Nothing about our economic system has really been fixed, or even diagnosed, and time is running out.

According to SANDY B. LEWIS and WILLIAM D. COHAN, nothing about our economic system has really been fixed or even diagnosed, and time is running out. This is the theme of a powerfully and clearly written Op-ed piece in today's New York Times, entitled "The Economy Is Still at the Brink":

We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game . . .The storm is not over, not by a long shot.

Lewis, who owns a brokerage house and Cohan, a Wall Street banker, succinctly present the problem and some solutions:

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? . . . Instead of hauling out the new drywall to cover up the existing studs, let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.

The authors lay out numerous areas of concern, many of them in the form of pointed questions. Why, indeed, haven't we taken steps to change the system? As Einstein once said, insanity is "doing the same thing over and over again and expecting different results." Lewis and Cohan urge President Obama to take these real steps, to get serious about the faux solution so far imposed (the massive injection of federal money in the absence of any systematic fix).

Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? . . . We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring.

Lewis and Cohan's Op-ed is must-reading and disturbing reading.

Continue ReadingNothing about our economic system has really been fixed, or even diagnosed, and time is running out.

Add your voice: Keep the Internet open and free.

The context for this post is provided by Michael Lynton, CEO of Sony Pictures, who recently stated:

I'm a guy who sees nothing good having come from the Internet. Period."

Now, in light of that bizarre, politically motivated statement, what's going on at the FCC? FreePress advises:

At this very minute, the Federal Communications Commission is crafting America's first national broadband plan. Whether the plan will give more control over our Internet to the likes of Sony Pictures, Comcast, AT&T, Time Warner Cable and Verizon depends on what we do right now.

These companies' well-heeled lobbyists are flooding the FCC's public docket with comments in support of policies that let them:

  • Tilt the Web’s level playing field to favor the Web sites of corporate partners;
  • Deploy content-sniffing devices that would randomly open and sift through our private Web communications;
  • Impose usage penalties on people who use the Web for more than simple e-mail and Web surfing;
  • Block innovative Web services that compete against their phone, cable and entertainment products; and
  • Disconnect users for any reason or without justification
What can you do to keep things on track at the FCC? Write a comment to the FCC. It will only take a minute. Let your voice counter-balance the monied corporate interests that are trying to grab hold of the Internet for the sole purpose of squeezing out profits, just as they grabbed hold of all other electronic media during prior decades. Note that we now have a president who is committed to keeping the Internet open and free:

Continue ReadingAdd your voice: Keep the Internet open and free.

Barack Obama’s impressive speech in Cairo

Obama gave a terrific speech (here's the video). In the first ten minutes, he detailed the many connections between Islam and the United States (yes, Rep. Keith Ellison did take his oath of office using a Koran once owned by Thomas Jefferson). The first condition for progress of any type is to plainly state where we are, and Obama's speech did a great job of this. Yes, our many misunderstandings, driven by irresponsible media frenzy, occlude plain facts, several of them highly embarrassing to the U.S. For instance,

For many years, Iran has defined itself in part by its opposition to my country, and there is in fact a tumultuous history between us. In the middle of the Cold War, the United States played a role in the overthrow of a democratically elected Iranian government.

That, then, is how we can repair the damage: by establishing trust by stating the facts. Only after speaking frankly can tone matter. Obama's tone was impressive, based on the many applause interruptions. But good tone is nothing without admitting undeniable facts. Only then can we move forward. By traveling to Cairo to make his speech, Obama has made a dramatic statement that America is no longer framing its diplomatic strategies through the use of crude stereotypes. I don't know whether the audience entirely trusts America, but this was a huge step in the right direction.

Continue ReadingBarack Obama’s impressive speech in Cairo

How to really reform the SEC

Dan Smolin asks a good question: Why should we assume that the SEC's Mary Schapiro will make a U-turn in 2009, given that Schapiro has spent her entire career inviting brokerages to "self-regulate" and doing everything in her power to keep consumers at bay when they are ripped off and kept in the dark by brokerages? The easy answer is that we shouldn't assume that Schapiro will all of a sudden go to bat for the consumers. After all, Schapiro "has been at the very center of a failed regulatory process for the past two decades." We know where her loyalties lie, just like we know that Tim Geithner will never turn hard against Wall Street to clean up the corruption (see here for more details on Geithner--and here). Truly, years of actions speak much more loudly than months of words for both Schapiro and Geithner. I am convinced that Obama doesn't have the horses he needs to clean up Wall Street corruption. It's a typical modern conundrum where you need a highly motivated powerful outsider to get the job down, but there simply aren't enough highly motivated powerful outsiders. If Mary Schapiro had even an iota of interest in protecting consumers, Smolin wouldn't be needing to advocate for the following changes he is now pushing--they would have been a reality years ago:

1. Abolish the mandatory arbitration system and give investors back their constitutional rights;

2. Abolish "self regulation" by FINRA, which is a sham. The brokerage industry should be regulated by a governmental authority with the power to do so effectively. The SEC would be the likely agency to do so, with the right leadership;

3. Require brokerage statements to:

(a) Disclose the risk of every portfolio, as measured by standard deviation; (b) Compare the returns of every portfolio to a portfolio indexed to benchmarks of comparable risk; and (c) Disclose the "cost equity" of the portfolio, which is the amount the investor must make to break even, after payment of commissions, fees and margin interest. Common sense, right? Why aren't these reforms a reality? Good question. And why is a terribly motivated person like Mary Schapiro still sitting there pretending to be a reformer?

Continue ReadingHow to really reform the SEC