We’re with the government and we’re here to help you
Common wisdom holds that if you ever hear those words spoken…run. All of a sudden there are people on my TV trying to convince me that the government is the solution to all of the economy’s problems. The idea that the government can wave a magic spending wand and create growth and wealth across this great land is naïve at best. At worst it rewards poor decisions, a notion that runs so counter to our culture that one struggles to find an example of it in the real world. Do we pay the lawn guy if he mows half the yard? No. Then why reward the borrower that can only pay for half of his house?
Here is a quick test for anyone that thinks the government is the solution to problems in the free market: Name three government provided services you are so happy with that you referred a friend to them. I hear crickets chirping right now….
I don’t think any of you said “Man, going to the DMV was AWESOME. I wish my driver’s license expired every year so I could go there more often.” Or perhaps you didn’t say “You need to go check out my Post Office, it’s the nicest and fastest one in the city. They are so reliable that I don’t even consider using FedEx…in fact I don’t even know how FedEx can stay in business with post offices like this. The government just does it faster, cheaper, and better…I wish the government was more involved in everything I do.”
Government efficiency – A testimonial
An example of government inefficiency that hits closer to home is the story of my fence. Yep…you wouldn’t normally expect to hear a story about a fence because the process should just involve digging holes, setting posts, and attaching boards. But when the government gets involved it turns a simple process into a story.
When I purchased my first home years ago I planned to build a fence around my backyard. Come to find out you don’t just go buy the lumber and build it…you have to file a plan with the code division and pull a permit. No problem. I file a drawing of my planned fence along with a description…you’d think it would be an either/or type of deal but they wanted both a drawing AND a description so I gave them both. I pay my $5 and I leave with my permit in hand.
The weekend comes and I get after it. As I set the first post I realize that I’m going to want a double gate on this fence so I can get my truck in the backyard. No problem...I just change my design a bit and I move the posts out about 10 feet…I’ll have a nice double gate. Over the next two days I dig all of the post holes two feet deep and I set all of the 8 foot posts in concrete and level them. When I’m finished with this hard labor in the heat and humidity that defines August in Mississippi, I grab a cold beer, sit back, and admire my work. As the sun sets and the weekend draws to a close I realize that I am right in the middle of living the American dream. This is great.
Monday afternoon I get home from work and there is a message on my answering machine telling me that my fence isn’t in “code” and that I need to remove all of the fence posts on one side of my house because they don’t match the plans I had on file. I figured this is a friend of mine playing a practical joke so I rewind it and I listen to it again. I don’t recognize the voice so I figure it might really BE the code department. I call them and sure enough the government official I get on the phone tells me that if I don’t remove the posts…he will. He tells me he’ll take a front end loader and break them all off at the ground if I don’t comply. Hmmm…this guy is pretty upset over a fence, and he’s pushy…and I’m not a fan of pushy.
I’ll spare you the rest of the details but the story ends up with me in court for a zoning committee hearing after filling out a 15 page request for variance, rounding up three witnesses for my fence (yeah I know…witnesses for a fence…you can’t make this stuff up), and getting the one friend I have in the county government to call his friends in the city government to figure out how this gets resolved.
The moral of my story is that everything was going great until the government got involved. A new homeowner was putting in some sweat-equity to improve his home. This was a project that should have taken one-week to accomplish. After the government intervened it involved no LESS than 10 people, 3 months, and who knows how many hours in paperwork and phone calls…for a backyard FENCE. Ultimately I got my fence put up exactly the way I wanted it, the government just prolonged, confused, befuddled, and frustrated the effort at every turn. With this example fresh on my mind I have to ask…are these really the people we want running the markets?
1st Quarter 2009
The 1st quarter of 2009 is drawing to a close. The news that has defined this quarter has been the incoming administration and their economic plans. The election results have been known since November so the market has had four months to study and digest the economic plans of the new administration. The markets clearly are not comfortable with the plans that they are seeing. At this point I could spend a lot of time talking about the history of politics and economic policy but I really don’t want to write it and you really don’t want to read it so we’ll take a shortcut. If it’s true that a picture is worth a thousand words then please accept the three snapshots below as a 3,000 word essay on the effects of the current economic plans and their effect on the markets. The collective wisdom of the markets is captured in the activity of the stock and bond markets. Below are graphs of the Dow, NASDAQ, and weekly volatility of the 10 year Treasury as measured since the election in November. A quick look at the data below tells me that I’m not alone in thinking that the government isn’t the answer to all of our problems.
What will 2009 bring?
It is difficult to get a good feel for how this year will shape up. Pressure on earnings is seemingly everywhere. Deposits are still expensive despite the Fed taking the short end to zero percent. We’re just beginning to see a big deterioration in the credit card market. Card companies are raising rates and lowering limits in an attempt to limit the damage but those measures can’t stop the defaults. There is a huge amount of concern over Commercial Real Estate being the next problem area for loans, the FDIC is bringing not only higher deposit insurance rates but “special assessments” as well. States and cities are petitioning the federal government to help them as they just now begin to acknowledge their own financial problems. Throw all of these developments against a backdrop where the talking heads and the politicians have been trying their best to push the popularity rating of bankers to just below that of Genghis Kahn and you’ve got yourself a difficult operating environment.
I’m not aware of anyone that is calling the bottom on this economy yet. Initial Jobless Claims are due out tomorrow morning. This release has been showing job losses of well over 600 thousand jobs per week for the last 4 weeks running. Since January there have been 4.7 million people that applied for jobless benefits for the first time. It’s difficult to imagine we’ve hit the bottom until we see a material improvement in this number.
We’re having a lot more conversations with bankers around the country than I can summarize in these write ups. If you have need a sounding board for the challenges you’re facing feel free to give us a call. We might be able to provide a new perspective on some of this stuff.
If there is anything I can be doing for you just let me know.
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