The most feared words in the world are, "I am from the government and I am here to help." They generally send people running in fear. Our U.S. financial markets are no different.
After months and months of knee jerk reactions from our government the market continues to bleed red ink, jobs and cutbacks attempting to avoid the effects of failed bailouts and ill-conceived legislation. It is clearly time to return to free markets and market-based solutions for the problems we face. The market always gets it right in the long-term.
Unfortunately our leaders have elected to loan more money to everyone from banks to the now-troubled automakers. As always the response is to throw money at a problem that money alone will not solve. The automakers, for years, have been down-sizing to compete in a market that has substantially changed over the last three decades. Unions took benefits versus pay increases to the point that GM and Ford are now health-care providers and pension managers that occasionally build a car.
Chapter 11 would have allowed the "Big Three" to renegotiate contracts put in place with the unions during a time when the Big Three were the only three. Now there is Honda, Toyota, Hyundai, Volkswagen and multiple other foreign competitors. Detroit has been left behind.
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While many will argue Detroit built a product people didn't want and they refused to build a fuel efficient car; its problems are far beyond just those issues. A bankruptcy would have forced current management and labor to retool, rethink and reinvent a business model that is broken. Therefore Congress is merely putting the day of failure off into the future. Does anyone really believe one current worker can support the benefits of 2.5 retired workers and still compete?
We need to remove government from the markets and the sooner the better. Every time a member of the Treasury or the Fed speaks, the markets react negatively. The signals Paulson and Bernanke are sending are confusing at best and downright incoherent at worst. To continue to change direction every time another data point is released is destroying confidence. Confidence critical to the market. Our markets demand it and as such the message must be simple, concise and non-changeable.
I hate to put it in these terms but I don't know how to say it any other way. Barney Frank is a moron. He has presided over the dissolution of the markets and has said some of the dumbest things I have ever heard. Even commentators like Larry Kudlow no longer can be kind with this foolish rhetoric coming out of the chairman. It is time to say no to Barney and yes to the free markets. The heck with freeing Willy, we need to free the markets from the non-stop hearings on Capitol Hill. Politicians can screw up a one piece puzzle.
More government intervention will only exacerbate the crisis and prolong the recession.
If the government truly wants to help the people it will use the funds appropriated by Congress in the Emergency Economic Stabilization Act for what they were intended. TARP, as it is referred to, provided $700 billion to buy up delinquent loans and toxic assets from troubled financial institutions. Thus the name Troubled Asset Relief Program. That has not occurred. The money is sitting in banks collecting dust instead of being made available for loans to the public and business.
If the government wants to spend more money it should be for areas that will improve the nation going forward such as the power grid, nuclear plants, roads, bridges, alternative energy, etc. Not shopping sprees at the mall for trinkets that will end up in the trash. The last stimulus package went to pay down debt and ended up in saving accounts at the very banks that refuse to lend money.
Government officials could stop wasteful spending and reduce the overall size of government. They could reduce business taxes to create jobs. They could suspend capital gains taxes to encourage investors to invest in America without the fear of profits being taken away in higher taxes. They could remove the ridiculous "Mark to Market" rules that force bank to assume any non-performing asset is worth zero. Many assets on bank balance sheets when held to maturity will pay 60, 70, 80 and maybe even 100 percent of the listed value. The banks should not assume everything is worth zero just because Enron and a few bad apples committed fraud.
If we want more losses in our 401Ks and home values, if we want more unemployment and higher national debt levels, then I encourage all Americans to write our leaders and tell them to do more. But if you are like me and believe the government can't take the garbage out efficiently, much less run a $15 trillion economy, then I say get the government off our backs, out of our wallets and away from our kids.
The polls are clear. With a 12 percent approval rating the people have no confidence in the Congress. So what makes us think the Congress can provide confidence? This would be akin to someone asking Dracula for a blood transfusion.
Government takes. It never creates. With the exception of chaos.