A decaying housing market, deteriorating credit conditions,
a sickly dollar, sky-high oil prices, expensive and useless
wars, and the looming mass-retirement of the baby boomers
are the main ingredients that will create the fuel for a tumble
in US economic growth over the next year or two (or three
or four, etc.)

Yet the party on Wall Street continues unabated. Even as
major banks and brokerage houses write off monstrous piles
of bad loans and trading bets, the forecast is for sunny skies
as far as the inebriated eye can see.

It seems that all the market needs are massive injections of
opiates- in the form of liquidity and interest rate cuts- to
keep their grotesque party from dying a sudden and painful
death.

The Fed is set to cut rates on overnight rates again when
it meets today. If it does as the Street wishes, short-term
lending rates will decline for the second time in two months.

The problem with bailing out over-leveraged gamblers by
reducing borrowing costs is that it intensifies the moral
hazard witnessed in the markets over the past few years.
Without the prospect of punishment for bad decisions, foolish
speculators will only be encouraged to do more of the same.

In addition, reducing short-term interest rates does little to
lower mortgage lending costs. These rates are increasingly
being determined by private and institutional lenders. They
see nothing but increasing risks to the stability of the US
housing market- so why would they want to reduce the cost
of borrowing at such a time as this?

And, the final argument against lowering rates is the
wobbly dollar. It is sinking hard and fast against almost
every other world currency. Lowering US interest rates
reduces returns for overseas investors, and will cause
them to shift their funds- loans actually- elsewhere.

So, party on Garth, party on Lawrence Kudlow. As for
anyone that is even casually acquainted with reality-
watch out below!

© Greg Strid 2007

Citigroup reported a 57% decline in profits for the
third quarter of 2007. Apparently it received some
nasty wounds from souring fixed-income investments
and sinking consumer loans.

This sad quarter reflected approximately $5.9 billion
worth of write-offs; once light was shed upon faltering
securities prices and proprietary trades that have gone
terribly wrong.

Much of the damage inflicted upon Citigroup, and other
esteemed U.S. financial institutions, such as Morgan
Stanley and Bear Stearns, has its roots in the subprime
mortgage implosion and ensuing credit crunch that has
unfolded over the past few months.

It seems that leveraged loans and subprime mortgage
securities are falling rapidly in value, contributing close
to $3 billion in write-offs. And, trading losses were $636
million. These three areas contributed heavily to an 87
percent drop in investment banking revenue.

Citigroup’s massive global consumer division was racked
by $2 billion in both current losses and the need to
increase reserves for damage yet to come.

Most importantly, upper management backed away from
previous statements that the worst is over. The continuing
deterioration in the housing market- declining prices and
swelling inventories- is causing pain all across the financial
landscape.

As fancy, yet insidious subprime mortgage products reset
to obscene interest rates, more homeowners are forced into
foreclosure due to the negative equity they are carrying on
their homes. This process is still in its early stages with,
most likely, at least another year to go. And these dubious
mortgages, along with the hefty issuance of consumer
loans, have been a major source of profits for America’s
financial giants. The long and reckless ride enjoyed by the
financial community is coming rapidly to an end- it was
wild and whacky while it lasted!

© Greg Strid 2007

Splendid Marbles Salon number 7 was held just this past Saturday night at a brand new location on Varick Street in Jersey City. The crowd was large and the discussion brisk. We even had two special guests representing “NJ for Obama”, one of whom stayed on to answer questions- and this with no safety nets or fancy editing to shield him. I must say, he did a fine job, and I think that he learned a lot about what voters really want out of a candidate (more listening and fewer percentage-laced answers and less attacks on fellow candidates). We will be approaching Clinton and Giuliani’s people next to see if they are brave enough to weather salon exposure. Stay tuned- the next one will be standing room only!

.

Just this morning I read a piece in the Metro, the daily
freebee handed out at the PATH station in Jersey City,
that seemed to sum up the lunacy of our day and age.
I was a bit sleepy when I first scanned the article as I
waited for the caffeine that I had ingested to offer the
vital jolt that my heart so desperately needed, and my
brain was hovering in the single-digit wattage zone.

But, even in my semi-zombified state I could see that
the story concerning the hangman’s noose found on the
office door of an African American professor’s door at
Columbia University’s Teacher’s College was going to
make the ride in with my fellow sardines a memorable one.

OK, enough with the silly buildup. Several hundred
students, faculty members, and elected officials joined
together- while everyone else was working- to voice
their outrage at this odious act. The victim in this case
is Professor Madonna G. Constantine, and her specialty
is racial identity and multiculturalism. She was given a
hero’s welcome by her throngs of freshly minted supporters.

Whoever hung the noose on Professor Constantine’s door
is an extremely twisted and tormented soul- but I would
also guess that this person is media savvy. This sad display
of bigotry has brought massive press attention- there were
articles in almost all of the NY papers, and Mayor Bloomberg
was compelled to utter a comment denouncing the crime.
And, the NYPD’s Hate Crime Task Force brought the noose
in for DNA testing.

I am not condoning this action. I am not a racist. I truly
believe that diversity is the key to American society’s long-
term survival. But, the sensationalism of shameful actions
taken by the sad few does nothing to bridge the gap between
different races, ethnicities and religions. The same tired act
ends up being played out again and again. The real progress
that is needed to reduce divisions is never achieved, for that
requires serious and consistent efforts away from the camera’s
lens.

© Greg Strid 2007