acceptable rule of action or behavior - moral principles.

    Communists, thieves and racists
    The US government has taken it on itself to rescue sectors and companies in the US economy that are deemed "too big to fail", which I presume means "politically inexpedient to be seen allowing to fail". In a recent Wall Street Journal opinion piece entitled "Too Fat to Fail", Daniel Henninger notes:
    So far Mr Obama has used his personally exciting presidency for initiatives that are spending public money on a scale not seen since ancient Egypt. Besides Obama Motors ($60 billion to $100 billion), there is Obama-Care for health insurance ($1.2 trillion over 10 years), the stimulus ($800 billion), a global-warming offensive called cap and trade that hopes to siphon hundreds of billions of dollars from the economy, and a fiscal year 2010 budget of $3.59 trillion. Out of these mists of federal "investment" they promise five million "green collar jobs". Only public-sector lifers could believe, or assert, anything so fantastic.

    Then there is the never-ending march of the financial-rescue armies - TARP, TALF, PIPP, EESA. The Federal Reserve's balance sheet stands at some $2 trillion and growing. Last week, Treasury floated the possibility of a single financial regulator for the entire banking system.

    All this is the Obama government's idea of innovation. It is all public sector because all any of them know is public sector.
    Over the past few months, I have written a number of articles that highlight the dangers of government intervention into the world economy, essentially a seemingly Luddite harking back to the time before market capitalism took hold of Anglo-Saxon economies. My sentiments were echoed in the wonderful Mises.Org website on June 4, in an article "The Age of Folly" by the redoubtable Llewellyn H Rockwell, Jr that contains the following observations:
    They are unavoidable features of the world, ones which the political class is forever attempting to override. The economy had been on a false foundation for some years, and the housing sector in particular had become wildly overbuilt and rested on bad debt. What can politicians do about this? Absolutely nothing. Economic foundations are built by private investment. Government has no resources of its own to build a foundation.

    It can only rob people of their property and thereby divert resources from where they belong to where they ought not to be ... By the fall and winter, it became clear that the war on recession was not working and the economy was sinking further. Rather than give up, Bush pushed so hard that he managed to throw us all in the arms of a socialist who knows nothing about economics and has surrounded himself with big shots who affirm him in his ignorance - people like Paul Krugman, who are wedded to antique mythologies about the glories of government power ... And so we live through it again.

    We see the fools trying this and that with our lives and liberty, promising glorious results around the corner. Well, by now, we've been around the corner, the next one and the next one, and it gets worse with each turn. These people are driving us right into the abyss, and let's be clear that this is not the fault of private investors or savers or foreigners or stock jobbers. It is the fault of the managers of this recession: the government, whoever is or has been in charge, and the Fed that operates on government authority.
    As if to echo the fears of what happens when interventionist politicians take charge of the economy, an expense scandal has

    Continued 1 2  


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    3. The simple solution

    4. Obama can dream an AfPak dream

    5. Iran wages lonely war on terror

    6. Dollar's fate written in history

    7. Dollar's wounds reopen

    8. The shadow war in Balochistan

    9. US steadfast against Hezbollah

    10. Jihad goes intercontinental

    (24 hours to 11:59pm ET, June 4, 2009)



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