|
Our Mission |
Big government is not simply the size of the budget, or the number of federal programs; it is the role the federal government plays in our daily lives.
We at the Lincoln Heritage Institute will not sit idly by and allow bloated bureaucracies, budensome tax policies, a failing public education system, and out of control regulatory system, and a growing disregard for the rule of law to become an accepted way of life
We have as our purpose, through public education, the revitalization and preservation of our traditional political, social, commercial, and legal environment in which the only limits to achievement are individual ability and effort. |
|
The Reason Why |
By Phil Brennan: Trustee of the Lincoln Heritage Institute, Editor of Wednesday on the Web
Let's say I owned a 1991 model Toyota which I was very fond of. It was
economic to own and drive - good gas mileage, small tires that cost less than
the national debt to replace, a pickup that left all other cars behind when
the stop light changed to green, a paint job that gleamed after 11 years.
All in all, a great little car.
Let's say that it never occurred to me that the car was worth less than I
thought it was - and that when I finally got around to trading it in for a
newer model I had convinced myself it was worth not a penny less than $6,000.
If I was to put together a statement of net worth, I would certainly have
added that imaginary $6,000 asset to it.
But the dealer didn't agree. To begin with, it not only burned oil, but also
leaked it profusely. The fabric on the driver's seat was torn. The
11-year-old car was worth about $1,000, but using that peculiar arithmetic
dealers use, he allowed me $2000.
Not the $6,000 I thought it was worth. My net worth statement would have been
hiked by a phony $6,000 - an asset worth a mere $1,000. At that price it was
vastly overvalued. I got what it was worth on the used car market. Economic
reality had conquered irrational emotion.
Now you know what's happening to the stock market.
Like my beloved Toyota, it was vastly overvalued. Economic reality has set
in. Stocks are going to be valued for what they are worth, not what investors
were willing to pay for them, which over the last decade was absurdly far
beyond their true value.
Now this should come as no surprise. A lot of level headed people have been
warning for a long time that the market was a huge bubble waiting to burst.
How long ago was it that Mr. Greenspan warned that "irrational exuberance,"
was ruling the market - that investors were paying wildly inflated prices for
their stocks - prices that bore no relationship to their actual value in
dollars and cents?
The current debacle is not all the result of the corporate crooks who were
cooking the books, trying to hike up the price of their companys' shares to
increase the value of their stock options and their personal net worth. The
revelations of their malfeasance helped spark the Wall Street panic by
revealing the house of cards upon which the stock market economy has been
resting, but the root cause of the ongoing market crash is just a plain old
"correction" albeit a very painful one.
And the longer you put off corrections, the worse they're going to be. This
one has been put off far too long. The crooks who mercilessly hyped stocks
played a very large part in this, but the real villain of the piece is the
refusal of the investing public to recognize a bubble in creation when they
saw it. Or to understand that all bubbles must burst eventually. Sooner or
later the old car would have to be traded for what it was worth, not what we
wanted it to be.
What created this bubble was partially the billions being invested weekly as
the result of mutual funds with mountains of money to invest and a need to
find someplace to put it - 401K plans and other pension funds that had to be
invested. It all added up to too much money chasing too few investments. That
helped drive prices up. It didn't matter that with many of the securities the
prices were being jacked up far beyond the value of the institutions they
represented. What mattered was to put those billions to work.
It seems as if the investing public had forgotten what the stock market is
all about. A company is owned by the stock holders. Their shares should
reflect the nuts and bolts value of the company, how much its profits are
after expenses, how much the dividends are, and its immediate prospects, not
pie in the sky projections of where the company hopes to be in the future.
The price of their shares should be a true reflection of these factors.
Once upon a time, most prudent investors bought stocks for the dividend
income they provided. In recent years dividend income has shrunken, in many
cases to one percent of the value per share and below. Investors began
looking to profit from increases in the value of their investments rather
than for income. You bought stock in the XYZ company because you were betting
it would go up and up and up in a market where the Dow Index seemed bound to
keep rising and your shares along with it.
There's a word for that, and it's not investing. It's called gambling. No
longer able to get a decent return on your investment through dividends, the
only reason now to buy stock was to bet it would increase in value. That bet
is now turning out to be a losing one. A big loser.
But there's more to the story that the fact that stocks were vastly
overvalued and that we are now seeing that problem painfully corrected. There
is also the serious hanky panky that's been going on in corporate board
rooms, Wall Street brokerage house and auditing firms.
The most trustworthy rater of companies in America, Dr. Martin Weiss, who
heads Weiss Ratings, has been warning about a stock market debacle being in
the works. In his best selling book "The Ultimate Safe Money Guide: How
Everyone 50 & Over Can Protect, Save and Grow Their Money," Dr. Weiss showed
how what he called the Great Stock Market Scam would bring on a stock market
crash - the crash that began to gather steam shortly after his book was
published.
In a paper submitted to the National Press Club, Weiss Ratings explained one
reason why Dr. Weiss is predicting that we haven't seen anything yet. Last
week, for example he warned the Dow would reach 8200 and then drop to 7200
and then fall all the way to 5000. The NASDAQ, he said, would hit 800.
Here is a summary of that paper - it is a shocking indictment of Wall Street.
"A crisis of confidence is shaking Wall Street to its core, as investors,
already shell-shocked by deep market declines, realize that a series of
deceptions by many institutions they trusted may have played a significant
role in their losses.
"A deeper understanding of the crisis can be achieved through an analysis of
"buy," "sell," and "hold" ratings issued to companies that have gone bankrupt
this year -- a total of 50 investment banking and brokerage firms issuing
ratings to 19 companies that filed for Chapter 11 in the first four months of
2002. Among these, the results show that:
1. Ratings publicly available from 94% of the 50 firms continued to
indicate that investors should buy or hold shares in failing companies right
up to the day these companies filed for bankruptcy.
2. Among the 19 bankrupt companies, 12 continued to receive strictly
"buy" or "hold" ratings on the date of bankruptcy filing.
3. In response to these and related investor abuses, a rapid rise is
expected in the number of investor legal actions against brokers. Even before
the latest revelations, the number of arbitration filings surged by 24.4%
from 2000 to 2001, and by 17% in the first three months of 2002, as compared
to the equivalent period one year earlier. Several brokerage firms, targets
of the most legal actions between 1997 and 2001, are likely to be among the
targets of the most frequent future legal actions as well.
4. Among the 20 largest brokerage firms, 13 may become financially
vulnerable if their conditions deteriorate further, while seven have the
financial wherewithal to withstand a severely adverse business environment.
It is possible that failures in the brokerage industry could emerge as an
important future challenge for investors, legislators and regulators.
"To address these issues, the power and will of government is limited.
Instead, the best regulators and dispensers of financial justice are
investors themselves. They cannot exercise this function, however, in the
current environment of uneven disclosure, secrecy and even duplicity.
"In order to help investors make constructive, informed decisions in the
selection of a broker and brokerage firm, brokers should disclose significant
data on stock ratings, past legal actions, and the financial stability of
each firm. The disclosure must be accompanied by more complete education on
the risks associated with specific investments and with the failure of a
broker-dealer. Disclosure questionnaires and procedures are offered to help
investors protect themselves against future abuses."
What America is now enduring is a total financial system failure. Looking
for somewhere to put the blame is an exercise in futility - the blame is too
widespread. Putting the Wall Street and corporate scoundrels in the slammer,
while it will make us feel good, and is the right thing to do isn't going to
help dig us out of the hole that greed has dug. What we have to do now is get
ready to pick up the pieces and get on with our lives. The binge is over. Now
comes the hangover.
Please pass the Alka-Seltzer. |
|
|
Lincoln Heritage Institute lhi@wmis.net
620 Hall Street, Eaton Rapids, MI 48827
In Pennsylvania, 603 N. 3rd. St., Harrisburg, Pa.
Box 656 Main St., Pleasant Valley, NY, 12569 Fax (517) 663-5245
|
|
