How to Fix America!
December 01, 2009
– Comments (48)
Many have asked me this year, what can we do to change our economic fate in the United States? We appear destined for larger crises in the future from historic debt levels, a loss of confidence in our institutions and leaders, negative changes to spending patterns, and out of control money printing by the Federal Reserve bank and Treasury Department. Here is the blueprint to change our course dramatically for the better, and what I would recommend we implement as a people, united under God and each other, if I served as President of this great nation again.
Raise the Reserve Requirement on Banks immediately. Reserve requirements on banks are one of the most primal ways of controlling bank lending and credit creation in our economic system. From a fractional money creation standpoint, the lower required reserves are pegged, the greater the rates of credit and loan generation become, but with the caveat of reduced equity and savings to back up each dollar of new loans. Reserve requirements and related bank equity as a percentage of loans and liabilities have grown more and more relaxed, with a smaller safety net during a recession or financial panic, starting in the mid-1980s as a way to expand the supply of credit during the savings and loan crisis of that period (which resulted from the sky-high interest rates of the early 1980s to calm inflation; the record inflation resulting from the U.S. leaving the gold standard for money in the early 1970s). During the last decade, financial institution loans/liabilities to real world, tangible equity ratios reached unconscionable and risky rates of 20 to 1 or greater, versus the typical and conservative lending standards of 10 to 1 or 5 to 1 that existed pre-Federal Reserve Chairman Greenspan, our very own bubble boy.
When the real estate bust became apparent, our remaining equity backstop in the banking system was quickly wiped out between 2007-2009, and is the most important “cause” of the worst recession and financial panic since the 1930s Great Depression era. The money printing and emergency spending by the government and Ben Bernanke’s FED since mid-2008 has been a massive effort to recapitalize banks and shore up consumer/business confidence that the economy will not get worse. From October 2008 to November 2009, basic “required” banking reserves have moved from a record deficit (constraining any new loan origination) to the new record high, excess reserve level that has stabilized the economy short-run, and ushered in what seems to be a return to normal for the financial markets. Nevertheless, main street and small business USA have yet to recover, as banks refuse to write sufficient new loans to grow our economy, from lingering fear and tightened loan standards.
At this stage we have to do a better job at protecting our long-term banking health. I propose that we sop up the excess reserves in the banking system (now at a record $800 billion beyond required reserves by regulators) that could generate an oversupply of lending in the near future and another crisis by helping to spike annual demand-induced inflation. If banks do not want to make new loans to businesses and consumers today from record excess reserves, what’s the point of leaving the capital on their books? It will only lead to trouble down the road, and higher stakes risk-taking that will surely backfire for us all in the not too distant future. Increasing the reserve requirement now, while plenty of excess reserves are in place, will mandate the banks to retain safer levels of equity and reserves that will benefit us in the long-term. Strengthened balance sheets for banks, with an increase in shareholder/owner equity to loan/liability ratios would guide investors and consumers globally to positively revalue the safety and long-term viability of the entire financial system. Difficulty to Accomplish: Very Easy. Federal Reserve vote is all that is necessary.
Reduce the size of individual Banks, and the Too Big to Fail conundrum. One major domino effect of the latest monster financial crisis revolves around a handful of banks and brokerages holding America’s fate under their concentrated control. The Lehman collapse and bankruptcy may go down as the biggest failure of Federal Reserve and Treasury decision making in the nation’s history. While allowing a private sector corporation to fail and go into receivership is quite common, letting a company with counterparty financial contracts and obligations with every other large bank in the world to go under, holding liabilities roughly equal to 10% of the entire annual economic output (GDP) of the nation, is beyond comprehension to me. THE FEDERAL RESERVE WAS INITIALLY ESTABLISHED 100 YEARS AGO TO PREVENT FINANCIAL PANICS AND CASCADING DEFAULTS FROM HAPPENING! (I will get to the FED later in this article.) For decades it has become widely held dogma that huge, financially important banks and brokerages would not be permitted to fail, as was allowed to happen to Lehman, and this philosophy was given the name: “Too Big to Fail.” [Lehman was pushed into bankruptcy and the global financial system thrown into chaos just before, perhaps “the” important national election in modern political history in the U.S! In the past, major FED decisions like this have also been considered historically forbidden behavior from the summer months into a national November election! I won’t get into the why, at this stage, but there are explanations for the FED and Bush Administration to swing the election.] Today, there is no doubt that some of our banks, insurance companies and brokerages have gotten “too big to fail,” and if allowed to unwind in an unexpected and swift manner, like the Lehman example, our economy can be brought to its knees in a hurry.
The smartest way to defuse the long-term and future risk of bank failures on the overall economy is to make each institution smaller, with less weight given to each failure on the entire system. Sheila Bair, FDIC Chairman, has mentioned the idea of breaking up our largest banks in the past, and it sounds reasonable to me. Let ‘em fail if they take on too much risk and the economy turns sour. If asset managers and banking leaders knew their jobs and reputations were at risk with a true bank failure, lending policies would be more prudent and risk-averse, or at least more diversified. Look at how the failures or near failures of Bear Stearns, Lehman and Merrill Lynch have treated the reputations of their aggressive leaders since late-2008. Others like GE’s Jack Welch, Citi’s Sandy Weill, and AIG’s Herb Greenberg are examples of CEOs selling their soul to the devil for quick buck decisions that have now gone full circle.
Forget about the quick buck strategy of growing through synergies and cost cutting with ever larger bank mergers, now you will “earn” your keep by writing new loans at a fair interest rate above the acquired risks involved. You would safeguard the assets of bank savers, generate some economic growth, and NOT put the rest of us spending, saving and borrowing money in a realistic and conservative fashion at risk. Total Liabilities of $300 billion or 2% of GDP is the new bank and financial lender size limit, no exceptions; this will include insurance companies, brokerages, banks, and lenders of all types. We can work out the details, including hedges, derivative valuations, proper diversification and off balance sheet risk rules in backdoor committees - Congress will need something constructive to do, won’t they? Difficulty to Accomplish: Easy. Pass a law in Congress, and let private sector business organizations do the rest.
Eliminate the Federal Reserve. The formation of any central bank was expressly forbidden by our founding fathers. The first try at such by Alexander Hamilton begun in 1791 was even ruled unconstitutional and closed 20 years later. At the time the Federal Reserve System was initially formed in 1913, its overriding purpose was to “prevent” extreme booms and busts in the economy, largely as a response to a series of financial panics or bank runs, particularly the severe panic of 1907. Over the decades, the roles and responsibilities of the Federal Reserve have expanded dramatically and its structure has evolved. Many credible economists and market theorists now believe it is the prime instigator of ever larger booms and busts, as they try to paper over the last economic cycle and commit the transgression of constructing new fanciful ways to lend money. High economic growth rates, full employment, general price stability, rising stock markets, and now real estate price support are all add on goals, for a FED that cannot even do Job #1 correctly.
In addition, concentrating so much power in the hands of a few Federal Reserve Governors is quite the opposite of the financial system design our founding fathers outlined in the Constitution. Why should a small group of unelected, unaccountable individuals decide the value of a Dollar, the target rate of inflation and economic growth, plus who gets preferential loan terms? Separation of powers, free market determinations, lists of historical evidence, and common sense theoretical arguments highlight the FED’s current operating structure as a poorly contrived and less efficient approach to creating long-term prosperity. In my humble opinion, if the FED knew what was good for America during the second-half of 2009, they would have been raising interest rates and supporting the U.S. Dollar value, to foster confidence in the financial system and encourage overseas capital inflows for financing our huge federal deficit borrowing appetite, regardless of any negative effect on real estate and stock pricing, especially with substantial signs of economic stability and growth appearing again.
Da! Remember taking away the punchbowl before the party even gets started; anyone take an economics class in high school at the FED? Slow and steady economic growth, low inflation rates, and time to thoughtfully rebuild are what Americans need to get our house in order. A stable Dollar is the lynchpin of ANY serious effort to move America in the right direction now. The FED has printed $16 trillion in funny money for loans to banks, individuals and foreign governments, since its inception according to “officially” reported numbers. That is more than the roughly $1 trillion of cash in circulation and $12 trillion in total federal debt COMBINED, without any authorization or say by even one accountable elected official. That doesn’t sound very democratic or conservative in my playbook. Something like $4 trillion has been electronically generated the last 18 months, or $13,000 per citizen ($35,000 per household), just to shore up the banking system and keep American business from imploding. [A $13,000 check mailed to every U.S. citizen would have solved more of our ills than papering over past risk taken by a handful of banks!] Personally, I have been paying off debt like crazy to avoid future financial stress, while the FED has been doing the opposite at an alarming rate to cover its tracks and past failures.
Enough is enough, I cry “Uncle!” Let us sink or swim on our own, before we are collectively weighed down with soooo much debt and funny money, that we are all fish food! Confidence in the future value and support mechanisms for the buck are sorely lacking presently, to our long-term detriment. If one unelected individual, like our current Federal Reserve Chairman position, decided what the most fundamental rate of commercial exchange would be, our Dollar’s worth, we would call him KING. At its core, the idea of a KING (tyrant) with power over us all was the reason we fought English control of America with the Revolutionary War, for God’s sake! Difficulty to Accomplish: Extremely difficult to untangle the web of FED involvement in the economy, but crucial for long-term economic growth. Passing a law abolishing the FED is the first step.
Bring back the Gold Standard for Money in Circulation, as mandated in the U.S. Constitution. I have been screaming this for decades. Article 1, Section 10 says: “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;…” In essence, the state in which you live cannot legally accept your tax money or send you a check (or Federal Reserve Note with the Picture of a President on it) unless it is specifically backed by either gold or silver! The wisdom of such a gold standard and its effects on long-term economic activity have been proved CONCLUSIVELY, since our deviation from the Constitution in 1971. President Nixon and cohorts arbitrarily ended the official gold exchange rate as Dollar confidence waned internationally in the late-1960s and early 1970s. Gold bullion was being sent to overseas governments at an alarming and unsustainable rate as Dollars were fully exchangeable for physical metal, and oversized federal spending for the War in Vietnam combined with the ill budgetary effects of several recessionary shocks. Looking at the headline results, when using a gold standard as prescribed in the Constitution, the U.S. achieved 5% GNP growth and 1% annual inflation over roughly 200 years of various social and political periods, and generations of worker saving and spending patterns. Since the early 1970s, our nearly 40 year test of living outside the original guidelines for the value of money has averaged 3% GDP (2% GNP) expansion and 5%+ annual inflation. For perspective, the first ten generations living under our Constitution enjoyed a doubling in their standard of living every 15 years. The last two generations have only doubled their real, inflation adjusted income once the last 30-40 years, without a gold standard!!!
Pick a number between $1000 and $2000 an ounce for gold, making the U.S. Dollar convertible to bullion by foreign banks, and America’s currency could again be considered as good as gold. I propose $1300 per ounce, as it nicely represents the original 13 Colonies, and because 13 is my lucky number. Given the cost of production is closer to US$600 an ounce today worldwide to mine out of the ground, and gold has traditionally sold at a market-based price 20%-100% above the to the cost of production the last two centuries, a $1300 number should please anyone who has purchased gold in history, as each will have a profit versus the all-time high quote of nearly US$1200 an ounce in November 2009. There would be no effort from foreign banks to cash in U.S. Dollars for gold bullion above a boom induced high quote, and I believe enough of a cushion beyond production costs will mean this $1300 fix will last for decades if not longer, under the low inflation environment that will be the net consequence of such a decision.
As a ratio of printed and coined currency in circulation, a $1300 fix price also makes tremendous sense. When we left the gold standard in 1971, there existed approximately $0.28 in gold for every $1.00 in circulation, at market based prices times the official gold holdings reported by the Federal Reserve bank, divided by Dollars reported in circulation. The modern high of over $2.00 in gold backing per $1.00 in implied hard currency was achieved with the $800+ gold price of January 1980. It’s easy to understand why the Dollar’s value versus other currencies exploded between 1980 and 1985, from both the strong implied gold backing of this period and high interest rates engineered by the Federal Reserve to stop the declining currency and rising inflation problem of the 1970s, that directly resulted from leaving the gold standard. High real, inflation-adjusted interest rates and holdings of gold encouraged substantial capital inflows from all over the world into U.S. Dollar assets during the 1980s. At the all-time low, implied gold backing in April 2001, a $250 gold price per ounce produced just $0.15 in gold holdings for every $1.00 in circulation. In comparison today, at $1300 an ounce we would again construct a decent, although not spectacular gold backing of nearly $0.44 per $1.00 in printed money, much better than the late-1960s and early 1970s number, when we left an official gold peg for money. One last mention, without a legitimate audit of the Federal Reserve, we will have to assume the gold holdings are real and not already sold forward, plus the Dollars in circulation data, etc. are accurately counted! The universal fear from past and current FED employees about an honest audit should have us all a little worried and upset.
Harking back to the early Depression years, President Franklin Roosevelt and the Treasury moved the official gold peg from near $20 to $35 an ounce in 1933-1934. This effort of devaluing the currency and increasing its supply to offset the velocity of money spending collapse and add capital reserves into the banking system was one crucial factor thoughtful economists credit with easing the worst financial crisis in American history. Considering our present economic situation is somewhat analogous to the early 1930s span in history, moving from US$250 an ounce gold prices during 2001 to a $1300 peg now should be quite satisfactory for reflating the base money stock and restoring confidence in the “value” of each Dollar in circulation, as required by the intelligently written Constitution.
No more money printing - everyone inside and outside the U.S. will know exactly what $1 represents in underlying value. If the bond market was confident inflation was truly a dead issue (as prescribed with a long-term gold peg), we could count on and bank on low interest rates to stimulate the economy for years to come. Greenspan and other FED leaders the past four decades have railed against a gold standard since it would severely limit their ability to continually print money when the economy turns sour. Exactly my point, and proof of the brilliance of the learned philosophers who wrote the central guidelines for the strongest, most productive and prosperous society in the history of mankind. Let’s get back on track and follow the original design for our economy, before each Dollar’s underlying worth is the same as toilet paper! This change may be the most significant to our long-term future as leader of the free world. As a consequence of holding a gold standard, the federal government will be obligated to address our fiscal deficit spending and trading imbalances with other nations to “defend” the currency and keep the market price of gold under $1300 per ounce. The only avenue for the government to print new money, would be through purchasing an equal quantity of gold on world markets to maintain the arranged peg ratio. Difficulty to Accomplish: Moderately difficult, but doable. Passing a law is the start.
Get my American brothers and sisters out of the Middle East. Let the different power centers in the Middle East: Israel, Egypt, Iraq, Iran, Saudi Arabia, UAE, Dubai and Pakistan figure out how to coexist on their own. We will never Americanize or democratize the Islamic countries through military occupation. In the end they can fight between themselves and we can work on alternative energy resources produced in America, through our own invention and ingenuity with the $200-$300 billion saved annually arming and feeding our kids to wait around and get shot in the God forsaken deserts of Islamaland. If the nations of this region want American-style societies, they will create them from the inside out, not from outside pressure. Unless you expect the U.S. to keep spending hoards of capital we don’t have (money borrowed from China), to occupy several deserts for another 40-50 years, like our occupation of Europe and Japan after WWII, there exists NO CHANCE of success under current U.S. policies and reasoning. We will have to spend an estimated $5 trillion (at current rates) the next several generations to guarantee a stable, America-friendly Middle East. Is the American interest of cheap oil worth that much in the end?
Why not just bring back horses, for local transportation? They are incredibly cheap to run per mile, more fun to own, American made, and environmentally friendly. Plus they make great security systems if burglars are in the area. Screw the electric lightbulb while we are at it [Thomas Edison may have been the craziest, outside the box, American thinker ever!]; candles cost pennies per day to enlighten things! If it saved your son’s life, you might think twice on this one. And if you understood that alternative energies are within our grasp, you would be irate at the direction our military spending is headed. [Fond memories of the late-1700s may be clouding my judgment here. Nostalgia can have a wicked hold!]
The entire world (including our enemies) knows “the king has no clothes;” we cannot afford military adventures to nowhere. Looking at history, the Egyptians could not, the Greeks could not, the Romans could not, the Spanish could not, the French could not, the British could not, the Germans could not, the Russians could not, but trust me America can? Whether you accept this fact or not, expansive and expensive military occupations supported and supplied with a money system lacking a gold standard have directly led to the destruction or dismantling of every other empire attempting such a juggling act in HISTORY, and we are trying to do it on a scale never before imagined for a good 40 years running. At this stage, withdrawing all our troops from overseas areas and slashing the defense budget to minimal levels similar to pre-WWI totals of economic output [which would be crazy and counterproductive in my view] would still only halve the annual “structural” deficit of spending the government has today. Our structural deficit situation (recurring and projected to remain) and its related consequences are getting hard to fathom, much less “afford.” Difficulty to Accomplish: Easy on paper, but next to impossible in the real world for a host of reasons. Presidential decision is first step.
Find the two or three mountains, Osama bin Laden is most likely hiding under, and NUKE THEM. Leave the cowardly bastard terrorists and the governments that support them, with the idea that any attack on America in the future will be dealt with, through all means necessary. This action would keep innocent civilian casualties to a minimum with our parting blow, while inflicting plenty of chaos and fear on the ground as a haunting “eye for an eye” image for future dimwits harboring terrorist losers (i.e. Afghanistan, Pakistan, North Korea, Syria, Sudan, Iran, etc., etc., the list goes on and on). Anyone remember: Don’t Tread on Me? Difficulty to Accomplish: Press a button, but deal with the morality issues forever.
Sell Alaska to China. China needs natural resources - Alaska has them. After Seward’s Folly purchase of Alaska from Russia for $7.2 million in 1867, exchanging this lightly populated, cold, far away land to China in exchange for the roughly $2 trillion in federal Treasury debt owned, would be a win, win for both sides. [Heck, even Sarah Palin ran when she had the chance.] I cannot dream up another legitimate way to cover the money we owe China. Alaska has lumber, a large fishing industry, huge metal and oil reserves and production, basically all needed ingredients for China’s economic growth aspirations. They have already purchased chunks of Africa in an effort to secure the raw materials to fuel expansion. [I thought about throwing Hawaii in the mix; it may be closer to China. However, Hawaii doesn’t hold the valuable and vast natural resources of Alaska, or a revenue stream big enough from pineapples and tourism to get close to the $2 trillion price tag we require. I am also partial to keeping Hawaii, as I honeymooned in Maui during the present lifetime.]
Perhaps selling Alaska (which is almost entirely federal and state owned land) is a little drastic; we could use it as tangible collateral instead for China, in case we cannot or do not wish to pay them back in gold-based Dollar bills in the future. While this may sound far fetched and off the wall, consider the alternatives. In 2009, China now owns a greater sum of U.S. assets than any country has owned of another, in all of human history! Most Americans do not yet realize our foreign debt size, but many of us send our first week or two of taxed income to the federal government each year to pay for the “interest” on the debt we already owe China, and the situation gets worse each year. Basically, we are starting to work for them! Trade wars with China appear all but inevitable as friction mounts over the direction of short-term monetary/Dollar value policies, rising rates of credit creation in the U.S., unmanageable deficit spending inherent in U.S.’s current economic course, and the near universal odds of high inflation rates destroying the purchasing power of China’s bond investments the next 5-10 years. In fact, it is not hard to imagine an actual military conflict between the U.S. and China to erupt in the next decade over related frustrations about the debt on both sides of the Pacific, if America does not change course drastically and support China’s investment here. If you were given a black and white choice of giving up Alaska now, or having your children (and perhaps tens of millions of Americans) perish in a military conflict over Taiwan or Japan in 5 years, which choice would an honest, practical individual make? [After we sell Alaska, we can finally allow Puerto Rico to become an official state also, as Florida is getting full of people. We could use their resort landscape for commercial development and build political bridges to the rest of our natural sphere of influence in the Caribbean region. Plus, we could all keep the existing American flags with 50 stars, instead of having China sew new ones with 49!] Congress can work on the details, like how we repatriate Alaskans back home to the contiguous states, and properly appraise their private property sold to China! Difficulty to Accomplish: Logistics headache, but much easier than you might think possible to negotiate. Passing a law to authorize required.
Forget about Health Care Reform in 2009-2010 until we get our fiscal house in order. We cannot afford the budget as is. ADDING new health care expenditures and more troops to the Middle East is beyond comprehension to me. It’s kind of like going after Saddam and Iraq, because 20 screwballs with razor blades attacked us from Afghanistan. Keep your eye on the ball, and quit trying to change the subject/focus from the real problem at hand. Osama bin Laden and friends are still out there, as will our huge deficit spending and structural trade problems if not addressed pronto. President Obama can run his re-election campaign in 2012 on the platform of creating a single payer, basic government health program AFTER we have tackled the real debt and banking issues FIRST. By the way, I am all for the ultraistic goal of basic national health care for everyone, however supporting enormous military spending in the Middle East in “combination” with skyrocketing government expenditures domestically WILL BANKRUPT OUR COUNTRY, NO DOUBT ABOUT IT!
We must demand a massive change in our current economic course to our leaders before it is too late! Just look at how the stock market has peaked, gold has exploded higher and the U.S. Dollar’s international standing has tanked since Health Care Reform and an expanded troop role in Afghanistan were brought to the fore in September 2009. In essence, the proposed “fixes” for the Middle East and universal health care coverage will kill the patient! The existing level of military and entitlement (wealth transfer and safety net) spending is today well beyond a sustainable level. We must look at ways TO CUT HEALTH CARE SPENDING by the government before the great American experiment of democracy and capitalism becomes only a line in a history book! We won’t have government help for health care, any say in the Middle East or another geopolitical region of tension, any hope of full employment, a sound currency of exchange, much “wealth” leftover when the markets adjust for reality, or even many of the freedoms we now consider undeniable in a few short years, as the powers that be try to shut down free speech criticism. How is this sound long-term policy? Difficulty to Accomplish: Very Easy. Do nothing. (Or better yet, slash existing entitlements, including Health Care expenditures by Uncle Sam, which would be Moderately Difficult.)
Reinstate the Uptick Rule for Short Selling! In no other legal and ethical commercial endeavor in this country can you sell something you do not own. Such a design is usually punishable in criminal court as fraud, but for some reason Wall Street acts like this a God given right, and is today business as usual. Having an uptick rule from the late-1930s Depression period until the all-time stock market highs of July 2007 didn’t exactly hurt America. [The new short sale, uptick rule that served America so well for 70 years was championed and implemented (when he served in government later in life) by one of the biggest short sellers in history, Joseph Kennedy, who largely earned his fortune betting “correctly” against America during the stock market crash of the early Great Depression years. Ironically he used his power and fortune derived from selling America down the river to put his son, President John Kennedy, in the White House in 1960. I wonder if his unregulated short selling helped to usher in the Depression, and he felt guilty about it later in life?] Having a “limit” or regulation on greedy pinhead sellers of an equally serious buyer on the other side of every new short sale is logically a fairer way to allow such deviant behavior, for those wanting to benefit (and only benefiting) from driving companies into receivership, zapping legitimate stock wealth, slashing employment for hard working Americans, destroying tax receipts for the government, and crushing confidence/optimism about life generally. Aggressive short sellers rank just beneath Osama, in my book, in terms of being upstanding members of the human race. But heck, paybacks are hell, and for short sellers that’s where they are headed after this life. True Americans that desire fairness and honest wealth creation, from the Democratic leaning Warren Buffett to the one-time Presidential contender and staunch fiscal conservative Republican Steve Forbes, believe the old uptick rule is a necessity for Wall Street expansion and are advocates of such today!
Exhibit #1 for bringing back the uptick rule: La-Z-Boy (LZB). The master manipulators on Wall Street scream that free market philosophies are all that matter, and their selling has no lasting effect on a stock. Are they serious? [Be careful not to buy into this malarkey as an investor; the Brooklyn Bridge is for sale from the same characters no doubt!] Here is a stock example I have traded the last several years, and witnessed short selling volumes and trickery day after day in late-2008 and early 2009. LZB was heavily shorted both legally and illegally as it fell from over $10 per share in September 2008 to $0.53 in March 2009! Then it rocketed back to $10 a share in September 2009 just as fast as it fell, when the short sellers retreated in force. All the while, the underlying “value” of the business changed very little, some 20% by my calculations based on models I have shaped over decades of trading and investing. No rational or experienced individual can argue with a straight face, that a 95% decline and reciprocal 1,800% gain over less than a one year period are either “efficient” or not manipulated. I can list hundreds of other examples in the smaller companies I watch, where the absence of an uptick rule allowed outside forces to sell tons of stock they did not own each day, when no buyers existed. Simple logic really. This type of destructive decline has never before happened in my decades of market investing experience, and considering LZB is a brand name, long-lived, NYSE listed security, every short seller argument against bringing the uptick rule back is NONSENSE when compared to the empirical evidence.
Why would a reasonable investor put money into any small company today, when short sellers with big pocketbooks can swing your stock’s price down close to zero if they so desire? Physically, if an equal volume buyer is willing to pay an uptick in price for the new stock volume wanting to be sold by a short seller, you CANNOT drive a stock price into the ground without “cause,” readily and publicly available to all existing stock owners. When it comes to the uptick rule’s abolishment in mid-2007, “if ain’t broken, don’t fix it!” Bring it back before we undergo another destructive selling wave in the markets in 2010! Manipulation of stock prices and wild swings are a given in the future without the old and successfully designed uptick rule, and will only hurt investor returns, consumer confidence and foreign interest in placing capital in America. If you want to fix this country, the uptick rule is a crucial component of getting us back on the growth track. Free markets entail honest dealings, and everyone who owns an asset should be “free” to do as they wish when selling. If you sell something you do not own, by definition you are manipulating reality, and this manipulation of a “free” and fair market MUST be regulated, plain and simple.
Given the ease of controlling thinly traded smaller companies, the truth of the situation can be found when the smaller capitalization indexes, like the Russell 2000, peaked within hours of the elimination of the uptick rule in early July 2007, and bottomed in March 2009, again within hours of Rep. Barney Frank, Chairman of the House Financial Services Committee, widely distributed media announcement that Congress was working on bringing back the uptick rule as part of new regulations on Wall Street! Statistically, this sobering fact cannot be written off merely as coincidence, but is actual, undeniable, concrete proof of the outsized control short sellers now have on America’s future, without an uptick rule on destructive, blind stock selling. Difficulty to Accomplish: Very Easy. Either pass a law, or tell the SEC to re-issue the old rule.
In Conclusion: I think I should have pissed off about every person reading this, from Short Sellers, to Muslim and Jewish readers, to Military families (whom I cannot thank enough for their sacrifices), to Alaskans, Wall Streeters, Bankers, Health Care workers and users, Seniors on Social Security and Medicare, mainstream Economic thinkers, Bond traders, Federal Reserve employees and beneficiaries, the Kennedy’s, Afghan nationals, Middle East experts, Defense suppliers and contractors, foreign policy backseat second guessers, and perhaps Osama himself (for being compared to low-life short sellers). But if you want to change America, and point us in the right direction, it’s going to take some balls, insight and a real kick-ass attitude. Are we up for it? Doubtful.
If we accomplish all the above, we could drastically pay down our national debt, stabilize the value of our currency and basic mode of economic exchange, foster greater long-term economic growth, renew confidence in each other and the financial system, and put our enemies on notice that we will do whatever is necessary to find future bastards that attack America, without the grandstanding, endless speech giving or mindless jaw-boning, devoid of common sense logic and real military punch. (I hate our foreign policy of talking big and never picking fights with anyone but enemies hitting us with knives and rocks!) Whatever happened to talking softly and carrying a big stick regarding foreign policy actions? Ahh, the good old days and golden years of past American glory, my friend President Teddy Roosevelt.
Reality Check! Sadly, I doubt any of these serious and necessary changes to America’s course are on the agenda for our leaders in Washington or New York. If you think fighting the Health Care lobby and revamping this important sector of our economy is difficult, try fighting the entrenched Wall Street lobby, or standing up to the military-industrial complex that President Eisenhower feared, or taking on the Federal Reserve that has printed/loaned more money outside the Constitution than the freely elected, legal and accountable Congress of the United States. I am afraid wild swings on Wall Street are now the new “normal” and America’s way of life will be under attack, both from inside and outside this country for years to come.
Hating China at this stage would be quite counterproductive to America for a variety of reasons, as will the desire to look inward and protect our economy with tariffs and trade subsidies. I congratulate China and their astute leaders for creating a more capitalistic society that is helping to feed the mass of humanity living in east Asia. China’s plan to generate large trade surpluses with the world as they build out manufacturing facilities and new cities is rather admirable, since the United States followed a similar growth path in the 1800s and early 1900s. Just as Adam Smith’s Wealth of Nations philosophy aptly predicted, net export gains and increases in gold holdings (foreign asset ownership) have left this important nation (and the whole Asia region) both enlightened and enriched for their efforts. It is not a coincidence that China is now selling more cars inside their borders than the U.S. does today. In fact, the Chinese are trading in bicycles for cars at an amazing rate the last few years of “high” oil prices, as Americans do the opposite by exchanging their automobiles for bicycles, bus riding and walking. WE, THE PEOPLE, have ourselves collectively to blame, as the freely elected politicians and leaders of this great land the past several decades have been the used car salesmen, quick buck, and easy out decision makers that we have demanded!
If you have better ideas to fix America, I would love for you to post them here. Otherwise, leave the silly rebuttals, deep pessimism, and “you can’t do that” at the door! Call me what you will, but I speak the truth. If you so desire, send a link to this blog page to President Obama – perhaps he will expose himself to something of value tonight, not just the special interests that lobby him and his advisers daily! I would advocate doing all the above at the same time, as many will have effects that are compounded in a positive fashion by doing some of the others. Cherry picking [Please don’t mention the word “cherry” to my good friend, President George Washington; he had issues with such a tree in childhood.] one or two ideas will help, no doubt, but accomplishing all nine points of change in unison, will “fix” America and transform our future in amazing ways for the better.
-Thomas Jefferson
RSS Headlines
Fool UK