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20 March 2008

When You Dance With a Bear…

Posted by Nicolai Kolding

Dance With a Bear
…you don’t decide when to stop.

As I chatted recently with a colleague about the collapse of Bear Stearns, he observed that the United States is now coming to grips with what individual European nations wrestled with a generation ago: we do not control our own destiny, nor will we ever again.  The stark reality of the global economy is being hammered home by the day in ways we are only beginning to appreciate.

We must now accept that whenever it is that we pull out of this (presumed) recession, it will be driven in large part by global forces.  Like it or not, the US economy will improve thanks to the efforts of far-away corporations and governments (either directly by buying Treasuries or indirectly through investments by sovereign wealth funds).  The fact is our banks’ cash positions have so dwindled due in large part to toxic mortgage-backed securities that many are too thin to make even good loans.  To get cash the banks will have to either rely on government bailouts or more interest rate reductions (though, as this WSJ blog notes, the Fed can only go to the well so many times) or raise capital that will often come from foreign sources.

The increasing influence of sovereign wealth funds is clearly starting to make some people nervous.  I refuse to take a blanket isolationist view; the idea of an open worldwide market can and should be embraced.  At the same time, I cannot help but lament the areas where foreign trade is just a euphemism for foreign dependence: imported oil, exported jobs, and non-existent manufacturing, to name a few.  Nor do I understand the consumer-driven, borrow-to-the-hilt mentality that runs from individuals to corporations to our governments.  We have collectively lost our discipline.  I cannot help but to connect the dots from these places to what happened to our dear, overleveraged Bear Stearns.

What message does this young curmudgeon have to tie this back to our housing woes?  For starters, whether you’re a homebuyer, homeowner, agent, or broker: recognize that our economic troubles run far deeper than the subprime crisis and therefore require a more introspective look at what ails us.  We need a return to the fundamentals at the government, corporate, and individual levels.  Washington must lead the charge by getting its house in order.  With a national debt nearing $10 trillion, we are seriously overleveraged and in real danger of having our Treasury bond ratings lowered.  At the corporate level, to our real estate brokers: now is the time to rethink your model.  Trash many of the old ways and the expenses that go with it.  Deliver the finest customer service you ever imagined.  If you feel really daring (and now is the time for radical thinking), there are some great ideas in this 1000watt blog post.  Buyers: find an agent who works with you to find a properly-priced home that’s within your means.  Your investment will appreciate in the long-run and an agent worth keeping is ready to wait many years for your repeat business if they so earned it.

This bear ain’t done dancing yet, folks. What happened over the weekend matters to all of us but the full story runs much deeper. Each of us needs to recognize our role in the troubles and then contribute our part to the recovery.

If all else fails, you can either laugh or cry along with this entirely different perspective from Steven Colbert:

 

 

 

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