The Big Bang Theory

I’ve heard the “D” word bandied about in financial circles of late. Depression. I think things will get a lot worse – we’re not near bottom yet – but I think the “D” word goes too far. Yet optimism and confidence are sorely lacking, even for some of the biggest names in finance. Thedeal.com even described the machinations at CitiGroup – parent to companies like Smith Barney, more than a few hedge funds (many filled with toxic paper), Travelers Group (insurance), not to mention their credit card and mainstream banking operations, as going through a death spiral that will result in breaking up the company in a struggle to have something left for shareholders (the bank denies such intent). The markets are still vacillating, but the “double bottom” rule is clearly in operation – markets will hit a floor twice and rise (based on computer programs that trigger automatic “buy orders” at set points), but the third time, the floor will reset downwards.

My friend and financial consultant, Dennis Duitch, presented some expert opinions in his latest Weekly Bulletin (posted at www.DuitchConsulting.com) suggesting that the number of bankruptcies of larger companies (currently with assets valued at $100 million or more) will increase tenfold (compared to 2007) – to 100 – in 2009 [CFO – Nov.08]. The credit freeze, combined with the slump in both consumer (and corporate) confidence as well as the decline in consumer spending, will take many of these job-providers out of the marketplace.

I’m presenting Dennis’ excerpts and graph (from the cited CFO and Forbes articles) on why this happened to supplement my analysis, particularly because of his emphasis on the failure of the rating agencies to provide meaningful risk analysis that might have brought regulation, or at least a modicum of rational prudence, into the market at a critical time:

· WHO IS RESPONSIBLE FOR THE MORTGAGE CRISIS? WHO IS SUING WHOM?

“THE SUDDEN, BRUTAL AND FRIGHTENING REVELATION OF THE WEAKNESS OF WORLD CAPITALISM has been a shock which will have serious tangible consequences for years to come – high unemployment, lost production and difficulty in securing capital for investment in new ideas and processes. But even more important is the psycholo gical impact produced by the reminder that free markets bring not only routine prosperity but also occasional disaster. We are now painfully aware that human greed, often allied with reckless incompetence, imposes a heavy price on any self-regulating system. It produces hysteria and intellectual folly, as well as the dreadful temptation to turn to the state as the cure for all ills… We’ve enjoyed nearly two decades in which the U.S. has been the unchallenged sole superpower and free-market capitalism has been the economic model for all the world, producing rising real incomes almost everywhere. We became accustomed to taking safety and prosperity for granted. Both now look precarious…There’s one lesson to be learned above all others: There is no substitute for prudent, strong and courageous leadership – what the civilized world currently lacks.” [FORBES – Nov 17 & 24, 08]

I’m Peter Dekom, and along with Dennis Duitch and whole lot of economically savvy folks, we approve this message.