Wall Street disaster
Monday, September 15th, 2008We’re experiencing the financial crisis of the decade. On the back of major troubles in the financial sector, the DJIA declined 504.48 in Monday trading. Lehman Brothers, a 158-year old Wall Street institution, has declared its intent to file for bankruptcy, Merrill Lynch has agreed to be acquired by Bank of America, and AIG is flirting with insolvency. Taken individually, each one of these events would be a front-page headline in world newspapers; that they happened simultaneously genuinely merits calling the episode a “disaster”. Consequently, candidates are stumping, Bloomberg is trying to get the SEC to reinstate idiotic short selling rules, and The New York Fed is trying to coerce morally suade Goldman Sachs and JP Morgan into doling out some $70 billion to make AIG solvent.
Such catastrophes force deep rethinking of assumptions. I just finished Alan Greenspan’s “Age of Turbulence” (could there be a better title?), a deeply contemplative book which explores many of the philosophical, legal, and moral underpinnings of the American way of life. Central to the book was the idea of “resilience”, that is, the durability of America’s market capitalism. Looking back, it’s incredible that things haven’t been worse: the past ten years have seen one (maybe two) catastrophic hurricanes, terrorists flying planes into the WTC and Pentagon, and now a global financial crisis, the effects of which include the dissolution of Bear Stearns, Lehman Brothers, Merrill Lynch, Countrywide Financial, IndyMac, Fannie Mae/Freddie Mac, and countless regional banks. Will it end?
Yet, John McCain was correct today when he said that the fundamentals are basically strong. (This isn’t an endorsement of his candidacy, just a remark on a statement he made.) Inflation remains contained, and jobless claims are up only slightly. Surprisingly, the “crisis” remains relatively financial in nature, with few knock-on effects (save home foreclosures) in the real economy. I find this encouraging.
Updates from RAID to follow…