How Obama can fix the economy
If the president really understood history, he wouldn't be trying to repeat it.
I'm having a very hard time trying to figure out who is prioritizing the administration's missions and goals.
President Barack Obama tells Wall Street bankers that they have a duty to fund mortgages and make small-business loans to simulate the economy. He holds press conferences to urge everyone to fund public health care and start spending.
Often, his press conferences are either about spending money the government doesn't have or taking away the incentive to produce goods and services by taxing to death the people he is counting on to kick-start the economy.
Someone needs to tell him that most of the behavior he is demanding is the very behavior that got us into this mess. What happened is evident. It's not brain surgery.
I can tell the president how to fix the economy.
First make mandatory reading for everyone in his administration Dr. Stanley's book "The Millionaire Next Door." Stanley, a GSU professor, has made a life's work studying how people get rich. Most had a very simple plan: Spend less money than you make and invest the difference. Don't have any consumer debt. Borrow only to invest in productive assets.
Second is to ask bankers to make consumer loans for mortgages only to people who can pay them back. People who can put 20% down, buy a home that costs no more than three times their income and with that loan have a debt service of less than 30% of their take-home pay deserve a mortgage. The rest don't.
Third, make loans to small businesses that need to buy productive assets to fill orders they have in hand but do not have the capacity to fill.
The other night when flipping channels I hit a reality show who's name I can't remember. People with small-business ideas pitched investing in their company to venture capitalists. Most came in with a product, market research, focus group results and a well-prepared pitch book.
One of these guys always asked the same question: "Besides all your research, how may orders do you have?" He turned down every pitch that didn't have orders in hand. What a novel idea. Sales of products not pitching of ideas. Isn't that what bankers are supposed to look for?
We need to get back to both governmental and personal fiscal responsibility. The president has to understand that it is not the duty of bank CEOs to fund the needs of society. The duty of bank CEOs is to their stockholders, to gather assets and use those assets to make profitable loans and investments. Their duty is to maximize profits for the shareholders.
The business of America is business, and the goal of a business is to make a profit. Any idea that will make a profit should be funded. The rest need to become case studies on how not to run a business.
Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email FinancialTides@gmail.com
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