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Today's Commentary: 10.27.06
A Sense of Urgency
There is a sense of urgency on Wall Street as the mid-term elections near. It is most easily noticed when information about campaign contributions to incumbent Republicans, much of it coming from the business groups they favor the most, swells the coffers of those most challenged.
No matter how much the strength of the economy is touted, from the low unemployment rate (4.6% is measurably historic but in reality, it fails to reveal the truly underemployed) to the vibrancy of the stock markets (if only all stocks on the Dow were participating in the record setting run-up), the GOP is in danger of losing all they have achieved.
And with good reason. Losing control after twelve years won't be due to the fact the Democrats have a better plan for the future. Fixing what is badly broken is never an easy task. But doing it in a timely fashion will be even more difficult.
There are many problems with the economy that have built up years of momentum. Wages have stagnated as inflation has proven to be unevenly distributed. Industries such as oil, drugs, HMOs, and any business whose profitability concerns have forced them into the use of outsourced jobs are all in jeopardy of losing ground if the power shifts in several weeks.
But much more troubling is what is already in motion that might just escape the notice of those trying to rectify the middle class position in this country.
Operating well below the radar, Treasury Secretary Henry Paulson is trying to invigorate an effort to make our financial markets more competitive. To the average American, his attempts are little noticed.
Few if any middle class workers could tell whether a push to increase Chinese capitalism will be good for them. Fewer still would agree that we need to remain competitive on the global stage when we have been hailed as the worldıs consumers, willing to borrow whatever is required to keep the incoming river of foreign goods flowing.
And only a handful of people outside Wall Street concern themselves with his efforts, as the chairman of the Working Group, (Chaired by the Secretary of the Treasury, the Working Group includes the Chairs of the Federal Reserve Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission) to address the problematic behavior of hedge funds and the derivatives markets. Most Americans can't fathom the effects of the possibility of a financial crisis that might come at the hands of these types of investments.
Quietly, and with good reason, he is using his formidable persuasion to change how our capital markets operate. If Mr. Paulson had his way, he would banish the Sarbanes-Oxley rule. What has proven to be less costly for businesses than previously anticipated and much better for the average investor, Mr. Paulson suggests is a deterrent to outside (foreign) corporate investment. The argument he makes is simple. With so many unnecessary reporting rules, who would want to launch an IPO in American markets?
As the last of the Enron execs heads off to jail to do a quarter century's worth of penance for bilking shareholderıs trust, Mr. Paulson is examining the rules and regulations that make our markets so efficient. Whenever there are clear rules of operation, markets will attract investors. Whenever investors have recourse, there is efficiency.
The US markets are currently one of the few places on the planet that advocate for shareholders. With regulations in place and the regulatory agencies empowered with the ability to investigate breaches of investor trust, what Mr. Paulson is doing is wholly unnecessary.
To demonstrate how urgent Mr. Paulson perceives the upcoming elections, he has assembled a committee of business leaders and pro-business academics to produce a report on the subject. Noticeably missing from the group looking to make recommendations for these proposed wholesale changes are shareholders and any groups advocating on their behalf. Understanding the impact of the upcoming elections, Mr. Paulson has suggested that they conduct their study with a sense of urgency.
You won't find this on any campaign slogan in the upcoming week leading to the November elections. But with any luck, the political cycle will squash this effort at wholesale change where none is needed. Mr. Paulson cannot operate without Congressional approval and if that legislative body changes, he will have a much more difficult time achieving what is best left alone.
The Blue Money Report
Financial Commentary covering a wide range of topics concerning money, investing, and how it effects the average investor and their financial health.
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