Call It Corruption

      With the repercussions of the Asian financial
crisis now spreading to Latin America and now beginning to be felt in
the United States, American taxpayers are being asked to make a sucker’s
bet. Just give the International Monetary Fund $18 billion, so the Clinton
administration says, and this global financial crisis will simply disappear
with the wave of a magic wand and plenty of austerity measures for the
developing world.

       But doesn’t the United States,
along and other nations, give billions of dollars to the IMF and the World
Bank to prevent this sort of crisis from happening in the first place?
What are the IMF and the World Bank doing with all that money anyway?
Where does it go?

       It goes to some of the most corrupt
governments in the world. A recent report by Transparency International
tells much of the story; its 1998 Corruption Perceptions Index tracked
the relative corruption of nations around the world based on how investors,
risk analysts and public opinion evaluated the countries.

       And what do you know, the two nations
that received the most aid from the IMF, Russia and Indonesia, also scored
as two of the most corrupt nations in the world. Russia came in at 76th
and Indonesia at 80th out of 85 countries that were considered at least
moderately corrupt. For those keeping score, the West Africa nation of
Cameroon came in dead last as the most corrupt nation in the world.

       But the World Bank and IMF tend
to turn a blind eye toward corruption – occasionally to the point
of denying it exists even when their own reports document massive corruption.
It recently came out, for example, that the World Bank buried an internal
report citing Indonesian corruption at the same time its officials were
publicly denying accusations that officials in that country were skimming
large sums of money from World Bank projects.

       That August 1997 report concluded
that up to 20% of money the World Bank gave to Indonesia for various projects
was skimmed by Indonesia’s political class. But what was its official
line at the time? In July 1997, Jean Michel Severino, World Bank vice
president for East Asia, responded to allegations of Indonesian corruption
by saying, “We know exactly where our money is going. We do not tolerate
corruption in our programs.”

       Is this a case of the blind leading
the corrupt?

       So after these corrupt governments
have skimmed and diverted funds, and in the process driven their national
economies into the ground, what are taxpayers expected to do — why let
the IMF and World Bank give them even more funds as a reward. Of course
in return the IMF and World Bank will ask for “reforms” such
as raising taxes on the poor to pay for the largesse of the political

       In July, House Majority Leader Richard
Armey addressed an audience on the proposed IMF funding saying, “We’re
being asked to shell out $18 billion of your money for a pig in a poke.”
It’s about time the U.S. put at an end to its participation in this ongoing

When Is the Federal Reserve Going to Bail Out My Gambling Debts?

       Living in Michigan means the yearly
spectacle of watching the Detroit Lions consistently perform as one of
the worst teams in the National Football League. But even, though they’ve
only won a single game this year, this should not stop you from betting
your life savings on the Lions to win the Super Bowl. Sure, it’s
a long shot, but if you win the returns will be huge and if you lose,
you can always count on the Federal Reserve arranging a bailout to prevent
you from going under.

       Not likely to happen? Tell that
to the investors of Long-Term Capital Management who got the Feds to help
them organize a bailout simply because its managers made such horribly
stupid decisions with is $80 billion portfolio that the Fed insisted LTCM
couldn’t be allowed to fail.

       LTCM is a hedge fund — banks and
brokerage firms, along with some rich individuals, gave LTCM’s managers
$80 billion to invest in extremely risky arbitrage schemes — the hedge
fund, in effect, bet billions of dollars by buying extremely risky lots
of Russian bonds. When the Russian economy tanked and Russia defaulted
on the bonds, LTCM was on the verge of collapsing.

       The Federal Reserve stepped in to
arrange a bailout of the banks and investors who potentially faced write-offs
of $10 billion and upwards. Although all of the funding for the bailout
was put up by private institutions, the Federal Reserve was instrumental
in brokering the deal. Don’t count on similar help if you get into
trouble gambling your money – this sort of intervention is reserved
for the ultra-rich.

      The whole series of events that put
LTCM on the verge of failure only to be rescued by the Federal Reserve
reveals the perverse effects of moral hazard, when government encourages
people and institutions to take on enormous risks with the belief that
if they fail the government will come to their rescue. LTCM bought Russian
bonds in part because its managers believed the IMF would save Russia
from its own economic mismanagement – after all, the IMF has repeatedly
bailed out nations who created their own economic hell.

       In turn, many of the banks investing
in LTCM have federally guaranteed deposit insurance, meaning even should
they fail due to their risky investments, the taxpayers would ultimately
bail them out just as the taxpayers had to bail out the Savings and Loans
industry for its mistakes.

       Of course the usual suspects immediately
discerned what the real problem was — not enough government regulation
of hedge funds. Hedge fund managers, of course, oppose any new regulations,
but they’ll gleefully take the government-brokered bailout, thank you
very much. Hey, if rich people, banks and others want to place their bets
on the economic equivalent of the Detroit Lions to win it all, more power
to them; but the government should get out of the business of riding to
the rescue of those who voluntarily agree to accept such risks.

Short Takes – October 1999

George Soros — Socialism For Thee, But Not For Me

       International financier George Soros
has been complaining that free market capitalism is on the verge of disaster
and can only be saved by government intervention. Finally someone took
him seriously — Malaysian Prime Minster Mahathir Mohamad decided to try
to shore up Malaysia’s economy by imposing foreign exchange and capital
control measures.

       Soros suddenly got that free-market
religion. “The effect on the economy will be disastrous,” Soros
told U.S. lawmakers. “The measures taken by Malaysia will hurt the
other countries which are trying to keep their financial markets open
because it will encourage the flight of capital.”

       Not to mention the fact that Soros
makes his money by speculating on currency which currency control boards
and make much harder to do — in fact Mahathir complains that Soros caused
Malaysia’s economic problems to worsen by attacking Malaysia’s currency.

       Apparently Soros thinks it is just
the rest of us great unwashed who need the “protection” of government


When Did Liberals Start Reading the Constitution?

       As far as I’m concerned Investor’s
Business Daily is one of the best newspapers in the country and they showed
why on Sept. 25, l998 with the best commentary yet on Bill Clinton’s potential
impeachment. IBD notes that many prominent Democrats are claiming that
the Constitution sets strict guidelines for what Constitutes an impeachable
offense and, they argue Clinton’s White House affair, however unseemly
it is, doesn’t meet that test.

       In an editorial, IBD wants to know
when the Democrats actually began reading the Constitution. “Where
are they,” IBD asks, “when the federal government repeatedly
ignores the Constitution to build up the leviathan welfare state?”

       Ask a Democrat whether a law is
compatible with the Taking Clause test what the original intent of the
General Welfare Clause was, and their eyes will glaze over.

       All of a sudden, however, liberal
Democrats are turning into regular Constitutional scholars and even going
to the heresy of citing the actual words of the Founding Fathers. As IBD
sums it up, “If Congress cares about the Constitution, it can prove
it. It should ax departments, from Agriculture to Veterans Affairs. There
are also more than 100 programs and agencies that can go, as shown by
the Cato Institute Total Annual Savings? More than $200 billion. It’s
a start. Let’s call it a constitutional test.”

North Korean crackup

       It’s bad enough that North
Korea’s Stalinist government has seen its economy decline 30 percent in
just a few years and much of its citizens faced with massive famine. But
North Korea took the extraordinary step in September of looking to the
past to get itself out of its trouble when it named Kim Ii Sung, who died
in 1994, as President. Sung’s son, Kim Jong Il, will stay on as chairman
of the Central Defense Committee and presumably act as a messenger for
his dead father’s dictates.

       Well, if Bill Clinton could raise
the taxes of dead people, why not appoint one as president?

World Farm Animals Day this Friday

On Friday, Oct. 2, animal rights
activists will take part in demonstrations and protests marking World
Farm Animals Day.

According to a Farm USA press release,
“This year’s observance will target atrocities perpetrated in U.S.
slaughterhouses and condoned by USDA in violation of the Humane Slaughter

Farm USA portrays itself as mostly
concerned with preventing abuse, which most Americans would agree should
be prevented, but its literature indicates its ultimate goal is to end
the use of animals for food:

We view these developments as but a beachhead for our continuing campaign
to end the wanton abuse and killing of billions of innocent, sentient
animal in factory farms and at slaughter houses.


Press Release, Farm USA, September 1, 1998.

New rabies vaccine and anti-addiction drugs show promise in animal tests

Astonishingly, rabies still kills
more than 40,000 people every year around the world, but a new DNA vaccine
being tested in animals may help push that number to 0.

Scientists at the Rocky Mountain
Laboratory in Montana announced that eight monkeys injected with the vaccine
appeared to be completely immune to a wide range of common rabies viruses.
The vaccine causes the lymph node to trigger an immune response which
caused complete immunity to rabies after about 30 days.

The main advantage to the new vaccine,
however, is cost. The DNA vaccine can be produced for a few dollars per
dose, compared to a couple thousand dollars for the traditional vaccine.

In other news, a new drug entering
animal testing provides hope that human addiction to narcotics might be
alleviated. Vigabrantin was originally developed to treat epilepsy, but
animal tests suggest it could be used as a treatment for cocaine addiction.
When administered in rats and primates the drug seemed to prevent or diminish
the “high” the animals got from cocaine. A 90-day clinical trial
to test the drug’s efficacy in human beings is scheduled for this fall.


“DNA rabies vaccine succeeds in animals,” Roger Highfield, The Daily
Telegraph, June 1998.

“Epilepsy drug could block cocaine addiction,” Reuters News Service,
August 5, 1998.

New skin test to reduce animal use

A recently formed interagency governmental
committee approved a new skin test for irritating chemicals that will
reduce, but not eliminate, the number of animals used for such testing.

The new test checks products to
see if they cause contact dermatitis. Currently contact dermatitis tests
use guinea pigs and cost American industry up to $1 billion annually to
perform. The new test uses mice and requires only one-third to one-half
as many animals.

The test also reduces the level
of animal suffering. In the old test, chemicals were repeatedly applied
to guinea pigs several times and researchers would then wait for the animals
to develop skin irritations. The new mice protocol calls for the
application of the chemicals, but after 6 days the mice are killed and
their lymph nodes examined for antibodies indicative of contact dermatitis.

William Stokes of the National
Institute of Environmental Health Sciences and chair of the interagency
committee that gave its approval and passed the test on to the FDA for
formal approval, said the new test combines the best of both worlds.

We think it’s a win-win situation. These new methods typically use
fewer animals, no animals or cause less pain and distress … but they
also incorporate new science and technology to provide more accurate
tests that do a better job of protecting public health.

In an odd move, even People for the Ethical Treatment of Animals endorsed the new test.

“We support any new test,”
said Mary Beth Sweetland, PETA’s director of research, investigation and
rescue. “Everything is relative – using a mouse lymph node beats
blinding an animal for months. A skin sensitivity test can last for any
number of hours, weeks or months.”


“U.S. scientists endorse more human lab tests,” Maggie Fox, Reuters,
Sept. 21, 1998.