Wall Street Protesters

I am amazed when I listen to the Occupy Wall Street protesters. Under the banner of being part of the 99%, they claim a common agenda and join in protest. Multiple interest groups have attempted to join the protest to publicize their grievances--unions, public employees, Democrats and numerous other disgruntled groups. Their cries for the end to corporate greed and bailouts are most common, but it is clear that few of these people are productive members of society.  Based on numerous interviews, they lack any clear understanding about the system they seek to change.

Let's consider the subject of bank bailouts, a common complaint, and explore who is most responsible for that event. Simple as it might seem, but the web of events that lead to the credit crisis are complex and far reaching. For example, President Clinton was in the White House when Glass Steagal was repealed. This law was enacted after the market crash in 1929 and put an end to traditional banks engaging in securities brokerage. Do we blame President Clinton?

It is fair to say both political parties played a role and share blame. How about Wall Street greed as the cause? Unlike the days when your grandparents bought their home, most home loans are not made by your local banker and placed into that bank's investment portfolio. In order to increase home ownership, the Federal Government created Fannie Mae and Freddie Mac, quasi-private institutions that guarantee home loans to qualified buyers, with the word "qualified" being operative word. Because they are quasi-private and quasi-government, they are subject to political wisdom for both policy and leadership. Combine these institutions with Wall Streets' securitization of home loans, and access to home loans ballooned.

Loans not guaranteed by Fannie and Freddie are those that are either too large (a.k.a. jumbo loans) or too risky to meet Fannie and Freddie standards. However, heavy political influences from Barney Frank, Chris Dodd and others, operating under the authority of the 1970s Community Reinvestment Act, pushed for an increasing number of home loans made to the poor and disadvantaged racial groups. Banking institutions became less concerned about quality of loans because they were being sold off via Wall Street in the form of complex mortgage securities. Either way, the banks were making money by transacting loans, not placing home loans in their own investment portfolio.

Despite Republican calls to assess the risk being assumed by taxpayers via Fannie and Freddie loan portfolios, Barney Frank and Chris Dodd opposed tightening the rules and reducing the risk associated with low quality loans. After all, home ownership was expanding and the ever increasing value of real estate led to a worldwide economic boom. A self-fulfilling prophecy of ever growing home values expanded home ownership to an all-time high. To keep the momentum and profits going, qualifying standards were lowered to the point that anyone could buy a home. Not only did poor credit customers get loans, but home equity loans were offered to homeowners so they could use their "equity" to buy cars, boats and anything else they desired.

Key to this scheme was Wall Street's ability to sell these loans, especially loans with the coveted AAA rating. It was as if the credit rating companies agreed to stop looking at what they stamped AAA.  Why? Enter AIG, the company that found a way to make the smelliest of home loan portfolios look like winners.  AIG offered buyers a Credit Default Swap which guaranteed payment of principal in the event of default.  This made just about every mortgage pool a sure bet, and buyers couldn't acquire enough of these AAA mortgage pools.  These investments found their way into portfolios that would not ordinarilly touch these securities with a 10 foot pole.

There was only one small problem. AIG, the largest issuer of Credit Default Swaps, didn't call this insurance, and they didn't call it a security. Accordingly, the swaps were not regulated by any government agency.  Even when one sharp government bureaucrat blew the whistle, she was shut down by those in the Treasury and Federal Reserve.  Swaps weren't regulated by the SEC or the 50 state insurance commissioners, and nobody but AIG really knew how much of the mortgage market they had insured. The rocket scientist analysts at AIG determined the chance of default was less than 1 in 1,000. Boy, were they wrong!

When it blew up, buyers of mortgage pools had insurance that wasn't, and the buyers (states, counties and many other countries, like Iceland) were left holding the bag.  The market for mortgage securities dried up, and banks were stuck with loans they knew were not AAA or anything near it. It was an all-out meltdown, and cash became the only means of survival for every investment bank.  Because of the capital requirements for both banks and investment houses, they all stopped lending to each other and everyone else.  Soon, what started as a mortgage issue grew into a complete meltdown of the entire world of lending and borrowing.

The governments ingenious solution: merge banks and brokers, and make more institutions "too big to fail."  Who do we blame? AIG? The credit rating companies? The banks? The brokers? Barney Frank and Chris Dodd? Fannie and Freddie?

The question is, who do the Wall Street protesters blame? Bush and Obama supported the bailouts, as did the majority of Congress. Could they have stuck the banks and the brokers with the losses, and not we taxpayers? Simply, yes. However, few understand the complex web of players who had a big role in this event, and that includes the millions of homeowners who bought homes they could not afford. Just maybe those people in the park had the smallest role in this crisis, but it appears most are too young to own a home?

My Father 1935-2011

Thank you for coming to celebrate my father’s life.  On behalf of my mother, sister and brothers, we appreciate you being here today to share in his memory.  It speaks well of him to see so many people here, some traveling from far away.

My father was born in a small Louisiana town.  He was the son of Baptist preacher and grew up in a very modest home with his older brother and younger sister.  Maybe it was growing up in a small town, or being from Louisiana that made feel he had a larger than life personality.

We lived outside of Cleveland in the late 1960’s where he served as the commissioner of the town’s youth softball league.  After observing an umpire make several very bad calls, he walked down to the field and ejected him from the game.  “Besides making horrible calls, you know you cannot umpire a game being played by your son,” he said to this volunteer father.  After hearing this, the umpire turned to his home plate umpire and asked, “Who is this guy?”  “He is the league commissioner,” the plate umpire explained.  So, graciously, the umpire left the field without argument.

Several years later, after we moved to Los Angeles, he saw this same man being interviewed on the national news.  Shocked, he couldn’t believe what he was seeing.  All he could think about was how he had ejected this man from a youth softball game several years earlier. To this day, I am confident that George Steinbrenner was not thinking about the day he was ejected from a youth softball game on the day he announced he was buying the New York Yankees.

Everyone who knew my father knows where golf ranked in his life.  He belonged to more country clubs than he had children.  He was President of Friendly Hills Country Club, and a Board Member of the Bob Hope Chrysler Classic.  If he wasn’t playing golf, he was watching it on T.V.  One Christmas, at my father’s urging, the boys in the family decided to start a tradition and play nine holes of golf on Christmas Day.  The problem was, most of us had not played golf in a long time and was a bit rusty.  After successfully playing two holes, one of my brothers hit a house on his tee shot.  You can’t imagine the anger expressed by my father, for this was his country club and he know the people who lived along the course.  Next followed my other brother and he too hit a house on his tee shot.  Normally, we were all faster than my father, but on that walk home we couldn’t keep up with him. Needless to say, that tradition ended up last just two holes.

Some of you know my father as a businessman.  Others know him as a golfer, a card player or just a friend.  No matter how you knew him, you will probably agree that he did things his way, and only his way.  He had a plaque in his office that said: “Rule 1.  The boss is always right.  Rule 2.  If the boss is wrong, refer to rule number one.”

My Dad was a very strong personality.  Sometimes, especially at restaurants, he was a little too intense.  On more than one occasion I felt very uncomfortable knowing the person serving him that night was going to remember him for a very, very long time.  As an employee of his company, I was the object of his wrath on more than one occasion, and I was fired at least four times—once we were not even talking about business when he fired me.  In the end, it worked for him and me.  In fact, the business that he started in 1972 continues to this day under the name Crews MacQuarrie & Associates.

After he retired he pursued five interests:  golf, playing cards, travel, golf and golf.   He was married for 55 years; he had four children and eleven grandchildren.  He worked in the same career most of his life.  He started as a group representative for Occidental Life shortly after graduating from college.  That job took us to Shreveport, Louisiana, Cleveland, Ohio and eventually Los Angeles.  He started his own consulting firm in 1972, providing actuarial and consulting services to the retail food industry for about 35 years.  Those numbers (55 years of marriage and 35 years of professional services to the same industry) says something about him.  He was committed and he was trusted.

Several years ago, after my Mother’s father passed away, my father became very close to the Catholic Priest who performed the services at my grandfather’s funeral, Father Roy.  They really enjoyed each other’s company, and my father converted to Catholicism.  Having grown up the son of a Baptist preacher, he was always a spiritual man.    I guess that rubbed-off more on my brother than the rest of us since he is a pastor (and a lawyer).

On September 24, 2011, I lost a father, a mentor, a friend, a fellow golfer and a business partner.  I had the honor and the pleasure of knowing my father in many ways not often experienced by a son.

Let’s not mourn him too long, but celebrate a long [pause] wonderful life.

The Solyndra Syndrom

Did  I really hear the President correctly the other day?  While criticizing Bank of America for their new $5 applicable to debit card users, he said that BofA "thinks they have a right to make [a profit] of whatever they want."  Really, did he say that?

Yes, Mr. President, we have a free enterprise system that does allow companies to make a profit-- and profit is not an evil concept.  Our system of free enterprise does not allow a company to make whatever profit they want, but it does allow them to make whatever profit they can.  Competition protects consumers, not government.  In making that comment, the President told us a great deal about what he actually believes, and it is not what he told us when he was seeking election to the highest office in the land.

While the President did not advocate socialism, or anything like that, he did go on to say the country needs a "consumer advocate" to tell people when they are being treated unfairly.  President Obama continues to advocate a government solution to every problem, actual or perceived.

Rather than make the next Presidential Election about political party affiliation, or demonstrating the country's commitment to social equality, voters need to decide the future of this great country.  Should we choose a President who will increase the power and scope of government (especially the Federal Government), or a President who will support, enhance and wholly support our commitment to capitalism.

When government has the ability to decide winners and losers, we get Solyndra.  The Solyndra Symdome is much bigger than the $535 million loan to cronies associated with Obama.  The Solyndra Syndrom also includes such things as the Wall Street bailout, GM, Chrysler, public employees, teachers unions and many, many more that received government assistance or favoritism in exchange for political donations.  This is not a one party issue, it is an issue with an elected government.

The American Jobs Act is Much Like Solyndra

President Obama has proposed the American Jobs Act through his friend and Senate Leader, Harry Reid.  President Obama and Reid don't agree on how to pay for the Jobs Act; Reid proposes a millionaire surtax.  This tax won't effect too many people, me included, but it might effect your job status, your level of pay or your benefits?  After all, what kind of people actually make $1 million per year or more?  There are athletes, rock stars, movie stars, a few lawyers and doctors and some people on Wall Street, but the majority of them are small business owners.

Does Reid think these people will just absorb the 5% surtax and that's it?  As a small business owner myself, I know when my cost of doing business goes up it has a direct impact on what I can afford to pay my employees or the benefits I provide.  If the cost increase is large enough, it will drive my decision about hiring, wage increases or lay-offs.

Martin Feldstein, President Reagan's economic advisor and Harvard economist estimated the Jobs Act will cost $200,000 for each job created.  My guess is these jobs will not be those that pay $200k or anything near that level.  In defending the proposal, Treasury Secretary Geithner said, "if the alternative plan in Washington is to do nothing, that's not acceptable."  I don't hear anyone in Washington saying let's do nothing, but I hear a lot of Republicans and a few Democrats saying that increased spending and new taxes are not an option.  In fact, Senator Reid refused to vote the Jobs Act knowing he didn't have the votes to pass it and he doesn't want to embarrass the President by having the bill fail in the Democrat-controlled Senate.  Everyone, including Reid and Obama, know it has no chance to pass the House.  That begs the question: why does the President spend all of his time stumping for a bill he knows will not pass?

There is clear evidence that tax policy has a direct impact on consumer behavior, but that behavior will last only as long as the policy.  When President Obama and Congress implemented Cash for Clunkers, new auto sales soared.  When Obama and Congress offered a tax credit for first time home buyers, the sale of homes soared.  Similarly, if President Obama and Congress adopt a 5% surtax for millionaires, people who would otherwise sell a business will delay the sale; people on the fringe of making the magic number will delay income or take other actions to reduce their income that year.

Solyndra failed because they made a product that cost them $6 to make. They sold each for $3 (losing $3 per unit).  Similar products were available from their competitors for $1.5-$2.0.  "Simple math," Mr. President would have told you Solyndra would fail.  The Jobs Act will create $50,000 per year jobs for $200,000 per job.  Simple math should tell you this is not a sound plan, and it will fail.  If the government provided me a $100,000 tax credit to create a job that pays $100,000 per year, I would do that and it would be a permanent job.  That won't happen--it shouldn't, we need real, sustainable jobs.

Since I run a small business, I don't create a huge number of jobs (although I do create very good paying jobs at about several times the average household income in my county).  There are only two motivations for me to create a new job: (1) because I will make money from that job, or (2) because I will make more money from that job.  I have never created a job because of a government program, however, a significant number of jobs created by my company are directly attributable to new government regulations.  For example, after Congress passed the Pension Protection Act, the demand for services required by my clients (in this case pension funds) increased significantly.  In fact, new complex government regulations are responsible for much of my business' growth.  Good for me, but...

The Republicans propose an overhaul of government regulations because they understand that complex regulations significantly increase the cost of doing business.  I can't begin to name all of the new laws and regulations that have caused my business to grow over the years because there are simply too many to list.  While my company has prospered, the added cost of maintaining employee benefit plans (retirement plans and health plans) has increased significantly.  More importantly, it's not just my company that benefited from new laws and complex regulations.  I have observed a dramatic increase in the cost to maintain employee benefit plans with higher fees being charged by many other professionals: lawyers, accountants, investment managers, banks, TPAs, offset printing, mailing, insurance companies.

The next time you hear a Republican call for simplifying rules and regulations, remember that these can add a substantial cost burden to companies, and the cost burden means few jobs, fewer benefits and a higher cost for goods and services.

Solyndra Needs A Special Prosecutor

We hear a lot about Solyndra and the loss of $535,000 of taxpayers' money. While the Republicans hold hearings to embarrass the President, the Obama Justice Department conducts its own criminal investigation. This case has all of the elements necessary for scandal. It involves a lot of money, high-level government officials (including the President), large political contributions made to the President, Senators and Congressman. This story has the roots necessary to become really big, embarrassing and career ending. Simply put, because key players and likely defendants have a direct connection to the White House, it is inappropriate for the Obama Justice Department to investigate this case.

It is not just that the case involves over one-half billion dollars. It is not just the accusation that political pressure allowed an accelerated application for the loan guarantee. It is not just that this case involves friends of the President, both California Senators and numerous high-ranking Democratic Party officials. It is not just that this business was used by the President as an example of desirable government programs that are at the center point of the President's green jobs objective. It is not just that the government loan was subordinate to other investors, which is a clear violation of Federal Law. It is not just that those other investors, to which the government loan is subordinate, are politically-connected to the White House. A Special Prosecutor is needed because of all these facts, and that the Attorney General is currently the subject of his own ethics scandal.

First Blog

I have decided to write a blog as a gift to my rather patient friends on Facebook. It is not that my words have great value or incredible insight. Rather, by writing a blog I am liberating my friends from my constant barrage of political rants and can use FB as a way of communicating events, conveying niceties and posting pictures.

My blog will pitch-up where my FB rants ended. I will continue to scorn both parties, but especially the Democrats and anyone who is crooked, stupid or deserving of such. My FB will link my blogs, so there is no complete escape.

Something often misunderstood: I welcome counterpoints, but reserve the right to debate. I am a true patriot and know that a two-party system is not just tradition, but necessary. I only wish more liberals applied more logic and held their political heroes to a higher ethical standard. It doesn't matter if perjury only concerned sex, it was a crime. It's not okay for green companies to fleece America because their intentions were good. It's not okay to lie to the American people, even half truths.

Let the rants begin.