“No, The Sky Is Not Falling”
September 21st 2008 09:21 pm
I sent out my monthly newsletter on Tuesday “No, The Sky Is Not Falling.” After a few more days of momentous news, I thought it would be good to review the idea once more.
In tough times, my mother-in-law used to say “This, too, shall pass.” I’m not sure that it ever made me feel better at the time, but it certainly is a true saying. Here are some excerpts from today’s editorial in Investor’s Business Daily: “This Too Shall Pass.”
Wall Street: Old timers will recall F.I. DuPont or Goodbody & Co. Not-so-old timers remember E.F. Hutton and Kidder Peabody. Now we can add Bear Stearns and Lehman Bros. to the storied names that have fallen.
We drop these names (and we could have mentioned a hundred more) for two reasons: (1) to remind readers that this isn’t the first time an investment bank or brokerage has gone under, and (2) to point out that the country has always survived and grown.
In fact, what’s happening now is quite normal in a financial system characterized by booms that lead to excesses that then require financial corrections before any renewal takes place. We’d be hard-pressed to remember a bear market when one or more financial firms didn’t go out of business.
In the oil crisis of the 1970s, for example, major financial companies such as Penn Central and Franklin National went bust. The booming ’80s saw hundreds of banks go belly up due to bad loans made to the farm sector and the Third World, and, later, S&L loans to U.S. homeowners.
The ’90s? Remember the Long-Term Capital Management debacle in ‘98, following the Asia Crisis in ‘95, and coinciding with Russia’s ruble meltdown? Then, too, we heard predictions that the world as we knew it was ending. It wasn’t.
Yes, the problems to be worked out this time seem scarier than most. And watching institutions like Bear and Lehman fail, and Merrill Lynch taken over just like that, doesn’t inspire , .
But they’re no different from other investment firms of the past that have paid the price for making too many bad decisions or taking too many risks in what is already a high-risk business.
How long all this will last is anyone’s guess. But this a big country, with a highly liquid market and a still-strong economy. We’ll get through it.
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