Lately I'm having a very hard time trying to figure out who is prioritizing the Administration's missions and goals. The President told the bankers that they had a duty to fund mortgages and make small business loans to simulate the economy. He holds press conferences to urge everyone to fund public health care and start spending. Every time he holds a press conference it is either about spending money the government doesn't have or taking away the incentive to produce goods and services by taxing to death the people he is counting on to kick start the economy.
Someone needs to tell him that most of the behavior he is demanding is the very behavior that got us into this mess. What happened is evident. It's not really rocket surgery!
I can tell the President how to fix the economy. First make mandatory reading of every one in his administration Dr. Stanley's book "The Millionaire Next Door". Dr Stanley, a GSU professor has made a life's work studying how people get rich. Most had a very simple plan: 1 -- spend less money than you make and invest the difference and 2 -- don't have any consumer debt, only borrow to invest in productive assets.
Second is to ask bankers to make consumer loans for mortgages only to people that can pay them back. Any one who can put 20% down , buy a home that is no more than 3 times their income and with that loan has a debt service of less than 30% of their take home pay deserves a mortgage -- the rest don't.
Third, make loans to small businesses that need to buy productive assets to fill orders they have in hand but do not have the present capacity to fill. The other night when flipping channels I hit a reality show who's name I can't remember. People with small business ideas pitched investing in their company to venture capitalists. Most came in with a product, market research, focus group results and a well prepared pitch book. One of these guys always asked the same question: " Besides all your research, how may orders do you have?" He turned down every pitch that didn't have orders in hand. What a novel idea? Sales of products not pitching of ideas. Isn't that what bankers are supposed to look for?
We need to get back to both governmental and personal fiscal responsibility. The President has to understand that it is not the duty of the CEOs of the banks to fund the needs of society. The duty of the banking CEOs is a fiduciary responsibility to their stockholders to gather assets and use those assets to make profitable loans and investments. Their duty is to maximize profits for the shareholders.
The business of America is business and the goal of a business is to make a profit. Any idea that will make a profit should be funded; the rest need to become case studies on how not to run a business.
Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email FinancialTides@gmail.com
Economy has grown under Obama's watch. Stock market is definitely back. Healthcare reform will save $123 billion this decade, a trillion the next, according to OMB. What's not to like, especially compared to the bridges-to-nowhere spending, coupled with an anything-goes philosophy of Bush and the GOP that got us into this mess? Best way to ensure fiscal responsibility is to end the Bush tax giveaways to Paris Hiltons and Bernie Madoffs of world, as mandated by GOP congress in 2003. Also need to look at issues like VAT for US, but still a bit undecided about that.
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