Government interference is like a comedy act

By DAVID MOON, Moon Capital Management, LLC
August 3, 2008

In a Saturday Night Live monologue in 1977, comedian Steve Martin unveiled his plan on how to be a millionaire and never pay taxes.

There were two primary components of the Martin Plan: First, get a million dollars. Second, don't pay any taxes.

Pretty simple. Brilliant, in fact, in its simplicity.

I always thought Martin was joking. You can't just ignore the IRS. That's like trying to ignore gravity or some other basic physical law. Apparently, I was wrong. Maybe you can just ignore the laws you don't like, especially if you get to make the laws.

For example, the city attorney in San Diego, California, has devised a brilliant Martinesque plan to shore up the local real estate market. While foreclosures are increasing around the country, Michael Aguirre has formed a plan that should eliminate all foreclosures in San Diego.

His plan? Prohibit foreclosures in San Diego. Pretty simple.

Aguirre has sued Bank of America to prevent it from foreclosing on any homes in his city. He wants San Diego to be a 'foreclosure sanctuary,' and plans to file similar suits against Wachovia, Washington Mutual and Wells Fargo.

That's one way to skin that cat, I suppose. I just hope he doesn't plan on banks' making any future loans in his city.

The federal government has gotten in on the act, too.

In an effort to support certain stock prices, the Securities and Exchange Commission has enacted temporary restrictions on short-selling shares of 19 financial-services firms.

In a short sale, an investor sells shares of a stock he doesn't own, thus profiting from a (hoped-for) decline in the price of those shares when he purchases them at a lower price.

When investors sell a particular stock, it puts downward pressure on that stock's price. By restricting certain types of selling, the government is, in effect, declaring that the prices of those stocks shouldn't decline.

Perhaps they should make a law that requires all stock trades to be conducted at progressively higher prices. Fortunately, there is no San Diego Stock Exchange.

Even in economics, certain basic precepts will be followed, regardless of government's attempts to rule against them. The law of supply and demand comes to mind.

Attempts to support the prices of all sorts of different investments by restricting short sales have never worked before; there is no reason to think they will this time, either.

At times, stock prices will go down. Some people won't pay their bills. Companies fail. The days get shorter in the winter. These things don't change, no matter how badly we might want to decree otherwise.

When any level of government tries to void the economic equivalent of a law of gravity, the decision makers look like comedians: wild-and-crazy-guys with fake arrows in their heads. Now we know why.

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