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Reflections on a Sinking Economy

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Sinking ship

Goldman Sachs reports big profit plunge
Earnings sink 70% but beat analyst projections. Stock falls, but CEO insists that firm is ‘well positioned’ and CFO rules out a merger with a bank for now. (Headline from 9-16-08 news article)

Whew! Just when you think the economy couldn’t get any worse, it does. Seismic financial industry shock waves are rippling ripping through the business world, causing fear and trembling among leaders of Fortune 100 companies down to single-shingle entrepreneurs like me and many Word Sell readers. I don’t know if talking about it does any good, but can it do any harm?

Here are a few thoughts at large about our shared economic woes. What do you think about all this? How are you coping?

Greed got us into the first mess. Greed got us into the second mess. The home mortgage crisis was caused by, or at least exacerbated by, greedy lenders pandering to acquisitive borrowers. More recently, the plummeting stock values of lending institutions are in large part the result of short sighted short sellers who are milking the situation for fat short term profits.

… Some value greater than greed must rule if are to recover from this horror show and prevent a repeat performance.

… Have we made business so complex it’s gone beyond our ability to manage it? Mortgage loans used to be simple and stable. Today, banking executives and regulators can’t determine who owns what part of the debt for a given class of mortgage loans. Can we untangle the knots in our regulatory system, tax code, etc., even if we really, really want to? I wonder …

… On a positive note, crises come and go. Business is cyclical. Problem is, downturns seem to last forever and boom periods seem to come and go in an instant. In marketing, it’s widely accepted that people are more interested in avoiding pain than in obtaining gain. So when we’re hurting, we dwell on it. That’s why I think investing pros are correct when they advise people to switch off the news and watch Gomer Pyle reruns. What you do know can hurt you. Is now the time to bury your head in the sand?

Ostrich

(Photo – Ostrich – Struthio Camelus by redsea 2006 on Flickr)

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17 Responses to Reflections on a Sinking Economy

  1. Thank you Stacey, Nice way to start my morning!

    Brad Shorrs last blog post..Reflections on a Sinking Economy

  2. Great post. I will read your posts frequently. Added you to the RSS reader.

  3. Andrew, Too bad you aren’t running for office here in the States. You have a very clear way of explaining complicated problems (and solutions!). We do need to change from a society focused on consumption to one focused on production. However, the U.S. is a very productive nation, which lends credence to your argument about structural change. I’m not an expert, but experts I know complain that our regulatory system is way out of date, that regulations are not only burdensome, but focus on the wrong activities. But much like what happened with the recent spike in oil prices, the financial crisis is making people aware of the problem and motivated to fix it. Nobody cared about the intricacies of high finance until recently, because now it’s a pocketbook issue. The first step to fixing the mess is an informed and motivated public, so I’m optimistic.

    Brad Shorrs last blog post..Reflections on a Sinking Economy

  4. Brad,

    There is a fine line between positive thinking and denial, and it is never a good time for anyone to bury their head in the sand.

    Pretending hard times will go away is wishful thinking, which leads to dissillusionment. What is needed instead, is to adopt a positive attitude and a proactive approach geared toward productivity and achievment in spite of the difficult circumstances.

    In my view, a large part of the cause of America’s problems right now are as much due to structual factors as well as cyclical problems. Essentially, many households have taken on a higher debt burden than what they have been able to manage.

    I have little respect for the government’s ‘pain killer’ solution of politically motivated government handouts, particularly given the precarious situation regarding state finances. These handouts may be popular, and they may help starve off economic pain in the short term, but they do absolutely nothing to address the long term structual causes of America’s current problems. Handouts address the symptom, not the cause of the problem.

    In order for America to return to a path of sustainable, long term growth, the economy must undergo a serious structual adjustment whilst households reduce their debt levels to a sustainable level. Such structual adjustments are never fun, but they are necessary.

    I hope that, after a little bit of inevitable pain, your country is able to reposition itself for a new period of long term sustainable growth.

    Andrews last blog post..Fixed term contracts and ethics part 2 – employee’s viewpoint

  5. Brad, I think you hit the nail on the head when you talked about higher values. We need to work to try and build an economy and society that is sustainable in the long term, rather than build on a house of cards.

    I think Andrew was right on the money with his comment.

    Scary times to be living through though. Will be interesting to see what impact it has on the election for you guys.

    Joanna Youngs last blog post..10 Reasons Not To Blog In Your Readers’ Language

  6. This economic downturn has now impacted the wealthy so I have hope that we will begin to address our underlying issues. You see, no one cared about substandard schools in low economic areas, or the fact that those same people paid higher prices for substandard food and services that lived in more affluent areas. However,when economic giants begin to tumble, and investors lose millions we can be assured that these conditions will not be allowed to thrive. It is easy to blame it all on greed and addictive consumption but I believe other issues are at play. As for the news, I find myself watching less. Hearing an endless loop of negativity is not solving the problem and does nothing for my own personal state of mind. There is a fine line between being informed and being saturated.

    Karen Swims last blog post..Hurricane Life

  7. Hi Brad – I totally agree, just switch off the tv and ignore it. Like you say, business is cyclical. Unfortunately, the media seem to love spreading fear and make everything sound worse than it is. And everyone panics.

    I try to avoid people who moan about how terrible it all is too. You’d think the world was going to end speaking to some people. I just don’t know how they don’t see these things coming.

  8. Joanna, No matter what happens with the election, things are going to be different, that’s for sure. Karen, the financial mess seems to be affecting people at the very top and the bottom of the economic ladder. Very odd. Cath, good for you! I can’t help but watch the news when something major happens, but generally speaking, I prefer watching House reruns or actually doing something productive.

    Brad Shorrs last blog post..Reflections on a Sinking Economy

  9. That’s good, Jean. You must feel a sense of relief in times like these. My suspicion is many people have been similarly prudent, but it’s amazing how recklessness on the fringes has led to such widespread disruption.

    Brad Shorrs last blog post..Reflections on a Sinking Economy

  10. My husband and I knew long ago something like this would happen. Business magazines talked about the dangers of sophisticated financial devices like derivatives years ago. And it didn’t take a genius to see that most people were living beyond their means, which is one reason housing prices went through the roof.

    My husband and I have always been savers, so we do try to keep informed about what’s going on so we have a better chance of making intelligent decisions. We’re responsible for our own financial future.

    Jean Browman–Cheerful Monks last blog post..Touching Hearts and Changing Lives

  11. Brad,
    No, we don’t feel a sense of relief. I disagree with Cathe, we could end up with a worldwide depression. That might not be the end of the world, but it would be the end of the world as we know it. My husband and I know too much history…times could get very hard indeed. Yes, business is cyclical, but so are hurricanes. You can do the best you can, but there are no guarantees.

    My strategy isn’t to ignore the news, it’s to practice the traits of stress-hardy, resilient people. It gives me something constructive to do. It’s something I have some control over.

    See also Life As a Shared Adventure.

    Jean Browman–Cheerful Monks last blog post..Touching Hearts and Changing Lives

  12. Jean, It’s the volatility that scares me more than anything. Right now, fear rules, and that is always dangerous. Thank you for pointing us to those posts – apt reading under these circumstances.

    Brad Shorrs last blog post..Guest Post on Wired PR Works – Why No Humor?

  13. It’s not only fear that is dangerous. It was the irrational exuberance that preceded it that said housing prices will always keep rising so we don’t have to worry about borrowing money to buy houses. The rising prices would wipe out our debt. And what about all the people who borrowed money on their equity..houses were a magic money-making source. Why not live it up?

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  15. A big part of the problem, besides too many people living on, and gambling with, borrowed money, is the debts were all lumped together so there’s no way of knowing which debts are backed by solid assets. See http://online.wsj.com/article_email/SB122169431617549947-lMyQjAxMDI4MjExODYxOTg0Wj.html

    Jean Browman–Cheerful Monks last blog post..Touching Hearts and Changing Lives

  16. Jean, I heard a commentator say last night that if a buyer doesn’t know how to value an asset, he or she will tend to value it as worthless, which I thought went a long way to explaining why some of these financial stocks have plummeted toward zero. Thank you for the article link. It’s very informative.

    Brad Shorrs last blog post..Guest Post on Wired PR Works – Why No Humor?

  17. Pingback: Recession Fears? Don't Let The Whingers Get You Down

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