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My concern isn't how CFOs are going to vote ("Dear Mr. President," October), but rather how the "Joe Six-Pack and hockey moms" group is going to vote. The economic interpretation from the uninformed or the selectively informed voter will decide the election.
Inflation has to be the country's No. 1 worry, as it will become politically advantageous to embrace inflation as the magic pill to grow us out of our economic problems. I disagree that companies are going to raise prices on commodities, because I see freight costs, oil prices, and steel prices rolling back already in response to lower demand and increased global supply.
The weak dollar has been the best stimulus my industry has seen in seven years, and I can truthfully say I don't have an issue with supporting a reasonably priced dollar, because it will create more well-paying, middle-class manufacturing jobs than any other economic stimulus the government can create. The artificially high oil prices that were blamed on the weak dollar will settle within acceptable limits once the price of oil stabilizes.
You cannot tax your way to prosperity, and if the capital-gains tax is raised it will have a devastating impact on investment philosophy. Pre–Reagan Administration, my business was confronted with the issues of trying to accumulate enough cash flow from after-tax dollars to grow the business and to service our debt load. Had it not been for the Reagan tax cuts, my company would not have had the growth we have had, nor would we have had the ability to sustain ourselves through the tough markets. The alternative minimum tax has been a large theft of expansion funds during many years of my business cycles.
It's 35 years after the first energy crisis, and we are still waiting for an energy plan. I am a proponent of the all-of-the-above approach, and would look to the states to create and encourage energy-development incentives that fit the strategies within their respective markets.
The only politically correct solution I see is for the members of Congress to take responsibility for the mess they created, apologize to the American people — and resign from office.
Jerome Meyer
Via E-mail
Don't Blame the Politicians
There's a lot of finger-pointing going on as a result of all the turmoil in the financial markets. Political parties are blaming each other, former Federal Reserve chairman Alan Greenspan is under attack, the President is under attack. No one has addressed the real responsible parties — the executives of the troubled financial firms themselves.
The leaders of Wall Street firms in the past five years took out billions of dollars in bonuses — go after them! For once it's not the politicians' fault.
Eric Wukitsch
CFO
Vantage Custom Classics Inc.
Avenel, New Jersey
Undeserving from the Start
Great article on the subprime/debt-ratings fiasco ("Over Rated?" September). However, I believe that financial-analysis tools were available to get these securitizations' debt ratings correct in the first place. If debt ratings had been developed properly, the credit crisis might not have reached a "perfect storm" level and a lot of investors might have avoided losses.
As a person experienced in capital adequacy, asset/liability management, and debt-rating analysis, I was confounded by the ratings of securitized and synthetic structured-debt entities these past several years.
Let's review the fundamental criteria that underlie a rating for a debt instrument regarding structured, securitized, and synthetic leveraged entities:
(1) Capital structure and adequacy. Obviously, with only "sponsors," these entities had few, if any, equity buffers along with excessive leverage.
(2) Liquidity. Naturally, with asset maturities of more than 10 years funded by unsecured short-term paper, the liquidity had no assurance at all. Match funding was absent.
(3) Earnings quality. These entities had enormous negative rate sensitivity (a concept I introduced in the banking industry in 1975), so, with any inversion of the yield curve or a liquidity run, the earnings dramatically dive into negative territory (remember, there is no equity to fall back on).
(4) Asset quality. Lending on unacceptable credit criteria with insufficient documentation, income verification, and residence means a measurable amount of the underlying assets were surely doubtful, with predictable losses at the onset.
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