"Father stop
Criticizing your son
Mother please
Leave your daughters alone
Don't you see that's what wrong
With the world with world today
Everybody wants somebody
To be their own piece of clay"
"Piece of Clay"- Marvin Gaye

In a free market society there are four pillars that serve as the foundation of success. As we head into the second year of the Obama Administration all four pillars are under attack.

Capital: Without capital things just don't get done. Capital flows determine winners and losers. An elementary example would be the New York Yankees, where tradition of success plays a psychological role but where the bottomless pit of spending is the real difference between championship banners and ticker tape parades or players hitting the golf clubs a few weeks earlier. The President came into office riding the wave of envy and class hatred, and he never stopped fanning those flames even as the entire nation continued to slide. All the evidence proves his inability to turn off the spigot of anger has only backfired. The gambit of giving giant banks taxpayer money in the hopes of creating indentured servants leads me to believe that the White House needs fewer "yes" men and people that understand human behavior. But, then again, they believe that they can mold human behavior.

When the President admitted to wary Democrats that the healthcare bill is unpopular he attempted to soothe nerves by saying once it passed people would turn around and love it. (99% of the bill doesn't kick in until 2013 so it's hard to imagine people expecting immediate changes will be thrilled when they discover it's not the case.) So, the White House gives banks billions of dollars and backs liabilities to the tune of trillions of dollars and the President tells bank executives that he is the only thing between them and the pitchforks of the general public. When bankers don't blink the White House goes back to the drawing board. Yet, despite massive anger at banks hints of nationalization early in 2009 were met with howls from people in this country. Ironically, many of the people most offended by the notion of nationalizing banks are so poor that they don't even have bank accounts.

Americans, even the most financial illiterate, understand the uniquely American history of rags to riches and know that doesn't happen when industry is nationalized.
Tin eared and all, the White House seems to have gotten that message So, they shifted strategies and allowed banks to pay back their loans and took victory laps as the funds and interest payments were hailed as evidence big government intervention works. Yet, that wasn't enough because it's clear that auto companies, AIG, Fannie Mae, and Freddie Mac would need dozens of years, perhaps a century, to make the taxpayer whole. Then someone had a eureka type moment! Let's not only get banks to pay back all of TARP, even monies that went to non-banks, but also get them to help to pay down the deficit. This game plan also has vestiges of nationalization, or a way to exert unwanted influence over the banks. Still, it is so selfish in the sense the war on banks and banker pay has cast a foreboding shadow that has resulted in a bunker mentality at the banks.

All banks are afraid to go out on a limb. They know much stuff is coming that will cost them financially.

The result of this bunker mentality has been shutting down the spigots...of cash. Capital isn't getting to Main Street. By far the biggest casualties of the war between Washington and Wall Street have been the people on Main Street. Maybe the White House sees its latest gambit as a pyrrhic victory, but it's another battlefield loss for the people that need the most help in this nation. It's clear that the White House cannot control banks and their punitive approach has failed miserably. The focus needs to be on how to get capital flowing so not just the government and big business are raising gobs of money but the woman that wants to open a cupcake shop in her hometown can squeeze some capital from the system. Banks are easy targets when the idea is to drive a wedge and provide cover for an agenda that is being rejected more and more each day.

The White House has to decide. At some point their agenda should be amended and the focus should be on finding ways to get capital flowing to small business and Main Street. One thing is for sure, public opinion, while it can be molded and manipulated from time to time, hardens periodically just like clay does.

Speaking of molding the minds of the people even against their own will there are times when politicians simply phone it in, when they figure they don't even have to work for the nod. This approach has worked for both parties but their pockets of key support have eroded to the point where the middle is larger than the other cores. Many political analysts are saying that Martha Coakley ran a poor campaign (and I hear "arrogant campaign") where she thought all it took was the label of the party to waltz into the job. The vote for Ted Kennedy's seat is a referendum on that, the healthcare bill, and on the notion that big government is the answer. The Democrats haven't been able to buy the loyalty of independents with extended unemployment benefits and an array of feeble programs all designed to be public relations successes more so than genuine efforts that would yield long-term material changes to the lives of Americans.

Banks in Focus

The latest update on bank lending is surely disappointing. And, then, there is the lending to small business by TARP banks, or should I say, the lack of lending. Up to November 22, TARP bank recipients cut their lending to small business by $12.5 billion, or 4.6%, to $256.8 billion. In November, they cut lending by $1.0 billion. Investors will hear from a few of those TARP banks this week beginning with earnings from Citigroup (C) this morning. This isn't good PR for banks but points to the larger issue of the kind of uncertainty over new regulations, new regulatory bodies, new taxes, and a constant stream of browbeating that has banks sitting on cash. Moreover, it speaks to all the programs out there that allow banks to move away from their business model...lending. Overall individual loans at all commercial banks continue to freefall.

All such loans stood at $793.4 billion at the beginning of the recession (December 2007) and continued to rise until February of last year when they peaked at $879.9 billion. Since then, these loans have fallen precipitously to $842.3 billion at the start of November 2009. This, by the way, isn't the way it normally goes during recessions. Lending either edges higher or stalls and dips marginally. Last three recessions:

> July 1981: $181.3 billion to November 1982 $187.0 billion
> July 1990: $372.1 billion to March 1991 $371.3 billion
> March 2001: $536.8 billion to November 2001 $553.9 billion