“The State of Our Economy is a Concern that Rises Above All Others”
U.S. Presidents usually give a major speech before a joint session of Congress when they have served for a year. President Barack Obama could not wait that long. He spoke on Tuesday night because America needed a stopper. He accomplished that, and provided an outline for the future.
President Obama delivered a serious, ambitious speech. It was realistic, pointing out past mistakes and emphasizing responsibility and accountability. It was holistic, calling for new energy, health care and education initiatives to address our cultural and economic deficiencies and foster sustainable prosperity.
The President did what a new leader needs to do in a complex, deteriorating situation – he bought some time. He gave us the big picture; now we need the details. It is crucial that a solid plan for the banking system be forthcoming.
Republican Response Recycles Vaporware
Louisiana Gov. Bobby Jindal gave the opposition party's response. It was, in a word, weak. Gov. Jindal offered little guidance and less vision, essentially saying to Americans: Folks, we'll lower your taxes and you're on your own. Evidently, the Republican plan is no plan.
Read the full text of President Obama's speech at the Washington Post.
Dow Dives – Was Confidence Subverted by Cable News?
Last Thursday, Ron Morris, Director of Entrepreneurial Studies at Duquesne University, and founder of Pittsburgh Business Radio, interviewed professors Conway Lackman and Bill Carlson about the state of the mortgage industry, the economy, and the economic stimulus plan. It was an informative and entertaining conversation that ended too soon. For me, the most revealing comment was made off-air as the professors were leaving. How do I know that? Ron Morris believed it was interesting enough to delay his next guests while he told the story. Here are the highlights:
I've been teaching down there now for about eight years … I run into Bill or Conway and I have never not had a fascinating conversation with them. … I just want to tell you something they said on the way out the door. … I said Conway, why is it – cause the market just closed at the lowest point since October of 2002, and I said, Conway, why is that? And he said, Ron, somebody's not explaining this thing right, 'cause, he said, it's not a bad economic stimulus plan. He said it's pretty good. It must be in the communication because I think it's good. […]
Morris' faculty biography describes him as a "knowledge philanthropist." He speaks with a candor that engenders trust. Ron closed the story with a solid endorsement of the functional knowledge of his two colleagues:
Conway Lackman and Bill Carlson, over the 8 years I've been at Duquesne, have made me more money than any other individuals I've met in my entire life. … They tell me things, and I listen and then I do things based on one of the things they tell me.
If you're willing to accept that the economic stimulus plan is "pretty good," but it's not being explained right – well, how can that be? President Obama has clearly demonstrated his ability to communicate. Think Progress might have the answer. They calculated that in a sample period during the stimulus debate, Republicans appeared on cable news shows nearly twice as often as Democrats. Only five percent of the guests were economists.
The full 43 minute interview with Lackman and Carlson is available as an MP3. You can hear the quoted remarks in the first three minutes of the next hour's program.
As the House and Senate agreed to a $789 billion stimulus package on Wednesday, the CEOs of 8 major banks were testifying before the House Financial Services Committee. Addressing the bankers, and it seems, everyone else in the room, Chairman Barney Frank said, "There's a lot of anger in the country, much of it justified."
Committee members questioned, castigated and berated the bank executives. Rep. Michael Capuano (D-MA) made it clear that "America doesn't trust you anymore."
Nor do Americans trust Congress to right the economy. A Rasmussen poll released Wednesday says that 67 percent of voters "have more confidence in their own judgment than they do in the average member of Congress." Fifty-eight percent agreed that "no matter how bad things are, Congress can always find a way to make them worse."
One hundred percent of them better hope that they are wrong.
On Saturday, James O'Toole reported in the Pittsburgh Post-Gazette that Democrats have more than doubled their registration edge over Republicans in Pennsylvania over the last 2 years. The Democratic Party lead jumped from 550,00 registered voters in 2006 to 1.2 million in November of 2008.
Mr. O'Toole cites a survey by Muhlenberg College's Institute of Public Opinion for an explanation of the massive move. A long-term “reaction against Republican policies" was a major factor. Quoting from the Post-Gazette:
They also were more likely to characterize their decision to leave the GOP as the result of changes in the party's positions, rather than changes in their own political views -- 37 percent to 21 percent. By a wide margin, 67 percent, the respondents cited former President Bush as a "very important" catalyst for their decision to leave the party. Fifty-four percent cited the Iraq war. When asked to agree or disagree with a series of statements about the GOP, 53 percent said the party had "become too extreme in its positions."
With Gov. Sarah Palin and Rush Limbaugh as the titular leaders of the Republican faithful, I expect many of those defectors will not return to the GOP in the foreseeable future.
The complete Muhlenberg College survey is available for download as a PDF or DOC.
Madoff Scheme Could Have Been Stopped Much Earlier
Viewers of the peerless television series, The Wire, saw a complex, multi-layered, dramatic chronicle of the failures of American institutions. David Simon and his fellow writers dissected drug law enforcement, the blue-collar middle class, political reform, public education and the news business. I don't know if Harry Markopolos is a fan of The Wire, but his dissection, actually, his evisceration of the Securities and Exchange Commission (SEC) at a U.S. House Subcommittee hearing Wednesday was as riveting as reality television gets. Thanks to Harry, you can add the SEC to the growing list of failed government institutions.
Markopolos, a former investment manager turned independent financial fraud investigator and analyst, spent nearly nine years trying to convince the SEC that Bernard Madoff was using a Ponzi scheme to steal money from investors. Madoff has allegedly admitted to what Rep. Paul Kanjorski (D-PA), Chairman of the Financial Services Subcommittee on Capital Markets, called "the largest known instance of securities fraud."
According to Mr. Markopolos, the SEC lacked the auditing skills to comprehend the evidence he repeatedly presented to them. It took Markopolos less than five minutes with Madoff's numbers to become suspicious, and a few hours for him to confirm that Bernard Madoff was a bad boy. That was nearly a decade ago, long before investor's losses reached $50 billion. Here is a portion of his opening statement:
A few of the points Harry Markopolos made in his testimony:
Money from illegal operations makes up 5% of worldwide currency. Based on conversations with overseas investors, 20% of the investments in Madoff's funds were organized crime, Russian mob, and Latin American drug money.
Individual investors had no way to understand what Madoff was doing with their money, but the feeder funds that channeled capital to him were too greedy to acknowledge obvious red flags.
Eliminate the SEC – zero them out of the budget and instead, provide lucrative incentives for whistle blowers who report financial misconduct.
The real money quote came near the end. Responding to a query from Rep. Kanjorski, Mr. Markopolos said: "I'm suggesting that, if you flew the entire SEC staff to Boston, sat them in Fenway Park for an afternoon, that they would not be able to find first base."
SEC Panel Strikes Out
The next panel to testify was made up of department heads from the SEC and FINRA. If anyone expected them to vigorously defend themselves, or shed some light on what went wrong, they were mistaken. The department heads were evasive, hiding behind ongoing investigations, and filling committee member's 5 minute question period with redundant ramblings. Committee Vice Chair Rep. Gary Ackerman (D-NY), whose district was hit hard by Madoff's scheme, expressed outrage:
It's encouraging to see the House of Representatives attempting to take its role seriously after sleeping through the warning signs of the financial collapse. Time will tell if they are up to the task. The SEC, regardless of its level of competence, analyzes, investigates and enforces regulations and laws enacted by Congress.
Harry Markopolos is scheduled to meet with SEC Inspector General David Kotz on Thursday. Markopolos is expected to turn over evidence of other fraudulent dealings.
Video of the Wednesday hearing is available on C-Span's site.
