Why Didn’t We See The Financial Crisis Coming?

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Today was yet another Toad’s Wild Ride on Wall Street; down 400 and then back up 400 points and nobody knew if the day would end up or down. And let’s not expect it to end any time soon. I like what Cramer has to say about the market right now; if you need your money in the next 5 years, don’t invest in stocks!

But why didn’t we see the current financial mess coming? With oil and energy-related goods and services soaring over the last year (meaning almost everything we consume getting more expensive), the last recession more than 5 years in the rear view mirror and some U.S. real estate markets having risen so much over the last 10 years, shouldn’t it have been obvious this was coming?

While it is painfully obvious now, collectively we were oblivious to the warming signs and it probably won’t get better for a long time to come still. Economists don’t all agree, but techincally recession is defined as 2 or more quarters of declining Gross Domestic Product so we aren’t quite there … yet. However, I doubt many people would agree with the argument that we aren’t already in a recession.

But history shows that every recession creates new opportunities. Let’s consider a few positive outcomes:

  1. The dotcom bust that followed the beginning of the new millenium paved the way for Web 2.0 and companies like Google have shown us that it wasn’t a bust at all, but rather an entry point for new business models as entrepreneurs were still learning how to leverage a new business medium. Who will make a fortune in the wake of our current economic woes?
  2. Advertisers are pulling away from traditional channels such as direct mail and mass media but early results show they continue to increase their marketing and advertising spend online even as we have entered hard times. A global recession may prove to be a substantial boost in the continuing shift toward online business models and marketing channels that are more efficient and effective.
  3. Collectively, governments of the industrial world are pumping more than 4 billion TRILLION dollars into the financial markets. While we can all see it won’t have an immediate effect, surely with time this will lead to potentially unprecedented new capital investment worldwide. The long term benefits of this infusion of capital could be tremendous for small businesses, which is where the most creative and innovative business development tends to occur.
  4. While losing your job is never fun and can have horrendous short term effects on peoples’ lives, it can also act as a catalyst for re-training and career changes that we later look back on as a good thing in the long run.
  5. With real estate and stocks beaten down so badly, won’t it be a good time to ‘buy low and sell high’ later?

So, while we should all be kicking ourselves for not anticipating the current economic problems, we soon have to get over wondering how and why this has happened and move on, looking for new opportuinities and adapting to our new reality. Never cry over spilled milk, right?

A good start would be to vote this November 4th; don’t let the current economic problems stop you from casting your vote. Remember; the people we all elect to office this year will have a great impact, positive or negative, in what happens over the next several years!

October 16th, 2008 by Local Fresh


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