The genie is indeed out of the bottle; and the point when it became clear to me that it’s an evil rather than a benevolent genie was when the captains of the securities industry stood before a Congressional Committee and had the temerity to announce that their industry was the “backbone of the American economy.”

Once upon a time, a broker was a facilitator and nothing more. He was someone who was in a position to bring a willing buyer and a willing seller together and help them effect a trade. At that time, bringing investment money to enterprises in need of capital was constructive and deserving of the label of, if not the “backbone of the economy,” certainly its enabler.

Even after 1792 when those 24 brokers, meeting under the buttonwood tree at the foot of Wall Street, formed the New York Stock Exchange, the ability to assist investors desirous of owning shares in one or another company could be considered a wholesome service—but not for very long. Realizing that they could make more money from investors than from investments, the securities industry pioneers guided their industry down a path that took it from constructive investment to gambling, from earning money with one’s money to seeking something for nothing.

Financial innovation has been a characteristic of that industry; and, as the years have passed, the public has been duped into thinking that trading—short term speculation on the movement of the market itself—was actually investing, deserving of the same respect as the part-ownership of thriving businesses.

The genie’s name is Credit. At first reserved for fiscally responsible purposes—collateralized leverage that could produce revenue and income more rapidly than could resources limited to what existing assets could afford, financial innovation carried credit beyond its constructive business use and found justification in encouraging home ownership, collateralized to be sure, but by a home, an asset of substance but one which produced no income.

Eventually, such innovation carried it beyond the point where it was used solely for business and major purchases of valuable assets to the point where, today, credit is used for expendables and to satisfy the self-destructive trend toward converting luxuries into necessities: now the overheating engine of our economy. Like a Ponzi scheme, our society’s misuse of credit has an ultimate dead end. Credit is simply an obligation that extends into the future. And the future is not infinite! As it is, we have already mortgaged our own futures and those of our offspring; and we are well into committing the lives of our grandchildren to satisfy our own cravings for material things to which we are not entitled by virtue of our own productivity.

So, like the Ponzi scheme or chain letter, the trend must end. And just how chaotic and traumatic that end will be depends, unfortunately, upon the courage and intelligence of our elected representatives.

That scenario never would have happened, had either of the Commanders-in-Chief following the attack on the WTC on 9/11 shown the wisdom and courage that a former Missouri clothing salesman once had when in their shoes. President Bush should have made it clear to those hostile tribes that our enemy is anyone who so easily sacrifices innocent lives—including their own. Especially when they use themselves, their women, and their children as weapons of mass destruction. And he should have given his theater commander the go-ahead to act accordingly.

President Obama should have done the same. Certainly he shouldn’t have shackled that professional soldier—or any, for that matter—with responsibility for the safety of those “weapons” that are constantly being used against the truly innocent, to say nothing of our sons and daughters in his charge.

As distressing as it was, I prefer to contemplate the millions of innocent lives saved, and the preservation of our civilization—results of President Truman’s decision to nuke Hiroshima and Nagasaki. He had exactly the same issues to grapple with, but made a wise and courageous, and even more heart-rending decision.

For McCrystal to have tried any harder to talk some sense into his superiors would have been plainly insubordinate—and unsuccessful. But to give a publication like Rolling Stone, known for its bias, the chance to rat on him and his staff, was a stroke of genius! What more spectacular way to register his frustration and discontent with the public! And without really “breaking the code.”

These are trying times for our professional soldiers. The academic elite who believe their educations and backgrounds qualify them to make better decisions for the country are, at best,  decent folks who lack the street smarts necessary to recognize their enemies, much less know how to beat them. And those we’ve trained and ask our warriors to protect us from are only too happy to exploit that fact and laugh at our leaders’ intellectual delusions.

I, for one, thank you, General McCrystal! Thanks for falling on your sword and making such a sacrifice in hopes someone would get the message and give us a chance to get it right! I only wish you had more of a reward coming than simply being content with what you see in the mirror every morning! You deserve much, much more for your service!

Our nation's birthday.

On this anniversary of the birth of our republic, it’s only fitting that we reflect a little on what we won in the Revolutionary War. Just what did we get in return for the sacrifices made in that conflict? Did we really get a republic? Or has it turned into something else?

Populism is a political model that would have the government champion the “common man” and satisfy his needs and wants. Many definitions of this term refer to the struggle of the lower class against the elite. Prime examples of this are Bolivia or Venezuela, where Evo Morales and Hugo Chavez, respectively, have been elected by the people to act in their best interests. And, in those nations, it is a neglected, indigenous population or an underprivileged underclass that has placed their trust in these demigods—someone whom they believe is “one of them” but who, they think, has the ability to act as capable steward of their nation.

A republic is also a political system in which the the citizens elect people to represent them and see to their interests. The United States and France are cited as examples of this ideology. In this model, the electorate also elects their representatives and expects them to be capable stewards of their nation.

It should be obvious to anyone who reads the headlines about those populist countries that the system doesn’t work. As much as the elected leaders claim to have much in common with the lower classes who put them in office, in short order, they separate themselves from their constituencies and squander their countries’ resources. As it turns out, the so-called “elite” against which they struggle just happen to be the only ones with the skills required to manage the country and its resources competently.

Like it or not, our  country is rushing toward populism. Our politicians have used our tax dollars to buy a voting majority that is interested in themselves at the expense of the nation as a whole. Those they put in office are incapable of making decisions that might displease their constituencies but which are for the good of the country. We are certainly hard put to find any candidates that might be included in a sequel to John Kennedy’s  “Profiles in Courage.” Or, if they’re in office, their careers are short-lived.

Our kids our taught that profits are evil and that American business and industry deserve no respect. Yet that is where we must look to recover this nation’s wealth, restore the necessary jobs, pay down our national debt, and get back ahead of the game! The “elite”—the entrepreneurs and the businessmen who are capable of generating the funds to pay for all our excesses—are being shackled and prevented from doing what they do best. So we’re not only rapidly decreasing our ability to generate our national wealth, we’re even more rapidly placing greater demands on it.

It’s time we returned to the point where we started in 1776 and recognized just what it was we won! Friends, we won nothing more or less than the opportunity to build a great nation. What we did with it when we first won it was remarkable. What we have done with it in recent years would have our founding fathers shaking their heads and wringing their hands in dismay.

Most importantly, what we do with that opportunity now is up to us. But we’d better do it quickly or we’re going to lose it forever!

Here’s what the public really needs protection from:

1. Its own ignorance. This is certainly number one! Had the public been at all intelligent or educated about borrowing, they would have known better than to expect either the government or the lenders to protect them against borrowing beyond their means for homes they couldn’t afford. The first issue is financial literacy, which is sadly lacking in our society, our schools—and especially our Congress to begin with!

2. The Congress. This is the gang that a) tried to buy still more votes by forcing the banks to relax their credit standards and lend money to those poor folks who couldn’t afford to own homes but didn’t know enough to realize it—or, worse, lied about their ability to do so, b) repealed the Glass-Steagal Act of 1933, now allowing the scoundrels who operate the securities industry—the gamblers and financial cowboys—to finally get their hands on the deposits hard-working Americans entrusted to the banks, to fund those doomed loans; and c) had the shameless temerity to appear on public television and blame and pillory the bankers for doing the very things they forced them to do. Lawd, save us from Congress!

3. The Securities Industry. This is the bunch who, since they first started the US stock market in 1792, have conned the American public into thinking they deserved as much respect and veneration as the banks. They were, and are in fact, nothing more than another level of casino operators who have consistently lined their own pockets by offering the hope of something for nothing to the public they relentlessly dupe under the guise of “investing.” It’s they who, over the years, have come up with all kinds of innovative products to peddle that are nothing more than an extension of that notion. And now they’ve been allowed to put at risk the deposits from the banks they now own! This is the industry that, until the 1930s, manipulated the market so they could make money on its ups and downs from an unsuspecting public. These are the institutions that were caught red-handed by New York’s Attorney General, Eliot Spitzer, benefiting from gross conflicts of interest in dealing with their clients—to the tune of $1.4 billion in fines for the top ten security firms—at the turn of this century. Spitzer even sent packing in disgrace the venerated head of the respected New York Stock Exchange, Richard Grasso.

Until these clowns came along, banks could do very well, managing their risk, holding funds in reserve for their mistakes, and lending only to those they judged to be capable of meeting their commitment.

They say, “if it ain’t broke, don’t fix it.” And now we’re being asked to vote for folks that broke it so they could take credit for fixing it? C’mon!

As things were going, it was beginning to take a little effort for intelligent investors to find worthy buying opportunities, what with the herd commencing to trust the recovery (without a clue why) and beginning to again overvalue some of the good companies.

But, thanks to their skittishness (and cluelessness), we’ve got another fire sale going on and part-ownership of those good companies is once again affordable for the educated, business owner-aspirant.

For rational investors, whether Greece hits the skids or the Dow tanks, the value of your portfolio is what it is—which is no different from what it was. And it is still not as valuable as it will likely be in the future, assuming you used the appropriate care in picking the companies to own whose operations generate solid earnings growth for their owners. What counts is not the herd’s perception of its value; it’s your recognition of its real value: its rational value.

If you use Investor’s Toolkit 6, the Rational Value can be found on each portfolio’s “Overview” page. If you don’t have the software, you can easily calculate it. For each company, simply multiply the trailing 12 months’ earnings per share by the company’s “signature PE” and that result by the number of shares. The sum of each holding’s rational value is the value of your portfolio, based on what investors will pay when they’ve come to their senses.

You’ll never lose any money—ever—if you can hold onto your shares until the market comes back to its senses, which it always will. Even if you can’t for some reason, if you take out only the minimum you must, it’s likely that the limited loss on those withdrawals will be more than compensated for by the return on what remains.

The righteous indignation and wrath displayed by the key players was great theater, of course, and played well to those political populists who still don’t understand that it was this very same Congress that forced these institutions go into the sub-prime mortgage business against their wills in the first place!

This was the same Congress that repealed the Glass-Steagall Act of 1933—legislation which had prevented the banks from taking risks that were limited to the securities industry—and permitted the banks and securities firms to merge and do all the things they’re now being castigated for.

Securitizing those loans was simply a matter of risk-management for these institutions, as was going short when the bottom started to fall out—entrepreneurial innovation employed to help them survive under circumstances their inquisitors had forced them into in the first place.

And you can bet, had they not taken whatever steps were legally available as were these, the failure of these institutions would have brought down the wrath of all parties on them for failing to take the steps necessary to protect their shareholders!

But it sure pleases this ignorant, bloodthirsty crowd to see the icons of capitalism taken down to their level!

Don’t get me wrong! I don’t countenance either greed or unethical practices; and I’m on record with some pretty strong feelings about that. But, if there’s anything that ticks me off more than a captain of industry turned pirate, it’s our hypocritical and fiscally illiterate lawmakers!

Here’s just a quick note to let you know that the political campaign I’ve entered is going surprisingly well, considering I’m not much of a politician.

I’m running against corruption and cronyism in my town and county. Someone “up there” must be watching because my opponent and his supporters just made an incredibly imprudent blunder and left themselves wide open. The newspapers are full of it; and, even though I started with no name recognition (and a refusal to clutter up the landscape with signs), we’re starting to make some headway.

The campaign is short—election’s on March 9th—and then, if all goes well, the fun really begins.

Thanks to so many of you for sending your good wishes. I’m looking forward to getting back into harness after that, with this blog and the radio shows, and trying to make a difference here again.

I don’t mean to be any more of an alarmist than necessary; but it’s getting pretty dicey; and, the huge gulps of money we’re needing to borrow in the short term, just to pay the expense of running the government look to be the last gasps of healthy capitalism in this country.

I know I said  I was going to take a break…and I am. But you need to read this and find a way to run our politicians out of Washington and back to fiscal kindergarten!

As you know, I’m disgusted with the obvious absence of financial literacy, responsibility, and just plain common sense that’s displayed by so many in elected office, from the top of our government institutions to the bottom. And I’ve railed about it time and again, wishing that some able folks would get off their duffs, take the bull by the horns, and give up their comfortable complacency to act instead of just talk. 

As it happens, my own community here in South Florida is as much a textbook case of what’s bad in governance as any in the country except, perhaps, Illinois. And, as the deadline for filing to run in the local election approached, my thoughts turned to the issues here. I was forced to say, “I don’t really want to do it but…. I’m more than well-qualified to do the job. Goodness knows I’ve been outspoken about such issues as fiscal responsibility, cronyism, and corruption! I do have the time—only,and most enjoyable, responsibilities (aside from the normal and happy family duties) are this blog and my weekly ‘radio’ show. This is something I should do.” So, at the last minute possible, I filed to run for a seat on my Town’s Council.

I detest politics! I know nothing about campaigning. But I think and hope my principles and my experience will guide me to make the right decisions along the way.

In any event, for the next eight weeks, this blog—and my “radio” show, “Take Stock with Ellis Traub” on BlogTalkRadio—will be silent while I campaign for that modest office. (If I do have a moment and an issue, I might post a short comment once in a while—maybe even tell you how I’m doing, if you’re interested.) The impliciations of winning are greater than that office might suggest. There’s a powerful political machine, larger than my town, that winning this election can substantially weaken. And that’s as much of a goal as winning the office and making a difference in the more conventional ways. My goal is, of course, to have as many issues as possible, in my small corner of the world, decided on their merits rather than on political expediency and behind-the-scenes deals.

In any case, I hope you won’t lose interest in what I have to say while I’m silent. I can assure you I won’t lose any interest in helping people learn to make money with their money. And I look forward to picking up where I left off on this blog as soon after March 9th (election day) as possible.

Hardly a decision taken lightly by the hospital administration, the financially strapped institution finally had to draw the line on life. Fortunately for those patients , some of the other area hospitals volunteered to take up the slack for all but about 4o. These would have to seek care in the city’s emergency rooms, where the law requires the hospitals to provide critical care regardless of the financial condition of the patient—or the hospital!

This, to me, is a tragic and stunning case in point that illustrates a simple fact: no matter how humane and compassionate the issue, the ultimate truth is that there simply ain’t no free lunch. As much as we would like to characterize medical care as a right rather than a privilege, without the funds to provide it, it vanishes.

Where we used to squabble about not having enough public funds to maintain roads properly or fund museums—and our legislators could get away with earmark murder—we now haven’t the public money to fund critical care. And no healthcare legislation we may pass is going to be any different from any other unfunded mandate  that, despite the good intentions, simply cannot be implemented because there are no funds to do it.

This condition can be reversed , but only when our country’s culture takes into account that the despised and detested “demon,” business, with it’s “obscene” profits, must be supported, nourished, and welcomed and a climate created so it can grow, furnish jobs, and produce something of value that will generate money. This has to start  in the schools, in the homes, and at the lowest economic levels of our society.

The lessons of entrepreneurialism are, at this point in our history, more important than liberal arts. And, unless we get behind an effort to teach our young about these things, our young will eventually have to dine on each other! Sadly, there are few teachers in the schools who have been appropriately schooled, because they, too, have been raised in an era of “magic wand economics” where they, too, believe that faith in the Patron Saint Ponzi will somehow see them through!