Words from Forbes
I recently meet Steve Forbes and listened to his opinions regarding the economy along with his views on the present volatility in the stock market.
These are some of my notes:
Mr. Forbes discussed the fact that mortgage and financial institutions began to give mortgages to people just because they were breathing No one needed to have an income. Why should the buyer have to put money down? Why should the payment include insurance or for that matter have a principal payment?
Monetary policies even allowed credit cards to soar. People were given credit cards without sufficient income or funds to pay back. Subprime mortgages were spread all over the world – bank institutions were not aware they had been sold a package with the word Tranches all over it. (Tranche is a French word for - slice, section series or portion.) Institutions backed these mortgages up, but how?
The FASB (Financial Accounting Standards Board) states you may Market to Market the assets. What does this really mean? The banks get to make up the value.
Steve Forbes’ definition: Market to Market is Market to Make Believe.
The creation of these particular products has magnified the financial stresses in the market. In 2004 the Federal Reserve began to print money which has created inflation. It is like a car which you keep trying to start by pumping the gas pedal, all you have done is flood the engine.
Steve says, establish monetary style boundaries. Use gold as a measure. If gold is between an estimated $300–$450 or so, the dollar would be stable. If it falls below, it creates its own set of issues, and above the dollar is hurt.
The central banks could use this to keep our dollar strong and divert market panics. You cannot have a strong economy with a weak dollar. Action needs to be taken to strengthen the dollar. Inflation plus a weak dollar is bad for our economy.
He compared the dollar to a clock. Time does not float. It is a constant measure of value. Steve feels the dollar needs to work as a clock with strength and reliability.
When he addressed taxes his first statement was – Taxes do not raise revenues. Investing creates success and this is where taxes are derived. Capital gains comes from people being willing to take risks. We need to return to basic principles which enable people more chances and all will benefit from this. Disruption in the markets is good. New ideas, new products and services are created by those who can see the opportunities from the disorder.
I thanked Mr. Forbes for the opportunity to meet him and listen to his insightful views.