All that really happened over the weekend was they agreed to talk about the issue of what to do about out of control government spending. The relatively small reductions do nothing to really cut spending. At $3 trillion, or even $4 trillion, all they do is slow the increase. When rates rise again to more normal levels a big piece of the “savings” goes away. The rate of spending vs GDP is not changed by this. We need true reductions, and an improved economy which will drive much more revenue, and an end to the absurd tax system which has become a tangle of confusion and special breaks built up over the years by various members in Congress who were trying to get campaign contributions-read that payoffs- for doing a favor, whether for a specific company or a specific group favored by the left. There is nothing fair about a system where 47% of the people pay zero tax, and the top 10% pay most of the cost of running the government to the benefit of that 47%.

It is clear that the whole difference of what is the overriding philosophy of government which will underpin how the nation is governed in the future, will get decided in November 2012. The country is at a major crossroad in its history. That is what is really going on here. Will we continue all of the unaffordable entitlements and programs for the people who are irresponsible with their own lives and finances, or will we move to a government which is there to provide good services and a safety net for those who genuinely need it. Will we go back to what I was always taught- the individual and not the government is responsible for a citizen’s well being. The government is responsible to provide services that private sector can’t provide and to mount the national defense. It is not there to coddle and support those who will not work when they can, will not save and will not do the things to keep themselves healthy and their children educated and prepared to earn their own living.

If you are part of the 47% who pay no tax and get paid from one of the various entitlement programs, you will scream if you are then told you actually have to pay taxes to continue to enjoy what this country offers, and you will actually have to save money to pay for your retirement. If we had a truly fair tax system, and if individuals were once again made responsible for their own lives, and if entitlements were truly there for those who genuinely need it, then we would have the funds to rebuild the decrepit infrastructure, do pioneering research like DARPA invented the internet, and to keep the country safe from terror and cyber attack.

What we witnessed over the past couple of weeks is nothing short of disgraceful and a total lack of any leadership by Obama. While the Tea party may be a group of people who sometimes go way off track, they did accomplish a very good thing by forcing this battle to the surface and to force the powers that be to actually undertake a new look at what do we want for the future of the country. They are to be commended for actually doing what they said they were going to do when they got elected. A very unique thing in Washington.

It is unclear where the capital markets go longer term. The real problem is not solved and will not be until after 2012. Then it depends on who gets elected and who controls Congress. Unless the deficit is really brought under control, then the spending and deficit issues will shortly override everything else and taxes will have to rise. Debt service on the government will be unsustainable and the capital markets will in time react negatively. In the short run we will likely have a bull market in equities, real estate values will remain higher where they are, and life will go on. Unemployment will remain high and Washington will remain in turmoil until the election.

This is far from over. Reality is we are only at the start of a major national debate about the future of America.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.