About 18 months ago the credit crisis started. Things looked dire, then everything started to look good again. Around June of this year I started writing that the worst was not over and that there were a bunch of bad loans out that there that still had to be dealt with. Since June the markets have been in a major tizzy. I don't remember this much anxiety over the markets since the tech bubble burst (which really wasn't that long ago). If someone had told me at the beginning of the year that AIG would be owned by the government, Lehman (a company that never reported a negative quarter as a public entity) would disappear and that Bank of America would buy Merrill Lynch....I would have laughed in their face.
My new phrase for Wall Street became Hubris Street as one by one the great independent investment banks teetered on the brink of bankruptcy. Only Morgan Stanley and Goldman Sachs are left and it looks like even those two may end up partnering with a bank.
Government bailout after government bailout contributed to even more anxiety for people - was there no end in sight? In my blog posts I said "We need leadership right now and we're not getting any". People, Hubris Street and the world needed to know that we (America) was going to acknowledge that we had a problem and actually take comprehensive steps to solve it.
That leadership may have started yesterday when Hank Paulson alluded to an entity, similar to the Resolution Trust Corporation of the 80's and 90's to buy up bad loans and take them off the banks balance sheets. This just might be the leadership we need.
I don't know what is going to happen in the stock market in the short term, though I do know that ten years from now people will be kicking themselves for not buying at these levels.
Our financial system is in shambles, but it is not broken and with the right leadership it can be restored and be stronger than ever....we'll have to wait and see, but I think for the first time in 18 months we might be heading toward the right track.
Scott Dauenhauer CFP, MSFP, AIF