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Dear America,
The White House has let it be known that The President intends to importune, if not brow beat Congress into passing the $30 billion small business assistance bill that he has been advocating for months as the next logical step in precipitating the economic recovery that we are all looking for. He has already chided the Republican Party for its obstruction of that legislation and appears set to ascend the bully pulpit to apply public pressure to the recalcitrant Republicans, with whom I admit only with considerable dismay that I agree on this particular point, albeit for different reasons. Recent data suggest that business is awash in capital, though it has monolithically declined to invest that capital in either new physical plant or the production of new inventory so that jobs can be created, contrary to the Republican conservative complex's (Rcc) claim that business is the cynosure of American prosperity and that its largess will trickle down on all of us. The only segment of business that may not be enjoying cash reserves is that portion of the business community in which business models have failed thus far to produce results, and lending to them is counterintuitive in my opinion, especially in light of the fact that we are trying to get out of a financial crisis largely attributable to lending to those who cannot repay. But all of this aside, it seems to me that the time has come for us to recognize what is happening in the viscera of our body politic and our society. It comes to this. Reaganomics is dead, and our experts should come back from the supply side to the side of the force: the consumer. But it isn't happening.
In this weeks N.Y. Times Magazine there was an article by Roger Lowenstein, a long time financial writer and financial industry insider currently associated with the Sequoia Fund, one of the large mutual funds that has largely succeeded over the past decade or so, most probably because one of its largest holdings is Berkshire Hathaway. You can't really go wrong betting on Warren Buffet. Mr. Lowenstein makes the point that just as there was "irrational exuberance" before the recent collapse of our financial model, there is now irrational pessimism that has led to an imprudent turn to bonds as an investment rather than stocks, or "equities" as they are called in financial circles. He points out that stocks generally earn their share value every twelve years today, which translates into a return of about 8.5% per year whereas bonds yield a paltry one to two percent. He thinks that investors should be looking at stocks as a bargain and investing in them but that they are instead drawing down their investments in mutual funds in particular and directing their money to interest bearing instruments, for the most part government bonds. And I would agree with him but for one fact, and it is at the heart of all of our woes. Stocks today may return their value in growth over the next twelve years if investors invest for the long term, current valuations are realistic and all goes according to plan with our economic recovery. But how likely are we to go three for three. The answer is not at all.
The problem with the stock market is the same as it has been for about thirty years, but over the past two years, many of the people who were the losers in the game realized it. They saw that all it takes for years of savings to be lost in the course of a few hours is for some punk who calls himself an analyst to opine that corporation X will not meet his expectations for the next quarter. They saw that executives were taking eight and even nine figure bonuses, sometimes as they left companies whose decline they had just presided over, all while the dividends shareholders received were nil to nothing and the profits of the corporation were being misappropriated for corporate perquisites or invested in buying other companies rather than building capacity from within and thereby stimulating the very economy that would consume the goods they produced. Investors now recognize the role that speculation plays in determining the price of a stock, rendering the issue of value a matter of almost pure chance. In short, the stock market in which we all thought we could get rich over the past twenty to thirty years has been exposed as a Ponzi scheme run by those who already have most of the money, and thus complete control of the game.
When I read things like I have just written I worry that I am becoming the anti-Beck-- not necessarily a bad thing, but probably an irrational one. If my reasoning is on a par with Glen Beck's, and the juxtaposition of Beck with reason is an oxymoron in my opinion, I shouldn't be writing to you. I should be seeing a therapist. But I have said many times that I believe that speculation is at the root of the dysfunction of our economic and financial systems, and I continue to believe it, now more than ever. What frustrates me is that there continue to be true believers in the system that rewards sheer speculation without ever acknowledging its essentially parasitic role in our modern version of capitalism. As I have pointed out before, if people who add nothing of value continue to take a share of all wealth that is produced, the system is doomed to spiral downward like an engine whose fuel is being siphoned away. It is the return of wealth to the system, primarily in the form of consumption by the workers who produce the goods, that keeps the goose laying the golden eggs-- a notion that I am not alone in believing. Just look at the writings of Robert Reich, to whom I have referred before. But apparently a lot of people don't need to, because their willingness to go back to Wall Street to ensure their own prosperous futures seems to be fading into oblivion where it belongs. And I suspect that people will not return to Wall Street until something fundamental changes, but in the interim, we are witnessing the birth of a new order of things.
We common men have given our share to the welfare of the moneyed class already, and now with what little we have left, we want to preserve our own weal. So Congress can pass all the bills it wants so that businesses can borrow money. It will be to no avail. Until business deploys what we have given them already to stimulate demand, nothing is going to change. To paraphrase what the man said, "we're mad as hell, and we're not going to give them anymore," are we America.
Your friend,
Mike




















