The Great Expression
A new financial world will emerge from the rubble.
I wrote a column in 2006 called The State of the Art. It discussed the shifting paradigm for the financial industry as it sat at the crossroads of technology and regulation
Two years later, that new world order has emerged.
Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG) have been absorbed by the government, Bear Stearns (JPM) and Merrill Lynch (MER) were consumed by competitors and Lehman Brothers (LEH) has ceased to exist altogether.
There are many ways to view this seismic shift. Anger (as expressed by Main Street), sadness (as savings are destroyed), fear (as reality bites) and confusion (as folks try to understand how this could ever happen).
And then there’s anticipation, as we cast an eye forward and look for the phoenix to eventually arise from the scorched earth.
The unfortunate capital market destruction is an inevitable comeuppance, the cumulative result of risk gone awry. It’s been percolating under the seemingly calm surface for several years, magnified by financial engineering and consumed by an immediate gratification society.
The socioeconomic consequences will be pervasive as we enter the other side of the business cycle, an unenviable retrenchment that politicians and policy makers have tried so hard to avoid. It’s certainly scary as new beginnings always are.
Therein lies the opportunity.
History Doesn’t Always Repeat but it Often Rhymes
The media portrays the Great Depression as one where everyone in America stood on street corners or waited in a bread line. A closer look shows that similar to today, economic hardship for the middle class began well before 1929.
History teaches us that the stock market crash didn't cause the Great Depression, the Great Depression caused the stock market to crash. It was simply a manifestation of economic hardship, much like the modern day subprime mortgage implosion.
Social mood and risk appetite shape financial markets. The recent stock market malaise is, in many ways, catching up with societal acrimony.
We’ve got a few lean years ahead but that’s nothing to fear.
In fact, it’s a healthy and positive progression.
To get through this, we need to go through this. As painful as the process is, it takes us one step closer to an eventual recovery.
I view the Great Depression as the framework for optimism. Most of society worked, great discoveries were made and formidable franchises were established.
Disney (DIS) built a global franchise through that period.
Hewlett-Packard (HPQ) was born on the back end.
Texas Instruments (TXN), Tyson Foods (TSN) and Continental Airlines (CAL) were birthed.
Indeed, if the greatest opportunities are bred from the most formidable obstacles, we’re about to enter a most auspicious era.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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