Where is the USA Going?

WOW! That’s a broad question!

But it’s the one that keeps running through my mind lately. Every day – even multiple times every day – things come to my attention that cause me to fear for the future of the USA as I have known and loved it through 65 years of being an American.

In the interest of full disclosure, I am a conservative. I generally vote Republican, and I’m registered as a Republican, but that is not out of loyalty to a party. I generally vote Republican because the Republican candidates are generally more conservative than their Democrat opponents.

That is to explain that in observing the state of our nation, both politically and culturally, I really don’t look at it from a partisan point of view. I look at it from a conservative point of view, and from a point of view shaped by my own personal values. Consequently, I know there are many intelligent, well-intentioned people who will disagree with much of what I think and say because their own point of view is so different. I just hope that if you are one of those people you will read what I have to say with the same respect that I would grant to your point of view. We don’t have to agree to examine and respect an opposing point of view.

My concern of the hour is the bank stress test results that were released yesterday.

I started to go on to say that I can’t quite understand the reason for this set of stress tests being made public. My problem is that I DO think I understand.

First of all, bear in mind that these stress tests are really nothing new. The FDIC does them all the time. We never hear about them, and most people are completely unaware that they are a routine procedure.

So why did the government announce these? I believe this group of stress tests was announced because once they were announced there would be a public outcry to know the results. Our government wanted the information made public.

And why did the government want the information made public? Here is where my concerns rise.

Of 19 banks on which test information was released, 10 of them were deemed to require additional capital. A total of almost $75 billion among them. The top five were deemed to require the bulk of it - Bank of America Corp - $33.9 billion, Wells Fargo & Co. - $13.7 billion, GMAC LLC - $11.5 billion, Citigroup Inc. - $5.5 billion, and Morgan Stanley - $1.8 billion. $66.4 billion needed by those five banks.

June 8 is the deadline for the banks to develop a plan and have it approved by regulators. If they are unable to raise the money on their own, the administration has said it is prepared to dip into the bailout fund.

So what is the reality of the situation? These banks are almost certain to be unable to raise the money. To raise capital, they can sell off assets (not likely in the current economy to produce the capital required) or they can attract additional investor money. That is also unlikely, when the banks have been labeled by the government as being at risk.
Depending on how you might feel about the test criteria used for the stress tests, you might not even agree that these banks are at risk. The fact remains that our government saying that they are at risk poses a serious threat that the public perception of their stability. That hampers their ability to raise additional capital, and makes their need to go to the government virtually a certainty.

Trying very hard not to fall into the category of a “conspiracy theorist,” I am lead to consider where this is leading, what is at the end of the path, and whether that ultimate destination was planned all along.

First of all, simply borrowing money from the government doesn’t solve the capital problem. Add cash and add debt and capital is unaffected. The issue is not the amount of cash the banks have – it is their capital position. No, the government will have to invest in the banks.

The intro investment vehicle has been a preferred stock position. That makes the US government (you and me) owners of the banks. Owners with no voting rights, but owners nonetheless. The direction this is likely to go next is to convert that preferred stock to common stock. Then the government has a voting interest in the banks. In other words, our government has some level of control (how much control depends on how much ownership) over the operations of the banks.

That, my friend, is tantamount to nationalization of the banks. And nationalization of various industries is the hallmark of socialism. I’m not going on a rant here about Soviet Union style socialism (though one can certainly find reason to wonder just how far down this path the administration is prepared to go). I am talking about the garden-variety socialism rampant in Europe.

It is obvious that there are many Americans that don’t see that outcome as a terrible thing. My personal opinion is that they only feel that way because they don’t really understand what it is to live under socialism. A closer look at life in any of the world's socialist states might change their minds. But more about that another day.