Monday, September 29, 2008

Republicans + Bailout Failure = Political Theater

House Republicans Effectually Say Pelosi Speech Caused Them to Put US Economy in Jeopardy.

Today, the US House of Representatives failed to pass a $700 billion rescue of the financial industry. After the vote, House Republicans held a press conference. I was expecting solid complaints about the bill and how it wasn't ready yet. At most, I thought I'd hear some ideological rhetoric about Socialism. Instead, a succession of three Representatives lead by minority leader John Boehner said a speech late in the process by Speaker Nancy Pelosi sounded too partisan and thusly, the bill lost support from Republicans. All I have to say is how stupid do they we think we are? They repeated that this is problem has no party affiliation so she was in the wrong. Ironic. The Someone delivers a speech that you think is too partisan so, you act partisan in return? The last of the trio, Rep. Eric Cantor (R-VA) stated, "Clearly, there was something lacking in the leadership here." Clearly, the lack was in the Republican leadership since they felt their sensitive sense of pride was more important than the American people.

Reading portions of Pelosi's speech, she said "...tells us only the costs of the Bush administration's failed economic policies--policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system." The rest of the speech spoke of Democrats leading the way to change, but I didn't see anything solidly bashing Republicans-- or even naming them. So, House Republicans chose to go against their President because the Democrats delivered an anti-Bush administration speech? Democrats side with Bush and Republicans side against him? Certainly pigs are flying. So, as outlandish as this all sounds, one then searches for the real reason for this. Well, all of the Republican "nays" were from Rep's who are embroiled in tough reelections. At a time of very high news viewer/readership, these politicians chose to make headlines. What I surmise will happen is after they make this splash, they'll demand some cosmetic changes to the bill and it will pass easily. Then, of course, they will be the saviors of the American taxpayer. Simply political theater. Too bad you don't get your money back if you don't like the show...

Here are some very general points as to why this isn't a "Wallstreet Bailout," but a shot in the arm to save our economy. This situation was started by banks taking on exceedingly (stupidly to the extreme) risky loans. It really doesn't have much to do with the other companies on Wall Street, just with banks and investment firms who bought up tons of those now toxic loans. In time, these loans will be foreclosed on, currently at a rate 6,000/day, and all this money that was supposed to be there will not. So, banks are afraid to borrow from each other-- they don't know who's infected with toxic loans. That's step one. Next, they won't give loans to businesses including small business loans-- something many businesses need to exist. Then, they won't give personal loans like home loans, car loans or student loans. The last step is banks will fold. No credit equals no money in your ATM. It also means a global recession. The last US recession was not fun for anyone, myself included. Company spending freezes, wider wage freezes, more massive layoffs and whole companies failing. In other words, if this bailout doesn't pass, then life will tough for everyone, not just Wall Street or bankers. Let's not forget the thousands of homeowners holding onto the other end of those toxic loans. This bill means the government will take the loans and renegotiate them and more people will get to keep their homes.

From what I'm hearing from top analysts and investors like Warren Buffet and Jim Cramer, this is a good deal with sufficient protections for the American people (including if bailed-out companies will have to pay back the difference if this doesn't work fully.) Cramer even said he wished he could get in on it since it's the quintessential buy low-sell high scenario. The taxpayer may even make money on the deal.

One last bit of irony. Before the shenanigans after the bailout vote failed, minority leader John Boehner gave an emotional speech where he pleaded with his colleagues to vote yes with him. Maybe they will when this bill comes up again... because it will.

Sunday, September 14, 2008

Tiny Bubbles - Has America Gotten Too Greedy?

The "Internet Bubble." The "Housing Bubble." What bubble will burst next? If we know an industry is getting artificially inflated, why don't businesses or investors take steps to prevent a burst? Is it blind greed?

The debate about the positive and negative aspects of big business and big government aside, there has been an obvious trend where whole industries have rocketed to new heights and crashed utterly. This, some say, is all part of a free market system. If that’s so, why is our government taking control of Fannie Mae and Freddie Mac? It would seem that deregulation to "empower" the free market has done little to improve performance. If anything, it's showing that companies are uninterested in protecting consumers or giving them what they want. They're out for themselves.

Over the last ten years, regular hard working Americans have again started to question the actions of their employers. Some are asking how they, the forces on the ground, can see consumer buying trends change. Even inexperienced market-watchers and investors are asking why their peers or companies invest in stocks, real estate or loans that have no reason for being hot or solid investments. If laypeople can see it, why can't the heads of corporations or banks? In some ways, these companies are small countries. They have a president, a cabinet, budgets larger than many countries, citizens who work for them and in some cases they own the infrastructure of whole cities. With teams of lawyers, they lobby legislation, loop-hole around taxes and can crush anyone who tries to bring them to court (or at least make it unfeasible financially.) What they don't have is a system of checks and balances and without government regulation, they've proven time and time again, they're willing to choose fast money over ethics.

The Internet Bubble
Internet companies of the late 90's were young, hip and providing virtual products. If all your products are virtual, what is there to invest in? This is one fact I think many companies couldn't avoid and since they ultimately couldn't prove their value, they failed. Investors were out to make a quick buck and inflated the stocks of hundreds of companies only four years old. They paid the price, but unfortunately so did hundreds of thousands of employees who lost their jobs. The climate that followed was one that said Americans didn't have the know how and thousands of foreign programmers and other tech professionals were imported and continue to be to this day. Are the multitudes of American programmers that bad? I'm not so sure about that. Are foreign workers willing to work for less and work under worse conditions? I'm not sure about that either. What I do know is even laypeople knew the risks investors were taking were bad bets. The writing was on the wall, but the bubble was still allowed to grow and pop. Companies that survived like Amazon, provided a real service with tangible goods. Google, the most famous virtual goods provider, is almost a fluke, but survived by offering solid advertising model while helping you efficiently find what you were looking for in the vastness of the net. Also, they stayed private longer and it doesn't seem like their sole objective has been to make money (at least considering how well they treat their employees.) These companies also continually diversify and try to improve their business. They also listen to their customers. Unlike the American auto industry.

The SUV Bubble
I don't know if any reporter has said it yet, which is odd considering their penchant for attaching "gate" and "bubble" to things, but what's happening to GM and Ford can probably be called the "SUV Bubble." The corporations were making upwards of $30,000 per SUV sold. With a markup like that, who wouldn't want to keep that going? The majority of consumers were still buying cars though. And as gas prices began to climb as early as 1999, American automakers continued to concentrate their business on SUVs. They have tried to blame their woes on the retirees (you know, those people who brought their corporations to new heights and to whom they promised pensions), but the reality is the pension model works just fine as long as the company doesn't make poor choices. The poor choice in this case was they actively ignored the trend toward hybrid vehicles like the Toyota Prius and hybrid flavor of Honda Civic. GM even made and then scrapped their popular electric car. The writing was on the wall in big letters if not since the 1970's, then in the several years before the decent of these corporations. There was even a palpable resentment of drivers of monster luxury SUVs by much of American culture and around the world-- isn't it reasonable to assume that if you offer a product that a lot of people actually hate and find unsafe might be a reason to reevaluate your product line? I think the only answer here is the relationship that exists between a company and a consumer. A company usually offers a product to fill a customer's needs or wants. If the customer agrees it does the job, they're happy to buy the product. If they don't think it fits the bill, the product fails. In modern times, this has changed to where a company tries to convince the consumer they want or need a product. That's not entirely a bad thing, it's sales after all, but when the company tries to dictate what the consumer should want, that's going too far. American automakers are guilty of this and the results are clear.

The Housing BANK Bubble
The unprecedented investment in housing was also obviously inflated. We knew that house pricing was shooting up for no good reason. Folks were making incredible amounts of money many times faster than in the 1990's. Investors and want-to-be investors flipped houses they never intended to live in and get rich quick courses taught you how to do it! Well, booms bust just like London's housing market did almost two years before our crash. The writing was on the wall and we all knew it. Worse than investors though, were banks. Stories about the sub-prime loans began surfacing even before the crash. No interest for a year or more, then over 20% interest? Anyone who knows anything about credit would call that a terrible loan. Banks weren't going after you though, they were going after people outside of the know. They went after folks without credit or with poor credit and told them this was their best chance to ever own their own home. And who doesn't want their own home? Now worldwide, we're paying the price for these practices. Why around the world? Because banks sell off your loan many times over. (Other banks around the world also offered sub-prime loans and are also failing because of it.) America will continue to see the worst of it since we hold the bulk of these bad loans. Record foreclosures have been chosen by the banks instead of renegotiating their loans. Some have been renegotiated sure, but only a small percentage. I'm not an expert, but this might be because they sold your loan off and so they've locked themselves in. Not only have these actions aided greatly in the devaluing of the American dollar, they stand to cause the economic downfall of our country. Some may ask why terrorists haven't attacked us since 2001. Perhaps it's because their objective was to ruin our economy and either they're succeeding or we're doing the work for them.

The US Government Bubble?
The government to the rescue of the banking industry. I have to wonder how many people realize that the government's takeover of Fannie Mae and Freddie Mac (which isn't actually a bailout because they are actually taking control) is essentially the federalizing of our banking system-- growing the government, the exact thing the Bush Administration says is wrong. Not only is the American taxpayer expected to pay for the wars in Afghanistan and Iraq, we're now expected to pay for the failure of the banking industry. WAKE UP KIDS! Are we a democratically elected republic or Socialists? The healthiest governments today perhaps have a balance between Democracy and Socialism, but no healthy government keeps writing checks it can't cash and it certainly shouldn't be taking over any industry. It was bad enough when this administration cut taxes and obviously went into debt to do so. Now we're allowing the government to put the burden on a couple more future generations. As a nation we really have to ask what's going on here. The taxpayers should not be used to rescue reckless business practices. Unprecedented has been used all too many times recently to describe government and business. These bank takeovers are most certainly unprecedented events worth a whole lot of attention.

All of these events are obvious signs of failed policies and a lack of ethics in government and business. Not only big business, but right here at home. Investors, employees and business owners who might be your neighbors. On one hand, citizens all over the country are willing to follow blindly as long as their niche is safe and on the other hand are a growing number of Americans unable to defend their economic future because they're too busy trying to feed their families. Altruism does not exist. Communism proved that. But, I think as a nation we respond very well in crisis and we honestly look to help our fellow humans when they're in need. Unfortunately, this crisis isn't as apparent as a tsunami or hurricane. This is cancer. Slow to develop and hard to detect. We must change our ways and I know for a fact that swapping out the man or woman in charge will only change so much. We all need to participate. Regular citizens have the power to change the fate of a nation. We're not stupid! These are not complex issues, they're events we can see clearly. Information is available for you to read yourself without the filter or slight of hand. Stop supporting candidates and start addressing the issues you know are important. Mobilize your community and bombard your representatives with letters. Make sure the mainstream media knows about news they haven't reported and if they did know, pester them for a reason why it wasn't reported. All of these mechanisms are supposed to work for on YOUR behalf. The only caution I have to make is you may have to set aside some issues for now because they're quagmires that will only delay our progress. Anti-flag burning amendments are meant to distract from the real issues. This is for survival friends. This is the big time. If you like keeping your standard of living, your privacy and want to help those in need, we have to act now.

Thanks for reading!