Obama the Destroyer.
I am writing this as the official US budget is being released. While it literally weighs over 40 lbs., and by extension nobody really knows what is in it – there is a few things you should keep in mind.
With the President, it seems as if he is waging an “Ideological War” against anything and everything that he doesn’t like. Do you remember that drop in all the markets last month? He started it with the “Bank Tax”, (which by the way, is included in this budget.) and his rhetoric against banks. Those of us that are not reactionaries know that the timing of that statement, exactly one day after the loss of the Kennedy Senate seat by the Democrats, is more than a little suspect. It’s blatant populism at it’s worse.
No matter your political leanings, (which by the way….in trading doesn’t matter….) you have to acknowledge that this President is pretty anti-business and wealth. Funneling popular outrage against the “elite” in the form of regulations and taxes into laws are the kind of things that this President seems hell bent on. Another anti-business stance was taken today.
In his speech, he mentioned that last decade was to blame for where we are at the moment, and regulation and bank payments (theft by the Government) is necessary. Why you ask? It’s simple: The government made a bad trade when they got involved in bloated, half-dead auto companies, and now they want the banks to pay back that TARP money. Of course, most of these same banks paid back their TARP money plus interest, but why let details get in the way???
The point of this post is that Obama isn’t done, he will rock the markets again soon enough. Keep your eyes open.
Lets be fair here…
-The markets are up 35% since Obama’s inauguration.
-The idea to make government supported (FDIC Insured) “banks” not engage in prop trading is hardly a hyper-partisan issue. It was proposed by Paul Volker whose credentials are beyond reproach and one of the few people in government worthy of our trust. It’s good to see that a guy like him has the president’s ear as opposed to Bevis (Geithner) and Butthead (Summers).
I don’t think there’s anything blatantly anti-business about this president. He’s got tons of tax cuts for small businesses included in his budget and he’s passed on tax cuts & tax credits for plenty of struggling individuals and corporations that create jobs.
Regulation is absolutely necessary and long overdue. Should banks be allowed to levered themselves 30-1 or more (e.g. Bear, Lehman, etc) and threaten the collapse of our entire financial system? Should conglomerates, such as AIG, be allowed to piggy-back off their rating to insure *trillions* of dollars of esoteric derivatives with no government oversight?
People act as if regulation is such a bad thing — Rules/Laws are a necessary evil given that we live in a civil society. It would certainly speed up the flow of commerce were we to get rid of speed limits, but it might not be safe for our fellow man – Just because you *can* drive 110mph doesn’t mean that you should be allowed to. By that same token, just because you can give a 0% down loan to a person doesn’t mean that you ought to. Just because you can create a CDO filled with Subprime/Alt-A securities doesn’t mean that you should be able to. Regulations are long overdue in a number of key areas: lending, rating agencies, bank/inv. bank capital requirements, and a host of others I can’t think of off the top of my head.
Theft by the Government? Really? Come now, Chris, I gave you more credit than some of these TV blow-hards with their over-the-top rhetoric.
And on a side note, the US investment in the auto companies has little to do with a proposed bank-tax or TARP repayment. I guess that was just thrown in there for good measure. And to go a little further on my tangent: you aren’t naïve enough to think that these banks paid back the TARP because of how well run their businesses are – it’s because they wanted to pay fat bonuses and escape the pay-czar.
Here’s the thing. You can either have a president like Obama who is trying to tackle some of these problems OR you can have a guy like Bush who let these problems balloon out of control and fester during his presidency. Oh sure, he created an “ownership society” and got the home-ownership rate above 70% but why do you think we are facing record foreclosures, vacant homes, etc?
In the meantime, let’s leave the Obama-bashing to the professionals over at FoxNews & CNBC.
Cheers!
While I don’t dispute the validity of most of your post, I believe that there are a few things that I should point out:
I know the markets are up 35% since Obama took office. But what did he do to make them rise? I would say that comes down to the Fed throwing money at the problem. I want you to listen to what I am saying here: We ARE creating the next bubble as I type this. Cheap money isn’t the solution to a problem created by cheap money. This problem has it’s roots all the way back to the late 90′s and Greenspan.
I believe regulation is a double-edged sword. I hear what you are saying, but I think there has to be a way to contain the banks from the economy as a whole. At least the trading part. I don’t care personally if they trade 400-1. But I do agree with it staying out of the economy in general. I believe a lot of the exotic derivatives are a major source of problems.
What I meant by theft is this: If the banks paid back the loan with interest, then why should they pay again? I am sure if your credit card company suddenly said: “Hey, I know you paid $1200 including interest on that $1000 item, but we need another $250.”, you’d be pissed to say the least. This is absolutely no different. Also, there are several reports of at least two banks not wanting the money in the first place. This is a capitalist country, they should have never been bailed out in the first place. Period. (And yes, I know it could have been bad, but it’s probably something that will happen sooner or later anyway.)
As a side note – I don’t care why the banks paid TARP back, it doesn’t matter. If they want to pay $5 Trillion in bonuses after paying back the government, it’s not our place to decide what they should make. I have two businesses, and NOBODY under any circumstances can tell me what I make. I wouldn’t feel any different if I was a banker, I can assure you.
Your last paragraph sums up to me why I am starting to hate all politics and politicians. You can have a guy that’s neither like Obama or Bush too. Too many people forget that. Truth is, if you dig deep enough, they are both beholden to Wall Street. Most people don’t know this, but there are 42 people in the Obama administration that have ties to Wall Street. I remember how funny I thought it was that he was hiring these people while bashing Wall Street at the same time. I am willing to bet that if you asked most people, they would assume Bush had more Wall Streeters in his cabinet. It’s a matter of perception.
In all honestly, I don’t believe either party works for us anymore. It’s about getting reelected, and continuing the ponsy scheme that is the US economy.
Good post.
OK, a few points about your response:
1. You may not care if they trade at 400-1 leverage, or even 30-1 leverage but it makes a big difference. You and I, the taxpayers, are insuring their deposits (their funding base) and giving them a cheap funding source. If they fail, their depositors get made whole by the FDIC. So YES, it does make a difference (a) how much leverage they employ and (b) what kind of assets they are buying because if they fail they are getting bailed out one way or the other. Whether its the TARP (like it was for the really big ones) or a plain vanilla bank-takeover by the FDIC. Unfortunately, what they do affects you and I. If you want to do prop trading, I have no problem with that, just don’t expect to do it at an FDIC insured institution – Open a hedge fund and do it with private sources of capital. If you and I want to trade Forex at 100-1, who the hell cares, we aren’t getting bailed out if we blow up; it’s a very different story when there is taxpayer money at stake. And if you say “don’t bail them out” that’s fine, but understand the consequences of getting rid of the FDIC and going back to the days of runs on the bank & bank panics…
2. There is a difference between imposing taxes and changing contract-law after the fact. Taxes get raised & lowered all the time, that’s very different than a credit card company changing the rules of your loan (as in your example). If you’re too big to fail, you’re too big to exist, so my preferred solution is to break up these large institutions. The Obama approach is to make it unattractive to be a large institution. Granted, this is a different approach than I would have taken, but I can see where they are coming from. It’s not theft, it’s simply carrots and sticks. And there are plenty of examples of what you might call “theft” whereas I might call favoring one class of people over another. Take for example, home interest deductions which clearly favors home owners over renters. It’s a policy decision meant to make one option more attractive than another. Is it fair, I would say no, in fact I could argue that I have to pay more tax because of it and hence…Theft.
3. As to your two businesses, I agree, since you are the 100% sole proprietor of your businesses (I am assuming) only you can set your own compensation levels and since you bear all the risk, you get all the reward. The key distinction is that you didn’t get a loan from Uncle Sam in your time of need. You don’t owe your very existence to a taxpayer handout. And (in some instances) you don’t count Uncle Sam as one of your largest shareholders (I’m looking at you Citibank!). I’m all for private enterprise as long as it doesn’t threaten our financial system.
One thing we can agree on is that the market’s rise has little to do with Obama and has everything to do with cheap money. (psst: You don’t think that the fall has anything to do with “better than expected” economic numbers ending cheap money and forcing a rise in interest rates and not Obama?) It’s a bit of a fallacy to ascribe the markets movements on any one day to any one thing. But higher short term interest rates & a flatter yield curve mean lower profits for banks (with or without prop trading and/or a big-bank tax).
Another thing we can agree on is this: If you want to talk about theft, let’s talk about the massive deficits we’ve been running nearly non-stop for the last 30yrs. That is theft. Robbing from the future to pay for the now. Deficit spending knows no party lines – Every politician is like a pig at the trough. I have a feeling though that the mid-term elections will bring about a “throw the bums out” result that could be a wake up call on deficit spending.
That being said, don’t expect the rise of any third party. Too many vested (and moneyed) interests at stake with the status-quo. Sadly, I don’t have any numbers on who has more wall street cronies in their white house, but it’s always been bad. And with the latest championing of “Corporate Free Speech” by our dear Supreme Court, I’m sure it will only get worse. Welcome to the Corporate-ocracy…
Ugh…now I’m depressed…
I was saying as long as it’s separated, I don’t care what leverage they use. AIG was bailed out, but the life insurance part of the business was still financially sound. It was never in doubt. That’s what I meant by saying I don’t care about the leverage….and the trading. I don’t think it should be endangering your checking account, of course not….keep it separate, and it’s all the same to me.
I agree with the other example of carrot and stick as you say….but the President himself made the comment “We want to get all of our money back.” They should have never bailed out the auto companies, and I am willing to bet that we wouldn’t be having this conversation….it’s plain politics – the UAW pays a lot of money into the coffers of campaigns. Here’s what should have happened – the auto companies should have gone under, plain and simple.
To say that there would have been a loss of jobs is a non-starter. The same amount of cars would be bought next year, (in theory) but they might be Hondas. Who cares? I happen to know that not more than 30 miles outside of Columbus they make a ton of Hondas. Plenty of people in Logan county are grateful for that too. It’s an American car.
I agree 150% with your comment about the taxpayers and government owning parts of a company. In that case, certainly the owners (us) have the right to demand whatever. My problem is when the loan has been paid back with interest, and in full…..when does the bank become a private company again?
I agree with it getting worse before it gets better. Really in my estimation, there are only two ways this gets better.
A) An armed revolution. More likely than B) People actually paying attention and educating themselves.