Monday, January 31, 2011

Report of the Financial Crisis Inquiry Commission (FCIC) is Very Critical of Financial Sector

In Nov 6 of 2009 we made a post reporting what we felt was the action needed for the citizen to begin to restore the trust in our financial system. They basically needed proof that the cozy financial sector/ government relationship was over.

They wanted a strong reform action that will guarantee that the psychology and ethics that led to the current betrayal is completely disgraced and placed outside the American system forever. It is critical that those in the sector who were responsible for the meltdown are publically identified and punished. There must be significant retribution with large sums recovered for the people who innocently suffered. The public consequences to those that caused the situation must be adequate to prevent any thoughts of ever returning to similar behavior.
An important first step to this goal was the formation of a non-government investigative commission, the Financial Crisis Inquiry Commission (FCIC) .

The task, as described in the preface of the report was:

Our task was first to determine what happened and how it happened so that we could understand why it happened. Here we present our conclusions. We encourage the American people to join us in making their own assessments based on the evidence gathered in our inquiry.
In addition they were directed to identify any violations of Federal or State laws and turn them over for the appropriate legal action. Although no names are given in the report the commission head Phil Angelides said in a TV interview that they had turned several instance over for investigation of illegal actions.

In my opinion it is a through report, well written, and easy to understand. We now have an extensive document that can serve as a check on the Dodd-Frank Bill (aka Financial Reform Bill). The report. is extremely damaging to the entire financial system that allowed the failure and shows the inadequacy of the Dodd-Frank bill.

Three important points we should never forget:

This mismanagement has been very expensive to the country. Nearly 11 trillion dollars in household wealth has vanished, with retirement accounts and life savings swept away.

The additional power we have foolishly given the financial sector caused a shift from productive investments to non-productive financial activities. On the eve of the crisis in 2006, financial sector profits constituted 27% of all corporate profits in the United States; In 1980 it was 15%. Understanding this transformation has been critical to the Commission’s analysis.

Industry testimony has claimed the event was unpredictable. These reports, as well as many other analyses completely disagree.
You can obtain a full copy from the FCIC.  I recommend you download it for a full understanding of what needs to be done. I will list the leading conclusions and two interesting quotes. The report has a full discussion of each conclusion.. They are very damaging to the entire sector and call for a serious review of the companies and institutions which we have given power over our financial system

Here are the conclusions:

This financial crisis was avoidable.
The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble
Dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.

A combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.

The government was ill prepared for the crisis, and it’s inconsistent
response added to the uncertainty and panic in the financial markets.

We do place special responsibility with the public leaders charged with protecting our financial system, those entrusted to run our regulatory agencies, and the chief executives of companies whose failures drove us to crisis. These individuals sought and accepted positions of significant responsibility and obligation. Tone at the top does matter and, in this instance, we were let down
There was a systemic breakdown in accountability and ethics

Collapsing mortgage-lending standards and the mortgage securitization
pipeline lit and spread the flame of contagion and crisis

Over-the-counter derivatives contributed significantly to this crisis.

The failures of credit rating agencies were essential cogs in the wheel of financial destruction.

The current Dodd-Frank bill does not come close to providing the required fixes. The FCIC has identified the causes. Our political leaders now have ample information to be sure that the heavily lobbied Dodd-Frank bill is corrected and rigorously implemented.

The regulators are being heavily lobbied. The citizens need to see a comprehensive checklist of the causes identified in this report versus the response in the Dodd-Frank bill.

For this to really happen will require extreme citizen pressure.

Monday, January 24, 2011

Americans Are Not Getting the Information They Need to Vote Intelligently

So far this year the media has covered the following accomplishments of the new Congress

Reading the constitution aloud in session
Holding a symbolic vote in the House to completely repeal the health care bill
Discussing mixed party seating during the state of union address
Arguing about lifting the debt ceiling in March
News at this low level of complexity and usefulness is adequately handled by the sound byte practice used by the modern media. However it breaks down quickly when applied to the more complex issues. This is where it is important that the citizens have the information required to make the right decisions. Bad national decisions are almost always based upon faulty information.

For complex issues we need a much higher quality of information than we are receiving. This is exactly the way many special interests want it. Here are just a few examples of issues where the information supplied to the public needs a major upgrade.

Jobs for Americans
Reducing the trade deficit to zero
Specific fixes to the health care plan
Developing an investment plan for the future of America
A reasonable immigration policy
Real ethic standards in Congress
These subjects have been given the same media treatment that is applied to lighter information content news. We have statements from both the right and the left that are so ideologically slanted that the information is essentially useless. We really don’t know where progress stands. In fact, we aren’t sure many of these projects are even being seriously worked on This should not be a public relations contest. If we are to act wisely toward supporting important national policies and projects we need to generate more information with high truth content.

Wise decision making by the citizens is fundamental for the long term survival of a constitutional democracy. It is worth a large investment. The forces that have in the past obtained power from a democracy have achieved it by directing the citizens into poor decisions that lead to horrific results. As reflected in our Constitution the Founding Fathers were dedicated to preventing this from happening to the United States.

Good decision making is especially critical when joined with the rights to free speech and freedom of the press guaranteed by our First Amendment. These rights are critical tools for the pursuit of truth but can also be used to present sham information.

Considering the importance of good national decision making, why are our national issues so embedded with issues and controversies that pay such little attention to truth? Our casual acceptance of lies and misrepresentation is mind boggling. We are drowning in so many self serving lies and half truths that you would think the citizens would rebel. Speculation and damaging accusations are given with no concern for backup and logic. We waste billions of hours addressing and readdressing useless and false issues that unbiased facts and truth seeking should have resolved.

What can we do? .

The media must acknowledge that simply presenting two biased sides of an issue does not lead to truth. They just create two incompatible and probably erroneous conclusions There must be more media attention to the factual content the citizens need for decision making.

The citizens have to take responsibility for applying analytical thinking to the facts. Watch closely the reasoning of those special interests that will be happy to do this for you.

We must withdraw support for candidates who lie or resort to misrepresentations. Integrity should be a prime characteristic of our leaders. Don’t vote for anyone without it.

A factual media, analytical citizens, and leaders with integrity will take this democracy a long way.

Thursday, January 13, 2011

An American Loss to China in Global Economics Could Deprive Billions of the Opportunity to Live Under Democracy

For over 250 years America has been the proof that a free people can successfully govern themselves. A critical contributor to this success has been our choice of democratic capitalism as our economic system. Democratic capitalism works well with the freedoms that have characterized America.

Our constitution gives us the power to choose the representatives that are to set and guard the economic rules. Although there have been missteps the government generally guided capitalization toward activities that benefited the nation. The system steadfastly outperformed all other competing systems in the ability to deliver economic benefits to its citizens. We were without serious challenge as the leading economic force in the world.

This ended during the later years of the 20th century. We allowed our government to make terrible mistakes that have completely changed the game. We now face the results-financial, trade and investment deficits. excessive special interests influence, loss of manufacturing jobs, too much control by the financial sector-and the list goes on.

These self-inflicted wounds have allowed another form of capitalism to emerge. One that gives little freedom to its citizens but shows great skill in supporting the state. It is best described as state capitalism. China is currently its most successful user.

State capitalism uses the aggressive tools of capitalism but does not grant its citizens the participation and freedom they would enjoy under a democracy The goal is not the general welfare of the citizens but to increase the power of the state. It is a tenacious competitor in the global economy and is currently outperforming our damaged system. It definitely threatens the dominant position of democratic capitalism.

If it prevails and our system continue its current degradation the American vision will eventually collapse and the dream of free people governing themselves will fade. We must not let this happen.

The seriousness of the situation requires strong and immediate action. We must admit mistakes on past policies that have had bad results for the country and make the fixes. We must stop giving away economic opportunities that we need to other countries.

An encouraging example of what must become our standard practice is covered in a recent article in the Washington Post. It reports on an event where the US Export-Import Bank discarded past policy and helped the US vendor fight back. The result was the sale of 150 locomotives by GE. This was against aggressive bidding tactics of China that would normally get them the business.

As the article reports
“The political resistance to brash tactics which would imperil the delicate management of the China relationship has collapsed," said Rosen.
Way to go-US EX-IN Bank and GE!!. We need more of these “brash tactics.” Now let’s fix those other problems. The billions of people may still get the chance to live under a US style democracy.