I Miss The Great Recession Already

End of recessionI’m just going to come out and say it, ok?  I miss the Great Recession already.

I miss it for two reasons: first as an investor and second as a human.

The Investment Side of the Great Recession

As an investor, the Great Recession represented the good times, now past.[1]

Recessions – or at least their financial unfolding via changes in asset prices – cause not only wealth destruction, but also wealth creation.  For investors[2] in particular, a recession is often necessary in order to deploy capital at attractive prices.

Warren Buffett famously gets irritated about the lack of investment opportunities in his annual Berkshire Hathaway letters during boom times, like his 1999 letter[3] and 2007 letter,[4] because prices of public securities outpace intrinsic value.  Conversely, he gets very busy and active buying companies when prices drop and other investors flee.  Recessions for Buffett, as well as for many investors, represent the best time to accumulate wealth.  Which is why he famously says:

“Be fearful when others are greedy, and be greedy when others are fearful.”

 

Another famous value investor, Shelby Collum Davis,[5] said more pointedly:

“You make most of your money in a bear market.  You just don’t know it at the time.”

If you believe Buffett and Davis, as I do, then you too will think wistfully of the Great Recession because, as an investor, the good times are in the past.  Now, with US equity indexes up over 100% from their March 2009 lows, investing consists of purchasing expensive assets and hoping they get more expensive.  Which has a lot more to do with gambling than it does with investing.

The Human Side of the Great Recession

Of course this may sound awfully callous from a human perspective, and I don’t mean to diminish the real human suffering of the Great Recession.  In fact, on the contrary, it’s the humanity that emerged during the Great Recession that I want to call attention to, as the part I’m going to miss the most.

Remember when your 401K lost 5% of its value every month – month after month after month – between August 2008 and March 2009?  Remember that you just stopped regularly checking its value – or any part of your supposed net worth – by about December 2008, because the whole thing just became too painful to contemplate?

At that moment, falling into the Great Recession, we all confronted, in our own way, the painful reality that our human worth had to be something other than our financial net worth.  Because otherwise we just became half of who we were.

Remember when in the space of just a few short months either you – or someone you knew well – lost a job, a house, or a business?

As awful as that was, our collective acknowledgement of suffering changed the way we acted on a daily basis.  For people relatively well off, the new austerity forced a kind of back-to-basics approach to living.  Luxury consumption plummeted, and staycations soared in popularity, if only out of solidarity with those who suffered even more.

I personally lost money in the Great Recession.  But what turns out to be even more painful, as a fiduciary, is losing other people’s money.  I dreaded calling investors on the phone to report a loss, and I dreaded, worse yet, seeing them in person.  To make it more painful for me, my investors, unfortunately, were often my friends and family.  The thought of it kept me awake and tossing in bed in the 1-3am hours.  For a couple of years.  Not good times.

Would you like to know what reduced me tears, however?  It was the investors who told me it was going to be ok, that they still believed in me, and that the lost money didn’t mean they valued me less as a person.  Even as I write this now, it gets a little dusty in the room when I think of that.

There’s a human element that only reveals itself in the bad times.

Laissez Les Bons Temps Rouler

My sense is that sometime between Groundhog Day and Mardi Gras 2013, the Financial Infotainment Industrial Complex will peak out at the nation’s Great Recession shadow, and officially declare the long Winter finally over.

That declaration will signal it’s time for luxury living again and real vacations.  Masters of the Universe will know they can safely begin to channel their inner Patrick Bateman in public again.

In that smooth shift from Recovery to laissez les bons temps rouler I’m certain we’ll go back to checking our net worths in the mirror more often, and possibly our human worths less often.

But I hope we’ll hold on to the memory of what we had, and lost, and recovered, during the Great Recession.

Mardi-Gras-Mask



[1] I acknowledge I’m being colloquial, not academic, about what I mean by a recession generally or the Great Recession in particular.  I don’t mean an economist’s definition of recession, which would refer to changes in GDP.  I also don’t mean to quibble about an US equity ‘bear market,’ as it’s been a few years since that occurred.  What I really mean is a holistic sense that, with unemployment below 8% nationally and the general level of stocks approaching their 2007 highs, the national mood has swung away from Recession and toward Recovery and I’m confident soon enough we’ll be in Boom Times.

[2] By “investor” I mean as distinct from “gambler,” which is what most of us do when we purchase public securities.

[3] Which I’ve helpfully linked to here, and would call your attention in particular to page 16, in which he anticipates the bursting of the tech bubble and the bursting of the equity bull market in general.

[4] Which is linked to here, and I’d call your attention to pages 18-20 in which Buffett tries to lower expectations for equity returns going forward.

[5] Whose son and grandsons run this firm, Davis Advisors.

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In Praise of SIGTARP, Part I –Truth in Government

As a recovering banker, a main obsessive question of mine remains “How did we get into this mess?”

By “mess,” I mean both the Credit Crunch itself and our collective response to it, at the government and personal levels.

My obsession drives me to read reports by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  As a first draft of financial history, the SIGTARP reports have become essential to understanding the bailouts of Citigroup, AIG, other TBTF[1] Banks, and smaller banks as well.

Perhaps it’s a function of my low expectations for a government-produced document on finance.  Perhaps it’s my contrarian nature.  I’m not sure.  But I do know there’s something refreshing and downright exciting about the reports coming from the office of the SIGTARP.

I love SIGTARP so much I want to highlight the key things everyone should know from the reports, on the off chance you aren’t as obsessed with reading government documents as I am.

Two great things, just for starters, to know about SIGTARP’s reports.  First, they’ve got the ring of honesty.  Second, they remind me why I do have faith in our system of government and finance, despite all the reasons to lose faith, and despite all the crazy fringe talk we get bombarded with on a regular basis.

In the April 2012 report, just to cite one happy example, you will find such pleasing curiosities as a Treasury official who tells you her colleagues in another part of Treasury are lying to you, to wit:

“It is a widely held misconception that TARP will make a profit.[2]  The most recent cost estimate for TARP is a loss of $60 Billion.  Taxpayers are still owed $118.5 billion”

Now that’s what I’m talking about!  Some straight talk from the federal government.[3]

Another example of facts cutting through the haze of political speak:

“TARP’s explicit goals of preserving homeownership and promoting jobs were evidence that Congress wanted to help homeowners during the crisis, not just banks.  However…Only 9% of the TARP funds set aside for mortgage modifications have been spent to help a fraction of eligible homeowners after more than three years…after two years, only 3% of the funds obligated [for the Hardest Hit Fund] have been spent to help only approximately 30,000 homeowners.”

In other words, the government’s largest federal programs for mortgage modification and homeowner relief are poorly designed or poorly implemented, or both.

I’m not happy about this.  But I don’t particularly care to blame Congress, or the President, or a bunch of nameless bureaucrats we’ve never heard of.

I am happy, however, to read a technocratic document like SIGTARP’s quarterly report that gives me the hstraight dope about what is working and what is not working in the financial bailout.  The honesty of the reporting gives me hope that people are willing to work on practical data, practical solutions, and do not seek to score points against the other side only for ideological reasons or political gamesmanship.

Too often we fall down the rabbit hole of financial discourse online, where the avatars of pitchfork wielding right-wing trolls do imaginary battle with the avatars of left-wing demagogues who make the Scarecrow’s Occupy Gotham scene seem like a plausible near-future alternative.  I’m pretty sure Dark Knight villains Two-Face, Bain, Joker, and the Scarecrow actually exist, because I feel like I read their stuff in the comments section of respectable online financial outlets.

It’s enough to induce despair, which is always the goal of the Dark Knight’s foes.  That forum has plenty of Gotham-City shouting and fear-mongering but precious little listening, and even less understanding or analysis.

Who can fight against the financial darkness?  SIGTARP can.

I love SIGTARP so much I created my first fictional comic book hero[4] in his honor.  I love SIGTARP so much because he makes me believe in my country’s government again, which is no small feat.

Would you like to feel better about our country and the government’s ability to self-criticize and therefore, possibly, learn from its mistakes?  I suggest you brew some tea and curl up with a nice SIGTARP report sometime.  You’ll feel a lot better.

 



[1] Too Big To Fail, but you knew that.

[2] Meaning: Please pay no attention to my Treasury colleagues quoted in the Wall Street Journal who wrote the following “Overall, the government is now expected to at least break even on its financial stability programs and may realize a positive return”

[3] Usually it’s the journalists who tell us the government is lying, so it’s nice to see the rare government official willing to make the same claim.

[4] You have to admit SIGTARP does sound like Norse God, no?

 

 

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