A ride on big city subways and busses can be an eye-opening experience.   I love public transit because of the variety of people that ride.  Sometimes I’ll look at a person and try to figure them out.  A few of my favorites are below:

The cellist: Standing near the door is a well-dressed young man in his early thirties holding his cello case.  This isn’t some high school kid; it is a person who is old enough to have a wife, two kids, and a mortgage payment.  So why is he carrying a cello?  How can anyone make a living playing a cello?  Doesn’t he have a real job?  Oh yeah, we’re in Chicago.  They have a symphony here with full-time musicians that actually draw a paycheck!

The mixed-race couple: On the side facing seat of a north-bound red line train is a forty-something Caucasian man in a suit.  His Japanese wife is holding his arm as their heads bob with the rhythm of the train.  They look like professionals; perhaps he’s some kind of bond trader.  Maybe she is a high ranking manager at some firm downtown.   There is a good-sized ring on her finger; they’ve been with each other for many years and look comfortable together.   I wonder how they met.

The Plasterer: At 6:30 p.m. I’m on a south bound orange line train as we approach the Pulaski station.  This is a working-class neighborhood where people labor hard and long to make ends meet.  A young man in his early twenties sits across from me with plaster all over his pants and shirt.  He looks dog tired.  He probably makes $10 an hour.  But the fatigue of the body has not permeated his spirit as he grins and holds the hand of the young woman sitting next to him.  They speak excitedly in an eastern-European language, perhaps Polish.  I can’t understand a word they’re saying, but they are so happy.  I think they’re heading home together where he will shed those dirty pants, take a shower and they will prepare a romantic dinner.  Who says money buys happiness.

The Beggar. He’s fifty years old, shabbily dressed and walks up and down the isle of the carriage asking for loose change.  It’s a job for him, despite the fact that it is illegal to beg on the subway.  Most politely ignore him.  When he reaches the next station he leaves our car and enters the next one.  Not all beggars are so obvious.  Some are charming and clever enough to engage you in a conversation, but eventually they ask for money.  If you ask them if they are hungry they say “yes”.  If you offer to take them off the subway and buy them a hamburger they refuse.  They’re not after food, they’re after cash; it’s a living, with many beggars making upwards to $200 a day.  After all, if you’re standing on a subway platform and 50,000 people walk by with 1% of them giving you a quarter, that’s $125 for a day’s work.

The Young Professional: He’s 23 years old and is heading north from the loop on the brown line train to the Diversey station, where he rents a two bedroom flat just two blocks away.  With a degree in finance from Notre Dame and a year of work under his belt at the Chicago Board Options Exchange, he’s getting his feet wet in the professional world.  Considering a part time MBA program, he has a bright future ahead of him.  There’s no girlfriend yet, but the weekend bar scene leaves him plenty of opportunities to interact.  Sometimes he is lonely in the evenings and hates to admit that he misses life in the small town of Cresco, Iowa, where he had a happy childhood.

The High Schooler: With his backpack beside him, he rides the bus up Western Avenue (at 26 miles, the world’s longest street) on the way to eleventh grade at Lane Tech.  Not every high school kid in America rides 10 miles on a city bus every day, but despite the forty minute ride, he’s one of the lucky ones to attend one of Chicago’s best public high schools.  As the bus weaves in and out of the stops, the red digital sign spells out the stops; 36th, Cermak, Harrison, Chicago, Armitage.  Finally he disembarks at Addison, stepping onto the campus the biggest high school you’ve ever laid eyes on.  It looks like an entire college campus and offers a wide variety of courses with some of the nation’s finest teachers.  Too bad all kids can’t get this quality in Chicago’s public education system.

They say that if you laid all of the world’s economists end to end, it wouldn’t be a bad idea! Normally no one wants to talk to a boring economist, but with the current upheaval in the credit, stock, and housing markets, I’m somehow popular again! We’ve already discussed the Wall Street bailout in the past four Sunday postings, so we won’t go into detail about this topic. Instead I’ll try to answer some of the questions I hear most often from friends and acquaintances.

Before you read the rest of this blog, please understand this disclaimer: I am not your financial advisor and make no claims as to relevance of my opinions or the accuracy of my predictions. If you use anything in this column to guide you in making personal financial decisions, the risk is entirely yours and I assume no responsibility for your actions. In my world, no one is too big to fail, and if you make bad personal financial decisions it will be (as my old scoutmaster used to say) “Tough Titty.” Don’t count on Henry Paulson to bail you out. Who do you think you are, a Wall Street Banker? Hang on tight, mates….here goes!

How bad is the Economy, really? I constantly hear people in the media using terms like, “credit crisis”, “housing collapse”, “deep recession”, and even the supposedly upcoming “world economic Armageddon”. Don’t let these scary words disturb you. The American economy is extremely resilient; able to ward off in just a few months even big shocks like the savings and loan crisis in the early 1980’s and the 911 terrorist attacks in 2001. The toxic loan problems and credit crunch that we are currently experiencing will also abate within 18-24 months. They could have been settled within 12 months if it were not for the intervention of the Congress in their 700 billion pork-barrel bailout.

Are we in a Recession? If so, how bad will it be and how long will it last? Technically, the US economy is not in a recession (two consecutive quarters of declining real GDP) as our economy is still growing in real terms. However, there are signs of a slowdown of consumption spending and unemployment rates are rising. I suspect that by the second quarter of 2009 the data will show we’ve entered a recession as of the end of 2008. I think that this recession will be moderate (not severe and not mild), lasting until the middle of 2010 and with a maximum unemployment rate of 7.8%. This recession will not be as bad as the 1980-82 recession and a bit worse than the 2001-2003 recession.

Why have stock prices dropped so much over the last two weeks? One word explains this; PANIC! When virtually every blue chip stock drops 10-15% in one week, this cannot be explained by a sudden “worsening” of the financial condition of those businesses. General Electric didn’t suddenly become 15% less valuable last week, nor did Fastenal or Union Pacific Railroad, or even General Motors. Some individual stockholders and hedge fund managers have been dumping stocks in a fit of panic, trying to make margin calls or preserve wealth. They’ve panicked and sold into a weak stock market, driving prices way below the market values of the companies they’ve sold. There are many good (even great) companies whose stock values have plummeted over the past two weeks. Because these businesses don’t suffer from any fundamental weaknesses, the “panic” proportion of the decline (about 15%) will reverse itself soon (perhaps within two weeks).

Should I sell some of the stocks in my 401k plan? The answer here is simple…..NO! Don’t sell your stocks now. They are down 40% and the only losers in this market will be those who sell. Do yourself a favor and don’t look at your 401k statement for at least a year. It will only depress you. Most people have years before they retire and the stock values will bounce back long before they retire. Those of you who are near retirement and had a high percentage of your retirement funds in stocks may have to work a while longer; that’s the price for holding too high a percentage of stocks in your investment portfolio toward the end of your working career. But be of good cheer; stocks will come back eventually, perhaps in as little as two years. Your 401k will eventually climb back to its former value and you will not have lost a thing. The only losers are those that sell now, who will eventually have to buy back their stock at higher prices.

When will the stock market bottom out? If I knew the answer to that question you’d be paying me to read this blog! No one knows for sure. If I had to guess, I would say that the Dow Jones Industrial Average will bottom out at about 7,500. I also expect an “election rebound” for the stock market. Even though Obama will be elected to the office of President of the Socialist Republic of the United States of America, at least some political uncertainty will vanish, and reductions in uncertainty are always good for the stock market. I think the bottom of the stock market is coming soon. I won’t be able to “time” it perfectly, but I’ve got some cash lying around and will probably buy some stocks while they’re cheap. Because I’m the world’s worst stock picker, I buy index funds or mutual funds to diversify my portfolio.

Loyal readers of my blog might remember that I predicted Obama’s victory nearly three years ago on Sunday, December 3, 2006 in my blog titled “My Crystal Ball”.

Well, boys and girls, unless someone at republican national headquarters can come up with a video tape documenting a clandestine meeting between Barack Obama and Osama bin Laden, it’s over for John McCain. Barack Obama will be the next President of the United States. The irony is that in the late stages of this campaign, McCain had an “Ace” card that could have won the election for him, but he didn’t play it.

The “Ace” card for McCain would have been to reject completely the $700 billion bailout of Wall Street. This would have won him millions of votes and not just with conservative republicans. Millions of working-class democrats are plenty unhappy with their senators and congressmen who were sucked in by “King Paulson” to bail out his buddy billionaires on Wall Street. But what did “maverick” John McCain do? He jumped on board with Obama and other ill-informed Congressional leaders and supported the bailout. His true colors exposed, voters found out once and for all that there’s nothing “maverick” about John McCain. In his one, last minute, chance to differentiate himself from the socialist rhetoric of Barack Obama, McCain dropped the ball, along with his chance to become President. Obama will not only beat McCain on November 4th; he will beat him badly. Republicans will be miserable and the French will be happy!

Maybe that’s all well and good. Perhaps it’s time that Republicans lose the Presidency and lose big in Congress. After all, Republicans don’t stand for anything anymore. They’re not free market. They’re not for limited Government. They don’t stand for personal responsibility. They’ve lead their country into an unfortunate War in the wrong country. The only constituency that is happy with the Republicans is the extreme religious right, lead by Christian Ayatollahs who would support anyone that is “pro life.”

What kind of a President will Barack Obama be? As the electorate has correctly assumed, he will be an improvement over George Bush, but that’s not saying much. There is a chance that Obama will run us into socialist hell even faster than the Republicans have done, but there is also a chance that he will do otherwise. Obama counts among his key advisors several economists from the University of Chicago, arguably the best economics school in the country. The “Chicago School” of economics is decidedly free market. There is a better than even chance that the economic policies of the Obama administration might differ radically from his socialist campaign rhetoric. Let’s hope so.

Obama will receive a considerable “honeymoon” period with his democratic congress, but he will also get a lot of slack from foreign leaders. The stock market will probably rally somewhat, as it always does after Presidential elections. This will help salvage some of your 401K losses. I think we could have done a lot better than either Obama or McCain. In fact, I’ll vote for neither of them on November 4th. But the Obama administration may not be as pathetic as many believe. He’s an educated man, a hell of an orator, and he’s one of the more politically savvy politicians to come around in the last fifty years. He might even be a closet “capitalist”. After he’s elected he deserves a chance to succeed. We may be surprised.

Well, Boomer lost his fight to stop the Washington bailout of the other Wall Street. Unfortunately, very unfortunately, the US House and the United States Senate decided last week to spend $700 billion, plus another $125 billion in “pork” to “save” US financial markets. If this sounds nonsensical, it is. George Bush is no more “free market” than Nancy Pelosi. Pelosi is no more “free market” than Vladimir Ilyich Lenin.

In the “rush” to pass this legislation, Congressional leaders and even Treasury Secretary Paulson admit that they don’t know if or how much this Government intervention into financial markets will help the economy. I’ve got news for them; government intervention never helps the economy, and legislation is disastrous when it is done in an atmosphere of panic.

It is this economists opinion that if the Government had stayed out of this credit mess (other than FDIC guarantee of bank account balances under $100,000 and encouraging banks to borrow from the Fed), these junk loans would have sold off fairly quickly at their “market” prices (perhaps 40 cents on the dollar). Of course, now that the Government has announced its intention to purchase these securities, no other private investors will be interested, as the Government will pay a higher price than the real value of these stinky loans, using our tax dollars.

The Government, with this bailout, has set a “price floor” on these toxic loans. That price floor is higher than the true market price of these bad securities. This will create a surplus of these sub-prime securities, which will hang around a lot longer than if the market had been allowed to do its work.

This sub-prime mess and all of its ramifications was not a failure of free markets; it was a failure of government, which encouraged loans to low income people and forced commercial banks to make these loans. (See my blog of September 21, 2008 in the archives).

This is a sad time for the United States of America. Barack Obama will be elected the next President of the United States in less than 30 days. He will get there with the votes of people who have been “educated” in our monopoly public education system dominated by the teacher’s unions. Their candidate, Obama, stated on the campaign trail last week that the $700 billion bailout is just the first of several new expenditure agenda items he’s promoting, including health care reform, additional money for schools (payback for the teacher’s Unions), and increased government benefits for workers.

Where will all of this money come from? Are we a nation of idiots? The deficit spending will either come from repressive taxes, or from higher interest rates (causing a recession), or it will be printed (which is the definition of inflation). There is no free lunch out there, folks. A nation cannot consume more than it produces.

Welcome to Wall Street. That’s Wall Street in Winona, Minnesota where Boomer (Steven) Zolondek has taken risks, hired employees, paid taxes, and successfully run his plumbing business for 29 years.

Boomer has spent a lifetime clearing drains, busting up concrete, and installing those new water-saving toilets. Like most people in Winona, Minnesota and the rest of America, Boomer doesn’t shy away from hard work. Boomer knows that you never borrow money you can’t repay. He doesn’t think anyone is “too big to fail”.

Three years ago, Boomer didn’t get a 20 million dollar Christmas bonus for bundling up a bunch of “liar loans” into some worthless hedge fund. Now the politicians in Washington want Boomer to bail out the big shots and Ivy-League educated MBA’s that work on the other Wall Street in New York. A “Boomer Bailout” he calls it.

Boomer’s not having anything of it and neither should you. It’s time for our Politicians to get a whiff of the kind of reality that Boomer experiences every day at the corner of 8th and Wall Street in Winona, Minnesota.

Call your Senators and Congressman today. Tell them you don’t want any bailouts for anyone, period. Tell them that those investment bankers on Wall Street should reap the losses they have sewn. They’ll survive and learn from their mistakes, just like Boomer and the rest of us. America will be stronger as a result.