INVESTING: King Paulson’s quest to kill the free market

Keywords Government

Comrades, welcome to the new world order! Please, get in line so we can process your papers. Remember, in the new world, there is no pain. Your benevolent leaders have outlawed all problems.

In 1984, I read ”1984,”George Orwell’s novel. I was a little young to grasp the full flavor of the book, but the theme hit a chord with me. I turned to Orwell’s “Animal Farm” a few years later, though, and that work was as clear to me as the nose on my face. Henry Paulson and Ben Bernanke are less malevolent forms of Napoleon and Snowball. And if you’re not careful, my fellow Americans, you may end up as Boxer.

By now, you should no longer be living under the illusion that America is a free market. It is not. If you were a beneficiary of what happened this month (you were holding stocks or you work at a bank, for example), just wait. The rules now can be changed so fast that it makes your ability to adapt virtually impossible. They helped you in this month’s crisis; they can hurt you next week.

The ban on short selling was quite possibly one of the most abusive moves by a governmental authority in U.S. history. The long-term negative impact of what happened cannot be underestimated. The only bright spot I can find in this situation is the same one I have leaned on for many years. America is slowly evolving away from a free country, but we are still the most free country around.

I don’t know when the governments of the world are going to figure this out, but investors love a transparent and fair market. Whichever country offers those two qualities in the most abundance will attract the highest amount of investment. The country that attracts the highest amount of investment over a sustainable period will eventually offer its citizens the highest standard of living in the world.

The United States has just taken an incredibly large step away from this process. Take a look at this quote from the legislation Paulson is pushing through Congress right now. “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Read that again in case you missed it. King Paulson’s throne is being prepared.

The news keeps getting worse. Last weekend, we were told Congress was going to be asked to provide $700 billion, and that the money would cover only mortgage-related assets for U.S.-based firms. But when Paulson came to work the following Monday, he asked for a trillion dollars. He also has widened the scope to include any and all distressed debt, such as car loans and credit cards.

If the bill passes in anything close to its present form, the last shreds of our free market will be effectively dead. And don’t look to the two-year expiration date for any solace. Paulson inserted a clause that allows him to re-institute the dictatorship as he sees fit.

The effects on the markets are going to be wild. We have been due for at least a 20-percent bounce from a recent low, and this may be the time. Odds are slim, however, that the first 20-percent-or-greater move will mark the beginning of the next bull market.

From 1929 until the final bottom in 1932, there were seven bounces of 20 percent or more. Post-9/11 was good for a 24.6-percent pop before the market rolled over again. Then, the S&P crashed 35 percent in the next seven months. At the very least, I would expect a major retest of the recent lows.

Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at

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