Witness to a game-changer

This is the finest piece of article that I have read so far about the financial melt-down, it is called "Wall Street lays another easter egg" by Niall Ferguson.

Well, no-one who hasnt been living under a rock since september 2008 can say that they have not been shaken up by the things around you. Information coming from the most inner sanctum of the worl economy says that we have been overspending, over-leveaging and buying stuff that we simply havent had collateral for. Well, this statement can definitly been said about the U.S. A normal family, living in the suburbs with "normal" jobs.. of course you take out yet anohter mortgage in order to send your kids to college/b-school/unvisity (whatever!) but ordinary consumption? Well, this has certainly been the case, but what about the Nordic countries.

Well, when I say Nordic I should say Scandinavia - see what happened to Iceland. Talk about emulating the behavior of American consumers and doubling that. What I get so confused about is that no-one stopped for a minute and asked themselves "where does this newly found wealth come from?". Well, certainly not from organic growth, taking away the effects of gearing - the US economy has only grown 1 % per annum during the last administration (according to Krugman) and this can certainly be said about Iceland too. Well, a burger at one of the ordinary restaurants in Reykavik, that will be SEK 200. What?! What is in this burger, Iceland-pony?

I cannot say that I feel any pain for the Icelandic people - what I see is that I see a total game-changer, a new order that we cannot yet define. And this new way of capitalism, is in the end going to affect all of us. In what way then? Well, lower access to capital - a focus on organic growth and less financial alchemy. Many of the hedge funds operating in Scandinavia has had this as their primer objective, pay out the cash - give this "wealth" to the owners since the owners have better use for it than the company, since they are only "sitting on it". Well, now - in retrospect, how wrong they were. However, less access to capital will definitely change the P/E market in Scandinavia. Less access to capital will mean that it will be harder to find positive NPVs out there, skill of running businesses and finding opportunities will definitely become harder and more scarce. The cost of capital is going up and so is the demand for returns. As we live with the forces of market capitalism, we cannot change the way people think about life, wealth and jobs (and I dont think it is wise to re-define the modern world).

However, what I believe this financial melt-down will do is that we in a couple of years will see new domains of power emerge from the ashes of those that once were. Should the Swedish government allow SAAB to go into bankruptcy? Of course (in hindsight, the Swedish ship yards?). Is there any value in retaining something that needs financial medicine every quarter? Of course not. From the ashes of the old corporations, new one will rise. Profitable businesses, and those companies that will survive this year of judgement will re-emerge as the powerhouses of tomorrow. What do I base this on? Well, I base this on the fact that the latter half of the last century was one of the most prominent times of the history of humanity. Krugman derives the wealth from the fact that we had a different game-changer back then, the 2nd world war. I disagree (even though my access to facts is limited), I believe that what we saw back then - disregarding the cold war - was a new way of comradery, the construction of the EU, the emergence of new technologies and a commitment of consumption that touched every soul in the "western world".

This may sound naive, but what I hope is that the rest of world, eventually will get on the wagon and see the potential in disruption. After all, in the old testament, g#d found it appropriate to rest on the 7th day - and I think we just have to understand that so will consumption during 2009, either if its financed with debt or with equity since the stakes of our future foundation of wealth are so high.

To sum up what it is i mean with this posting: In 10 years we will see that the demand for goods and services will be rising and in the long run we are all dead. This also means that a lot of old - earlier functioning - business models will die.

(Good links on this topic: Krugman 1, Krugman 2, Becker-Posner Blog, Roubini 1, Ferguson 1, Ferguson 2, Roubini and Mishkin on Charlie Rose, Washington Post)