Wednesday, January 28, 2009

ECHO CHAMBER

One of the things that has been most shocking to me about the banking crisis and the subsequent recession has been the extent to which "business leaders" have turned out to be lemmings. For all of their "leadership" when the economy was good, it is now apparent that many of them were just riding the bubble and looking like geniuses.

The latest proof? This article about the Davos conference. In September, when the U.S. economy had been in recession for nine months, a majority of the "leaders" who go to Davos were pretty sure their business would not be impacted by the slowing economy. Now, three months later, almost 70% of them are pretty sure that the world is ending. Now they do not, as a group, expect economic growth for three years! Furthermore, they are saying things like:
Forty percent of the world's wealth was destroyed in last five quarters. It is an almost incomprehensible number," said Stephen Schwarzman, chairman of the leading private equity company Blackstone Group.
It is almost incomprehensible. In large part this is true because it is "paper" wealth. That is not to say it is not wealth, but if the Dow went up 40% today, that "wealth" would be restored. In other words, if all of the lemmings decided to BUY! BUY! BUY!, they would restore their own wealth, which is sort of ironic, isn't it?

Anyway, I don't know how long this recession will last, but we will not, apparently, be pulled out of it by the "economic elites."

2 Comments:

Anonymous Anonymous said...

The market would have to go up more than 40% to restore the paper wealth that was lost. The market would have to increase almost 70% to get back to the original starting point. (100-40%=60) then (60+40%=84) a little shy of 100 but (60+67%=100) gets you just about even. That makes the hurdle to recover the paper losses that much higher and provides a little more perspective. And it seems that the days of 20% increases in the stock market are a long way off.

9:59 AM  
Blogger David said...

Anon,
Yes. You are right about the math. My point remains.

11:39 PM  

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