This Too Will Pass

This Too Will Pass



By INVESTOR'S BUSINESS DAILY | Posted Monday, September 15, 2008 4:20 PM PT

Wall Street: Old timers will recall F.I. DuPont or Goodbody & Co. Not-so-old timers remember E.F. Hutton and Kidder Peabody. Now we can add Bear Stearns and Lehman Bros. to the storied names that have fallen.

We drop these names (and we could have mentioned a hundred more) for two reasons: (1) to remind readers that this isn't the first time an investment bank or brokerage has gone under, and (2) to point out that the country has always survived and grown.

In fact, what's happening now is quite normal in a financial system characterized by booms that lead to excesses that then require corrections before any renewal takes place. We'd be hard-pressed to remember a bear market when one or more financial firms didn't go out of business.

In the oil crisis of the 1970s, for example, major financial companies such as Penn Central and Franklin National went bust. The booming '80s saw hundreds of banks go belly up due to bad loans made to the farm sector and the Third World, and, later, S&L loans to U.S. homeowners.

The '90s? Remember the Long-Term Capital Management debacle in '98, following the Asia Crisis in '95 and coinciding with Russia's ruble meltdown? Then, too, we heard predictions that the world as we knew it was ending. It wasn't.

Yes, the problems to be worked out this time seem scarier than most. And watching institutions like Bear and Lehman fail, and Merrill Lynch taken over just like that, doesn't inspire confidence.

But they're no different from other investment firms of the past that have paid the price for making too many bad decisions or taking too many risks in what is already a high-risk business.

How long all this will last is anyone's guess. But this a big country, with a highly liquid market and a still-strong economy. We'll get through it.

We also see something of a silver lining in the decentralization of financial power. That power has always resided in New York City, where a herd mentality too often prevails. The piling of Wall Street firms into exotic mortgage investments is only the latest example.

New York is also full of brokers and analysts schooled in the investment theories of college professors, many of whom have never invested successfully.

Much of the nation's investment talent, however, can be found elsewhere — not only in Boston, with its exemplary mutual-fund organizations, but also in places like Chicago, Dallas, Atlanta, Denver, San Francisco and Los Angeles.

In fact, some of the best money managers we know use Wall Street as a contrary indicator: Whatever it's doing, they do the opposite.

It's worth noting that Bank of America, the company that was called upon to bail out the troubled New York firms in this situation, is headquartered in Charlotte, N.C.

It's long been our contention that too much thinking is done for the country out of New York and Washington. (The same is true of the media business, which because of agenda-driven, East Coast biases no longer seems able to report what's really going on.)

Fortunately, America continues to be driven by inventors, innovators and entrepreneurs who will go on creating the products and services that keep the economy growing and people at work.

We trust that this reality — along with the stewardship of experienced leaders such as Treasury Secretary Paulson and Fed chief Bernanke — will in time lead to stabilization and recovery.



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