Lessons learned in 2011
Happy New Year from all of us at the SIPA. Before we start pondering the future for the Securities Industry we thought we would take a look back on 2011 and review the lessons we learned in the past year.
Lesson #1: The more things change the more they stay the same.
Whether it was Washington politics or Regulatory reform, the status quo remained in place. The beginning of the year saw the Tea Party sweep into congress to give Republicans control of Congress and they promised to fix the broken government and to stop the spending. Unfortunately as predicted by us two months earlier, the establishment Republicans took control and basically continued the run away spending that has the country on the verge of bankruptcy. We noted that although the Tea Party was responsible, on election night an overly tan John Boehner was standing at the podium taking full credit. ( Click here to read our response a year ago.)The Republican establishment put on one feinted fight after another and in the end the deficit spending continued at an unsustainable pace.
One year later the deficit is a trillion and a half larger, the same people are still getting unemployment benefits and the debt cap was raised another 2.5 trillion. In return for these expansions the nation got debt cuts of about 85 billion over 10 years. This is like your wife over drafting your checking account by $10,000 but promising to cut her spending by $85.00 over the next ten years to help offset the debt it created. Each party is to blame because they keep kicking the can (Social security in its present state and other entitlements) down the block for the next generation to deal with; the problem is we may have run out of generations to kick it too.
Lesson # 2 Occupy Wall Street occupied the wrong street
The Occupy crowd made some headlines and a lot of noise and odors this year with what seemed to be some well intentioned protests. The problem is that they were protesting the wrong street. They should have been protesting on the streets of Washington in full force against each and every branch of government. Wall Street has its greed as does Main Street, Memory lane and Treymore drive and every street in every city in the country. Greed (which has no real definition by the way) is not illegal in this country nor should it be. What is illegal is deceiving, lying, stealing and committing fraud so you can get the money to horde. This year saw another basket filled with fraudsters on Wall Street and culminated with the collapse of MF Global. There were numerous settlements between the government and the large cartel banks that resulted from shady dealings with mortgage backed securities or other instruments. Despite settlements in the hundreds of billions not one person went to jail. What’s even worse is that almost nobody even got hit with a wells notice for their record. Take John Corzine of MF Global for example. $700 Million in investor money is unaccounted for and the firm is collapsed due to risky bets with investor money in Europe. The result of this catastrophe is that Corzine had to jump on his private jet and fly to Washington to face questioning from congress. After a few hours he was back on his way home and he has not even had to update his license. Congress loves to wag a finger at their billionaire buddies but they know that they will eventually open their hand for contributions. Occupy is worried about whether Corzine should pay more in taxes when he reaps his billions but I’m more worried about why he is not in jail and whether these sort of crimes will just become the norm going forward.
Lesson # 3 The only “European Model” we should emulate is Heidi Klum.
2011 will be remembered most for the Euro zone nightmare and the constant fluctuations in the market due to mountains of debt and deteriorating economies. Each and every day since June the market has surged ahead or fallen sharply and it was always related to European worries. It almost seemed like financial market writers had the same two headlines every day for six months:
Market plunges on Euro zone worries!
Market surges on hopes of Euro debt deal!
Here we are in early January and it is still moving the markets. The problem with the European model of socialism is that eventually you run out of generations to pay for everyone who doesn’t want to work after age 50. Government workers believe they should have someone else pay for all their medical needs, their house and their early retirement and it is all finally catching up. As America decides what direction they should take, we would be wise to pay close attention not to Greece but to Italy. Greece is basically a pure socialist country that offers some shipping industry and little else besides fantastic beaches. Italy on the other hand, is larger and more diverse in its industry and financial markets. Italy is in a world of hurt right now and if they cannot secure financing soon they will be in big trouble. The US appears to be trying to expand government with one program after another and the Unions have pushed cities and states to the brink of bankruptcy yet nobody wants to have any benefits cut. It’s a generational time bomb waiting to explode if we do not right this ship soon.
