YOUR MIND ON MONEY: Five years later, world still isn't the same

2013-09-19T09:12:00Z 2013-09-19T16:39:20Z YOUR MIND ON MONEY: Five years later, world still isn't the sameF. Marc Ruiz Times Business Columnist nwitimes.com
September 19, 2013 9:12 am  • 

Every American can tell you where they were the morning of Sept. 11, 2001. Those over 59 can probably tell you where they were Nov. 22, 1963. As someone heavily integrated into the financial world, I have similar a frame of mind when it comes to Sept. 13, 2008.

I was sitting under an umbrella in the rain watching my daughter’s soccer game. My sister-in-law, who worked for a large national bank at the time, called. She said her boss had just called her in on a Saturday (which was rare). He wanted her to inventory and evaluate her division’s exposure to Lehman Brothers, and he wanted it before Monday. He didn’t tell her why, so she asked me if I knew what was going on.

Perhaps a merger? She didn’t think so; her boss had sounded more desperate. It couldn’t be a bankruptcy. Lehman had its troubles, but it was a $600 billion investment bank. The firm was considered “too big to fail," and no one even knew what would happen to the financial system if a core Wall Street firm like Lehman collapsed. No, it couldn’t be a bankruptcy.

Late that Sunday, we found out differently, and five years later the world still isn’t the same. Our financial system is largely built on confidence. We tend to take this confidence for granted. The Lehman bankruptcy evaporated the world’s confidence, and the stock market would sink by nearly 60 percent before stability could be restored.

The economic actor largely credited with restoring stability is the Federal Reserve. Six months after Lehman, the Fed announced its plan to directly infuse the financial markets with newly created money in a process called Quantitative Easing, or QE. QE was something out of economic theory text book. We knew that Fed had this tool but had never seen it actually used. This radical measure was for all practical purposes considered economic triage. Like morphine, QE can be dangerous; if used incorrectly it creates unique problems of its own. Like all triage, QE was intended to stabilize the economy until a more sustainable solution could be developed.

So here we are, the stock market is up 152 percent, unemployment is trending lower and our economy is moving forward slowly, but steadily. By all measures the patient is stable; some might even say it’s healed. And yet the QE continues.

Almost exactly five years later this week the Fed had the opportunity to taper the triage. The markets expected it. Economists embraced it. The Fed it seemed had all but proclaimed it.

But then they didn’t do it. After enjoying the resulting stock market rally, I now have myself wondering if my new found confidence is not perhaps a little overdone. Oh well, we’ll worry about that when the morphine wears off.

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