I think T. Boone Pickens is a great American. He is spending his own money on national advertising for his energy plan, a plan that will work, and of course, energy has coupled with mortgages to bring down the markets.
Oil first. Because he is so smart, Pickens knows that it is only government that can move the obstacles to drilling and to other sources of energy, and advises the American people to not let their congresspersons off the hook. He is polite, but I can see that, sub rosa, he is screaming with the same kind of rage I am now feeling about the financial fall. Our politicians got us into this mess, and we must insist they get us out of it or lose their jobs. Through all this, of course, the American mainstream press conveniently forgets that we have had a Democratic Congress, and blames the problems both in energy and finance on the Republicans.
I am not writing a column of political bias, and surely the Bush team should bear some of the energy guilt, especially in letting the OPEC monopoly and the Saudi power within that monopoly corner the oil market and continue their exploitative behavior in setting the price of oil. And the financial executives who created a Ponzi scheme of $60 trillion in derivative products to insure only $10 trillion in mortgage assets should spend some time in the clink. I wish I was as rich as Pickens is, but after paying for university educations for five children, I am not even in the ballpark of rich. But I will tell you what I would do if I had Boone's money. I would plaster the country with my idea about stopping the penalizing fall in the value of everything you own.
Our financial investment markets have fallen more than 35% this year, and the value of your 401(k)s or your 485s or state pension systems have probably, even within the best-run investing plans, fallen by 20% to 30%. It will take a few years to recover. We should all remember the most fundamental math in investing - if you lose 50% in your portfolio, you need then to gain 100% just to be even. I cannot advise anyone a particular course of action in this painful attack on our family wealth. I can tell you, however, that I did not cash out, because I knew that I would just be contributing to a further fall and lack of confidence. It will take time, but I think patience now is needed to help us stabilize the markets. But not only patience is needed.
New taxes and high interest rates are the worst things for a falling economy. Our current unemployment is near 6% and people are predicting it will go to 8% or 9%. At the end of the Great Depression, our unemployment rate finally fell below 9% when we drafted 12 million soldiers to fight in World War II. Also, our average standard mortgage interest rate has gone in the last few months from about 5% to about 6% and more. These are not good indicators, even though they are far from the levels of the Great Depression. We need to get the press to stop talking about the possibility of another Great Depression. This prediction serves the interest of no one. Our economy can be saved, but only by generating investment in our well-managed companies and in our hard-working Americans. American ideas and companies have given the greatest standard of living to the largest amount of people in history, and we should protect it.
Our housing market is in the pits, even though the best opportunities in many years for new homes now exist. Housing starts have declined by nearly 30%. The average price of America's homes has fallen from $218,000 to $207,000, and slipping quickly. So here is what I suggest coming from the lessons of history: Lower mortgage rates and lower taxes. We will create new wealth and people will begin to buy houses.
Congress passed a poor plan, and it resulted in a collapsed stock market. It raised the caps on Federal Deposit Insurance Corp. (FDIC) protection for bank deposits. It is a wind-driven smoke screen. Police officers, firefighters, nurses and teachers do not have more than the former FDIC cap of $100,000 in local banks. No mention has been made of insuring the portfolios where most of the firefighters, nurses and police officers have their 401(k) or 485 plans, which have accompanied the ruinous decline in the Dow.
There is no faster way to create wealth than to do away with the capital gains tax for five years. For most people, the capital gains tax, the tax on the difference between what you paid for something and what you sell it for, is at 15%. To cancel it out completely would motivate every business in America to create new ventures or invest in new ventures. This would result in many new jobs, new equipment investments, property rentals, travel and entertainment expenses, and a gargantuan increase in spendable incomes, so many new incomes that the economy would begin to perk in hardly any time. Simultaneously, the government should force banks to lower mortgage rates instead of bailing them out. People would begin to buy homes. Banks would stabilize. And, the government would benefit by taxing the incomes from new jobs, and states and local communities would benefit from the sales that result in a new investment energy.
Wake up, government. You must ask yourself: Where is the meat that will create wealth and save the economy? The meat is in the capital gains tax, and the government should give it back to the American people. Don't let the politicians make the rich-get-richer argument when the nation is on its knees, and if they don't do it, vote for everyone on the ballot but a new President in November.
DENNIS SMITH, founding editor of Firehouse®, is chairman of First Responders Financial. He can be reached at [email protected].
