President Obama is dead on for blasting the Wall Street firms for paying big bonuses when they are asking taxpayers to bail them out. Such behavior is reprehensible. Not only is this irresponsible management it breeds contempt for our entire economic systems and thus seriously stalls the recovery.

Many other banks, however, have acted far more responsibly. Suntrust has frozen the pay of top managers and is not paying any bonuses. More banks are likely following this model, but it does not make good news.

But it is equally irresponsible for Congress to load up the stimulus package with political favors and payoffs that will do little to stimulate the economy. Christopher Dodd is calling for greater regulation and oversight, yet he has still not produced documents concerning the favored status he got on Countrywide Loans while he headed the Senate Banking Committee.

The only difference is the currency. The Wall Street gonnifs (Yiddish word for thieves) abuse the crisis to load extra cash into their pockets and Congress uses the crisis to expand their power base.

Both acts are reprehensible.

Those who think that big government will fix the problems of big business should stop and seriously reconsider.

I just finished Outliers by Malcolm Gladwell. He has a knack for insights and thinking that most of us miss. The premise is that success is less a matter of IQ and talent and more a matter of culture, opportunity and hard work.

The Chinese advantage in math is more a factor of a rice economy that requires more entrepreneurial skill and continuous hard work than western crops that require large periods of idle time.

Chinese linguistics also make math a much more intuitive discipline.

The Chinese school year is much longer, also reflecting the rice economy. The irrigation used in rice improves the land with use, whereas the western farming actually depletes the soil nutrients requiring periods of non use. Rice farmers work more days per year than wheat farmers.

The value of Gladwell’s analysis is to improve opportunity by understanding the impact of cultures and other factors. Blindly throwing money at problems is often wasteful and counterproductive.

He notes that more laptops, computers, smaller class size, is not the key to improving education. More hours and days is the key. Poor people learn as much DURING SCHOOL as rich kids, but richer kids continue learning during the long vacations that are unique to American schools. It is during the vacations that the opportunities available to the wealthier kids make a difference.

The schools are doing their jobs. They just need to be used more.

Here is how I am seeing the financial markets.

The government is wildly stimulating the economic with fiscal and monetary stimulations. There is a huge amount of cash on the sidelines restrained by fear. Everyone is cutting inventories and production is feeling the effects of the empting of the supply chain.

Some of this is constructive. There is excess capacity in automobile production and newer factories, largely built here by foreign firms, make older factories (mostly domestic) obsolete. This same change happened in steel in the last 20 years. Old names like US Steel, LTV, Bethlehem, and Republic have been replaced by Nucor, Gerdau (foreign), and Mittal (foreign).

I also feel that much of the federal stimulus is being counteracted by sharp cuts in state budgets and lower monetary velocity from tighter credit. When fear abates and credit starts flowing there may be a sharp uptick in inflation.

But with the supply chain empty any rebound will have a strong impact on prices. Steel stocks, especially Gerdau and Nucor are therefore a buy. Their prices have dropped sharply and may rebound sharply. They will also benefit from increased spending on infrastructure.

And while car sales are down, I still see people driving. These cars will wear out and need replacing, creating a pent up demand. Yet car demand is also the result of demographics. Some of the capacity needs to be reduced. It will be.

Like cars, housing and construction, has a way to go. In these businesses only the strong survive and I think it is too soon to bet.

The same applies to banking and finance. Top banks are cheap. Wells Fargo or Suntrust will likely be among the survivors and will share a smaller market with fewer competitors.

While short term this recession is deflationary, we are all wondering how our government will pay back the huge deficits it is creating by the minute. Inflation seems inevitable. That is the only reason I am skeptical. Can Obama really solve the deficit by changing the Washington culture when so many have promised and failed? Can he really make government THAT much more efficient? The question is not the possibility; it is the testicular fortitude.

To do so he will have to dramatically cut Social Security and Medicare benefits and defense spending. There are other programs such as the farm programs that need to be cut, but expect such howling when these are attempted that the huge deficit will be quickly forgotten.

I would be very reluctant to be in long term bonds. With interest rates so low, they can only go up and the looming threat of inflating our way out of the deficit makes bonds unattractive. The spread between long term treasuries and high grade corporate bonds is the largest in over 50 years. Long term treasuries are probably the riskiest investment out there. There is real opportunity in medium term corporates and high grade municipals.

The global markets will not allow Obama to inflate and the domestic market will not allow reckless tax hikes. He may be forced to actually solve the spending problems that others have only promised to address. That could be the best outcome we can expect.

“Crisis is the rallying cry of the tyrant”- James Madison

“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.” Obama White House Chief of Staff Rahm Emmanuel.

“We won the election. We wrote the bill.” – Nancy Pelosi

So much for any interest in bipartisanship. Obama is at least paying lip service to the principle, but Congressional leaders and some of his staff are not even faking it.

Less than half of this stimulus package is going for infrastructure improvements, broadband development, airports and clean water projects. Most of it is going to every partisan Democratic special interest group imaginable including billions to federal programs that the GAO and OMB have already criticized as “ineffective or unable to pass basic financial audits.”

If Obama wants us to believe in his “change” he will have to restrain his own party.

The Hunt brothers had made a fortune in the oil business, but in the 1970’s they tried to corner the market in silver and ran the price up to $50 an ounce. The bubble burst and the metal fell to a few dollars an ounce and never recovered to the bubble highs. Even today it has only risen to a bit over $10 an ounce- thirty years later.

Yet today people think it is inevitable that oil will quickly return to $150 a barrel, as if that price is somehow the right price and the current price today of under $40 is ‘artificially’ low.

We now realize that the price of oil was more a product of Wall Street and the same kind of ‘innovative’ financial products that created the housing bubble.

When oil was painfully high, Congress blasted the oil companies and accused them of controlling the market for their own financial greed. No less than Hillary Clinton and Nancy Pelosi threatened to take the excess profits away from the greedy oil companies. Oil executives testified that the prices were all market driven.

It never made sense. If the oil companies could control the price of oil then why would they drive the price up NOW and why did they not do it years ago? And why did they allow the price to drop so suddenly?

And the demand explanation also made no sense. Did the number of autos or drivers double in only a few months? Of course not.

Yet if the market had continued a little longer and if a single party had been in control the oil companies would have been the victim of a punitive tax or energy policy and Congress would be taking credit for bringing oil prices down. Congress often takes credit for solving problems that were already solving themselves.

The oil bubble, like the housing bubble, demonstrate how poorly Congress understands markets, how quickly they would be willing to respond with wrong policies, and the danger of reactionary economic policies.