Memo To Washington: Populist Pandering Won’t Solve This Epic Problem…Here’s What Will
Thursday, February 12, 2009
by Marc Lichtenfeld, Senior Analyst & Healthcare Specialist, Smart Profits Report
Dear Smart Profits Report Reader,
Usually, when I’m watching television open-mouthed and incredulous, it’s because I’ve “accidentally” flipped onto one of those trash-laden, so-called “reality” shows, or because I just witnessed a spectacular sports play.
Well, tack another genre onto the list.
As I watched the proceedings in Congress yesterday between the U.S. House Financial Services Committee and America’s top bank executives, the smell was pervasive, as it drifted south from Washington, DC to my home on Florida’s east coast.
Let me state for the record that I’m not related to any of “captains of the universe,” nor am I an apologist for the executives, some of whom share responsibility for the economic mess we are currently in.
But I had (naively) hoped that their appearance on Capitol Hill would lead towards some sort of progress in fixing our problems, rather than resulting in a high-profile trip to the principal’s office.
What a dumb idea…
So Much For Obama’s Wish To “Put Away Childish Things”
I knew it was going to be a waste of time when Rep. Michael Capuano of Massachusetts didn’t even bother to ask the executives a question. Rather than probing for information that might be useful, he ranted and raved for five minutes, treating the executives like 2nd graders who were talking in class.
Representative Maxine Waters of California took over a minute of her time to recite her resume and detail her fights with banks over the years. Congratulations. And when she demanded an answer from the CEOs as to why they took fees in order to collect TARP money from the government, Bank of America (NYSE: BAC) CEO Ken Lewis responded, “I don’t know what you’re talking about.”
The problem is… neither do many members of Congress. And given that these elected officials are charged with getting us out of this mess, that’s worrying - particularly if we’re set for tighter government regulation. If the past 10 or so years have shown us anything, it’s that we don’t have the right people overseeing our financial industry.
In which case I say, we need less regulation, not more. Yes, even today. Let me explain why…
If You Can’t Stand The Heat, Get Out Of The Bank
I’ve got no problem with safety net programs like FDIC or SIPC. Believe me, when Washington Mutual, my own bank, was failing, I was glad we had FDIC insurance to fall back on if necessary.
But to prop up banks like Citigroup (NYSE: C), which might not make it on its own, is an act of futility. The harsh reality of business is that if Citigroup can’t find a way to make money, then it shouldn’t be in business. That’s how capitalism works. If Citigroup or other large banks can’t hack it, I’m sure there are plenty of bright, talented bank executives who will find a way to start new businesses that will succeed.
Same theory applies to the auto industry, too (but don’t get me started on that topic!)
Will it be easy? Of course not. It will create more short-term turmoil. But in the same way as it’s worth some pain and discomfort to undergo surgery to remove a cancerous tumor, it’s also worth avoiding a slow and painful death.
But make no mistake… that’s where we’re headed right now. The American empire is in jeopardy if we don’t rid ourselves of our instant gratification culture and focus on making our world a better place for the long-term.
Something Is Rotten In The State Of The Union
We’re at a pivotal point in our nation’s history.
We can either let free market principles preside. Or we can have a dysfunctional financial structure that is highly regulated by people who don’t have the capacity to understand exactly what it is they’re overseeing.
I’m not trying to say that all members of Congress are buffoons. Most of them are intelligent people. But just because they were successful lawyers, doctors or exterminators doesn’t mean they have the ability to regulate complex financial organizations. Some do. Most don’t.
And when it’s apparent that Congressional leaders care more about “politics as usual” - i.e. scoring short-term points with their constituents, we’ve got a problem. Take North Carolina Representative Walter Jones, for example, when he asked why Citigroup won’t lower its credit card interest rate to 9% for the good of the taxpayer. Um… newsflash, Mr. Jones… wasn’t it the mass availability of easy credit that got us into this mess in the first place? Populist pandering like this means real solutions slip farther out of grasp.
Let The Free Market Reign
Ensuring that the public is treated fairly… that financial terms are clearly disclosed… and that people won’t lose their life savings when they’re trying to be conservative and avoid risk is critical.
But if we want a healthy financial system for the long-term, we need to let market forces work as they have done for decades. Protect consumers from unscrupulous practices, but let businesses succeed or fail based on their own merits, so the cream can rise to the top and ensure opportunity for entrepreneurs who create a better product or service.
The free market system is what helped make America great. It can be once again, but only if we are all up to the task.
Marc Lichtenfeld
Related Articles:
Three Sectors And Two Stocks That Could Benefit From “Hope And Change
The Good Bank/Bad Bank And The Ugly
The Current Economic Climate: A 3-Step Market Investing Checklist
How One Company's Groundbreaking "Cancer Blaster" Could Make You Rich
While the World Health Organization predicts 12 million people will develop cancer in 2009, this little-known company is fighting the surge with its amazing cancer-killing device...
Although most people know nothing about it, this "Cancer Blaster" has already saved thousands of people around the world... Like Ohio resident, Caroline Brubaker, who says "with just three, pain-free outpatient visits, I had my life back" or Richard Swanson of Arizona who ended up cancer-free after just 4 hours of treatment...
The best part is, the company recently discovered an extraordinary breakthrough that could go mainstream in a matter of days... Read the full details to find out how you can get in ahead of the event - and be on your way to booking truly incredible gains.
|
Comments
Due to the amount of comments we receive Smart Profits Report will not be able to respond to all questions. By submitting your comment you agree to adhere to our Comment Policy.
Got something to say?
