November 12, 2009
When I started this blog in April of 2008, my focus was on that year’s political campaigns and the exciting Presidential primary season. At the time, I expressed my concern that the most prominent centrist in the race, John McCain, would continue pandering to the televangelist lobby after winning the nomination, when those efforts were no longer necessary. He unfortunately followed that strategy and went on to say dumb things about the most pressing issue facing America in decades: the economy. During the Presidential campaign of Bill Clinton, James Carville was credited with writing this statement on a sign in front of Clinton’s campaign headquarters in Little Rock: “It’s the economy, stupid!” That phrase quickly became the mantra of most politicians until the attacks of September 11, 2001 revealed that our efforts at national security were inadequate. Since that time, we have over-compensated in that area. Nevertheless, with the demise of Rudy Giuliani’s political career, the American public is not as jumpy about terrorism as it had been — despite the suspicious connections of the deranged psychiatrist at Fort Hood. As the recent editorials by Steve Chapman of the Chicago Tribune and Vincent Carroll of The Denver Post demonstrate, the cerebral bat guano necessary to get the public fired-up for a vindictive rampage just isn’t there anymore.
President Obama’s failure to abide by the Carville maxim appears to be costing him points in the latest approval ratings. The fact that the new President has surrounded himself with the same characters who helped create the financial crisis, has become a subject of criticism by commentators from across the political spectrum. Since Obama’s Presidential campaign received nearly one million dollars in contributions from Goldman Sachs, he should have known we’d be watching. CNBC’s Charlie Gasparino was recently interviewed by Aaron Task. During that discussion, Gasparino explained that Jamie Dimon (the CEO of JP Morgan Chase and director of the New York Federal Reserve) has managed to dissuade the new President from paying serious attention to Paul Volcker (chairman of the Economic Recovery Advisory Board) whose ideas for financial reform would prove inconvenient for those “too big to fail” financial institutions. As long as JP Morgan’s “Dimon Dog” and Lloyd Bankfiend of Goldman Sachs have such firm control over the puppet strings of “Turbo” Tim Geithner, Larry Summers and Ben Bernanke, why pay attention to Paul Volcker? The voting public (as well as most politicians) can’t understand most of these economic problems, anyway. I seriously doubt that many of our elected officials could explain the difference between a credit default swap and a wife swap.
Once again, Dan Gerstein of Forbes.com has directed a water cannon of common sense on the malaise blaze that has been fueled by a plague of ignorance. In his latest piece, Gerstein tossed aside that tattered, obsolete handbook referred to as “conventional wisdom” to take a hard look at the reality facing all incumbent, national politicians:
It’s the stupidity about the economy in Washington and on Wall Street that’s driving most voters berserk. Indeed, the financial system is still out of whack and tens of millions of people are (or fear they soon could be) out of work, yet every day our political and economic leaders say and do knuckleheaded things that show they are unfailingly and imperviously out of touch with those realities.
Gerstein’s short essay is essential reading for a quick understanding of how and why America can’t seem to solve many of its pressing problems these days. Gerstein has identified the responsible culprits as three groups: the Democrats, the Republicans and the big banks — describing them as the “axis of cluelessness”:
We have gone long past “they don’t get it” territory. It’s now unavoidably clear that they won’t get it — and we won’t get the responsible leadership and honest capitalism we want–until (as I have suggested before) we demand it.
Surprisingly, public awareness concerning the root cause of both the financial crisis and our ongoing economic predicament has escalated to a startling degree in recent weeks. This past spring, if you wanted to find out about the nefarious activities transpiring at Goldman Sachs, you had to be familiar with Zero Hedge or GoldmanSachs666.com. Today, you need look no further than Maureen Dowd’s column or the most recent episode of Saturday Night Live. Everyone knows what the problem is. Gordon Gekko’s 1987 proclamation that “greed is good” has not only become an acceptable fact of life, it has infected our laws and the opinions rendered by our highest courts. We are now living with the consequences.
Fortunately, there are plenty of people in the American financial sector who are concerned about the well-being of our society. A recent study by David Weild and Edward Kim (Capital Markets Advisors at Grant Thornton LLP) entitled “A wake-up call for America” has revealed the tragic consequences resulting from the fact that the United States, when compared with other developed countries, has fallen seriously behind in the number of companies listed on our stock exchanges. Here’s some of what they had to say:
The United States has been engaged in a longstanding experiment to cut commission and trading costs. What is lacking in this process is the understanding that higher transaction costs actually subsidized services that supported investors. Lower transaction costs have ushered in the age of “Casino Capitalism” by accommodating trading interests and enabling the growth of day traders and high-frequency trading.
The Great Depression in Listings was caused by a confluence of technological, legislative and regulatory events — termed The Great Delisting Machine — that started in 1996, before the 1997 peak year for U.S. listings. We believe cost cutting advocates have gone overboard in a misguided attempt to benefit investors. The result — investors, issuers and the economy have all been harmed.
The Grant Thornton study illustrates how and why “as many as 22 million” jobs have been lost since 1997, not to mention the destruction of retirement savings, forcing many people to come out of retirement and back to work. Beyond that, smaller companies have found it more difficult to survive and business loans have become harder to obtain.
Aside from all the bad news, the report does offer solutions to this crisis:
The solutions offered will help get the U.S. back on track by creating high-quality jobs, driving economic growth, improving U.S. competitiveness, increasing the tax base, and decreasing the U.S. budget deficit — all while not costing the U.S. taxpayer a dime.
These solutions are easily adopted since they:
- create new capital markets options while preserving current options,
- expand choice for consumers and issuers,
- preserve SEC oversight and disclosure, including Sarbanes-Oxley, in the public market solution, and
- reserve private market participation only to “qualified” investors, thus protecting those investors that need protection.
These solutions would refocus a significant portion of Wall Street on rebuilding the U.S. economy.
The Grant Thornton website also has a page containing links to the appropriate legislators and a prepared message you can send, urging those legislators to take action to resolve this crisis.
Now is your chance to do something that can help address the many problems with our economy and our financial system. The people at Grant Thornton were thoughtful enough to facilitate your participation in the resolution of this crisis. Let the officials in Washington know what their bosses — the people — expect from them.
Preparing For The Worst
November 19, 2009
In the November 18 edition of The Telegraph, Ambrose Evans-Pritchard revealed that the French investment bank, Societe Generale “has advised its clients to be ready for a possible ‘global economic collapse’ over the next two years, mapping a strategy of defensive investments to avoid wealth destruction”. That gloomy outlook was the theme of a report entitled: “Worst-case Debt Scenario” in which the bank warned that a new set of problems had been created by government rescue programs, which simply transferred private debt liabilities onto already “sagging sovereign shoulders”:
To make matters worse, America still has an unemployment problem that just won’t abate. A recent essay by Charles Hugh Smith for The Business Insider took a view beyond the “happy talk” propaganda to the actual unpleasant statistics. Mr. Smith also called our attention to what can be seen by anyone willing to face reality, while walking around in any urban area or airport:
By this point, most Americans are painfully aware of the massive bailouts afforded to those financial institutions considered “too big to fail”. The thought of transferring private debt liabilities onto already “sagging sovereign shoulders” immediately reminds people of TARP and the as-yet-undisclosed assistance provided by the Federal Reserve to some of those same, TARP-enabled institutions.
As Kevin Drawbaugh reported for Reuters, the European Union has already taken action to break up those institutions whose failure could create a risk to the entire financial system:
Meanwhile in the United States, the House Financial Services Committee approved a measure that would grant federal regulators the authority to break up financial institutions that would threaten the entire system if they were to fail. Needless to say, this proposal does have its opponents, as the Reuters article pointed out:
When I first read this, I immediately realized that Treasury Secretary “Turbo” Tim Geithner would consider any use of such power as imprudent and he would likely veto any attempt to break up a large bank. Nevertheless, my concerns about the “Geithner factor” began to fade after I read some other encouraging news stories. In The Huffington Post, Sam Stein disclosed that Oregon Congressman Peter DeFazio (a Democrat) had called for the firing of White House economic advisor Larry Summers and Treasury Secretary “Timmy Geithner” during an interview with MSNBC’s Ed Schultz. Mr. Stein provided the following recap of that discussion:
Another glimmer of hope for the possible removal of Turbo Tim came from Jeff Madrick at The Daily Beast. Madrick’s piece provided us with a brief history of Geithner’s unusually fast rise to power (he was 42 when he was appointed president of the New York Federal Reserve) along with a reference to the fantastic discourse about Geithner by Jo Becker and Gretchen Morgenson, which appeared in The New York Times last April. Mr. Madrick demonstrated that what we have learned about Geithner since April, has affirmed those early doubts:
As the rest of the world prepares for worsening economic conditions, the United States should do the same. Keeping Tim Geithner in charge of the Treasury makes less sense than it did last April.