Category Archives: bank regulation

BEWARE OF LEVERAGED STOCK BUY-BACKS

Every few days an investment banker takes a position in a profitable and cash rich company and suggests a leveraged share buy-back. Why not? Interest rates are low and reducing the number of shares outstanding has the immediate effect of increasing earnings per share. When the stock rises the investment banker will sell the shares it controls and realize a profit. The investor does not care that the company may be harmed years later if it goes through a challenging period and finds itself unable to meet its obligations. Judiciously repurchasing shares and paying higher dividends with excess cash is part of management’s responsibility to stockholders. However, the long-term fiscal soundness of the company is of paramount importance. 

Have we forgotten that our mortgage lenders induced middle-class Americans to over-leverage their homes though refinancing and home-equity mortgages.  Such excess debt coupled with other irresponsible lending practices, created the housing and mortgage bubbles, the bursting of which caused  the Great Recession. When home prices declined millions of middle-class Americans lost their homes and their life savings. Home owners didn’t foresee the risk and were blind-sided. We should have limited excess housing debt.

The strength of corporate balance sheets and rising profits helped the US to get through the Great Recession. We should adopt a federal law limiting corporate borrowing to finance stock repurchases. Otherwise too many corporate executives anxious to please powerful outspoken investors or to raise short-term earnings to justify large compensation packages, will engage in stock buy-backs that impair the long-term soundness of their corporations.

 
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A Sense of Fairness

We CAN AND SHOULD change our federal tax laws to encourage cash rich corporations and individuals to invest in a new type of Jump Start America Bonds to improve our transportation infrastructure, create jobs and jump-start the growth if America.

We CAN AND SHOULD change our mortgage laws to assist homeowners with under-water mortgages by reducing the principal amount of their mortgages and end the housing crisis.

We CAN AND SHOULD change the federal income tax laws to treat income earned in the form of a carried interest for managing other people’s money as ordinary income.

We CAN AND SHOULD change the federal estate tax laws to limit the use of foundations and require all taxpayers to pay an estate tax of at least 20% of their assets in excess of $10 million dollars.

We CAN AND SHOULD change our federal securities laws to prevent traders from time-to-time acting like robber barons by manipulating stock prices downward.

We CAN AND SHOULD increase our defense spending to strengthen our security and grow our economy.

We CAN AND SHOULD modify our healthcare system to fairly reward healthcare providers for making available the highest quality care which achieves the best outcomes; offered and equitably distributed at a cost which is affordable by the corporations, individuals and governments who are paying for it.

We CAN AND SHOULD regulate our banks to limit their risk taking to enable them to maintain strong balance sheets and provide needed banking services for their customers in an equitable manner.

Perpetuation American Greatness After The Fiscal Cliff discusses how we can accomplish each of these goals.

Perpetuating American Greatness After the Fiscal Cliff

March 10, 2013

President Obama insists on a balanced approach to raise taxes and cut spending to reduce the federal deficit. Both raising taxes and reducing spending will hurt our economy. He doesn’t really want to cut spending. He says he is willing to address entitlement problems (which were made worse by Obamacare), but he offers only vague solutions which fail to address the real issues of excessive and growing Medicaid, Medicare and now Obamacare expenses.  Squeezing drug suppliers, doctors, hospitals and insurers to reduce medical care costs is going to reduce the quality and availability of care.

The Republicans were bludgeoned by the president’s misleading demagoguery into raising taxes which they didn’t want to do. They want to cut government spending to reduce the National Debt, but austerity measures are likely to cause a recession and increase, not decrease, the federal deficit. They are using the sequester to cut the rate of growth of government spending. The sequester has been politically successful for the Republicans by exposing President Obama’s demagoguery and scare tactics. However, it requires across the board cuts and, even if modified, will reduce defense spending and result in job losses (as all federal spending cuts do). President Obama will blame everything which may go wrong in our country during the next four years of his presidency on the Republicans even if he has throughout his presidency been weakening our defense and most of the job losses will result from the 2013 income tax increases and the adoption of Obamacare and Dodd-Frank.

Neither party has proposed a plan to promote job creation and economic growth which will come to the aid of the forgotten middle class, increase tax revenues and reduce the federal deficit. Our politicians do not seem to understand that the goal should be to grow the GDP at a faster rate than the the rate of growth of the national debt.

My book entitled Perpetuating Greatness After The Fiscal Cliff examines the economic events after the turn of the century leading to the fiscal cliff and the myriad of problems facing our economy resulting in large part from government failures. It suggests solutions to our economic problems including:

1. Proposed corporate income tax and estate tax law changes to encourage our cash rich corporations and individuals to step up and invest in state transportation infrastructure construction projects to create millions of jobs;

2. A federal mortgage law to eliminate underwater mortgages by enabling homeowners to obtain restructured mortgages and reduce the aggregate of their home mortgages to the fair market value of their home;

3. Ways to modify our entitlements to make them affordable and available to provide quality health care.

4. Modification of the federal income and estate tax laws (including the 2013 tax law changes) to make them fair and to close loopholes to raise revenues without harming economic growth;

5. Changing Dodd-Frank to strengthen bank regulation while eliminating certain provisions which are unnecessarily restricting economic growth;

6. Changing securities regulation to prevent current manipulative practices and the next stock market crash by restricting manipulative short selling practices;

7. limiting interest rates on consumer credit by the adoption of a national usury law;