Tag Archives: Congress

Super committee’s Super failure

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The gloves are off; there won’t be any deal coming out of the congressional Super Committee, not with an election year looming and reps on both sides of the aisle looking to gain an edge in the court of public opinion.

After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.

Apparently, the Republicans weren’t willing to budge on taxes and the Democrats on entitlements. Thus, we have a stalemate.

The outcome, while not surprising, is disappointing nonetheless. There was at least a teeny bit of hope that the 12 individuals selected would come up with something bold and creative, but that was not to be.

How might this affect the market? We saw a negative reaction on Monday during a period which is historically strong. So, initial reaction by market participants was enough to cause some technical damage, with the S&P falling below a key support level.

We might as well get used to more disappointment; the politicians are in election mode, and more concerned with getting reelected rather than doing what might be good for the country. It really didn’t matter which 12 lawmakers were selected to be on the committee, it was done more for show than anything else.

If those who were on the Super Committee worked for a corporation and were given a specific assignment to come up with a plan to salvage the company, and failed to do so, they would probably all be fired. Unfortunately we won’t be able to oust the Super Committee members, at least not now…maybe we’ll have a chance to do just that come election time.

Profiting through insider information – only Congressional members need apply

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If you happened to watch 60 minutes this past Sunday you would have seen there was a segment on insider trading by congressional members. This story pointed out that congressional members are free to trade stocks and other asset classes while using information they have access to that isn’t necessarily available to the public. Several examples of actual trades are divulged during the segment that show the huge advantage Washington insiders have over the general public, but of course, no one questioned felt they had used any information to their personal benefit. (If you didn’t see it you can watch the video below)

The story keyed in on some heavy hitters, including Nancy Pelosi, minority leader of the US House of Representatives and John Boehner, Speaker of the House. Also mentioned was former Speaker of the House, Dennis Hastert, and specifically how he made a few million dollars on a land deal based upon information he was aware of while in office and prior to buying property. It was also pointed out that Alabama representative Spencer Bachus, who was in closed door meetings with then Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, back in September, 2008, when the market was about to crater, ended up buying stock options that he profited from as a result of the market going lower. Hard to make this stuff up.

Apparently, there’s nothing illegal about our elected officials trading on insider information; and, apparently none of them really want to make a big deal of it. Why would they? If you could obtain information that allowed you to make a big score prior to a big corporate or government announcement, wouldn’t you be thrilled?

Also part of this story, it was revealed that former Washington state congressman Brian Baird attempted to put a lid on insider trading in Congress and to put in place rules that would prohibit conflicts of interest arising from privileged information. He even went as far as introducing the “Stock Act” but he got little support from fellow lawmakers. When asked how far he got, his recollection was that he and co-sponsor Louise Slaughter might have gotten 6 co-sponsors. As he put it, you could have “National Cherry Pie Week” and get 100 sponsors.

Now, if all of this seems almost too hard to believe, you should keep in mind that it’s a small, cozy crowd that runs our country, and why would they want to wreck a good thing? Think of it as one major “perk” of serving one’s country. Forget that you, as a citizen of the same country, could end up in jail if you traded on insider information.

I often wondered why anyone would want to take years out of their lives to serve their country. Your personal life is going to be scrutinized, and its a set up for constant criticism for relatively small pay. But, given the perk of being able to get the jump on the public by trading on juicy information, I just might think about running for office.

A lesson for the US?

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There’s a lesson to be learned from Europe’s handling of their economic problems; actually take steps that have teeth to them.

Step back to 2008 when then Treasury Secretary Henry Paulson summoned all of the top executives of US banks together to discuss what would become the TARP. Originally, when Paulson had spoken to Congress, the funds were going to be used to clear out bad mortgage loans. Instead, the funds were loaned to the banks as a means of providing liquidity and keeping them all from going under.

Europe’s approach is different. In effect, bondholders who were owed money by Greece were told to take a 50% haircut; no questions asked. The reasoning was simple; if you don’t agree then everyone’s going under, and this won’t be allowed to happen; end of discussion.

Banks in the US were simply given too much leeway, and there was no way they were going to, or intend to, take the types of haircuts they need to in order to help get the economy back on track. Instead, a full three years after TARP, our economy remains stuck in the mud, millions of people have lost their houses and many more face the same fate.

Clearly, Europe’s actions aren’t the answer to everything; but, they did what needed to be done to keep Greece from going under. Now they will need to look at Italy, Spain and others that face similar economic problems, and that will be a daunting task. But, a blueprint has now been laid out where each situation can be dealt with one step at a time.

Much like Europe was able to benefit from seeing how the US handled its own internal problems a few years back, we now have an opportunity to do the work necessary to get our economy back on track. I only hope that the banks can somehow see that if they get proactive by dealing more appropriately with the millions of under water loans on their books that it will not only help them in the long run but the entire country as well.

Stuck in neutral

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President Obama laid out his jobs plan last week and now the Republicans are coming back with some thoughts of their own. Right now it looks like the parties agree on extending and reducing the payroll tax component of the plan and will come up with some compromise on extending jobless benefits. The Republicans are vehemently opposed to raising taxes to cover the cost of Obama’s jobs plan so they will be offering alternatives that are likely going to be rejected by the Democratically controlled Senate.

While all of this goes on, the US is now teaming up with the Europeans and others to try to help them get through their economic mess. At the same time, freshly released data continues to show how weak our own economy is, with weekly jobless claims and inflation climbing while retail sales and manufacturing declines. Not very good combos.

When I look at everything going on it leads me to the conclusion that leaders around the world are truly stumped; they really don’t know what to do. Yes, the Fed is doing what it thinks is necessary to prevent a complete economic meltdown, but the “new world economy” is presenting challenges that no one knows how to deal with, and thus, the US market is stuck in neutral.

Of course, in the long run, it would seem like everyone around the world would benefit if there was full cooperation among the various nations. But, is it realistic to think that most countries would go out of their way to help other countries if it would hurt their own economy? I doubt it. And this is where it gets so tricky; trying to figure out how to help another country so your economy won’t collapse is one thing. But, helping another country weather a financial crisis to your detriment is another thing all together.

Let’s face it; the country with the most financial power calls the shots. And, for many years now, that has been the US. All of the sudden, our economic superiority is being called into question. And, we’re now being called on to cooperate with and assist other countries when we’ve got our own gargantuan fiscal mess to deal with. That’s just too much for most humans to comprehend.

As a nation, we look to our leaders to guide us through difficult times. They are the glue that is needed in times of crisis. Instead, we see a great division, with most of our elected leaders worried more about next year’s election rather than the well being of our country. It’s short sighted and could actually lead to the demise of our economic superiority. One thing that I am certain of is we will never get out of neutral unless there is a complete shift in thinking.

Wonder why the market is stuck? Blame Congress

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As hard it is to even imagine, a new Rasmussen poll shows that 6% of likely US voters think Congress is doing a good or excellent job. When I first heard that, my first reaction was, who is in that 6%?!? I mean, really…could it be any more of a circus than it is now? It also shows me why the market is stuck here; it’s looking for some leadership, and its sure not coming from the Hill.

I could see where maybe 60-70% of the population might think Congress is doing a lousy job, but 94%? That’s the type of result that says to me let’s toss everyone out and start over!

So, the market remains stuck in the mud, wondering if the debt ceiling will be lifted, if there will be a viable deficit reduction plan put in place, if the Fed will do anything else to try to buoy the economy. In the meantime, the market is bracing for Friday’s second quarter GDP, with the results being potentially significant.

For example, last quarter GDP clocked in at 1.9%; that’s pretty anemic. This quarter economists are expecting a drop to 1.7%, even weaker than the first quarter. So, if the economists are right, and we see a drop in GDP, that will then set up a discussion about a serious economic problem, knowing that a further drop in the third quarter would fit the text book definition of a recession where GDP falls for two consecutive quarters.

Interestingly, we’re in the midst of the second quarter earnings season and overall the numbers have looked pretty good. There have been a few disappointments, but so far it looks as though the earnings picture has been better than expected. Still, the market cannot make the leap to the next level, with the S&P being no higher than it was back in February of this year. So, earnings alone are apparently not enough to do the trick.

This gets me back to Congress, and having to ask the question, what are these clowns thinking? Or, aren’t they thinking? Are they that cocky and insulated from the rest of the world that they can’t see how much they are loathed? I guess that is entirely possible, and we’ll have to start working on that 6% who think they are doing a good job.

Fed just doesn’t get it

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Well, all of the talk about no chance of a QE3 went down the toilet today, when Fed Chairman Ben Bernanke told Congress that another round of stimulus is in the works. The market’s initial reaction was higher, but don’t be surprised if that all changes once investors and traders understand exactly why the Fed is looking at a round 3.

What continues to puzzle me is why the Fed thinks another bout of asset purchases is going to stimulate the economy. Rounds 1 and 2 really didn’t do all that much. I mean, as far as I can tell, unemployment hasn’t improved; the number of foreclosures in process and pending hasn’t improved; there are more homeowners underwater than ever, even with rates at historic lows; the banks haven’t reached out to small businesses; the stock market is trapped.

So, continuing down the same road with no additional creative thinking is likely to yield the same going nowhere results. I just don’t get that the Fed doesn’t get it.

Look; the primary beneficiaries of these continuous low rates are the banks, plain and simple. It allows them to continue to borrow funds from the Fed for next to nothing and invest those dollars into treasury bonds, making a nice spread. It would be one thing if the banks spread the wealth, but they aren’t.

The only true solution to getting us out of our on-going funk is to put more dollars into the hands of the taxpayers. Eliminate FICA for a decent period of time. The positive effects will overwhelm the negative effects. Consumer confidence will rise. People will spend. The economy will get some life. It’s not going to get any life from a QE3; been there, done that.

I know the Fed is trying to do what it can to stop GDP from falling two consecutive quarters, which would constitute another recession. They may be too late. Just accept that we need a different approach to the same problem. Trying something different might actually work.

Moody’s Analytics Zandi says all is well; and he’s wrong

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Mark Zandi, Chief economist at Moody’s Analytics, seems to think everything is well and the economic picture will be improving. He is predicting that 4th quarter GDP will be much stronger than expected and that non-farm payrolls will hit the 200,000+ level by the end of 2011 and that the unemployment rate will “head toward” 8% by the end of 2012.

Part of his theory is based on lower energy costs, something he feels has been a drag on the market. I tend to agree that if oil prices continue to fall then there’s a shot at the economy improving but there’s still really no evidence that the employment picture is improving. In fact, if anything, recent weekly jobless claims show just the opposite; that it’s actually getting worse.

I find it quite interesting that these types of proclamations come when the market goes through a nice rally. I didn’t hear Zandy forecasting an economic recovery when the S&P was heading south just a few weeks ago.

Still, getting the unemployment rate back near 8 in just over a year will be a challenge that I’m not sure the US is ready to take on. If Congress finally comes to some type of agreement on the growing debt situation you can rest assured that it won’t include a lot of additional government stimulus dollars. And, there’s been no sign at all that large corporations are chomping at the bit to add bodies to the bottom line. So, that pretty much leaves small businesses to pick up the slack, and since they have very little access to working capital, I don’t see it happening there at all.

So, while I would love to see Zandi right on his predictions, in my opinion it’s simply too premature to predict such a nice recovery. I admit that an unemployment rate at 8% is not exactly a sign of a robust economy, but it would obviously be a step in the right direction. I just don’t see it happening unless there’s a commitment by the government, corporations, banks and small businesses that its time to bring more employees on board.

Solutions leading to a stronger America

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Where do I start?

Let’s start with something everyone can relate to. We need fewer people losing their homes, we need more people working and we need small businesses to have easier access to funds to jump start the economy. I promise you, if we can make substantial progress with these three specific topics, we will be on our way to a better, stronger America. Oil is a problem as well, but let’s save that for another day.

Yes, we’ve got a deficit that is out of this world, but we’re not alone, and as crappy as things are in the US right now, we’re still the “go to” nation. So, let’s get it on the table right now; we need to lead the world out of its economic funk, because that will re-establish us as the power that we became and that we can become again.

The Fed has done everything necessary to keep interest rates low; they get high marks for that one. But, as my good friend and on-air partner Ed Handley from Fulcrum Securities pointed out during our show today, the Fed (actually, the White House, Congress, basically all elected officials) gets an F for doing its part (or lack thereof) to help stimulate jobs.

In addition, I don’t care what anyone says; the housing condition today is a national embarrassment; it’s beyond appalling. Yes, there are plenty of people out there who have figured out a way to scam the system and live rent free for years, but they are still in the minority, and for some of them, they might not even have a choice. Fine. It’s the other millions of homeowners who got lured by mortgage banks and didn’t have to show one iota of proof to back up their income and assets. And, this was all done SPECIFICALLY so the investment bankers could put together collateralized mortgage pools to sell to unsuspecting (some might say greedy) investors who were promised great returns.

So, make no mistake about it; the investment bankers and the mortgage bankers who went along with this scheme did just fine (Lehman accepted) while the vast majority of homeowners who took the banks up on their offers have completely gotten the shaft.

Next. Give me one really good reason why General Motors or any other corporation would go out of its way to create new jobs knowing that we could fall flat on our faces again? Do you honestly think GM wants to go through what it did to survive again when as a lean and mean company they can actually make money? Or, give me one good reason a bank would lend to anyone, other than someone who doesn’t need the money, knowing they can print profits simply from borrowing from the Fed for next to nothing and invest it into treasury bonds at no risk?

What’s the solution?

First, the banks must be forced to write down bad mortgages and work with homeowners to keep them in their homes. No more holding on to these bad loans that are underwater, “hoping” the market recovers. No more optional modification programs; ram it down their throats. A recovery isn’t going to happen even if you take mortgage interest rates to 0 (though it would help the cash flow, and thus the economy, of those lucky individuals who are actually able to refinance) because the vast majority of the individuals in the US don’t qualify for a mortgage loan. Yes, I know it doesn’t seem fair to those who aren’t under water, but we need a total “reset” of the housing market, because that will help everyone’s market value, and dramatically speed up a housing recovery. The banks will get spanked but the stock market would likely rally hard knowing a solution was at hand.

Next, IMMEDIATELY put a moratorium on FICA for the next year or two which would put substantial dollars in the pockets of both individuals and companies. All working individuals would get an immediate 5.65% raise (FICA was already lowered some in 2011, but it wasn’t enough). I would let individuals use those funds the best way they saw fit -savings, paying down debt, spending – while restricting corporate use unless the funds were used to create new jobs. Would it cause a problem within the social security fund? Maybe for a bit, but what about the $700 billion the banks got in their time of need? That seemed to work out just fine, and the impact from everyone getting a nice raise would become apparent quickly in the economy, quickly leading to more disposable income a big spike in demand for new jobs.

Next, I would have the government put aside a LARGE chunk of money to be loaned to small businesses at the same rate banks pay for use of funds and by that I mean businesses who have somehow survived the past several years and need some additional capital to move to the next level. I’m not talking about those businesses who have pristine credit; they can already get loans. I’m talking about those small businesses who had the tenacity through blood, sweat, tears and shear perseverance to make it through the most difficult time since the great depression. They’ve likely seen their own credit suffer, but they’ve demonstrated they’ve got what it takes to help lead the economy out of the muck. Let’s give them the resources they need so they can get innovative, add employees, lead the way in jump starting the economy. I certainly can’t say the same thing for those banks that got billions in stimulus dollars that you and I as taxpayers backed. They are more concerned with increasing dividends rather than putting people back to work, so don’t count on them to lead the charge here.

I realize all of this is easier said than done, but we need some more “out of the box” thinking to get us out of the current economic muck, as nothing else right now is working. These are my thoughts; attack three specific, important components of our system. Anyone got a better idea?