The Details: It's In The Details

The Stimulus Bill has been in the news for days now and while many knowledgeable economists, both conservative and liberal, have said that the stimulus package needs to be bigger, there remains for me the nagging questions about fixing the playing field.

The politicians, like the talking heads on TV, do not have an understanding of the problems at the cellular level when it comes to economics or the way the capital markets function, and I find this very frustrating. It is like talking about a cure for cancer and no one in the discussion is talking about the work being done with proteins at the cellular level to stop the flow of blood and nutrients to the cancer cells in the body. Shut down the capillary development of blood to the cancer cells in the body and the cancer cells die. It is that simple, but doing that without killing the patient is the challenge.

The movement of capital within our economy today is a big piece of the puzzle, but there are few people around that understand what appears to be a small thing is actually holding back the renewed movement of capital from the borrower to the investor. Yes, the investor. Banks do not hold onto the loans they give like they did in the old days. The era of structured financial products have changed the way America does business.

Mortgage-backed bonds, manufactured-housing bonds, car loan bonds, credit card debt bonds are all part of the capital market today. The market for these bonds extends around the world. Investors don’t have to speak a word of English to understand what they are buying as the numbers tell the story. The only English that needs to be improved on is the English that goes into the letters AAA, or AA, or A. Yes, bond ratings need to be dealt with before the fixed-income markets can function effectively again. Until the conflict of interest between the underwriters and the rating agencies is corrected, the capital markets as far as structured finance is concerned is not going anywhere. And, structured finance is the way Americans are able to drive our domestic economy.

The U.S. Treasury is coming up with some new ideas with regards to the banking industry in the very near future. I hope that some of their energies are directed at solving the problems of the movement of capital within the capital markets.

Stay tuned.

Sunday Morning in the Queen City

What is going on in Washington with regards to the Stimulus Bill is shameful. A bunch of politicians that don't know very much about economics are debating what the word stimulus means. The Republicans that are against the Stimulus Bill because it spends money is just too dumb to try and answer. As President Obama said, that is what a stimulus is. The part that is so sad is the fact that the Republican Senators against the Bill are from states in the south and west that need as much help as any states in the union. And these poor people still believe that these Senators are looking out for their interests and well being. Is there some kind of twisted irony in all this? Remember the Southern Strategy? This first came on the political scene in 1968 when Nixon won the Presidency. Good old Senator Strom Thurmond was the first Democrat to bolt from the party and become a southern Republican. And why? Because of the Civil Rights law and the southern reaction to the Federal Government telling the southern states that black people had civil rights. I know for some people that is ancient American history. Now here we are 40 years later, and we now have a black man as President of the United States. And, the Bush administration has turned over the country to President Obama in a mess. In all fairness, even President Bush could not do this in eight years. You have to go back to President Reagan to trace the beginning of the path of deregulation and small to no government enforcement of the security laws, etc. Here we are in 2009, and we have a President that has a brain, a heart and courage and he is trying like hell to help rebuild the middle class that was destroyed by the Republican Party and their philosophy of deregulation. This is not going to be easy, even for President "Bat Man" Obama. To turn this economy around, given the number of jokers in Congress will take a team of super heros. It will take Paul "Superman" Volcker and a host of super heros to turn this economy around. Good luck Mr. President! May the Force be with you.

Saturday Is For Art

The above painting was inspired by the cover of a Vanity Fair magazine and the work of Romare Bearden (1911-1988). Bearden used many different materials in his creation of his pieces of art. While this is a painting and not a collage, I nevertheless, copied Bearden's use of solid black for areas of the body as he had done in his piece "Saxophone Improvisation" (1986). This painting is 24"x16" and is painted in acrylic on MDO plywood.

The Game Is On

While millions of people have lost their job or are having their hours cut back, the Congress debates the Stimulus Bill. The debate attempts to address concerns of Republican legislatures about the amount of money being spent, but the real reason for the debate is politics. The Bush administration would not have seen the same debate had they purposed a Stimulus Bill before leaving the White House, but Bush and his administration had their heads in the sand. The situation now is beyond economics, it is what it is, just plain old fashion politics.

Regardless of how much money is spent by the Federal Government to stimulate our domestic economy, unless there are changes in the regulatory environment in banking and the investment banking industries, very little if any improvement will be realized in the efficiency of the capital markets. The problem of the conflict of interest remains concerning the rating agencies and underwriters, and the methodology used in the rating of structured debt instruments such as mortgage-backed bonds. This problem of bond ratings for structured debt may appear small to those outside the workings of the capital markets, but it is just enough to keep the housing market from getting back on its feet. The same is true for car loans and manufactured housing. The ability to finance consumer debt is critical to a healthy economy in the 21st century.

The second part of the economic problem is the amount of money being spent to import oil and goods made in China. Without a plan to reduce the wealth that is being exported to pay for the oil and goods made overseas, the domestic economy will continue to find difficulties. Money spent on infrastructure is probably the best bang for the buck along with cutting taxes for people in the lower tax brackets. Cutting corporate taxes at this point, in my opinion, will have very little stimulative effect. People and families making less than $50,000 a year could do more for the overall economy if they did not have to pay any income taxes until this economy got back to near full employment. People on Social Security should have their tax burden eliminated as they are not saving their money, but using almost every dollar to survive.

The state governments need this Stimulus Bill as much if not more than the Federal Government because it is the state governments that are being forced to cut payrolls and eliminate jobs for teachers, police and fire fighters.

Hopefully, by next week sometime a Stimulus Bill will be passed by the Congress. That is only a start. Much work needs to be done to correct the regulatory environment on Wall Street and rebuild the Securities & Exchange Commission.

Stay tuned.

Political Survival?

To break down the game that is unfolding in Washington today, is to grab some insight into party politics and the ultimate prize, political survival.

The Republican Party is betting that they can obstruct, hold up, delay and finally perhaps defeat the Stimulus Bill in Congress and yet survive to be voted in another day should the economy not recover. This reminds me of the history of the United States and The League of Nations after World War I. President Wilson won the war and the Republican Senators stood in his way to winning the peace by voting down the Treaty that would have put the United States in The League of Nations. President Wilson had his Fourteen Points and he was mocked by the Republican Senators that said Moses only needed 10 Commandments, but President Wilson needed 14. As a result, the vote to join The League of Nations failed and the United States was unable to help craft a peace that would last. Historians site that it was President Wilson’s reluctance to put Republican Senators on the team that went to Europe to write the treaty ending World War I that ultimately lead to the defeat of the treaty in the U.S. Senate. Certainly it can not be said that President Obama and his administration have not tried to be inclusive by adding Republican input to the process.

But, this is not about the economy or what is good for the American people. This is about the political survival of the Republican Party. Rather than joining the majority and fearing that their cooperation will be lost or forgotten, the Republican members of Congress have decided to fight against the success of the Democrats in power. This is a sad state of affairs, but this is how politics in 2009 is played. If the Bush administration could send men and women to die in a war that did not need to be fought, how much more difficult is it for the Republicans in Congress to vote against a Stimulus Bill?

While the Stimulus Bill is needed to accelerate the speed of the economic recovery, there still remains a regulatory environment that needs to be repaired. That along with a plan to use less foreign oil can together speed the economy back towards full employment.

Stay tuned.

Time To Wise Up

Wanting to write strictly about economics and our economy was my objective when I started my blog MONEYTHOUGHTS about one year ago. Unfortunately, talking about our domestic economy without talking about the political impact on our economy is not looking at the complete picture. Politics plays a role and that role is here to stay. And, while I understand that role is here to stay, the level of discussion at times is so bad that I wonder if it is possible for us to get out of our own way.

Listening to Republican politicians talking about “American solutions” to our economic problems as if a German or French solution that works would be un-American is just upsetting. This kind of nonsense is not nonsense, this is, in my opinion, stupid. Economic solutions that work should not be discarded because someone outside of America came up with them. Would we turn down a cure to Cancer or Parkinson because it came from a scientist in another country? This whole idea that the United States must only use “American solutions” to her economic problems is just plain stupid, but some people are trying to sell this idea.

The economy of the United States has both elements of capitalism and socialism as do much of the world’s largest economies. No country is without some aspects of a socialist economy. Social Security, Medicare and a standing army, navy, air force and marines are socialists aspects of the same Federal Government. Do we want to remove the police and fire protection from our communities as well? These are all socialist aspects of our economy. Anytime the government takes on a role or a job that is not handled by the private sector, it is socialism. Socialism is not the problem. Corruption and waste are the problems.

Americans need to wise up. The crap they are being feed on the radio and TV by politicians, radio guys and talking heads about socialism is just so much nonsense. Our form of government and our economy has aspects of socialism and has had them for many many years. The Stimulus Bill before Congress is necessary to our well being. It is time to wise up and not be scared by labels like socialism.

Stay tuned.

Sunday Morning in the Queen City

Super Bowl Sunday is a good time to say a word or two about organizations. Not all organizations are a like, as each organization has its own culture, sometimes referred to as the corporate culture of an organization. The Pittsburgh Steelers as an organization not only have a great corporate culture, but have great leadership. Just five hours by car to the southwest is Cincinnati. Like Pittsburgh, Cincinnati has an NFL team, the Cincinnati Bengals, but unlike Pittsburgh, Cincinnati's organization has poor leadership and lacks a winning corporate culture. Leadership and corporate culture matter, we have seen what can happen to a country when both are lacking. Enjoy the Super Bowl.