Congressmen Beat the Market, Leveraging their Insider Information

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American Public Media’s Marketplace reported that Congressmen have on average fared 1 percent better than the overall stock market on their personal investments, according to Georgia State University business professor Alan Ziobrowski.  Said Ziobrowski, “We have every reason to believe they are trading on information that the rest of us don’t have.”   Acording to the Marketplace report, Minority Leader John Boehner sold $40,000 in mutual funds the day after attending a small briefing with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke in September ’08 after the duo had dashed to Capitol Hill to tell a small group of legislators that the country was teetering on the edge of financial catastrophe.

Cabinet Secretaries Exceed $100 Million Savings Target – Barely

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Challenged by President Obama three months ago to deliver $100 million in savings for the current fiscal year, his Cabinet secretaries collectively responded by identifying $102 million of savings opportunities, the “Wall Street Journal” reported.  Regrettably, most of these “savings” opportunities were actions that should have been done as a matter of course, without White House pressure:

  • Department of Justice: adopting two-sided copying,  for the first time ($430,000 fiscal 2010 savings)
  • Department of Justice:  discontinue use of travel agents, book travel on-line ($4 million)
  • Forest Service: will no longer paint newly purchased vehicles green ($1.8 million)
  • Office of Thrift Supervision: phase out unused phone lines ($320,000)
  • U.S. Navy: delete unused internet accounts ($5 million)
  • Air Force: switching from specially prepared fuel, to standard jet fuel, plus some additives ($52 million)
  • Dept. of HUD: turning off the lights in non-working hours, and centralizing PC power supply ($525,000)

The article is a reminder that there are sometimes ample savings available to any [government or business] organization which do not require any cuts in programs or services whatsoever.  Of course, finding such savings usually requires someone to be motivated to look for them in the first place.

What Caused the Current Financial Crisis?

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The current U.S. (and world) financial crisis started only two years ago, but there is also an emerging consensus of what caused it, thanks to the work of Paul Krugman, Robert Shiller, Jeremy Siegel and even graphic artist Jonathan Jarvis:

1. The Federal Reserve Bank lowered interest rates to 1% in the beginning of the decade to stave off a recession, after the dot.com bust and 9/11.

2. Greedy mortgage lenders lowered lending standards, stimulating the housing market to gallop ahead of real income growth. The Federal Reserve bank did nothing about the resulting real estate “bubble.”

3. Wall Street institutions created new financial products that allowed mortgages to be securitized and then resold from the institutions who knew the lenders to those who did not, making it an even more attractive source of profit for original lenders.

4. Wall Street firms such as Bear Stearns and Lehman Brothers took on unimaginable amounts of leverage, edging themselves even closer to the precipice, sometimes with little or no direction from their boards.

5. Abandonment of the Glass-Steagall Act of 1933 meant that troubled financial behemoths such as Citigroup were ill-equipped to lend to consumers and small businesses once the financial crisis hit.

To start learning about the causes of the financial crisis at an easier pace try visiting Financial Crisis for Beginners.

Also, David Rudofsky conducted a free webinar on 7/14/09, titled: “Financial Crisis: How Did We Get Here?” which is archived at the Webex site.

Obtaining a Small Business Loan Should Become Easier

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President Obama and Treasury Secretary Geithner’s March 16th announcement of plans to “Unlock Credit for Small Business” should have a very positive impact on small business lending in the U.S. Specifically, they have temporarily increased the Small Business Administration 7(a) loan program guarantees from 75% to 90% of the loan value, as the lower percentages had not been large enough to give banks the confidence they need to lend. As most small business owners realize the first time they apply for a small business loan, the SBA is not the actual lender, there still needs to be a lending institution that is willing to take them on as a credit risk. This recent action by the Obama administration shifts more of that risk to Uncle Sam, and should have a very favorable impact on how lending institutions view the risk-return of small business loans, increasing the flow of credit to this essential part of the U.S. economy.

Eric Schmidt, take my $15, please!

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I was so frustrated with the inability to manage the Rudofsky Associates blog, that I almost sent a $15 check to Eric Schmidt, the CEO of Google, asking for better consumer support for their Blogger software. Problem is, Blogger software is free, and at that price, the consumer support is pretty much non-existent. There is no way to get a human being on the phone, and although I thought Blogger was a decent entry-level solution when the Rudofsky Associates blog was new, I recently found that I could not use it to delete old posts dating back to 2005 which now had broken links. I never did send the $15 check to Eric Schmidt, but if I had, the cover letter would have gone something like this: “Dear Dr. Schmidt: I know Google currently does not currently offer customer support for Blogger, but here is a check for $15, please hold it, and if you ever do, please put my name at the top of the list!”