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Lessons (to be) learned. Now, let’s move on

The global financial situation hits its lowest point so far as Bailout gets rejected and talks start anew.

Panic.

One word that can derail even the most resilient financial market anywhere on our planet. It so happens that panic is pretty much everywhere in the global financial system right now. And when panic reigns, everyone suffers.

Yet panic could be good – it makes people act. And something clearly has to be done. Something will be done.

Following a tumultuous couple of weeks in the financial world came the beginning of what was supposed to be the road to recovery, yet it turned out to be everything but. After the much anticipated bailout bill was shot down on the Hill, the Dow recorded its biggest single-day point drop ever – more than 750 points. 

But the stock market is far from being the worst nemesis of sanity. Below the stormy surface of the financial ocean, the depths were freezing over. The problem was the much bigger, much larger, very much more important credit market.

Financial analysts were quick to point out that credit markets are practically frozen across the board as banks, uncertain about both themselves and their counterparts, continued to refuse to lend money to each other.

It doesn’t take an economist to know that when money stops flowing, the intricate machinery of the economy is going nowhere. All of a sudden, the price of oil is the least of our problems.

So, back to the Bailout Bill on the drawing board – the necessary evil that will attempt to fix what every historian already knew: in politics and economics, anything extreme is inherently Bad.

Like extreme communism, extreme capitalism clearly failed. In the heart of it all lays the very thing that keeps us going as human beings – greed.

A little bit of greed is good – it makes us want more, grow our business, develop ideas, all of which would drive us to succeed for ourselves, and in turn, for the common good.

Unabated greed, on the other hand, can be as lethal as it is suicidal.

Free economy has shown its strengths around the world. Success stories, from Hong Kong to New York, Sydney and beyond, abound. Even the strong fist of the Chinese government realized a long time ago that unleashing the spirit of entrepreneurship can ensure a long political life for any regime, even when many other freedoms are blatantly crushed.

Yet, it appears that the ability of the free market to self-regulate itself has its limit which happens to be the same thing that drives it: greed.

Not long ago, banks were lending hundreds of thousands and millions of dollars to anyone who had a pen and was willing to sign their name on the dotted line, even if those people couldn’t actually afford a $500 flat screen TV. With the promise of low payments (and a very long and extremely small fine print page in their contract), people were able to realize their dream of owning a home. Banks were giving out money for nothing, all because those same banks were making millions on the servicing and reselling of every loan they closed.

I don’t blame people for taking credit. We are all tempted to try to accelerate our lives – we want to make it today, not tomorrow… we want to live great now, not in the future… we want the best for our families immediately, not whenever we can hope to make it…

We, human beings, are mostly optimists by nature and given the opportunity even the most disciplined of us would have a hard time refusing to believe that the bite that we take will be hard, if not impossible to swallow. We are sure that we will grow, that we will be able to somehow make it to our promotion and will be able to pay for the house of our dreams.

Then it all became clear. Or did it?

I am sure that most of us cannot be convinced that far up from the top of their financial kingdoms, banks couldn’t see the tsunami that was starting to drown the coastline. Yet, even then, they continued to feed the ocean waters, melting the glacier, one mortgage at a time, making billions in the process, trying to hastily usher in as much money as possible, hoping that by the time the sea covers us all, they will be flying high in the sky.

When the real estate scheme was no longer an option, most turned to the commodities markets, pumping up another balloon in preparation for take off. But that’s another story.

A little too late.

When the water finally reached them, the same bright minds that got us all to this point started crying and begging for help from the same people that knew were getting in deep water to begin with.

Unfortunately, it seems that we are not left with much of a choice and will have to help the same institutions that got us here.

Only this time, I am sure none of us will look the other way when it comes to demanding tougher regulation of our financial system – one of the most important industries in the world.

The binge drinking is over, hangover is normal. As most of us can attest, increasing the liquids in our system is priority number one after a night of heavy partying. I have no doubts that this is exactly what we will do and I am sure that when it’s all said and done, we will be fine. Let’s remember, though, that we will never drink so much again… Like that promise was ever kept…

One more reason to have a designated driver next time we go to the bar.

This might be the worst financial crisis since the Great Depression. Some would even like to point that that it might be even bigger than that. Label it as you want, it’s one reason the world is coming together and I am more optimistic than ever that we will put this behind us quickly. Regardless of who’s right, one thing is clear – banking will never be the same again.

I hope.

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One Response to "Lessons (to be) learned. Now, let’s move on"

  1. Very well said! You should consider writing a book or why not have a column in The Wall Street Journal. 🙂

    The only statement I don’t agree with is the following:
    “Yet panic could be good – it makes people act. And something clearly has to be done. Something will be done.”

    Who acts? The financial institutions or the federal government? Actually when there’s panic much of what has to be done doesn’t get done. Panic blocks your mind regardless of the situation (whether it has to do with a physical activity or a mental one).

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