Monday, September 29, 2008
Thoughts On Bailouts and Market Economies...
Well, it looks like the government "quick fix" $700 Billion bailout plan has lost in the House of Representatives...and the DOW is down 777 today (a perfect number?) So, what does all this mean?
Based on my experiences in the stock market, both as an investor and a broker, my first opinion is there is no set rhyme or reason for these market gyrations. There are times when market indicators are dire, well positioned leaders predict economic doom...and the market goes up inexplicably. There are other times when market indicators are robust and positive...and the market tanks. It's really hard to predict with much rationality...which is why I got out of the brokering business in the late 80s. Today’s drop is bigger than Black Monday of 87 in points...but not as big percentage wise.
Obviously the market is diving today because the congress, hopefully representing the voice of "the people", has turned back the huge bailout of wall street on the backs of the American taxpayer proposed by those most responsible for this turn of events. One could argue that in the long run, this could be a positive sign...that the "people" want to enforce responsible market factors to kick in and not just another Band-Aid on the wounds of unsound financial practices of our financial institutions. Perhaps the market should go UP today based on this news. Why doesn’t it? Well, primarily because there has still been no solid proposition of how we are going to rebuild our economy and financial institutions based on reason and sound planning. These government gyrations and pendulum swings of legislated solutions based on emotion have few good track records. It is interesting to note that this denial of the bailout plan is bi-lateral...both parties rejecting almost equally this bailout. This may be the most agreed upon decision in the life of this current House of Representatives.
SO...some may say, "what would YOU do instead of the current proposed plan"? Of course, we have little leadership in the current administration as a lame duck Presidency that has been arguable asleep at the wheel...focused on wars and foreign affairs, and not even handling THAT well. But, if I were President, and HAD ANY RESPECT FROM THE ELECTORATE...which is required to get anything done...I would make the following recommendations...
1. TEMPORARILY oversee all the failing major financial institutions...oversee all foreclosures and attempt rewriting all these failing mortgages at lower, more affordable interest rates and payments. Contracts would need to be adjusted for current market conditions and values. This would provide medium term relief for consumers caught in this crossfire.
2. I would reassign all IRS agents to work on behalf of re visiting these contracts and working out new payment plans with the mortgage holders/home owners. While reviewing these mortgage contracts, they should prosecute any fraudulent owners who have falsified the applications to gain these generous, sub prime mortgages. I would also prosecute any mortgage agent who participated in that fraud.
3. On all these renegotiated contracts, half of the interest/profits would go towards repayment of the federal bailout loans/funds. Only until a financial institution attained a stable balance sheet and approved, knowledgeable management, and repayment of all public funds would they be allowed to continue as a private institution.
4. I would outlaw all lobbyists and lobbying companies. They would not be allowed to enter federal properties (US Capitol, White House, Pentagon, etc) to sell their wares or pass out their "gifts" to elected politicians or US Military staff. Any travel by US Government elected officials would have to be paid for and approved by the government...their "boss"...with obvious reportability to the American people..."the Stockholders".
5. KEY...put all these assets on the Market to domestic investors who would benefit from investing in and turning around this failed companies. Let free enterprise and OPM (Other People’s Money) fill the gap of this needed 700 BILLION (or couple TRILLION?) instead of tax dollars and federal funds...which just aren’t there anyways.
6. And yes, a constitutional amendment REQUIRING a federal balanced budget. Why should the government get better treatment and terms on running business than the average citizen? Our leaders should not be able to spend money they don’t have, and HAVE to get permission to go into debt by we...the STOCKHOLDERS.
7. Pull back funds from some of these "golden parachute" CEOs and CFOs who have robbed their companies of 150-200 MILLION per person as they went under or out of balance. These "entitlements" should be held as illegal...a form of direct robbery from the shareholders of those companies.
8. And even more fundamentally, put more accountants and business administrators in public office...while replacing the mostly "Lawyer" crowd we have in government now.
I will think of more things to recommend, but basically I am saying...we cannot put this bailout money in the hands of the same "leaders" who caused this mess to begin with. It's time to clean house, just like a regular enterprise would do under these circumstances. It is time to pull back spending of the government...not give them more carte blanche cash for spending. It is time to get a true accounting and a LONG term plan before we bail out anything or anybody. We need to go back to market based economics and rewarding the WINNERS instead of the LOSERS. We need to batten down the hatches financially together...everyone do their part...and never forget this example of how greed and unrealistic financing can potentially take away our freedoms. We need to return to the plan "...to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity..." Our USA Constitution.
We can do it...even if it will be painful for a while...