The latest financial crisis has people looking for perspective. The most obvious kind, with experts diagnosing the prospects of a depression, is comparisons to the crash of 1929. One source that's in demand is The Great Crash, 1929 by John Kenneth Galbraith, the late Harvard economist.
In Manhattan, ground zero of the latest debacle, booksellers can't seem to hold onto the 1955 chronicle of last century's Great Depression. At the Barnes and Noble on Columbia University's campus, a manager said he had one copy on order but was going to ask for 10 more because customers have been clamoring. The store on 46th Street and 5th Avenue has one that was specially ordered but is otherwise sold out. The shop at Union Square has one copy and the one on 54th and Lexington Avenue, at the Citigroup Center, has one in stock and one reserved.
Copies of the Crash are even scarcer at Borders. The megastore at the Time Warner Center on Columbus Circle has three copies on order and the branch on Wall Street has a lone copy.
Of course, Galbraith, who died in 2006, could have predicted that his 194-page book might come back in vogue. In his updated introduction penned in 1997, he wrote, "Each time it has been about to pass from print and the bookstores, another speculative episode — another bubble or the ensuing misfortune — has stirred interest in the history of this, the great modern case of boom and collapse, which led to an unforgiving depression."
Clearly keeping tabs on his book proceeds, Galbraith even conceded to being distressed that he never saw his title at the bookshops in LaGuardia Airport. When he finally decided to mention it to the woman who ran the shops, she explained that a book with such a title would not fly as airplane reading.
From Bear Stearns to Lehman Brothers, the U.S. has seen some of its most storied banking franchises vanish recently. The same is happening across the Atlantic. And this being the "old world," some of these institutions will close the books on remarkably long histories.
Bradford & Bingley, a UK-based mortgage lender, was nationalized yesterday. The company traces its roots back to 1851, when its constituent parts were founded within a few miles of each other in West Yorkshire. Until fairly recently, the group's logo featured "two silhouetted city gents in bowler hats," a play on the company's extensive experience and old-school values.
Also yesterday, the Icelandic government took control of Glitnir, the country's third-largest bank. The group dates back to 1904, when it became the first privately-owned bank in Iceland. In Norse mythology, Glitnir is the place where the god of justice holds court, under a silver roof supported by pillars of gold.
Fortis was the biggest casualty of Monday's madness. After liquidity concerns savaged its shares, the financial services group was part-nationalized by the governments of Belgium, the Netherlands and Luxembourg. It will be forced to sell most of the parts of ABN Amro it bought last year for a fraction of the price it paid, putting core equity at risk.
Fortis can trace its history all the way back to the 18th century. Its precursors supported Catherine the Great's overhaul of property rights in Russia and financed the U.S. purchase of Louisiana from Napoleon. In the subprime borrowers of the 21st century, however, the bank may have finally met its match.
It's one thing to debate the merits and application of fair value accounting. It's another to give the SEC unfettered authority to suspend an accounting rule — in this case, FAS 157 — for "any issuer" and "with respect to any class or category of transaction" if the Commission deems it in the public interest.
So much for 'generally accepted accounting principles' if the SEC can pick and choose who has to accept them.
The SEC is also to conduct a study on FAS 157, which shall include a review of how FASB develops accounting standards, "the advisability and feasibility of modifications to such standards," and "alternative accounting standards to those provided in such Statement Number 157."
Coming hard on the heels of Senate hearings into FASB's latest effort to fix securitization accounting, such a heavy-handed interference with accounting standards has to make one wonder about the future of International Financial Reporting Standards in this country. Sometime before the end of the 90-day deadline for the SEC to submit its "administrative and legislative recommendations" on FAS 157, surely someone in Congress will come to the disagreeable realization that allowing accounting standards to be written overseas would make such interventions much harder in the future.
To paraphrase Franklin D. Roosevelt (whose name seems to be coming up a lot lately), GAAP may be a bitch, but at least it's ours.
The employee layoffs that are starting to pile up around Corporate America may be only the latest evidence of a disturbing syndrome — namely, that most companies are so adamant about securing today's bottom line, they blithely cover their heads in sand with regard to tomorrow's.
The high-profile cuts on Wall Street are but a smallish fraction of the overall job carnage, with the unemployment rate surging in recent months and reaching 6.1 percent in August. And according to observers of the employment market, the retrenchment is happening at all levels, up to and including senior executives. Here's a question: Won't companies need some of those folks when the economy starts humming again, as it surely will?
For the next several years, talent is going to be in increasingly short supply as the exodus of Baby Boomers from the work force, and the supply of younger talent to replace them, head toward a deep, dark nadir in 2012. Laying off people now will only exacerbate what almost everyone agrees is shaping up as a huge problem. While companies have always had the mindset that it's easy to staff up as demands dictate, that probably won't be the case in the early years of the forthcoming decade.
Couldn't they simply hire back the people they laid off? Only theoretically. Because laid-off boomers will have a difficult time finding work in a shrinking job market, many are likely to employ themselves or switch careers; by the time their former industries want them, they'll have moved on.
If they're wanted at all, that is. Dale Winston, CEO of recruiting firm Battalia Winston, opines, "Sixty-year-old Boomers who get knocked out right now are not going to find a home, and in five years nobody's going to want them because they will have lost the continuity of their experience." She adds, "The consequences of today's job cuts are far greater than they've ever been because of the demographic issues companies will be facing over the next five years."
Eventually, the Millennials, 75 million strong, will ride to the rescue. Battalia Winston estimates that the talent gap will be closed by about 2019, when the youngest of that generation starts entering the work force. Until then, those charged with deciding on and executing layoffs — and surely some CFOs are among them — might be better off in the long run by standing pat.
Sen. John McCain backtracked slightly on Sunday night, acknowledging in an interview on 60 Minutes that as president he could not actually sack the head of the Securities and Exchange Commission, only ask for his resignation. But he did not back down from the sentiment, arguing that he would still have Cox’s head were he in charge. "When I'm president, if I want somebody to resign, they resign," McCain said.
At the same time, the Republican presidential candidate tried to strike a bi-partisan tone when suggesting a replacement. His offering was Andrew Cuomo, a Democrat who is the New York State Attorney General and the former Secretary of Housing and Urban Development under President Bill Clinton.
"This may sound a little unusual, but I've admired Andrew Cuomo. I think he is somebody who could restore some credibility, lend some bipartisanship to this effort," McCain said.
A Clinton guy?
"Yes. And he did a good job. And he has respect. And he has prestige," McCain continued.
What McCain may not have realized is that his chosen successor to Cox actually has his own roots in current crisis. As the Village Voice reported last month, in 2000 when Cuomo was head of HUD, he pushed Fannie Mae and Freddie Mac, the recently bailed-out Government Sponsored Enterprises, to take on more low-income loans with more "flexible" terms. Defaults by such homeowners were the first to deflate the housing bubble.
As the Voice reports:
"Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the 'very-low-income.'"
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