Happy New Year 2009

I’m not sure if I’m going to start each new year off with a post about the changing of the seasons; it might get old after a while. But this particular New Years is being hailed as a change in the world, far more so than the rather anticlimactic “Millennium” celebrations of 2000 (or 2001), and even in business terms it seems like there are a few things worth talking about this week…

To begin with, the year seems to be showing at least a passing resemblance to another Inaugural year: 1933, to be specific. The current recession hasn’t yet become as dramatic as the economic crisis of that time, although there are still reasons to believe that it might, but it is clearly the economy hitting the bottom after a long fall that should not have surprised anyone, but somehow does. Specifically, we’ve been hearing a lot of talk about the decline in the stock market mirroring the Crash of 1929, and the potential/ongoing failure of financial institutions mirroring the bank failures of the Great Depression era, but no one seems to have connected the recently popped Real Estate Bubble with the failures of that time, particularly the Crash of 1929…

In the 1920s, insane greed and lack of judgment DID send the Stock Market spiraling up to unreasonable levels, much like the dot-com boom and Real Estate Bubble of our time did to tech stocks and real properties, respectively. This was facilitated, if not exactly caused by, several unsound investment practices, notably including buying securities on the margin (using a stock holding as collateral to borrow the money to purchase another stock holding, then repeating the process) which have subsequently been outlawed by both Federal law and common business practice. None of these were any more insane, in the wide view, than some of the lending practices that were going on just a few years ago – and some of them were essentially the same insane process…

None of those things can happen today, of course. In fact, the very idea of running a business in such a fashion would invite massive public ridicule for the few minutes you would have before the SEC descended on your company like a pack of hungry wolves on a cheeseburger. What I am suggesting is that the same kind of fundamental changes on how banks (and investors) do business is going to have to happen in the next few years. Just as all of the reformers trying to prevent the sort of unsound investment practices that resulted in the Crash of 1929 were finally proven right by a national disaster, so, too, will all of the people who have been campaigning against Predatory Lending and related practices see the reform they wanted – after the disaster they were trying to prevent has already devastated the country…

Then we have the inevitable comparisons between the Dust Bowl and the pending destruction of several American industries, starting with the Auto Companies. Will the new Presidential administration be able to prevent the loss of over 3 million jobs? Will they be able to stave off the losses in all of the other related industries, including ripples that really could return us to a time when a third of the country was out of work? If not, will they be able to recreate the New Deal programs that pulled the country back from the brink long enough for the economic recovery provided by the run-up to World War II to take effect? And if so, where will the next war come from, and will the country (and Planet Earth) be able to survive THAT calamity, whatever it turns out to be?

Once again, I’m quite sure I don’t know. But I’m fairly certain that we can learn from the mistakes of the past, and also that the man who will be (at least nominally) running the country in a few weeks knows enough history to recognize these parallel cases. I must therefore disagree with both the people who think they new year will bring with it doom and destruction as well as those who believe that the Millennium is finally upon us and Utopia is about to be realized in our time. From where I’m sitting, the new year is dawning upon a time of uncertainty, when both the best and the worst our nation has ever seen are possible. Stay tuned, folks; this could get interesting…