The best cell phones are not nearly as clear as a land line. I hate talking on a cell phone. I have to ask people to repeat themselves due to poor connections, wind noise and the positioning of their mouth.

In my office I have no distracting noise and I can concentrate on the call and the other party.

While on the subject,  cell phones in the car are dangerous. Texting while driving is as dangerous as drunk driving.  In the time to enter a single character you can go 160 feet. But even talking, even hands free, is more distracting than you realize. It is not the same as listening to the radio. On the phone you are engaged in something other than driving and safety.

Constant attention to your Blackberry or iPhone while you are meeting or dining with others is just plain rude.

Another  phone thing that bugs me-  If you do not have time to talk, then don’t answer the phone.

Some people are engaged in business that requires one to be constantly in touch. But most just labor under the delusion that they are indispensible.  There is a lot to be said for calling from a quiet distraction free office.

“Could free markets have sorted out the mess without extraordinary government action? Yes, but only by destroying the remains of the financial system and possibly putting tens of millions of people out of work. Despite virulent public opposition to the Bush bailouts, society would not have tolerated the price that a sudden free-market correction of decades of financial excess would have exacted. The consequences of standing by while the markets did their work, correcting their own and government’s mistakes, would have been disastrous.”

“The administration’s response may have staved off depression, though that outcome is not assured. But the government has severely damaged four elements upon which free markets and the future well-being of the nation depend: prices, disclosure, failure, and fairness. Lawmakers and regulators have harmed the faith of global investors and regular citizens alike in American free markets- a faith essential to growth and progress. President Obama has made the problems worse.”

From After the Fall:  Saving Capitalism from Wall Street- and Washington by Nicloe Gelinas

If you have to read only one book about the recent financial  fiasco, this is it.

Here is an idea for our times.

We create a Federal Agency called the Consumer Investment Information Corporation.

It is funded by a fee on all banks and institutions needing an independent investment rating.

It is governed by nine people; three selected from each political party representative group in the Congress, and another three selected from the first six. The last three can be academics or professional analysts.

The CIIP can hire investment services like S&P and Moody’s to rate the financial institutions. The rating service would no longer be hired and paid by the institutions they rate; they would be serving the consumer.

Over a period of say 5 years, the FDIC protection would be removed from banking institutions. During that time a CIIP rating would be given on those institutions on their relative stability and strength.  Banks could then compete on the basis of stability and financial strength. Higher rated banks could sell CD’s with lower yields since they provide value through their strength. Lower rated banks would have to pay a higher interest rate to compensate for their higher risk.

Current FDIC protection has replaced market information. Consumers do not care about the strength of their banks because they have federal insurance protection. It has encouraged reckless banking behavior. Every time the FDIC limit is raised the banking sector acts more irresponsibly.

It is time to let the market function by providing information, rather than rendering the information irrelevant by guaranteeing incompetence.

I am constantly amazed at how sitting political leaders and naive citizens think that the government can create jobs. If the government could create jobs why would we ever tolerate any unemployment?  Either the leaders are economically ignorant or liars.

If you only read one economics book I recommend ‘Economic in One Lesson’ by Henry Hazlitt. Hazlitt was not an economist, but a reporter and he wrote this book in 1946.  This passage explains why the government is incapable of creating jobs without sacrificing at least the same number of jobs from the private sector.

This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment that otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge cost $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken away from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of that project. More bridge builders; few automobile workers, television technicians, clothing workers, farmers.

This sounds so logical and obvious that I fail to understand why anyone would swallow the government promises to create jobs.

“Fannie and Freddie played the political game even more fiercely than their opponents, spending millions of dollars on armies of lobbyists on Capitol Hill. Each company was a revolving door for the powerful in Washington- both Republican and Democrat. Newt Gingrich and Ralph Reed, among others, worked as consultants for Fannie or Freddie; Rahm Emanuel was a board member of Freddie.”

“By the 1990’s, Fannie’s chief executive could boast, without much exaggeration, that “we are the equivalent of a Federal Reserve system for housing.”  At their pinnacle the two mortgage giants- neither of them and originator of loans- owned or guaranteed some 55 percent of the $11 trillion U.S. mortgage market.  Beginning in the 1980’s, the two companies also became important conduits for the business of mortgage- backed securities.  Wall Street loved the fees it collected from securitizing all kinds of debt, from car loans to credit card receivables, and Fannie’s and Freddie’s portfolio of mortgages were the biggest honeypot around.”

“But in 1999, under pressure from the Clinton administration, Fannie and Freddie began underwriting subprime mortgages. The move was presented in the press as a way to put  homes within the reach of countless Americans, but providing loans to people who wouldn’t ordinarily qualify for them was an inherently risky business.”

From Too Big To Fail by Andrew Ross Sorkin

Economic growth hit 5.7% in the last quarter of ‘09.  We should be hitting a rebound at this point in the cycle, but Wall Street is still in the midst of a losing streak. What gives?

First,  it is always dangerous to assess the economic scene by a short term move in the stock market; there are just too many factors affecting the market. But there are other reasons for caution.

Part of the pickup could be a ‘dead cat bounce.’  This could be that inventory levels have been depleted so low that businesses have no choice but to buy inventory  in order to keep the doors open. In the metal and some commodity businesses an uptick in prices had many scrambling to get inventory in before the price increase.

But if backorders are not increasing and end users are not  buying more, this bounce will be temporary.

Some projects that had been put on hold during the initial economic shock are moving forward, especially in businesses such as electric utilities that must keep pace with maintenance and demand and do not have problems getting credit or still showing a profit.

You may have put off replacing you old car, but if you still drive you will eventually need a new car, or at least new tires for your old car.

If we can grow 5.7% with record unemployment, what does this say about business demand for new employees? Employers who see no strong end user demand will keep employment lean, and will shun capital investment.

Inventory pickup is often the first sign of a recovery, but that assumes that the end user demand is there to justify it. Housing demand and employment should soon follow. If it doesn’t this recovery will flatten out soon.

“In moving, even tentatively, into this new area of lending (subprime) Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government -subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s”  (New York Times in 1999)

“The success of the two companies (Fannie and Freddie) in both the financial and political arena inevitably fostered a culture of arrogance. “We always won, we took no prisoners and we faced little organized political opposition,” Daniel Mudd, then president of Fannie Mae, wrote in a 2004 memo to his boss. That overconfidence led both companies eventually to move into derivatives and to employ aggressive accounting measures. They were later found by regulators to have manipulated their earnings, and both were forced to restate years of results.  The CEOs of both companies were ousted.”

From Too Big To Fail by Andrew Ross Sorkin

Random thoughts

GM’s effort to target Toyota’s  customers  in the midst of their record recall notice seems in poor taste, especially in light of the record amount of taxpayer money that is now supporting GM.  This is like the arrogant rich kid who brags about being  smart when he was just lucky enough to inherit daddy’s money.  Kudos to Honda for expressly rejecting this tactic and Ford for just making money without taxpayer funds.   This is a big debit to GM’s karma account. Remember how many Toyotas are manufactured in this country.

Has anyone ever heard a peep from this administration about the government’s  responsibility for the economic crash, or do we just keep adding to the list of corporate demons?  First the oil companies, then insurance companies, then the health care providers and then the banks and financial institutions.  I need oil companies, insurance companies, health care providers and banks because they provide stuff and  services I need and want. I wish I could say this about the government .

After reading and writing about the financial crisis, I realize that the best analysis is devoid of political and partisan scapegoating.  The causes  were multiple and extended back more than 25 years. While much is clear in hindsight, at the time there were seemingly rational reasons for every stupid step toward the cliff.  How do smart people make such stupid mistakes?  One small stupid step at a time.

I have observed that there is an innate sense of trust on the social networking sites, especially Facebook.  We have connected with people we haven’t seen in decades, and there is an instant sense of trust.  Rules of etiquette on Facebook are unwritten but seemingly obvious just the same.  I wonder if the hours we spend on Facebook comes at the expense of television viewing.

With a more substantial majority than either party has enjoyed in decades and control of the White House, the Democrats have failed to pass any of the legislative initiatives other  than the stimulus package early in 2009(and the absurd cash for clunkers program) . It seems that either the bills they are trying to pass stink or that they must be incredibly politically incompetent.

My second article in American Thinker

A Political Recession

Excerpts:

Growth is being restricted by political uncertainty more than economic policy.

More business people who are either able or nearing retirement are “going Galt”, downsizing or reducing their income and expenses, refusing to spend their labor to support a government antagonistic to their efforts.

While the government is trying every economic stimulus in the play book, they are counteracting it with political initiatives that effectively destimulate economic and job growth with confiscation and uncertainty.

My first post of 2010 was The End of the China Decade, but it focused more on the rise of India.

The New York Times published Contrarian Investor Sees Economic Crash in China by David Barboza seven days later.

The prospect of a crash in China is real.  The banking system is closed and may be covering up severe flaws.  They may be hiding very high non performing loan rates. Some of our brightest bureaucrats failed to foresee the vulnerability of our own financial system and we have substantial disclosure. Any growth rate as strong as China’s is subject to a bubble scenario.

While it is difficult to predict how such a crash would impact us it could have severe consequences. China is way too big for any group of nations to bring financial support to it. Our currency could strengthen relatively as theirs weakens, but we could also be in big trouble if they need to liquidate their holdings of US bonds.

One possible benefit is the final proper alignment of their currency; an objective that has frustrated trade politics for decades. This could make American manufactured goods more competitive and jump start re-employment.

The biggest potential problem is the difference in political culture. High unemployment in America causes big deficits because of our social support networks. High unemployment in China may cause starvation on a large scale and much more dangerous political instability.

The biggest worry the current state of global financial instability renders is that such situations foster belingerencies.