My 2¢ on the Financial Crisis (probably now only worth 0.75¢)

Dave and I recently got a slew of overdue care packages (thank you all!) and in one from my parents I was very happy to get a week’s worth of Wall Street Journals from mid-December. The newspapers were quite astonishing to read– I knew the financial crisis was bad, but I didn’t realize how sanguine and dramatic it had become. Here in Burkina we live in a bubble since we don’t have a TV and thus only get news snippets from rushed glances at Yahoo and NYT articles at the cyber café or in spurts via BBC on shortwave radio (when we can get the signal). I wish I could say my move out of the asset management business was planned with a prodigious amount of insight, but it was actually just coincidence, however lucky it might have been. The worst recession in my lifetime was during the George HW Bush years, so my mind is having a hard time wrapping around the current economic predicament, especially since my perspective has been reset to a more African one in recent months.

I feel fortunate to be inoculated from the economic carnage by virtue of being in a developing country. While life is hard here for local people, times aren’t much more difficult than usual; everything is pretty much the same, relatively speaking. There is some concern over food security and rising input prices, but for the most part life goes on as usual. Children continue to play barefoot in the streets and women hawk fried dough by the side of the road. As is commonly said in these parts, people get by. Dave and I are also getting by here; actually, our lifestyles are opulently flush with cash relative to most Burkinabé. We didn’t live overly extravagant lives in the US but all the same I think the economic slump would have put a noticeable crimp in our lifestyle. Some ex-colleagues just informed me of layoffs at my old company, about 10 – 20% globally. Yikes. As I wrote to a friend recently, one of the nalgenes I use here was a giveaway from work in early 2008, proudly celebrating $1 Billion in revenue in 2007 from our department alone. Oh the times, they are a-changin’!

Countless articles in the aforementioned WSJ’s indicated that many companies had to decide between layoffs or decreasing compensation across the ranks. Both are sticky situations. A “creative” solution at Credit Suisse was the decision to pay some bankers a substantial percentage of their 2008 compensation in the form of illiquid assets such as junk bonds, mortgage-backed securities and corporate loans. Ouch! My feelings are conflicted between compassion and indifference for the CS bankers. On the one hand, it is indeed painful when one is accustomed to receiving a certain amount of money and having a dramatic drop occur. Especially since these people have probably invested a great deal in personal development in order to reach the professional echelons they’ve achieved and probably worked as hard this year as in previous years, if not harder, but were walloped by untimely economic malaise. On the other hand, I am reminded of the South Park episode about the music industry’s battle against Napster-esque services. In explaining how musicians have suffered from illegal downloads, someone says something to the effect of “Britney Spears used to own a Gulfstream V jet, but because of illegal downloads, she can now only afford a Gulfstream IV.”

A few weeks after arriving in Burkina Faso, I read an editorial in a local newspaper about the effect of the global financial crisis on the country, or lack thereof. Some high-ranking European official was extolling Burkina’s luck in not having any exposure to complex derivative financial instruments and not having a developed enough stock market so as to be coupled with the global markets. The editor took umbrage at this backhanded compliment, asking why Burkina Faso should be excluded having a seat at the table of financial sophistication in the first place. Since reading that article I’ve been pondering whether Burkina is actually better off or if the old adage comes into play, “Be careful of what you wish for – you might actually get it.” Is it better that the Burkina economy is mostly uncorrelated to the global markets and thus saved from the carnage enveloping the developed world? Or would it have been better for them to be more developed in the first place, experienced a bit of the champagne and truffled “good life,” and to now be suffering under the yoke of coupled markets? And why is there no unique, satisfying answer to these questions?