By Tom Wilbur

You may be an ambassador to England or France , you may like to gamble, you might like to dance—You may be the heavyweight champion of the world, you may be a socialite with a long string of pearls—But you’re gonna have to serve somebody, yes, indeed you’re gonna have to serve somebody.

~ Bob Dylan

 

This weekend the good folks at Standard & Poors, one of the largest rating agencies of financial instruments worldwide, downgraded the rating on U.S. obligations and agencies, from AAA to AA+. It’s the first time since the early 1900’s where this has occurred, and I think we’d agree, more than a few things have changed since the World War I era. Our lack of direction positions us like a rudderless ship listing on a stormy sea, and few people seem to have a clue as to how to respond, or what new course of action we should take. Last Tuesday, we expanded the deficit further, and S&P doesn’t seem to be impressed.

As to the rating agencies—it’s hard to be objective, based upon their sketchy performance over the past decade. S&P was one of the groups that testified under oath before Congress after the mortgage debacle that no one should actually rely upon their ratings to make investments, because ratings are simply “their company’s opinions”. I don’t know about you, but I know what a weasel looks like. And if they were so wrong about the true value of mortgage backed securities, and the markets back then, what confidence should we have that they are correct in their analysis now? Is it an over-zealous knee-jerk reaction, or on-point?

Unfortunately, however, the world at large does pay attention to ratings, and the end result may mean somewhat higher interest rates for consumers, an adjustment in our markets, and a possible continuation of the confusion we’ve experienced over the past few years. There’s probably less of a financial impact ahead than a confidence impact, but we’ll soon see how all of the markets react. I’d argue that there are few places better than to invest than in the United States of America.

At the very least, it’s a statement about the times in which we live . . .with polarization of views across the nation, and more probably an indictment about our lack of leadership throughout Congress, and at the top. The lyrics “you’ve gotta serve somebody” came to mind, as Congress now has an 86% public disapproval rating— from the people it serves. I wonder if they think they’re serving us, serving special interests, or are simply continuing to serve themselves. I’ll bet we can find a higher percentage of people who believe the world is going to stop spinning today, than we have people who believe our leaders are doing, or will do, a good job in the months ahead.

Most of us understand the most basic of principles of finance—you can’t spend money you do not have. It’s not a tough concept. Yet our representatives in Congress are trying to cash checks that our nation’s account balance doesn’t support. They’ve come to regard the receipt of sustained overdraft and insufficient notices as an acceptable ongoing practice. At the bank, when an individual does this, we generally end up closing their account . . . because they’ve shown themselves incapable, unwilling, or unworthy of handling their financial relationship with us properly. Should Washington’s accounts be closed?

When I counsel folks having debt issues, it always comes down to what their primary needs are—not what they want. Often times, a couple convinces themselves over the dinner table that a brand new dually, quad cab pickup truck with payments of $850 per month is what they “need” to drive their kids to school and back safely. They get all worked up about it, as they envision themselves in that truck. We have to convince them that this doesn’t make sense, that it’s a want– not a need, and we’ll often find them a late model used car with payments of $150 per month that will do just fine. We’re all the better for it, and we’ve developed a better, trusting, long-term relationship between us and our valued clients.

I had a couple come in once, and they plunked $165,000 in past-due credit card bills on my desk, as they asked what we could do to help them. Over the course of the somewhat brief discussion, I inquired—can you tell me what you have to show for these debts? They really had no answer. Kind of like Washington—we don’t have much to show for our debt, either.

Of primary concern is that our nation’s leaders have convinced themselves that they are responsible for caring for all the ‘wants’ of our people, instead of defining what’s really needed. There is no accountability for their actions because they simply vote themselves extensions of credit, using up what money we provide from taxes, and a whole bunch more. If the nation’s debt situation was tied to their paychecks, what a different world we’d have! Let’s pay them based upon how they run the budget, and create jobs, and give them a bonus if their performance exceeds expectations. That’s the way most businesses are run—your actual performance drives your compensation.

Our leaders have become facilitators and babysitters to a nation of big spending for every social ill, without restraint. They regard bigger government as the cure for these ills, and what we are all finding out together is that government doesn’t cure anything—bigger government simply contributes to our debt.

Prognosticators have mentioned that interest rates for consumers, students and businesses might increase a little as a function of this investment downgrade. Word is that interest rates for all of us might be headed up. With interest rates at record lows, any modest adjustments in interest rates have been dealt with by consumers before, and should have little impact at all. Interest rates on home loans today stand at their lowest rates of all-time—a 60% discount or more— compared to home interest rates of thirty years ago.

While there is no need to panic—plans must be put in place and a sensible solution must be sought to bring about balance soon. I think waiting until November on some commission to decide what further cuts should be made, is just too long to wait. The wolf is clawing at the door. The risks for America of any further deterioration of our nation’s position of strength throughout the world’s financial markets are just too high. It’s time for our legislators to lay down their political banners, and take action to do what’s right for our nation— right now.

Let’s stay informed, and stay in the game, everyone—we’ll get through this.
The whole world is watching.

tw

Tom Wilbur is President/CEO of BANK VI, in Salina, Kansas, and a lifetime banker.  He is a graduate of the University of Kansas.  He regularly writes for newspapers and magazines, and occasionally does public speaking. You may contact him at rockchalktw@hotmail.com