Too Big To Fail Is No Way To Run An Economy

The capital markets have an important role to play in our economy. The movement of capital from individuals and institutions to corporations has permitted our economy to grow. Most of what the people on Wall Street do aids in building the nation and growing the economy. The problems begin when ethics are placed aside and greed for huge profits takes over. There were a number of regulations that were relaxed over the years by the congress that gave rise to the financial crisis of 2007-08. People with the responsibility for doing their job correctly were told that the profitability of their corporation came before doing the right thing. Regulations are needed. The laws that regulated the banks and the capital markets worked for several generations before they were removed or watered down. Greed is something that will always be a problem. Regulations, enforcement, accountability and transparency help to keep the game on the up and up. The capital markets provide a valuable service to the country when they are run on the up and up just like anything else that is run correctly can help grow the economy. The economy grew under the Glass-Steagall Act for generations, and it needs to be put in place again. Too big to fail is no way to run our economy.

No One Likes To Be Made A Mark

No one likes to be made a mark. Whether you are buying a hot dog at a game or investing for your children's education or your own retirement, no one likes to be taken advantage of.

The investment securities business has a long history going back over 100 years. Brokers and investment bankers have sold the public worthless securities for generations. In the 19th century, stocks were sold, money was collected and pocketed and no railroads were built. After the Stock Market Crash of 1929, the Federal Government created the Securities & Exchange Commission (SEC) and Congress wrote laws aimed at protecting the public from fraud. The SEC did a fair job and a major financial fiasco was averted. But, Wall Street got greedy. Making money the honest way meant that you could not shoot fish in a barrel. In simple language, making a mark of someone became a lot harder to do.

But, money changed the rules as politicians were told that the old rules, the securities laws of the 1930s and 1940s, were no longer needed. Changes were made and more risk became the norm.

The final straw that lead to the financial crisis, in my opinion, was the breakdown and corruption of the credit rating agencies. To understand the importance of the lettered grade that the credit rating agencies gave to new issues is to understand how important the lettered grade on a bond issue was to the placement of the new issue by the sales people working on the desks of the investment bankers. Sales people as a rule knew very little about the credit behind any new bond issue. They knew the interest rate, maturity, re-offering price and finally they knew the lettered credit rating issued by the credit rating agency. Bottom line, the sales people that sold the mortgage-backed bonds knew just enough to sell their bonds and not much more.

When the credit rating agencies gave the mortgage-backed bond issues their triple-A credit rating, sales people included that key piece of information in their sales pitch. Unfortunately, many of the mortgage-backed bond issues that received the triple-A rating were not worthy of the rating.

Lots of people that never heard of a mortgage-backed bond got hurt by the credit rating fiasco. Pension funds and institutional buyers got killed when the house of cards fell.

As I said, no one like to be made a mark. Congress needs to learn that lesson as much as Wall Street bankers.

Saturday Is For Art: 2 Sunflowers In Vase

I planted sunflower seeds again this year, but unfortunately, after I tore the tendon in my left leg, my garden of flowers were on their own. I finally got around to cutting the sunflowers down. I took 2 sunflowers and put them in a vase and a day later decided to take a photo of them. After looking at the photo, I decided that I would paint the sunflowers as part of a still life. The painting above is what I came out with. It is on canvas board in acrylics, but it is not finished. It is resting while I am doing another painting.

October Is Breast Cancer Awareness Month

Squish a boob... save a life!

Pass it On!

Saturday Is For Art: October 1, 2011

This piece I painted in 2010. The title is: Washington, D.C. - It is All Politics? The 4 paintings are in acrylic on MDO plywood and then glued and nailed into the wood window frame. I like to recycle old stuff especially old wood window frames. This piece is for sale at Aquarius Star Cafe on Ludlow Avenue in the neighborhood of Clifton just across the street from the Esquire Theater in Cincinnati, Ohio. Aquarius Star Cafe has Ski Cincinnati t-shirts - long sleeve too.

Everyone have a nice weekend. Go Bearcats!

Saturday Is For Art: 2 Paintings On Envelopes

Two paintings on paper envelopes in acrylic, September, 2011.

You Can Not Push On A String

The Federal Reserve Bank can use monetary policy to raise or lower interest rates, but they can't put more money in your pocket. If Saudi Arabia wanted to help our economy and the world's economy, they could sell more oil and bring down the cost of gasoline, diesel and jet fuel. This would leave more money in people's pockets to buy goods and services, and in so doing, raise demand. Greater demand leads to hiring and lower unemployment. The price of energy is cutting deeply into the consumer's ability to purchase the extra items they need or would like to have. The only thing that would make matters worse would be if water went up in price to the point where people would have to choose between water and gas. Economics may not be straight forward enough for everyone to understand, but it should be straight forward enough for the majority of the American people to understand that the price of energy in the 21st century has more to do with full employment than monetary policy can ever hope to. There is an old expression among people that work with interest rates and the capital markets (the bond market), "you can't push on a string." Interest rates can be dropped to next to nothing, but without demand, no one is going to borrow money. High energy prices is sucking demand for consumer durables and even consumer non-durables from our domestic economy. While infrastructure spending will put people to work on needed repairs and new structures, unless the cost of energy, spell that O-I-L, goes down in price, the demand will not sustain itself for very long. I am talking straight economics, not politics.

Stay tuned.