Sunday, June 27, 2010
What Do The American Financial ‘Panics’ of 1785; 1792; 1819; 1837; 1857; 1873; 1893; 1907 and 1929 Have In Common With The One We Are Still Dealing With Today?
We have had some real humdingers of financial panics throughout our history, just as has been the case in every other civilization throughout the history of mankind.
To some extent or the other, they almost always have started with over-speculation in real-estate across the country, lenient lending policies by the banking industry and lax oversight of the financial institutions by Congress and regulators at Treasury and other agencies.
The bubble pops, loans can’t be paid back, banking institutions fail…..and we seem to do it every 20 years or so. Take another look at the sequence above for the ‘Panics’, as they used to be called.
But here is what we simply do not understand: If they happen like clockwork every 20 years, why don’t we smarten up and try to avoid the next big one?
Because unless we get our collective act together as a nation and a government, the next one might really be a doozy and put the current one to shame. Do you want any part of that one?
More seasoned veterans of the financial world tell us that the financial industry is like a herd of lemmings. Lemmings will travel in a pack so tightly and reverently that if the lead lemming happens to find a cliff and goes over it, so will every other last lemming in the herd.
Apparently the same is true in the financial industry. One bank starts making a lot of money with some new financial instrument such as ‘derivatives’ or ‘credit default swaps”, (there was a similar insurance instrument in the Panic of 1857, if you can believe that) or just plain making tons of loans in hot growth areas places like Florida, Las Vegas or California....until they stop being such hot growth areas.
The other factor seems to be that the young pups in the banking industry must not be paying a whole heckuva lot attention during the ‘Panic’ that happens early in their career. Why? Because within the next 20 years or so, when they are in the executive suites making millions of dollars between their prime earnings years of 45-55, they repeat the very same mistakes as their forebears and make excessively risky loans once again. Perhaps they are just trying to make the ‘big score’ once before retiring or they just plain don’t want to see the warning signs coming. But it happens over and over again, just like clockwork.
Is there a gas leak going on somewhere? Can’t we turn this thing off just once in awhile? Will every person in the financial industry today take a good look around today at the financial carnage from personal to commercial real estate to business and job destruction and solemnly swear: “I will never abuse debt again and make overly risky loans in my lifetime!”
Do we Americans, or any humanoids for that matter, ever learn from our past mistakes? What good is going to college and learning about history if we are always going to be doomed to repeat it?
But here’s what really and truly fascinates us: somehow, someway these financial panics seem to clear themselves up once all the bad loans and investments are written off or recognized as losses and then the economic miracle known as 'the American free-enterprise system' starts to work its magic again.
Man! Won’t that feel nice again when the ‘good times’ return?
We don’t know when it will happen, or where it will start to happen. All we do know from history is that it ‘will happen’…sometime in the future.
We believe now is one of the golden chances that history only brings along maybe once in a generation, or maybe even only once a century, for a massive reset button to be hit that will put America in the driver’s seat for the rest of this century.
And if we don't hit the right re-set buttons soon, President Obama might see his name in the history books get abused as badly as the name of our 8th US President Martin Van 'Ruin' was before the 1840 election, which he lost in a resounding fashion during an economic slump that mirrors our 'recent unpleasantness'.
We already know that we have to do something about this enormous debt or else the interest alone on it will be a millstone around our necks.
We also know that our tax system is inefficient and unbalanced.
And we know that without a productive vibrant workforce and economy, no one is going to be happy again.
So why not let’s do the right thing and pull it altogether in the ‘Great Massive Compromise Bill of 2011’ that historians will be writing about in 3011?
Assuming America is still around then, of course……It will be. We are sure of it. Aren't you?
President Martin Van Buren courtesy of http://www.americanpresidents.org/gallery/