Power is never dearer as when it is fleeting or under threat…

“The Department of Justice law suit against the AT&T/T-Mobile combination, hopefully, sends a message to the nation's monopolies and oligopolies that it is no longer open season on the American consumer, the economic engine that drives demand and top line growth.”

By J.M. Hamilton (9-11-11)

It is the political season, which means for some of us the synapses will be burning red hot, and the serotonin, the lubricant for the brain, will be evaporating off the cranial engine.  It's not easy being a political junkie, but as far as blood sports go nothing else quite compares.  That said, why the political season must start just a couple of months after the last election is beyond reason.   Don't these guys and gals ever work?   Apparently not.  As noted by Arthur Levitt (former SEC Chair and Policy Advisor to Goldman Sachs) on a recent Bloomberg podcast hosted by Tom Keene and Ken Prewitt, Congress has passed only 28 pieces of legislation this year, much of which was not germane to our economic nightmare.

Nice.  The country is staring into the abyss, and the 112th Congress takes a two year holiday to campaign.  Of course, the only thing more unpopular than President Obama is the Republican lead congress, with their approval ratings at half the Presidents.

It seems that the Republican lead congress is more interested in scoring points with its political base than in helping this President tackle the really tough issues; the thought being, come November 2012,the nastier the economy is the greater the chances of an Obama defeat.   However, with Obama willing to meet the Republicans half way on most issues (and in some instances actually co-opting the GOP), the public, and maybe even the Chamber of Commerce, may end up supporting the President in 2012, as the sane and rational choice.  Stranger things have happened.  Comparatively, Obama is looking good, as opposed to radicals on the right who sent the nascent economic recovery careening into the ditch, over the debt ceiling increase.

As noted in last week’s editorial, Heart of Darkness, the President on the foreign policy is batting near a thousand, showing great moxie and courage.  So much so that even the most ardent Neo-Con should be applauding:  President Reagan wanted Kaddafi, and President Bush wanted OBL.... President Obama took them both out.

On domestic policy however, it has been a different story, and the shame of it is the President didn't hit the ground running harder on the banking crisis, or the jobs situation, at the very beginning of his term.   But perhaps the President, under the advice and direction of Messrs. Geithner and Summers, wasn't told just how bad things were or how bad they were going to get.   What is clear is the tremendous focus and political capital spent on "Healthcare Reform" appears to have been wasted energy and time, given our pressing economic state.   President Obama probably felt that if so much money was going to Wall Street, how come a pet Democratic project, like universal healthcare, could not be addressed.  After all, President Bush (W) expanded big government with Medicare, Part D (or as we like to call it, the Big Pharma entitlement act).

All Presidents, however, deserve time to learn on the job, and Obama inherited a complete economic nightmare scenario from former President Bush (W); the inverse of what President Bush inherited from President Clinton.  In fact, J.M. Hamilton would argue that the President was set up and robbed of his "F.D.R. moment" by Messrs. Henry Paulson, Fed Chair Bernanke, and Tim Geithner, who bailed out the banks rather than letting them collapse into bankruptcy and reorganization (hence setting up this administration for the drawn out economic catastrophe the U.S. and Europe finds itself in).   Of course with this President picking Mr. Geithner as his Treasury Secretary, and Larry Summers on the President's Council of Economic Advisers, the continuation of the Bush Presidency - Wall Street bailout policies was all but guaranteed.  

What we now know, based upon the G.M. example, is that the country most likely would have been much better off had we let the banks collapse into an expedited re-org, nationalized, haircuts delivered to bond holders, mortgages and commercial loans written down (providing immediate relief to American business and the consumer), and when the smoke cleared release the financial institutions back into the wilds of the private sector, albeit broken up - so as to prevent future moral hazard - and under the scrutiny of a much deeper regulatory regime.   

If this had been done, the country would already be on the mend, Europe would have had a road map, and Japan might have had some regret, instead of looking upon the American economic scene knowingly. 

Instead we crawl along, Japanese style, in global economic malaise.  

The great thing, however, about the predicament the U.S. finds itself in is the President and the Congress have a tremendous opportunity; that is to say, the nation's economic situation is so dire that they have a golden moment to address real problems, rather than use the Fed and monetary policy as a crutch, or throwing more money at a problem, which is the standard fiscal audible in Washington.   The Fed has used up all its monetary policy ammunition, and is gambling with intermediate and long term health of the dollar with each new round of quantitative easing (not to mention severe inflation).   Moreover, this blog argues that as long as the Fed continues to throw money at the banks, instead putting caveats and conditions on QE3 and its use, expect more of the same: in short the Fed is just enabling the banks.  The Federal budget is in shambles, so that each new round of fiscal stimulus actually creates greater debt or taxation (both of which are, ultimately, contractionary).   In short, the fiscal policy shell game we have been privy to for the last couple of decades is played out.

This means that the President and the Congress must address real problems head on, if they are to pull the nation out of this mess.  And since we all agree jobs is priority one, this means the government must address impediments to job creation.  Some of the largest hindrances to job creation are: the insipid taxation monopolies impose upon the American public, a house marketing that is illiquid and still in decline, and banks that do not function in their traditional role, that of lending money to the private sector (but rather, gamble with bailout money in the stock market, commodities, or in offshore investments, a la BRIC nations).

And we are already seeing signs that the President is making an effort to confront some of these issues: namely, by taking on the AT&T/T-Mobile combination, and in filing suit, via Freddie and Fannie, against the Wall Street Cartel that defrauded and took down this nation's economy.

This blog has made the argument over many editorials that the nation's monopolies, like Big Oil, Big Pharma, and the Wall Street banking cartel, create a huge drag on the U.S. and global economy and in fact, are a detriment to the many U.S. businesses that operate, legitimately, in competitive environments.  

Why?  Because when you’re a monopoly, if demand is inelastic enough, you can charge pretty much whatever you damn well please, and the resulting tax on society (read: usurious profits) kills discretionary spending, kills jobs, and saps economic opportunity.   

It's the Republican supply side argument applied to private sector monopolistic taxation; it's the mirror of the Laffer curve held up to opprobrious monopolistic profits.

The Department of Justice law suit against the AT&T/T-Mobile combination, hopefully, sends a message to the nation's monopolies and oligopolies that it is no longer open season on the American consumer, the economic engine that drives demand and top line growth.   If the DOJ was properly funded not only could it take a harder line on future M & A activity, where appropriate; but it might begin to revisit some of the past combinations that occurred over the last couple of decades, and take on industries that prey upon Americans, such as big oil.

Besides with stock prices trending down, the breakup value of some of these too big to fail institutions is greater than their present market cap.   In shorthand, stockholders, too, would benefit from knocking some of these Goliaths down to size.

The Federal Housing Finance Agency law suit against the Wall Street cartel is, possibly, another effort by this administration to tackle a becalmed U.S. economy.   An effort that could potentially force Wall Street banks into reorg.  And what is the problem?   Many bailouts later, many uber banks are still financial basket cases, loaded up with impaired assets, illiquid assets, and much of it erroneously valued on their balance sheets.   Tack on billions of liabilities in prospective litigation costs and outcomes, over underwriting fraud, securities fraud, and robo-signing from the 2008 debacle, and if these firms were audited under legitimate "mark to market" accounting guidelines, many banks would have to be restructured, immediately (which means write downs, and relief for the American consumer that could turn this economic ship around).

As it stands however, the banks are in denial, management teams are intransigent with siege mentality, and bank investment is focused not upon American business, but upon on playing the stock market, as noted recently by Alan Abelson in Barron's Magazine:  "... banks have gone whole hog into high frequency trading, which accounts for seventy percent of the turnover on the exchanges."    

And we wonder why American small business is shut down, crippled and can't find a banker to lend them a dime....it's because the banks are gambling on Wall Street with U.S. bailout money, or choking on sovereign debt.

If this administration finally forces Wall Street to restructure, directly or indirectly, through any number of means (litigation or regulatory), it could unlock the key to economic recovery by unfreezing credit markets, and clearing out  residential and commercial real estate markets; in short the President appears to be rolling up his sleeves and tackling some of the key road blocks to economic recovery (albeit not as aggressively as we would like): bank restructuring, consumer debt restructuring, and reining in job killing monopolies, like the Wall Street cartel.

The administration appears to be on the right path, the question is can and will Obama seize the moment, or is it too late to have a real impact on the economy and the 2012 Election results?  With his presidency under threat by unemployment and underemployment, President Obama maybe pressed into taking bold action.

 Power is never dearer as when it is fleeting or under threat.

Undoubtedly, taking on banks could take awhile, with opaque accounting rules being what they are, the banks can hide their insolvency for years, and the DOJ, SEC, FTC, CFTC, Et Al., are all being held back, budgetarily, by the Republican lead congress.   As such the Republican Party, who proudly withholds money from these regulatory bodies, would appear to be in favor of job killing monopolies, and the credit and housing market's worst nightmare, the Wall Street cartel.

 

P.S.  

And the other shoe that must drop if the jobs issue is to be addressed is globalization and unfair trade practices; that is to say, the fallacy of “free trade” must be tackled.   Ronald Reagan, as reported by the Cato Institute, was one of the greatest protectionist Presidents of the 20th Century, despite his rhetoric.  And after decades of Republican and Democratic administrations exporting U.S. jobs offshore, it's time for both parties to emulate Reagan and start negotiating fair trade agreements that benefit U.S. labor and the U.S. tax base.   But that is for another editorial and another day.

http://blog.jmhamiltonpublishing.com/2010/07/05/thinking-the-unthinkable.aspx