Friday, July 2, 2010

Politicians Run Amuck… Again

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Earlier this year, I published my Top 9 Tips for the Successful Investor in 2010. Number 6 on the list was "Beware of politicians run amuck". In my wildest nightmares, I never thought it was going to be this bad by both parties. Can someone tell me what the heck in going on with Carolina politicians?

It's certainly not a new story, but what was Bob Etheridge thinking about when he tussled with two college students who were asking him if he supported President Obama's agenda? Has he lost his mind? Who acts like this? And It wasn't too long ago when Rep. Joe Wilson screamed "liar!" during Obama's speech on health care reform. No matter what political party you identify with, no one should behave like that in Congress. And certainly not during our president’s speech. You may not like the man, but the office deserves the utmost respect.

The winner for the truly unbelievable and insane award goes to Alvin Greene. Whether you are democrat, republican or independent, please watch this John Stewart segment if you really want to laugh.

My plan was to spend this contribution on the financial reform bill that was supposed to have been by Congress by now. But Harry Reid came out and said the Senate would not vote until after the July 4th holiday. No doubt in my mind that the dems are having trouble lining up 100% of their own support, let along the few repubs they need to get it passed. It's simply amazing that after Massachusetts elects a republican replacement for Ted Kennedy's lifelong democrat seat, Scott Brown instantly becomes a power broker as he straddles the left/right fence in the Senate.

Let's hope Obama sticks by his word that he will not sign any bill that had to be altered to favor a certain group in any one Congress person's constituency (Blanche Lincoln from Arkansas). Did we not learn from the disgusting backroom deals on health care reform with the Cornhusker Kickback (Ben Nelson) and Louisiana Purchase (Mary Landrieu)? And it's not just the dems. The repubs had their fair share of reprehensible, self serving behavior when they controlled Congress.

Anyway, from what I've read about the bill since I don't know any one person who has read the entire 1800 page document, my initial reaction is that something is better than nothing, but it's far, far from perfect. Congress didn't fix enough of the real problems, yet had no problem using the crisis as an excuse to mettle in areas that were fine the way they were.

I am outraged that NOT A SINGLE THING was done to address one of the main drivers of the entire crisis, Fannie Mae and Freddie Mac. The tab has grown to $500B and counting and far from over. Two years, we were told by Hank Paulson that $100B would likely be all that was needed. I said at the time, this bailout would end up costing the taxpayer at least $1 trillion. And if someone as dumb as me could see that, I am sure the really smart folks knew it too, but figured they would just pull the wool over our eyes, as usual.

I also don't think "too big to fail" was put to rest, or even close. Yes, the FDIC has "new" powers to wind down non bank institutions, but does anyone really believe that it's going to work? That somehow, if Goldman or Morgan Stanley are on the precipice of failure, the government (either party, pick your poison) won't step in for another bailout?

The unpopular bottom line here folks is that capitalism is prone to long periods of boom and spectacular busts. The longer the boom, the greedier we become, the fatter the system gets. And finally, the bloated system blows up to cleanse itself back to fertile ground. Just like what happens during a forest fire. It's a fact of the capitalist system. On the way up, we demand less regulation and government intervention. When the catastrophe hits, the cry is for more government intervention and regulation. It’s a semi-predictable 80 cycle that will happen again. But like the depression, most of us won’t be here to remember and react appropriately.

Our last gargantuan crisis may have been the Great Depression, but those folks also dealt with a banking crisis in 1903-1904 and again in 1907, which paved the way for 20 years of fantastic market growth. By the time WWII ended the two depressions in the 1930s, the economic and financial market ground was so fertile, so drenched in nutrients that we had 30 sensational years to enjoy. The same will come from this crisis, but the ground isn't close to ready for planting.

I'll have more detailed comments on financial reform in the next few weeks when we are sure what bill is actually being passed.

In the meantime, I am scheduled to be on CNBC’s Squawk on the Street, today (Friday July 2) at 9:10am and again on July 7 at 9:35am.

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

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