The Bridge

In August 2007, a bridge collapsed in Minnesota, it provided a good analogy to the problems in the country.  The following was posted to my blog on August 5, 2007.  The lessons are equally applicable in 2010:

A view from a bridge

The Minnesota bridge collapse provides a fitting analogy for the current market problems. The following is an excerpt from a note I prepared: The change I was trying to discuss is not one that has specifics since there are not individuals. The change I was addressing is a societal change that will be forced on America because the spend, spend, spend society cannot survive. Last week the rot in derivatives began to gain some focus. Much like the bridge that went down in Minnesota, the problems have grown over the decades. Much like the bridge in Minnesota, the ultimate change will be sudden in terms of time (months, not decades). Much like the bridge in Minnesota, there will be great hindsight interest in the condition of the bridge once it collapsed, but little while it was still working. As I said in my paper, most view me now as a very smart fellow with interesting ideas that do not apply to them. When the market crashes in the next 60-90 days, they will feel differently. Again analogizing to the bridge collapse, people will seek out experts like me. They will want to know what to do to fix their bridge. The answer will be it is too late to fix the bridge. You will have to build a new one. The markets are not in fact science as your finance colleagues argue, but instead people. The reason I have no qualms stating what I state is that I have been in the markets for 30 years and been through the “this time is different” dogma many times. What is never different is risk and reward, greed and fear. This period of time will be known for excess greed and complete mismanagement of risk versus reward. Like the bridge, the fact that it went another day without falling into the river despite the decay did not make it more likely that it would not fall. Instead it merely made people incrementally increase their belief that it would not fall.