What’s unique about this crisis? Speed.
Every 10 years or so we have a financial crisis that wags say “ends the nature of capitalism as we know it.” Indeed, ever since Marx predicted capitalism’s succession by communism, every recession or panic has been heralded as the forerunner of the revolution.
This latest downturn isn’t that complex. It’s simply the bursting of a housing bubble and attendant write-offs by leveraged financial institutions. This threatens the professional courtesy that banks and their cousins usually extend to each other.
So why are things moving so fast? Information is widely available and liquidity is now provided “at will” so institutions in real trouble can become insolvent in a matter of hours. As a result, much intervention has the intent of extending the time available for business partners to react.
What to do? When the Feds step in, it may be time to step out. Because temporary help is likely to be—temporary.
Douglas R. Tengdin, CFA
Chief Investment Officer
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