The talk is no longer of recession, but whether this is the start of another Great Depression. Alan Greenspan himself was seen on ABC saying that this may turn into the worst economic crisis in a hundred years, indicating that no resolution is in sight until home prices stabilize.
The failure of Lehman Brothers, at over $600 billion in assets and with over 150 years of history, was a shocker to the industry, along with the fire sale of Merrill Lynch to Bank of America (who’s still got to figure out what it’s buying in Countrywide). Just as a point of reference, the failure of Worldcom, considered to be the biggest bankruptcy involved about $140 billion in assets and Enron was just north of $80 billion.
Economists and TV analysts who try to explain the mess speak of the complicated sub-prime mess, the hedge funds, derivatives, lack of regulation, too much regulation, corporate greed, inflated executive compensation, poor accounting, bad audits, Alan Greenspan’s easy money policies, George Bush, the US Senate, the SEC, and anybody and anything else that they can blame.
In the end, it all boils down to two things—the housing crisis and consumer confidence. And there is no magical formula that anybody can come up with that will cure those two problems. The Feds couldn’t even dream of a massive sale of all the bad loans because the mortgages have been divvied up so many ways and so many times that no one is in charge and everyone is at risk—the benefits of a global and diverse financial services sector. And without a resolution of the housing crisis, consumer confidence take some time to recover.
Over one week-end, Lehman Brothers was able to do what the Obama campaign couldn’t—turn attention away from Sarah Palin. And the more the election focuses on the economy, the better the chances are for the Democrats.
Few people think that this is the end of the financial crisis. With the real risk of rising interest rates, the housing market will not be seeing gains anytime soon. The automotives continue to suffer, including even the imports.
This is a time for companies to tighten belts, but it is also a time for major opportunities. Falling prices will make homes affordable for those willing to make the bets… those who could land bank, or have the capital to buy and hold. The rental markets remain lucrative as homeowners suffering foreclosure scramble to find places to live. And even in bad times, some industries do well, as the motion picture often does.
When industry shakeups occur, good things do happen. After a major fire, new life emerges in the forest. When a flood lays the land to waste, only the strong will survive, and only the courageous would return to rebuild. This is a great time for those leaders who could think out of the box. There are a lot of good deals out there, along with a lot of great talent who have recently become unemployed. No one can predict what will happen, but something always does happen.
Maybe that's what we call "Change."