Chicago’s Civil Unrest and the Bad Economy - Janet Tavakoli

[FRED]

Chicago’s Civil Unrest and the Bad Economy - Janet Tavakoli

TSF – August 18, 2009

by Janet Tavakoli, president of Tavakoli Structured Finance

Chicago is beautiful in the summer for lucky people like me. It offers outdoor symphony concerts, boat trips on the lake, bike outings, outdoor festivals, art fairs, hiking and more. But the picture would not be complete if I didn’t mention that I believe the city budget is running out of money, and crime is on the rise. I believe this increased violence is related to the economy, and it is not mere crime, it is civil unrest.

Chicago news shows have provided little coverage up until now; but at least one community—Chicago’s Uptown area—is forcing the issue. This video was shot by a frightened citizen during recent gang violence at Leland and Sheridan, a neighborhood in the process of gentrifying:

Gang brawl video spurs dueling protests in Uptown

Chicago has a high crime rate as cities in the U.S. go, but this is unusual activity. Mayor Daley desperately wants the Olympics in Chicago, so I am guessing the budget is constraining added security and community intervention efforts.

In the upscale Lincoln Park area, just a little further south of this unrest, men alone at night have been accosted by groups of three to six men and severely beaten, robbed, and hospitalized this summer. This news account of seven muggings is from a five-day period from July 30 to August 4:

Muggings in Lakeview, Lincoln Park rise to 7

This activity is also unusual for Chicago, at least it was until very recently. Almost all of these men were attacked from behind and could not identify their attackers. This crime is now commonplace at night in this prosperous neighborhood.

Scenes like this are being replayed in other Chicago neighborhoods, too. Unfortunately, this type of crime is more commonplace in those areas and doesn’t get as much new media attention.

Money Market Funds’ Sneaking Up From Behind

Money market investors may also want to take care to avoid becoming the victims of an accidental financial mugging. Many mutual funds (Vanguard for example this July) closed or merged their short term treasury money market funds and closed them to new investors. T-Bill effective yields apparently don’t cover even the lowest fees. Government guarantees for other short-term money market funds that invest in CDs and commercial paper only extend to the balance at the time the guarantees went into place—not to new money coming in from liquidations. Investors should take note that the guarantees expire in September (but may be renewed), and may not cover their entire balance. Investors may want to park excess cash in T-Bills.

I hope I am wrong in being pessimistic about a market rout in the early Fall, even if the news and anxiety level of everyone I talk to is off the charts again. Analyst Abby Joseph Cohen of Goldman Sachs says the U.S. recession is ending “right now” –‘cause she said so, dammit!

Bill O’Neill of Merrill Lynch Global Wealth Management ($1.1 trillion in assets) in London says we have lots to be optimistic about in the second half of the year—‘cause big bonuses are back on Wall Street, double dammit!

Whatever their motives, I like their stories better than mine. Let’s hope their tales can manufacture increased demand, new jobs, and demand-related profits out of thin air. Of course, in any economy, including a recession, there are opportunities, but that is a different story.

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008), and Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (John Wiley & Sons January 2009)

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