Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

Dear American Taxpayer and Voter,

For your own sake, I implore you to get over your anger at Wall Street fat cats – they have already lost more money than you will ever make. Neither you nor your Government gives a hoot about the loss of their personal wealth. Those fat cats have always known that theirs was a high risk career, which meant that in the good times they made scads of money and in the bad times they stood to lose it all. You could say they live by the sword and die by the sword and right now you are witnessing many of them dying by the sword.

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Last Friday, behind closed doors, Treasury Secretary Hank Paulsen and Federal Reserve Chairman, Ben Bernanke, gave Congressional leaders the Armageddon scenario for financial markets and the US economy and provided an emergency solution in the form of Government intervention. Because they are not fools, our Government leaders saw the light and in a televised speech they announced that they would set aside politics and join forces to enact legislation to secure the viability of the financial markets. That was last Friday.

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The uptick rule made sense when it was instituted back in 1938 and 70 years later it still makes sense. Simply stated, the rule required that a short sale be executed only if the latest transaction in the stock was at a price higher than the previous trade, i.e. had been an uptick. The various arguments made for its elimination do not hold water relative to the rationale for its existence – as a check and balance against ‘bear raids’ on stocks. Its elimination was a mistake and the recent rampant and destructive bear raids on more than a handful of financial stocks is evidence of that mistake.

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In the beginning – there were bad lending practices. And they are at the core of this extraordinary mess.

What was at the heart of the bad lending practices? The Federal Government!! Under both the Clinton and Bush administrations, it was government policy to encourage the private sector to ease underwriting standards in order to expand housing ownership in the U.S. The Federal Reserve under Alan Greenspan was an enabler in that development, by employing a monetary policy that kept interest rates exceedingly low, to the benefit of mortgage seekers. So lay blame on the US Government for bad policy.

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Reading with horror about how small children are being separated from their parents and how siblings are being separated from each other by as much as hundreds of miles, with no sense of an end to this banishment, I keep asking, “What is the crime?” and “Who are the criminals?”

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Enough is enough. If the stock market is ever to turn all the way around, there must be an end to what is clearly becoming a witch-hunt on the part of the Congress. Congress, which cannot seem to keep its own books straight, is hell bent on straightening out corporate America – and it is obviously acting, with elections around the corner, for political gain.

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The new year has witnessed the political rhetoric become pointedly directed at the economy. Not surprisingly, the Democrats, aggressively led by Senate Majority leader, Tom Daschle, are now blaming Republicans for creating a budget deficit with the tax package that was passed in the spring. That tax package was not only appropriate but it was good (not bad) economics. Even more astonishing has been the performance of President Clinton’s one-time national economic adviser, Laura D’Andrea Tyson. On television a few days ago, she actually blamed the current recession on the tax cuts put into effect last spring. Where was she when President Clinton was cutting the capital-gains tax?

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Two airport security events struck me on my trip to Florida this past weekend. Firstly, the x-ray scanner at LaGuardia Airport detected a small nail clipper in my cosmetic case and the security staff gave me the option of checking it in (which meant going back through the long check-in line) or of giving it up immediately and buying a replacement later. That was an easy decision. Why not help out the economy a bit and avoid a hassle?

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In the aftermath of September 11, many insurance policyholders and investors legitimately have expressed concern over the viability of their insurers, the security of their policies and the future of their insurance investments.

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The emergency aid being provided to the airline industry by the federal government is both essential and legitimate. This is not a bailout, as it is often being called in the media. Nor is it an undeserved life raft to guarantee the survival of every airline (we have already seen Midway shut down, and America West and U.S. Air are in serious financial straits). Rather it is an infusion of cash that is essential to an industry that is woven into the fabric of our economy.

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