Author: Larry Littlefield

That was a warning from a friend from Louisiana the last time a tropical storm approached. The wind can launch stuff left outdoors through windows, perhaps yours and perhaps someone else’s. That stuff, including outdoor furniture, garbage pails, etc. needs to be moved and secured. It’s the first thing people who are used to hurricanes do, I was told, but it isn’t mentioned in the city’s literature. Move it inside, or at least out of the wind.

While New York’s pension funds continue to assume that they will achieve an 8.0% rate of return from peak values, there is realism elsewhere. The Federal Reserve Bank of San Francisco has released a paper that predicts two more decades of weak stock market returns as the relatively large Baby Boom generation cashes in its retirement savings — leaving the smaller generations coming after as buyers. The paper doesn’t even consider the relative wealth of different generations, with the second half of the Baby Boom worse off on average than the first half, Gen X worse off than the second half of the Baby Boom, etc. And one of the ways those born after 1956 are worse off than those coming before is they are less likely to have pensions, or increasingly even employer contributions to their 401Ks. Therefore, they will have less money to invest in stocks – unless the Republicans can force them to use their Social Security money to buy stocks from older generations at inflated prices. (Government policy is already to try to get young adults to impoverish themselves buy buying houses at inflated prices relative to their smaller incomes).

Meanwhile, the Federal Reserve Board in Washington has voted to keep short term interest rates are zero for two additional years. But according to today’s Wall Street Journal, that zero return on cash looks pretty good to most investment professionals when deciding what to do with their own money, even as they urge their customers to invest in riskier assets for the long run. And you can’t really choose not to, because the politicians overseeing public employee pension funds are doing it for you, and will come after you and your children for any losses even as any temporary gains are cashed in with retroactive pension enhancements described as costing nothing.  The Wall Streeters, according to the article, have shifted to cash, and are scared with their own savings. 

The Securities and Exchange Commission is taking written comments on its regulation of bond rating agencies, and one of the submissions was from a former Moody’s senior analyst with something to get off his chest. As noted by one reporter who read the testimony, “the comment is a scathing indictment of Moody's processes, conflicts of interests, and management” and will make the former employee “a star witness at any future litigation or hearings on this topic.”

The analyst rated mortgage backed securities during the housing bubble, with those issuing the securities paying the rating agencies to provide ratings. That is the way bond ratings now work. The conflict of interest is that those issuing the securities might not hire agencies willing to warn investors by issuing low ratings. “Moody's analysts whose conclusions prevent Moody's clients from getting what they want,” according to the former analyst’s comment, “are viewed as ‘impeding deals’ and, thus, harming Moody's business. These analysts are often transferred, disciplined, ‘harassed,’ or fired.” The submission confirms what many if not most people suspected.

Within days after Tea Party Republicans nearly drove the federal government into default to gain political advantage, they have been topped by presidential candidate Rick Perry. “Texas Governor Rick Perry, the latest entrant in the fight for the Republican presidential nomination for 2012, said it would be ‘almost treacherous — or treasonous’ for Federal Reserve Chairman Ben S. Bernanke to increase stimulus spending before the 2012 election.” Because by helping to prevent recession, doing so might be part of a plot to help Barack Obama win re-election.

Now for reasons of lack of expertise, etc., I generally don’t write about Federal Reserve monetary policy. But since Perry has broken what has been considered a taboo by responsible politicians and politicized that policy, let’s take a look at how the federal funds rate has been changed since 1987 – under Republican Fed chairmen – in the run-up to Presidential elections.

This article in the Financial Times is well worth a read. It is behind a pay wall, so let me hit the highlights (you can register and read the whole thing for free if you want to). Someone told the author that the people of the United Kingdom were mature enough to distinguish between problems caused by long term global trends and the decisions of their leaders. “I question whether such rationality is the norm among the British, American and European peoples. Our societies cherish a gross sense of entitlement…if today’s leaders told their peoples the truth, and articulated the most plausible and bleak scenarios for their economic future, I will bet my socks most would be electorally trounced by rivals claiming to offer panaceas.”

The reality, this author asserts and I agree, is that the “fundamental task is to reconcile electorates to accepting less of everything than they have had in the past.” “We get the political leaders we deserve. Recent evidence suggests that in America, especially, charlatans prosper on the hustings, while good people flinch from exposing themselves to the humiliations and deceits essential to secure public office. Unless or until electorates become more rational, I doubt we shall see leaders much better – though, please God and the Tea Party, no worse – than today.”

Has the Obama Administration lost its mind? “Uncle Sam is landlord for at least 90 thousand homes that owners lost to foreclosure, and tens of thousands more in the pipeline as families are evicted and properties are appraised…Today the Federal Housing Finance Agency (FHFA) is asking for information from industry and the public on what might be done with the inventory currently held by mortgage giants Fannie Mae, Freddie Mac, and the Federal Housing Administration…One option: turning foreclosures held by the government into rental homes. That way, cheap foreclosures would not compete with other houses on the sales market. Local companies would probably be asked to manage any government rentals.”

Here’s the Republican commercial: “At one time this was a solid neighborhood of decent, law abiding families who took pride in the homes they owned. But then the federal government took over a bunch of houses and started renting them out to poor transient people from out of town. Now crime is up, there is trash in the street, property values are collapsing and people have started to flee. It’s this neighborhood today; it could be your neighborhood tomorrow if Socialist social engineer Barack Obama remains President.”

There are many who are getting a sense of deja vu about the Obama Presidency. Like President Jimmy Carter, President Obama is dealing with quagmires that have built up over many years that will make the American people worse off for some time to come. The weight of those challenges, and the unwillingness of Congress to impose the measures needed to turn things around, is making him seem hapless and impotent. Moreover President Obama underestimated just how rotten our economy has become at its core, and what a hard slog it will be to find a bottom. The measures he managed to get passed were conventional measures for a conventional recession, not an economic structure in collapse at the end of a 30-year debt binge. That 30 year era followed another era that collapsed under President Carter.

But Jimmy Carter had a Democratic congress, whereas Barack Obama is facing a Republican congress. That makes his situation more like that of President Harry Truman, whose term I didn’t live through personally but read about in the award winning book. Truman was unpopular due to the problems in the country, including a far more brutal war than the one we are in, and yet could run against a “do nothing Congress.” At the time, as well, part of the Republican Party had fallen into McCarthyism. You can’t say politics today are more divisive than that. To put on a respectable face the Republicans nominated a respected and reasonable figure, Thomas E. Dewey, the Mitt Romney of his day, but Truman won anyway.

According to the Attorney General, as quoted in the Daily News, stock prices are volatile because people distrust Wall Street. “The trust bank is empty and we have to restore public confidence in the instruments of government and the instruments of the private sector,” Scheiderman said. Scheiderman said people need to believe that Wall Street “is not a rigged casino.”

Actually, stock prices are volatile because they are too high, because the suckers have too much trust. The dividend yield is 2.0%, down from a historical average of 4.3%. Those running the rigged casino are looking for the signal to get out before the suckers. Scheiderman is repeating the Spitzer line, and perhaps enough trust was restored after 2000 that the suckers were fleeced again. What people need to believe is that Wall Street is, in fact, a rigged casino, and that government will not be trustable until all those incumbents are tossed out. The real debate is whether our public and private institutions can be reclaimed, or the best we can hope for is to rebuild after an institutional collapse that we only hurt ourselves more by forestalling. The problem, Mr. Scheiderman, is the values of Generation Greed.

According to a recent article, with Nassau Coliseum in bad shape and no money for a new arena in Nassau County, there is some talk about the New York Islanders hockey team moving to the Barclay's Center in Brooklyn. I doubt such a move would be permanent, because the arena would evidently only seat less than 15,000 for hockey, but it could provide the Islanders with a place to play until either a larger venue becomes available or the team moves away.

There is another obstacle to such a move, however. According to the Daily News, “Islanders' owner Charles Wang said he wants to keep the team on Long Island.” Now I know what he meant, but the maps says Brooklyn is part of Long Island, even residents of neither Brooklyn nor Nassau and Suffolk Counties wish to admit this. No one built a moat on the Queens border, although many years ago one wag who used to comment on a transit message board once suggested that Nassau and Suffolk might want to build one, leaving the separate landmass of Brooklyn and Queens to be called “Royal Island” and disassociated from them entirely.

For the past 30 years, the Republican Party has sought popularity by selling out our collective future and pandering to short-term greed. And the Democratic Party has gone along with this, and done some of it as well, to avoid unpopularity. At first I was increasingly outraged at the direction the country was taking, and the irresponsibility of our so-called leaders. I should have stopped to think about why such pandering always worked. Now I understand that they were merely reflecting the irresponsibility of our people.

This video and this video show the last two national politicians who were willing to say that all of us needed to make sacrifices in the short term, to ensure our well-being and prosperity in the long term. Their points were grounded in the values of their generation, now called the Greatest Generation. They lost their elections, and lost badly, and no Democrat has been willing to defend the future or younger generations ever since. Another member of Greatest Generation in fact took difficult and unpopular steps to secure the future. He is primarily responsible for the pause in the 30-year upward march of debt in the 1990s, as he described in this audio clip, while President. But he didn’t dare to tell Generation Greed that’s what he was going to do beforehand. Instead he lied to get elected. And then was tossed out after four years. And subsequent Republicans have done nothing but double down on pandering to Generation Greed and selling out the future. Click on those links, and really listen to what is being said. How are these men perceived today? As losers. And we are living in the country the winners made.