Chris Tomaras / Straight Talk / October 4, 2008

We’ve just experienced the worst week in the stock market in 112 years. Peoples anger and fear are growing and I continue to hear a lot of confusion and finger pointing as to how we’ve gotten into the mess, so here’s the straight talk. I don’t mean to beat a dead horse but we live in a nation of gamblers and our country’s culture, chasing the almighty dollar has encouraged it. The object is to create products where the manufacturers of those products can maximize their profits. Nothing wrong with that but like in a casino, in order to make money, the house wants the odds to be in their favor while enticing gamblers to frequent their facility.

Those folks who go to Las Vegas or Atlantic City, repeatedly losing money, are considered to be addicted gamblers. For years, those who speculate in the securities, commodities and  real estate markets have been referred to as traders, investors, entrepreneurs or capitalists. However, there is a big difference between thoughtful investing and irresponsible speculation. The unfortunate thing is that often times legitimate investors can be harmfully effected by irresponsible speculators and blind greed and our nation and other nations have been deeply wounded by the lack of oversight and governance of these abuses. As the truth unfolds about what has lead us to this disastrous economic house of cards, the words leverage and speculation are going to be at the top of the list. Ron Alberts, our financial analyst, on our first show, when asked what led us to where we are, alluded to how Wall Street firms over-leveraged themselves, while mis-managing trillions of dollars and improperly managing their enormous risk. And then there were those who lent money to unqualified borrowers feeding Wall Street, FNMA and Freddie Mac’s insatiable appetite and greed by selling them a lot of bad loans which were packaged, securitized and sold into investment portfolios around the world.

At the same time, Congress was bragging about the rise in homeownership and how well the economy was doing. There were a few that tried to warn our elected officials that disaster was looming due to the exponential rise in home prices and loose underwriting standards. Many said that FNMA and FRDIMAC were too large and headed for trouble. However Fannie and Freddie made some $200million in campaign contributions to Congressmen obviously clouding their better judgment and convincing them to remain silent.

It’s not much different than those that take their life savings, sit down at a blackjack table, initially hit a run of good luck, continue to increase their bets and then lose not only their life savings but borrow even more and lose that money without the where-with-all of how to pay it back.

Americans are angry and rightfully so, because the truth be told, a long line of addicted gamblers have taken taxpayers hard earned tax dollars and not only gambled them away by leveraging their bets but are now asking these same honest hardworking taxpayers to pay for their gambling debts.

And to make things worse, we are told, as a lesser of two evils, if we don’t agree to pay for their losses, our economy, our jobs, our lives will be ruined. And by the way we have 1 day to sign off on the bailout plan.
Now the Govt had a choice and chose to bail out AIG to the tune of $85B, and in a matter of days, that number has grown to $122Billion but not to be short-changed, the executives of AIG had the audacity, given their elitist sense of entitlement to throw themselves a $440,000 party following the bailout.  All I can say about them is, what a bunch of pompous, insensitive, self-absorbed jerks and that’s putting it nicely.

It’s kind of amazing that through this whole process there has been no mention of antitrust laws as major banks including JP Morgan, Bank of America, and Wells Fargo have now created huge financial monopolies through the fire sale purchases at below true market values of several financial entities. These purchases would normally go through a long investigative process but the bottom line is that the patient is hemorrhaging and the government is reacting in any and every way possible to save the patient’s life with a rescue plan of unfathomable proportion creating a governmental socialized state where all rules are off the table. It’s no longer the lesser of two evils. It’s about survival of the world’s economy and whatever will work to save it.  So where are we and where do we go from here? In my 40 years in the markets, when panic sets in, the markets way  overreact and create enormous investment opportunities.  JP Morgan, B of A and Wells Fargo are prime examples, taking advantage of the huge buying opportunity at a time when regulators are nowhere to be found and as a result a monster in my opinion, has been created setting themselves up for huge windfall profits.

And that’s this week’s straight talk.