William Shakespeare’s famous quote from Hamlet, “When sorrows come, spies come not individually, but in battalions,” is particularly relevant today.
All the news seems bad. Negative numbers are huge. The human devastation seems endless. Governments everywhere seem to have lost control. Debt is perverse on a personal, corporate, and governmental level.
This glass seems to be almost empty. It is not!
From the depths of disaster grow the seeds of opportunity. Just as Mother Nature’s wildfires clear away brush and allow fields and forests to regenerate, so does the opportunity that arises from social and financial collapse. The removal of diseased institutions gives entrepreneurs and reformers the opportunity to fill an essential void.
Throughout history, dynasties, dictatorships, and tyrants have risen and ultimately fallen. They are usually replaced with something much better.
The violence of the French Revolution allowed Napoleon Bonaparte to turn France into a warring state under his dictatorial regime. His “Waterloo” allowed the state to develop into a modern democratically governed republic. The Habsburgs in Germany, the Hohenzollerns in Austria, and the Bourbons in France all enjoyed the wealth, power, and comforts of royal rule before being dumped in the dustbin of history.
Hitler in Germany, Hirohito in Japan and the communist dictators of Russia all fell and were succeeded by democratic governments with a modern and more open style of government. Their oppressive rule led their populations disastrously into decades of war, famine, and social despair. Something far better has acceded to its brutality.
Historically, companies have expired if they did not evolve and regenerate as markets moved towards new technologies. Home delivery of ice in the first half of the 20th century was replaced by the mass marketing of refrigerators. The manufacturers of wagons, whips, buggies, and bicycles disappeared as the automobile became an affordable mode of transportation. The acceptance of Thomas Edison’s incandescent light bulb greatly diminished the need for thousands of local candle makers.
As the automobile industry developed, there were hundreds of nameplates producing niche vehicles. Names like Packard, Stutz, Essex, LaSalle, Dusenburg, Austin and Cord, and most other car brands grew, stagnated, and died because they couldn’t compete with new tastes, technologies, economies of scale, and mass-manufacturing techniques. developed by magnates like Alfred Sloan, Henry Ford and Walter Chrysler. General Motors, Ford Motor Company, and Chrysler became giants with huge profits, international distribution, and massive marketing programs. The rest simply faded away, leaving little more than reminiscences.
Today “The Big Three”, Chrysler, Ford and General Motors, are all looking at the angel of death. To paraphrase Shakespeare’s Hamlet quote, “their sorrows are here, and they are here in battalions.” All the mistakes that management and workers could make that would hurt a business institution have been made, and often repeatedly. Incorrect model choices, lack of recognition of the fundamental problem of fuel economy, dull styling, strangling union work rules, and low-quality perceptions are just a few of the reasons why “The Big Three” they are so close to being the three, the two, or the dwarf. It seems highly unlikely that they will continue to exist as independent entities.
Much is made of the potential loss to the United States of any or all of these iconic automakers. And yet, car manufacturing in the country is booming. Mercedes-Benz, Subaru, Honda, BMW, Toyota, and Nissan have built factories here in recent decades. Volkswagen has announced that they plan to do so as well. Each of these brands has specific features, styling and benefits that they incorporate into their machines that “The Big Three” had not identified. Furthermore, they have all built their factories in “right-to-work” states, where union influence is minimal. While they pay excellent wages and provide competitive benefits, these foreign companies are not bound by arcane and unproductive work rules. They don’t face the legacy costs that price domestic manufacturer models at such high retail prices.
We are all being affected by a global financial conflagration. The future economic well-being of citizens, industry and governments around the world is intertwined and will be decided by how the people who got us into this mess come to get us out. I use the pronoun “we”, because almost all of us are to blame.
Foreclosures are increasing due to stupidity and greed. People today, certainly in developed countries, crave things they don’t need and can’t afford. Some people shouldn’t be homeowners. They cannot afford maintenance, insurance, a down payment, or the taxes that accompany home ownership. A married couple with one child and a monthly income of $3,500 should never have tried to buy a $400,000, 4-bedroom house with a subprime loan with no down payment. They were fools, as were the lender, the mortgage broker, and the buyer of the derivative this loan was packaged into.
The banks and insurance companies that bought these esoteric, historically highly profitable mortgage-derived vehicles are dropping like flies. Northern Rock in England, ING in the Netherlands, Indy Mac, Countrywide, Wachovia and WaMu here are just some of the powerful financial institutions that are now closed, merged or selling assets. Insurance giant AIG has been taken over by the government. Lehman Brothers, one of the most venerable and respected investment banks, was shut down by the government. Merrill Lynch has been sold to Bank of America.
Fannie Mae and Freddie Mac have been criticized for their role in precipitating the credit bubble that has led us to this precipice. Congress, which has passed laws encouraging Fannie and Freddie to make bad loans to bad borrowers, is looking for scapegoats. Several of our congressional saints want to see “criminal rides.” I agree. However, I am sure that the real “criminals” will not walk.
The problems seem endless and overwhelming. They come “in battalions.” However, we will survive this, hopefully learn from it, and thrive on the opportunity to fill the gaps opened by systemic failure. Equity markets appear to offer a “once-in-a-lifetime” opportunity to profit from heavy losses suffered due to the panic-induced credit meltdown. Strong and agile financial institutions, such as Wells Fargo and State Street, will emerge to fill the void left by the demise of hundreds of companies.
People will have to make more prudent purchasing decisions. 84-month and 96-month auto loans will disappear, making it harder to buy luxury cars. “Skin in the game” in the form of down payments will be required to purchase real estate, benefiting both the owner and the lender. Credit cards will be harder to obtain and credit limits will be lower.
Each person can use this whirlwind as an opportunity to review their real needs and desires. Living below one’s means could even come back.