Tuesday, January 26, 2010

Tipping Point?

Sadly it would seem that financial analysis has become so entangled in political analysis it is impossible to do one without the other.

Ten years ago Malcolm Gladwell wrote the popular book, The Tipping Point. A tipping point is an otherwise small event that precipitates a massive social change. I would suggest we may be near such a point.

Over the past eighteen months the world has endured the deepest and most prolonged recession since the 1930’s. The unemployment rate is the highest in a generation, the debt of the country and its citizens is at unprecedented levels and the obligations for the future are being swept under the rug. Yet the market rebounded fabulously last year. All the while the fundamental reasons for the meltdown remained intact and borrowing trillions from the public to give to the private sector was the best that could be come up with.

The item which has galvanized me to again write here is the Supreme Court ruling of last week which clears the way for corporations to exercise their constitutional rights as citizens. Corporations now have the same rights to contribute millions (or billions) to political candidates as you and I. With an election process that continues to see ever increasing cost (price) while seemingly moving further away from coherent debate this seems like a holly stake to the heart of government by the people.

According to Senator Mitch McConnell (R) from Kentucky, "For too long, some in this country have been deprived of full participation in the political process." The statement alone makes me cringe as if by limiting campaign contributions from Exxon or Pfizer or Citibank somehow disenfranchised the individuals managing them. In a nation that increasingly seems to be a ‘one dollar, one vote’ democracy, this court ruling seems to underline all the more emphatically the entwining of politics and our current style of capitalism. Having given countless banks a free pass on insolvency by loosening FASB accounting rules or given sufficient taxpayer capital to them to avoid or delay the impact of horrific business management decisions, we have seemingly moved from Wall Street to Every Street.

Normally in a Supreme Court ruling I find disagreeable, I can see both sides of the argument and play devil’s advocate on either side. However this ruling opens a path for the disenfranchisement of us all. Not since the Court ruled in favor of slavery in the Dred-Scott case has a ruling been so detrimental to the common good and public policy.

I wonder, could this be a tipping point, one way or another? As one client said, just how much more will the people accept?

John Barnyak
Stonehouse Asset Management