Jose D. Roncal
Instead of jumping on the bandwagons of the latest hot trends and letting irrational exuberance push prices up to the unsustainable levels that create financial bubbles, everyone now seems to be rushing in the opposite direction, running scared and selling off because that’s what everybody else is doing. It’s total fear-based selling.
I’m guessing that a sizable number of people really have no idea what the fundamentals are behind the company stocks they’re selling. In their rush to cash out, they are contributing to a situation that is now so out of control it’s impossible to tell how much farther things will fall before everything hits bottom, which it eventually will.
In the midst of this I keep asking, “Where’s the spirit of adventure, where are the calculated risk-takers, the speculators, the heroes with entrepreneurial vision?” Does nobody realize that opportunity lies in the rubble, or that strong economies are built from the energy of enterprising business people with big bold ideas?
Surely there are some of these visionaries working quietly in the wings. Maybe they’re just not ready to come into the spotlight.
Meanwhile, emotions are running high and a lot of movement is motivated by rumor. Things move in one direction and can reverse on a whim. The morning news indicated that the government might boost its stake in Citigroup. The street liked the sound of that and the Dow saw a little bump. But it didn’t last and gains evaporated to eleven-year lows.
It appears that the Feds are putting banks through a stress test—waiting to see what might happen if the economy gets even worse than it is today. It’s as if the results will help them decide how much money banks will eventually need to survive. They are telling the banks that if no one else will make funds available to them, taxpayers will put up some capital that can convert into equity. In theory, it would be up to the banks to ask for that money. But in practice, the regulators could probably just say “open wide,” and force feed them.
Citigroup is actually hoping the government will take a large stake in the company. They see it as the last chance they’ve got to beef up public confidence in the bank. The government already owns preferred shares, non-voting stocks in Citigroup, as it does in other banks. But investors don’t consider this to be as attractive as owning common shares. Citi would like to see us purchase as much as 40% of the business.
We never could have imagined such a scenario six months ago, even taking into account that the government owning major bank stakes would only be a temporary fix. No one is suggesting that the government should be in the long-term business of running banks. Once things stabilize, we’d need to get them back into private hands as quickly as possible by selling down the government’s stake.
Even so, I suspect that some things being done in this economy will never be completely undone. The relationship between the banking industry, the Feds and the taxpayer has probably changed for good. There will be much stiffer regulation of the banks—and with good reason. Since the banks have been largely responsible for wreaking havoc on the economy, nobody would consider giving them the leeway to ever do it again.
But while economists are sorting this out, and that might take a long time, we’re still rooting for the speculators to surface, to seed new business ventures and breath life back into the economy. For some historical perspective, read our book, The Big Gamble. There’s a whole section that celebrates some of the greatest speculators of our times. When you look around, you’ll be able to recognize the positive marks they’ve left on our culture and our world.
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