subject: Wall Street Wasn't Broken… Until The Government Got Involved [print this page] It was easy, and popular, for Washington to place most of the blame on Wall St. for the economic crisis. The banks were issuing loans and mortgages to millions of non qualified borrowers, who were more than eager to get the loan. However, behind the scene, Washington had incentives and policies in place that encouraged the excess lending. For example, the government backing of loans through Freddie Mac and Fannie Mae.
Fannie and Freddie are government-sponsored enterprises (GSEs) that operated as private companies.They packaged mortgages into securities, with a guarantee against default. That guarantee has cost tax payers $150 billion to date and that number is predicted to rise as foreclosures keep rising.
But first, let's check in on the how the Corporations are doing since the crisis.
Hey. Not bad. And not a bad case for owning stocks, especially Dividend Paying Stocks with strong balance sheets. But where are the jobs? The markets seem to be waiting for any confirmation that the job market is improving before it heads higher.
Jobs are out there. They just aren't in the United States anymore. And who can blame them. Look at some of the issues constantly changing for corporations:
Large Cap Companies are sitting on $1.8 trillion of cash, and there's no incentive for them to put it to work.
CEO's are starting to fire back at Washington. Intel's (INTC) CEO, Paul Otellini, let his frustrations loose and told government officials that because of current political conditions, "the next big thing will not be invented here. Jobs will not be created here."
He went on to mention what executives are faced with when considering creating new jobs in the US. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States."
Companies like Visa (V) and MasterCard (MA) are constantly wondering if the fees they charge, interchange fees, for processing credit card transactions are going to be limited by the government. For a company with double digit growth, the only reason they wouldn't hire is if there was uncertainty about future profits.
The new 1,500 page financial regulation isn't helping either and can be summed up like this. There are a lot of new rules; they'll be defined as time goes on." With so much undefined, businesses are making most prudent decisions they can in this environment wait and see.
Wall Street Wasn't Broken Until The Government Got Involved
