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Best wishes to all and, next to world peace among people, we should hope for the same among world markets.
I have let some time pass before commenting on a recent example of how fragile a world we live in. This past year through a time of greater economic danger, fear and volatility than most of us has experienced in a life time, many people cannot fathom how close we came to the edge of Hades.
To me this lack of understanding is most greatly demonstrated in the negative comments we receive from some readers about how the government (which surely created the foundation for the disaster) has crushed the dollar, saved unworthy bankers and meddled in private enterprise.
For those of you that have the mistaken belief that the Bush or Obama administrations had any choice about flooding the market with cheap money, loans, subsidies, bailouts and the like, then you just do not understand how close our world came to bread lines and soup kitchens being filled to capacity with lines a mile long.
If you think 10% to 15% unemployment is nasty, imagine 30% and riots in the streets of every major city.
Evidence the broadly reported potential $58 billion loan default by Dubai World, which scared political leaders, bankers and investors into a cold sweat for a period of 48 hours, causing a not so broadly reported loss of $48 trillion in the equity value of global stock markets, greater than the value of all the banks.
That's right folks, those ambitious sheiks that envisioned building the latest version of the Tower of Babble (the 818-metre-tall Burj Dubai) -- Dubai World, almost created "Gudbai World" instead.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
12-29-2009 @ 8:17AM
Dan Barnett said...
Sheldon,
I ask your consideration for this idea. There are two "levels" of money in existence. "Real" money which is the stuff the Administration, Fed, etc. control the supply of. Then there is "Potential" money. There are say 100m shares of T stock out there. They trade at say$24. But if even one of those shares trades at $25 all 100m other shares are "worth" $25 and there is another $100m in potential money out there. I would suggest that the "potential" money dwarfs the "real" money out there and so we have to question what effect all Administration actions can have. How much of the losses in Dubai were real as opposed to Potential money?
You are absolutely right that we can not know the results of the road not taken, but I have to ask how short some memories are? Merely 10 years ago the US had a balanced budget. It was only 18 months ago that it looked like the entire banking system was about to collapse. There were discussions about the right course to take but almost no one was running the "free market" argument at the time. It is easy to carp and complain when you have a short memory.
12-29-2009 @ 10:31AM
Sheldon L said...
Dan,
Thanks for taking the time to add your thoughts. The value of the last trade does reduce the value of all the un-traded shares for real -- however, short term. The potential money is as real as anything else.
The housing market portrays this better. If someone sells their home on your block for 25% less than you value yours, guess what, your valuation is meaningless -- you have lost real equity for the time being at least. The proof, try and sell yours and see what you get.
The losses in Dubai are very real to them. An empty tower is not worth anything if you collect no rent.
The free market is not free. It depends on a high level of trust, transparency, liquidity and security. If that disappears anarchy creeps in.