2008 Year of the Black Swan or Not?

In 2008 the house of cards that was global finance began to collapse.  Now in 2011 as world leaders and financial institutions are scrambling to rebuild before too much more damage is done, many of us are looking back and trying to make sense of this event and what it means going forward.  And in that conundrum a question comes to mind.  Was the financial crisis that occurred three years ago a Black Swan event or not? Black Swan Theory defined: The event is a surprise to the observer and has a major impact. After the fact, the event is rationalized by hindsight. If the financial crisis of 2008 occurred by freak accident, or was a series of unpredictable events, with all parties acting in good faith, then yes it could be considered the work of a black swan.  However, if what happened three years ago was not inadvertent we must consider an alternative explanation.  That is, for year’s greed, poor business practices and rating agencies turning a blind eye was the catalyst that brought us to where we are today. To many the scales seem to tip in favour of the latter.  This is apparent as the current battle being fought around the globe is one that pits those who benefit from the status quo against those who don’t. Take for example US President Obama and his push to place democratic politician Richard Cordray as the head of the Consumer Financial Protection Bureau, the recently formed federal agency set up to protect consumers.  Cordray, who according to Obama has “spent his career advocating for middle-class families”, is seen by the left as a populist man with good intentions (something that appears to frighten the right).

But take note, this battle has been fought before.  The 7th President of the United States Andrew Jackson in the 1830s wreaked havoc, arguably out of pure honest intentions, when he paid off the national debt.  This along with other policies designed to stop speculation in part lead to the depression of 1837.  The 26th American President Theodore Roosevelt, a republican social reformer, was a known supporter of the Progressive Era, a movement that aimed to stamp out corrupt political machines.  And again, the 32nd President of the US Franklin Delano Roosevelt had his struggle following the Great Depression when he introduced the New Deal, a plan with a notable tag line: Relief, Recovery and Reform. In the wake of 2008 one thing is clear, black swan event or not, fundamental changes must be made. Regulations and those who enforce them must have teeth.  President Obama will have his work cut out for him, especially in an election year, as he attempts to establish a balance between consumer protection and corporate interests.  He must get back to the very principals that got him elected in the first place “change”.  And for the middle class it means change that has meaning. | Raymond Matt, CFP, CLU, TEP, CHS

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