I did some research on the previous recessions during my lifetime (I’m 47). There were basically two.
My findings suggested that those recessions behaved somewhat differently than this one. Looking at the Dow and the other indices we saw a long, fairly predictable decline followed by a “perfect storm” of factors that put a nasty dip at the end getting us to about where we are now, hopefully skimming some lower support level- at or near the bottom perhaps… hopefully.
I wonder. What factor or role did enhanced communications and connectivity play in this recession that was not in place during the previous ones? People are more connected, more “hair trigger” and emotions along with response to emotions (more emotions…) play a significant role in the behavior of the markets and indices. Consumer confidence, home values, etc.
It seemed as though the more news and information was circulated the worse it got, and it got bad quickly.
Now, this is absolutely *not *to suggest that there are not fundamental economic problems There most certainly are structural economic problems. However, the sensation of a Congressional “Bailout Plan”, the economy being a battleground with the enhanced focus of that in the election, etc. These have to be factors in the erosion of confidence and hence, errosion in equity.
Now, I know this is another pointless internet discussion done in retrospect, but it’s interesting to consider that we may have made a bad situation worse through enhanced communication.
“recessions during my lifetime (I’m 47). There were basically two.”
I’ve also lived through two previous recessions. I was more effected by the one in the early 90’s because I owned commercial real estate which took a huge depreciation and was also going through a divorce at the time. Consequently my slate was more or less wiped clean and I had to start over again. I was just starting out in the early 80’s recession so was less affected but had to negotiate my student loans and borrow money for my first office at 16% (ouch!!) A few years later I got a mortgage for 12% and thought we had a superb bargain.
A fair number of people on this board may still be young enough to have not really been part of a recession until now, so aren’t really sure what a recession is about.
I’m not an economist but my observation of recessions is that they don’t last forever. We recovered from the early 80’s and early 90’s and will eventually do with this one. That’s the good news.
I would consider the 2001 explosion a recession as well, not sure if you’re counting that one. That being said there’s not a whole lot of difference on the “Communication” aspect of things since then.
I’m not sure “communication” plays a much larger role today than it did in the 80’s. We might have a slight faster “reaction” do to the daily/hourly internet updates and the ability of everyone to watch “Live updates” of the market etc., but in the 80’s “Print” was far more powerful than it is today. So people got the info, just slower.
Now, I know this is another pointless internet discussion done in retrospect, but it’s interesting to consider that we may have made a bad situation worse through enhanced communication.
I don’t communication has made it significantly more “Worse”. I would say it has made it significantly more volatile due to “Reaction time”, but I don’t think communication has worsened the situation any more than any other time. “Doom and Gloom” in the paper is no different than “Doom and Gloom” on the internet. One takes 24 hours to get to you, the other 24 secs.
I think there are maked differences in the last 9 years.
In the UK there is a journalist called Robert Peston, the nationalisation of at least one and perhaps more than one bank is being attributed in part to his blogging about the internal machinations of those institutions.
He has access to lots of “insider” (though not in the trading sense) infomation and this caused the run on one of those banks late last year.
The fact that this infomation is now relayed so quickly, there is little time for organisations to mitigate against it, the result being that they get in to bigger trouble much faster.
I think you are on to something but I would look more at the front end cause rather than the “spread” of the bad news.
One thing that will be of interest is when historians look at the causes of this is whether enhanced communications and computer processing power allowed a false sense of security which allowed the creation and trading of the complex financial instruments that seem be at the root of the current crisis to get out of control. There has already been quite a bit written on the unintended consequences of complex risk formulas used by the investment banks etc. They put a number on risk but no one paid attention to the fact that the formulas only worked when the market was working within norms. Once things got a bit off track, no one was prepared for what would happen.
Technology is, obvioulsy, very useful but it can also create an illusion of control beyond which is really present. I think we are seeing the affect of thinking we had a handle on things when we really didn’t and, technology including communications technology played a big role in allowing that false sense of security.
I get your point, but I think you want a different term than “enhanced communication.”
“Enhanced” implies the communication is better. Certainly the volume and speed of communication has increased dramatically over the past couple of decades, but that doesn’t mean it’s improved.
A lot of journalism and editorials these days seems entirely based on emotion and ideology, not research. Jon Stewart used this to comedic effect recently.
And the consumers of information seem to base decisions on which personalities and ideology they prefer instead of doing the work to figure out which information is the most reliable.
I remember back a few years ago when some quiet voices were warning of a housing bubble. They were absolutely slammed. No one wanted to hear it. The major news channels were allowing talking heads from the National Association of Realtors to come on the air and spout what was essentially flat-out lies as if it were from a reliable source of information.
There is also great journalism going on, but it often gets lost in the din.
I totally agree that the stock market indices are shockingly emotion-based.
I guess my position is along with the quicker reaction of the populous comes the quicker reaction of the companies.
Whatever could be done before thru the “Paper” can now be done on the internet. Both “Pro” and “Con” can be done just as quickly. The reactions are the same, they just happen faster. Thus my point that “volatility” is up, but the long term effect is the same. The “Smoothed” graphs look very similar.
I would concede that on occasion something might take someone by surprise but you would have had the same thing back in the 80’s if someone published an unexpected article. Again the only change is that it happens far quicker and more often due to the access to communication.
I would also agree that there is a slightly higher risk of “Bad” information getting out and causing damage. You don’t have the filter of time and editing that used to exist.
I’m not saying there isn’t some difference and that there is some influence, just that I don’t see it as a major factor other than the occasional “Big bang”, which also happened with print.