Author: David S. White

Next time you are shopping at the Mall, Costco, or Bed Bath & Beyond and your shopping cart or pallet is overflowing, think of this: nearly half of the world’s population (roughly), some three billion people, are living on less than $2.50 per day – the price of a cheap magazine or a couple of Cokes or perhaps a Happy Meal at Mickey D’s.   The opposite of SuperSize – PatheticallyTiny.

When you are next staring into the late night contents of your refrigerator, having paused your movie on DVR, not really hungry, but looking for something to stuff in your face . . .  one billion people inhabiting this same world (one thousand million, for the numerically challenged) went to bed hungry last night – not dieting; not low cal; not ‘no fat’ – starving hungry – the kind that really hurts . . .  all night.

When you finish that late night movie and take out your DVD, VHS, or power down your computer’s streaming video, consider this.  One in four people living on the same planet as you and me, have no access to basic electricity – zip, zero, nada.   When the sun goes down, they live by candlelight, if they can afford candles; lamplight, if they can afford whatever burns inside to illuminate . . .  as humans have lived for the several million years that we have been evolving into the multi-tasking, digitally plugged in, expensively clothed and accessorized marvels you walk past all day, every day, in your life.

"These are the times that try men’s souls." – Thomas Paine’s The Crisis

Going ‘from bad to worse’ is a much overused expression.  For those who have not entirely given up on the 24-7 Media coverage of all the nasty things going on lately, some have begun developing traumatic associations and now avoid news like the plague,  how many disasters does it take . . . . let me count them.

The Gulf is filling with what looks like melted chocolate and even mighty BP is clueless how to stop it, having started on live video feed, no less, it’s latest, Top Kill (think: life as comic book) solution to the month-old spewing of oil into the pristine Carribean waters and beyond, involving something with old sneakers, tennis balls, cement, what have you.  Lousiana’s bayou and wetlands country is smothered in what we only wish was butterscotch syrup, some twelve miles in now.

The recent news cycle has featured a story about a civil lawsuit filed by the SEC against the insanely profitable Wall Street Master (Of All Masters) of the Universe, Goldman Sachs ("Goldman").  The SEC charges in the Complaint initiating this soon to be titanic litigation, made public last Friday, that Goldman created some 25 ‘Deals’ (like the one from which this piece derives its title: "Abacus 2007-AC1"). 

These Deals enabled Goldman and some of its most beloved clientele to literally bet against the housing market, at a time when those bets could pay off BigTime.

Now, Goldman vehemently denies all of this (in a press release within minutes of the filing, Goldman called the allegations: "completely unfounded in law and fact").   I want to make it very clear at the outset that what I am about to discuss further here are but allegations in a new lawsuit, neither proven facts nor adjudicated matters found true by any court anywhere.   It does not take much to file a lawsuit – in fact, even a Rhesus Monkey, armed with a typewriter, about $300 (here in the Los Angeles Superior Court) and a stack of papers, who can find his or her way to the Courthouse, can file a lawsuit!

For want of a nail the shoe was lost,
for want of a shoe the horse was lost;
and for want of a horse the rider was lost;
being overtaken and slain by the enemy,
all for want of care about a horse-shoe nail.

-Benjamin Franklin
The Way to Wealth (1758)

A volcano in Iceland with an absolutely unpronounceable name erupts and air travel in, about, and through Northern Europe is thrown into total, unmitigated chaos. The ash and smoke from the erupting Eyjafjallajokull volcano could, if sucked into modern commercial jet engines, shut them all down, leaving winged, painted steel and aluminum tubes and hundreds huddled inside in cramped seats at the cruel mercy of gravity.  In London, more than a thousand miles away, thousands of flights were grounded with perhaps hundreds of thousands of passengers stranded for days that must have seemed endless for one trying to just get home.  Strangely, it was all about the direction the wind blew. 

I want to let you in on a little secret. Once upon a time, the Wizards of Wall St. took risks with their own money and, when those risks paid off, they earned handsome rewards. Somewhere in the not too distant past, that changed to the newer model, which nearly sank the world’s financial ship in the Fall of 2008 and likely will again, unless Congress addresses the heart of the problem.

Somewhere around the time that the Glass-Steagall Act was repealed (November 12, 1999, to be precise, by the Gramm-Leach-Bliely Act) the Wizards of Wall St. had a revelation. This light bulb suddenly illuminated, as in the old comics and cartoons, greatly assisted by a major shift of graduate-student-level physicists, weary of stuyding arcane String (Superstring, Membrane, ad nauseum) theories, and math geeks, tired of not making any real money using their mental gymnastics, were looking to escape the hallowed halls of academia.

It was also made possible by the power of modern computing, featuring exponentially increasing memory storage and computing power, enabling billions of calculations in microseconds, all emanating from a computer chip the size of a postage stamp. These academic émigrés were snapped up by the Wizards of Wall St., who called them “Quants,” and set to work, sweating over hot computers, cooking up exotic financial instruments, the understanding of which lay far beyond the ken of mere mortals, to whom an algorithm is a very hard-to-spell word for some kind of math that you did not pay much attention to decades ago when somebody tried to teach it to you. “[A]n algorithm is an effective method for solving a problem using a finite sequence of instructions,” say our pals over at Wikipedia, the People’s Encyclopedia.

The news lately has been filled with strange and disturbing events occurring behind what we used to call the Iron Curtain. Kyrgyzstan (the Kyrgyz Republic), that little dirt-poor, Central Asian country with the unpronounceable name that seems to lack important vowels, fell recently to protesters, amid charges that we backed the wrong horse (some would sarcastically say: again!) and reportedly drowning in corruption – all of which would not matter much to us 10,000+ miles away, except that the US maintains a critical military base there that supplies our stepped-up war efforts today in Afghanistan, and has had the immediate effect of halting our military flights out of there of late..

Then, terrorists blew up Moscow subways, striking terror into the hearts of rapid transit commuters the world over. But, last weekend’s news was the strangest of all – like something out of a ‘B’ movie script, dripping with irony and stamping a big “Huh?!?” on the sometimes frail distinction between reality and imagination.

It seems that the topmost echelons of the Polish government and military, all crowded aboard a creaky, notoriously unreliable, Russian-built commercial plane, were flying to Smolensk, in Russia, to commemorate, and most importantly, to finally (after so many decades) come to modern terms with, and understanding of, the horrific massacre of some 20,000 Polish military officers by Russian forces that happened 70-odd years ago.

Recent revelations concerning the
fall of Lehman Bros. and other financial shenanigans have revealed the fun side
of accounting – fun, that is, as long as you don’t get too hung up about
honesty and the ethics of ripping off other people’s money ("OPM").   The staggeringly huge Lehman
bankruptcy, the biggest in the history of American business failures, recently
produced a 2,200 page report and related documents released by Anton Valukas,
the court-appointed examiner charged by Bankruptcy Judge James M. Peck, to
figure out just what happened. 
Judge Peck said Valukas’ report read "like a best-seller."  Here’s the short version.

So let’s say you have decided to
take advantage of today’s historic lows in home loan rates and refinance your
home – before interest rates start going up, perhaps later in the year.  You owe a lot of money on your credit
cards (having not learned that paying for those lavish dinners and weekend
getaways with plastic and then paying the minimum on your monthly bill is just
a dumb trap).  You also have those
student loans to the tune of umpety-ump thousand dollars and a nagging
obligation to support wife #1, even though you are on to the greener pastures
of wife #2, who spends your money like it is water.  It is obvious that if you listed all these debts, nobody in
their right mind would re-fi your house. 
What to do? What to do?

I have written extensively both here and elsewhere about our economic woes in this 21st Century Depression that has paralyzed the developed world since the end of 2007, the latest watching Europe caught in the throes of what I call the Grecian Formula, and I don’t mean that tube of goo that makes your hair less grey. I have seen in my law practice too many commercial real estate owners now struggling with portfolios that resemble the upside-down cruise ship in the 1972 action flick: The Poseidon Adventure.

I have watched our Congress in gridlock over healthcare while swooning from the attention of financial industry lobbyists, paid beyond handsomely, to stonewall any kind of financial regulation, which could prevent an even worse crisis, ending any further off-the-books gambling by the Masters of the Universe on Wall Street. I have watched our national unemployment hit 10% and now hover just below (9.7% again last Friday), while our California figures are significantly higher and those of the teens and twenty-year olds and some racial groups are, frighteningly, even higher. But, it didn’t truly hit home for me until the last couple of months, during which I have been recovering from a bit of surgery to greet the new year (hence my recent absence as a contributing ‘Hound’ for F&HD).

Comfortably ensconced in a Sussex Countryhouse Hotel, at the Future of Finance Initiative, a conference organized (“organised,” if you are a British journalist) by The Wall Street Journal, top flight bankers and financiers are meeting to discuss the near-death experience of the banking industry in Fall 2008, and whither we goest from here. Former US Fed Chairman Paul Volcker told the impressive assembly that they had better ‘wake up’ before it is too late.

When I say these things here, it is just me; when Mr. Volcker says them, financial movers and shakers might actually listen.

Volcker told them that they failed to understand just how close to the edge the US economy, and therefore the world economy, had come in the Fall of 2008. He also told them they were being pigs about excessive compensation and that complex and exotic financial products (that I have written about here too many times to count), such as credit default swaps (CDS) were a real Witches Brew of trouble.
Volcker was in charge of the US Fed from 1979 to 1987 and currently chairs President Obama’s Economic Recovery Advisory Board. He should know from whence he speaks as Volcker presided over several up and down cycles in the US economy (for those who remember back that far).