Author: David S. White

The morning news brought the following ‘Gulp!’ item: ‘Wachovia Reports $23.9 Billion Loss for Q3!’ Not good news for the folks who now own that mess. How do you even go about losing $23.9 Billion in three months’ time? First, you would need the empty warehouse to stack all that money – it takes time to rent a warehouse. Second, you would then have to somehow ‘disappear’ all that money. If you burned it, the Fire Department would not be happy; if you dumped it in the ocean, the fish and environmentalists would not be happy either. I’m stumped as to exactly how they went about that.

Our economic problems, which have been on my mind a lot of late, are based on some real Wizard of Oz stuff going on right now. Nobody knows what the Man Behind the Curtain is really holding. If all the financial institutions of all the industrialized nations all showed their full balance sheets in all their combined glory right now, aside from increasing dramatically the number of heart attacks and strokes, we would actually know just how bad this situation is – but, they won’t do that. If I tell you that there are $60-65 Trillion just in Credit Default Swaps out there, buried on or off those balance sheets, most people probably can neither comprehend the enormity of the number nor really understand what those damn things are anyway.

It is very hard to get away from the media message of the moment that the world’s economy truly is going to Hell in a Handbasket. It screams from the TV, the Internet, newspapers (if you still read those!), magazines, and anywhere else you look- like those TV monitors in high-rise office building elevators and ads whizzing by on the sides of buses . . .

It is easy, so easy to get carried away by ‘experts’ ability to predict things that will happen in the future. So easy, in fact, that it is a pleasant, if not, often hilarious, diversion to occasionally look back on some predictions, taken quite seriously in their time, that history has proven to be absolutely, flat, dead-in-the-water, wrong. It may also help distract you from those unopened envelopes showing that your 401k has now shrunk down to a 101k!

Which would you like first? The good news or the bad? How about the bad and the even worse?

According to the LA Times’ October 15 edition, the California Association of Realtors’ 2009 forecast will include both. Maybe.

Sales will go up- that’s the good news; prices will go down- that’s the bad news. Of course, if you read closely, it’s all pretty grim news because the projected increase in sales is really due to all those foreclosures. This is particularly so in the Inland Empire where the CAR Report found, according to the LA Times article, that sales increased by 143%– mainly due to increased foreclosures there. The other part of the news is the ‘fun with statistics’ part: in 2007 sales dropped statewide some 26%. So, if we project a 12.5% increase for 2009, as CAR does, then we are really talking about re-gaining a little less than half the ground lost last year.

"We’re not in a ‘happy days are here again’ scenario," Leslie Appleton-Young, CAR’s chief economist, is quoted as saying. I’ll say. Not by half!

Well, Jack, where are you off to?" said the man Jack met on the road one fine morning while taking his cow to market.

"I ‘m going to market to sell our cow here."

“Would you trade your nice, fat cow here for these beans,” asked the man.

Jack just laughed out loud.

“Here they are, the very beans themselves," the man pulled out of his pocket a number of strange-looking beans. Jack said he was not interested.

"Ahhh! But, you don’t know what these beans are," said the man; "if you plant them over-night, by morning they grow right up to the sky.

"Really?" said Jack.

Every morning when we open our newspapers, or fire them up on our Internet Browsers, we are living through the sad tale of some most peculiar financial ‘beans.’ Credit Default Swaps, financial hedging instruments run wild on steroids, like in Jack’s fairytale, have landed us- the entire world, it seems- into really big trouble.

One year ago the Dow was 5000 points higher than it opened today. Did I hear that right? Can this be? One year ago the Dow was at 14165! Now it is down 35%.

Even Cramer, the thoroughly entertaining (to me, anyway) and highly energized TV financial markets commentator, now says get out of stocks. Get out of stocks? Who’da thunk?

And, most of the rest of the world’s organized economies are in the same, sinking boat. Iceland faces national bankruptcy; Iceland, for God’s sake!—all 300,000 residents—who would all fit comfortably on the West Side of Los Angeles with plenty of room left over for the rest of us. And, they could leave their Winter wardrobes back home.

It’s fourth and long and the wind is blowing and the snow is snowing.

The offensive line is all gone now; all the regulars will never play again. It’s dark and cold and everybody holds his or her breath as the quarterback drops back.

And, just when three huge shapes, Depression, Recession, and Omigod-is-this-Really Happening, converge from out of the fog, and seem to pound the quarterback into the snowy, bare, winter field like so many giant hammers, the football actually emerges and flies up, up and away . . . toward the goal line and through the mist and snowflakes . . .

Will Congress’ passage of the Rescue or BailOut or ‘Wall Street Meets Main Street –We are all in this Together Bill,’ really save the day? Or, are we in for a doozey of a long 21st Century Depression, which we will all tell our grandchildren about like we Baby Boomers grew up hearing about in our childhoods? Recall, that it took until 1954 for the Stock Market to return to its 1929 heights!

Well, which is it?

Yesterday, we saw the Dow melt down and America lost over a Trillion dollars on paper. That’s “T,” for Trillion. As famously said, but paraphrased for our ‘interesting’ times, ‘a trillion here, a trillion there . . . pretty soon you’re talking about real money!’

The talking heads of cable media are tongue-wagging us into the panic that we are regularly being promised if this or that bailout does not pass. And, panic is usually what it’s all about. Markets move on emotion. Not the kind of comment you hear daily: ‘the market today slumped on news of . . . this or that.’ And, you wonder, how exactly do all those huge computers trading for giant investment houses really know enough to connect their trades to that day’s news, all neatly packaged with a big red bow for the six o’clock sound bites?

Republicans blame Democrats. Democrats blame Republicans. Lots more sound bytes.

The stock market fell nearly 50% from its peak. One of New York’s largest trust companies was crashing and burning. Grown bankers cried.

Today’s news? Hardly. 101 years ago, America braved what they called then the Bankers Panic of 1907. It looked like capitalism, early 20th Century vintage, was circling the drain and ready to disappear as they then knew it.

One man, J.P. Morgan, stepped forward. The US had no national bank back then. Morgan convinced New York bankers to stand with him, to stand firm against the panic which endangered our financial system to its core.

Never mind what caused this collapse 101 years ago; all financial catastrophes are unique – each comes from its own set of factors, plus a bit of greed thrown in for good measure. Working all night, Morgan and other bankers injected some $8.5 million dollars in 1907 money to keep the giant Knickerbocker Trust from failing to pay its depositors and increasing the panic to oblivion settings.