Tuesday, February 17, 2009

Simple Pleasures, Sobering Facts

Over the weekend we decided to make a chocolate cake for no reason. It wasn't because it was Valentine's Day. It was just because it's February, the weather's getting just a tad old and we needed something spontaneous yet simple to lighten the overall effects to a dull winter, a rough economy, and the general rut of the momentary Now.

Grandmother Carson's chocolate cake was just the ticket. I'm not a dessert lover but for years I enjoyed GMC making this cake when we used to drive down to Dothan every Thanksgiving for a visit. If I was lucky she would make it on the rare occasions when she came to visit us.

Fortunately, Jennifer got a detailed lesson in how to make the cake directly from her grandmother so that now, even though GMC is gone, her cake remains. It is actually not completely chocolate. It is a Duncan Heinz Golden Butter Recipe cake with a special chocolate frosting. Theoretically, the frosting is supposed to sit for 24 hours on the cake before you eat it.

Well, we kinda set that part aside and enjoyed it immediately. When you are not that in to dessert and you indulge in something this good and rich, the simple pleasure of it makes it rather extraordinary.

The plan was to share some of the cake with our parents. A little treat for them as well. LOL. Throw that out the window. They got nothing and there's hardly anything left. The cake didn't stand a chance.


On a sobering note, the Dow closed today within a remarkable 1/3 of a point of breaking the November 20 low. This signals very serious trouble. If we break through the November 20 lows then, according to Dow Theory, we are looking at an almost ominous period ahead. For me, the January buy-in was foolish. But, my primary holdings remain in gold, which has performed very well of late. I actually profited today. Let's hope the lows hold.

Of course, history should note that we arrive on the edge of this Dow Theory bear market reconfirmation on the same day President Obama signed the stimulus bill. There's roughly $800 billion we'll never see again. Even so, General Motors promises to lay-off about 50,000 and says it will need another $16.6 billion. Uh, I'd settle for a paltry $16 million myself. If it's not too much trouble, Uncle Sam.

I also noticed today that Time Magazine had the guts to include
"American Consumers" on its list of "25 People to Blame" for the Great Recession. To quote the article: "Household debt in the U.S. — the money we owe as individuals — zoomed to more than 130% of income in 2007, up from about 60% in 1982. We enjoyed living beyond our means — no wonder we wanted to believe it would never end."

Plenty of folks to blame for all this mess. They range from the elite to the stupid to the greedy to the visionary. But, in truth, no one is more to blame than the inept mass of Americans. Consumerism has become our national religion, anthem, and drug all wrapped up into one convenient marketing package. We asked for this.

As you know by now, I don't watch a lot of television. One program I do try to keep up with is PBS's Frontline. Tonight Frontline had a wonderful documentary entitled "Inside the Meltdown" dealing with the beginnings of the current financial crisis. I learned a lot.

It could have just as easily been entitled "Henry Paulson's Trial by Fire" as it examined how a powerful, intelligent, idealistic capitalist official ended up becoming the primary architect of the largest government intervention into the economy since the Great Depression. The internal struggle of Paulson between his ideals and the reality in which he found himself fascinates me from a personal perspective.

The terms "moral hazard" and "systemic risk " were new to me, but I understood how these two competing concepts were at war through much of build-up to the crisis. In the end risk outweighed hazard and we got the bailouts. Frontline explains why in very careful, clear detail.

In the broader context, searching for the roots of the crisis, they seem to lie in the murky past, the final years of the Clinton Administration, when credit default swaps were first becoming all the rage in the banking system. Phil Gramm was a primary champion of these novel derivatives. One small government agency saw them as a potential for disaster and tried to regulate them. They were squelched. This led to legislation protecting the free and unregulated nature of credit default swaps among other derivatives. The unintended consequences of that trumpeting of deregulation was that the entire banking system of the world became toxic.

Specifically, Brooksley Borne of the Commodity Futures Trading Commission testified before Congress as to her concerns regarding the impact of certain derivatives. She was ignored. Anyone interested at all in the beginnings of the current crisis should take a moment to scan her testimony.

Sometimes, someone knows, but no one listens.

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