Economic Historical Understanding
I’m spending more time with clients and other individuals in our industry, talking about the uncertain economic climate. There are so many unknowns, in particular coming out of the pandemic, a changing workforce, geopolitical economic influences, the invasion of a sovereign country and its effects on certain materials and supplies, etc. A number of people I’ve talked with have asked if I think this is anything like the “Great Recession.” What I’ve realized is that most people don’t have a firm, detailed understanding of what happened in the “Great Recession.” They understand the outcomes, but what was the impetus for the major issue? That the major issue was NOT housing, but the freezing of the credit markets caused by unwise, profit-seeking investing by both Wall Street and Main Street regarding mortgages and the perception of an always increasing value to land/housing. I’m NOT an expert, but three movies will give you the best understanding.
The first is HBO’s Too Big to Fail. It’s the story of about a two-week period in October 2008 and follows the work of Hank Paulson, the then Treasury Secretary, and what he and other members of the Treasury Department (along with the Fed) did to save banking in the United States. It’s the macro view of those tense moments during a critical presidential election cycle.
The second is Margin Call. This is the micro view of what’s happening within an investment firm during a 24-hour period when they realize the issues with mortgages and the decision-making about how they would survive. If you watch Too Big to Fail first, you will then see what’s going on inside the investment firms with Margin Call.
The third is The Big Short. This film highlights what was happening on Main Street. How housing was the wild, wild West. How it made real no financial sense in any regards. It takes you away from Washington and New York to “your town USA” and what was happening with people’s individual decision-making and the complicity of banks and mortgage brokers regarding the allocation of loans to purchase a house.
I believe in constant learning. Part of that is understanding history. The old adage that “if you don’t understand and know history you’re bound to repeat it,” to me, is incredibly true. What we’re dealing with today isn’t like what was going on 15 years ago, but it’s critical to understand the differences so that we can avoid the bigger challenges yet still to come.
