June 16, 2005

Alan Greenspan, Chairman of the Federal Reserve, recently told Congress that he isn’t certain why mortgage rates continue at their low level, some even dropping, while the Fed has been increasing interest rates every time they’re up for consideration. In his words, the situation is “clearly without recent precedent.”

Well, I’m sorry Mr. Chairman, but how “recent” do you want to get? Have we somehow forgotten the Savings & Loan fiasco of the 1980s that ended up costing American taxpayers more than $400 billion collected over time? A fiasco that was caused by the Reagan administration’s loosening restrictions on bankers and allowing them to invest in all sorts of poorly secured loans.

Greenspeak continues with his claim that inflation is in check, but I don’t know of many decent restaurants where you can get a hamburger and a coke for less than ten dollars. Even the fast food giants have raised their prices far beyond the nineteen cent hamburger they started out selling.

But most importantly, isn’t the primary function of the Federal Reserve to regulate banking? If the banks are dropping their mortgage rates while the Fed is raising theirs, isn’t there something wrong? Can you really blame the banks for trying to make money through loans? Can you really blame anyone in the private sector for investing in what has become their primary piece of equity, their homes, or picking up other pieces of real estate as the safest investment?

Could it possibly be that the Fed isn’t doing its primary job of regulating banks and is putting us right back in the situation we had under Reagan? What may turn out to be another wide open window of disaster?

Do not construe this as a democratic rant. I am not a democrat. And I am not a republican either. In fact, I’m one of the few people who believe we ought to get rid of both political cults that no longer represent the people and establish a Common Sense Party to replace them both. And we better do it soon, before it’s too late.

You don’t have to look very far to see all sorts of things that seem to be out of whack. Witness the recent news about United Airlines weaseling out of their pension commitments in order to stave off bankruptcy.

Suddenly the Pension Benefit Guarantee Corporation (PBGC), a firm most people never heard of, is in the news as well as shenanigans in AIG, the insurer of insurance companies, and things are beginning to emulate the closing lines of the movie “Enemy of the State” where the main character’s wife says “who’s going to monitor the monitors of the monitors?”

Even though PBGC is another insurance business, like Social Security, that the government is questionably engaged in, they claim in their web pages that they are not supported by taxpayer dollars. PBGC claims that its revenue comes from fees it charges corporations based on the number of employees covered by a company’s retirement plan as well as investments it makes with this fee money.

But payouts are starting to exceed income for PBGC and if you want to see how far this claim of not being supported by taxpayer dollars goes all you have to do is read the recent Testimony put out by the Congressional Budget Office (CBO), the research arm of our Congress critters.

All of this comes along with major developments on the world wide scale that are happening with the dropping value of the dollar, trade deficits that will be about $700 billion this year, and increasing difficulties borrowing from foreign investors who can make more in interest elsewhere and, ironically, force the government to depend more and more on the big pension houses investing in the bond market.

Add in our outsourcing of jobs and the backbone American industries, plus our open border policy that increases the government’s tax base at least insofar as payroll taxes are concerned as long as we can find and pressure compliance from the people employing them.

Pretty soon you start to recognize the financial condition of the country as a whole and the direction we’re heading and perhaps, just perhaps, you will start to recognize why the nerds in Washington want to “reform” Social Security – the one and only minimal retirement we’ve been able to count on for seventy years. Their reform ideas will all increase the surplus booty the Beltway Bandits have been stealing for ages.

Let me try to put it another way by analogy.

A long time ago, my market research firm did some qualitative exploratory research for one of the ad agencies working for a major American auto manufacturer . The objective was to study the consumer’s predisposition to buy a new car by searching for patterns of attitude and behavior in the process from not thinking about buying a new car to actually deciding it was time to do so. This is the sort of information agencies need in order to help their creative people develop meaningful ads.

People go through various stages or patterns in attitude before they finally get to the point of kicking the tires in a dealer’s showroom. This can begin way back when a car first loses its new car smell or excitement and becomes comfortable or the reliable vehicle. All along, there are various stages where brand interest can begin involving people and if advertised properly can begin to build or switch brand loyalty and might lead them into buying a particular car, but what we were after was the point where the person finally decided it’s time to trade in his or her present car and begin thinking of getting a new one.

We found various patterns. For instance, Cadillac owners never wanted to be seen with a car more than two years old. In their minds, that would place them in the category of someone who bought “used” cars. So when their cars were approaching two years of age, they simply phoned the dealer to see when the “new” Cadillacs would be in. Most people went through a much more elaborate process including “noises” that seemed to penetrate the interior.

However, the most prevalent pattern for deciding that it was finally time to trade in the current car was when rust appeared, particularly rust in the rocker panel where, as the airlines and police say, the person “embarks” and “disembarks” the vehicle. This was the final sign that everything the owner suspected, everything that could no longer be corrected by his local mechanic or body shop was finally happening. The car was falling apart from the inside out.

Maybe we are just starting to recognize what’s happening to our country the way we once recognized it in our cars and now it’s a question of whether plastics and composites can keep it from happening.

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Changing Direction On Social Security Reform

Response To Our Open Letter

Cacophony - Don't Feed The Animals

Your Money - Gone, But Not Forgotten

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FERS - The Federal Employees Retirement System

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PBGC - Do You Know What That Is?

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