(HOST) Commentator Timothy McQuiston is editor of Vermont Business Magazine – so he’s had lots of practice interpreting economic news. But he has to admit that events over last few days have been a challenge.
(MCQUISTON) Greed, for lack of a better word, is good. Greed works. Such are the words of the legendary Gordon Gekko from the movie Wall Street. What he meant by that, of course, is that everyone is motivated by profit in all walks of life. Sometimes the profits are modest and sometimes grand. But we all know that avarice has its price.
The financial crisis on Wall Street is the result of exactly this. It happens on very regular cycles. And somehow we’re always surprised and shocked. But the reasons for it are easy to explain. And in this case it goes well beyond sub-prime mortgages. Now, this isn’t youth soccer. It’s important to find the culprits here. And while it’s easy to blame Alan Greenspan, the Bush administration, the Gordon Gekkos, and, frankly, all the rest of the investing public, at this point the focus is rightly on trying to stop any more dominos from falling. Fixing the structural problems and assessing responsibility should come later.
The underlying issue is that we’re all trying to find high-yield investments, just as we’ve always done. The heavy investing in real estate in the 1980s led to the savings and loan debacle. S&Ls failed, banks failed, real estate developments collapsed. During the 1990s, the darlings of investors were the dot-coms. When that bubble burst, investors turned once again to real estate in search of big returns. The current crisis was ignited by those high-cost mortgages.
For Vermont, state Treasurer Jeb Spaulding has said that the $3 billion in pension funds for teachers and state and local workers is safe and sound; but they have suffered losses nevertheless. Vermont tends to be a relatively safe harbor when these economic storms come. It’s probably worth noting that Vermont’s conservative government and business practices (and the general personality of its people) have a lot to do with that. But we can’t escape it (just as, while we are good conservers of energy, we still pay the same high gas prices as the rest of the country).
On January 14, 2000, The Dow Jones Average reached 11,750. Since then we’ve suffered through the high-tech hangover and then 9/11 and its aftermath. The financial markets bumbled along in mediocrity with investors looking for the next big score. Enter the sub-prime mortgage. After eight and a half years, the Dow closed Monday at under 11,000. The Fed stopped the free-fall by rescuing AIG insurance to the tune of 85 billion dollars. Thank you, and you’re welcome.
So on one hand – to paraphrase Gordon Gekko – greed, for lack of a better word, works. On the other hand, I sure do wish our 401(k)s weren’t looking so wretched.