Sy Harding's  Instablog

When President Eisenhower left office in 1961 his parting message to the nation was to "beware the Industrial/Military complex". He warned that military contractors had become so chummy with Congress and the Pentagon that "the potential for a disastrous rise of misplaced power exists."

We now face a much more dangerous power grab that could actually melt down the entire financial system of the country if it isn't brought under control.

I refer of course to the still growing power and influence of the financial industry.

We've already seen frightening examples of how out of control it has become, how undeterred it is in its quest for huge profits for a chosen few insiders, with total lack of concern about the effect on the rest of country.

The U.S. is still reeling from the manipulative build-up of the housing bubble, the sub-prime mortgage mess, the resulting real estate crash, and the financial crisis of 2008 that required a multi-trillion dollar bailout of banks and brokerage firms.

And the threats continue unabated.

We were promised new regulations that would prevent the abuses of the past, downsizing of the financial firms that had become too big to fail and had to be bailed out, punishment of the wrongdoers, and so on.

You know what a joke those promises have become.

For four years the financial industry has successfully lobbied to water down and delay the new regulations. The previously too big to fail financial firms have become even larger and more ominous through mergers suggested and abetted by the regulators as part of the rescue effort from the 2008 crisis. No one has gone to jail, most of the same 'masters of the universe' that ran the firms before are still running them (and still drawing down unconscionable salaries and bonuses).

I was shocked to read the other day that the 5-year statute of limitations for the SEC to bring charges related to the 2008 meltdown will soon run out, and SEC officials are 'concerned' that they won't make the deadline on some cases on which they supposedly want to file suits.

The costs of the 2008-2009 bailout that prevented the country from plunging into another Great Depression, are still hanging over the rest of us in the form of a weak economy, record government debt, record budget deficits, and the so-called 'fiscal cliff' to be faced in 2013.

So is the financial industry ashamed of its former activities and pitching in to help? No sign of that.

The latest scandal is the manipulation of the Libor (London Interbank Offered Rate). And it's a beauty. The Libor influences hundreds of $trillions in financial contracts around the world, including mortgages, corporate loans, loans to individuals, and interest-rate swaps. The 16 major banks that set the rate are under investigation by authorities in the U.S., Canada, Europe, and Asia, suspected of manipulating the rate.

As Bloomberg News puts it, "The investigators are piecing together a breath-taking portrait of avarice and deceit, with the potential to become the most costly manipulation in the history of banking." Forbes says. "The Libor rate scandal could make banks' mortgage and foreclosure troubles look like child's play."

Already giant Barclays Bank has agreed to pay $453 million to settle U.S. and British allegations, and its three top executives have resigned.

Bad enough. But once again it must be asked - where were the regulators?

It's being reported that as far back as 2007 the U.S. Federal Reserve was concerned about the arbitrary way by which Libor was being set, and urged U.K. officials to reform the process to prevent the possibility of manipulation.

Nothing was done.

This week we've had the shutdown of futures trading firm Peregrine Financial Group Inc., and the alleged disappearance of $215 million in customer funds. Where were the regulators on that one? The firm was involved in dozens of arbitration disputes with disgruntled customers in recent years, but that didn't alarm regulators (who now say the firm was cooking the books for at least two years, and issuing fraudulent statements to customers).

Interestingly, last fall futures trading firm MF Global imploded, and an estimated $1.2 billion of customers' funds disappeared. Regulators then ordered a review of all futures firms to ensure the safety of customer money. And even with that review, Peregrine Financial Group was given a clean bill of health in January.

To be sure, these latter two situations are collapses brought on by the shameful activities of individual firms and not the result of industry-wide practices.

But that is not the point. The point is where are the regulators in all these situations?

It doesn't seem to matter if it's industry-wide practices like those revealed in the investigations after the 2008 financial collapse, or activities by a small group of major banks as is alleged in the current Libor scandal, or the fraudulent activities of individual firms that result in losses only for their own customers. Where are the regulators?

Washington continues to have the resolution of the still out-of-control financial industry and its regulators pushed into the background, while they argue over immigration laws, same-sex marriages, and how to handle healthcare.

Meanwhile, the clock is ticking on very serious economic and financial time-bombs, the potential damage from which dwarfs all other concerns.

Someone had better wake up and get with it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

It's ridiculous that this country has to put up with a year or two of overwhelming and divisive political noise prior to its presidential elections.

England can call for a new election, allow a few weeks for candidates to make their views better known and have it over within weeks. In 2005, it was announced on April 5 that the 2005 general election would be held on May 5, leaving one month for campaigning. No one complained. Undecided voters received enough additional information in that month to make an informed decision. It was a similar situation when Prime Minister Gordon Brown announced his resignation on April 6, 2010, and the next national election was called for May 6.

In Canada, by law election campaigns must run for a minimum of 36 days, but there is no mandated maximum time. Yet the longest election campaign in Canada in the last 100 years was in 1926, when the campaigning dragged on for all of 74 days.

Why is that? Canadian law doesn't limit how long politicians can campaign, but it does strictly limit how much money they can spend on a campaign. That's no matter if it's the candidate's own money, or money contributed by supporters or special interests. And Canada seems to have been a pretty well run country over the years.

Greece may not be a good example right now. But ancient Athens was the 'cradle of democracy'. And even with all its problems, and ten political parties vying for an opportunity to solve them, Greece can still prepare for elections without long mind-numbing political campaigning. Its Prime Minister resigned on April 12, and called for a national election on May 6, and when the results were fragmented, another national election has been called for June 17. And none of the parties protest that there isn't enough time to make their views known to voters and have their promises considered.

There is also the nonsensical cost in the U.S., both in money and time that politicians and others take away from the work they could be performing.

An academic study by Stephen E. Bennett, at the University of Cincinnati found that "lengthy campaigns have at least three harmful results: the candidates are exhausted; campaign costs sky-rocket; and the public becomes bored."

There's no doubt that costs sky-rocket in longer campaigns.

The United Kingdom's general elections are spoken of as costing tens of millions in total, while in the U.S. the costs have steadily increased into hundreds of millions and now into billions. Sheila Krumholz, executive director of the Center for Responsive Politics, which tracks campaign spending, says "It's safe to say that given that we had a $5 billion cycle in 2008, it will likely be over $6 billion in this cycle."

That certainly gives them enough fire power to be in our faces all the time. But is it necessary or helpful?

Voters in the U.S. are just as smart (I think) as those in Canada, the U.K., Greece or wherever. We really could also 'get it' after having it hammered at us for only a month or so.

I mean how many times do we need the opinions and sometimes twisted facts about Mitt Romney and Barrack Obama, and their respective party's positions, hammered at us by the opposing sides and their supporting media friends, before we have enough information to make an informed decision?

My wife tells me she sometimes has to tell me things two or three times before I get them. But 500 times? A thousand times?

I just 'googled' the phrase 'Opinions on 2012 presidential candidates'. The search engine came up with 379 million links to articles and websites.

And the election is still six months away.

Does anyone outside of political pundits, advertisers, polling services, and others profiting from the spectacle really believe that these long mind-numbing campaigns result in a more informed voter?

They don't! We've got their pitches already. And we would have gotten them in plenty of time if the carnival hadn't begun to run until maybe September.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I've been writing some quite optimistic and positive columns since October, quite a contrast to the negativism I was exuding last April in explaining why I expected a significant market correction during the summer months.

There certainly has been reason for optimism since October.

It wasn't just that the stock market was about to enter its traditional favorable season, and was coming off a significant correction low that had the S&P 500 down 20% on October 3. It was that it was beginning to look like the economy was recovering after its stumble in the first half of the year.

As it has turned out, not only did the economic recovery resume in October from its first half slowdown, but some surprising data has come out regarding the entire 3-year recovery from the 'Great Recession', data that is in sharp contrast to the gloom and doom projections so popular in 2008 and 2009 (which even continued in some quarters in 2010 and 2011).

I noted some of the positive surprises a couple of weeks ago, including that most of the highly criticized rescue loans to banks and the auto industry have been paid back, with interest, and that the U.S. auto industry is solidly back on its wheels. For instance, just three years after its bankruptcy, General Motors has regained its crown as the top-selling car-maker in the world. In other data, the Federal Reserve has even made profits, exceeding $155 billion, so far on the 'toxic' assets it moved from the books of banks to its own books, and on the Treasury bonds it bought in its two rounds of quantitative easing.

I also noted the Financial Times report that since the start of the global recovery manufacturing employment has grown faster in the U.S. than in any other leading developed economy, with more net manufacturing jobs having been added in the U.S. since the start of 2010 than the rest of the Group of Seven developed countries put together.

There are other positive statistics not widely recognized in the midst of the recent focus on the risk in the eurozone debt crisis.

For instance, S&P 500 earnings have increased 125% since the end of 2009, their fastest expansion in a quarter century. The result is that even though the stock market has doubled since its 2009 low, the S&P 500 price/earnings ratio has declined, currently at 13.7, lower than its long-term average of 16.4, leaving the S&P 500 potentially still selling at bargain prices.

And of the $37 trillion of stock market valuation erased during the 2008-2009 financial meltdown and severe bear market, $24 trillion has already been restored.

"Yeah but," the gloom and doomers say, "what about the miserable employment picture? You can't have an economic recovery with so many people out of work."

But how many realize what has also happened in the employment picture? As of the end of the year, the unemployment rate had dropped from 9.8% (in 2010) to 8.5%.

Each monthly decrease was met with disbelief and claims that it was a one-month aberration caused by seasonal factors or whatever. But the improvements kept coming.

December's big increase in new jobs was supposedly due to additional hires for the holiday shopping season, which would be reversed in January. In fact, the consensus forecast of economists was that January would see only 121,000 new jobs created.

But wow! The Labor Department's employment report on Friday showed that 243,000 jobs were created, double the expectations. And further, the number of new jobs reported for November and December were revised up by an additional 60,000. And the unemployment rate dropped again, from 8.5% in December to 8.3% in January. A separate report on Thursday showed that new applications for unemployment benefits have fallen to their second lowest level since June, 2008.

Not that employment is back to its pre-recession levels. There are still 12.8 million people looking for work, and while an unemployment rate of 8.3% is much better than 9.8%, unemployment averaged only 5.4% in the ten years prior to the recession (and 5.7% over the last 60 years). But the trend continues in the right direction.

And we need to realize that employment is a lagging indicator. Employers don't begin hiring again until the economy has recovered enough that they can't keep up with demand without adding workers. So in that respect the increasing momentum in the jobs picture may indicate the recovery is further along than previously thought.

That may have implications that the Fed is behind the curve (again) in saying last week that it will probably keep interest rates near zero until late 2014, instead of its previous target of 2013. But that's another subject.

Meanwhile, as would be expected, the stock market responded very positively to Friday's jobs report, tacking on still more gains in its rally off its October 3 low.

A word of caution for those who are not already in the market and may be tempted to jump in whole hog at this point.

As my subscribers know, for many years I've referred to the monthly jobs report as 'The Big One'. That's because it's so difficult to predict that it most often comes in with a surprise in one direction or the other. That in turn most often results in a kneejerk reaction by the market that creates a one to three-day triple-digit move by the Dow in the direction of the surprise. The other side of the pattern is that the initial outsize reaction to the report is then usually reversed over the following days and the market returns to normal.

But then, normal may not be a bad thing, given that the market is now entering its fourth month of rally off that October low.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.