For People Who Think

November 27, 2009

A Word about Joe Bruno & the ethics of Politics

Filed under: Uncategorized — 4peoplewhothink @ 8:24 pm

Sometime soon, if they haven’t done it already by the time this blog appears, a jury in U.S. District Court U.S. District Court will decide whether former State Sen. Joe Bruno is a criminal. The jury’s job is to decide if Bruno’s behavior in collecting $3.2 million in fees from financial management firms for persuading union bosses to invest their various benefit funds with those firms was a violation of what’s called the “honest services law.” That’s a 28-word federal statute signed by Ronald Reagan more than two decades ago that makes a federal crime out of politicians serving their own financial interests to a greater degree than they serve the interests of the public they’re supposed to represent.

I had a caller on my Talk 1300 radio show the other day theorize that the prosecution of Bruno, the retired New York State Senate majority leader, was nothing more than the Democrats going after Republicans. The problem with that theory is that this probe of Bruno’s financial dealings while in office began several years ago, under a U.S. Justice Department controlled by Republicans. I’ve made a point on my program of expressing no opinion on Bruno’s guilt or innocence. I haven’t been in the courtroom. I haven’t watched or listened to witnesses testify directly. I know only what I’ve read or heard or watched broadcast about the testimony and arguments.

What I do know is that Bruno’s reaction to this prosecution, that this prosecution is nothing more than a blood insult unfairly staining the reputation of an admirable man, makes the point that too many politicians are far too removed from the harsh reality of the lives led by their constituents. When the famously corrupt “Boss” Tweed, the legendarily sticky-fingered leader of Tammany Hall, went to prison on corruption charges so many years ago, he listed his occupation on prison forms as “statesman.”

I’ve known Bruno for 25 years or so. I’ve always liked the man and regarded him with respect. I’ve lived in his State Senate district and cast votes on his behalf on election day. But if he really believes the prosecution of a politician who made $3.2 million doing business with people directly affected by the political power he wielded is nothing more than an insult then he’s displaying a rather breathtaking capacity for missing the point. It’s certainly possible that he’ll be found not guilty, but with eight counts to defend the odds are that he’ll be found guilty of at least one. If so, it would be my hope that Judge Gary Sharpe would resist the temptation to send to prison an 80-year-old cancer survivor. A hefty fine returning some of that money to taxpayers would strike me as more appropriate.

It’s also true that the conviction, if it comes, might be voided by challenges facing the statute in the U.S. Supreme Court, where critics regard the law as too broadly written and too powerful a tool for federal prosecutors. We’ll see. The larger point, though, is that the Bruno trial has given us a nose-wrinkling peek into the open sewer that is the New York Legislature. Because of laughably lax disclosure and ethics laws and pushover regulators, voters and taxpayers had no clue as to what Bruno was doing. They have no clue to what any of these supposedly part-time legislators are doing until the feds indict one of them, as occurs with stomach-turning regularity. We don’t know how much these people earn on the outside, who pays them or for what. We find out about it, apparently, only when one of them violated the political rule once articulated to me by my most insightful journalism professor, the late Bob Williams. Bob’s dictum was, “God helps him who helps himself, but God help him who helps himself too much.”

Full and public disclosure of outside income by New York lawmakers would help with these problems, but none of it is a prescription for producing people’s representatives who understand or care much about the lives of the people they’re supposed to represent. And none of it would accomplish much in ensuring that lawmakers vote the people’s interests instead of their own.

In Washington, for example, members of Congress are paid about $170,000 a year with no outside work permitted. They also deal with comparatively stringent requirements on listing holdings. None of this has kept stock ownership from soaring on Capitol Hill over the past two decades. The investments increasingly put lawmakers in the position of voting or advocating on matters that could affect their personal holdings, especially when we have Congress handing out billions of dollars for stimulus projects, federal bailouts and health-care reform.

Growing investments on Capitol Hill, such as those in the medical-device industry, raise serious questions about appearances of conflict. On Wall Street and in federal agencies, even the suggestion of a conflict is often the basis for an investigation. Not in Congress, though, and especially not in the New York Legislature, where taxpayers pay the average lawmaker roughly six figures for his or her part-time job, and we don’t even know what stock is owned by New York legislators.

We do know that in Washington more than half of all lawmakers own stock. In the House, the number of lawmakers trading stock jumped from 91 in 2001 to 259 today, according to the nonprofit Center for Responsive Politics. That includes 68 members of Congress who, as of the beginning of 2008, individually owned more than $100,000 in stock. And that doesn’t include what they might own in mutual funds.

Some of the most popular stocks in Congress include General Electric, Microsoft, Bank of America and Procter & Gamble. Some of these companies are also government contractors or bailout recipients. Top industries include oil and gas, electronics and health-care products. In the medical-device field alone, one in five Washington lawmakers owns $6 million to $14 million worth of stock. How many New York Legislators own stock in companies that collect New York tax dollars? Nobody has a clue.

According to the Washington Post, “Lawmakers [in Washington] are more than just ardent investors: They’re unusually successful ones, according to two statistical studies done several years ago by a group of academic researchers. After examining trading data contained in financial disclosure forms from 1985 to 2001, the researchers found that congressional portfolios have regularly outperformed those of average Americans over the years. The report said a ‘portfolio that mimics the purchases of House members beats the market by 55 basis points per month.’”

If you have a money manager, ask him or her how that compares with the luck of the average investor. Ask how it compares with the performance turned in by the shrewdest and most highly touted mutual fund or hedge fund managers. We have no such information on the holdings of New York lawmakers because they don’t have to tell us. We can reasonably presume that if this information were available in Albany the results wouldn’t be much different. Sitting in Congress or in the New York Legislature can be a lucrative enterprise. We don’t know how lucrative it turns out to be here in Albany, but the Center for Responsive Politics reports than in Washington 237 of the 535 members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall.

The richest member of Congress at the moment is California Republican and car alarm king Rep. Darrell Issa, with a net worth estimated at about $251 million. Next in line: Rep. Jane Harman Democrat of California, who’s worth about $245 million. She’s followed by U.S. Sen. Herb Kohl, Democrat of Wisconsin, who’s worth about $215 million; Sen. Mark Warner, Democrats of Virginia, worth about $209.7 million; and Sen. John Kerry of Massachusetts, the Democrats’ 2004 presidential nominee, who’s worth, worth nearly $209 million. At least seven members of Congress are worth more than $100 million.

Is it true that many of these people made or inherited their money before they went to Congress? Sure. Did serving in Congress make them even richer? Probably. Do we have a similar situation in the New York Legislature? Who the hell knows? And who would be surprised if we did?

So, Joe Bruno can be as incensed as he pleases with this prosecution. He or may not be found guilty of violating a federal law that may or may not stand up under U.S. Supreme Court scutiny. But anybody who has followed this trial and kept track of the evidence has to simply retch at the picture this trial has revealed to us – that of a man already a millionaire ascending to enormous political power in his 60s and using his $120,000-a-year leadership post to enrich himself to the tune of even more millions. And all this occurred as the people who support the system with the highest taxes in the nation, depending on the year, sank into soaring rates of unemployment with no real sign of relief for years to come.

The real problem isn’t Joe Bruno, who – in the immortal words of Boss Tweed — merely “seen my opportunities and took ‘em.” The real problem is that the laws in New York both permit this sort of conduct and even encourage it to a greater degree than the laws in far-away Washington, home of all those public-spirited multimillionaires representing the people in Congress.

November 18, 2009

Is it time to jump back into the Stock Market

Filed under: Uncategorized — 4peoplewhothink @ 5:42 pm

“Have you given any thought to getting back into the market?” My financial adviser was asking me the other day. “Do you feel confident enough?”

“Not at the moment,” I told her. “I just don’t trust things yet.”

“I know what you mean,” she said. “I have the same concerns.”
After hitting bottom with a resounding thump back in March, the stock market is now soaring like an eagle over the Rockies. It has broken the five-figure mark for the first time in 13 months. But is this rebound real? Are we witnessing the return of financial health to the equity markets, or are we merely watching the growth of a new bubble?

By the calculations of some people who know far more about these matters than I do, the Dow’s current value is only three-quarters of that 10,000-plus figure because of the ground the U.S. dollar has lost against other currencies. Also, the sheer, breathtaking speed of this recovery should invite doubts. Sure, the recession’s is officially over with a 3.5 per cent annualized rate of growth in the third quarter, but does that justify what’s a roughly 60 per cent jump in stock market values since March?

Yes, the corporations are showing profits, but most of that has come from aggressive cost-cutting rather than increased sales or market share. How long can they get away with that? The same with productivity. The corporations realized gains there by lopping off heads with gleeful abandon. The result is that unemployment and foreclosure rates are still rising, consumer and commercial borrowing remain only a rumor, and small businesses, which don’t register on the Dow, never had a tougher time in securing financing. Small businesses own half the country’s jobs. New businesses have been pretty much the sole contributors to job growth in this country for 20 years. And now they can’t get credit, we have nearly 16 million people out of work and the Fed chairman is predicting even higher unemployment?

What we seem to be seeing, then, is another balloon. What’s keeping this balloon in the air? Part of it has to be investor giddiness at the realization that this awful recession hasn’t sunk into a repeat of the 1930s. Thank the $787 billion stimulus for that, even though it hasn’t created that many jobs. Part of it seems to be the Federal Reserve System’s continued embrace of low interest rates. With rates at rock bottom, institutional investors who otherwise would exhibit more caution are venturing into the stock market just to show returns. The result? Stock market inflation.

Low interest rates also explain in part why many of the stocks that have led the recent rebound are financial stocks. The financial firms reap immense benefits from their current ability to borrow money at rock-bottom-low rates. Note that just four stocks — Bank of America, Citigroup, Fannie Mae and Freddie Mac, all beneficiaries of the Fed’s largesse – make up 20 percent of all trades. Half this year’s profits for banks come from the group dubbed “too big to fail.” Those profits are a lavish gift represented by the government’s enabling through lower-cost borrowing. Moreover, much of the buying is being done by high-frequency traders – speculators, if you will — as opposed to long-term, buy-and-hold investors. High-frequency trades make up 70 percent of the market by trading volume. If 70 percent of the market’s volume is driven by speculators who don’t much care about business basics then danger looms large for 401(k) mutual funds managed by long-term investors whose primary clients live on Main Street, not Wall Street.

The bottom line would seem to be that public companies squeezing profits out of anemic balance sheets can’t expect to get away with that forever. Until real people feel secure enough about their jobs to begin spending again, and creating more jobs in the process, there’s a real danger that this stock market bubble, like the housing bubble before it, faces the threat of a gigantic, deafening POP!

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