The real culprit’s not talking. But he knows the truth. What do you do? Without evidence, you can’t be sure who’s at fault. So you do your best to teach the importance of telling the truth, not hiding it. You hope the lesson sticks.

Unfortunately, many of us adults haven’t learned the lesson very well. That’s why the truth is so precious, when you can find it.

After Joe Wilson “lost his cool” and shouted, “You lie,” during the President’s speech to the Congress a few weeks ago on national television, he apologized. The whole focus seemed to be on how Wilson was rude; he violated Senate protocol. The question of whether the President told the truth or not was left hanging, for the most part. Since so many proposed bills were floating around at the time, it’s hard to know one way or the other. It’s kind of like the kids breaking the plate. The truth is hiding somewhere.

With this in mind, we’re going to look at some other areas where the truth hides. So we’ll leave the kids, the congressman and the president and move on to:

• What kind of shape are our banks in…really?
• The Bailouts of 2008: Surprising Facts Behind the Scenes
• Which economists can you really trust?
• What Makes Fall So Special?

But when we came across this 1931 telegram, we wondered whether maybe someone’s hiding something. Read it over carefully. If you think this administration, or the last one, or the one before that were setting some sort of precedent in “misleading” the American people, maybe this will set you straight.

(We found this at http://www.voxeu.org/index.php?q=node/3703. It comes from the U.S. Treasury archives.)

In 1931, the Treasury Department told bank examiners “leniency consistent with proper regard for public interest should be extended.” We suppose the government was trying to reassure the public about the health of banks.

Two years later, 4,000 banks failed and the new President, Franklin Roosevelt, had to close all banks for a few days to stop the chaos of the bank runs that had exploded around the country.

What about our banks today? Are they improving as both the government and the stock market are telling us? Or are we being “reassured” again, consistent with a “proper regard for public interest”?

For part of the answer, let’s turn to John Mauldin atwww.frontlinethoughts.com. He quotes a report by International Risk Analytics, a respected firm that charges a lot of money to analyze banking and individual banks. They break down the number of banks that are on schedule to fail over the next couple of years, as well as how much money is involved.

At least 1,000 banks will either fail or be “merged” with other banks, costing anywhere from $300 billion to $800 billion – staggering numbers. (Click here for more details.)

We hadn’t heard much about this. Now that we know, would you blame people for wondering why we’re not being told the truth about this situation?

In spite of calls from Congress demanding transparency and a recent court decision in favor of a request by Bloomberg to force the Fed to provide information which would tell us some important facts about the shape of the banking industry, the Fed’s mouth remains zipped.

Why? What are they hiding?

Later, in May 2007, the Chairman of the Federal Reserve, Ben Bernanke, said “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

By 2008, investment banks Bear Stearns and Lehman Brothers had collapsed, Washington Mutual failed – the biggest commercial bank failure in history – Merrill Lynch was “absorbed” into Bank of America, insurance giant AIG was on Federal (i.e. taxpayer) life support, and the government had to step in and take over Fannie Mae and Freddie Mac or they too might have collapsed – and these are just highlights. We were told credit had “seized up” and the economy was grinding to a halt, if not falling off a cliff. Economists and government leaders all seemed to agree that our financial system needed to be “bailed out” – not just once, but several times from 2008 through 2009, with possible bailouts looming in the future.

But in October 2008, a little-known paper was published by three economists at the Minneapolis Federal Reserve, called “Facts and Myths About the Financial Crisis of 2008.” One of their claims was that the credit markets had not, in fact, seized up. Credit actually grew – ever so slightly – during those months. (You can find the paper at:http://www.minneapolisfed.org/research/WP/WP666.pdf if you want to read it for yourself.)

We remember being disturbed when the whole bailout process began in 2008 under the Bush administration. But facts were hard to come by at the time. Frankly, we had no way of knowing whether the whole “bailout” approach was necessary or not.

So as we read the Fed study calling into question the severity of the problems at the time, we wondered whether Bernanke or Paulson were aware of these facts or not. If not, why not? And if so, why would they hide them?

As it turns out, we weren’t the only ones wondering. A report by Celent, a financial services industry consulting firm, stated in December 2008, “It is startling that many of Chairman Bernanke and Secretary Paulson’s remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead.”

(Our thanks to Thomas Woods and his excellent book Meltdown for bringing these two studies to our attention.)

Is it possible that with all those economists at the Fed, never mind the thousands of government employees crunching numbers for the Treasury Department, the Congressional Budget Office and a whole host of other Federal agencies, decisions are made without full knowledge or disclosure of facts? Could all these experts be providing “intelligence” that’s either not all that intelligent or, incredibly, ignored?

For an insight into what some of those economists are really up to, we turn to something we’ve suspected for a long time.

After Greenspan’s remarks, the market abruptly fell and Wall Street howled at the Fed chairman. Self-serving Wall Street executives and various government officials joined in the attacks against Greenspan. To say the least, they caught his attention. After that, he never met a bubble he didn’t like.

By the time the stock market, credit market and real estate market had peaked between 2006 and 2008 – clearly in bubble territory – we were disturbed by what we saw as a stubborn resistance to address or even talk about bubbles by the Federal Reserve.

First of all, while we thought we knew a bubble when we saw one, we also thought we couldn’t possibly be any smarter than the Fed, especially given the thousands of economists employed there. So why didn’t they see the stock, credit and real estate bubbles? After all, it wasn’t just a case of the eight hundred pound gorilla in the room – there were three eight hundred pound gorillas in the room (credit, real estate, stocks)!

By that time, Ben Bernanke had stepped into the Fed Chairman’s role; so we couldn’t blame Greenspan. But then we recalled some surprising assertions by a gentleman we had met a few years earlier.

“He” was the founder of an organization devoted to reforming the monetary system. This gentleman had claimed that the Fed had unduly influenced monetary economists. (I think the phrase he actually used was “bought and sold.”)

Now, in fairness, you should know that this gentleman believed that Fed policies were not created for the good of the American people. He believed Fed policies were created for the benefit of banks and other preferred constituents, like big Wall Street firms.

While we knew the Fed controlled a budget of hundreds of millions of dollars, and had come to understand just how problematic certain Fed policies were, we had trouble accepting the idea that so many economists could be “bought and sold.”

Now an article has been published by the Huffington Post that, in essence, supports those assertions – and it’s getting a fair round of exposure in professional circles.

The author is Ryan Grim and the article is titled: “Priceless: How the Federal Reserve Bought the Economics Profession.” You can find the article here:http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

It’s rather long, but it basically confirms what that gentleman was claiming. And it names names.

We’ll start with a healthy dose of skepticism about the Fed. This skepticism will include pronouncements “from on high” by its chairman, as well as research and commentary flowing from those monetary economists in the Fed’s employ. But that’s just the start.

We’ve got to be on guard when it comes to much of the chatter from various Wall Street firms and the economists and other “experts” in their employ. (And, yes, that includes all that “information” you get from MSNBC and other financial media and publishing sources.) Recall something we’ve talked about before: Wall Street is a selling machine. That’s what they do.

As Nicholas Nassim Taleb (author of “Fooled By Randomness” and “The Black Swan” – two excellent books about risk) recently said: “I don’t know anyone on Wall Street who goes to work every day thinking of anything but how to increase their bonus…”

Finally, we have to simply face the fact that an awful lot of investment recommendations and decisions to invest are based upon “wishful thinking.” Wishful thinking is a sort of cousin to lying (the less delicate but more accurate term for hiding the truth). Instead of lying to others, you’re lying to yourself.

And when it comes to investing, not only the eternal optimists but even the pessimists among us will indulge in the wishful thinking that results in our investing based purely on hope. We quote this bit of wisdom from octogenarian investment writer Richard Russell: “Unfortunately hope is a money-loser in the investment business. This is counter-intuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.”

Well, there it is. Three simple lessons you can take away from today’s letter and start applying as you face the uncertainties of the coming months and years. Maybe not the “secrets” to investing success you might have “hoped” for, but sound practical advice nonetheless.

But before we sign off, a brief personal reflection on our favorite season…

For Italian-Americans, just like anyone else, truth can be a rare and precious commodity at times – but not in our food. We take the best ingredients you can find and cook them just right. No fancy sauces or spices, no complex techniques, thank you. A special kind of truth – “plain and simple,” as my father used to say.

While family meals were heaven-sent manna throughout the year, fall began a flowering of this truth in all its glory. And it wasn’t restricted to Thanksgiving and Christmas.

In our family, the great bearers of this truth started with the Great Goddess of Food Heaven, Mom. Growing up I somehow managed to absorb enough of Mom’s cooking so that now I can cook up quite a storm myself. Thanks Mom.

After Mom came those special Angels from Food Heaven: my aunts.

My Aunt Stella, whether she lived near or far, always came for a visit at least once in the fall. She was my Mom’s older sister, so it wasn’t unusual to hear some bickering over details as the meals came together. You know how that goes. But, thanks be to God, they overcame this minor sibling rivalry with the end result always gloriously predictable, including that exotic fall treat: rhubarb pie.

Aunt Mary, on the other hand, was Dad’s sister. I don’t need a DVD to play back Thanksgiving at her house in High Definition. Back and forth we’d go from American (shrimp cocktail) to Italian (pasta with meatballs and sausage), back to American (Turkey with all – and I mean all – the fixings), to Italian yet again (chestnuts, fennuchia and pastries). How did we eat it all? Sometimes I feel like we’re still working on it.

Oh, and let’s not forget Aunt Dot, who lived close enough so that we saw her just about every week. Christmas didn’t officially start until she delivered her strufoli – little balls of dough, deep-fried and coated in honey. After she left us, I tried buying some at a good Italian bakery once. Fuggedaboutit. I’ll have to wait until we meet again in Heaven to taste the best strufoli ever made.

There were other aunts and other meals, of course. But if I try listing them all, the trees will be bare before we know it.

Here’s to the best fall ever!

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com