January 16-17, 2010 – The Coming "Massachusetts Miracle?"
I started off this weekend’s radio program by talking about the earthquake in Haiti. As you all know, last week, Haiti experienced its worst earthquake in over 200 years. The death toll estimate now stands at over 70,000 and growing, making this the worst natural disaster in the Western Hemisphere in many decades. Desperation in the small Caribbean nation is growing. Unfortunately, this natural disaster follows upon decades of man-made disasters in Haiti as corruption is rampant and the country is without effective governmental leadership. As I write, survivors are suffering. Six days after the quake, food and water remain scarce and the Haitian people need our prayers. As our military and aid organizations mobilize to offer assistance, please pray that our soldiers, sailors, marines, and civilian aid workers will be effective in bringing relief to this impoverished country. If you want to help, I suggest you donate to the American Red Cross, Catholic Relief Services, or another reputable relief effort with which you are familiar.
Obama’s Attack on Lending Institutions
Sarah Mohsin-co-owner of Mohsin Mortgage Company-joined me on the program to talk about the Obama Administration’s recent decision to attack financial institutions with new taxes, law suits, and redundant regulations. Enacting new taxes on banks and empowering the Justice Department to attack lenders for so-called "reverse redlining," amounts to direct attacks against institutions that we the taxpayers just spent billions to "bail out." Instead of subsidizing and then attacking banks, our government should just leave them alone.
Liberal activist lawyers define their new charge of "reverse redlining" as a process where a bank or mortgage brokerage systematically issues loans with inferior terms-including high upfront fees, high interest rates, and lax underwriting practices-to borrowers based on race or ethnic background. Sara points out that the "Equal Credit Opportunity Act" already prohibits lenders from engaging in this type of behavior. Each year, government auditors are required to review the books of financial institutions to ensure that they are not engaging in any unfair lending practices. Sara believes that the government is pushing these new regulatory initiatives in order to create more tax payer funded government jobs, as well as to satisfy the political left that wants to blame private businesses, including banks, for the recent financial crisis. The administration refuses to acknowledge that the government’s policy of pressuring banks to make marginal loans (to people of all backgrounds) was one cause of the recent financial crisis and recession and that these new anti-business anti-banking policies will increase business and consumer costs, and likely blow new "head winds" in the face of the already dismal housing market.
The fact is that much of the liberal political agenda is counter productive. For example, although they claim to care about the education of our inner city youth, liberal Democrats destroyed the Washington D.C. Opportunity Scholarship Program. This program provided grants for 1,700 poor inner city children to flee the failed public school system and attend the private school of their choice. However, the teachers unions hated this program, so in one of its first acts of 2009, the Democrat controlled Congress killed it. You think liberal Democrats care about the kids? Forget their words. Their actions say they care about union jobs and the dues unions collect from members which then provide the bulk of financial support to the Democrat Party.
Democrats rightly claim that we need to reform the current health care system in order to reduce costs, reduce waste, improve quality, and expand care. But instead of introducing legislation that achieves or even addresses these goals, "Obamacare" dramatically expands the inefficient Medicaid program (making millions of middle class people dependent on government handouts), mandates the form of insurance coverage for every American (reducing our freedom to choose our own coverage), and raises taxes dramatically on those who work to pay taxes. Obamacare is simply going to put our current health care problems on steroids. It must be stopped right now or it must be repealed if enacted.
Stimulus and Hot Air
And instead of introducing legislation that would actually help people weather the economic down turn (such as tax cuts for job creators), liberal Democrats in Congress passed a $787 billion spending bill that has failed to create jobs, save money, or eliminate waste within the government bureaucracy. In fact, under the Democrats, government bloat, back room secret dealing with special interests (like the SEIU and the AFl-CIO), Congressional "earmarks" are at an all-time high.
Remember President Obama promising Americans that there would be no (that’s right zero) earmarks in his stimulus bill? And then remember when there were 9,000 earmarks in the bill? Remember when President Obama promised on multiple occasions that negotiations on health care in Washington would occur publicly on C-Span? Well, you have seen the unprecedented back room dealing at the White House over the past two weeks. Can we trust anything that this President says???? No wonder people are increasingly angry and frustrated with the Obama Administration and our current leaders in Congress.
Pittsburgh’s Broken Promise
A recent analysis of the "Pittsburgh Promise" has shown that this program (instituted in 2006) has failed to increase academic achievement or the quality of education in the Pittsburgh Public School District. In 2005, average SAT scores for students attending Pittsburgh Public Schools were 900 (the national average was 1028). By 2009, the average score had fallen to 879 (the national average also fell to 1016). The number of students (mostly juniors and seniors in high school) taking the SATs also declined during this time period from 1,100 in 2005 to 900 in 2009. And total district-wide enrollment continued to slide as well from approximately 30,000 total students in 2005 to approximately 26,000 in 2009.
And this failing public education is not cheap. Pittsburgh taxpayers spend more than $20,000 per year "educating" each child in the Pittsburgh public schools. Comparing this cost to the cost of educating children in area private schools puts this in perspective. The average annual tuition cost per student at Sewickley Academy is approximately $19,000 while the average annual tuition cost at Shady Side Academy is approximately $20,000. In other words, annual tuition costs at these two prestigious private schools are less than or equal to the amount taxpayers spend on each child in the Pittsburgh public schools. And Imani Christian Academy, a relatively new inner city private school spends just $8,000 a year per student. This lower cost is comparable to the cost per student at Pittsburgh Catholic schools (both Imani and the inner city Catholic schools achieve better student performance than the public schools with virtually identical percentages of students in poverty and from single parent households). Where would you rather send your child or grandchild–an expensive, but failing inner city public school system, or a successful private school with much better educational outcomes? Would the hope of tuition assistance from the "Pittsburgh Promise" cause you to subject your child or grandchild to a failing public school? Or would you rather make sure your child obtained an excellent K-12 education, and then find other scholarship assistance as college approaches? Pittsburghers are rationally answering these questions and either moving out of the city or sending their kids to better (and cheaper!) private schools.
The Pittsburgh Public Schools will not be saved by "The Promise." In order for our children to learn and be competitive nationally, we need to tie taxpayer funding of education to individual children and not school districts. In other words, we need real competition in K-12 education in Pittsburgh and across America!
Brian Kapp, Co-founder, Portfolio Manager, and Chartered Financial Analyst at Kapp/Scanlon Financial offered his views on the current state of the economy. Brian pointed out that the recent economic downturn was much different from previous economic cycles. This recession was fueled by the explosion of debt. Back in 2007, personal credit card debt reached an all time high and the funding of sub prime mortgages reached true bubble proportions. The implosion of the debt bubble when millions of people simply could not make their mortgage payments led to an enormous devaluation of all assets in the economy including mortgage securities, stocks, and real estate. Households are now rapidly reducing their debt levels, but government is replacing the American people in taking on too much debt. Instead of cutting expenses, current projections show that federal deficit spending will grow in 2010 and total at least $1.7 trillion, and then remain above $1 trillion per year for 2011 and beyond. Obviously, debt levels must be reduced. But debt reduction is painful in the short term, and Brian believes this pain will create additional economic hardship before there is a sustained long-term recovery. Time will tell.
Brian encourages his clients to seek active portfolio management for their investments. If you are interested in learning more about Kapp/Scanlon’s investment strategy, give Brian and his team a call at 1-888-841-2555 or email them at kappscanlon.com.
Healthcare Nationalization Update
In spite of the extremely secretive process that is being used to blend the House and Senate versions of healthcare nationalization, some of the healthcare details are beginning to surface. For example, if you are Amish, you will be exempt from the healthcare mandate. I predict that the Amish Community will experience a record number of converts if "ObamaCare" becomes law. Such a policy raises more than a few questions. For example, how will the federal government determine if you are Amish? And how can our government justify a religious, race, or ethnic based policy? But this comical provision illustrates just how bad the pending healthcare legislation is.
The administration also reached a back room deal with organized labor that largely exempts them from the 40% tax on "Cadillac" healthcare plans. To make up for the projected lost revenue, dividends on investment income will be taxed, a solution that will primarily hurt retired Americans who rely on investment income for their economic well being. It seems that if you are a member of a big union or a union boss, you are a lot more "equal" than everyone else in the world of Obama!
Massachusetts Special Senate Election
This Tuesday, Massachusetts voters will decide who will replace the late Senator Edward Kennedy. In a surprising and inspiring turn of events, Republican Scott Brown has surged, and recent polling data now shows him ahead of liberal Democrat Martha Coakley in one of the bluest states in the union. His statement in last week’s debate that "it is not the Kennedy seat; it is not the Democrats’ seat; it is the peoples’ seat" certainly resonated with voters. Most importantly, Brown has made this race a referendum on ObamaCare by campaigning as the 41st vote against nationalized healthcare. If elected, Brown promises to kill this healthcare bill.
Moderates and conservatives are coalescing behind Brown’s campaign promise and Martha Coakley’s campaign missteps are multiplying. Last week when she could have been campaigning in Massachusetts; she was spending her time with lobbyists in Washington, D.C. at a Democrat Party fundraiser. Over the weekend, she accused former Red Socks star pitcher, Curt Schilling, of being a Yankees fan. It seems that Martha Coakley is a lot more in touch with the world of liberal Democrats in Washington than the realities of life for people in Massachusetts! Let’s pray for a "Massachusetts Miracle" in Tuesday’s election. A Scott Brown victory would constitute a near death blow to the liberal Democrat agenda of Barack Obama, Nancy Pelosi, Harry Reid and their fellow travelers.
I want to thank all of you for listening to my radio program and offering constructive feedback via email. To get more information on these topics or to hear a replay or download a podcast of this past weekend’s radio program, just go to my website at www.glenmeakem.com. Have a great week!