1 Boring Old Man

In Free-Fall, Stocks Hit Lowest Mark Since ’97
Markets Sink Globally as Government Actions Fail to Reassure Investors
By Neil Irwin
Washington Post
March 3, 2009

The global financial rout worsened yesterday, driving U.S. stocks to their lowest level since 1997 amid deepening questions about whether governments around the world are being forceful enough in combating the economic crisis.

There was no single cause for yesterday’s sell-off, which sent each of the major indicators down at least 4 percent, with the Dow Jones industrial average closing below 7000 for the first time in 12 years. Investors were shaken by another government rescue of insurance giant American International Group, which said it would take on $30 billion more in public money after reporting the largest quarterly loss in U.S. history. The markets were also absorbing news from the weekend from famed investor Warren E. Buffett, who said the economy will be "in shambles" this year and who reported the worst investment returns in the 44 years he has run Berkshire Hathaway.

But more than any individual development, the continuing collapse in financial markets around the globe reflected an absence of faith that the trillions of dollars that governments have deployed to try to contain the damage will do the trick – and a realization that, from Europe to Japan to the Americas, the flow of goods and services is drying up.

"People are really coming to terms with the fact that we not only have a global slump, but one that’s going to be prolonged," said George Feiger, chief executive of Contango Capital Advisors. "And there’s a lack of coherence to the global response. In Japan, the government is paralyzed, in Europe the absence of a central government is crippling their ability to conduct coordinated policy, and the U.S. government has taken some dramatic actions, but always too little too late."

There, I read things like this Wikipedia article. There were names of researchers from a variety of disciplines who had worked in the area, but little about anything "General" in what they said except for Cybernetics, the study of regulatory systems and their feedback loops. That was pretty interesting stuff. It’s essentially how computer programs work – feedback loops where a change in some measurable parameter results in a change in what the program does. That was pretty interesting to me and got me started programming on the then embryonal PC’s.

Your car is a system. Most of the time, it’s like a Magic Carpet. This morning, most of you drug yourself out of bed, got dressed, and drank a cup of coffee. Then you walked out the door and after a time found yourself in another place – a lecture hall where some guy was talking about General Systems Theory. In the process, you had no thought about how your car works. It was just Magic. But for a few of you, it wasn’t like that. Your car sputtered and jerked [some hands went up and we all laughed], and you began to think about getting gasoline, or an oil change, or a tune up, or a new car, or going back to bed  [many hands went up to loud laughter]. The system "car" fragmented into parts in your mind as you went through the various causes of "car sputtering." A system is only composed of parts when it’s not working.

Some made-up lectures are better than others. That was one of my best – repeated year after year. Medical students are generally impoverished and still driving poorly maintained ckunkers left over from college [or their parents' hand-me-down cars], so my opening gambit never failed to get a few hands in the air. I would go on:

There are two kinds of people when it comes to systems. People like most of you guys [and me] who do nothing until the car starts sputtering [or fails to start]. Then there are others like your parents [and my wife] who seem obsessed with auto maintenance, and rarely have to deal with sputtering cars. You’ll meet both types when you get into practice. Some patients will have you thinking, "How did you let yourself get into this bad a shape before you finally got hauled into my office?" With others, you’ll think, "You again. Everyone knows that Viral URI’s last a week or two. You’ve only had your cold for two days! "

Well, the system "our economy" started sputtering like crazy last September [Don't we wish there had been more people obsessed with auto maintenance in the last Administration]. And our system has fragmented into parts which began to blame each other. Like the patient who arrives when they can no longer breathe, our frustration that they didn’t come in when they first noticed that they were having trouble getting up the stairs isn’t worth much. Most decent Doctors learn to deal with the patient in front of them rather than the patient they wish they had. So we’ve had almost six months of craziness as the klunker-ness of our economy becomes increasingly apparent. This article starts, "The global financial rout worsened yesterday." This just isn’t true. It didn’t worsen yesterday. Yesterday, a significant number of people woke up to how bad things already are.

But I hope this article is sort of a marker. Heretofore, our new President has tried like hell to get us to wake up to the size of this mess and come together to deal with it. On the left, he’s been criticized for not doing enough. From the right, everything he’s tried to do has been met with resistance and mockery. But, here we have the real business guys saying "… and the U.S. government has taken some dramatic actions, but always too little too late" and "… famed investor Warren E. Buffett, who said the economy will be ‘in shambles’ this year and who reported the worst investment returns in the 44 years he has run Berkshire Hathaway." We’re "chasing the problem" right now instead of putting together a new system to deal with the collapse of the old one, and replacing the old system with a fresh one. From 1929 until 1933, Herbert Hoover chased a similar problem into the depths of hell before F.D.R. was able to come up with a "New Deal." And George Feiger is correct when he says above, "… there’s a lack of coherence to the global response."