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by Michael Rogan
Special to Tropical Breeze

According to the media, we are in the midst of a financial “crisis” in this country, and it’s getting worse all the time. Recently, as evidence the “crisis” is deepening, they point to the apparent demise of Bear, Stearns, usually described as the venerable 85-year-old Wall Street brokerage firm that was brought to its knees by the “subprime mess,” or words to that effect. Finally, terms are used to set up this set of circumstances as completely unique in American history, intentionally leading the viewer/reader/listener to conclude that indeed, this “time” is different, and who knows what bad news is next.

While some of the details are different, as is always the case, even a cursory glance at history could and would have predicted these recent news events. In fact, in just the past 25 years we have seen the failure of many banks and brokerage firms previously thought to be on solid ground. Continental Illinois Bank failed in the mid-1980s though it was the nation’s seventh largest bank and believed to famously be “too big to fail.” We witnessed the demise of brokerage Drexel, Burnham, Lambert, at the time the nation’s fifth largest investment banking firm, due to the scandal and greed surrounding junk bonds. In the 1990s literally hundreds of Savings and Loans failed due to poor lending practices and a substantial slowdown in the housing market (does that sound familiar?).

The lesson from history is not that the demise of Bear Stearns was a surprise, but in fact it should have been expected. Not necessarily Bear, Stearns specifically, but some large brokerage’s failure is a typical component of these events. Bear was a leader on Wall Street in mortgage-backed securities, so perhaps it really should have been very little surprise. So, what should happen now?

History tells us we may or may not see another large firm involved in this mess fail, but either way, we the people will not be satisfied before we see some executives ending up in orange jumpsuits in a federal prison somewhere. Already the FBI is investigating Countrywide Mortgage, and we can rest assured the investigations of the mortgage industry won’t end without indictments.

Meanwhile, we will move on. In fact, there are signs that the economy and markets may already have begun to look past the recent news. The Federal Reserve has now cut interest rates by 3% in just the past six months. The economy only now has had enough time to absorb the first 50 basis point cut that took place in mid-September. As the months go by, the full force of the 3% cuts will, as it has always done in the past, stimulate the economy. Historically, whenever the short term interest rates have dipped below the rate of inflation, the economy was “hyper-stimulated.” So while the media will be focused on the recent past, the economy will be in the midst of a dramatic recovery, which likely already has begun.

It is unlikely that this presidential election year will prove to be the fourth losing election year in our history for the stock market, despite it having declined about 10% so far this year. Since we are not in the midst of a Depression, World War or beginning to burst the “tech bubble,” this would be the first time the market declined in an election year without a dramatic reason.

Five to seven years from now, the banks and brokerages will take another holiday from compliance oversight and, overcome by greed, they will take on enormous risk in some new way that doesn’t exist yet. The headlines will blare that this time it’s different and warn you to be very worried. But if you remember history, you may simply only roll your eyes, mutter something like “here we go again,” and focus on the future recovery.

Michael Rogan is president of Rogan & Associates Financial Planners, a locally-owned financial planning brokerage firm based in Safety Harbor. He brings nearly two decades of financial expertise to the local airwaves on the radio show, Financial Planning for Life, heard at 11 a.m. weekdays on AM 1250 WHNZ. For more information, call 727-712-3400 or visit www.RoganFinancial.com.