Equal Opportunity

For people who think failure is a product of either government or the markets, the past few years can support either view.

The sub-prime debacle was a failure of markets; the BP disaster was a failure of regulators. From 2004 to 2007, expansion of lending to sub-prime borrowers combined with innovative securitizations feeding additional return to yield-starved investors fed a real-estate bubble whose subsequent collapse threatened the globe’s financial infrastructure. The government’s response will slow the flow of credit through the economy.

From 2004 to 2008 careless regulators inked over some energy company’s own safety reports to approve a careless safety regime whose inevitable failure now threatens a host of fragile ecosystems and by extension the nation’s energy infrastructure. It’s inevitable that the response will reduce deepwater drilling and raise the price of oil.

In both cases a combination of regulatory capture, corporate momentum, and willful blindness to risk—so far so good—have combined to create a cascade of failures that will have repercussions for years.

The solution isn’t just more and better regulation or more transparent markets—it’s both—but also an understanding that as the world’s economy grows, risks will grow as well. We need to be prepared manage our risk and seize the opportunities.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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direct: 603-252-6509
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