Lessons Wall Street Could Learn from Hillsdale College

Education should be an on going process. If a person becomes too old to learn, they are simply too old. Wall Street institutions that lined up for hand outs should have went back to college before they became wards of the federal government. They should have went to Hillsdale College.

Hillsdale College is a private institution in Michigan that is noted for its commitment to independent thinking, its love of country and for producing outstanding alumni. It also doesn't receive a single penny from either the federal or state governments. Not even financial aid from its students. It argues that this has been the secret of its independence.

In fact, the financial geniuses on Wall Street didn't even have to go back to school, they could have simply visited Hillsdale's website, which states that "In 1975, the federal government said that Hillsdale had to sign a form stating that we did not discriminate on the basis of sex. Hillsdale College had never discriminated on any basis, and had never accepted federal taxpayer subsidies of any sort, so the College felt no obligation to comply, fearing that doing so would open the door to additional federal mandates and control. Our trustees pledged two things: first, that the College would continue its long-standing policy of non-discrimination, and second, that it would not accept any encroachments on its independence. The case went to court, and Hillsdale College won a partial victory, but the Sixth Circuit Court of Appeals did rule that Hillsdale College was an “indirect recipient” of federal funding because of participation in federal grant and loan programs. In 1984, Grove City College in Pennsylvania fought and lost a similar legal battle. The case then went to the Supreme Court, and in Grove City v. Bell, it was determined that if even one student received a federal grant or loan, it made that institution a direct recipient of federal funds. To avoid the hassles of government control, Hillsdale College announced its decision to end participation in all federal financial aid programs in 1985. In 2007, Hillsdale announced that it would no longer accept State of Michigan taxpayer subsidies earmarked for student financial aid, thereby making the College completely independent of taxpayer support" (emphasis added).

Rarely in history has the government funded any business or institution without ultimately controlling it. It is naive to think that a government that exercises so much control over businesses in the form of taxation, regulations and licensure laws without funding them would not expect more -- much more -- from companies they actually financed. Now they have dined at the government's table, businesses will be looking at spending millions in legal costs to extract itself from the monster it has wed (if that is even possible). The first legal battle will come quickly, with the government retroactively taxing AIG for bonuses it paid its employees.

The admonishment to "do your homework" isn't limited to businesses. All of us need to take a much more careful approach in dealing with this government today.

Kevin Price is Host of the Price of Business, the longest running show on CNN 650 (M-F at 11 am). Eric Bolling of Fox News and Fox Business and says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com.

The Bad Ride in the Markets and Main Street

Since September the federal government has been busy. Very busy. But it has very little to show for all its efforts when it comes to Wall Street's and Main Street's reaction. Back in September, when Congress got together to roll up its sleeves and to heal the economy's woes, Wall Street was worried by the volatility of the market. Back then, the market strongly worried investors as it stood at the brink of going below 10,ooo points. Slightly 4 months later and we are threatened by a market that could (and likely, should) go below 7,000 points. The irony is that the plummeting market was a direct response to the government's "best efforts" to placate Wall Street's concerns. Instead of getting better, it has gotten markedly worse and has now reached 11 year lows.

Main Street has responded in a similar fashion. 2008 began with unemployment at a remarkably low 4.9 percent, which many economists describe as "full employment," when you consider seasonal and other factors that make "zero unemployment" an impossibility. Unemployment hovered around 5 percent through much of the year until about a month before the huge minimum wage increase (yes, there is a connection), in which it solidly went into the 5 to 6 percent area around that time. By September it had broken 6 percent and showed no interest in going back. This rise in unemployment joined the drop in the Market in leading to Washington coming "to the rescue." Main Street has responded to the massive bailouts of September and the "stimulus" of January by laying off even more people -- over 500,000 in the last couple of months alone. Main Street has responded to the Obama agenda by casting a new ballot -- pink slips -- and now unemployment is squarely in the 7 percent area and is moving its way towards double digits.

So why have both Main Street and Wall Street reacted so negatively? It is because both of these sectors are in the arena of enterprise. They fundamentally know that the more government controls things, the less efficient and productive those things become. The Bank of America is now on the brink of having 40 percent of its ownership be in the hands of government. Banks running like typically inefficient government institutions have done little or nothing to bolster consumer, financial, or business confidence. Fundamentally, I believe that at some level Americans know better. Free enterprise, limited government, and private property -- the founding principles of this Republic -- are better values than government control and ownership. There is a very good possibility that the businesses today are suffering from rather serious buyers remorse. I hope the government gets that message.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

It is not About Doing Something, but the Right Thing

The majority I speak to are excited about Barack Obama and his sweeping legislation that is going to possibly change this economy for decades to come. They are excited because they argue that something -- anything -- needed to be done. This type of logic does not serve well in any other aspect of our lives. For example, we don't praise the heroic efforts of the person who poured gasoline on a burning building, or the person who avoided rush hour traffic by driving on a shoulder, or the person who attempts to forget about his problems through alcohol. In the real world, we know there are rules to almost everything. There are also rules to the economy: some things work, other things do not work.

There are two basic views of government. One sees the best government doing as little as possible and being focused on protecting individuals from other individuals and our country from foreign adversaries. The opposite extreme is that government should play a pervasive role in every aspect of our lives and that it should be the primary driver of our economy and society. The vast majority who have an opinion fall some where in between. Far more than those with an actual opinion have no real view at all. Those people are my concern here.

This uniformed majority are the same people who are driving Barack Obama's extremely high approval ratings. They don't really know what they are doing, or what they believe, they are merely very sincere. They think some action is, at least, action. But the actions of this administration will take generations to pay off and they promise to make things far worse than better.

The majority of countries around the world are moving away from more government as an answer to economic problems. Although still Communist, China's economic success has been due to areas of decentralization. This is true, also, for India's famous bureaucratic country. Maybe the best example to the United States is Ireland.

For decades, Ireland was little more than a Third World country. It was uncommon for Europeans to face starvation in the 19th century, but it was a major problem on the Emerald Island. On the economic front, Ireland had the highest tax rates among industrialized nations. This is not the case any more. Ireland dramatically lowered its highest tax rates to around 10 percent and for over a decade it has had one of the fastest growing economies in the world. Countries that have moved towards government solutions and high taxation are only seeing more economic problems. Japan has had chronic economic problems for over two decades (and the highest corporate tax rates in the world). The US now has the second highest and we are quickly catching up in terms of economic woes.

We all know that businesses have to work hard to attract customers, and states have to work hard to attract businesses, but don't countries have the same responsibility as well? Ireland seems to understand that and, in light of the "something" our government did this past week, it is clear the US does not.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Is the Federal Government about to Create a Consumer Bank?

Back in September, when Wall Street suffered a horrible meltdown, we were told that $800 billion being pumped into financial institutions through taxpayer dollars would get the "economy moving again." Four months later and we could not be more amazed by the delays in the process. Essentially, the major banks have enjoyed a massive gift that make them more secure, but they have done nothing for the average consumer.

As a result many Members of Congress in both the House and Senate are up in arms and are about to declare that they will not take it any longer. The way I believe they may respond, is by taking the $300 billion plus left from the first bailout and additional dollars from the $1 trillion in being proposed by President-Elect Obama, to create a government based, consumer lending bank.

I don't believe they will make these banks "within" banks or even attempt to run the programs through credit unions, but will make them separate, government run, institutions. They no longer trust the banks to be altruistic, which I think was foolish to believe they would be in the first place. Banks are largely successful because they are self interested and run on the profit motive. Banks are only behaving like banks.

That leads us back to the new, government driven, banks that I believe are right around the corner. These new institutions will run with the efficiency of most government bureaucracies, which means they will continuously be running deficits, will be unresponsive to consumer needs, and will possibly undermine the competitiveness of private banks because it is very hard to compete against free or cheap money.

Since Wall Street is so dependent on private banking, the possible rise of these lending institutions will only further drive stock market fears. These banks will create ever more unpredictable investment environments and further drag the economy into despair. Although it is true that many bankers have made horrible decisions (mainly driven by political pressure from organizations like ACORN), such poor decision making would become standard with government run banks. Instead of making investments based on possible returns, they will be based on altruism and political pandering. If you ever wondered what the expression that the "road to hell is paved with good intentions" means, wait until you see these new banks.

Government leaders continue to seek short cuts and political solutions to our economic situation. Members of the US House of Representatives will all be fighting for their political lives in just two years and the President is not that far behind with his four year term. With these type of election cycles, the pressure is on to improve thing immediately, even if the consequences are potentially harmful in the long run.

A good doctor would allow some of these economic woes to run their course and not keep applying quick fixes to long term problems. Our financial institutions, like the economy in general, need a time to heal and not so called "reforms" that promise to have devastating long term consequences.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The Year of the Bailout

I consider myself the perennial optimist. I always try to view things from a "half full" versus "half empty" perspective. But 2008 was a challenging year. It is a year where it appears that we made a paradigm shift when it comes to the role of government in the economy.

I believe that future history books will call 2009 the year the United States became the "bailout nation." We saw more of such today with GMAC Finance receiving $6 billion from the federal government. Democrats defied the image of being for "the little guy" that they worked so hard to maintain by leading the effort for bailout for major banks and corporations. There was far more reluctance by Republicans to bailout these fat cats, but in the end, I am sure the media will find these bailouts the complete fault of the GOP if they fail and will be seen as an act of courage by Democrats if they are interpreted as successful. The reality is, we already know they have "failed" because we had to abandon the ideas of limited Constitutional government to make them happen and the hangover effect of them may not be felt for years.

What is almost as negative as the Constitutional and policy implications of these bailouts is the view they project of what is important to us a country. In the United States we have a safety net for the poor, we bailout the super rich, and we obliterate the engine that creates more than 80 percent of the jobs in the country through excessive taxation, regulation, and licensure law. The highest income groups are not nearly as influential as those rising up the economic ladder in creating jobs, yet we sacrifice the entrepreneur at the altar of the mega corporation.

Those who have eaten at the trough of bailout are extremely vulnerable in the future. The government never "gives" without demanding more. Many of the task masters in government that have fed these companies, have advocated the nationalizations of industries. The hubris to think they will not be vulnerable is unbelievable.

The United States has been successful because of its long term commitment to economic freedom. This freedom includes the right to succeed and fail. Moral hazard is an important element in economic freedom. There has to be consequences to failure in order to avoid those mistakes in the future. The government is replacing this system with one that will eventually force the failure of many entrepreneurs and create a new welfare class of the mega wealthy. Let's hope 2009 sees a reversal of such a trend.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Bush Snubs Constitution, Congress, and Passes the Buck

In one of the most glaring examples of "keeping up appearances" in history, President George Bush has decided to single handily provide a bailout bridge to the "Big Three" automobile companies. It is intended to be a bridge that keeps them alive long enough to get to Barack Obama, who is expected to have a more friendly Congress available to do more. The current Congress and majority of Americans are rightly afraid that this is just another bridge to nowhere.

In a brief speech, the President made the case for going against the Congress and using money that was passed for bailing out Wall Street, to be shifted to assist the automobile industry.

He begins by pointing out that money shouldn't be given to the industry without accountability (as proposed by the automobile companies originally), stating that a "more responsible option is to give the auto companies an incentive to restructure outside of bankruptcy -- and a brief window in which to do it. And that is why my administration worked with Congress on a bill to provide automakers with loans to stave off bankruptcy while they develop plans for viability." This bill was rejected by the United States Senate. Bush notes "this legislation earned bipartisan support from majorities in both houses of Congress." There was not, however, enough "bipartisan support" to get this passed.

Bush goes on to say that "unfortunately, despite extensive debate and agreement that we should prevent disorderly bankruptcies in the American auto industry, Congress was unable to get a bill to my desk before adjourning this year." This is a nice euphemism for stating that the bill didn't pass. Period.

Bush states that "this means the only way to avoid a collapse of the U.S. auto industry is for the executive branch to step in. The American people want the auto companies to succeed, and so do I." Maybe some of the people he knows. Maybe his golfing buddies from Ford or tennis partners at GM. But I couldn't find a single national survey that supported such. Furthermore, the American people overwhelming told Congress to not pass this bill. Most were unhappy with the Wall Street bailout, someone needs to be held accountable for their business acumen (or lack of).

In spite of the political realities, Bush goes on to say that "today, I'm announcing that the federal government will grant loans to auto companies under conditions similar to those Congress considered last week." Remember, Congress "considered," but rejected this legislation. Bush is disregarding the will of the Congress, whose authorization should be necessary (according to Article I of the Constitution), and is making the $800 billion bailout for Wall Street into a giant slush fund for the Executive Branch.

The President stated that "these loans will provide help in two ways. First, they will give automakers three months to put in place plans to restructure into viable companies -- which we believe they are capable of doing." When I left Detroit in the 1970s, the automobile industry in that city was already on the ropes and Chrysler was seeking loans. The automobile industry has wasted decades trying to get its house in order. Now, Bush believes it will restructure itself in 3 months? It would be funny if the money wasn't real and he wasn't serious. Well, at least it is only around $15 billion. The second "way" this bill is to help will be "if restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success -- and gives consumers confidence that they can continue to buy American cars." Does Bush honestly believe that Americans will ever have confidence in a company in Chapter 11? President Bush clearly needs a reality check.

Bush states that "because Congress failed to make funds available for these loans, the plan I'm announcing today will be drawn from the financial rescue package Congress approved earlier this fall." Translation: I will take money passed by this Congress meant for one purpse, for purposes that this Congress voted against. This is the arrogance of officialdom and a President behaving like an autocrat.

President Bush simply can't stomach the thought of the automobile industry going under during his watch. In an incredible attempt to protect his "legacy," this President is suspending his Constitutional responsibility, snubbing the Congress who is required in authorizing such expenditures, and is abandoning the will of the people. In an effort to "save face" he is leaving a very ugly memorial to his administration.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Conditions for an Auto Bailout

It appears that the US Government IS going to give the "big three" their long desired loan, but at a smaller level. Until this past weekend, Congress had been unimpressed. But as if an oracle of God himself, President-Elect Obama has declared that a bailout is necessary and the Congress now seems willing to comply, although with a lighter than expected package. The new package looks like it will be around $16 billion (versus the $25-$35 billion we have heard earlier).

With this bailout, there should be certain conditions that must be complied or there should be no such hand outs (which is my preference). Here are a few of the conditions that should be required:

• End the controversial UAW "Job Bank" program until the loans are completely paid off. This program has paid tens of thousands to be idle at 90 percent of salary. Although the UAW has agreed to make concessions about the program, their current situation could have the practice back in full force within days of the bailout becoming law.


• Bring auto worker wages back to the real world. According to the Heritage Foundation, when it comes to salary and benefits, the average wage of all private sector employees is $25.36 and for American based Japanese auto plants (Honda, Nissan, Toyota) is $42.95 to $47.60 on average. The big three pays $70.51 (Ford), $73.26(GM), and $75.86 (Chrysler) per hour, per employee. These six digit wages for blue collar work should be brought into the real world.


• End the "30 and out" practice. The Detroit auto companies allow employees to retire with very lucrative packages at the young age of 30. If you start working at a plant at 20, you can retire at fifty. You can see where that can be costly. 60 or 65 should have to be the standard retirement age with taxpayers involvement.


• Seven week vacations need to be history. Detroit auto workers receive almost two months off a year. This is another pounding cost on a very weak industry that needs to change.


• Finally, they should require the companies to relocate to a right to work state. This would empower these companies to lower wages and make the other reforms listed above.

I am sure you are saying that such reforms will not be happening knowing the temperament of the auto industry and the lack of courage in Congress. You are, of course, exactly correct, which is among the reasons why the companies shouldn't receive the bailout.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

AIG Is Begging for More

I have long contended that the $800 billion bailout of financial institutions would not be enough. By the time the process was finished, it would be closer to $1.5 trillion. There is more evidence of that contention in light of the fact that AIG is about to enjoy a "do over." You remember "do overs," where you got a bad roll of the dice when playing a board game and you beg your friends to let you go again. AIG has done the exact same thing, but there is much more than monopoly money at stake.

CNN Money notes that "troubled insurer American International Group got a reworked $152.5 billion deal from the federal government Monday, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout."

"The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period to five years from two years."

"In addition, the Treasury will use its special authority under last month's $700 billion bailout law - the so-called Troubled Asset Relief Program - to purchase $40 billion in preferred stock."

So the burden on the federal government is to make sure its new investment -- banking and insurance-- succeeds. This slaps "moral hazard" in the face because the government, which is suppose to be an impartial referee, now has a vested interest in this and the many other insurance and financial institutions in which it has invested our tax dollars.

The reality is, some of these businesses simply need to go under. The government should allow such with almost cruel fanfare. Get the business to the point where it appears it is about to get a check and pull the rug right from underneath it and declare "no more." It should declare that if the business is worthy of an influx of revenue, people would provide such in their stock purchases. If it isn't, it would let the market speak and send a loud message to all businesses that are beginning to see the government as a safety net.

If businesses can't fail, they have every incentive to reach ever newer levels of mediocrity. Failure is as important a function of free enterprise as is success. Failure teaches businesses and individuals how to do things better, it maintains competitiveness, and drives economic and technological progress. Bailouts undermine this important factors in business and economic success. It is time to hold these businesses accountable, close the pig troughs, and restore capitalism to our economy.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Are Democrats Declaring Capitalism Dead?

This is one of those posts that are very hard to write. It is the kind of thing that I would prefer to "rant" about rather than approach with calm, because the situation really is quite upsetting. Things that is so important to our culture, our history, and our affluence is being declared dead by members of the Democratic Party. Free enterprise, limited government, and private property are being treated like old and dead ideas. Democrats see them as concepts that didn't work and should be swept away.

In the early 1990s I traveled several times to Eastern Europe and the former Soviet Union conducting seminars on how to convert their economies to free markets while I was a Fellow with the American Economic Foundation. Today, all of the economies in the countries I addressed with the exception of Belarus have lower tax rates than the United States today. It appears our universities and political leaders need similar seminars in our country.

Governor David Paterson of New York told Fox News today that it is time to begin the public works programs similar to what we had under Franklin Roosevelt. He joins numerous Congressional Democrats making similar proclamations. In a candid encounter with a man on the streets, Presidential candidate Barack Obama said that he believes that "spreading the wealth" is a "good thing."

Historically, the purpose for taxes is to pay for those programs that were designed to be beneficial to all and provided special privileges for none. During the Great Depression, the idea of helping those due to extraordinary circumstances came into practice after early attempts by the Supreme Court to stop such policies, failed (Roosevelt out lived enough members of the Court and appointed those with a similar worldview to take their place and the majority). This was soon followed in the 1960s by a "War on Poverty" that became more like an assault on the poor that led to an increase of economic despair annually until the policies began to be reversed in the 1990s (which has led to a reduction in poverty). We are right back at the point of going back to the government creating a paternal relationship with its citizens. Are we like sheep? You bet!

Irresponsible organizations like ACORN fund individuals that include Sen. Barack Obama, who in turn "organized" his "community" to pressure local banks to back loans that lead to our subprime crisis. As a result of the efforts of people like Obama, the unaccountable banks gave more money to his campaigns than any member in the history of the Senate with the exception of the Banking Committee Chairman, Chris Dodd. Obama leads the effort to undermine the fundamentals of our financial system and he will be rewarded with the highest office in the land. People are "entitled" to home loans we are told, let the standards that keep banks operating healthy be disregarded. Now we are being told to bailout the banks that have taken such a route.

This massive push towards socialism isn't entirely the Democrats fault. In fact, John McCain has done an excellent Democrat impersonation by saying he wants some of the $800 billion to go directly to home builders who are struggling so they can pay off their loans. Let's reward those who bit off more than they can chew, he argues, but there will be no benefit to those who had adjustable rate mortgages and figured out how to maintain their obligations. Talk about moral hazard!

Republicans aren't losing the election today because voters have denounced free enterprise, it is because they can't find a serious candidate that is promoting such. Republicans have done a terrible job of defending economic freedom since Ronald Reagan and voters are lost as to where they can find those who will support economic liberties. I have said for a long time that if Republicans are going to act like Democrats, you might as well vote for the genuine article. Republicans need to get prepared for that probability as we approach the election.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Understanding the Stock Market Following the Bailout

Today it appears that the market has capitulated. Investors believe that the market has hit bottom and it is time to rebuild and to buy and is in the 9,000 points area and moving upwards. But people want to know, does this relate to the bank bailout? Why did the market perform so poorly immediately after the bill passed in Congress? Are we about to see the light at the end of the tunnel?

I suggested on my radio show that the market would probably stop its free fall in the low 8,000s and that appears to be the case. But, I have also suggested that this event wouldn't necessarily signify anything more than Wall Street catching its breath. Yes, it could mean it begins its mending process (as seen with the market up around 500 points at this writing), but it could be a short term euphoria from European and Asian markets that responded more favorably than expected over night or just a strong desire to give itself a break from the drama. In other words, the market is being driven by emotions at this time more than anything else and interpreting what is happening is no small task.

Here are a few observations about the current market landscape:

• Members of Congress supported the spending of more than $800 billion to bailout financial institutions with much of the specifics of how it would be spent to be determined later (Obama and McCain each have very different approaches). This approach raises as many concerns as it placates.


• The amount proposed, $800 billion plus, was pulled completely out of the year. A high level Department of Treasury official said that this figure was chosen because it "needed to be real high." They had no idea how much was needed, because they weren't sure how it would be fully implemented. Again, this has raised more market concerns.
  
• Much of the drama surrounding this event -- most recently seen in the emergency meeting of members of the G7 -- is a mixed bag that could end up heightening fears rather than calming them. On the other hand, because of the interdependence of the international financial markets, some are seeing such an approach is crucial in getting back to normal.

In addition to the financial issues, there are the political aspects. Many in the media are treating Presidential candidate John McCain as if he were among the "walking dead." Wall Street believes that the economic future of this country is in better hands under McCain than Obama. Is McCain's chances begin to decline, I project a continued drop in the stock market.

So are we on the rebound? I certainly hope so, but smart investors are going to find themselves taking a "one day at a time" approach to their investing.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

McCain Advocates "Trickle Up" Economics

As John McCain's chances for reelection appear to be dwindling, his desperation becomes more obvious in his policy proposals. During the second debate with Barack Obama, McCain argued how he hopes to see the $700 billion bailout be implemented. After all, it will be the next President who implements the vast majority of this program with only a few months left in the Bush Administration.

McCain proposed something that is far more likely to come from the mouth of a Democrat -- a very liberal Democrat at that -- than a Republican stalwart. McCain proclaimed that he wants a significant amount of the money to go to bailout those in foreclosure directly. If you are about to lose your home and are months behind, the government should step in and rescue you. This is certainly better than helping the Wall Street fat cats, right?

The problems that come from such a policy are numerous. Such a plan will spread the moral hazard so rampant today to the general consumers. You will find them falling into the false sense of security that, no matter how bad the decision one makes you will get bailed out.

Worse still, what type of message does it send to the vast majority of Americans that figured out how to pay their mortgage even with the sub prime problem? I am sure the government, with all of its brilliance, will create a window for which people who prove they have had late payments will be able to participate as well. I have said all along that this $700 billion is a down payment. We are looking at $1.5 trillion by the time we are through.

What about those who already lost their homes? Tough luck. This bill is all about timing, not fairness. Those poor souls will simply have to lament their loses.

This bailout is fundamentally wrong and very dangerous to the long term prospects of this economy. It has done little to positively effect the markets and does far more at raising questions instead of answering them. It has essentially led to the socializing of our banking system and has damaged the respect for risk that is necessary in maintaining a free market economy. Members of the House and Senate who voted for this bill will find themselves haunted by it.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Questioning the Constitutionality of the Senate Bailout Bill

I hate to bore the Congress with details, but there is a little passage in the US Constitution that could very well haunt the Legislative Branch if the House of Representatives passes the Senate bailout bill. Article I, Section 7 of the United States Constitution states that "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills. " Simply put, the bailout package had to come from the House and the one that Congress is now considering is therefore, unconstitutional.

Modern practitioners of political science are dismissive of requirements such as this. They argue that, "this is a formality" or "a mere question of protocol," but has nothing to do with the substance of the Constitution. Reality? It has everything to do with the substance.

When the Founding Fathers developed our Constitution, they wanted the Legislative Branch to be broken into two Houses for reasons in addition to making sure large states and small states had fair representation. They also wanted to make sure that the government would be extremely deliberative about making changes in law. The US House of Representatives are up for reelection every two years and typically represent smaller populations than the Senate. They are closer to the people than the US Senate which faces reelection in six year cycles (and only approximately one-third at a time). This means the Senate can afford to take risks that the US House cannot usually take.

Proof is in the pudding. The US House took on this bailout bill earlier this week and voted against it. That bill was dead and a new bill needed to be created. According to the US Constitution, that begins in the US House. Instead the Congress is being driven by expediency instead of rule of law and they started from scratch (adding $100 billion more in the process) in the Senate where it passed in a body where many of the members have four years before they face reelection. That bill is now in the House and those members are now being told by the upper body to "jump in, the water is great."

Senators should have voted against the bill because of its unconstitutionality. US House members should now do the same, regardless of the merits of the bill itself (which are few, considering the costs). Unfortunately, discussions about constitutionality are relegated to law schools and not where laws are created. However, this cloud could follow these members to their reelection efforts or maybe all the way to the US Supreme Court.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

The Senate Bailout Plan: "That's Not All..."

The bailout bill the US Senate passed reminded me of one of those late night infomercials. You know the ones where the company isn't convinced that you are going to buy something so they throw in "that's not all, oh no, that's not all." You see a very similar approach to selling this bailout in the final legislation passed by the Senate.

The original proposal that came from Treasury Secretary Paulson and President Bush was a mere two pages long. The US House got its hands on it and it became a little more than 100 pages long. There is no reason to worry, however, because Harry Reid (D-NV) has announced that the Senate has made it better by bringing it up to 451 pages and by adding over $100 billion to the final bill. If more is better, we certainly got that from this bill that passed by a very wide margin.

Fiscally Conservative Republicans put the breaks on the bailout bill that came to the US House because they thought it was too wasteful and transferred to much power to the federal government. So adding more pork and power to the government will make it more likely to pass? We will have to see.

So what will you find in this multi-layered package:

- Tax Breaks for Wooden Arrows designed for use by children (Sec. 503)

- Tax Breaks for Film and Television Productions (Sec. 502)

- 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
- Tax earmark “extenders” in the bailout bill.- Virgin Island and Puerto Rican Rum (Section 308)

- American Samoa (Sec. 309)

- Mine Rescue Teams (Sec. 310)

- Mine Safety Equipment (Sec. 311)

- Domestic Production Activities in Puerto Rico (Sec. 312)

- Indian Tribes (Sec. 314, 315)

- Railroads (Sec. 316)

- Auto Racing Tracks (317)

- District of Columbia (Sec. 322)

- Wool Research (Sec. 325)

Who knew that Indians were about to go bankrupt? Considering they have their growing gaming interests, I thought we might be able to borrow money from them. The above are just a few of the examples that were added. I encourage you to read the bill in its entirety, if you have a few days to spare. I think it would make sense also to find out how your Senator voted on this bill.

In the end, however, I see this bill passing in the US House. There are specific tax breaks for small to medium size businesses to help encourage their recovery, tax relief for those hit by the recent natural disasters (hurricanes in the South and tornadoes in the Midwest), and there is an increase in the requirements on the Federal Deposit Insurance Corporation (up to $250,000 from $100,000), putting more responsibilities on the banks.

In spite of such assurances, I have to question whether the trade offs of our freedoms and the potential socializing of our financial systems is worth the short term "stabilization."

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.