The More Things Change ...
April 6, 2009
One really neat thing about leading a publication that’s been around for three-quarters of a century is that, with just a trip down the hall to the dusty, bound copies of Investment Dealers Digest, you can find out what was going on in the dealer community in the midst of the Great Depression.
And I have some news for you: It was eerily similar to what’s going on now. Now, before all of you Roubini disciples start e-mailing me to let me know you told me so, let me clarify. What’s so remarkable about then and now is not so much the similarities between our dire economic straits, but the ideas being discussed to help us out of our troubles.
To wit (that sounds to me like a very 1935 kind of phrase, which is appropriate, because it's when the following was written in IDD): “The new regulations for the purchase of securities by banks which have been recently put forth by the Fed emphasize the difficulty of the problem of investing funds safely and profitably at the present time.
“The banks are told that they must be even more ‘conservative’ than ever, in the sense that they must watch the quality of their holdings as estimated by recognized investment rating services. While definite standards have not as yet been set, it may not be long before commercial banks find themselves limited and restricted to an extent comparable to that of savings banks. Meanwhile, the same low interest rates which prevail in the bond field also prevent the banks from making substantial profits out of their commercial loans.
The banks, and this applies to institutional investors generally, would then seem to be caught between the jaws of a vise: on the one hand, a demand for higher quality of their holdings; on the other, a low rate of return.”
I almost expected to see references to Level 3 assets, subprime mortgages and the Group of 20. Alas, back then the world was more about fact than fiction, truth than lies, and substance over style. At least that's what my grandfather used to tell me, and he worked for the IRS.
In some ways, I find these kinds of similarities heartening. True, it’s not particularly soothing that the last time we were grappling with this same stuff happened to be in the midst of our biggest economic crisis. But it is easy to forget when you're living it every day that there were Barney Franks and Tim Geithners long before we got here, and bad ideas to go with the good.
There will be no Depression, just as there will be no straight-line recovery. But there will be recovery.
Thomas Granahanthomas.granahan@sourcemedia.com
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