5 Stages Of Grief - Relative To The Global Financial Crisis

The current financial crisis seems to be morphing into a new stage. Daily news articles in the various newspapers trumpet new thoughts, thinking, ideas etc.  Today, Paulson was proclaiming that they were going to look at a “new” way of injecting funds into the bank. Hooray! President Bush announced G7 leaders would unite to solve the problem. Double Hooray!

Several months ago, these announcements carried some weight.  They were so infrequent and uncommon, that investors and the general public actually believed that something good might come out of the changes that were being announced.  I am suggesting that things are changing.  People are beginning to loose faith and confidence in the way that the government is handling the crisis of confidence.  Nothing really seems to be working well.  The credit markets are still seized up and banks are still unwilling to lend to each other. This is a nation that has run on credit for too long.  The credit is gone.

I tried to think about this crisis, and how to frame it.  I thought it might be interesting to consider the Five Stages of Grief and then think about where we must be within that cycle, as a means of helping myself to understand how close we might be to the end or the bottom.

Five Stages of Grief - Relative to the Global Financial Crisis:

• 1) Denial-”this can’t be happening to me” - I think that this stage probably began shortly after of October 2007.  The markets had just retested their all time highs and there had been some discussion about mortgage related problems and the housing boom coming to an end.  There was a lot of debate at that time about whether or not housing prices were truly inflated and whether or not we were actually in a housing bubble.  There were some defaults and foreclosures starting to take place, but generally speaking investors were still believing in strong markets and felt that any downturn would be relatively short lived.  Earning expectations for many companies were still high.  There was a tremendous amount of discussion about “recession” (even recently).  Are we in a recession?  The experts that label these types of economic phenomena have been slow to actually come out and state emphatically that this is really a recession.  This was the denial stage.

• 2) Anger-”why me?”, feelings of wanting to fight back or get even -  The anger stage of this crisis evidenced itself in the “blame game” phase.  As the crisis deepened and it became more apparent that the term of this crisis was going to be longer than most expected, people started to feel angry.  Their anger was evidenced in their lashing out and trying to blame those who caused this crisis.  If you recall the blame shifted to many different groups.  All of these parties have had a finger pointed at them for being the cause of the crisis.  Mortgage Brokers (for giving out loans that people couldn’t afford), Mortgage Holders (blaming people for borrowing more than they could afford to pay back)  Wall St. Speculators (for investing in commodities and driving up the price of gas and oil), Government Regulators (for lax regualtion of  investment banks), The Federal Reserve Bank (loose monetary policy, resulting in a lending boom), SEC - (Christopher Cox - McCain called for his resignation), Commodities Futures Trading Corp (lax regulation of commodities markets), Short Sellers (for driving down prices - “short selling is anti-american).  None of these parties are truly to blame.  Most of these parties just reacted to the situation that existed at the time.  It’s very difficult to lay blame with any one party.  The root cause of the crisis is excessive credit.  My opinion is that the Federal Reserve and the US Government are the true culprits, as they permitted the creation of a loose money system.  They allowed the lack of regulation over the Banks, Hedge Funds and derivative markets.  They permitted the loose money environment to develop and grow over time, years.

• 3) Bargaining - bargaining often takes place before the loss - I believe that we are currently in the bargaining stage.  In this stage we’ve realized that there is a tremendous problem and are now bargaining to try to fix it before we suffer a total complete devastating breakdown of our Global financial system.  The problem has existed for a long time.  Fannie Mae (FNM), Freddie Mac (FRE), loose money, excessive debt  as a nation and as individuals.  Experts have thrown out solutions for solving the problems.  Experts have suggested that if we don’t deal with the problems that there will be a Day of Reckoning.  We don’t really know how bad it could get.   If we have a total and complete shutdown of world capital markets it will be like nothing anyone has ever experienced before.  Today, World leaders are bargaining to try to avoid the utter destruction and catastrophic losses that will become evident.  It may already be too late.  The die may have already been cast.  It feels that each day there is a new proposal.  Governments are trying to support the stock and credit markets at any cost.  They are trying to insure any and all investments in hopes of bringing back confidence to the system.  The damage has been done.  I believe that each day that the crisis continues, people distrust our government even more.  I also believe that as the crisis gets more severe and the losses to people’s portfolios escalate, confidence drips away even more.

• 4) Depression - overwhelming feelings of hopelessness, frustration, bitterness, self pity, mourning - We are not yet at this stage.  This is when the true scope of the losses become evident and people feel that there is no hope.  This is the stage when realization sets in that no matter what steps anyone takes to deal with the crisis, it will have to run its’ course.  Here’s where “The ship goes down” and we realize that we’re all on board.

• 5) Acceptance - there is a difference between resignation and acceptance - Here’s the new day dawning. Here’s where we start to deal with reality.  We realize that we are in a new world order.  The future may not be the same as the past.  We accept the thoughts that our future will be different from our past.  We deal with it.  We learn from our mistakes and seek to prevent future occurrences of similar problems.

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