I would be a hypocrite to be a financial advisor and not believe in free market capitalism. Anyone invested in the markets must believe in free market capitalism. A characteristic of our free market system is the fact that there will be good times and bad times. An investor must learn to take the good with the bad. No one faults the markets when they are rocketing higher. But, when it comes time to revert to the mean we look for bailouts. So the main stream media calls on our politicians in Washington to relieve the free market participants of the bad times inherent in free markets.
[The "fat cat" bankers are not free from blame even though the government did not catch their hands in the cookie jar. Their punishments have been handed to them by the markets (see the demise of Bear Stern, Lehman Brothers, and others). The market continues to levy justice to the executives that engineered, concealed and pawned off the toxic debt to investors.]
It has been reported that the recent $700,000,000,000 bailout sparked a 99-1 ratio of constituents against the bailout to those who favored it. Could it be that Americans don't think our politicians are capable of solving this crisis? Could it be that our politicians (both past and present) helped create the financial crisis of today? Yes and Yes.
In my opinion, the current crisis was generated and has frustrated investors due to the following:
- The socialist dream of housing for every American mandated by our politicians (regardless of the homeowner's ability to pay back the mortgage) was a catalyst for the crisis. Each of the State of the Union addresses going back to 1994 that I can remember showed a president (Clinton and Bush) touting their administrations ability to get the uneducated, less financially fortunate Americans into homes of their own. This "accomplishment" comes at a price.
- The Federal Reserve (under Alan Greenspan) kept key interest rates too low for too long. The over supply of funds to our nations bankers encouraged our bankers to design unconventional loans as a means of getting funds into circulation. Once qualified homeowners refinanced 2-3 times in 3-5 years, bankers designed plans to expand the definition of "qualified."
- Bankers looked to a laundry list of government regulatory agencies (SEC, OST, FDIC, HUD, US Treasury, and Federal Reserve to name a few) for acceptance, oversight and approval of the newly designed loans. The banker's new "unconventional loans" past EVERY government agencies litmus test.
- Investors and credit rating agencies relied on and made investments based on the perceived oversight by the SEC, OST, FDIC, US Treasury, Federal Reserve that was non existent. Supervision was entrusted to various government agencies at the peril of investors around the world.
- The corruption, mis-management, and inabilities of management at Freddie Mac and Fannie Mae (both are Government Sponsored Enterprises) produced, concealed and then exacerbated the problem.
- Lastly, investors that flocked to "safe haven" investments such as gold/silver, energy, agriculture, foreign currencies have not been rewarded for their beliefs/actions due to our government's heavy handed intervention. Our government's bailout inclinations have stepped in to manipulate the world markets. The market will return to a "free market" when the government returns to its typical role.
The overall trend is clear. Systems put into place by politicians to aid the free market system have and will continue to fail taxpayers and investors. As long as we look to our politicians for solutions there will always be problems.
*The opinions voiced in this material are for informational purposes only. Michael McDaniel is a Financial Advisor with and Securities offered through LPL Financial. He can be reached at (530) 478-0326.
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