Economics…Who is Right, Obama or Fama?

gnfmBoth of these folks have a Nobel prize of sorts but Gene Fama was awarded his for economic abilities and Obama was gifted his for peace. And people have been scratching their heads ever since. Gene Fama is a pretty interesting guy. And he spoke at a recent AEI meeting and was candid about his views on economic policy. 

Both guys are from the Chicago area but what is the main difference? Well Obama swears by socialism. Obama wants the government to get  its hands into everything and then we will have peace and equality. But at the end of his rainbow is high taxes, no capitalism and a very slow economy except for him and Lady Michelle. 

Mr. Fama raised a few good issues in a very short interview period. You can find it on the internet. Basically his theory in a small nutshell is that without a model that can be used to predict the market, you have nothing.  For the global warming kooks out there, the model has to be able to be tested and used as an indicator for something in the future. To say we are in a recession when we are already there, isn’t very useful. Same with global warming, now they have created a model that is the blame for every conceivable disaster from the beginning of time. Yet it doesn’t seem to factor in that there are more people today living in precarious situations or conditions that may help expand the catastrophic effect on an otherwise normal event. 

So Mr. Fama made headlines because he hypothesized that the banks were not too big to fail. And they should have been allowed to fail. I disagree with him on the notion of capitalism. It was not capitalism that prevented the banks from failing. It was the socialism of the government bailing them out that did not allow them to fail! 

This is similar to immigration, If we keep granting amnesty what is to prevent the next million of illegals from crossing our borders? Same thing here, if a bank can’t fail, then what is going to make it responsible for its “risky” actions! 

Mr. Fama implies if they failed the assets don’t go away. They would be redistributed and bought up by more responsible institutions. That alone would impress the bankers to  keep in the back of their minds in their board rooms that they could actually fail. But with Uncle Sam willing to bail out  the banks, there is no risk involved if a bank fails. So they can invest all the money they want at home and over seas and they win on the winners and they get bailed out on the losers. And at the end of the day guess who ends up holding the bag? You the taxpayer! 

Mr. Fama blames the “housing bubble”  on over-regulation by the government (Clintons). But I disagree. People didn’t walk away from their homes because they couldn’t pay the mortgage. They walked away because the value went through the floor or they lost their jobs due to the housing collapse.  Both would cause someone to walk if they could not refinance their home at a greater value and  or find another decent job. 

And time again I have proof that it was the banks that lowered the appraisal values of homes and not the economy. If a bank like Chase said the house was worth $97,000 when the market was saying the house was worth $130,000 that is not a bubble. That is treason. But Six years later there has not been an investigation into the folks who held short positions on derivatives tied to the housing industry as it went south! 

But between the lines Mr. Fama was correct. If the government did not over-regulate the banking industry and promise to bail the banks out when they made poor investments then the housing bubble deflation would never have occurred. And Obama would have lost the election. 

So Obama is a socialist and wants all people to have an equal chance to own/win/to be awarded a home. As long as the government keeps reaching more and more with its tentacles into everyone’s business and life, there will be no freedom and there will be no prosperity. And the Obama safety net will not put you back where you were before you failed. 

Mr. Fama was asked what one thing would he do to help the failing Obama economy. And the audience laughed when he said that the government should take a year off. But the only things that Obama from Chicago wants to do is raise taxes and increase regulations. Gene  mentions that capitalism has raised many people from poverty to prosperity. But socialism has always been a failure. 

So why do people always look to the government to fix things. Every time they stick their noses into anything the unintentional consequences far outweigh any make-believe benefit that was supposed to be gained by the regulation.  No matter what Obama claims: ObamaCare is a failure! 

Mr. Fama also thought that the banks were undervalued. Their revenue should be 20%-25%, not the Dodd Frank 10%. 

It is really the same issue. The notion is that banks should be free to loan money. But that doesn’t really seem to be a value. They will invest to make millions and they are not concerned with the risk. After all at the end of the day, if they fail, Obama will be there to bail them out. Wouldn’t be great if you could invest millions at a crap table and know you can’t lose.  If you were too big to fail that would be the case! And how much money do banks spend on political favors? 

Folks, that is not capitalism. 

I think Obama needs to listen to a Nobel laureate like Gene Fama.  Economy 101 is quite simple. At the end of the day you have to value money. Respect money and try to hold on to it. But it is so easy for Obama and the rest of the politicians to spend money when the money is not theirs to begin with.     

Money invested is something done so you have the freedom to consume that money. If the government takes it away, Obama takes away your freedom. As a result the liberty  to make money and spend money is lost forever!   And that is not the American Dream!

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