Why Politics and Banking Are a Bad Mix

A few years ago I admitted to being one of the few people under the age of 40 who actually still rents a safety deposit box. I’m not going to tell you where it is or what it contains other than it holds valuable, private belongings to which only I have access.

One Las Vegas company is offering what it claims is the ultimate in discreet storage. Open 24 hours a day, seven days a week, the aptly named 24/7 Private Vaults rents reinforced safe deposit boxes with numbered keys and access keypads. That’s where most banks end.

Unusual about 24/7 Private Vaults’ approach is that, unlike bank safe deposit boxes or other storage options, the box rental and your contact information are completely anonymous and confidential. The company claims no actual record of who you are.

This might be extremely useful if you’re hiding assets, say from the government, the Mafia or your ex-wife. According to the web site, “A court order or subpoena must specify a name, box number and contents. 24/7 Private Vaults is not your agent. We never have information about who you are.” Customers are identified by a sophisticated retinal scan process. Rentals start at about $170 a year.

One of most attractive things about gold and precious metals as an asset class is that they are private. Your mutual fund, bank CD, are all inseparably linked to your name, address, Social Security number and identity. But whether or not you’ve got five gold Maples sitting under your mattress or 500 is anybody's guess. And unlike shares of Sun Microsystems (JAVA) or Ken Heebner’s mutual funds, gold could be immediately and anonymously liquidated for cash nearly 24 hours a day, anywhere in the world.

At a time when government is increasingly putting its hands into every element of our lives, that level of privacy starts to look quite appealing.

In a purely capitalist economy, politics and economics are, just like church and state, kept separate. Private individuals and corporations trade among themselves, with the government functioning as a referee, not as a player in the game.

Of course, since the Bear Stearns bailout, engineered by incoming Treasury Secretary Timothy Geithner, that’s all changed. Wall Street is gone, and Washington is running the economy now. Politicians supposedly know the “right” approach much more than us greedy, profit-hungry capitalists. In banking, insurance, and real estate, government is now the major player in the financial markets.

Numerous stories have surfaced in recent days about how certain financial institutions have received preferential treatment, not to mention our tax dollars, because of the specific actions of politicians lobbying on their behalf.

For example, the original TARP program was intended only to jump-start lending at healthy banks. Yet tiny — and troubled — OneUnited Bank in Boston got $12 million from the taxpayers thanks to the intervention of Rep. Barney Frank (D., Mass.), head of the House Financial Services Committee. Frank specifically pressured regulators to help the bank, which is located in his home state. Never mind the bank had been accused of shoddy lending and executive pay practices, including a company Porsche for use by its executives.

In Illinois, Democratic Reps. Danny Davis (D., Ill.) and Luis Gutierrez (D., Ill.) lobbied TARP czar Neel Kashkari provide direct financial assistance and loosen capital requirements to The National Bank of Commerce, a struggling Illinois bank. The request was ultimately denied and the bank failed earlier this Month.

In a real free market, thousands of independent, profit-minded individuals make judgments about whether or not a company deserves to be funded or not. They are incentivized to make smart decisions because, unlike TARP, it is actually their money on the line.

No more. As we pointed out last year, hundreds of billions of dollars are being burglarized by bureaucrats zero accountability or skin in the game. Decisions are being made for political reasons, not economic ones. You’re telling me this is a better alternative to an actual free market?

Hardly. Because whereas once investors analyzed earnings, management and profit margins, now all eyes are focused on the back scratching and insider dealings in Washington, D.C., where politicians who don’t know much about banking are turning taxpayers into involuntary investors. In this new era, whether you get stimulus…or sucker punched, is totally up to them.