2010 Financial Reform Bill – It’s been tried before, and it didn’t work!


The Financial Reform Bill of 2010 is not a reasonable or thoughtful response to the Financial Crisis of 2008 – it is quite clearly nothing more than government over-reach, intrusion into the private sector, and policies which have never worked before and won’t work now.

Our free, democratic society HAD rules in place to govern excessive behavior in the financial markets, but we did not enforce them. (Obama’s pick for the No.2 post at the Federal Reserve, Janet Yellen, testified this was the case – oversight, not regulation, was the key element of failure in the 2008 crash, AP, “Yellen: Lax regulation contributed to 2008 crisis.”)

Consider just for second a little bit of history. We had been taught in school that FDR (President Roosevelt) was a transformative figure – which his progressive platform saved us from the ravages of the Great Depression. Not true.

By the time FDR had taken over as President in early 1933, the economy had recovered from the Stock market crash of 1929, but then “double-dipped” again into a fearsome recession. FDR’s progressive response was a massive government intrusion into the private sector. Including:

1.) Institution of Wage and Price controls

2.) Encouraged people to join unions

3.) Cut farm production to raise prices against deflation

4.) Social Security program along with dozens of other government bureaucracies was created

The results were dismal:

1.) Tax revenue to the government collapsed by20%

2.) The Federal debt exploded to 40% of GDP, 4 times higher than at any previous time in history.

3.) Employment improved during the decade but was NOT restored to 1920 levels until the war drafted 40 million into overseas service.

4.) Economy essentially did not recover for the entire decade.

5.) Republicans running on the first “conservative” platform won the 1938 mid-term elections and repealed a good portion of the New Deal with the exception of certain programs including Social Security (see Taft-Hartley Act).

In retrospect, the New Deal lengthened and worsened the Great Depression. America did not emerge from this economic collapse until the near full employment of World War II.

History shows as fact that massive government intrusion into the private economy does not halt a depression, it stifles growth. It didn’t work, so why would we do something that history has taught us does not work? Listed below are examples of what does work. Let’s learn from history.

President John Kennedy did the following:

1.) JFK instituted across the board tax cuts and tax revenue to the government grew by 6.2%.

2.) The deficit fell from $7.1 billion to 1.4 billion by 1969.

3.) The economy grew 4.5% from 1961 through 1968, compared to 2.1% growth under the higher nominal tax brackets of the 1950’s. (91% highest nominal tax bracket from 1946-1961, Kennedy lowered them to 71%). National Center for Policy Analysis

Hmmm. Do we see a trend? Facts are stubborn things. There is a point where taxing provides diminished returns, and that you have over-taxed the taxpayer. This results in sheltering income, lower productivity, and fraud – thereby REDUCING tax receipts to the government.

Let’s see, do we have another example? Of course – the Reagan era. What did our most successful modern President achieve?

1.) Reagan came into office with 13% unemployment, 16% interest rates, and 9% inflation. The “misery index” as envisioned by Arthur Okun was 21.98% He also termed it “stagflation,” – the combination of stagnant growth and inflation.

2.) Reagan lowered the highest tax rate from 71% to 28%.

3.) Economic growth from 1981-89 under Reagan went from contracting under Carter in 1978, to 3.6 percent average annual growth for Reagan’s 8 years in office.

4.) Most importantly, tax receipts to the government during the Reagan years went from approximately $500 billion in 1980 to $1.1 trillion in 1988.

I can hear liberals right now – “Houston, we have a problem.” But now, let’s turn to the dreaded George Bush. Just the utterance of his name sends Stuart Smalley, er-Al Franken into a frothing-at-the-mouth seizure. But these are the facts, and they are not in dispute. Economic policy under George Bush included two massive tax cuts:

1.) According to the IMF (not a conservative or liberal group, but the International Monetary Fund) total US GDP grew 19% from 2001-2008 INCLUDING THE ECONOMIC MELTDOWN OF 2008! This is after the 2001 and 2003 Bush tax cuts.

2.) Tax revenue increased to the government from 2001 to 2008: going from $1.9 trillion to $2.6 trillion, an increase of 37% in revenue collected by the government over that period of time.


So in review, what can we say has not worked, and what can we say has worked? Here is the short, simple answer:

1.) Massive government intrusion into the private economy destroys markets, capital allocation, economic growth, and dampens revenue to the government. Borrowing and spending destroys the ethic of a free society.

2.) Lowering excessive tax rates, deregulation, and freer markets improves the economy, creates jobs, and increases tax revenue to the government.

Which one have we been doing since the new Administration has taken office? You do the math. The clock is ticking on our children’s future, and the adults seem to have left the room. If cutting taxes improves the jobs numbers as well as the income stream to the government, why would we do anything else?

This reform bill is about making government bigger and more powerful, while making the average American poorer and less free. Our politicians should reject this bill, and if they will not, let us elect leaders who will vow to repeal it.

Whose fault is it that your retirement money is down?

During my professional career I have not found a period of negative growth and volatility as the one we are living through now. America is the greatest country in the world and we are strong enough, with the right leadership, to fix any calamity we may face.

Our favorite past-times may be baseball and apple pie, but right behind those two is pointing out who to blame in a crisis. I thought I would throw my two cents in on who to blame for losses in your retirement portfolio. I came up with ten, I am sure we can find more. Here are the people or entities to blame (what is an entity?):

1. The Housing Bubble. It’s real simple – if you build too many houses, and then you have too few buyers, there will be a collapse in the real estate market. Couple that with too lenient of a money supply by the government, and government policy to force banks to lend money to people who can’t afford it, and that will destroy a market. If you get a zero down, no doc loan, you have no skin in the game. That creates moral hazard, a person can more easily walk away from something they are not personally invested in. If you invested in homes, or the value of your home dropped, then so did your retirement portfolio. Home equity, whether to sell or leverage, or to simply have it paid off in retirement, is a key component in your retirement planning. You are damaged when poor credit borrowers who have a history of non-performance do the same in the housing market.

I met a flight attendant flying from Atlanta to Tampa who in the mid-2000’s hey-day was flipping pre-construction condos for a 50% profit in her spare time. No expertise in the market, construction, or real estate. You do the math, it did not end well. As Tyrone Green would say, “her situation is also as such.”

2. The Government. Who doesn’t love blaming the government, which if we think hard enough, can probably be blamed for everything. But I digress. Taxing and spending, and then spending double what you bring in every year, destroys the value of our currency, erodes market confidence, and ultimately is unsustainable. This impacts government programs you will rely upon in retirement such as Medicare and Social Security, and it puts what you have saved at risk of inflation which destroys purchasing power.

3. The Federal Reserve. “The interest rate spring.” That’s a Ty-ism. For a decade we have had no good fixed interest rate choices for a retirement investment due to the artificially low interest rate policy of the Federal Reserve. This has limited the growth rate of your retirement plan, and at the same time the “spring” I referenced above may pop – shooting rates higher and causing inflation just when you begin to spend your retirement dollars. It would be a double whammy of limited growth followed by limited purchasing power.

4. The Wall Street Establishment. Far removed from we-the-little-people is the Wall Street power structure. I am not talking about the entrepreneurs and capitalists on Wall Street, I am referring to the corporate bureaucrats and the old-school traders whose buy-and-hold strategy have given us the same investments with the same results. What did Einstein once say (?) – “that the definition of insanity is doing the same thing over and over again and expecting a different result.”

5. The New Wall Street. Thanks to the internet, investment companies have offered you the opportunity to do your own buying and selling. You can do many of these transactions for as low as $7 a trade. However, if you’re a construction manager and you need brain surgery, would you perform it on yourself? There is a reason you seek out experts or people trained in a profession. The New Wall Street – which allowed you to do your own online trading, resulted in a simple truth – “You did your own research, you chose your own mutual fund, and you lost your own money.”

6. The Broker who gave me bad advice. I am sure this sounds very familiar: “We are in it for the long haul. Or, “…stay the course.” My personal favorite line is: “Don’t worry, there has never been a 10 year period of market loss…” Really? The last 10 years the S&P has been down 25%. The broker is a prime target to blame (hopefully yours is not your brother in law).

7. Osama Bin Laden. The 9/11 terrorist attacks fundamentally altered the global village. Our government’s unwillingness to deal with this matter with our full arsenal of hard and soft power leaves us in a quandary. The market hates uncertainty, it is the lifeblood of the bear market, and that fuels stagnancy and losses in your portfolio.

8. BP Oil Spill. Time to wake up and smell the crude oil in the gulf! The Gulf of Mexico, as you know it and I know it, is gone for generations. Livelihoods and employment are gone for generations. This means no more plan contributions. It means people are selling stock and not buying stock, which as the vicious cycle spins, lowers stock values. Vacation spots are gone for generations. Real estate values have and will collapse on the coasts. Who owns real estate? REITS, public companies, and individuals. And I have yet to mention the taxpayer clean up which will raise taxes in one fashion or another. The oil spill is not a person or an entity, but BP is, and it is a huge player in your portfolio whether you like it or not.

9. The Greeks. It’s really a Euro-Zone debt crisis, not just the Greeks, but this has led to another bailout. And we helped with the bailout! Because our government historically chooses to spend our money supporting other governments that have not exercised fiscal responsibility – making us look thrifty by comparison – that affects our retirement. As I tried to explain to my children – “Because we are spending ourselves into oblivion by trying to bail out countries who have spent themselves into oblivion.”

10. YOURSELF! Ultimately, it’s your money, not Wall Street’s not your broker’s, and not the government’s (not yet at least). Take responsibility for your actions. Instead of absorbing these losses, get your money into a protected place where you can receive a reasonable rate of return.

As a closing thought, there are only really three protected places where you can still receive varying degrees of growth – but that’s another article. If you want to find out, you can contact my firm anytime. For now, I leave you with this parting comment – take YOURSELF off the list, take action, take responsibility, protect your retirement plan….because there is enough blame for the losses to go around.