Author: David S. White

Whether you celebrated or commiserated last week over the presidential and other election results, it is now another week, we still have this economic mess, and it is not going away soon. This is not your Father’s recession; this one is our very own, unique meltdown. Unemployment, even with all the creative statistical revisions that gurus of these things use, hit 6.5% nationally in figures announced last week, California’s number is significantly worse, and that figure should continue to creep up.

Retail sales news are just devastating and that’s not going to get better quickly with the year-end holidays almost upon us. In fact, many retailers’ whole years are based on what they do in the last quarter; this one is not going to be pretty and the usual January bankruptcies for those who made it through the holidays are going to feature some prominent retailers, if they can get that far.

Once again, we need to take a moment to appreciate that the tail we are trying to grab onto is attached to one hell of an enormous tiger of a problem. Those ‘financial weapons of mass destruction,’ as Warren Buffett so colorfully warned us about our economy’s love affair with all things derivative, were the direct result of either bold ignorance or forgetfulness (in the name of greed) of the gambler’s first rule of survival at the gaming tables: don’t bet what you can’t afford to lose. And now we hear that AIG needs more billions – their first bailout just won’t do!

AIG, American International Group, has been the recipient of some $123 billion of the Fed’s largesse. Exactly what have they done with that money? It’s anybody’s guess.

We are promised AIG’s quarterly report shortly, which will tell us what they are doing or have done with the 123 thousand million dollars of taxpayer money. Well, we know they threw a few parties since being ‘bailed out.’ A week after catching the Fed’s life preserver, AIG threw a California bash which featured spa treatments, banquets, and a few rounds of pricey golf, costing a mere $444,000. After catching severe media flak for this, AIG, undaunted, took another little jaunt over to a British hunting preserve for some Execs to the tune of $86,000. And, the Fed kept throwing multi-billion dollar life preservers to AIG.

Do I hear the ghost of Marie Antoinette laughing hysterically somewhere – ‘let them eat cake;’ why, they ate the whole universe of cakes, and then some.

I know a whole boatload of money was thrown behind the gears of the initiative process to produce the result we all have read about in the newspapers. But, I want to be the first, before some Judge officially proclaims it, to tell you that Prop 8 is unconstitutional. Dead in the water; pulled up lame at the starting gate; kaput.

You cannot disenfranchise a segment of the population who are guaranteed constitutional rights by the state and federal constitutions by amending the state constitution to say so. California tried that with Prop 14 in 1964, which purported to amend the California state constitution to overrule the 1963 Rumford Fair Housing Act, to allow sellers of real estate to sell or not sell to anybody they chose, i.e., to make housing segregation legal by personal choice of the seller. The U.S. Supreme Court held Prop 14 unconstitutional three years later in the case of Reitman v Mulkey, as a violation of the Fourteenth Amendment to the U.S. Constitution.

I predict, and you heard it here first, that the same California Supreme Court that held that denial of the right to marry to same-sex couples is a violation of the Equal Protection constitutional right will hold that Prop 8, by attempting to amend the state constitution to behead this burgeoning social upheaval, is unconstitutional.

I watched every minute of the election results last night with three people who aren’t here anymore. They were: my uncle Teddy, who pioneered modern election reporting and wrote the Pulitzer-prize winning Making of the President 1960 (and many others, through 1980); my Dad, an American history textbook editor and teacher, with whom I watched every election night from 1956 through 1980, and last, but not least, my Aunt Gladys, older sister of my Dad and Teddy, one of the first female lawyers to be admitted to the Massachusetts bar, a brilliant woman who could not be hired as a lawyer in her prejudiced times (as a woman and a Jew, she had no offers), but went on to head up the Boston Public Library system for decades.

Teddy, Gladys and my Dad were all with me with me watching history being made last night. My love for politics started at age 6 in 1956 when Dad, Gladys and I watched the election returns. I was the only “I Like Ike” supporter in a family of Stevenson fans and I have the autographed photo to prove it – “David, Keep up your interest in politics, Affectionately, Dwight D. Eisenhower,” in the days when Presidents, and not mechanical robo-pens, actually signed.

October 2008, the nightmare month that will live on in many memories has now officially ended. Finally. To say October was an eventful month for the financial markets and the world economy is right up there with asking Mrs. Lincoln: “Well, aside from that little unpleasantness, how did you enjoy the play?”

The financial events of October 2008 have thrown economics textbooks out the window. Utter devastation has tested the patience and souls of everybody from the wage earner who is afraid to open his or her 401k statements, which are piling up like newspapers while on vacation, to the true titans of Capitalism like Maurice R. "Hank" Greenberg, former Chief Honcho of AIG, who saw his 15.8 billion dollars worth of AIG stock melt down like so many lumps of sugar left out in the rain over the gut-wrenching span of one single, horrific week.

The Federal fund overnight target rate was lowered to 1% this week, bringing us back to the record low interest rate reached in 2003/4. How low can it go?

For those of you keeping score, since August 2007 when the current economic crises really got going in the public eye (they have been building up for decades before the media turned on its spotlight), the Fed cut the funds rate from 5.25% down to 1.5% and then Wednesday, another ½ point, to 1%. One penny on the dollar.

If the overnight rate keeps going down, and some say it must, it will reach zero. That is where Japan’s economy was during much of the 1990’s when their ‘asset price bubble’ (also charmingly known as ‘the bubble economy’), from 1986 through 1990, featuring hugely over-inflated real estate and stock prices, finally burst. Japan’s flat period, known as the “Lost Decade,” lasted a long time.

According to Gretchen Morgenson’s piece in the October 24, 2008 NYT Op-Ed Page, (“They’re Shocked, Shocked, About the Mess”), this is an actual email between:

“(t)wo analysts at S.& P. speaking frankly about a deal they were being asked to examine.

“Btw — that deal is ridiculous,” one wrote. “We should not be rating it.”

“We rate every deal,” came the response. “It could be structured by cows and we would rate it.”

First, some background, so we can all appreciate just how outrageous this admission is. According to everybody’s friend (mine anyway) Wikipedia, “S&P” means: “Standard & Poor’s (S&P) is a division of McGraw-Hill that publishes financial research and analysis on stocks and bonds. It is one of the top three companies in this business, along with Moody’s and Fitch Ratings.”

Last Friday was a real sign of the times. The market braced early Friday morning for a huge wipeout, so huge in fact, that a drop somewhere north of 1000 points would have stopped trading under emergency rules. The collective sighs of relief when the Dow only plunged 312.30 points, or 3.6 percent, could be heard in unison from all the TV Talking Heads and financial gurus. Earlier in the day, the Dow took a dive of more than 500 points and, judging from big drops in the Asian and European markets and the distinctly downward plunge of futures before Friday’s market opened, many feared the worst.

But the experiences of this strange year have re-defined what the “worst” now means. Once, a drop of over 300 points in the Dow would have been a really terrible, horrible, four or maybe five-martini day. Last Friday, it was actually cause for celebration.

There it is in the mid-day, NY Times ‘Breaking News’ feed:

“Facing a firing line of questions from Washington lawmakers, Alan Greenspan, the former Federal Reserve chairman once considered the infallible maestro of the financial system, admitted on Thursday that he ‘made a mistake’ in trusting that free markets could regulate themselves without government oversight.”

Now he tells us!

Greenspan’s mea culpa testimony went on to say that, well, maybe he was only ‘partially wrong’ during his 18-year tenure as Chief Honcho of the Fed, not to regulate our old friends, those pesky credit default swaps that nobody except a few math geeks really understand. Oh, those things.