cozcommunio

Now that there is a lot of talk about the country going in to a recession we have two presidential candidates,Clinton and Obama, that want to increase taxes and move toward increased protectionism. They want to pull out of NAFTA or rewrite NAFTA. Hillary is calling for a pause in free trade.

These are ideas right out of Herbert Hoover’s play book for turning a reccession in to a depression. Hoover signed the Smoot-Hawley Tariff Act in 1930 which raised the taxes (tariff) on over 20,000 items. This tariff set off a wave of protectionist retaliation that undid the globalization of the 1920’s. In 1932 Hoover undid the Calvin Coolidge-Andrew Mellon tax cuts, raising the top marginal income-tax rate to 63% from 25%. Higher taxes and protectionism take freedom away from the people and lead to disastrous economy. Free trade and free market are the answers to our economic problems not more money and control going to the political class in Washington.

The Goldwater Institute says no and so does the Constitution of the state of Arizona. A private organization, Goldwater Institute, is fighting to end government money to help private businesses. Does the Gift prohibition in the Arizona Constitution have any meaning. Read George Will’s column today.

http://jewishworldreview.com/cols/will031608.php3

When the markets are de-leveraging like they are currently, some rich are getting poorer. The Carlyle Group (a firm that runs money for the super rich and politically connected)is a powerful Washington-based private-equity firm which currently is in the process of collapsing. The companies shares are down over 80% since problems were disclosed last week. The Carlyle Capital Corp. is heavily leveraged, in some accounts over 30 times. What this means is if they liked a position they borrow from investment banking firms with say only 3.34% money down (this gives them a 30 times leverage). If the position goes up in value they would score monster returns on their investment. The problem today is their investments are going down in value do the sub-prime and credit market problems. So they are experiencing monster loses and their bankers are demanding they put up more money. These capital calls are forcing them to liquidation positions into weak market. The firm is well known for the dozens of world political figures and luminaries it has employed and has as investors in the fund include George H. W. Bush and James A. Baker III. Carlyle’s current chairman is Lou Gerstner, former CEO of IBM and Nabisco. The Carlyle Capital Corp. is just one of the funds that the Carlyle Group runs. It is a mortgage investment fund. A year ago it was valued over $22.7 billion in the last year it has lost over 97% of its value. Here is a link to today’s Wall Street Journal a story:

http://online.wsj.com/article/SB120537974320632835.html?mod=hps_us_whats_news

The moral to the story is leverage can make you rich in rising market and it can make you poor in weak markets. Leverage is a double edge sword.