America has lost a huge amount of capital.  I’m not talking about the simple value of a homeowners house.  I’m also not talking about the decrease in the average 401 (k).  Yes, those are losses, and while one can debate whether they are actual or paper losses (BTW: they’re actual)—the loss in capital I am referring to is the store of capital/money that used to reside in this nation’s financial institutions.  The huge losses that the banks own—is the capital that was used to propel our entrepreneurial economy forward.  That capital is GONE.

The US Government printing more money in an effort to shore up the banks does not replace the lost capital. (The Govt printing more money inevitably leads to a lessening of the value of the money–not to an increase of capital)

This recession/depression is far different than a normal business cycle downturn. In the current instance, significant changes in both public policy and individual behavior is going to be needed for the country to return to a “normal” type prosperity.

As we all know, ours is a capitalist system. The loss of huge amounts of the country’s CAPITAL means that standards of livings will have to come down.  Far too many citizens in the United States were living a lifestyle that they couldn’t afford on a current income basis. Many people were spending money they either were borrowing on a promise (credit card debt) or were spending money based upon access to funds that was available due to valuations on their real estate.

Now that there is no money to borrow easily to finance a standard of living above ones wage, and the lines of credits secured by housing assets are withdrawn,  Americans are going to face a tough reckoning.

So you ask, what do lower standards of living actually mean?  Well, for one thing, I believe you will see greatly increased instances of multi-generations living together.

The reality is that Americans are going to have to live within their means rather than borrowing against the future.  The days of living a higher standard of living than their incomes support are a thing of the past.  In the short term,  that will mean a reduction in consumption that will then lead to further reductions in national income–and thus further reductions in consumption.

Our leaders, governments and citizens haven’t fully absorbed this lesson in terms of the significant changes of behavior that will ripple throughout the nation.

For example, California just passed a budget that still has spending levels much higher than reasonably projected income.  California is almost surely to be back in a “financial crisis” situation within 18 months.

The reality is that governments at the national, state and local levels cannot afford the level of services they are providing.  Either taxes will have to go way up to pay for these services (which leads to lower economic activity and a negative cycle of ever higher gaps between income and expenditures) or significant cuts in services/supports will need to be made.   That means that a re-examination of the social contract between citizen and state will have to take place.

How long will this type of process play out until an equilibrium is reached? That’s the big unknown.

However, America will soon enough have to decide if we want a more socialist country with lower overall standards of living—-or a more capitalist system which provides less safety net for its citizens. Neither choice is appealing. When you live beyond your means and gamble on a future in which there is no margin for error, unpleasant choices are often the result.

From the moment man discovered the delight of kicking, throwing and shooting spheriod and elliptical objects, there have been arguments over who is, or rather–who was, better.

The 1927 New York Yankees or the 1975 Cincinnati Reds? The Green Bay Packers of 1967 or the Pittsburgh Steelers of 1979? The 1993 Michael Jordon led Chicago Bulls or Larry Bird’s 1983 Boston Celtics?

Well, in my opinion, an interesting question comes to mind: How would sports legends from ages past compare to their modern-day brethren? Could they stand the test of time.

Let’s start with basketball. Bob Cousy, the leader from pro B-ball’s greatest dynasty, won 10 world championships during the Boston Celtics historic reign. (A team that won a record eight consecutive world titles in the 1960’s) He was revered at the time as a ball-handling wizard.

Excuse me, but when was the last time you checked cable TV’s Greatest Games and watched Bob dish off a pass after dribbling the ball up court? Ugh! Let’s be honest. Cousy’s skill level wouldn’t qualify him to start today for a Division II college team. He was slow, dribbled mostly with his right hand, couldn’t jump and had an average shot at best. Given his slight build and height, the only professional basketball Mr. Cousy would be engaged in today would be watching it on TV.

Fine you say, what about football. Surely Gale Sayers would be as great today as he was back in the early 1970’s. Okay, let me modify my argument. Some vintage football players would still be able to perform admirably, maybe even excel. However, given that the average size of a lineman has grown from 235 pounds to 295 over the past three decades, I say the speed, athleticism, size and conditioning of today’s athlete would make most football stars of yore look like mere bench warmers. The Super Bowl champion 1968 Green Bay Packers would have a hard time staying out of the celler if they were transported into today’s NFL.

Things have changed an awful lot in professional sports…except one. That would be America’s..er…pastime…baseball. Yeah, I know, baseball has become more specialized in the pitching department and batters spend far more time watching film and listening to coaching instructions. However, are you going to tell me that Sandy Koufax wouldn’t be a star today? That Roberto Clemente wouldn’t be a threat to win the triple crown? That Lou Brock wouldn’t be a contender to lead the league in stolen bases?

The ball is still thrown to the plate at about the same speed and velocity. The time it takes players to round the bases is virtually unchanged. If anything, there has been a significant dilution in the overall talent–especially in the area of pitching. In fact, my main complaint with baseball today (steroids aside) is that the fundamental skills of the players is lower than that of their forefathers. How many times does a fan have to watch an outfielder throw the ball to the wrong base and mutter to himself “these guys do this for a living?  Even my son in Little League knows when to throw to second or third.”

Basketball and football games in the past were exciting because there was no superior “above the rim” standard with which to compare them. They were the best of their day and deserve applause. From Bronco Nagerski to Dick Butkus, they brought to the game an accelerated level of performance. However, the players were smaller, slower and lacking in modern strength conditioning. Even if they had the heart of a champion, the basketball and football champs of the glory days wouldn’t stand a chance against a modern team. Only in baseball would a star of the 1950’s still be a star today.

I voted for Barrack Obama in November for a variety of reasons. One of my reasons was that the Republicans had messed things up so badly that they needed to get the boot and let the other side have its go.

Another reason was that there was so much pent up anger on the left at the Bush Administration that I believed that the Democrats needed to have their chance to “get the country going in the right direction” or else that anger could really start to boil into ugliness.

Given the rapid deterioration in the markets and economy, we should all be grateful that the Democrats are indeed in control. If our government were currently proposing wide tax cuts rather than huge spending coupled with welfare checks disguised as tax cuts, I fear the chances of social unrest would be significant in the near term.

As it is, I believe that the stimulas package and other government programs as currently constituted will simply lessen the hard thud that is just beginning to happen. That being the case, should/when unemployment surges past 10% later in the year, I’m sad to say that there exists a very real chance that American cities could see disgruntled citizens marching in the streets as a precursor to possible widespread rioting in 2010.

My job can be like a thousand paper cuts.

Brad yells “We got a creeper going on the long bond Randy. Lift B of A’s offering on the Sacramento terms”. I think to myself, ha, ha, sometimes this job is too good! It’s as if money grew on trees. I’ll make an 1/8th point on a million bonds. At a 30% payout rate, I just made a nice and easy $375. You gotta love being a salesman.

Brad is a second-generation bond trader. His father was of the generation that drank hard after work and reveled in having won the Big War. With no war for Brad to fight, he settles for battling on Wall Street.

The direct line rings. It’s the trader from Merrill. I had informed her minutes earlier of an offering on some Long Beach bonds that we had pulled from an account. She shows me a less $2.00 bid on our block of kickers. I try desperately to get Kelly’s attention so that I can let him know of Merrill’s bid. Forty five seconds go by.

The trader from Merill, nice enough on a slow day, is know to be, er, shall we say—irritable when the market starts running and she’s not getting her share of the action. She inflects her voice and asks sarcastically whether she’s done or not. Holding the mute button, I shout over to Kelly the terms of her bid.

Kelly, on the phone, looks over at me. I’ve often wondered if he grayed prematurely because of the stress of being a trader. He’s busy selling into the rally with a broker-broker and it will be another 30 seconds until he can fully focus on whatever information I have to relay. Damn I think. Kelly better not be selling those Long Beach bonds to someone else. The Merrill trader would put me in the box and I’d be out another nice and easy commission.

My phone rings.

Before I answer it I hear….”Randy!!! am I done on the Sacramentos?” I look over and Brad has risen out of his chair and awaits my nodding to him that he has bought the bonds. Oh crap, I didn’t have a chance to call the Bank and buy them! How the heck am I supposed to do two things at once?

I look out the window into the darkness that is the early morning. The sun has yet to rise, the city is sleeping and I’m trying to get my game going and take advantage of a moving market. The government releases economic figures at 5:30 AM and the early morning is often the busiest time of the day.

My other phone rings for the third time. Annoyed that she has to put down last night’s leftovers that she’s eating for breakfast, my third trader Mary picks up my line. “Randy you idiot”, she screams over to me, “it’s some drooler on one”. I pick up that phone, press the button and hear a voice that is not familiar. I quickly tell the guy to hold. Brad glares at me.

I tell Kelly the particualrs of Merrill’s bid. “Tell those chiselers that their bid sucks,” Kelly tells me emphatically. I plead with Kelly to keep his previous price for just one phone call. Kelly replies that his offering is list best and for one phone call only.

I call Bank of America. I ask whoever answered the phone for the long bond trader. I’m put on death hold.

Picking up the direct line on one phone bank while still holding for the trader at B of A on another, I ring Merrill. Running Kelly’s response about the “chiselers whose bid sucks” through the nice box, I thank her enthusiastically for her bid. I go on to say that it is our opinion that the bonds are well priced and therefore we won’t lower their cost. During the next few sentences she informs me that our bonds are far too expensive, but, since they’re light on inventory, she’ll reluctantly buys the piece.

I shout “I’m done on the kickers”. Kelly motions approvingly that I own the bonds. I tell the trader from Merrill that we bought the bonds and that I’d call her to confirm in a minute. Kelly whispers over to me, “take fifty cents on the bonds”. Dang I thought, only fifty cents on 250M bonds. Traders don’t pay like they used to. Oh well, I’ll make more on the next trade. Being a B.S.D. is a patient process.

I mark down the $125.00 gross I made from the Merrill trade onto my daily ledger. I’m working towards my sales goal for the day, what I call par. As a dedicated salesman and capitalist, I add up my sales numbers daily, weekly, monthly and annually. I figure why bother to play if you don’t keep score?

Still waiting on perma-hold for the trader from B of A, I realize that I had left the caller from my third phone on hold. I say “hey, this is Randy, sorry about that.” It is a small dealer calling to buy an odd lot. Ugh, chump change to be made and a hassle to transact. I put him back on hold.

The B of A trader finally gets on the line. I frantically tell him I want to buy his long Sacramento’s. Yikes!  I’m told that they just traded on the other line. Hearing the B of A trader tell me that he would have rather sold me the bonds direct is a very small consolation.

Brad, sitting kitty-corner across the desk from me leers testily as I tell him that the Sacramento’s have traded. “SHIT!!” he shouts. I dare not look over in Brad’s direction.

Oh yeah, the odd lotter I left on hold. Yuck. I learn that the bonds he wants to buy are Brad’s. This means that Brad and I will make virtually nothing on the trade. It also means that less than a minute after I pissed Brad off by not acting quickly enough to buy what he wanted, I have to ask him for a favor. All so that I can sell to a guy I don’t know for less than parking money.

Decisions, decisions. Perhaps thing would be better if I just tell the odd lotter that the bonds are out-firm and if they free up, I’ll give him a call.

After all, it’s as if money grew on trees.