Official Graffiti

By DAVID MOON, Moon Capital Management
August 28, 2005

If your only mode of transportation were a bicycle or Knoxville Area Transit, you might not have noticed that the Tennessee Department of Transportation has begun a $62.4 million construction project on I-40 in west Knoxville. Not surprisingly, the local graffiti thugs have already gone to work near the Weisgarber Road work.

If identified and captured, I suspect these criminals might be sentenced to some sort of community service, perhaps scrubbing the defaced bridges and underpasses. If so, they ought to have some company from transportation department employees. You see, underneath many bridges, you can find two types of graffiti: the often intriguing and artistic illegal kind and the official graffiti painted by the government.

The official graffiti is typically a series of numbers and apparently meaningless symbols, painted in flat black paint using stencils borrowed from a first-grade art class. I am sure this official graffiti has a purpose. But it is a government activity that would be illegal if conducted by a private citizen.

I prefer the clean, undisturbed look of taupe concrete, so outlawing citizen graffiti is an easy government restriction for me to accept. But what about securities manipulation? That's a little tougher, but a similar situation applies.

If a person buys or sells a stock for the sole purpose of trying to change the price of that stock it is considered stock manipulation, a felony punishable by $100,000 fine and imprisonment. For instance, if a fund manager owns a thinly traded stock, he might orchestrate a temporary price increase by purchasing unusually large blocks of shares. By doing this, he could inflate his investment returns at the end of December, so it would affect his reported performance for the year. Not surprisingly, that is illegal.

The Federal Reserve Board, however, can do the same thing without having to send Alan Greenspan to the pokey. One of the functions of the Fed is to determine an 'appropriate price' for certain publicly traded bonds, then use the Fed's capital to buy or sell those bonds for the express purpose of changing the price of the bonds. If the Fed wants to push down the price of bonds, it sells a bunch of bonds and depresses bond prices.

An act that is illegal for private citizens is perfectly legitimate ' even expected ' for the federal government. We might as well give the Feds a can of spray paint and turn them loose on I-40.

It's not just the federal government. Seven years ago, all 50 states agreed to drop litigation against the tobacco companies in exchange for three quarters of a trillion dollars. If road contractors asked for the same kind of deal, we'd call it bid rigging.

At the local level, county commission negotiates payments from cable television providers in exchange for legislatively protecting them from competition, creating a monopoly or duopoly. If Halliburton maneuvered for that in Saudi Arabia, it would be guilty of bribery.

I'm not sure if private citizens are the goose or the gander, but there are two sets of rules, and the treatment of the fowl is more than just a little foul.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Add me to your commentary distribution list.

MCM website