Sept.17. 2008, A few remarks to the Crisis in the finance sector
As with the energy situation a long overdue baloon finally exploded. Very unfortunate, that this should happen during an election campaign, where such will be exploited as just another Bush economy failure.
People, this is not - hard to believe - an economy crisis. This is a finance sector crisis, which was long overdue.
It has a lot to do with another one of those structural design flaws of our economy. It has a lot to do with the lending market, which went totally overboard in competing for clients.
No downpayment, no interest mortgages and loans combined with spending and consumer habits of the American People who are by design much more risky than other societies.
A lack of regulative oversight allowed these firms to take risks no normal business usually would. As opposed to one classical and reputable country of banks and finance institutes, Switzerland, here in the USA one can apply for a loan, when one has a ton of debt already.
Only then can the consumer establish, what we call here "Credit". There is something totally wrong with that system.
If a client does not have any credit cards, does not show a car or other payment, he/she will not get a loan. What is wrong with that picture?
In your personal environment, would you rather lend a friend money, if that friend was not overstretched with payments and debt already?
In recent years, credit cards were being distributed like candy without any regulation or oversight and the whole thing by means of a terrific marketing pressure, the whole ting with a ton of small print, leaving the clients with double digit % interest after a few months.
The American consumer could not resists and hence incurred huge private debts. All it takes in such situations, is for instance a real estate correction, a 1 % prime rate interest hike, caused by things like terror attacks or natural desasters, or a bancrptcy of a large firm, and millionos of overstretched customers go broke.
In Switzerland, one has to show that one does not have debt, car payments etc., while having a solid income. If the debt to income ratio exceeds the capabilities of the client, loans and most of all mortgages are not being granted. This reasonable, conservative MO is rarely practised here in the USA.
In European, hence similar economies, they ask for a significant downpayment and grant never loans without any interest. From day one, as opposed to the USA one has to calculate hard and make true payments including paying down the principal.
As with Energy, the chicken have finally come home to roost also in the finance sector.
This is neither Bush's fault, nor can it be attributed to any individual congress or administration. It is a long term structural design flaw. Nothing much a president or a government can do about it, other than instituting a much tighter oversight in terms of lending.
Legislation could be passed which require all lenders to follow basic business and risk assessment principles, as for instance practised in Switzerland. McCain, self-described "Deregulator", proposes of course such tighter oversight, which may well entail some degree of regulation.
Appropriate legislation is a duty of Democrats and Republicans alike.
Are the fundamentals of the US economy really strong?
We believe that they indeed are. GDP, Economy growth, Job Creation, Unemployment, Productivity, Inflation are all factors for measuring the state of the economy.
In all these aspects the state of the ecomomy in comparison to similar economies such as Japan, Germany, France, England, Italy etc., our economy is in about the same average to stagnating, but basically stable state.
Certainly not in a state of catastrophy, as the Obama team, which desperately tries to change the subject toards to same old lame McCain=Bush=responsible for all pain message of doom.
Most of all the situation is not reason for panic. We have an Energy crisis and we do have a finance sector crisis, all of which can be addressed in the short term by a courageous administration of business leaders and executives.
Do we really need messages of doom and gloom, as presented by Senator Obama, who nowadays attributes all of the current problems to Republicans and especially the Bush Administration?
He then goes ahead and purues with a vengeance the strategy of linking McCain to Bush, stating, if you vote for McCain you vote for a continuation of the current state of the economy - that is a huge distortion of facts and realities.
Did you know, that Fannie Mae and Freddie Mac were democrat inventions?
Did you know that we had a democrat controlled congress for 2 years which slept at the switch and could have easily prevented the collapse by implementing legislation for a severe oversight of Wallstreet and the Financial institutions?
Please do not drink the coolaid and respond to the fearmongering in terms of economic turmoil.
The crisis of the financial institutions is not reflective of the overall state of the economy. This crisis was to a large extent caused also by us.
Ups - did we say something politically incorrect?
Well, who in his right mind buys a house with zero downpayment and no interest for a time, then can barely make the monthly payments just to keep afloat? One percentage point rise of interest, and these families go broke. Gas prices rising, the household finances go broke.
What we try to say is that many Americans overstretched themselves by accepting the admittedly ridiculos terms of these lending institutions. They should have operated under much better oversight, no doubt. But, as hard as it may be to swallow, our mentality of consumption and immediate gratification played a role here too and we must accept some of the blame. It always takes two - the offering and a customer willing to buy.
What we see at present in the financial markets is an urgently needed correction. It was overdue. But it does not reflect a total desaster of the economy, as Obama wants you to believe. Unemployment rates are not dramatic in comparison to the Clinton years even, our GDP grew dramatically and even our debt is in comparison not yet as terrible, as the bringers of doom and glom want you to believe.
Nevertheless, the economy needs an overhaul, mainly in structure. Indeed some change in times of concern. I ask all people who see ecomomy as key topic, who they think should be their leader in difficult times. An untested man who does not have any economical background, yet sells himself as such or a true leader surrounded by some of the brightest Business Executives of our time?
We all know the ebb and flow of global economics. Over time they usually balance each other out . Recessions can not be avoided, at best they can be mitigated. To blame poor old Bush for pretty much all the misery we feel, is neither fair, nor does it reflect the reality. In all due criticism of the GWB Admin, there was little they could have done with regard to the housing crisis for example, and, as far as the energy problem is concerned, all Admins since the roaring twenties should be accused of lack of foresight.
America had and has admittedly some serious design flaws (housing, lending, (private) debt, consuming habits and transportation, to name just a few).
Nobody will deny, that we pay painflully more at the gas pump and for heating our houses.
These are the responsibilities of many different Administrations and for many we the People must accept some guilt.
The prosperity of the Clinton years, for instance, were not just achievements by the Clinton Administration, but to a high extent based upon the groundwork laid by (Republican) Admins before them, as most economic measures have a huge leadtime, until they take hold.
Nobody denies that the lending crisis has finally hit home.
Our debt has risen to uncomfortable levels, even though, in comparison to most European Countries for example, we still look fairly decent.
At present, the debt to GDP Ratio is at 3%., meaning that compared to the Gross Domestic Product, key indicator of the status of an economy, the debt is lower than in the 80s and early 90s.
In other words, please do not believe all messages of doom and gloom, as even the unemployment rate is not dramatic, if compared to most western Countries. When it rains it pours, is definitely a kitchen wisdom also applying to the economy.
Nevertheless, McCain is right, when he considers the economy fundamentally sound. The economical fear and message of doom, the Obama Campaign tries to sell to the American People is however way overblown.
Are we better off now than 8 years ago? No.
But to blame Bush on everything is simply not fair. he did not cause Sept. 11 and he certainly did not cause our private spending and consumer habits, did he now? Most economists would quite actually go as far as saying , that he prevented by stimulating the economy an outright recession. Administrations can do little to control the ebb and flow of economics. most of all, their interventions in terms of legislations have huge leadtimes and oftentimes only show results long after an Administration has gone.
When a company is in trouble, when your family finances are in trouble, what would you do?
Cut cost, streamline, cut spending, right? Increase the amount of revenue streams. The last thing you would do, is to increase your familie's spending.
From a simple business point of view, as executive this is what we would do:
The fundamental design flaws need to be addressed, spending should be massively cut, government admins and the size of organizations should be reduced, departments either eliminated or streamlined, or consolidated.
We would emphasize transparency, meaning that we would allow the American People to see much better, where their tax dollars would be spent.
We would recommend to re-introduce the line item veto, so the president is enabled to veto pork, but keep the meat.
At the same time, while massively cut the fat, we would try to generate more revenue streams. This is in a nutshell, what any company in trouble must do in order to implement a successful turn-around strategy.
The last thing we, as turn around managers, would suggest is raising taxes, cost or burden on the citizens or increasing the size of management. The USA Corporation needs now the very same conservative, logical business logic, as applied by a turn around manager in Corporate America. Lower cost, increse efficiency, increase revenue, innovate, streamline and lower the burden on the taxpayer.
But, in the macro-cosmos of the US Govermment, that is not, what the Obama plans would propose.
Obama's plans increase the size of government admin and organizations drastically.
They do not , other than military (where it does not make sense in fact), define drastic budget cuts, nor do they specifically address special interests or pork barrel spending.
Obama proposes in these times tax increases.
While they try to sell you on the idea, that these will not impact you, but only the richest, in fact the tax increases for businesses will very well trickle down to your own wallet, as these businesses mustand will raise their prices to make up for additional tax burdens, apart from the tiny fact that they make US businesses even less competitive in a global environment, where US companies are already paying the hightest corporate taxes in comparison with other western countries.
What's so hideous about Obama's plans is, that he sells you on the idea, that 95% of the people will enjoy tax decreases, while he in fact by secondary or indirect tax hikes in effect burdens us massively.
The Wall Street Journal
Obama's 95% Illusion
(Click for full article)
>>>One of Barack Obama's most potent campaign claims is that he'll cut taxes for no less than 95% of "working families." He's even promising to cut taxes enough that the government's tax share of GDP will be no more than 18.2% -- which is lower than it is today.
It's a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he's also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of "tax cut.">>>
What do you think, will companies do, when they pay higher profit taxes, payroll taxes, taxes on interest, all that combined with significantly higher insurance cost? YOu guessed right, of course the prices for their products will go up. Apart from the fact, that his proposals result in an almost socialist re-distribution of wealth, he misleads the American People, as indirectly their burden will be much much higher than now.
Even the windfall tax ideas will mercilessly trickle down to you, or do you honestly believe, that those hated Oil Companies will not make up for additional taxes by raising prices at the pump?
Wouldn't you agree that right now, these Oil companies should take their profits and invest heavily in shale oil exploration technologies or secondary oil drilling rigs?
The energy topic is touched upon in a specific thread on this blog.
I may however mention here, that it has a direct impact on our economy. For instance does Obama oppose additional drilling and oil exploration within the USA. The today introduced bill by the democratic congress is now truly a lipstick on a pig. Window dressing, which includes drilling, but with massive handcuffs.
huge burden on our ecomomy.
Obama further opposes the use of Nuclear Power, but puts his chips (Investment funds, budgets) solely on "fast tracking" of alternative energy sources, which will not have an impact on our wallets for a decade at least and in the meantime, we go broke at the pump or when heating our houses, as we for a decade at least still depend on oil and nothing is being done for the short term.
Obama proposes a government managed health care system. Not only has that been tried already and unsuccessfully and driven some European Countries to near bancruptcy, it comes with a price, most economists on record state, can not actually be paid with the proposed tax plan, hence result in a
Obama proposes a hasty widthdrawal out of Iraq. The ensuing instability in a region, from where we still procure 30-40% of our oil, will result in higher prices at the pump, not to mention the foreign policy or national security dangers of such an approach.
For as long, as we have to import Oil from the middle east, the prices at the pump are in direct correlation to the political stability in the region. (For at least another 5-10 Years, there will be a decreasing dependence, for 20, if Obama gets elected.) Have you taken notice of IRAN deploying the Revolution Guard to the street of Hormuz? have you taken notice of the Russian arming IRAN with Rocket technology? Have you taken notice of IRAN avoiding all IAEA inspections?
If you do not understand, that we need some toops remaining in IRAK, until we are no longer dependent on stability in the region, you'd be willing to pay $10 a gallon.
Obama has a problem with free Trade, He does not like NAFTA, stands for trade protection, sanctions and subventions. One can not stand in the way of technological development. The sock industry, lost to China for instance, will not come back to us, no matter the trade barriers or industry subventions. Our strenghts lay in innovation, new technologies and re-inventing ourselves - not in protecting a losing ground against low pay countries. Another aspect, which will hurt the economy, not help it.
Obama stands during these harsh economic times for massively increased government administrations, higher debths, higher taxes and cost, higher energy cost for at least another 20 years, more government involvement and regulations and at times almost a socialist type re-distribution of wealth, which stands against any principles this great country was founded upon.
Most economists , even counting those tax increases in, still can not fathom how Obama is going to pay for all these programs and lofty goals.
II. Now let us look at McCain's Economy Platform:
He will across the board lower taxes. No hidden, indirect taxes on businesses.
save huge amounts of budget funds for projects we do urgently need here in the USA.
He has not only a proven track record of fighting special interests and porkbarrel spending, he promises to aggressively cut spending, where it absolutely does not make sense, hence
His Energy plan, a 15 Year Apollo type Plan, proposes an all -of - the- above; approach, including additional oil exploration to alleviate the pain for the short term, Nuclear power, which can kick in in the mid term and will help tremendously to generate urgently needed electricity and free up carbon based fuels for transportation until the overhaul kicks in, while pursuing the Obama thrust towards alternative energy development at the very same time.
That will allow America to get to the very same goal Obama proposes in the very same time frame, yet will help the normal Joe Blow within a short time frame at the pump and when heating his house.
This approach will further reduce our dependency on middle eastern oil much much faster, hence decrease the importance to stay massively engaged in the region. Heck, if shale oil exploration takes off (The US has the world's largest reserves!!), which may well result in a boom in states like Montana, we may even be able to export oil to our European Allies and make them less independent from Russian Energy. Not only would we save <$700 B every single year, we'd be actually producing the greatest budget surplus in history, while reducing the nasty Arab influence in the world.
Not only will we spend 700B less on Oil imports, hence have huge funds available for projects here, we will strengthen our National Security at the same time and generate a much higher number of new jobs right here and right now.
Just the approval of additional Drilling would result in an almost immediate impact on prices at the pump, as the futures speculation would for once work in our favor, even though such oil would not be actually available for up to 5 years. The automotive industry would gain time to develop solid hybrid and fuel cell technologies and above all, such cars would be affordable. It would buy us some time for urgently needed infrastructure improvements and the beefing up of our almost inexistent public transportation systems.
McCain's energy plan, all-encompassing including drilling and secondary oil exploration, nuclear power and all alternative technologies alone will result in an outright "industrial revolution" here in the US and an ensuing economy boom.
McCain has a proven track record of being on the forefront of cutting cost. Palin has a track record of being a maverick too, by taking on the oil companies. When they say that they will clean up Washington, they have the credibility of having done exactly that in the past.
Show me proof for Obama's willingness to cut cost. All we have are once again promises and words and a track record of $3B in Pork Barrel Spending Obama took himself advantage of - while John McCain did not take a dime for Arizona.
McCain stands adamantly for free trade. Instead of fighting trade wars with China, India and the likes, a result of the Obama plans, he will, driven by his strong belief and faith in the American People, power of innovation and fundamental strength of our leading edge technology, compete with them, not fight them via sanctions, regulations, barriers and trade wars.
McCain stands for a modern type of small government, small admins and transparent budgets, where funds will clearly and accountably be provided to specific projects. We will know, where our tax dollars will be spent.
McCain stands for private initiative, with incentives provided by the federal government, not regulations. A health care plan which is financially sound and offers choices, not a huge admin paid by the American people, which has already proven to be wrong in so many modern western countries.
McCain promotes, what any sound business owner would do for his company in the current challenging environment.
Streamline, cut spending, improve revenue streams. Small government, much freedom and initiative for the individual. He will not further burden us with addtional direct and indirect taxes, will not idly stand by, while our energy cost go through the roof, until in a far away future we will be independent, but he proposes a plan with immediate impact on cost, job creation, competitiveness and debth.
From a purely egoistic point of view, with McCain's ideas we can get to most of the lofty goals Obama envisions, but we will not have to go broke in the process.
Lastly - while both candidates speak about changing Washington, only one of them has the corresponding record and credibility. If I have to trust one or the other with my own wallet, I'd rather go with McCain. He is the only one, who has proven in the past not to shy away from reaching across party lines, from standing against his own party, and to not take a dime in pork barrel funds.
He is the one who follows the very sound business principles a successful company CEO would, as during hard times or a to some extent natural economic downturn, the last thing a successful CEO would contemplate, is to increase the size of the company, number of employees, increase the cost of doing business and raise spending and the burden to the customer further with higher prices.
The last thing one could possibly do right now is to demotivate the American People even further by increasing taxes. Let us not be fooled here, Obama's significantly increased taxes on businesses are nothing but an indirect tax on us all, hence the populist argument of only raising taxes on the super rich is outright double tongue speak. This is the time of streamlining the government, but certainly not the time for blowing up the management.
The Obama campaign tries here too the simplistic and populist approach of using the low popularity of Bush and the current state of our economic affairs, which are not in good shape, but not in total Bush's fault, to link McCain to Bush.
If the informed reader however looks just a bit closer and applies just a bit of a "differential diagnosis", he will undoubtedly come to understand that Obama's economy platform is not only inferior, but would result in an economical desaster.
Just apply your own sound common sense, as you manage your own family finances.
Apply the very same rules and measures, then compare those to the proposals of the candidates without anger or frustrations or listening to the mantra of "eight More years", and you will find your own pragmatic, logical basic conclusion within the economical platform of John McCain, who proposes in fact nothing more and nothing less, than what you would do within the realm of your own personal economy or finances.
Most of all - we are sick and tired of the negativity and fearmongering.
According to Obama, all is bad, everything is a tragedy, America is in a state of catastrophy.
I want some real propositions, changes implemented and executed and all that wrapped into a vision driven by faith and optimism in America.
I do not need anyone to lecture me from the pulpit as to how bad my shape is and further demotivate and frustrate me. I want someone who acknowledges the work ahead in a positive and uplifting manner and then goes to work for me with a vengeance. You may guess, who that person is.
Listen to John talk about our Spending Habits - Some seriouos Straight Talk:
There is absolutely no alternative to consequent free trade without barriers or subventions or trade protections. John is on the mark here.
Instead of clamoring about China and so many jobs which have wandered towards Asia, John rightfully promotes to accept normal migrations and developments, but lean on the single most important strength of the American People. Our Power of innovation.
We are decades ahead as far as science and technology are concerned. Our state of economics is by far not so grave as many of the leftists want us to believe. Most European countries suffer from way higher debths. The free market has a natural way to balance itself out. Currency fluctuations have occurred in the past as well. It is a normal biorythm.