Financial Crisis 101 - 11/05/08

PHILADELPHIA - November 10, 2008 - As I said on the air last night, the Constitution of the United States defined African Americans as three-fifths of a person. The so-called Three-Fifths Compromise between northern and southern states, arrived at during the Constitutional Convention in Philadelphia, found its way into the Constitution in Article 1, Section 2, Paragraph 3.

"Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons."

It's been a long and painful journey from that point to last night, and of course, the journey is not yet over, but almost 40 million white Americans voted for Barak Obama yesterday, and here's a point of historical irony: that constitutes just about three-fifths of Obama's total support.

So now comes the hard part: governing. The most pressing item on Obama's January 20th agenda will be the financial and economic crises. Much will be made of his first moves, like appointing a Treasury Secretary and his push for a stimulus package to boost the economy. The appointment of a Treasury Secretary could come soon.

There are three names that have been attracting a lot of attention: New York Federal Reserve President Timothy Geithner, former Treasury Secretary and Harvard University President Lawrence Summers, and former Fed Chairman Paul Volker. But offered up an interesting name today; how about New Jersey Governor Jon Corzine? Corzine's name was said to surface over the weekend, and is on a short list along with Summers. The New Jersey Governor is a former chief of Goldman Sachs, which could work to his advantage or disadvantage. Interesting.

A lot of people will think that today's sell-off in the stock market reflects disappointment on Wall Street with Obama's victory last night. Most analysts would say those people don't understand the Market. They would say that an expected Obama victory was probably absorbed by the Market last week, and today's performance was more likely a profit-taking sell-off after last week's huge rally. And if the Stock Market launches into a sustained rally, it won't necessarily have much to do with Obama either. November is typically the beginning of a strong six-month period for stocks. As BusinessWeek reminds us today, there's an old saying on Wall Street, "sell in May, then walk away." From April 30th to October 30th of this year, the S&P 500 plunged 31.1%. If you want another reason for today's bad day for stocks, look no further than the report that the economy lost 157,000 non-farm, non-government jobs in October.

The economic crisis makes Barak Obama's task ahead especially daunting, and the degree to which he is successful may be in large part determined even before Inauguration Day. But the way he won last night, as a Democrat with victories in all parts of the country, not seen since Lyndon Johnson, he goes to the White House with huge political capital. We'll see if he can use it to the economy's advantage.

Jim Gardner

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