As I watch the stock market averages gyrate up and down, I wonder how relevant these markets really are within our daily lives. After all, no matter if the stock market goes up or down, we still go to work, feed the kids and deal with the mundane issues of our lives. Most of us are invested in long term retirement and savings accounts; we need to stop looking at the daily market gyrations, let the money managers do what we’ve hired then to do and get on with our lives. For people who have 10, 20 even 30 years before withdrawing from these investment plans, it makes no sense to be concerned with day to day market averages. Besides a feeling of winning or losing the daily market averages mean very little if you are not buying or selling that day. Proper long term investments in good quality stocks and bonds have provided fair returns over many years. For those who are near or in retirement your investments should already have been in income producing bonds, preferably treasuries, with only a small amount, if any, of your portfolio in speculative stocks.
Of course, the day traders need to follow the minute by minute market moves, because that is their job. Day traders remind me of the people you find at the roadside casinos, sitting with their head in their hands, sweating profusely because they have wagered the rent. The day traders and speculators should not have anything to do with the retirement and investment accounts of real working people, unfortunately they pollute the pond we swim in.
My point, Wall Street averages should not have an affect on our daily lives. We would be far better off to ignore the daily or even monthly gyrations in these market averages and get on with living our lives.
This brings me to real estate. Home prices have been quite stable over the long term, providing consistent price appreciation since WWII. Only when Wall Street day traders and speculators became involved in real estate, looking for the “fast” buck, did we see wild gyrations in home prices. Homes are not day trading vehicles and should not be traded in this manner. It was not the Collateralized Debt Obligations, Mortgage Backed Securities nor the actions of Fannie Mae or Freddie Mac that were the cause of the crash. These investment vehicles provided liquidity to the market and greater access to funding for borrowers. The crash came from the manipulation and trading of these securities and from greedy people who wanted to make big money no matter the cost to others.
To make matters worse, programs such as the TARP and the numerous bank bailouts only promote, encourage and reward the day traders and gamblers with hard earned taxpayer money. These programs recapitalize the very banks that caused the credit crisis. Let the traders, speculators and banks fail. Bank of America, Citigroup and others need to be put out of our misery.
In November, I reported on the actions of the major banks to cut off $2 trillion of credit to borrowers. Recently, I learned of a new round of credit reductions by Bank of America and JP Morgan/Chase. These banks are cutting lines of credit to small businesses and consumers in spite of the taxpayer’s money they have received to lend to these very groups to spur an economic recovery. I was told by a bank representative from each bank that the decision to cut off credit to borrowers was not based upon the borrower’s credit worthiness or payment track record, but it is company policy to cut off viable borrowers to “protect” the bank from further exposure. That’s right, these banks took, I would say stole, hundreds of billions of dollars of taxpayer’s money meant to spur lending, instead cut funding and credit lines to credit worthy borrowers. It is ironic that these banks have some how found the cash to continue to pay bonuses and outlandish salaries to the very people who caused the credit crisis to begin with. Case in point, Ken Lewis, CEO of Bank of America, made $10 million last year. This is a guy who ran the company into the ground and we the taxpayers paid him $10 million to do so.
Banks need to provide credit to everyone, that’s right, everyone. The reason that taxpayer money was given to these institutions was to spur economic growth through the availability of credit, regardless of risk; after all it isn’t even the banks money. Our money was supposed to be used to spur the economy of the country not reward a couple of greedy, fat cats in the ivory towers of these banks.