Wednesday, May 27, 2009

Wholesale Fraud By Wall Street

Yesterday I talked about actuaries, actuarial assumptions, financial consultants, investment advisers, portfolio managers and finally, but not mentioned, total rate of return.

Over the last several months, I have talked about money, credit, inflation, decline in purchasing power, monetary policy, fiscal policy, the Federal Reserve Bank, the U.S. Treasury Department and U.S. Treasury notes and bonds. Investing, but why invest? Why not just save?

The actuaries will tell you that you can not just save and expect to have the financial resources, I love those words, if you simply save your money. That is why individuals and institutions invest their money with money managers in the hope of out performing the market .

Unfortunately, there is another game going on at the same time. Let us not worry about giving it a name, but rather first let us try and understand what this game is.

Let us say you bought a house 40 years ago to live in, and you paid $20,000 for your home. Now 40 years later the value of the house has risen because of inflation. Inflation caused by government fiscal policy and the monetary policy of our central bank the Fed. 40 years latter, the annual property taxes on your home has risen to the point that equals 20% of your original purchase price. That makes your annual property taxes now $4,000 a year. Your home still is the same size and provides you with the same utility, a roof over your head, as it did the day you bought your home 40 years before. The only difference now is that it is costing you 20% of the original purchase price of your home in annual property taxes to remain in your home. Naturally, gas and electric and water and sewage have all gone up in cost as well. The insurance that you carry on your property has gone up right along with all the other expenses. The inflated value of your home has little to do with your decision to buy that home, but has a lot to do with the government’s fiscal policies and the Federal Reserve Bank’s monetary policies and the expansion of the money supply and the continuous inflation and decline in purchasing power that afflicts us all.

The only prayer millions of Americans have to hold onto their homes and keep a roof over their graying or bald heads is to invest their money in the bond or stock markets. Yes, perhaps they were smart enough to buy an Andy Warhol in the 1960s or early 70s and hold onto it. Warhol’s silk screen prints have gone up in value and have preserved the purchasing power of those collectors. Art is another form of money, ask anyone that has realized a huge capital gain from a piece of art.

But, for the most part, the financial markets is where people invest their money. Unfortunately, our Congress does not see their responsibility to the people that invest any better than they understand what their fiscal and monetary policies do to our money.

American people, you are be taken for a ride, and not a very pretty ride at that. The important issues of your financial survival are being played with while the bull shit issues that boil your blood are tossed about. The issue of a woman’s health should not be the business of the Federal Government unless she is being denied health care. Whether a woman has a bump on her head or a broken toe, or anything in between, it is her business and that of her doctor. Unfortunately, the politicians on both sides want to keep everyone tied in knots about issues relating to health care so you are unaware when they remove your wallet from your back pocket.

Wake up America, your Federal Government is cheating you and you deserve better. Your financial survival demands a more level playing field. The laws and regulations that protected the American investor were torn down by the Congress. Demand that the protections against wholesale fraud by Wall Street be put back in place.

Stay tuned.


Robert said...

Property taxes are one thing, but think about the poor person who needs to make house payments in this inflated market. If you just owe the property taxes on a $350,000 home, you are lucky compared to the person who has to make mortgage payments on that amount plus the taxes and utilities.

On the other side of that coin are the lucky people who sold a house at the right time. Like finding the Van Gogh painting. Many could retire early by just downsizing into a smaller house.

Enough ordinary people have benefited from this before the 2008 crash that the system remained viable politically. Still, it wasn't sustainable.

Also, here is another thought worth contemplation.

Van Gogh, who created that "wealth" of paintings was not rewarded much for it monetarily. He died poor.

Where's the monetary incentive to create great art?

Van Gogh created great art, but never received the reward. Since his death, that reward has gone to art dealers. Not the artist himself.

Life is never fair, I guess.

One big assumption of our system is reward for work well done thus encouraging even more productivity. Well, Van Gogh got little reward, but the art dealers of today reap that reward. It's skewed.

Of course, at the time of Van Gogh, people didn't really value his work. Value is arbitrary also.

LceeL said...

Unfortunately, one voice out of 300 million has little purchase on the mindset of those in Congress. We need to find a way to put voices together, into a louder chorus, so that they are heard, and attended to.

moneythoughts said...

There are a few of us speaking about the same issues, but the cable and network news will not discuss these issues because they are not sexy enough. It is not about informing, but rather about entertaining. We know this, soft news and sexy BS stuff gets the play. There are smarter and better researched guys out there with better credentials than me, and they are not being given an opportunity to talk either. But, we must just keep hammering away, maybe we get lucky.