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