Scorning the Financial Gods —
And Paying the Price
After the tech bubble, the healthy and natural progression dictated we enter recession. Alan Greenspan never allowed us to take that medicine, opting instead to inject the economy full of fiscal and monetary drugs. The resulting imbalances steadily built through the years and arrived at our doorstep with a thud. It’s not wise to mess with Mother Nature. We’re now witnessing the other side of risk gone awry and the cumulative comeuppance of a scorned business cycle.
–Todd Harrison, “The Future of Wall Street“; Minyanville (2/11/09)
If Harrison’s take is right — and I believe it is — a couple conclusions and observations logically follow:
–Beware of cures that are worse than the disease (anyone else have deja vu right now?). Or, if you want a “folksier”, Upper Midwest analogy: don’t drive your car into the ditch — or oncoming traffic! — just to avoid a deer.
–The stage we’re in now could be called “financial de-tox.” It’s perfectly appropriate — and maybe even life-saving — to use “financial methadone” (“hair of the dog,” etc.) to help an acutely addicted patient wean themselves from their addiction (I put tax credits for home buyers, stimulus spending, federal aid to states, etc. in that category). Just be clear that that’s what you’re doing, and that such a strategy is temporary.
–There’s something deeply ironic (if not foolhardy) about relying on an institution, The Fed, that helped cause today’s financial melt-down to oversee its rescue. Ditto for too-big-to-fail financial institutions, GSE’s (“government-sponsored enterprises”) such as Fannie Mae and Freddie Mac, etc.
–Instead of breaking with past financial blunders — and sequestering flawed institutions — we appear to be doubling (if not quadrupling) down. In that vein, you’d speculate that, once the financial dust settles, there will be calls to strip the Fed of some of the vast new powers it now wields (and to unwind what now very well may be the world’s scariest balance sheet — ever).
“Financial Food Chain”
Life does go on after the meterorite kills off the dinosaurs, the forest fire clears away the old giants, etc.
However, we would do well to *mimic how nature regenerates herself after such cataclysms: not by resurrecting the species at the top of the old, collapsed food chain but by seeding — literally — those at the bottom.
The meek may not inherit the earth, but birds and all types of microscopic plants sure seem better adapted to — indeed, capable of adapting to — a new and dramatically leaner environment.
*Manufacturers are just now beginning to exploit the secrets of what’s called “biomimicry” — for example, studying how a spider makes silk that is stronger, ounce for ounce, than tensile steel, while using vastly less energy and creating none of the waste or pollution.