• Financial Crisis - Politics

    Main Street Versus Wall Street

    1/31/2011 - By 

    I watched Obama’s speech last week and frankly I was disappointed. It was a nice speech, but in my view, Obama missed the key issue that will fix our economy from a death spiral. That issue is Wall Street.

    We all agree that Wall Street and the Fed are the underlying reason behind the greatest economic depression since the Great Depression. BTW. Why do people call our current crisis the worst since the Great Depression? They have been calling it that for years at this point. The Great Depression is over and it was bad. Our current crisis is not over, and so therefore, we cannot compare one against the other.

    Back to Wall Street. So these guys are making record profits. They are making money hand over fist during this economic crisis. While unemployment remains high and the rest of America suffers, these guys are raking it in. Why is that? I think I know.

    Last year, I called my banker and I considered getting a loan for my business. We did not need the money but I was more curious. He told me that my interest rate would be 5%. I told him that sounded high. In fact, that was the same interest rate I would have received before the economic crisis. He agreed but that was the rate. So here is the issue. Before the crisis, banks could buy from the Fed at let’s say 3%, and then they would sell that same money to me at 5%. They net 2%. Now, they can buy from the Fed at 0%, but they are still selling at 5%. They now net 5%. Their profits have more than doubled because their costs have gone down. They are making so much money that they don’t need to make any more loans, they can just milk it.

    Of course, this was not the intention. When the Fed reduced the rate, they wanted to give more people access to capital. Let’s just say the entire zero percent interest thing has been a miserable failure and the only ones that have benefited have been the bankers.

    But this is not the reason I am blogging today. I view the fundamental issue that we must defeat in America is the amount of control that bankers have over our lives and the impact it has on our well being. I plan to demonstrate that what is good for Wall Street is quite often in direct conflict for what is good for Main Street.

    Before I begin, I have a lot of friends in the financial sector and they are all doing fabulously well. This is not a personal attack. These are my observations about the system and not the people in it.

    Illegal Immigration

    There is no dispute that Wall Street was behind the huge housing crisis. We all know the history. They created the bubble and when it popped they were screwed and so the taxpayers bailed them out to tune of over a trillion dollars. But there is another story. During this bubble, the entire immigration issue heated up.

    Here in Myrtle Beach it was particularly pronounced. Suddenly, the dominant language in Walmart and Circuit City was Spanish rather than English. I am not complaining. I speak Spanish. I am just using this as a barometer of change. Also now a days, I don’t hear that much Spanish being spoken.

    Anyways, the point is that all of these companies building the houses like Lennar, etc are large publicly traded companies. They all use illegal immigrants and we know it. So does Wall Street. What happens when a company such as Lennar begins to use illegal immigrants? First, their costs go down. Also immigrant workers have less rights and there is no chance they will ever form a union. Good docile workers just like Wall Street likes them. The labor costs go down, but also payroll taxes go down. Insurance costs go down. Medical costs and so on. Once their costs go down, they have a choice. They can pass the savings on to customers or they can increase profits. Guess which one Wall Street prefers? PROFITS.

    So Lennar announces improved profits, and Wall Street rewards the executives at Lennar by running up their stock price. Since all executives have stock or stock options, these guys are now filthy rich. Not because they are smart, but because they were willing to break the law.

    But the problem gets worse. Other executives at other home builders see that their colleagues at Lennar are getting filthy rich and they jump on the bandwagon. Before you know it, all home builders think that the only way to build a house is using illegal immigrants. And that’s where things stand today.

    Pensions

    As I get older, a lot of my friends are getting older as well. I actually have a very close friend that is 55 years old. He works for a hospital in California. We were having beers and he tells me that he turns 60, he is going to get 80% of his salary and full medical benefits for his pension. I was really really happy for him, but then it made me sad. I quickly began to realize that very few of my friends have pensions. Some are very financially healthy and have no worries, but to be honest, I would say that 1/2 of my friends are essentially fucked. They will never have enough money to retire and they will work until they die. I am not a sociologist but I believe that their life expectancy is not good.

    Even when I talk to my friends that have pensions, they are quick to point out how lucky they are. Without exception, these pensions are being discontinued. My friends and relatives hit a certain pension window, but it is safe to say that my children will never have a pension. They either save a lot of money, or they will work until they die.

    Wall Street does not like pensions. I really don’t think they can relate. They make more in 6 months than most people make their entire lives. Of course no one on Wall Street needs a pension. They make so much money that their children’s children’s children will not have to work if they don’t want to. Pensions are bad for profits and bad for stock prices.

    Outsourcing

    When I worked at Gateway from 1991-1999, one of our primary functions were call centers. We handled everything on the telephone. Sales, customer service, technical support, returned parts, customer accounting and so on. Furthermore, every single one of these tens of thousands of jobs were legal Americans. In less than ten years, all of those jobs are gone. They are all in India and the Phillipines best I can tell.

    If you talk to just about anyone, there is not one of us consumers that like talking to non Americans. It is not like there is some advantage to talking to an Indian person to get a refund on my credit card. It is the opposite. Sometimes their accents are not intelligible and quite often they are ill trained to boot.

    If you go and look at what companies are outsourcing you will find the vast majority are publicly traded companies. By and large small businesses like my company, we still answer our phones.

    Note: By the time that Gateway began outsourcing, I had already left, but I definitely voiced my concerns. My reasoning had nothing to do with cost. You want your points of contact to the customer linked to your operations. Customer service also gives valuable feedback to operations on what they are doing wrong. Outsourcing breaks that link. In fact the opposite occurs. The Indian call center wants more calls, not less. So the last thing they want is to eliminate the problem at the root. Outsourcing promotes inefficiency in the long run.

    Is there any doubt in anyone’s mind that when a publicly traded company began outsourcing jobs that Wall Street rewarded them with an increased stock price?

    Monopolies

    Here is one of the scariest trends that I see in America. Wall Street loves monopolies. By monopoly, I mean a company that has enough market share so that if they want to increase their profits, all they need to do is raise their prices. This is definitely a Bush thing. Not that I agree with this, but Clinton went after Microsoft as a monopoly. Way back long before any of were born, it was a Republican named Teddy Roosevelt that decided that corporations were destroying the American way of life. He ran on a platform of busting the trusts, and he actually won and that’s what he did.

    It is not clear whether the monopolies and trusts are more powerful now than then, but one thing is clear. Powerful companies today have a lot more leverage in federal government.

    We can see it all around us. Just look at the airlines. They are all in the process of consolidating, eliminating routes and jobs, and increasing prices. I was shocked when I paid over $7000 for my family of four to return from Rio de Janeiro to the United States. That’s a lot of dough. I used to pay less than $500 a person less than 5 years ago. Then think about your TV and internet provider. What true options do you really have? There is no competition and over time, our internet and television bills have slowly gone up.

    These price increases just pad the corporate bottom lines and then Wall Street knocks up the stock price. The increased stock prices allow upper management to retire early and filthy rich.

    Let’s make a note. People want to blame this entire situation on greed. I disagree. I am not a greedy guy, but if I were in their shoes, I would do the exact same thing. It is the rationale thing to do. It is not the players. It is the system itself that is flawed.

    Made In America

    We see it all around us. Made in China. Nothing is made in America anymore. I think there should be a law where the flag of the country of the manufacturer should be prominently displayed on the front of the box. You shouldn’t have to pick up the box and figure out where they hid the disclosure.

    If you look at all the companies that are manufacturing in China, by and large they are all publicly traded companies. They have Wall Street’s seal of approval. There is one thing that is clear. Wall Street does not care about American jobs.

    Conclusion

    It was over 100 years ago that Teddy Roosevelt was president, but we seem to be at the same point again. I disagree with the TEA party on one key fact. The only solution to this problem is for our government to stand up to Big Business and Wall Street. The sad reality is that no one in our government has the balls to stand up and the problem keeps getting worse and worse. I think myself as well as many Americans hoped that Obama would be different. It is obvious to see that Obama is more like George W Bush than Teddy Roosevelt.

    2 Comments on “Main Street Versus Wall Street”

    2. I agree with 99% of everything you say Rob, save one part. You stated that no one in government has the balls to stand up to wall Street. I think there are those who do have the balls. But here is the problem, while people make noise about it, people no longer have the balls to stand up to the powers that be, people no longer have the balls to organize and stand up to corporations, people no longer have the balls to even stand up to their boss. People don’t have the balls to stand up as they watched their wages become stagnant, and decline, they didn’t have the balls to stand up when their pensions and health care were taken away. People didn’t have the balls to stand up when factories were shut down and moved to China, India, Philippines, Pakistan…………. People have become spineless little sheep, to afraid to open their mouths when they need to.

      This is of course a goal achieved by Wall Street, one that they have been working on for a long time. They take little bites out of the workers apple, then a few more little bites out of it, then bigger ones, people didn’t stand up, that was the big wake up call on Wall Street, pull the core out of all the apples, do it, and do it quickly. When you make the situation bad enough, you have the little people where you want them, afraid, scared, so worried about where they will get the money for the next rent check, mortgage payment, utility payment, then Wall Street has them by the balls, and when the people get afraid and scared, and cower down, then the people in government have no reason do anything about the problems. Why not? Well because the people don’t have the balls, they are sheep for the slaughter.

      I recently worked on a 2 year project at Fort Devens Massachusetts building a Solar Panel Factory. Our state dumped 54 million dollars into this project because it created a hell of a lot of good construction jobs to build it, and created 800 full time jobs once it was up and running.
      The company just recently shuttled the plant, closed the doors, all 800 people lost their jobs, and they are going guess where? Do I really need to say, of course not but I will, they picked up and went to China. The Chinese government is paying them so much to move there that they can pay off the debt to Mass, move, retrain people and make a profit via slave like labor.

      Now the people working at this plant were not “high” payed people, they on average made $14.00 an hour. But I guess $14.00 dollars a day for people who work 12 hour shifts is much more appealing, and the Chinese government of course subsidizes everything.

      Didn’t hear much noise about that one I bet, well because the people don’t have any balls, they didn’t make noise, they didn’t stand up, they laid down, whimpered and ran to China Mart ( Wal Mart) to buy some cheap plastic crap made overseas.

      The problems we have are as much the fault of the people at the bottom as it is the people at the top.The people allow it to happen, they allow it because that pride, fight, and set of balls that our parents and grand parents had, and used to fight for the way of life we “had” have shriveled up.

      So the flag waving continues, and that’s as far as it goes. Problem is people waving the flag the highest are the ones who would sell it all to make a buck at their own peril.

      Reply

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  • Financial Crisis - Politics

    Dear Barack,

    11/7/2010 - By 

    There is certainly no easy way to put it. You got your ass kicked in the mid term elections. Well, I got some good news now. As I already told you in 2008, your presidency is going to be about the economy. You did not choose these circumstances, but they are yours to manage. You did not make the economy your #1 priority. It is not clear that it was even your second priority. From the looks of your first two years, I would say that your first two priorities were health care and the war in Afghanistan. Whether I am right or wrong, jobs were certainly not your first priority.

    On top of that, you trusted the wrong people. There is no dispute by anyone that Wall Street is the reason behind this economic crisis. Yet you continue to listen to them almost exclusively and unemployment still hangs at 10% even with interest rates stuck at 0% for the foreseeable future. You guys sit around now that interest rates are at a floor and figure out how to “stimulate” the economy. They call it quantitative easing and I call it bullshit. There is a saying that if all you have is a hammer, then every problem looks like a nail. If all you trust is Wall Street, then all you are going to get is the Fed printing more money and deficit spending. On the surface, I agree that borrowing money from the Chinese creates American jobs, but at what expense? Let’s just say that you have made a mess of it. It’s not too late, but you have to first realize that it is a mess and you’ve made it worse in your 2 years. You didn’t create it all, not even close, but it is your role to fix it, not make it worse.

    I got some really good news for you, Barack. The Republicans are more lost than you are. Remember the golden lesson. It is about JOBS. The reason that the Republicans won was JOBS. If unemployment was at 6% as opposed to 10%, Democrats would not have lost the house. Yet, now that the Republicans have the house, the Republicans are talking about repudiating socialism, repealing the health care bill and tax cuts and so on. None of these measures, including the tax cuts, will create jobs.

    So it looks like it is a race between you, Barack Obama, and the Republicans to figure out that what the American people want is low unemployment. They don’t want lip service, they don’t want this issue falling back seat to some stupid war. They don’t want fear mongering. They want a fucking job! Is that so hard to understand? I am hoping not. In fact, I think that you, Barack Obama, will figure out before the Republicans. They are still drunk from their election day victory. They haven’t even had the hangover yet.

    So the rest of the article will focus on what Barack should do to get jobs rolling in a short 24 months. That’s not a lot of time.

    Legal Immigration

    Everyone is focused on illegal immigration, but focus on legal immigration. Make it easier for people to visit our country legally. You don’t have to pass a bill, just do it. Did you know that the most difficult country in the world to visit is the United States of America? My mother in law would love to visit the United States. When my family and I visit, it would be great to have her along. She is a woman of modest means, but she has no desire to live in the United States legally or illegally. She has now tried 5 times without success. This is not an isolated incident.

    There are probably millions of deserving people that want to visit the US and cannot. If you let those people into the country, the stimulus would be immediate. Everything associated with tourism would take off immediately. The airline industry, the hotel industry, the restaurant industry and so on.

    The dollar is now incredibly weak. I think that it is the weakest that I have seen in my life time and I am over 50 years old. This makes tourism attractive and lots of foreigners will come to the US because it is so cheap. If we let them.

    Trade Deficit

    The beautiful thing about this plan is that it begins to address a horrible trend in the United States – the trade deficit. It is probably one of the largest problems with our economy. It is either government deficit spending (thanks Wall Street) or the trade deficit. IMO, it’s the trade deficit. Why didn’t all the stimulus work? After all, it worked for Bush and Clinton before him. What went wrong?

    Go back 15 years, and the year is 1995. Let’s say that the stimulus is to build a hospital. And every desk at the hospital requires a computer. In 1995, as an ex SVP at Gateway Computers, I can tell you that every computer was built in the United States by American blue collar workers. Then, if you had any problem with that computer, the billing, a replacement part, etc, you talked to an American white collar worker. Fast forward 15 years, and that same hospital and those same computers. Now every one of those computers are built in China. Worse yet, if you have a problem, you are talking to someone in India or the Phillipines.

    This one issue is hurting the American economy more than you can imagine. I am not suggesting going back in time, but you should work on the trade deficit.

    Marijuana

    So thinking through the trade deficit, here’s something Americans import heavily – Marijuana. Not only are we importing this crop in large quantities, no one along the food chain pays any taxes. We need to legalize marijuana, but that is not enough. If we just legalize it, then we will get a flood of imports. At the same time that we legalize it, we need to ban marijuana imports. Foreign marijuana will no longer be allowed in the US. All those Mexican drug lord dirtballs making money hand over fist will need to find a real job. Do not back down to these A Holes.

    It should not stop there either. Once we begin consuming what we make, we should make more. Lots more and start exporting. If the United States can become the #1 manufacturer of tobacco in the world, how different can it be for marijuana?

    It gets one step better because another side product of marijuana is a hemp industry. If you are making scores of money from the marijuana, then the hemp is amost free, a by product, if you will. This will lower the cost of lots of products from rope, string etc. Then we should start exporting this as well.

    Automate the Government

    As part of the tech sector, I have to say that our federal government is an embarrassment. We have the most brilliant minds in the world of software, databases, and automation, but we use none of that brain power to make a better government. The same as many of our software companies, the United States government should be the envy of the world in using technology to reduce cost and increase transparency. Computers are great at following rules if you have the right programmers doing it. The government should be attracting some of the best new young software programmers and will have to pay some of the best salaries. It will create new demand in a market that is one of our best anyhow. Barack, if you listen to one thing. Do not outsource this project to India. We want to develop these skills in house.

    Bust the Trusts

    In the United States, it is clear to me that we are on the road to monopolism. We have created an environment that no longer fosters competition. Instead, the formula to riches is to go public. Then with Wall Street’s money, you buy out all of your competition. Your competition is happy becaue they make a killing and retire. Once they become a true monopoly, then they start increasing prices. Each time, they increase prices, their stock goes up. Instead of retiring as millionaires, they have become billionaires.

    It is happening right under our noses, and it is obvious for us all to see. Back in the late 1800’s, this issue of monopolization was much more severe. It took a unique and strong president to win a US election based on “trust busting”. His name was Teddy Roosevelt. Barack, do you have these types of leadership skills. Can you lead a fight against special interests that only a one of a kind president can lead? I don’t know the answer, but I hope so. If it makes you feel better, I don’t think that Sarah Palin is up to the task either. She seems to be attracted to money like a bee to honey.

    If you are successful, it will create a new era of competitiveness. New horizons for small businesses will suddenly open as the monopolies release their stranglehold on commerce. Consumers will win as company’s are actually competing for our business. Products will get better faster, and markets will evolve more agilely and most importantly prices will come down.

    End the War in Afganistan

    Maybe I should say change the mission. As an American, I want Osama Bin Laden’s head on a stick. I want you to murder him in a very public way, and then we should create a national holiday for us to remember 9/11 and the day we got our revenge. Heck, I want to forget 9/11, and the only way for me is for the US to murder this MF.

    Back to economics. The war in Afghanistan is a drain on the economy. Remember that hospital I talked about earlier? Now you are stimulating everyone’s economy but our own. The only possible downside is that the troops in Afghanistan will suddenly be unemployed. But you can reemploy them. If they are building bridges in Afghanistan, then they can build bridges in Alaska. Hell even Sarah Palin’s bridge to nowhere creates more jobs than an Afghani bridge.

    Stay Focused

    There are many more ideas, but the underlying point is the same. You need ideas that focus on jobs. J-O-B-S. Nothing else. Nothing more and nothing less. It’s called focus.

    Thanks for your time, Barack.

    Your Home Boy in Rio de Janeiro,

    Rob

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  • Financial Crisis

    The Problem With Wall Street

    10/10/2010 - By 

    Since the financial crisis began in earnest in September 2008, I have read 10 books on the subject. Additionally, I got my MBA in finance from the University of Texas. After a lot of thought and a lot of pondering, I am going to put together my analysis of the center of our nation’s economic woes, Wall Street.

    Confidence

    The financial industry is sort of a con game. Although Bernie Madoff is the poster child for malfeasance, the entire financial industry’s business model is not all that different than Madoff’s Ponzi scheme. The financial industry is 100% a confidence game. Back in the early days, in fact, banks used to routinely put the word “trust” in their titles because that’s what they were selling. Still today, banks place themselves in fancy buildings with flashy signs, and big sturdy vaults all to give the illusion of stability. This trust is the essence of the banking industry, and without it, it could not exist.

    What are we trusting? We are trusting the fact that if we give the bank our money, that when we want it, they will give it to us. Pure and simple. Now, once they have our money, they immediately go and burn that money. In today’s world, they don’t want our money to be idle, so it is spent in some way. It may go out as a small business loan, or your banker might build himself the nicest house in the neighborhood, but either way, the money is spent. So in essence, your money is gone. Their only hope is that when you actually want your money back, that some other guy is depositing money at the same time. Then and only then will you get your money back.

    So here’s problem number one. I have lost all confidence in this system. As I have already documented, I have closed all my brokerage accounts, and I have been moving well over half of my savings to Brazil. But the issue is what happens if more people than little ole me start to feel the same way? This is the nightmare scenario for the banks. They are selling confidence and if we are not buying then the game is over. It is called a run on a bank. Once confidence is lost, it happens in a heartbeat. No one can say when it will happen, but when it does, it will happen in a blink of an eye. Because it happens so fast, very few people are unscathed.

    The Fed

    The very reason the Fed exists is to stop runs on banks. It is to give the banks money when too many people want their money back. The Fed was created in 1913 and that was the purpose to instill even more confidence in the banking system. So let’s make it clear, that’s what the Fed does – bail out banks. When banks screw up, and hence lose customer confidence, then the Fed comes in and saves the day. Banks are impervious to screw ups because of the Fed. If that were all the Fed did, things would be fine, but unfortunately, in recent years, the Fed believes its role is much broader.

    It all goes back to a guy named Alan Greenspan who served as Chairman of the Fed under Ronald Reagan, George Herbert Bush, Bill Clinton, and George Walker Bush. Greenspan believed that he could and should control the entire economy. He believed that if he printed more money than the economy needed, that economy would grow to accomodate the cash infusion. So that’s what he did.

    I will leave it for economic historians to determine the damage this idiot policy has ravaged on the world and the American economy. But there is one group alone that has clearly benefited – Wall Street. The more money the Fed printed, the higher stock market went. Then as we all know, Greenspan put the money machine in high gear, and housing prices went through the roof in the last decade. Wall Street profits went through the roof under Greenspan’s rule. He must be the love of their lives.

    Worse yet, Wall Street has crept into all aspects of government oversight to the point where there really is no oversight. The Fed has become an extension of Wall Street. It is the proverbial fox watching the hen house, and they know it and they love it.

    Oligarchy

    One of the books that I read was called 13 Bankers. It states and proves clearly that our banking system is an oligarchy. The definition of oligarchy is when financial power becomes political power. It is painfully clear that has happened with the powerful banking lobby and our feckless Congress. The reality is that Wall Street has the ability to redirect so much of our money to their own pockets, that they can buy Congress 10 times over.

    There is no other way to say it. Our system is corrupt. Our banking system is not to serve the American people, nor the American economy, it is to serve itself. It is a living and breathing entity and it will spare nothing to maintain its existence.

    Here’s the saddest part. I was reading a history book with my nephew, Ryan, last July. We were reading about how the American economy in the late 1800’s were over taken by monopolies the largest of which was the banking monopoly ran by JP Morgan. Then Teddy Roosevelt (a Republican no less!) ran a campaign stating that he would BUST THE TRUSTS. He got elected and so he did. Can you imagine a Republican running on such a campaign? More over, if a Democrat ran they would never win. I believe that Wall Street’s tentacles reach into the election process much greater than when Teddy Roosevelt and JP Morgan did battle. Of course, this should make all of us sad, because there seems to be no solution in sight. Other than hitting bottom once we all lose confidence in the entire system.

    Big Business Bias

    I have several close friends that work on Wall Street, and one of them remarked that Obama is anti business. It should not come as a surpise. Obama is starting to figure out that Wall Street is the root of the problem, and that scares them. But let’s be clear. Wall Street is NOT about business. At best, Wall Street is a proxy for the largest businesses. The biggest of big. It is stunning for me to see the dichotomy. The Dow is up, large company profits are up. But…. I was in Myrtle Beach and had a party. Many of the people at the party were owners of small businesses. Not one of them were unemployed, but all of them were down significantly in revenues and income. That’s what Wall Street doesn’t get. Employment is bad, but it is only part of the picture. Small business is suffering a lot right now. Many of them are near broke but they are not unemployed.

    As the owner of a small business, it is really frustrating. We all want to be successful, but if you want to be successful, and by successful I mean rich, then there is only legal way – Wall Street. I know a lot of millionaires and a handful of billionaires, and without exception they all have reached this financial status through Wall Street. Heck, I would not have gotten to where I am if Gateway were not a publicly traded company. This is not the American dream. The market should reward good companies, not Wall Street. But the reality is that the deck is getting more and more stacked against small companies. This is very anti American.

    America is starting to feel more like Europe in this way, which makes me sad. Small business and the dream of making the business big is what makes America great. That dream does not really exist much in Europe, and it is slowly dying in the US too.

    Monopolies

    So that’s what Wall Street loves, monopolies. In the last 10 years, all we see are more and more mergers. The airline industries are merging. The ISP’s are merging. When two big companies merge, Wall Street wins. In fact, Wall Street coordinates and hatches the entire deal. Wall Street wants more monopolies. The reason is to increase profits. The definition of a monopoly is that they have price control over a market. You see it everywhere. Monopolies are increasing prices to improve profits. Then of course, when profits go up, Wall Street rewards them by forcing their stock price up.

    The losers are the consumers. We are paying more because there is not competition in the market. This is exactly what Teddy Roosevelt made illegal. As I made the point before, I cannot imagine a candidate Republican or Democrat that would take a stand like Teddy Roosevelt.

    0% Interest Rates

    Why does 0% interest rates exist today? Interest rates are generally thought to be the price of money. In economic terms, prices are determined by the intersection of supply and demand. This means for a price to be zero, there is infinite supply! That’s right, we have infinite money. The Great American Money Press can spew out an infinite supply of money. That’s American ingenuity at its worst.

    But the story gets worse. We see it all around us. I can’t borrow money at zero interest. My company can’t borrow money at that. No one can get a mortgage at that rate. In fact, the opposite is true. The banks are making it more difficult to get a loan or a mortgage. Although the banks can get money for free, they don’t want us to have it.

    So where is the money going? Back into Wall Street of course. The stock market is up, and it seems that all those crappy mortgage back security, they seem to be a hot product. It makes a certain amount of sense. If you are a person that is preparing for retirement, you can’t hit your goal with zero interest rates. So you have no choice to move your money out of savings or certificate and deposit and put it in the stock market. Go Wall Street. There is no doubt that zero percent interest is good for Wall Street.

    But wait a minute! Here’s another way to look at interest rates. Interest rates are often referred to as the time value of money. By pegging interest rates at zero, the Fed and Wall Street are telling us that the future has no value. They aren’t spending our money now, they are spending our children’s money, and their children after that.

    No matter whether you like 0% interest rates or not (I don’t), we all can agree that this absurdity is unsustainable. But then what happens? As soon as we return to normal, a lot of bad things happen. 0% interest rates will immediately impact the stock market, and stock prices will fall as money retreats to less risky investments. More over, the economy will decline. When the economy declines, then the stock market will get hit again. That’s when the panic sets in, and we have a full out crash. Do you think that anyone at Wall Street would even let a chance that would happen.

    So basically, we are stuck with 0% interest rates. That makes me want to puke.

    The Masters of Debt

    We all know it. Our federal government is addicted to spending more money than it has. Worse yet, it goes to the state and city level. I remember when I was a very novice investor in the early 90’s. My broker called me that the new thing was municipal bonds. Since cities collected taxes, they were sure to pay back. What could go wrong? I didn’t buy it then, and I don’t buy it now. We all should learn to live within our means, but Wall Street allows us to live in a little fantasy world.

    Do you think that when Obama wants to run up another trillion in debt that he gives the PM of China a call?

    “Hey, it’s me Barack. I just burned through a trillion, and another trillion to bide me over. I swear I can quit any time.”

    Of course not. Obama’s not involved at all. It’s the Fed and Wall Street that are making the deals with the Chinese government. I do worry that one day the Chinese will get tired of our shit.

    False GDP

    If you listen to the Wall Street talking heads, they claim to be the job creator over the last 10 years for the American economy. Remember all the credit default swaps? Well I guess they did create a few jobs, and they certainly paid well, but were they really productive for the economy? Essentially, Wall Street has become the bookie for the economy. Of course, their customers are other people in Wall Street. So if one Wall Street bank bets $1M with another bank that housing prices go up, that counts at $1M of GDP to our economy. But it isn’t really. We got our heads up our butt.

    Conclusion

    I am intentionally trying to paint a bad picture. Almost anyone I know will try to paint a rosier picture, but the reality is that the underpinnings for financial disaster are all in place. As I have been writing this, there seems to be a glimmer of hope for a solution. I’ll try to cover that in a different post in the future.

    One comment on “The Problem With Wall Street”

    1. Rob
      You have put in words very clearly , what I have been struggling to organize in my thoughts. Congratulations and thanks
      Kris

      Reply

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  • Brazil - Financial Crisis

    10 Reasons Why Brazil Will Become A World Super Power

    3/22/2010 - By 

    I have now lived in Brazil for close to 7 years. I have married a Brazilian woman, and I have two children, one which was born in Rio de Janeiro. So I am very embedded in Brazil, but I believe that I can state in an unbiased manner why I believe that Brazil is set to become an economic super power. When I look at the facts, it is a stark and scary difference to compare the fundamentals of the American economy with that of Brazil.

    1. No wars or enemies

    Only 25 years ago, Brazil was a military dictatorship. But since that time, Brazil has avoided military conflict. This of course is in stark contrast to the United States, where we manufacture reasons to go to war (weapons of mass destruction).

    2. Made in Brazil

    By and large, Brazil’s trade policy has been protectionist. Still today, many conveniences of American modern life are either non existent or very expensive. One area where they could improve greatly is in technology such as computers. Computers are still very expensive in Brazil and hence internet adoption and basic computing skills lag behind other developed nations. That said, the upshot of this policy is that Brazil produces almost everything it consumes. A great example are cars. Cars are affordable in Brazil, and I would say that 90% of the automobiles in Brazil are made in Brazil.

    Contrast this with the United States. If you want to buy a vase or a cutting board, they are all made in China. All of the basic commodities of life in Brazil are manufactured and consumed internally.

    3. High interest rates

    As I have stated, I am truly afraid of the American economic system that now has interest rates pegged at zero. I believe that the countries that have the highest interest rates will fare the best during the economic melt down. High interest rates also encourage savings rather spending. Furthermore, high interest rates can be lowered to provide an economic stimulus for the economy.

    I have been very fortunate and have been moving down large percentages of my savings into the equivalent of Brazilian T-bills. When I first purchased my apartment in 2003, interest rates were sitting at 20%. Since that time, it has dropped to 13% in 2008 and 9% in 2009. That said, I am much happier making 9% on my money here in Brazil than 0% in the United States.

    4. Natural resources galore

    I am astounded with the naturals resources in Brazil. Brazil is a huge land mass that is actually larger than the 48 continguous states of America. On this land is incredible wealth. Brazil is the largest exporter in the world of wood and one of the largest exporters of copper. But it does not end there. The number of fruits and vegetables in Brazil are astounding. Just going to the super market for an American is confusing because they have everything that American’s are accustomed plus so much more. I have just finished doing a bunch of Googling, but could not find anything. I would bet however if there was an index to measure the natural abundance of a country, Brazil would be the winner.

    5. No natural disasters

    In the United States, we all pay more for insurance because of natural disasters. In Myrtle Beach, it is for hurricanes, in the mid-west for tornadoes, and on the west coast, for earthquakes. Brazil has no natural disasters. There is some small amount of flooding in some areas but that is it.

    6. Lots of water

    In addition to all of the natural resources, Brazil has an abundance of water. It rains in Brazil a lot. In some parts of the United States such as California and Nevada, water will always be an infrastructure concern. In Brazil, none.

    7. Oil aplenty

    Off the coast of Rio de Janeiro, one of the largest oil finds was discovered. It will take years to drill, remove and distribute this oil, but Rio de Janeiro is beginning to feel like a boom town. All the major oil companies in the world are establishing operations here in Brazil. The Brazilian PetroBras is positioned to catapult into a top tier energy provider during the next decade.

    8. Leading producer of alcohol

    Brazil is also the world’s largest exporter of ethanol. As long as I have lived here, Brazil has always been energy independent. More importantly, all of Brazil’s cars are manufactured to burn both ethanol and gasoline. Furthermore, the country’s infrastructure is already set up so that all “gas” stations handle both alcohol and gasoline. Note: ethanol is always about 30% cheaper than gasoline.

    9. Government runs a surplus

    The United States is so upside down, it is painful to watch. The trade deficit plus the federal deficit will be enough to sink the United States. On the other hand, Brazil is running a surplus on federal spending and also on trade.

    10. Infrastructure

    I am not very traveled throughout Brazil, but I recently visited Goiânia and Anápolis, both north of Rio de Janeiro. Goiânia has a metropolitan population of around 2.2M which makes it roughly the size of Pittsburgh. I visited the city and it is full of life, shopping malls, and it is a world class city. I also visited my wife’s home town of Anápolis, which has a population of 320,000. Much smaller in size, but again a city that is well developed. Brazil has a lot of the infrastructure to grow substantially in the decade to come.

    Conclusion

    Brazil is not without its problems. Government corruption is documented in the paper almost daily. The gap between the rich and the poor is the largest of any developed country. This results in higher violence levels in Rio de Janeiro and São Paulo. However, I believe that Brazil will grow and prosper despite these inherent problems.

    23 Comments on “10 Reasons Why Brazil Will Become A World Super Power”

    1. Having spent a fair amount of time in Brazil myself Robbie, I couldn’t agree with you more. It isn’t a perfect country, but Brazilian people are born built within themselves, a resiliency forged from almost constant disappointment over the years in their government and the corruption they have seen. They are starting to figure out that this toughness has allowed them to move ahead of the rest of the world in so many ways. Brazilians know how to live life to it’s fullest in spite of adversity. They party and comingle together with a great sense of pride in their country. The Olympics are about to introduce to the world what you and I found out about many years ago. Rio is called A Cidade Maravilhosa for a reason…The Marvelous City, things will never be the same!

      Reply

    2. Hi Robbie I am a chinese student learning in The University of Manchester in Uk. Thanks very much for you article about Brazil becomming a superpower because it greatly enlightened me about my presentation! Thanks!

      Reply

    3. This is a very interesting article from a lay person about Brazil. My assumption is that you are not in an ivory tower analyzing economic and political data tu put forth your conclusion. If you are please forgive me.I do not know if the facts are accurate but it looks good on paper. One of the concerns would be whether the transition after the elections will be smooth, to my knowledge there are no indications to the contrary. Also, after Lula is gone whether the new lady in charge is going to follow his liberal in the outside but conservative in the inside economic policies. And of course there is always the assets which we are all very familiar with and has no place in this comment. Keep sharing your thougths.
      Miguel Angel

      Reply

    4. I think this article is very realistic about the country. There is a lot of opportunities and good news about Brazil, but this good scenario coexists with the “old Brazil” of corruption and poverty.
      On the other hand, the situation is improving each year, and we can expect that the country will be developed in 2 decades…

      Reply

    5. I would take issue with one point Rob makes here, because IF NOT for an extremely generous move by the U.S. gov’t in the 1970’s Brazil would be a 3rd world backwater this very day. Brazil was so far upside down in DEBT that their nations financial outlook was truly GRIM (don’t believe me look it up someplace there has to be info on it) owing hundred’s of millions of dollars in development loans to the United States that were completely forgiven, written OFF the books 100% in around ’78 or ’79.
      *
      Brazil has done some things right although Rob’s rosy description of Brazil is aimed at the ‘reasonably well to do’ here in the U.S., people who have the ready cash to travel and observe Brazil’s abundance first hand.

      *
      Then of course there is the ongoing HOT conflict in the streets of Rio de’Janeiro between the destitute and the Gov’t..
      *
      Brazil is a pretty place with lots of the good stuff, but I would point out that Brazil suffers from regular flooding NOT just an offhanded flood once in a while, plus I would add that Brazil recorded a 5.1 magnitude Earthquake a week prior to this most recent Christmas, Natural disasters?? Yeah. Oh, almost forgot LAST Spring here in the U.S., Brazil experienced a Hurricane Catarina and I admit they are rare for Brazil there is ONLY 30 years of recorded data to compare Brazil’s history of hurricanes to, so the jury is out on that portion of Brazil’s Natural disaster happenings.

      Reply

    6. Interesting read. One thing I will note is that when I first visited Brazil way back in February 1990, the first thing that struck me was that even back then, alcohol made from sugar cane was already being used in many cars in Sao Paulo. They didn’t run as well as gasoline driven cars, but I was quite impressed nonetheless. That first trip was a glimpse into a Brazil with massive hyperinflation, a closed business society where imported items were not to be found, a very different place than when I returned for another visit in 1998.
      Regards from Los Angeles, CA

      Reply

    7. Realistic? Positively not enough! at the days of franktic inflation there was a saying here that – Brazil was much bigger than its evils.
      Inflation is mostly gone but the evils persist. Most of them have roots elsewhere: evil capital return expectations from all over banks and groups abroad, evil exploring of labor and natural resources at all possible levels, evil destruction of flora & fauna aiming at nearly nothing positive, but cheer aimless destruction for immediate gain & profit; and the evils still go on with no end at sight.
      Most people worry about operational costs (custo Brasil) but seldom invest, so that this cost is curtailed.
      Traditional ways of doing certain operations still prevail, but people wish magic solutions, jumping up and burning phases (the french brûler étapes) in order to attain these immediate-return goals & continue the farse endlessly.
      This is not how it should be, and all Brazilians will pay dearly for it in the near future: just look at the nasty stance of its education; only now, many years pass’d, became object to some philosophy (mind you: philosophy !!! ) not of positive investing action.
      These guys in power here are surely unaware of the many ways the World balls run . . .
      Naïve, innocent, pure and silly, most of them.
      Or as we say: é uma brincadeirinha brasileira . . .
      (ask your Brazilian friends what does this mean)

      Reply

    8. Not everything is made in Brasil. If you go to the store you will see that many of the good are made in China.

      Cars are not so affordable due to the very (42% and up) high taxes. Yes, most of the cars are made in Brasil, but the Chinese are now selling cars in the big cities. They are cheaper, come with a 3 year vs 1 year warranty and come complete as everything made in Brasil requires you pay extra for it (heat, ac, stereo,airbags, etc.).

      The government runs a surplus because the country has the highest taxes in the world and the government keeps finding new reasons to raise them a bit more. It’s expensive to support such a large amount of corruption and socialism.

      I’ve lived in Brasil for over 6 years now and I agree, it’s not perfect. It is better than the chaos that reigns in the US now.

      Reply

    9. On paper brazil looks good.  The people are also lazy the people who work the hardest get paid nothing and are terrible with people in a professional environment. Its a very dirty place and outsiders will always look at it that way. Everyone is corrupt and it is dangerous everywhere. The only thing brazil has going for it is the amazon and they are destroying that too. Everyone here is in debit up to there eyes because a pair of shoes cost over 400 reais. Good luck. People make the difference and brazil doesn’t have them. Everyone here is busy on their facebooks or their orkuts. Even in government offices. 

      Reply

    10. America has federal deposit insurance. Is there a brasilian equivelant? I have been considering brasil for several years. The information contained in the article is exactly what I was looking for. The more detailed the better. USA is grossing me out. Both parties are extreamly corrupt, nobody tells the truth. Mass media is bias in favor of the baby murdering democrates, so all the news is warped in favor of wrong doing. This is so depressing I am looking at canada and brasil. Thanks for listening. God Bless

      Reply

    12. Sean provost:

      YOU DON’T KNOW NONE ABOUT BRAZIL. I’VE BEEN THERE THREE TIMES, AND I FIND OUT THAT THEY WILL SOON OVERTAKE US.

      Reply

    13. I do not drop a comment, however I read a ton of remarks here Rob Chengs Blog 10 Reasons Why Brazil Will Become
      A World Super Power. I do have 2 questions
      for you if you tend not to mind. Is it simply me or does it appear like a
      few of the comments appear like they are left by brain dead folks?
      😛 And, if you are writing on other places, I would like to keep up
      with you. Would you make a list of every one of all your public sites like your linkedin profile,
      Facebook page or twitter feed?

      Reply

    14. I too do believe Brazil COULD be one of the world’s top super powers. But Brazil has a LONG WAY to go yet. Just one major obstacle blocking Brazil’s path to greatness: its society. Brazil has a long history of corruption. There are a lot of good educated people who want change in Brazil, but there are also a lot of people in need of help.

      Reply

    15. Yes, Brasil will certainly become (and already is) a super nation and power. I am 52 years old, am American but born in New Zealand (therefore not a true American since cannot be president of the US) and was raised and have lived in Brasil most of my life except for 6 years in the US. In all these years I have witnessed a huge transformations in this beautiful country – from a country with 4 car manufacturers to one of 21 car manufacturers, 10th in number of vehicles to now 3rd in number of vehicles (after the US and China) – read and kept up with all BRIC information and witnessed it – a country that had 10 million phones to now the 3rd in cell phones, …. You name it and you can bet Brasil produces it here !! It is not a “Manifest Destiny” country but a peace (paz) country which makes a lot more sense to me. No bullying !! There are some social problems (inequality) like there are in many countries and violence – most have to do with drugs etc. It is now the 6th world economy (after Us, China, Japan, Germany and France which it will soon surpass) and will become 4th one day soon according to the IMF, CIA and World Bank. “A rich country is a country with no poverty.” – The US is a rich country with 50 million poor people out of 300 million people !!!

      Reply

    16. Hello Rob! I think it´s a very interesting article and I am really happy to see that you have generated a nice discussion with supporting and denying POVs. As a Brazillian I couldn´t agree more with your enthusiastic speech about how life can be wonderful here. Brazillian people really know how to live with joy and happiness and I really think that the country has a lot of potential to become a world super power. But the crucial point so we can get there is to be very concious about political aspects. The corruption that plagues the country is seen and felt everywhere. It´s really said to see how much we are charged in taxes while any public service is offered back to us. We have no access to public medical assitance, mass transportation service, safety or education. If we want to live well, we have to work a lot and pay twice for all of this. And when we take a look at Brazillian funds and taxes arrecadation collection it’s really weird, because there is a LOT of money there! And as you sais, every single day the news report a very big scandal and there is no punnishment for the responsibles for that. This thing that is happening on the “Mensalão” case is brand new and people have to demand that! Hard puninshment for corrupt politicians. I think if people go to the streets to shout for their rights (without violence of course), than Brazil can be a serious and well developed country in some years.

      Reply

    17. The way things are going in Brazil, or have always gone in Brazil, it will NEVER be a developed country, let alone a superpower.
      In spite of all the natural resources, rare natural disasters, lots of fresh water, oil resources etc Brazil still lacks the basic ingredients that makes a developed country. No hard working work force, bad standard of education at grass-root levels as well as at higher levels, very high homicide & crime rates, and rampant corruption, will always let Brazil down. It goes in recession time & time again. Easy going lazy kind of life is deep rooted in Brazilian culture, Brazilians are not proud of anything other than football, and they only come together on a football game. Politicians themselves have no faith in the country, they want to make as much money as they can and before they’re caught they pack their bags and start living in some big house on Miami beach. Almost all the Brazilian rich want to send their kids to developed countries for studies and for them to get settled there permanently if possible.
      I have been living in Brazil for 3 years now, when I find something absurd and express my dissatisfaction, people say with a smile ‘Aqui é Brasil’, means this is Brazil so that’s how its supposed to work here. When people have this mentality then nobody can bring the change.
      All the samba & funk loving brown & black population is even more lazy, hates education, prone to drugs & crime and a burden to the country.
      English schools are opening like candy shops but still nobody speaks English, and those who does speak little bit, just suck at it.
      Honestly, its a simple human evolution, because of the life that Brazilians live, they’re getting more & more dumb with time.

      Reply
    18. Pingback: Buzios Brazilian Market Culver - Hotel Rooms

    19. World power? Bwahahahah. World class joke is all this corrupt bunch of buffoons is.

      Reply

    20. yes Brazil has some problems, but it will be for sure one of the world powers in future. we are living already in a multi polar world and this trend will continue and Brazil is already profiting from this….the power will disperse and Brazil will get it’s proportion….like whole latin america ( Mexico will also be much stronger in future plus other countries of latin america )

      Brazil has everything to be a really powerful country in the world, land mass, recources, food, big population, good people, beautiful culture, sunny weather, cultural friends. it’s already in the BRICS and the others will help out that it will become a super power. Brazil has also big potential because of big changes in humanity and social interests. humanity is changing and Brazils people will play a key role. yes economic is also important, but under fair conditions for all. often a supposed weakness is in reality a big plus and Brazil has that, like whole latin america.

      Brazil will definitly become a super power, believe me (:

      Reply

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  • Financial Crisis

    Bubble Myths

    11/29/2009 - By 


    14 months ago the American economic bubble burst bringing about the worst recession since the Great Depression. Since that time, in the age of internet enlightenment, we have all watched as the Fed has done everything in is power to re-inflate the bubble. It is a very weird time in the history of our country and I hope I can bust a few myths related to our economic bubble.

    Our economy is not improving

    They are quick to rush out any sign that the economy is improving because GDP is on the rise. The best measure of the strength of our economy is not GDP; it’s employment. No matter how you cut it, the unemployment numbers continue to grow. Plus if you add in the people that were searching for a job and have given up, the picture looks even worse.

    Although the Fed and the government would like us to believe that things are improving, it is a hard pill to swallow as long as unemployment continues to rise. If one takes into account, all of the illegal aliens and transient workers that have left since the economy imploded, the employment picture looks abysmal.

    The Stock Market is not a proxy for the economy

    The Dow has hit over 10,000 and is up to over 30% from its lows a little over a year ago. Wow! That is great growth. The problem is that in times such as these, there is little or no relation to stock market performance and that of our economy.

    Home prices are rising and that is bad

    Home prices in the United States have risen for the last three months. We now have more Americans out of work than in my entire life time, and the price of a home is rising. Somehow Wall Street and the press want us to believe that this is a good thing. They want us to think that if our home is rising, then we are worth more and we will feel richer. Sound familiar? It is that type of thinking that got us in this mess to start with.

    Our Government Is NOT Responsible

    This is the biggest myth. The reality is that the Fed has far more control over our economy than Congress and the President. Furthermore, our government has little to no control over the Fed. You don’t read much about it in the press, but there are efforts in Congress to increase transparency in the Fed and also to end the Fed’s strangehold on the American economy.

    The Fed is the organization that controls interest rates, the exchange rate of the dollar, and the nation’s money supply. Let’s not forget that the dollar is considered the world’s reserve currency so not only does the Fed control the US economy but much of the world’s economy as well.

    Our economic problems have nothing to do with politics

    I participate in numerous political discussion forums and there are a lot of people that want to blame this economic crisis on George W Bush or Barack Obama. Or perhaps, some want to blame it on the Democrats or Republicans for the exploding debt. Neither is true. The Fed is not a political entity and it does not follow a political agenda. When George W Bush cut taxes to the wealthy and funded an ill advised war, the Fed was there to accommodate. Then when Obama wanted to push through a huge pork laden stimulus bill, the Fed was there to sign the check. The Fed is no partisan.

    It is actually worse than that. No matter whether Bush is cutting taxes or Obama is increasing spending, both have the short term effect of increasing federal demand for money. The normal result is to drive UP interest rates. But in the bizarre economic world in American, interest rates have gone DOWN! Why are interest rates going down when our government is spending like drunken sailors? The Fed of course.

    In some ways, the Fed WANTS us to believe that this is a Republican/Democrat thing, because it deflects attention from them. All along (at least since 1971 when Nixon took the US off the gold standard), the Fed has been pulling the strings.

    Conclusion

    Time will prove that the direction the Fed is driving our country will be disastrous. The Fed should be growing our nation’s money supply at the rate at which our economy is growing. They are doing the opposite. They grow the money supply in order to MAKE the economy grow. Ultimately, this strategy is unsustainable and the results will be horrible for the US.

    Inherent in all of this is inflation. Due to the Fed’s mismanagement of our money supply, America will suffer greatly. Here are a few predictions. The dollar will fall greatly particularly against currencies with high interest rates As the dollar falls, the price of oil will rise dramatically increasing all American’s cost of living. Interest rates will RISE further contributing to the economic melt down.

    I have analyzed this subject at length and I cannot see any other outcome. I really wish I could see some light at the end but it’s not looking good.

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