Here we are already through 11 months and the year is just about over. I start getting mail about this time from accountants, brokers, lawyers and financial planners about being sure that I've done tax planning for year end. Usually I have been diligent but occasionally some idea is offered which makes some sense for me.
All of this correspondence is good, but how I really like to get ready for the coming year is to review what I actually accomplished by my actions for family, friends, charities, church and community. As I do this quick review, I sometimes see something that I should have done or, conversely, that I wished just hadn't happened. These are the so called sins of omission and of commission which are talked about in churches. We all have them.
In my position as chairman of a local business, I do the same for the progress of the company. Naturally we always wish to make the best possible decisions for the good of the organization, and conversely, minimize substandard choices.
In writing this column I started to think about how governments view those same decisions, as each decision impacts you and me. For four years now we as a country have flirted with recession. There are a number of structural factors legislated that helped to put us into recession, and a number of things not been acted upon that would help get us out of recession. These are the sins of commission and sins of omission of governments at all levels.
The recession started over a mortgage crisis that created a housing bubble and over-heated the economy. The Community Reconstruction Act required banks and savings and loans to lend money to non-credit worthy borrowers to increase home ownership across the country.
Home ownership did increase about three percentage points. Another problem arose, however, from some of these folks, as some of the new borrowers were unable to repay their mortgages and the banks suffered losses.
Banks operate on a very thin profit margin of around 1 percent of their total assets. Mortgage portfolios of banks are often around 40 percent of assets. Ten percent of their portfolio going bad creates a loss for the banks of around 1-to 2 percent of assets, or one to two years earnings. Since the Community Reconstruction Act was never repealed because it is a bank-killer, the problem just goes on and on.
The banks are forced to continue to make substandard loans and Freddie Mac and Fannie Mae, which are federally created institutions to guarantee mortgages, continue to underwrite these same mortgages. Now Freddie Mac and Fannie Mae are insolvent, yet still there is no change is proposed in the Community Reconstruction Act.
The country is in some kind of general agreement that the expenditures for government comprise too large a percentage of our gross domestic product. There appears to be some disagreement as to how to rectify this imbalance. The liberals want to tax the wealthy, and the tea party-ers just don't like the fact that on the federal level the government is borrowing 36 cents for every dollar of expenditure.
The president could not get an agreement in the summer. The supercommittee could not get agreement in the fall. There is now disagreement as to whether the Congress will follow the non-specific targets to which the Congress and the president agreed in the summer. In other words, the original fall-back position agreed to will probably not be honored.
So, as a consequence of their own actions, the president and Congress have embarked on presenting a display of "sound and fury, signifying nothing."
We are to blame also. We elected these people. They put us into economic chaos and aren't acting to relieve our plight. We let them.
Since they won't take the straight forward but difficult steps to bring us back to our normal prosperity, we probably need new leadership or a set of hearing aids for all elected officials to be able to hear and understand our economic plight.
We have to remove the parts of our economic structure which brought on the problems before we can expect to return to prosperity.
Stephen Fletcher was graduated decades ago from Cornell University with an A.B. in Economics and from Michigan State University with an M.B.A. He has lived and worked in the decades from graduation until now in the Alpena area. He thinks that Economics is fun and interesting.