Tuesday, October 14, 2008

Conventional Wisdom

The consensus view at the moment seems to be that the coordinated global support of the banking systems will at least stop the bleeding and begin to slowly encourage the reopening of the credit markets. The other part of today's conventional wisdom is that a recession of a depth that we haven't seen in 18 years is almost certain now in the U.S., and a global downturn of varying degrees is already in the cards as well. Makes sense, right.

The problem is that conventional wisdom has been so dramatically wrong at almost every turn since this all began in earnest in August 2007. So what if this infusion of capital doesn't work, that confidence has been so broken that markets stay at well below normal activity levels. It seems that anything is possible until this plays out further. On the other hand what if this panic and the resonance of the bear case has been overdone, and that the U.S. economy, the Asian economies, and the major emerging market economies are not nearly as badly off as advertised. What if this has been mainly a banking crisis and commercial and industrial companies, while in for a downturn, are in fact fairly strong and will get through this ok within the next six to nine months.

I certainly don't know.

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