by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
European Leaders lauded our free-market system when they were making money. Today, their answer is more regulation of financial markets in an effort to move our system towards the Euro-Socialist model:
Leaders from the Group of 20 advanced and emerging economies are being hosted on Friday night and on Saturday by a U.S. president who will be out of office in little more than two months and who is under pressure from Europe to agree to stricter market regulation than he prefers.
A lame duck President, George Bush has a chance to make a stand for free markets at this conference. European leaders will most likely tolerate his stand while they lick their chops for January 20, 2009. Europe’s favorite American President, Barack Obama, will face intense pressure from our ancestors to conform to their models next year.
President Bush:
“While reforms in the financial sector are essential, the long-term solution to today’s problems is sustained economic growth,” Bush told a New York audience. He said critics were “equating the free enterprise system with greed, exploitation and failure” and objected to it.
“The answer is not to try to reinvent that system,” Bush said. “It is to fix the problems we face, make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people around the world.”
Germany:
German officials said before the meeting that it will discuss “a new balance between market and state,” possibly a more ambitious aim than the Bush administration favors.
France:
French President Nicolas Sarkozy sounded an aggressive note on Thursday as he prepared to head for the summit.
“I am leaving for Washington to explain that the dollar, which after the Second World War was the only currency in the world, can no longer claim to be the only currency in the world,” he said. “What was true in 1945 cannot be true today.”
Great Britain:
British Prime Minister Gordon Brown claimed on Wednesday there was growing support for increased fiscal measures globally to help weather the crisis and indicated he might press that theme at the summit.
Monday-morning quarterbacking is one thing but over-regulation is how the United States got into this mess. The Federal government forced banks to make non-prime loans and removed the risk of those less than worthy borrowers by guaranteeing those loans. The Clinton Administration exacerbated the Carter’s “redistribution of wealth” when they allowed non-prime loans, bundled and sold on Wall Street, to count towards a bank’s CRA quota. The result? The mess we’re in today.
Caleb Mardini says:
Brian, Bush’s speech today also supported further regulation:
“Secondly, we must ensure that markets, firms, and financial products are properly regulated. For example, credit default swaps — financial products that insure against potential losses — should be processed through centralized clearinghouses instead of through unregulated, “over the counter” markets. By bringing greater stability to this large and important financial sector, we reduce the risk to our overall financial systems.
Third, we must enhance the integrity of our financial markets. For example, authorities in every nation should take a fresh look at the rules governing market manipulation and fraud — and ensure that investors are properly protected.”
November 14, 2008 — 12:21 am
Eric Bramlett says:
??? Care to qualify ???
November 14, 2008 — 1:33 am
Kevin OBrien says:
Great article. It is not too often fellow agents criticize the underlying policies that put us in this mess. It seems it was mismanaged public policy after mismanaged public policy. Sarbanes-Oxley is the most recent example of legislation contributing to the overall mess. We now have to let these assets reallocate. Though it is painful, it is completely necessary. The socialist countries of the world want us to join them in higher taxes and more regulations so they won’t be so far behind our “Free Market”.
It has been a sad run for “Capitalism”
November 14, 2008 — 8:18 am
Artur | Phoenix Real Estate says:
Letting capitalism reign free would certainly lead to more extremes in the market and leave most people less well off. What’s wrong with socialism: no more then capitalism? But, of course, it’s all in the details.
November 14, 2008 — 9:16 am
Brian Brady says:
“??? Care to qualify ???”
Sure, Eric. The whole last paragraph and linked article shows what happens when you force banks to make loan to unqualified borrowers. Encourage banks to leverage those crappy loans and provide incentives to disregard shareholders’ equity and you have the recipe for disaster.
It all starts with an idea. While this cauldron took 30 years to bubble, the lid blew off and there’s stew splattered all over the place, today.
More regulations, designed to redistribute wealth is not the answer. Why? Smart financiers find arbitrage opportunities where their risk is limited and the rewards are great.
Planned economies, designed to create equity for all market participants do the exact opposite. There are winners and losers, regardless of what they told us in third grade.
November 14, 2008 — 9:42 am
Brian Brady says:
“market manipulation and fraud — and ensure that investors are properly protected.”
Those laws are already there. You have to have the courage to jail the dirtbags.
I completely disagree with the whole concept of “investor protection by the State”. Caveat Emptor. An educated investor is a a profitable one.
Let me Who here would be scared to invest their money with Warren Buffett? I trust him more than the SEC to watch my egg basket
November 14, 2008 — 9:46 am
Kevin OBrien says:
Brian,
Until the last month I would agree with your consensus on Buffett. Some of the moves he has made lately, I must question.
Investors should always be the market check. Exactly why raising the FDIC coverage was a bad idea, took the check off many jumbo CD’s.
Arthur
“Letting capitalism reign free would certainly lead to more extremes in the market and leave most people less well off. What’s wrong with socialism: no more then capitalism? But, of course, it’s all in the details.”
There are 2 problems with your statement. Letting capitalism reign free would not cause more problems. Its this hybrid political-economic market that gets unhinged. Secondly, maybe if you grew up under the Soviet Union you would under stand what is wrong with socialism. Have you ever had to stand in line for bread?
November 14, 2008 — 3:00 pm
David Shafer says:
“Let me Who here would be scared to invest their money with Warren Buffett? I trust him more than the SEC to watch my egg basket.”
Brian,
You got me on that one. The various government regulators are all over folks working in the securities industry. Licensing, rules for who can and can’t invest in certain products, etc. Yet, how much bad investing is going on? Perhaps, 90% of folks have lost money in real terms over the last decade from their investments. And how many folks invested in what turns out to be pyramid schemes each year?
Ask your financial planner (or better yet do it yourself) to overlay the mutual fund you invest in over Berkshire Hathaway on a 10, 15, 20 year chart. See a difference? You betcha, yet 99% of folks are selling mutual funds to you. You gotta ask, do they knowingly do this, or are they just as ignorant as the public?
Rule #1 I teach folks is start with the actual data. Is there a financial planner out there that tells his/her clients to skip mutual funds and buy BRKBs, they have no added expense, same liquidity and return twice as much over virtually any period you look at?
November 14, 2008 — 3:02 pm
David Shafer says:
“Until the last month I would agree with your consensus on Buffett. Some of the moves he has made lately, I must question.”
Kevin, I would love to here what moves of Buffett you question if you would like to discuss!
Personally, I believe his moves he had made ($30-$50 billion in investments) are remarkable and will end up driving the profits of Berkshire to incredible heights.
As a personal aside, I began accumulating BRKb’s in 1999. I buy on dips, and bought my last share yesterday at $3500. The most expensive price I have paid in $4250. My average price is around $2600. So even at todays low of 3389 (which is ridiculously undervalued compared to its profits) I have returned 30%. Compare that to the average mutual fund over that time period! Well, you can’t because the average mutual fund has lost money over that time period and the average mutal fund investor does much worse than the average mutual fund return. I say this not to tute my own horn, but to point out that Buffett has no peers in todays investing environment.
November 14, 2008 — 3:22 pm
Brian Brady says:
Let’s not compare Buffett to the universe of mutual finds, let’s compare him to, say, France. To whom would you entrust your retirement…Buffett or France?
I’d give a drunken Jimmy Buffett my money before I relied on the on a sober French government to provide for my retirement. My point is this; President Bush MUST resist the Euro-Socialists’ power grab here.
November 14, 2008 — 5:45 pm
David Shafer says:
Really Brian, you believe in collectivism? After all isn’t that what mutual funds are based on. 🙂
Someone else making the decisions on what is good for you (to invest in)?????
Just kidding you. But you know there are some good investments in France and Germany and even communist China! Buffett himself has invested in companies located in collectivist societies like Israel and China!
How much more profitable would companies be if they didn’t have to pay for health care for their workers like they don’t in France, Germany, Israel and …..well the rest of the developed world????
Just not cut and dry anymore.
Peace, out
PS Great launch over at the Cape tonight, watched it with my son
November 14, 2008 — 6:46 pm
Artur | Phoenix Real Estate says:
@Kevin
“maybe if you grew up under the Soviet Union you would under stand what is wrong with socialism. Have you ever had to stand in line for bread?”
Yes, in fact I did – I stood in line (as a kid with my parents) they bough using ration cards, they paid using a bottles of vodka and they had to wait years to get a phone line – and the Soviet Union was no more a socialist system then the U.S is a capitalist system or aspires to be.
Like I said, it’s in the details. That means that into the idealism of capitalism or any other economic system people and politics get in the way. That is not to say capitalism is any better then socialism or vice versa but we cannot let any system be without some restrictions.
If we let capitalism be as some propose then it would certainly lead to extremes that is why have laws that prevent monopolies because that is exactly what we would get, monopolies and this is just one example.
November 14, 2008 — 7:41 pm
Artur | Phoenix Real Estate says:
In the reply above I meant it as a reply to Brian.
Also.
“Let’s not compare Buffett to the universe of mutual finds, let’s compare him to, say, France. To whom would you entrust your retirement…Buffett or France?”
Warren and France have different goals!
November 14, 2008 — 7:46 pm
Sean Purcell says:
Warren and France have different goals!
Yes, one endeavors to create wealth (which raises the tide), while the other endeavors to redistribute wealth (which lowers the ship).
November 14, 2008 — 10:09 pm
Artur | Phoenix Real Estate says:
@Sean.
It amazes me how much worth of humanity is in dollars. There is certainly more to country vs a share in a company. A country can never be run like a company. You can’t or should not discontinue bad products: unless you’re one of the few who believes getting rid of the undesirables but we all know what that looks like.
November 14, 2008 — 10:20 pm
Anonymous says:
“It amazes me how much worth of humanity is in dollars.”
Absolutely, Artur. Isn’t it better to rely on the goodness of humankind rather than to try and force it?
“A country can never be run like a company”
Yep, that’s true. The best thing governments can do is to stay out of commerce and try not to impede it. Government should pursue a common defense and well-run courts of law. Anything else?
November 14, 2008 — 10:48 pm
Brian Brady says:
Sorry. I was anonymous comment. I forgot to login
November 16, 2008 — 2:42 pm