Farmers Crisis from 1978- mid 90's.

[jimipatterson]

Given the parallels of the over regulation today to correct the current financial crisis (and it being a horribly defunct process indeed;) I was wondering what your thoughts are on the farming epidemic that hobbled rural Amercia in the 80's. Looking at that time in history, and reflecting on it may lead to some answers for the times we live in today... which is why I bring it up.

In case you don't know what happened; it was much like what took place in 2007, and 2008 with the housing bubble, but instead it was with an agricultural bubble, so to speak.

In the mid 70's the Federal reserve was wielding the market how they saw fit... under the guise of a "free market" system-- interest was running incredibly low.

The Farmers Home Administration had given out many loans to farmers in the midwest so they could create bigger empires for themselves. FhMA was making money off their loans being given out, and the farmers were enlarging their operations ten-fold. Win,win? Not for long.

In 1978 the money supply had been deemed too large; and Paul Volcker (current Fed chairman) raised interest to cut back the inflation. Thus the money supply was diminished to avoid a disaster for the market... a recession occurred though. Devastating the rural Americans.

As a result many farmers, 700,000 - 1,000,000 between the years 1978, and 1985 lost their land as a direct result of not being able to pay back their loans that were once affordable. (In affect their livelihood and ability to produce was taken from them because of a numerical figure determined by a government regulation.) As a result of this, the farmers became militarized and sought violence against the men who "swindled" them. The behavior of a looter. How do you think they should have responded instead? And can they be blamed for raging against a system that pulled them in with promises of success but unleashed failure instead?

My thoughts are this: The Capitalist system which we currently live under, is not a real capitalist system... instead it is a corrupt money system regulated by many entities; stemming ultimately from the Federal Reserve. The farmers are incapable of being free traders in this system due to the regulations put on them; wether it be the loan interest rates fluctuating how the regulators see fit, or the ability to comprehend the very system they are being controlled by.

Who is at fault? I believe it to be both sides. A farmer who doesn't adequately understand the loan agreements he involves himself in can not try to exact revenge or anger against a banking official playing the market how he can profit-- but is it not also wrong for the financial institutions to prey upon the farmers and rely on the ability of the Fed to raise and lower interest rates for them to incur profits? The farmer who once is productive becomes a looter and a persecutor after being destroyed financially and wanting revenge; and the banker becomes a leech and a second-hander making his income off of the trader he once dealt with honestly, only to fool them for their trust.

Ultimately it is the governments responsibility to protect individuals from coercion and criminal activity... and they should handle the case... But, what does an individual do when they are exploited and no one aids them, especially if the very system that ruined them was suppose to protect them in the first place, but didn't?

A lot of rural men became rouge militia members. A lot of damage was done. A lot of blame was placed. This could have all been avoided if people individualized themselves, and worked within the context of a TRUE free market, as well as adopted a reasonable moral code of ethics. But; if you had to choose the farmer fighting for rights that don't exist (looter,) vs, the banker manipulating a corrupt system to his advantage (leech) who would you pick? Both are not honorable... but both are real in this day an age. Where is the ideal man? Is is possible to be an ideal man given the current circumstance? How can someone (an ideal man) compete honestly if the market is controlled to be against him by a small group of men regulating their collective special interests? How does one reform a society to exist with no regulation at all... how does our current society realign their moral values to rational self-interest and reason?

Could you please give your thoughts. This is one of the major problems in my opinion with our current society: politically, and ethically; and I'm interested to hear what you have to say.

What is the missing link that allows injustice to continue?

Edited December 27, 2010 by jimipatterson

[Mr. Wynand]

There is nothing immoral about two individuals voluntarily associating. Both parties believe that they will derive personal benefit from the arrangement, or contract, because otherwise they would not partake. No matter how much the government intervenes and distorts market activity, which originates from individuals making contracts with each other, there should be no restriction upon voluntary contracts. As economist Thomas Sowell says, how much of known knowledge do the agents of the government have? 1% at most? The rest of the knowledge is scattered among the population, and it is obvious that a doctor knows more about medicine, or a farmer about farming, or a banker about banking, than anyone not in that profession.

When the government steps in and bans certain types of contracts, they are really saying that you are to stupid to decide for yourself. Forget about the experience that both parties have! I should have the right to stop them, so that consequence X doesn't happen! Give me absolute power and I can forever prevent this potential consequence! I doubt that you would want to be the person to deny people the chance to engage in a perfectly voluntary contract.

The federal reserve does a lot of damage, but as long as people are capable of deriving benefit from voluntary association, contract law will be needed to enforce agreements. The fed doesn't change this; it only makes it more difficult for some people to benefit from mortgages and other types of contracts.

[Dante]

Who is at fault? I believe it to be both sides. A farmer who doesn't adequately understand the loan agreements he involves himself in can not try to exact revenge or anger against a banking official playing the market how he can profit-- but is it not also wrong for the financial institutions to prey upon the farmers and rely on the ability of the Fed to raise and lower interest rates for them to incur profits?

...if you had to choose the farmer fighting for rights that don't exist (looter,) vs, the banker manipulating a corrupt system to his advantage (leech) who would you pick? Both are not honorable... but both are real in this day an age. Where is the ideal man? Is is possible to be an ideal man given the current circumstance? How can someone (an ideal man) compete honestly if the market is controlled to be against him by a small group of men regulating their collective special interests?

First of all, the standard picture of individuals and banks taking advantage of each other to benefit themselves is simply not true. Certainly, many people tried to do this during the recent housing bubble, and during previous economic "booms" created by easy money, but you simply have to look a little closer to see that this doesn't actually work for either side. People are better off if they refuse to take advantage of others (this is known as the trader principle in Objectivism).

I'll give you an example from the recent housing bubble. BB&T is one of the largest banks in America (top 10 in deposits and top 20 in assets), and during the housing bubble they engaged in virtually no subprime lending and no adjustable-rate mortgages (ARM). Because of this policy, aimed largely at not taking advantage of their clients, they have weathered the crisis extremely well. You can search Youtube for videos of their former CEO John Allison (he was the CEO during the bubble and crisis) discussing why they instituted this policy; basically, he and the company understood that taking advantage of their clients was not a strategy for long-term success. Even though they might have been able to make a quick buck, it would have cost them in the long term. So you have an example of a bank which conducted itself appropriately and was actually better for it.

You can see the same thing on the individual side; people who decided not to engage in this crazy house-flipping stuff which relied on ever-rising home prices are generally much better for it than people who decided to jump right in. My parents are a great example of a few regular people who looked at the situation and said to themselves, 'we might be able to make a quick buck or two, or buy a house we can't afford, but this whole situation is probably a very bad idea in the long run,' and so they stayed out of it.

In short, there is your ideal man. The businessman or individual who understands one very simple principle: the trader principle. In the long run, my best interests are only served by dealing with others as traders; by not taking advantage of others. There are people on both sides of this crisis who understood and applied that principle and are much better for it, and I guarantee you there were similar people during this agricultural bubble you describe. Banks which decided not to get involved, and farmers who saw through the charade. Those are your ideal people, in this context. Both sides are at fault when they break this principle, and they will suffer for it in the long run.

Edited December 28, 2010 by Dante

[jimipatterson]

First of all, the standard picture of individuals and banks taking advantage of each other to benefit themselves is simply not true. Certainly, many people tried to do this during the recent housing bubble, and during previous economic "booms" created by easy money, but you simply have to look a little closer to see that this doesn't actually work for either side. People are better off if they refuse to take advantage of others (this is known as the trader principle in Objectivism).

I'll give you an example from the recent housing bubble. BB&T is one of the largest banks in America (top 10 in deposits and top 20 in assets), and during the housing bubble they engaged in virtually no subprime lending and no adjustable-rate mortgages (ARM). Because of this policy, aimed largely at not taking advantage of their clients, they have weathered the crisis extremely well. You can search Youtube for videos of their former CEO John Allison (he was the CEO during the bubble and crisis) discussing why they instituted this policy; basically, he and the company understood that taking advantage of their clients was not a strategy for long-term success. Even though they might have been able to make a quick buck, it would have cost them in the long term. So you have an example of a bank which conducted itself appropriately and was actually better for it.

You can see the same thing on the individual side; people who decided not to engage in this crazy house-flipping stuff which relied on ever-rising home prices are generally much better for it than people who decided to jump right in. My parents are a great example of a few regular people who looked at the situation and said to themselves, 'we might be able to make a quick buck or two, or buy a house we can't afford, but this whole situation is probably a very bad idea in the long run,' and so they stayed out of it.

In short, there is your ideal man. The businessman or individual who understands one very simple principle: the trader principle. In the long run, my best interests are only served by dealing with others as traders; by not taking advantage of others. There are people on both sides of this crisis who understood and applied that principle and are much better for it, and I guarantee you there were similar people during this agricultural bubble you describe. Banks which decided not to get involved, and farmers who saw through the charade. Those are your ideal people, in this context. Both sides are at fault when they break this principle, and they will suffer for it in the long run.

im glad you posted... i've been debating this over and over again for the past few days in my head, and reached this conclusion... but your two examples are spot on; and really inspiring. thanks so much. i guess now, lets make this post a pursuit to seek out the other ideal situations. i want to collect as much data on handling the situations objectively as possible. too much media is focused on the victims and the wrong doers. ill look if you'll look and we can both share examples over the next few days.

thanks.

[anuse10]

The behavior of farmers and those involved in subprime mortgage crisis is driven by greed. The temptation of a better off living standard lure them to accept offer from bankers without considering the risks associated.

If those lenders can foresee the recession and that they would be vulnerable to debts, they would make such loans. At the end of the day, the education of finance knowledge matters.