Are capitalists on strike?

Investors Business Daily editorialized Friday that buyers have fled the stock market because they fear a "socialist tsunami" if Barack Obama is elected president and the Democrats have overwhelming majorities in Congress.

"A tax system right out of Marx," the paper predicts, and "a call for a new world order that turns its back on free trade, has no problem with government controlling the means of production, imposes global taxes to support continents where our interests are negligible, signs on to climate treaties that will sap billions more in U.S. productivity and wealth, and institutes an authoritarian health care system that will strip Americans' freedoms and run up costs."

America Wants To Know thinks that may be a little overheated. It has been our observation that James Madison and George Gallup have a pretty good track record of blocking that kind of thing.

You might not remember this, but it was a Democratic House and a Democratic Senate that cut the throat of Hillary Clinton's health care reform plan.

Or, as comedian Argus Hamilton put it, "By the time it gets through Congress it will be a dam in Idaho."

Yet there is evidence that investors who would ordinarily be expected to buy assets when prices drop sharply are just refusing to do so.

Are they tucked away in the sunlit valley of Ayn Rand's Atlas Shrugged, waiting for the lights to go out in New York City so they can rebuild the world the way it ought to be?

Probably not.

But they're waiting for something. David Caruso of the Associated Press reported last week that tens of billions of dollars are on the sidelines, ready to buy:

Dow Jones Private Equity Analyst said Tuesday that 18 distress funds have raised $37.9 billion so far this year. One big player, Oaktree Capital Management, has set aside a whopping $10.6 billion to invest in distressed debt. Goldman Sachs announced last fall that it had raised $4.5 billion to invest in distress opportunities in the credit markets. Even Lehman Brothers had been preparing a $1.25 billion fund for distressed mortgage-backed securities before filing for bankruptcy last month.

"There is much more money raised for these distressed assets than there are distressed assets themselves," said Tomasz Piskorski, assistant professor of finance at Columbia University.

The Dallas Morning News similarly reports:

Some $300 billion or $400 billion in investment dollars could become available worldwide, said Mike Bryant, a Dallas-based executive with Capmark Financial Group Inc., a California real estate finance company.

"There's about 300 to 400 different funds being put together that are ranging in size from $25 million to $1.5 billion, and even up, who are going to get in there and bid on these assets," Mr. Bryant said.

So what are they waiting for?

"A large part of our banking community is probably sitting back and saying, 'Let's see what the government does,'" Phil Dixon, president of the investment firm Treadstone Partners LLC, told the Dallas Morning News.

So far, what the government has done is create tremendous uncertainty by declaring emergencies, seizing new powers, choosing winners and losers in the financial industry, offering to overpay for securities of unknown value, panicking consumers with predictions of massive layoffs, and vowing to prevent lenders from foreclosing on people who have defaulted on their loans.

No wonder capital is on the sidelines.

It may not be a strike, exactly, but it does look a lot like Atlas Shrugged.

It looks like the scene near the end when the thugs who run the collectivist government put thinker-on-strike John Galt in front of a camera at gunpoint and tell him to reassure the nation that he has a plan to save them.

And he says this:

"Get the hell out of my way!"


Copyright 2008

Editor's note: You might be interested in the earlier posts, "President Bush's Frontier Justice," "Train Wrecks," and "Atlas Shrugged: Now playing in Zimbabwe."

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