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Wednesday, December 3, 2008

Restoring the Revenue Part II - How Barack Obama and Warren Buffet could regulate the Markets to re-invest into America.

When the renowned Warren Buffet speaks about the perils of Credit Default Swaps, people listen. Mr. Buffet supports a federal bailout of the financial institutions to save America whereas others in the financial and governmental arena do not support the bailout of the big 3 automakers. He will be coming “clean” on how he manages his investments, now that he and his Wall Street investor friends are losing their investments at an accelerated rate. The corporate jets are in jeopardy and now they will have to fly commercial with “the public”.


Downsizing is tough for people who have been living large and in charge when Fuel prices were over $3.50 a gallon and, were making millions off of other people’s misery. This is nothing new to UAW members who have been experiencing this recession/depression, long before the December 2007 declaration by Wall Street of the start of the official recession. Click here to read the “Buffet Story” from the New York Times article of November 25, 2008.


The advantage of bailing out the big three will have a ripple effect in the affected communities. People who work for the Auto Industry are the true middle class. UAW members were the ones doing the spending on things such as electronics, recreational vehicles, and tend to spend their money among the citizens of their respective neighborhoods. The total number of people tied to the Auto Industry is about 10 times the numbers working in the finance area. Autoworkers and suppliers tend to be larger participants in local community activities such as bowling, golf, and spending with neighborhood businesses.


Bailing out the financial industry because of the greed and mismanagement is bewildering to the Middle Class citizen. Mr. Buffet’s concern of the credit default swaps and derivatives in the market is commendable and genuine. One of his primary investments Berkshire Hathaway has lost over %36 in value since October 1st of 2008. He is losing about 1/3 of his total assets in the falling stock market and is a big supporter of the federal bailout of the financial industry. Berkshire Hathaway is an investment portfolio of companies like, Coca-Cola, Goldman Sachs, and General Electric. And when Joe and Jane UAW member lose their home in a foreclosure proceeding, Wall Street investors refer to that as a natural course of business. And sometimes the investor’s investments increase in value because the investor was betting that the price of a stock or an investment will fall in price.


The mismanagement and greed has another friend in the un-regulated business practices of Wall Street. The friend comes in a form of a Security Item called Derivates where investors were creating items called futures that are backed by hard objects like homeowner mortgages, corn, rice, gasoline, natural gas, and other physical assets. The investor is hoping (betting) that the price will change upwards or in some cases downward (short position) in a measured amount of time. Usually it is about 3 months. An investor purchases one of these derivates without ever owning the asset that backs it. When the price goes up, the investor skims the profit. If the price goes down, then the investor loses their money. The investor has their bet “insured” by a company like AIG and Goldman Sachs. AIG and Goldman Sach’s job is to pay off the investment in case something goes wrong. This was fine until the adjustable rate mortgages started to default and the financial pyramid came tumbling down.


Mr. Buffet was a willing participant in this process and was a major player in this market. He was also wise to see that the derivative market was a tool for financial mass destruction. He realized that in the wrong hands an unsupervised a rouge investor could manipulate prices by using world events to create a false demand by altering the supply chain. With the help of a few press releases and access to supply lines, investors can control the supply of commodities (electric, fuel, etc) with the click of a mouse.


So why does the opinion of a wealthy person like Mr. Buffet matter to anyone in the middle class? A middle class person is defined as a married couple or anyone making in a range from $30,000 to $100,000 a year. Warren Buffet is a financial consultant and a supporter of President-Elect Obama’s plan for change in America. Rep. Cushingberry sees the relationship between Wall Street and the homeowners and businesses on 7 mile road. Rep Cushingberry knows that the average UAW employee spends their money in the community much quicker than employees of Wall Street firms. The money spent by these union members gets turned over at least 5 to 7 times in the community they live in. UAW members tend to be common people who are actively involved in their community’s growth by participating in PTA meetings, softball tournaments, and other activities that directly impact the people.


Rep Cushingberry knows that the UAW members were the first ones who gave concessions to the big 3 long before the current credit crisis on Wall Street. He finds it appalling that the investors on Wall Street say that Union members make too much money. This is after new UAW members make %50 less than their counterparts working the same job. And the new UAW worker has to pay more for their health care coverage out of their gross pay. And to ask these workers to give even more concessions is an insult, especially when the derivates market is a $531 trillion dollar albatross that is bringing down the economic wealth of the United States.


If you want to support me in my efforts to reform the financial planning of State Government, please give me a call at my office or email me at gcushingberry@house.mi.gov. I would love to hear from you on this. If you have a Gmail account, then log in and comment on my blog.

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