Actor, economist and author Ben Stein was keynote speaker last night at the conclusion of Accredited Members Inc. Winter 2011 Small Cap/Micro Cap Investment Conference at the Antlers Hilton Hotel in downtown Colorado Springs.
More than 400 people attended the speech. Stein opened his remarks with several jokes, before telling investors that micro-cap is the place to be.
Stein said he was not one of those economists who could predict the future, the price of gas or the stock market.
“I’m not that smart,” Stein said, as the audience laughed. “But I can tell you what, historically, has happened and how that meshes with what’s going on (now).”
The “genuine financial panic of 2008″ started with risky lending in the housing market, was aggravated by speculation in the financial markets and pushed to disaster by Ben Bernanke, chairman of the Federal Reserve, and Secretary of the Treasury Henry Paulson allowing Lehman Brothers, a huge Wall Street investment bank and securities firm, to fail.
That was “a move of such dire consequences that it shook the entire world,” he said. To rescue the bank would have cost about $15 billion to $18 billion dollars, mere pennies, he said, compared to what it cost the government later for federal bail outs.
Instead, “the economy came to a screeching halt,” Stein said, with banks in a panic and refusing to lend.
The situation would have been far worse, though, if insurance giant AIG had been allowed to fail. The AIG bailout, along with the Troubled Assets Relief Program, or TARP, was necessary.
“No matter what you think, TARP and the bailouts saved the economy,” he said. Not so the stimulus package that was delivered shortly after the Obama administration took office. That had only a modest effect, created few jobs and most of the money “vanished,” he said.
Moving forward, though, the main thing is that the economy is off the critical list, as evidenced by bonds selling briskly, the buoyancy in the stock market and banks starting to lend again for commercial projects, Stein said.
Not that it’s smooth sailing, yet. Problems remain, most notably the “stubbornly high” unemployment rate. Stein attributes this high rate to American workers who are being subsidized by the government with higher unemployment wages than they can earn at jobs. Thus, foreign workers take jobs that American workers are too “unmotivated” to accept, he said.
Another issue is that banks will lend to private equity firms and mid- to large-businesses, but not to middle-class potential homebuyers.
Residential loans should require a higher downpayment than in recent history and borrowers should have proof of income, but the nation still needs the two federal agencies, Fannie May and Freddie Mac, which help provide money for loans in the housing market.
“Killing Fannie and Freddie doesn’t make any sense to me,” he said. And, eventually, the government will have to raise taxes.
“Not today, and not tomorrow, but we can’t cut all the public-sector spending,” Stein said.
As for regulation, the financial industry doesn’t need more – but it does need better regulation.
“The free markets in finance still need adult supervision. They are by no means self-regulating. Without (proper) regulation, they can go into collapse,” he said.
Stein also spoke about China and its potential to soon be an economic superpower; and other problems within the United States, including ghettos, the decline of the education system, the “catastrophic” break up of the family, and single mothers being left without help to raise their children.
Additionally, as a government and as individual consumers, “the final thing we’ve learned is that we cannot maintain a high standard of living for very long,” he said. The nation, collectively, has to return to the old-fashioned way of spending less than what they’ve earned.
At the end of his speech, Stein received a standing ovation.
Colorado Springs-based Accredited Members’ two-day conference attracted more than 400 accredited micro-cap investors, buy-side institutions and sell-side industry professionals. AMI’s last conference was held in San Diego in the fall.