At Junta number 2 we are going to talk about the financial crisis that is dominating the news, many are calling it the worst since the Great Depression. I spent a few days last week at hedge fund conference in Greenwich and it was amazing to be surrounded by that crowd as the market was doing somersaults. Guliani opened the conference, Larry Summers (former Treasury Secretary), and Eugene Ludwig (former Comptroller of the US Currency) spoke, among others. Ludwig was more willing to forecast and said that we are only “50%” through the crisis. He said that the main problem with the US economy was “an overabundance of financial services” and said that he expected at least another 100 banks in the US to fold.
As the crisis has unfolded I personally have felt that despite all the incompetence of the Bush administration, and all their culpability in the time leading up to the market meltdown, we were in good hands with Bernake and Paulson. Bernake is one of the world’s leading experts on the Great Depression, and Paulson is a former head of Goldman Sachs; I used to follow Paulson’s work on China through the Strategic Economic Dialogue he founded with the Chinese and was impressed with him. In reading about things I have been inclined to say that if these very serious men feel like this massive bailout is essential for the US economy to weather the storm than I guess we better do it. But listening to some contrarian opinions, and reading about Buffet’s investment in Goldman Sachs, I’m starting to wonder if the bailout is the right move and would like to hear other thoughts about that tonight.
I also suggest we talk about this business on executive pay and the bailout, and I would like it if some of our finance friends could shed some light on the debate surrounding mark to market versus fair value accounting. This all might sound pretty esoteric but it now affects us all.
I heard a quote by John Maynard Keynes this morning that I thought was apropos: “The market’s ability to remain irrational will outlast a company’s ability to remain solvent.”