Private citizen, Alan Greenspan, could afford to be candid. “Our choices” now, said early August of 2010, “are not between good and better. are between the bad and the worst. The problem we are facing now is the most extraordinary financial crisis that I have ever seen or read. ”
These comments echo a growing sentiment that Americans are against something very different from the Media crisis. So far, according to the Pew economic policy group, the financial crisis has cost the American people $ 3.4 trillion in lost wealth real estate; $7,4 trillions in lost wealth of stock; and 5.5 million jobs. Bill Gross of PIMCO calls this change in the national psyche “new normal”-an economic environment characterized by reduced expectations, slow growth. falling incomes and low return on investment.
The New York Times, Nelson Schwartz recently complained: “the new normal challenges the optimism that was at the root of American success for decades if not centuries.” In turn the new normal has created a quantum change in how Americans view the economy, future prospects and how to employ their capital. The real question facing Americans-public policy makers and citizens/investors alike-is not what constitutes a positive attitude, but what constitutes a healthy attitude, able to guide investors through the next and possibly most dangerous chapter of the financial crisis.
When the financial crisis began to take its toll on the United Kingdom in 2008, Queen Elizabeth in a meeting with financial analysts asked the logical question: “because someone did not see this coming?” Although directed to the financial community in London, it could have just as easily been put the mainstream media, academia, politicians or the Government’s regulatory apparatus. The answer he received would soon become standard fare: “no one saw this coming”. The implication, of course, was that if no one saw it coming, so nobody could reasonably be held accountable.
For countless private investors on both sides of the Atlantic Ocean, application for Queen Elizabeth demanded a more customized assessment: “Because” they asked their financial advisers, “I have not suggested that this could be coming?” For those who are completely honest with themselves, the reduced demand “why not see this coming?” After all is said and done, each of us is responsible for the management of their portfolios, and because everyone else is pretty much an exercise in futility and passing the ball.
At the height of the Bull stock market in the late 1990s and early 2000s, many investors forgot that a healthy skepticism was an integral part of a successful marketing approach. Unfortunately, that loss of focus has helped millions, believing that utopian mantra that the markets and the economy is no longer by bike (the economy of Goldilocks), we were on a one-way street to perpetual prosperity (at the end of the argument of history), and that the stock market would never waver again. This positive thinking ever cost investors trillions during the stock market meltdown and subsequent merger.
Even a surface study and understanding of financial markets and their story could have prevented, or at least diluted, such losses. After all, the history of financial cycles is actually just as rich in mania, panic, bubbles and crashes as in triumphs of bull market, although only a handful of Wall Street would have subscribed to such anecdotal evidence during the first decade of the 21st century. In the end, the most damaging result of positive thinking is that set its practitioners for failure and allowed others to exploit to their advantage.