Strange Bedfellows

Today, Barack Obama sided with the Bush administration's actions to stave off financial collapse. John McCain criticized the administration's actions. What an odd world we live in. The U. S. Treasury and the Federal Reserve Bank are in uncharted territory, largely because of a lapse of sanity by the U. S. Congress, which in 1999 removed the firewall between commercial and investment banking that had been in place since the FDR administration. It was installed initially to keep wild speculation among investors from crippling both sides of the financial equation. I'm not sure who's idea it was to rescind this protection, but it's my suggestion that they be held accountable, more so or at least as much as the entrepreneurs who engineered the current debacle of poor decisions married to greed.

The reality is that Congress, like Pontius Pilate 2000 years ago, will wash their hands clean of any responsibility for our economic meltdown and will rush, though deliberatively, to have the CEO's of various failed institutions crucified. To say that there is action that will be taken before the Congressional recess that will be bi-partisan, effective and without countless amendments that will benefit scattered constituencies is a bit Pollyannish. Nancy Pelosi would love to have Bush crucified and discredit whomever she can in the current administration. She may hide behind the podium while Schumer delivers the nails to be driven into G.W.'s hands, but don't ever doubt that she will dance around the bonfire of our current panic at the opportunity to hurl the final insult at an unpopular President. Proscriptive and productive legislation? Don't hold your breath.

If that weren't enough to have Americans breaking open the Lexapro, neither John McCain nor Barack Obama have a clue as to how to manage this crises. John McCain, in spite of $1 trillion
in debt from the war and another trillion or so in financial ramifications from the credit crises within unregulated financial instruments alone, notwithstanding those securities that are actually regulated and not yet fully written down, will undoubtedly call for tax cuts to reinvigorate the economy and inherit a staggering debt we all will be paying down for the rest of our baby-booming expected life span.

Barack Obama, full of exuberance, will undoubtedly want to kick start the economic recovery by incentivizing private industry to begin rebuilding 30,000 failing bridges and 1 million miles of poorly constructed freeways, sticking windmills and solar panels in our yards, while raising taxes to pay off the debt. While the Great Generation passes into the great beyond and transfers the $15 trillion of accumulated, hard earned wealth to their Boomer children, Obama would like to take a huge chunk of that, thank you very much. This, along with raising Capital Gains taxes and renewing an assault on the most affluent Americans, you know, the ones that actually create businesses and jobs, will undoubtedly only seal our proverbial fate of entering another Depression.

The answer is complicated and won't be found in campaign slogans, running our low-paid friends from Mexico back home, raising or necessarily lowering taxes. My guess is that we need to return to some fundamental principles that were abandoned in 1999, though after another month or two of this, there won't be any difference between investment and commercial banking. And by the time Congress' power brokers get through with their selfish provincial interests, the regulations they set out will no doubt have the opposite effect of restoring money for mortgages to honest, hard-working Americans and leave us with a labyrinthine set of rules that will cripple lenders and reward regulators.

We are going to have to raise taxes to pay the piper. Let's make it fair and eliminate a graduated, antiquated tax code that was invented initially by Socialists to try and create a Utopian society by penalizing the ambitious and giving it to the uninspired. If my parents worked their whole life accumulating wealth, paying their taxes and investing wisely, why should their heirs be doubly taxed upon the transfer of that wealth?

If investment by individuals and businesses is what creates jobs and generates economic activity, why install punitive taxes that rob them of the incentive to do so? Wake up! The Emperor has no clothes!

I don't know what the magic percentage should be but all Americans above the poverty level should pay a proportional share to get us out of this mess.

If our congressional leaders refuse to stop the partisan bickering and posturing, let's vote them out and get someone in who will start making sense and working together where we can. The world still looks to us for leadership as was evidenced by the reactions of world markets today of the faint "whiff" of cooperation between our Congress and the administration's to act decisively and intelligently to address this crises.

We cannot miss this opportunity to begin to act collectively in a way that's in the best interests of all Americans, not just for those who happen to reside in a geographic region represented by those few who wield the power in Washington.

The "D" Word

Well, the Dow was down 500 points today, the insurance giant, AIG, is looking for a $50 billion bridge loan, the venerable Wall Street firm of Merrill Lynch, under pressure, sold out to BOA for the measley price of $50 billion, Lehman Brothers entered Chapter 11 and this on the heels of Freddie Mac and Fannie Mae being seized by the government. Though crude oil broke below $100 a barrel, the two hurricanes, Gustav and Ike have paralyzed the 50% of our refining capacity which is located on the Gulf Coast and this is sending gasoline prices soaring.

One saving grace heretofore was the weakened U. S. Dollar. Now that Europe seems to be slipping into recession, even that conduit for sales of our products seems threatened. Is there a history buff in the house? Does anyone remember what happened in 1928 and 1929. The Wall Street meltdown, compounded by 10% margins offered for stock and bond purchases at every neighborhood bank and unrestrained short-selling, sent the market into a crash. Coupled with a troubled, recessionary economy among our trading partners at that time, we entered the Great Depression. Though margin requirements are now 50% and other regulatory agencies are in place to prevent helter-skelter short-selling, things look ominously similar today.

In my short 56 years, I have never seen so many signs of trouble in our financial markets. I spent 10 years in the trenches with a Wall Street firm, so I feel I have some insight into this. I hate doomsayers but I am very, very concerned. If the Dollar is the international safe haven & U. S. Treasuries do not continue being bought, primarily by foreign investors, there will not be enough money generated for the treasury to sustain government spending. Without government spending, I fear, we will not be able to make it out of this current spiral. Whatever one thinks of FDR's public works programs and federal intervention into the financial markets, his leadership and WWII brought us out of the Great Depression. Without a World War, we can only count on effective leadership over the next 5 or 10 years to shepherd us through this crises. Deep down, I don't give a tinker's damn who is elected if we can only approach this intelligently and with vision.

What's most problematic is that 2/3 of our nation's GDP is based on the consumer. Right now, nobody's buying. The reality is, getting out of debt is probably the single most intelligent decision one could make to prepare for a prolonged, deep recession (or "D"). In my humble opinion? Stay in cash, except for your long term investments and if the Fed is going to stand pat on key rates, or even lower the rates later this year, it's probably not time to invest in fixed income investments, like Bonds. Blue Chip stocks are O. K., but only the old reliables like G. E., Coca Cola and those companies that will survive even a "D". Otherwise, get out of debt and preserve your cash. Real Estate might not recover for a long time. That party, as they say, for now, is over.