What the hell is goign on? Didn’t every trader on Wall Street read the news. There’s a bailout! Everything’s alright. We can all sleep safe tonight. Why the hell are you depressing the value of my 401k 30 FREAKING PERCENT! Now that’s just not very nice.
I don’t understand? Why do you hate America? Do you want the terrorists to win?
So… suppressing the hysteria that is creeping into my thoughts, from an objective point of view, I have to admit: this is a really interesting time in history. It’s not quite at the level of something like, oh, say, the Great Depression, but then again, it’s not that far either… and that’s both scary and kind of cool. Like that time I was in a car crash.
It’s the closest to a financial calamity as I’ve ever seen in my life. Granted, I wasn’t obsessively checking my 401k at the time, but even the gas crisis of the 70’s doesn’t appear to have wreaked the same kind of devastation that the current mortgage and credit crisis has caused.
It’s amazing, to think that the entire system is so fragile that something like this can actually happen. The economy as a whole is huge, with many sectors, many industries, all sorts of markets, all conspiring to create value for shareholders… and yet problems in one part of the system can have such immense knock-on effects so as to freeze credit for the entire economy and cause massive nosedive in stock valuations.
I hope we’ve seen the worst of the losses, and my overpaid money managers can spend the next 12 months just building back the money I’ve lost in their funds over the past ten months. But the worst case scenario is pretty frightening, a deep and protracted global economic crisis with high unemployment across the board.
Let’s keep our fingers crossed that the worst is over, and then go and find and shoot whoever it was that came up with the idea of “collatertalized debt” instruments that:
- Created such a murky picture of who had what amount of bad debt
- Which led to banks not trusting each other and stopping intrabank lending
- Which weakened the investment banks (who were too highly leveraged)
- And drove up the costs of capital
- Which made normal loans impossible for credit-worthy businesses (and individuals)
- Which took away all chances for companies to make money
- Which then led to my 401k losing 30% in 10 months.
As Samuel Johnson said, “Nothing focuses the thinking like a hanging.”