Indentured Family Assistance

In a world where people have problems
In this world where decisions are a way of life
Other people's problems, they overwhelm my mind
They say 'compassion is a virtue,' but I don't have the time

-Talking Heads

If you've ever loaned money to a distant relative or perhaps took the short end of a business deal in order to help him or her, then perhaps you can understand the position of the government.

TARP unfairly has become synonymous with bailout. Though some of the TARPed entities would certainly have to shutter without those funds, the bulk of recipients took these funds either at the behest of the government or to continue to grow their important functions during the current downturn. The second of these is especially important to the economy as they are the banks who are lending, enabling the few pockets of growth in today's economy to thrive.

Once you made that loan to your cousin/brother-in-law/half-uncle's sister, did you subsequently notice him/her make a new luxury purchase or perhaps go on a trip you think they might not have otherwise? What was your reaction? Perhaps at this point you can understand how the taxpayer feels.

To most nonfinancial-sector employees, the word "bonus" reflects the Webster's definition of "something in addition to what is expected or strictly due." The reality is the annual bonus paid in the financial sector actually is expected, and while not strictly due, it is certainly expected. For the nearly twenty years I've been in the financial industry, I've received a bonus each year. I've had co-workers who received zero bonuses and took that, correctly, to mean they should immediately commence a job search - they won't be employed at that firm for long. One lesson Wall Street should learn here is to drop the word bonus from our lexicon. Perhaps these payments should be called "expected undefined annual payments."

How about the other side of these transactions? Have you ever borrowed money and then been accused of spending extravagantly by your cousin-in-law/step-grandfather/sister's father-in-law? Were you simply continuing your spending pattern as before, realizing you'll be able to pay back that loan at some point in the near future?

The government has invented a solution for this situation: the stress test. While many of us would love to strap that relative to some medieval torture device to see if our loved one will live long enough to pay us back, this probably isn't an action congruent with our original intentions. To offer help only to turn around and set hurdles for that assistance after the fact is more than a bit schizophrenic.

If the results of the stress tests are reported, won't this delineate between the banks that really needed help and those who were helping the government hide them? Have we decided to point out the loser banks, effectively creating the short list for every hedge fund still in business?

Once you were able to pay back the loan, did your benefactor refuse repayment so that he/she could continue to hold the loan over your head? How is that relationship today?

American business operates under the concept of freedom to transact. Should prospective entrepreneurs determine future success to be impeded by a government that takes any or all upside resulting from the individual's sweat equity, this most important of sectors will move to greener pastures. It is entrepreneurship that will get the economy out of its current slump. Those who take personal risk should reap personal rewards when successful. Otherwise, we will never move forward.

How and when will government pull back from the financial sector and allow the strong to thrive and the weak to fade? Only then will the gears of capitalism begin to move again, driving our economic recovery.

Key Developments

Existing home sales fell 3 percent in March to an annualized rate of 4.6 million from 4.7 million in February. Today's level is slightly below the trough during the dot-com bust days at around 5 million per annum. The fact today's is a housing-led downturn indicates the housing sector could fall further from here, especially given the spike in unemployment in the last four months.

Orders for goods expected to last longer than three years fell by 0.8 percent in March and continue to hover at the $160 billion mark as opposed to the $220 billion level seen through 2006 and 2007. January's low was the weakest print since this index began in 1992 and continuing woes in the auto and aircraft industries will weigh on the index for months to come.

Looking ahead, the Federal Reserve is expected to release the results of their first "stress test" on the large banks that took TARP funds. It remains to be seen exactly what will be revealed and whether we'll get true insight into how these institutions are performing. It is equally debatable whether this information would help move the economy toward recovery or exacerbate the current downturn. With no overall government plan to get to recovery, it is difficult to interpret each individual piece of new information to mark our progress.