Pattern Behavior

I imagine financial advice had not changed one bit from the end of WWII until September, 2008. The market goes up and it always will.

I know I heard the advice. I'm certainly not claiming to have known better, but I've always at least suspected that a certain naive comfort had set into the population as a whole. I actually remember one person rolling his eyes when I asked "doesn't the market fluctuate?" No one would ever say "no," but the smile said it all: "there's no guarantee, BUT..."

Jen and I have been told many times by various financial advisers, well-wishers and strangers alike that money would best serve us when put into the market rather than into our home. I even almost cracked a few times. In my head, I began to suspect that maybe we were missing the train by shoving extra funds into prepayments on our home. I even remember one advisor giving me a condescending smile while showing the math based on a 10% return as opposed to money "under-utilized." No one ever questioned the regular growth. At least not really.

To Jen's credit, she wouldn't let me waiver.

My point? I guess it's that pattern behavior eventually leads to trouble because its based on assumptions. Twelve percent growth per year became such a pattern for many investors that no one ever thought, "how could this continue when people are piling up the kind of debt that would give a healthy man a heart attack?" To be fair, no one has asked that until now.

I've often asked anyone in ear shot "how did everyone miss that we were heading for financial ruin? Aren't these CEOs, financial gurus, regulators and overcompensated boards of directors supposed to know what they are doing?"

I've never been one to trust the undefinable "them" anyway, but surely SOMEONE must have seen the signs. Apparently Warren Buffett gave warnings, and I'm sure others did too, but what's a warning when graphs show a generation of growth? After all, the charts I've seen indicate growth that has been almost unfettered for 80 years or more.

I remember learning through quantitative reasoning that an assertion that, "the sun will rise tomorrow because it rose yesterday" was, by definition, a fallacy. No one doubts that tomorrow will bring light, but we can't quantitatively prove it will happen. We take it on pattern and faith. One could also say physics, but we can't know if a meteor will stop tomorrow, so even that is not a certainty. 99% does not equal 100%.

So, while we try to pick up the pieces and unwind the mess we've made, I am left to wonder where we go from here? Maybe, just maybe, we hit the very limit of growth through overuse and over-extension of credit. Maybe we've grown this far ONLY because we were so willing as a people to incur so much debt.

I don't know the answer, but easy credit provides an illusion that we have more than we ever really do. And, eventually, the bill comes due and there is no where else left to turn. It ruins marriages, it strains health and it leads to the kind of bust we are now witnessing.

The only way I think we can ever prevent this kind of crisis from happening again is if recovery leads to responsible use of credit and we stop basing our lives on the fallacy that "past performance guarantees future results." How about this time we don't forget that the market fluctuates.

But, before I get ahead of myself, we need to get through this mess first. Lest I assume recovery before it happens.