As the mid-term elections approach our president is shoving the gas pedal to the floor to convince voters the Democrats are doing something about the economy. Just after Labor Day he proposed spending $50 billion in 2011 on infrastructure projects such as highways, railways, airports and a new air navigation system. This is what should have been done on a larger scale two years ago as America's infrastructure certainly does need upgrading. And it would put people to work productively. But it is too little too late.
At the same time Obama proposed legislation to allow immediate 100% tax write-offs in 2011 for business investments on new plant and equipment, projected to cut business taxes by $200 billion. He also proposed to extend $100 billion in tax credits for business spending on research and development. But what the American economy needs is for consumers to start spending, not just business. American companies have lots of money to spend, and capital spending has been one of the few sources of growth in the last year. If consumers don't start consuming there is no reason for businesses to continue to spend money on production capacity that will not be used.
Of course Obama's latest proposals are on top of the misguided, ineffective three trillion dollars already spent to bail out the financial and housing industries and stimulate the economy. These initiatives were precisely the wrong things to do. Most folks forget the U.S. stock market dropped 20% from its peak in October 2007 to September 2008, a not unusual reaction to a deteriorating economy. In early September 2008 the federal government announced plans to use taxpayer money to bail out FNMA and AIG. Over the next six months, accompanied by a multitude of more bailout and stimulus billions, the market plunged 45% for a total decline of 56% from the 2007 high. In my humble opinion, the announcement of government bailouts and stimulus programs accelerated the decline and made it much worse than it would have been.
And what did all this government spending accomplish? Basically, it destroyed the non-financial private sector of the American economy while saving the fortunes of Wall Street financiers. The most interesting aspect of all this is that it was a bi-partisan effort. Democrats controlled Congress at the time, but federal regulators started the bailouts under George Bush and then exponentially escalated them under Barack Obama. The government poured gasoline on the fire. One can only assume that the leading decision makers of both parties are either totally clueless or grossly corrupt. Given that they created massive amounts of new debt for American taxpayers to pay off in order to bail out the mega-rich guys who were responsible for the debacle leads one to conclude the latter.
The wealthy folks at the top of the financial food chain had been making ever riskier, ever more reckless, ever more financially irresponsible trades with other people's money for years, making billions of dollars for themselves in the process. They were doing deals buying junk bonds, junk mortgages and junk companies to package together, leverage up and sell to those responsible for the conservative oversight of working Americans' retirement assets. Perhaps most destructive of all, they were trading esoteric, unintelligible derivative securities that no one understood. And they were doing it all with massive amounts of borrowed money to exponentially multiply their return on the minimal amount of their own money invested. Regulators were either asleep at the wheel or partners in the insanity. On top of that you had chairmen of congressional oversight committees encouraging government agencies to fuel and facilitate the escalating catastrophe (see Fannie Mae and Freddie Mac).
Despite what the perps now say, most experienced investors knew that a debacle was coming and avoided the toxic garbage these guys were trading back and forth among their elite club of co-conspirators. Inevitably, in 2008 the crap hit the fan as the economy slowed. That was to be expected, and prudent investors figured to weather the market downturn as they had done countless times before. And finally the gluttonous, over-leveraged nine and ten figure net worth geniuses playing the securities of mass destruction games would suffer the consequences of their mindless greed. Wrong!!!
Instead, the architects of disaster who made billions buying and selling worthless paper get bailed out by their bought and paid for congressional and regulatory friends in Washington, DC. Rather than suffering the consequences they come out whole. Has anyone ever explained why the government committed $180 billion to AIG so Goldman Sachs could recover 100% of their exposure to worthless credit default swaps underwritten by AIG. Obviously, if you are a top dog at any of the elite banking, insurance or money management institutions you are untouchable and can get away with anything you want. The Golden Rule is alive and well in America. "Those who have the gold make the rules", and they have the gold.
The Beltway Bandits in Washington clearly dance on strings pulled by the privileged few at the "too big to fail" financial institutions. We knew that our government does not represent the American people. But we just found out how little they care about us. Politicians' only loyalty is to the mega-rich folks who keep them in office. And I am sorry to have to inform the liberals, but it ain't just the Republicans. Only the totally clueless and certifiably brain dead could believe the Democrats' bullshit about standing up for the common man.
One of the reasons I quit managing money in 2004 after 33 years in the business was because the markets no longer functioned for traditional investors. The markets became dominated by giant banks and trading firms playing video games with extraordinary amounts of money, pocketing outrageous commissions and fees in the process. And they weren't too worried because if the market finally did tank they had a network of Ivy League fraternity brothers, former and future business partners, high society social connections as well as golfing and yachting buddies in charge at the important agencies in Washington that would look after their interests. Let the individual investors and pension funds take the hit. A few scapegoats would be offered and some minimal fines might have to be paid, but nothing serious for those at the top of the pyramid.
In my professional career I naively believed that those who did their jobs diligently, conscientously and prudently would come out ahead in the end. I believed those who were responsible for managing other people's money had a fiduciary duty to invest the life savings and retirement funds conservatively with a primary goal of capital preservation. I believed the careless, reckless and greedy would eventually suffer the consequences of their imprudence. But I was wrong. I never imagined that a bunch of avaricious, self-centered assholes would come along and screw up capitalism by acting irresponsibly destructive while collecting millions of dollars, and then get bailed out by our government. That just ain't right. One can only conclude that the government of the United States can be bought, making it as corrupt as any third world dictatorship on the planet. We have some very serious problems.
