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Sunday, January 18, 2009


History in Progress

It's hard to judge while it is still happening whether an event or a crisis will retain its significance when viewed from the perspective of the future. Certainly, for baby boomers, the Berlin Wall crisis and the Cuban Missile crisis seemed potentially apocalyptic at the time, and it would have been hard to imagine that less than 50 years later, they would be remembered, if at all, as mere skirmishes in the larger Cold War, that was resolved comparatively quietly in the end. Given the priorities and new issues facing younger generations, not to mention the pitiful state of public education, many of the "momentous" events that so enthralled our generation are likely to be forgotten by all but academic historians who thrive on trivia.

But we can be pretty sure that Tuesday's inauguration will qualify as a historical event, transcending the political considerations because of the much larger cultural considerations. Generation Y is certainly America's first post-racial generation, adopting an attitude that went well beyond the racial tolerance of their parents, leapfrogging to acceptance, even embracing of our cultural diversity. I am not sure "boomers" ever intended to be so successful at transmitting these values. When we were young, we had reached the stage of segregation by choice, if you will, where instead of whites imposing it, black youth grouped together to find their way in the world and understand the implications of "Black Power." This posed quite a psychological challenge for boomer whites, who had been told by their liberal parents that integration was the ultimate goal, only to find out that integration on their own terms was still unacceptable.

Whether intended or not, the messages that diversity is a positive force, in school and in the work place, that equality of opportunity was a minimum standard, and that equivalence extended to cultural values and the arts was driven home, and this was probably the most important educational triumph of public schools in recent years (certainly they have not succeeded in any academic way).

The final plank in the platform that made the Obama victory possible was the point, resisted by liberals but co-opted unconsciously, made by people like Thomas Sowell and even Bill Cosby that blacks needed to discard victimhood and adopt a winning strategy instead - responsibility, fatherhood, education, participation in the greater community are among its elements. We even have Al Sharpton making noises along that line recently! The Sowell vision is a long road when you consider the large percentage of young black males (many innocent) with a police record. It is happening though, and it will accelerate as generation Y matures and makes its way in the world. There are awesome challenges facing future generations in our country, but a more cohesive society will be reason for optimism in facing the political, social and environmental hazards ahead.


Not sure interest rates around the world are low? Consider that when the Bank of England recently cut its rate to 1.5%, it was its lowest rate ever. The Bank was founded in 1694.

Last week we saw business channel pundits speculating on whether Citigroup could survive, and then we saw the beginning of the breakup of that failed financial supermarket. We also saw BankAmerica join Citi in the ranks of "federally bailed out banks." All the economic indicators released point to economic momentum still going the wrong way. Now we are hearing that the Obama administration wants to go back to the earliest TARP plan and buy the banks' troubled assets with some of the second installment approved by Congress.

The fact is no one, from the old administration, the new administration, academia, or business has a clue how to solve this slump, which has to run its course as explained in my previous post. Though it's dangerous to extrapolate from the specific, sometimes anecdotal evidence can be useful in understanding the larger picture. The WSJ had a front page story last week concerning a "house" (more like a shack) that was foreclosed and sold to the neighbors for one-seventh of the amount of its outstanding mortgage. The neighbors just wanted to raze the eyesore. Of course this mortgage had been securitized and sold and resold. The borrower had used the money to pay off an earlier home equity loan (with a loan to value ratio of about 400%) and there was plenty of fee income for the mortgage brokers and banks.

So the money is gone, it's not coming back, the fraudsters are going to get away with all this, just like Franklin Raines and his cronies did, and the only thing that can happen is massive deleveraging. Meanwhile consumers can't do anything right. When they were leading the economy by buying everything on credit, the pundits and economists complained we had a negative savings rate. Now that they have pulled in their horns, and are saving everything they can and paying down debts, we hear that consumers are not spending enough.

Meanwhile, the Dems have thrown their lot in with J.M. Keynes, and produced completely unreliable forecasts about how many jobs will be created by the massive stimulus. Apparently, the history lessons of the 1930's have been forgotten. The result of the stimulus will be the transfer of more jobs from the private to the public sector, nothing more. Little did we know how many of those jobs would be in the banking industry.

Israel called a unilateral cease fire with Hamas, reserving the option of retaliating if rocket lobs into southern Israel continue. It is interesting to watch the Israeli's expertly play the most excruciating and humiliating psychological cards in this skirmish. By unilaterally stopping the operation, the message is conveyed that it accomplished its limited goals, that it can resume its devastating assault at a time of its choosing, that therefore, Hamas is powerless to protect its own people, and that Hamas' Arab allies don't count in this calculation. The operation also showed the UN, for the umpteenth time, to be feckless, useless, and anything but neutral. Still to come, what to do about Iran, which will no doubt be the subject of soon-to-be-held discussion between Israel's new government and the Obama administration.


No transactions to report since the last post. I have to say things started to look pretty desperate until the reversal mid-day Thursday, after the miserable Wednesday session. But once again, we were pulled back from the abyss by forces welcome but unknown. Tomorrow is a needed day off in recognition of MLK Jr., and then we'll see what happens with the new guy in charge.

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