The Obama Administration’s Hit on Small Banks

The new, ironically named Dodd-Frank legislation will help see to it that small banks in the U. S. will eventually wither and disappear as a financial factor. They simply will no longer be able to compete with the big banks. To the detriment of the banking consumer.

Leave it to this administration and the Democrat-led Congress to issue a bill that purportedly is designed to resolve the ills of a banking system, by naming it for the two politicians to helped foment those fundamental ills in the first place.

I will have more to say about this new legislation, a paean to crony or state capitalism. A form of government under the Obama administration. which has more characteristics with that of the economy of Benito Mussolini’s state capitalist Italy, than it ought to, in the U. S. today.

Government Debt and You

This will translate the Obama administration’s spending into simpler terms for the average taxpayer.

About 40% of the income tax now goes to pay just the interest on government debt. I am not talking about the debt’s principal amount; I am just referring to interest cost which is dirt cheap at the moment.

During the Jimmie Carter administration, interest rates were almost five times greater than now. With the outstanding debt expected to grow by at least $9 trillion in ten years, future total interest costs can grow to unknown extremes.

It will be impossible to easily pay the interest, least of all the principal, without dire consequences.

This will be absolutely impossible without tremendously inflating the currency. That is, adding paper to the money supply to cheapen it.

That will make the real debt less, and what the citizens own worthless.

Forced Securities Selling In a Bear Market

We know that over the long term, securities holdings can grow a substantial amount. Market downturns will be corrected, given time to recover.

There is a problem with this thinking, should a sale be necessary during a downturn. Unfortunately, there is little an investor can do about it, except keep one’s fingers’ crossed about forced selling in a down-cycle.

Should the market flop just when an investor needs a securities’ proceeds and has to sell, no planning in the world, no high-powered adviser, will help.

If you need funds, the long term advantage of holding stocks will not help in a down market. In an emergency, selling into a bad market will create losses, despite long-term growth potential.

Apart from keeping your fingers’ crossed, anticipate emergencies with some liquidity, such as short-term bond holdings.

Lottery and Betting Odds

A bit more than $90 Billion is spent each year on legalized gambling in the U.S. The illegal amount probably far surpasses this enormous figure.

You may wonder why lotteries flourish when odds are generally terrible, against the player. Lotteries often pay off as little as 60 cents on the dollar. Whether legal or not. So why bother playing?

As for betting: the odds are not much better. Where bookies pay off in tax-free cash and the better is illegally laundering money, poor odds are reduced in favor of the bettor. Then the gambler’s net is actually much higher.

But then such a gambler is also betting on a possible stiff fine or jail sentence if caught.

So, the odds continue to remain stupid.

Credit Scores

About one third of a personal credit score is composed of each of the following factors:

One: The amounts you owe to other loan companies.

Two: Your past payment history.

Three: Various miscellaneous but important credit related items.

The latter are composed of about an equal part each of the type of debt you may have, along with your credit history and the new accounts or queries about debt you now have.

Check your credit account often, to see about the accuracy of the information. If there are errors, get them corrected immediately.

Reduced Numbers of Public Companies

About 9,100 public companies filed proxy statements with the Securities and Exchange Commission ten years years ago. However, in 2009, only 6,450 did. Why the smaller number?

There can be many reasons. But as someone who has been a principal in several, and as an observer of the corporate scene for many years, I feel there is a major underlying reason. Foreign companies may be fleeing as regulations are getting more onerous.

Sarbanes Oxley compliance is an example. The federal requirements are too expensive and put down restrictions on management which only plaintive lawyers find equitable and just. Being publicly owned is simply too restrictive; operating a business in a governmental tax and spend environment is tough enough.

Managed Funds Vs Indexes

The public continues to buy substantial amounts of managed mutual funds that are usually outperformed by most securities index funds, year after year.

And in instances where a fund manager may do better than an unmanaged indexed fund or exchange traded fund (ETF), he or she often will not repeat that success in following years.

Also, managed funds have higher expense cost for fund stockholders. Indexed, unmanaged mutual funds thus have a decided advantage.

A research study done by Morningstar, Inc. points up another positive factor. When risk taken by an average fund manager to attempt to outperform an index is considered, that manager’s efforts were found to have accomplished even less for the investor.

Paying for mutual fund management simply does not pay off.