The economy and looking presidential

Well, the corporate giants just keep falling. All toppling from the foundation they built out of bad business and risky lending practices. Here’s a tip for all the financial geniuses at Lehman Brothers: There’s a reason why we call them risky lending practices. Here’s another tip: It’s generally a bad idea to lend money to someone who may not be able to pay it back, without doing a little groundwork to ensure that person is financially sound. I feel foolish for pointing out common sense, but as a wise professor once told me…common sense isn’t so common anymore. Kudos to Sec Paulson for passing on Lehman. Too bad he couldn’t do the same for AIG. Government bailouts of bad business sets a bad precedent. If the next President does anything, he needs to ensure others don’t follow this precedent. How about mandatory 20 years in prison for CEOs and Board of Directors of any company that must be bailed out by the gov’t?

Normally I would say these guys are getting what they deserve. Eventually the bar tab has to be paid no matter how intoxicated you may be or how many boozers are intoxicated with you. Normally I would say good riddance to the obnoxious noise that interrupted my own nice, quiet cocktail. Except now I see those intoxicated boozers are threatening my own portfolio – my nice, quiet cocktail. Now, it’s personal. And I’m not alone in my anger.

Just as Reagan said a rising tide lifts all ships, so will a sinking tide lower us all, and the tide is going out big-time. The source is evident, even to my amateur financial eyes. Basically, there was a lot of money to be made and it’s easier to make that money short-term by executing bad business strategies, in this case loaning money to people who can’t pay it back. And there were plenty of people eager to borrow money despite their inability to pay it back. You see where I’m going with this. They’ve all contributed to our sinking tide for one reason: old fashioned greed.

Greed is basically the price we pay for freedom. We could choose to live under an authoritarian government, subject only to the greed of our dictator. Instead, we chose freedom and with that comes those who abuse that freedom out of greed. The problem is their actions affect many, whether we’re talking about the decline in morality or the decline in the financial market. It’s simply the downside of a free society, the human flaw known as greed.

What bothers me is the blame game that folks are playing. For some reason, Barack Obama seems intent to blame one man for all these problems: George Bush. Nancy Pelosi actually has the marbles to claim that Congress has NO blame in the matter. How dumb does she think we are? I’m sure Obama and Pelosi have their reasons, but I think Bush had some help here. As noted in a previous post, the government blame extends for decades, even back to FDR. And both the White House and Congress had plenty of say in the matter. Even the good Senator from Chicago played a role. After my aforementioned post, it came to my attention that Obama was ranked third among his Senate colleagues in total campaign contributions from Fannie Mae. I can’t help but wonder if things like that played any role in Washington’s lack of oversight of these government-sponsored entities. Obama hasn’t said, sticking to his “Bush at fault” argument. Either way, I stand behind my assertion that Bush didn’t do this by himself, not even governmentally speaking.

And Pelosi didn’t mention that Bush proposed legislation in 2003 that would drastically reform Fan & Fred, providing more oversight and transparency. The bill was killed by Dems in Congress (with help from some Republicans). And neither one of them mentioned that McCain co-sponsored a Senate bill in 2005 once again calling for a major overhaul of these two corporations. Again, his bill died under Dem pressure. Funny how things like that are suddenly forgotten by our Dem leadership, and not remembered by the press who is supposed to actually report the news.

In general, I tend to discount anyone’s opinion of blame unless that opinion includes everyone from the irresponsible homebuyer to the incompetent, deceitful senior executives to the predatory mortgage brokers to the enabling legislators. In short, everyone in the ladder shares the blame and the folks who practice wise, low-risk financial decisions have a right to blame them since we have to share in the suffering despite our wise, low-risk endeavors. Yes, I’m sure there were many homebuyers who were suckered into a bad loan unknowingly (as hard as it is to fathom), but there were also many who knew exactly what they were doing and didn’t care. The same can be said all the way to the top. Greed is just as powerful for the lower and middle class citizen as it is for the corporate executive or the senator. In my mind, there is no difference in any of them. They’re all boozers in my eye and they’re close to cleaning out the bar so that I may not be able to enjoy my nice, quiet cocktail.

So what to do? Well, I think the best strategy is no strategy, the market will correct itself as usual. Yes, there will be some pain but this too shall pass. But, we can consider a few things for those who demand something be done. First, Obama needs to explain the campaign contributions from Fannie Mae, preferably after explaining why he didn’t take action to reform these entities. After all, he is running for president, promising “change”, in a campaign that Fannie Mae helped fund. Pardon the cynicism, but if Washington does something it should be for my benefit as a citizen and not Fan’s benefit as an “entity”. Naturally, if he’s accepting money from these people I will have some questions about whose interests he has in mind, questions that the senator has yet to answer. Then, he should probably explain the resumes of two of his leading economic advisors, one with Lehman ties and the other being the former CEO of Fannie Mae who admitted to poor accounting practices. The people have a right to know.

Once that’s done, the rest is simple. The government gets out of the business business. I have a few lessons that I live by, one of those being: If you want something screwed up really bad, turn it over to the government. When that something is half of all home mortgages then we have a big problem on our hands. No offense to those gov’t employees out there, but that’s just the way it is. All my WEP faithful on the Gulf Coast still living in FEMA trailers just echoed a resounding “yes” in agreement. I can’t think of a single government program that is done well and at an efficient price, except for military protection, and if it weren’t for our history of brilliant military minds running things I’m sure the government would find a way to screw that up too. Maybe that’s why the Dept of Defense located itself in Virginia rather than DC.

Yes, we had to bail out Fan & Fred, but once the bandages are applied they need to be kicked out into the private sector and make it clear that the bailouts stop now. The GSE experiment was tried and it failed. We still don’t know what the impact will be on our broader economy, and worldwide. Judging by the behavior of the CEOs, a GSE is just too closely related to the government, so much so that they actually behave like Congress. Let’s be clear, there is only one entity allowed to behave like Congress around here and that’s Congress. Congress is the only one who can spend money wildly without paying any attention to the actual bottom line. Just because you’re a “government sponsored enterprise” doesn’t mean you can behave like the government. Perhaps that wasn’t clarified from the get go.

Second, we must all – as in every man, woman and child – buy into the notion that we shouldn’t borrow money that we can’t afford to pay back. And the business world must buy into the notion that they shouldn’t lend out any money that the borrower can’t afford to pay back. If I sound out of line here feel free to correct me. If any lender acts irresponsibly without properly documenting the borrower’s ability to take on the debt, then that person should be subject to a rubber-hose beating by someone like myself who is trying to fund his kid’s college with the money they just lent out and lost. The same goes for the borrower. In short, if we started beating these people then maybe all this nonsense would stop.

All in all, I don’t see the world coming to an end anytime soon. The US economy goes through these natural cycles of boom followed by correction. Sometimes the correction is more painful than others, but likening it to the Great Depression is overkill, just like calling the earth’s climate cycles “global warming”. And, to be honest, a presidential candidate needs to avoid this sort of doomsday rhetoric. It looks unpresidential, and it sparks panic which is a bad thing in a shaky market. Obama is flirting with impropriety. The President must be a voice of calm and reason during hard times, not one of panic and doomsday.

I’m sure people made similar claims during the oil crisis of the 70s, or the S&L scandal, or the dot com bust of the 90s. We’ve seen many financial giants fall, such is life in a capitalist economy. Anyone remember EF Hutton? The market will stabilize and grow as it always does and people will soon calm down. The sky is not going to fall. I think at least one of our presidential candidates should step up and say this rather than devise some master plan to fix everything, refer to my general rule about the government just screwing things up. But I wouldn’t necessarily object to more or better lending standards if someone wanted to throw that one out. Going beyond this is likely unnecessary. To be fair, McCain touched on it when he said the fundamentals of the economy were still strong, and they are. The economy is still growing, exports are up, oil prices are coming down, retail sales are going up. Things are still moving forward, just slowed a bit by the buffoons in the mortgage industry. The problem is when McCain says this he gets pounded by Obama for being out of touch. I guess nowadays the Dems consider common sense to be out of touch. No surprise there. As for me, I’m taking the common sense approach of buying into a down market. That seems like a good way to make some lemonade here. Buying when prices are low is better than selling, they won’t be low forever.

Seriously, if it requires more legal oversight to keep things like this from happening then that’s what we’ll have to do. As much as I hate having the government look over the shoulder of the business world, I hate losing my kid’s college savings even more. For once, I’d like to hear one of our candidates stop sympathizing with those who behaved irresponsibly and start voicing the frustration of those of us indirectly victimized by that irresponsible behavior, which constitutes the vast majority of Americans – a rather large voting base. And I don’t want to ever hear another corporate executive complain about government red tape and restrictions. Likewise, I don’t want to hear another potential homebuyer complain that it’s too difficult for them to qualify for a mortgage - that’s the bank’s way of saying “buy a cheaper house”, not “figure out a way with different numbers”. You people brought this pain upon yourselves and, frankly, I’m tired of cleaning up your mess.

Would you rather have a rubber-hose beating?