2009: The Year of Living Furiously ... and a Few Predictions for 2010

BusinessWeek gives an end of the year recap of 2009. They start by asking, was it a good year or a bad year? Well…By most counts better than the disaster otherwise known as 2008, but nothing like the good times of 1999.  The S&P went up 23%, the Nasdaq went up 40%, but unemployment followed an upward trend also…up to 10.2%, and the budget deficit grew, like so many people’s waistlines. If your name is not Tiger Woods or Bernie Madoff, then 2009 was probably better than 2008. Even GM and Chrysler emerged from bankruptcy.

What did we miss? 2009 could have been a year for “real financial reform” in the words of Paul Barrett of BusinessWeek. Public opinion was strong enough to encourage politicians to enact real regulation, but not much happened. BW points out that 2008 was a “once-in-a-lifetime opening to overhaul the U.S. financial engine”. Well, we’ll have to wait for the next financial crisis. And – not to be dramatic – but back in the Great Depression in the 30s, it was only after the second fall in the economy that the new securities laws were passed.  

President Obama, after a great 2008, showed us he is not as strong once he is in office. In fact, he seems like, dare I say – a politician! And so many people thought he was different. No, he’s like the rest of the men and women in office – beholden to the people who put him there, and subject to the political winds, wherever they blow. It almost seems like we caught him sweating as he gave one of his speeches. He has become more like our past presidents – not as effective in real life as he is in the idealized world of campaign speeches.

Do we really believe Lloyd Blankfein, CEO of Goldman Sachs, that he is doing “God’s work” ? Hmm... I’m the first to say that the world needs business services, but really, “God’s work”? Methinks he is taking the concept too far.

Did the bailout do enough, or was it too weak as described by Paul Krugman? We will never know for sure, but we do know things could have been worse. Then again, they could have been better. In January, Krugman wrote “this looks a lot like the beginning of a second Great Depression”.  As much as I don’t like the idea of handouts, we can look to Japan to see what happens when a federal bailout is too little, too late. Let’s do what we can to avoid another lost decade – the “aughts” are a decade we don’t want to repeat.

Let’s put AIG to sleep once and for all. It is still limping along on life support, after all those bailout funds were swallowed up. Do we really need to hear about that company again?

Too Big to Fail: this problem has only gotten worse. Look at the size of the Bank of America, for heaven’s sake. It was big to begin with, then it acquired Countryside. After a big burp from ingesting that meal it acquired Merrill Lynch. I have seen Ken Lewis, the beleaguered CEO looking angry so much of the time, I would recommend he take time off for health reasons. All that stress can’t be good for him.

If an institution is too big to fail, it is too big to guarantee, and our tax dollars have already been spent. Paul Volcker is a big proponent of chopping up the banks into smaller players, so that when one of them goes down - which does happen sometimes - the event is not cataclysmic. Remember when Microsoft was being hounded for antitrust actions? Why not the big banks? Especially because our tax dollars are at risk – and the pile of federal income is so much smaller than it used to be.

Regulate derivatives. However, at the risk of giving you a sneak peak at a future post, I can tell you it’s not going to happen, due to shrewd lobbying and swayed politicians.  We should all have listened to Brooksley Born a long time ago. Brooksley Born is a brilliant woman who recognized in the 90s what a problem derivatives could be if not regulated. Born is an attorney who was head of the Commodity Futures Trading Commission (CFTC) from 1996 – 1999. She warned Congress of the risks of derivatives, and ended up going against Alan Greenspan, Robert Rubin, Larry Summers and Arthur Levitt (of the SEC).  These big names all pooh-poohed her legitimate concerns, and look at the mess we are in now. The one bright spot is that this year, in 2009, she received a Profiles in Courage Award for standing up to the naysayers. However, instead of an award, it would have been better had they actually listed to her and acted. Think of what we could have avoided!

The next future problem is climate change derivatives. If something is not done to regulate these I predict we will see derivatives fraud redux within the next five years. Combining financial fraud and the environment will really bring out the demonstrators – stay tuned for that one! I’ve heard there were so many crazies at the recent Copenhagen conference, and they will be looking for something new to do soon. Even George Soros is wary of this development, and that should tell you something.

And while we are on the subject of the environment, let’s revisit Cap and Trade. Cap & Trade is a wonderful idea in theory, but will it work in practice? It requires a strong central agency, and who is that? One of my future posts has to do with the loopholes in Cap & Trade. How about simple mandates? One bright spot in the last century of the United States is the development of the EPA and the environmental movement. And believe it or not, the government has done a few positive things which has kept our beautiful country from becoming a big asphalt parking lot. Maybe a combination of Cap & trade and mandates will be the answer, I would also like to keep tabs on the situation in California, a state with amazing natural resources, a huge population that needs those resources, and no money in the state coffers to help out. I welcome comments from readers on this issue – there is no easy answer.

The U.S. economy is fundamentally different at the end of ’09 than it was in ’07. The U.S. Government has truly become big brother, and now big boss. Now that they own so many companies, will they hang onto them? Government Motors? We’ll see how this does – hard to imagine it can compete against Toyota. Have you seen the ads for Ally? Wonder where this bank came from, and why you never heard about them before? Ally is the bank that GMAC created in order to become eligible for TARP funds.

Neel Kashkari, who worked under Henry Paulson to administer the TARP funds, is one of the smartest guys of all. He left D.C., and took time off to live in an idyllic setting in the woods. He was able to breathe fresh air, get some exercise and relax. Maybe Ken Lewis should follow the same program. Kashkari now works for PIMCO with Mohamed El-Erian, another respectable sort who seems to have his head screwed on right and can deliver a return.

Sarbanes Oxley – what will happen to this? It went to the Supreme Court in 2009, and we will see what happens in 2010.

Tim Geitner – what a tough job. But, he’s not a Goldman Alum, like so many others. So that is good. I predict he will be out by the end of 2010. Too many people are looking for a scapegoat, and he’s an easy target.

Ben Bernanke – he’ll stay.

Vikram Pandit at Citicorp – not looking so good, but he did pay back the TARP funds.

Some version of a health care bill will be passed, but costs will stay high. After all, these bills are about health insurance, not health care. We are still stuck with the same fraud, waste and duplication in the system that we all pay for in our high premiums.

My sympathies to Saturn and SAAB owners – may you always find someone to service your cars, long after the brands have been shut down. Cross your fingers – maybe with the dearth of those cars, they’ll rise in value, like antique cars. One can only hope.

That’s it for 2009! In spite of so many negative comments, I am looking forward to 2010 – who knows what will happen! And since we can’t predict the future, we might as well hope for a bright one, in the spirit of American optimism. Stay tuned, and I’ll keep writing about whatever happens in 2010.