8/9/2019 Is it Just Me, or is 2010 Feeling a LOT Like 2008?

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IsitJustMe,oris2010FeelingaLOTLike2008?Haven’twebeenherebefore?Oneofthestrangestaspectsofhistoryisthatitnotonlyrepeatsitselfbutthatthe

repeatsoftencomeinrapidsuccession.Today,theentirefinancialworldisrepeatingthe2008debacleonasovereignbasisandfewifanycommentatorsseemtosenseit.Weirdisn’tit?The2008Autumndebaclehappenedlessthantwoyearsago.ThepolicyresponsetoitwastosimplyshiftgarbagedebtfromWallStreettotheFederalReserve,suspendaccountingstandards,andpumpthefinancialsystemwithTRILLIONSofDollars(NONEofwhichfundamentallyaddressedanyoftheproblemscausingthecrisis)andyetgrownadultswithfancytitlesanddegreesactually

believedthattheissueswereFIXED.

In2008,thefinancialworldwasfirstrockedbytheBearStearnscrisis.Truewe’dalreadyseensomemajorvolatilityinthecreditmarketssincetheSummerof2007,butBearStearnswasthefirstsignthatsomethingMAJORwashappening.Despitetheclearimplicationsofthiscollapse(thatinvestmentbanksalongwiththeentirefinancialsystemwereinBIGtrouble)mostcommentatorsshruggedtheissueoff.Infact,thefinancialheadlinesfortheSpringof2008largelyconsistedofeveryWallStreetCEOontheplanetpubliclystating,“theworstisover.”MostcommentatorsboughtintothisandproclaimedBearStearnswouldbeanisolatedevent.ThenwehadHankPaulson’s“BlankCheckBazooka”forFannieandFreddieinJuly2008.Asyounodoubtrecall,PaulsontoldCongressthatifhehada“blankcheck”tobailoutFrannie,themortgagemarketwouldstayafloatbecause“ifeveryoneknowsyouhaveabazookainyourpocket,youwon’thavetouseit.”(I’mparaphrasing).Giventhelevelofthisintervention(combinedthesetwofirmsaccountedforroughlyhalfoftheUSmortgagemarket)theBlankCheckBazookawasawakeupcallforthegeneralpopulacethattheworstwasNOToverandthatthingswerestartingtogetREALLYmessyinthefinancialsystem.

ThencameSeptember2008,wheneverythingcameunhingedinamatterofweeks.Variousfinancialfirmsthathadbeeninbusinessfordecadesvanishedovernight(MerrillLynch,MorganStanley,Wachovia)beingmergedwithlargerentities.Andtheentirefinancialsystemteeteredonthebrinkofoutrightfailure.SowhatcanwegleanfromthisCrisisandthepsychologysurroundingit?Well,wecanseethatSystemicCrisesfollowaclearpatternwhenitcomestosocialpsychologyandhowpeoplereact.Thatpatternis:

8/9/2019 Is it Just Me, or is 2010 Feeling a LOT Like 2008?

http://slidepdf.com/reader/full/is-it-just-me-or-is-2010-feeling-a-lot-like-2008 2/2

1)  Aminorplayergoesunderandpeopleshrugitoffforafewmonths2)  Alargerissuearisesrequiringavastsumofmoneyandpeoplebegin

catchingonthatsomethingLARGERisatstake3)  Suddenlyeverythingcomesunhingedandtheentireworldpanics

Today,nomorethantwoyearsafterthisdebacle,wearewitnessingtheEXACTsamepatternplayoutonasovereignbasis.

Forstarters,GreeceistheBearStearnsissue:aminorplayer(itsGDPisthatofMassachusetts).AndjustasBearStearnswasswallowedupbyJPMorgan,permittingthefinancialsystemandstockmarkettoremainafloatforafewmonths,GreecehasbeenlargelyswallowedupbytheEuropeanCentralBankandIMF’sinterventions.The“BlankCheckBazooka”issuethistimearoundwastheEuropeanCentralBank’s

$1trillionbailoutinJune.JustlikePaulson’sBazooka,theplanwasrushedandpoorlyorganized.AndjustlikePaulson’sBazookaithasfailed,accomplishingnothingbutmaintainingtheillusionthatthefinancialsysteminEuropeisOK,when,inpointoffact,it’sasbustedastheUSmortgagemarketwasinJuly2008.Whichbringsustotoday.Thuswehavealreadyseenaminorplayercollapse(Greece)aswellasamajorissue(theEuropeanbankingsystem)requiremassiveinterventiontoremainafloat.Whatcomesnext?Thesystemiccollapse/openpanic.Theonlydifference

between2008andthisyearisthatthistimearoundtheCrisiswillbesovereigninnature.We’renotquitethereyet,butgiventhatmyCrashindicatorisonandwe’vereceivedtwoconfirmedHindenburgomens,we’reheadingtheresoonerratherthanlater.ThisCrisiswilllikelybeginwiththeEurobreakingdownagaintonewlows,butwilleventuallyspreadtotheYenandultimatelytheUSDollar.Icannotpredictthespeedorpreciselyhowbadthingswillget,butiftoxicdebtonWallStreet’sbalancesheetsnearlytookusunderintheFall2008,youcanimaginehowwhatitwillbelikewhentheUS’sbalancesheetistheprimaryissue.

GoodInvesting!GrahamSummers