Atlantic Article Submitted by multiple readers, I read this as soon as my issue was delivered. It’s true.
And to add insult to injury, the answer
to the question on everyone’s mind: Where did the money go? $350
billion disappeared down a black hole. The banks and investment banks
got the money under the presumption that they would start lending again
and they didn’t because neither congress nor Bush made that a condition
to receipt. The money is sitting in “contingency accounts” basically
off balance sheet or with a corresponding liability producing zero
effect on the balance sheet and obviously off the income statement
because if they ever had the temerity to declare the money as profit,
they would be hanged. In some cases the money is being doled out to
investors who could cause even more trouble. The interesting thing
behind all this is that there is a branch of law enforcement at the
Federal level that nobody ever thinks of when it comes to economic
crimes like the meltdown, but the perpetrators know it. This law
enforcement agency is currently investigating and will likely uncover
everything we suspect, with prosecutions not only likely but successful
too. I won’t say any more than that now.
December 2008
The magnitude of the current bust seems almost
unfathomable—and it was unfathomable, to even the most sophisticated
financial professionals, until the moment the bubble popped. How could
this happen? And what’s to stop it from happening again? A former Wall
Street insider explains how the financial industry got it so badly
wrong, why it always will—and why all of us are to blame.
by Henry Blodget
WHY WALL STREET ALWAYS BLOWS IT
Image credit: John Ritter
Well, we did it again. Only eight years after the last big financial
boom ended in disaster, we’re now in the migraine hangover of an even
bigger one—a global housing and debt bubble whose bursting has wiped
out tens of trillions of dollars of wealth and brought the world to the
edge of a second Great Depression.
Millions have lost their houses. Millions more have lost their
retirement savings. Tens of millions have had their portfolios smashed.
And the carnage in the “real economy” has only just begun.
What the hell happened? After decades of increasing financial
sophistication, weren’t we supposed to be done with these things?
Weren’t we supposed to know better?
Yes, of course. Every time this happens, we think it will be the last time. But it never will be.
First things first: for better and worse, I have had more
professional experience with financial bubbles than I would ever wish
on anyone. During the dot-com episode, as you may unfortunately recall,
I was a famous tech-stock analyst at Merrill Lynch. I was famous
because I was on the right side of the boom through the late 1990s,
when stocks were storming to record-high prices every year—Internet
stocks, especially. By late 1998, I was cautioning clients that “what
looks like a bubble probably is,” but this didn’t save me. Fifteen
months later, I missed the top and drove my clients right over the
cliff.
Later, in the smoldering aftermath, as you may also unfortunately
recall, I was accused by Eliot Spitzer, then New York’s attorney
general, of having hung on too long in order to curry favor with the
companies I was analyzing, some of which were also Merrill banking
clients. This allegation led to my banishment from the industry, though
it didn’t explain why I had followed my own advice and blown my own
portfolio to smithereens (more on this later).
I experienced the next bubble differently—as a journalist and
homeowner. Having already learned the most obvious lesson about
bubbles, which is that you don’t want to get out too late, I now
discovered something nearly as obvious: you don’t want to get out too
early. Figuring that the roaring housing market was just another
tech-stock bubble in the making, I rushed to sell my house in 2003—only
to watch its price nearly double over the next three years. I also
predicted the demise of the Manhattan real-estate market on the cover
of New York magazine in 2005. Prices are finally falling now, in 2008,
but they’re still well above where they were then.
Live through enough bubbles, though, and you do eventually learn
something of value. For example, I’ve learned that although getting out
too early hurts, it hurts less than getting out too late. More
important, I’ve learned that most of the common wisdom about financial
bubbles is wrong.
Who’s to blame for the current crisis? As usually happens after a
crash, the search for scapegoats has been intense, and many contenders
have emerged: Wall Street swindled us; predatory lenders sold us loans
we couldn’t afford; the Securities and Exchange Commission fell asleep
at the switch; Alan Greenspan kept interest rates low for too long;
short-sellers spread negative rumors; “experts” gave us bad advice.
More-introspective folks will add other explanations: we got greedy; we
went nuts; we heard what we wanted to hear.
All of these explanations have some truth to them. Predatory lenders
did bamboozle some people into loans and houses they couldn’t afford.
The SEC and other regulators did miss opportunities to curb some of the
more egregious behavior. Alan Greenspan did keep interest rates too low
for too long (and if you’re looking for the single biggest cause of the
housing bubble, this is it). Some short-sellers did spread negative
rumors. And, Lord knows, many of us got greedy, checked our brains at
the door, and heard what we wanted to hear.
But most bubbles are the product of more than just bad faith, or
incompetence, or rank stupidity; the interaction of human psychology
with a market economy practically ensures that they will form. In this
sense, bubbles are perfectly rational—or at least they’re a rational
and unavoidable by-product of capitalism (which, as Winston Churchill
might have said, is the worst economic system on the planet except for
all the others). Technology and circumstances change, but the human
animal doesn’t. And markets are ultimately about people.
To understand why bubble participants make the decisions they do,
let’s roll back the clock to 2002. The stock-market crash has crushed
our portfolios and left us feeling vulnerable, foolish, and poor. We’re
not wiped out, thankfully, but we’re chastened, and we’re certainly not
going to go blow our extra money on Cisco Systems again. So where
should we put it? What’s safe? How about a house?
House prices, we are told by our helpful neighborhood real-estate
agent, almost never go down. This sounds right, and they certainly
didn’t go down in the stock-market crash. In fact, for as long as we
can remember—about 10 years, in most cases—house prices haven’t gone
down. (Wait, maybe there was a slight dip, after the 1987 stock-market
crash, but looming larger in our memories is what’s happened since;
everyone we know who’s bought a house since the early 1990s has made
gobs of money.)
We consider following our agent’s advice, but then we decide against
it. House prices have doubled since the mid-1990s; we’re not going to
get burned again by buying at the top. So we decide to just stay in our
rent-stabilized rabbit warren and wait for house prices to collapse.
Unfortunately, they don’t. A year later, they’ve risen at least
another 10 percent. By 2006, we’re walking past neighborhood houses
that we could have bought for about half as much four years ago; we
wave to happy new neighbors who are already deep in the money. One
neighbor has “unlocked the value in his house” by taking out a cheap
home-equity loan, and he’s using the proceeds to build a swimming pool.
He is also doing well, along with two visionary friends, by buying and
flipping other houses—so well, in fact, that he’s considering quitting
his job and becoming a full-time real-estate developer. After four
years of resistance, we finally concede—houses might be a good
investment after all—and call our neighborhood real-estate agent. She’s
jammed (and driving a new BMW), but she agrees to fit us in.
We see five houses: two were on the market two years ago for 30
percent less (we just can’t handle the pain of that); two are dumps;
and the fifth, which we love, is listed at a positively ridiculous
price. The agent tells us to hurry—if we don’t bid now, we’ll lose the
house. But we’re still hesitant: last week, we read an article in which
some economist was predicting a housing crash, and that made us
nervous. (Our agent counters that Greenspan says the housing market’s
in good shape, and he isn’t known as “The Maestro” for nothing.)
When we get home, we call our neighborhood mortgage broker, who
gives us a surprisingly reasonable quote—with a surprisingly small down
payment. It’s a new kind of loan, he says, called an adjustable-rate
mortgage, which is the same kind our neighbor has. The payments will
“reset” in three years, but, as the mortgage broker suggests, we’ll
probably have moved up to a bigger house by then. We discuss the house
during dinner and breakfast. We review our finances to make sure we can
afford it. Then, the next afternoon, we call the agent to place a bid.
And the house is already gone—at 10 percent above the asking price.
By the spring of 2007, we’ve finally caught up to the market
reality, and our luck finally changes: We make an instant, aggressive
bid on a huge house, with almost no money down. And we get it! We’re
finally members of the ownership society.
You know the rest. Eighteen months later, our down payment has been
wiped out and we owe more on the house than it’s worth. We’re still
able to make the payments, but our mortgage rate is about to reset. And
we’ve already heard rumors about coming layoffs at our jobs. How on
Earth did we get into this mess?
The exact answer is different in every case, of course. But let’s round up the usual suspects:
• The predatory mortgage broker? Well, we’re certainly not happy
with the bastard, given that he sold us a loan that is now a ticking
time bomb. But we did ask him to show us a range of options, and he
didn’t make us pick this one. We picked it because it had the lowest
payment.
• Our sleazy real-estate agent? We’re not speaking to her anymore,
either (and we’re secretly stoked that her BMW just got repossessed),
but again, she didn’t lie to us. She just kept saying that houses are
usually a good investment. And she is, after all, a saleswoman; that
was never very hard to figure out.
• Wall Street fat cats? Boy, do we hate those guys, especially now
that our tax dollars are bailing them out. But we didn’t complain when
our lender asked for such a small down payment without bothering to
check how much money we made. At the time, we thought that was pretty
great.
• The SEC? We’re furious that our government let this happen to us,
and we’re sure someone is to blame. We’re not really sure who that
someone is, though. Whoever is responsible for making sure that
something like this never happens to us, we guess.
• Alan “The Maestro” Greenspan? We’re pissed at him too. If he
hadn’t been out there saying everything was fine, we might have
believed that economist who said it wasn’t.
• Bad advice? Hell, yes, we got bad advice. Our real-estate agent.
That mortgage guy. Our neighbor. Greenspan. The media. They all gave us
horrendous advice. We should have just waited for the market to crash.
But everyone said it was different this time.
Still, except in cases involving outright fraud—a small minority—the
buck stops with us. Not knowing that the market would crash isn’t an
excuse. No one knew the market would crash, even the analysts who
predicted that it would. (Just as important, no one knew when prices
would go down, or how fast.) And for years, most of the skeptics
looked—and felt—like fools.
Everyone else on that list above bears some responsibility too. But
in the case I have described, it would be hard to say that any of them
acted criminally. Or irrationally. Or even irresponsibly. In fact,
almost everyone on that list acted just the way you would expect them
to act under the circumstances.
That’s especially true for the professionals on Wall Street, who’ve
come in for more criticism than anyone in recent months, and
understandably so. It was Wall Street, after all, that chose not only
to feed the housing bubble, but ultimately to bet so heavily on it as
to put the entire financial system at risk. How did the experts who are
paid to obsess about the direction of the market—allegedly the most
financially sophisticated among us—get it so badly wrong? The answer is
that the typical financial professional is a lot more like our
hypothetical home buyer than anyone on Wall Street would care to admit.
Given the intersection of experience, uncertainty, and self-interest
within the finance industry, it should be no surprise that Wall Street
blew it—or that it will do so again.
Take experience (or the lack thereof). Boom-and-bust cycles like the
one we just went through take a long time to complete. The really big
busts, in fact, the ones that affect the whole market and economy, are
usually separated by more than 30 years—think 1929, 1966, and 2000.
(Why did the housing bubble follow the tech bubble so closely? Because
both were really just parts of a larger credit bubble, which had been
building since the late 1980s. That bubble didn’t deflate after the
2000 crash, in part thanks to Greenspan’s attempts to save the
economy.) By the time the next Great Bubble rolls around, a lot of us
will be as dead and gone as Richard Whitney, Jesse Livermore, Charles
Mitchell, and the other giants of the 1929 crash. (Never heard of them?
Exactly.)
Since Wall Street replenishes itself with a new crop of fresh faces
every year—many of the professionals at the elite firms either flame
out or retire by age 40—most of the industry doesn’t usually have
experience with both booms and busts. In the 1990s, I and thousands of
young Wall Street analysts and investors like me hadn’t seen anything
but a 15-year bull market. The only market shocks that we knew much
about—the 1987 crash, say, or Mexico’s 1994 financial crisis—had
immediately been followed by strong recoveries (and exhortations to
“buy the dip”).
By 1996, when Greenspan made his famous “irrational exuberance”
remark, the stock market’s valuation was nearing its peak from prior
bull markets, making some veteran investors nervous. Over the next few
years, however, despite confident predictions of doom, stocks just kept
going up. And eventually, inevitably, this led to assertions that no
peak was in sight, much less a crash—you see, it was “different this
time.”
Those are said to be the most expensive words in the English
language, by the way: it’s different this time. You can’t have a bubble
without good explanations for why it’s different this time. If everyone
knew that this time wasn’t different, the market would stop going up.
But the future is always uncertain—and amid uncertainty, all sorts of
faith-based theories can flourish, even on Wall Street.
In the 1920s, the “differences” were said to be the miraculous new
technologies (phones, cars, planes) that would speed the economy, as
well as Prohibition, which was supposed to produce an ultra-efficient,
ultra-responsible workforce. (Don’t laugh: one of the most respected
economists of the era, Irving Fisher of Yale University, believed that
one.) In the tech bubble of the 1990s, the differences were low
interest rates, low inflation, a government budget surplus, the
Internet revolution, and a Federal Reserve chairman apparently so
divinely talented that he had made the business cycle obsolete. In the
housing bubble, they were low interest rates, population growth, new
mortgage products, a new ownership society, and, of course, the fact
that “they aren’t making any more land.”
In hindsight, it’s obvious that all these differences were bogus
(they’ve never made any more land—except in Dubai, which now has its
own problems). At the time, however, with prices going up every day,
things sure seemed different.
In fairness to the thousands of experts who’ve snookered themselves
throughout the years, a complicating factor is always at work: the
ever-present possibility that it really might have been different.
Everything is obvious only after the crash.
Consider, for instance, the late 1950s, when a tried-and-true “sell
signal” started flashing on Wall Street. For the first time in years,
stock prices had risen so high that the dividend yield on stocks had
fallen below the coupon yield on bonds. To anyone who had been around
for a while, this seemed ridiculous: stocks are riskier than bonds, so
a rational buyer must be paid more to own them. Wise, experienced
investors sold their stocks and waited for this obvious mispricing to
correct itself. They’re still waiting.
Why? Because that time, it was different. There were increasing
concerns about inflation, which erodes the value of fixed bond-interest
payments. Stocks offer more protection against inflation, so their
value relative to bonds had increased. By the time the prudent folks
who sold their stocks figured this out, however, they’d missed out on
many years of a raging bull market.
When I was on Wall Street, the embryonic Internet sector was
different, of course—at least to those of us who were used to buying
staid, steady stocks that went up 10 percent in a good year. Most
Internet companies didn’t have earnings, and some of them barely had
revenue. But the performance of some of their stocks was spectacular.
In 1997, I recommended that my clients buy stock in a company called
Yahoo; the stock finished the year up more than 500 percent. The next
year, I put a $400-a-share price target on a controversial “online
bookseller” called Amazon, worth about $240 a share at the time; within
a month, the stock blasted through $400 en route to $600. You don’t
have to make too many calls like these before people start listening to
you; I soon had a global audience keenly interested in whatever I said.
One of the things I said frequently, especially after my Amazon
prediction, was that the tech sector’s stock behavior sure looked like
a bubble. At the end of 1998, in fact, I published a report called
“Surviving (and Profiting From) Bubble.com,” in which I listed
similarities between the dot-com phenomenon and previous boom-and-bust
cycles in biotech, personal computers, and other sectors. But I
recommended that my clients own a few high-quality Internet stocks
anyway—because of the ways in which I thought the Internet was
different. I won’t spell out all those ways, but I will say that they
sounded less stupid then than they do now.
The bottom line is that resisting the siren call of a boom is much
easier when you have already been obliterated by one. In the late
1990s, as stocks kept roaring higher, it got easier and easier to
believe that something really was different. So, in early 2000, weeks
before the bubble burst, I put a lot of money where my mouth was. Two
years later, I had lost the equivalent of six high-end college
educations.
Of course, as Eliot Spitzer and others would later observe—and as
was crystal clear to most Wall Street executives at the time—being
bullish in a bull market is undeniably good for business. When the
market is rising, no one wants to work with a bear.
Which brings us to the last major contributor to booms and busts: self-interest.
When people look back on bubbles, many conclude that the
participants must have gone stark raving mad. In most cases, nothing
could be further from the truth.
In my example from the housing boom, for instance, each
participant’s job was not to predict what the housing market would do
but to accomplish a more concrete aim. The buyer wanted to buy a house;
the real-estate agent wanted to earn a commission; the mortgage broker
wanted to sell a loan; Wall Street wanted to buy loans so it could
package and resell them as “mortgage-backed securities”; Alan Greenspan
wanted to keep American prosperity alive; members of Congress wanted to
get reelected. None of these participants, it is important to note, was
paid to predict the likely future movements of the housing market. In
every case (except, perhaps, the buyer’s), that was, at best, a minor
concern.
This does not make the participants villains or morons. It does,
however, illustrate another critical component of boom-time
decision-making: the difference between investment risk and career or
business risk.
Professional fund managers are paid to manage money for their
clients. Most managers succeed or fail based not on how much money they
make or lose but on how much they make or lose relative to the market
and other fund managers.
If the market goes up 20 percent and your Fidelity fund goes up only
10 percent, for example, you probably won’t call Fidelity and say,
“Thank you.” Instead, you’ll probably call and say, “What am I paying
you people for, anyway?” (Or at least that’s what a lot of investors
do.) And if this performance continues for a while, you might
eventually fire Fidelity and hire a new fund manager.
On the other hand, if your Fidelity fund declines in value but the
market drops even more, you’ll probably stick with the fund for a while
(“Hey, at least I didn’t lose as much as all those suckers in index
funds”). That is, until the market drops so much that you can’t take it
anymore and you sell everything, which is what a lot of people did in
October, when the Dow plunged below 9,000.
In the money-management business, therefore, investment risk is the
risk that your bets will cost your clients money. Career or business
risk, meanwhile, is the risk that your bets will cost you or your firm
money or clients.
The tension between investment risk and business risk often leads
fund managers to make decisions that, to outsiders, seem bizarre. From
the fund managers’ perspective, however, they’re perfectly rational.
In the late 1990s, while I was trying to figure out whether it was
different this time, some of the most legendary fund managers in the
industry were struggling. Since 1995, any fund managers who had been
bearish had not been viewed as “wise” or “prudent”; they had been
viewed as “wrong.” And because being wrong meant underperforming, many
had been shown the door.
It doesn’t take very many of these firings to wake other financial
professionals up to the fact that being bearish and wrong is at least
as risky as being bullish and wrong. The ultimate judge of who is
“right” and “wrong” on Wall Street, moreover, is the market, which
posts its verdict day after day, month after month, year after year. So
over time, in a long bull market, most of the bears get weeded out,
through either attrition or capitulation.
By mid-1999, with mountains of money being made in tech stocks, fund
owners were more impatient than ever: their friends were getting rich
in Cisco, so their fund manager had better own Cisco—or he or she was
an idiot. And if the fund manager thought Cisco was overvalued and was
eventually going to crash? Well, in those years, fund managers usually
approached this type of problem in of one of three ways: they refused
to play; they played and tried to win; or they split the difference.
In the first camp was an iconic hedge-fund manager named Julian
Robertson. For almost two decades, Robertson’s Tiger Management had
racked up annual gains of about 30 percent by, as he put it, buying the
best stocks and shorting the worst. (One of the worst, in Robertson’s
opinion, was Amazon, and he used to summon me to his office and demand
to know why everyone else kept buying it.)
By 1998, Robertson was short Amazon and other tech stocks, and by
2000, after the NASDAQ had jumped an astounding 86 percent the previous
year, Robertson’s business and reputation had been mauled. Thanks to
poor performance and investor withdrawals, Tiger’s assets under
management had collapsed from about $20billion to about $6billion, and
the firm’s revenues had collapsed as well. Robertson refused to change
his stance, however, and in the spring of 2000, he threw in the towel:
he closed Tiger’s doors and began returning what was left of his
investors’ money.
Across town, meanwhile, at Soros Fund Management, a similar struggle
was taking place, with another titanic fund manager’s reputation on the
line. In 1998, the firm had gotten crushed as a result of its bets
against technology stocks (among other reasons). Midway through 1999,
however, the manager of Soros’s Quantum Fund, Stanley Druckenmiller,
reversed that position and went long on technology. Why? Because unlike
Robertson, Druckenmiller viewed it as his job to make money no matter
what the market was doing, not to insist that the market was wrong.
At first, the bet worked: the reversal saved 1999 and got 2000 off
to a good start. But by the end of April, Quantum was down a shocking
22 percent for the year, and Druckenmiller had resigned: “We thought it
was the eighth inning, and it was the ninth.”
Robertson and Druckenmiller stuck to their guns and played the
extremes (and lost). Another fund manager, a man I’ll call the
Pragmatist, split the difference.
The Pragmatist had owned tech stocks for most of the 1990s, and
their spectacular performance had made his fund famous and his firm
rich. By mid-1999, however, the Pragmatist had seen a bust in the
making and begun selling tech, so his fund had started to underperform.
Just one quarter later, his boss, tired of watching assets flow out the
door, suggested that the Pragmatist reconsider his position on tech. A
quarter after that, his boss made it simpler for him: buy tech, or
you’re fired.
The Pragmatist thought about quitting. But he knew what would happen
if he did: his boss would hire a 25-year-old gunslinger who would
immediately load up the fund with tech stocks. The Pragmatist also
thought about refusing to follow the order. But that would mean he
would be fired for cause (no severance or bonus), and his boss would
hire the same 25-year-old gunslinger.
In the end, the Pragmatist compromised. He bought enough tech stocks
to pacify his boss but not enough to entirely wipe out his fund holders
if the tech bubble popped. A few months later, when the market crashed
and the fund got hammered, he took his bonus and left the firm.
This tension between investment risk and career or business risk
comes into play in other areas of Wall Street too. It was at the center
of the decisions made in the past few years by half a dozen seemingly
brilliant CEOs whose firms no longer exist.
Why did Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, AIG,
and the rest of an ever-growing Wall Street hall of shame take so much
risk that they ended up blowing their firms to kingdom come? Because in
a bull market, when you borrow and bet $30 for every $1 you have in
capital, as many firms did, you can do mind-bogglingly well. And when
your competitors are betting the same $30 for every $1, and your
shareholders are demanding that you do better, and your bonus is tied
to how much money your firm makes—not over the long term, but this
year, before December 31—the downside to refusing to ride the bull
market comes into sharp relief. And when naysayers have been so wrong
for so long, and your risk-management people assure you that you’re in
good shape unless we have another Great Depression (which we won’t, of
course, because it’s different this time), well, you can easily
convince yourself that disaster is a possibility so remote that it’s
not even worth thinking about.
It’s easy to lay the destruction of Wall Street at the feet of the
CEOs and directors, and the bulk of the responsibility does lie with
them. But some of it lies with shareholders and the whole model of
public ownership. Wall Street never has been—and likely never will
be—paid primarily for capital preservation. However, in the days when
Wall Street firms were funded primarily by capital contributed by
individual partners, preserving that capital in the long run was
understandably a higher priority than it is today. Now Wall Street
firms are primarily owned not by partners with personal capital at risk
but by demanding institutional shareholders examining short-term
results. When your fiduciary duty is to manage the firm for the benefit
of your shareholders, you can easily persuade yourself that you’re just
balancing risk and reward—when what you’re really doing is betting the
firm.
As we work our way through the wreckage of this latest colossal
bust, our government—at our urging—will go to great lengths to try to
make sure such a bust never happens again. We will “fix” the “problems”
that we decide caused the debacle; we will create new regulatory
requirements and systems; we will throw a lot of people in jail. We
will do whatever we must to assure ourselves that it will be different
next time. And as long as the searing memory of this disaster is fresh
in the public mind, it will be different. But as the bust recedes into
the past, our priorities will slowly change, and we will begin to set
ourselves up for the next great boom.
A few decades hence, when the Great Crash of 2008 is a distant
memory and the economy is humming along again, our government—at our
urging—will begin to weaken many of the regulatory requirements and
systems we put in place now. Why? To make our economy more competitive
and to unleash the power of our free-market system. We will tell
ourselves it’s different, and in many ways, it will be. But the cycle
will start all over again.
So what can we learn from all this? In the words of the great
investor Jeremy Grantham, who saw this collapse coming and has seen
just about everything else in his four-decade career: “We will learn an
enormous amount in a very short time, quite a bit in the medium term,
and absolutely nothing in the long term.” Of course, to paraphrase
Keynes, in the long term, you and I will be dead. Until that time
comes, here are three thoughts I hope we all can keep in mind.
First, bubbles are to free-market capitalism as hurricanes are to
weather: regular, natural, and unavoidable. They have happened since
the dawn of economic history, and they’ll keep happening for as long as
humans walk the Earth, no matter how we try to stop them. We can’t
legislate away the business cycle, just as we can’t eliminate the
self-interest that makes the whole capitalist system work. We would do
ourselves a favor if we stopped pretending we can.
Second, bubbles and their aftermaths aren’t all bad: the tech and
Internet bubble, for example, helped fund the development of a global
medium that will eventually be as central to society as electricity.
Likewise, the latest bust will almost certainly lead to a smaller,
poorer financial industry, meaning that many talented workers will go
instead into other careers—that’s probably a healthy rebalancing for
the economy as a whole. The current bust will also lead to at least
some regulatory improvements that endure; the carnage of 1933, for
example, gave rise to many of our securities laws and to the SEC,
without which this bust would have been worse.
Lastly, we who have had the misfortune of learning firsthand from
this experience—and in a bust this big, that group includes just about
everyone—can take pains to make sure that we, personally, never make
similar mistakes again. Specifically, we can save more, spend less,
diversify our investments, and avoid buying things we can’t afford.
Most of all, a few decades down the road, we can raise an eyebrow when
our children explain that we really should get in on the new new new
thing because, yes, it’s different this time.
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The URL for this page is http://www.theatlantic.com/doc/200812/blodget-wall-street
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COMMENTARY: am still trying to digest the assertion Blodget makes,
“all of us are to blame.” Each element did what was expected of it,
yes, but how about behind-the-scenes factors to which we were not privy?
Clearly, what happened, and what will again happen, is that those
who predict “the sky is falling,” will be driven to the margin.
With so many conflicting opinions competing for our belief, to whose
warnings and predictions will we ultimately listen? Will we be ready
the next time? The next new, new, new thing? Doubtful.
Allan
BeMoved@AOL.com
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