Views on improving the integrity of global capital markets
20 October 2011

What Keeps Us Up at Night?

Linda Rittenhouse, JDIn its Fifth Annual Main Street Investor Survey of just over 1,000 individuals in households with $10,000 or more in investments, the Center for Audit Quality (CAQ) reported that investors showed a surprising optimism.  Although down from the previous year’s results, an impressive 61% of polled investors have “some, quite a bit, or a great deal of confidence” in the U.S. capital markets.  The CAQ views this finding as evidence of the resiliency of the average U.S. investor. 

But what keeps these investors up at night? Worries about funding retirements (59%), followed closely by concerns about health care costs (54%). Nonetheless,  perhaps any validation of investor confidence these days is good news.

However, not all share this optimism.  

At a recent “Investor Confidence Forum” held by The Atlantic (a current affairs magazine), Pulitzer Prize winner Liaquat Ahamed (Author, “Lords of Finance: The Bankers Who Broke the World”) distinguished the current economic crisis from others as one with a global nature, calling it a number of independent crises that are “feeding off of each other.”  And unlike past crises, the U.S. went into this one with an “unusually large public debt.”  The challenge he notes is persuading the various players that we’re all in it together. That is why it is Europe that Ahamed said keeps him up at night.

 Mr. Ahamed finds four patterns in all major U.S. economic crises:

  • The crisis begins through too much borrowing and ends with even more credit inflation;
  • The crisis is not resolved through “Government tinkering” but instead because of new technology );
  • The world looks different afterwards in terms of economic and social arrangements; and
  • During the time of economic recovery, there is a lot of talk about protectionism.

How will the world look five to 10 years from now?  Ahamed predicts cuts in entitlements around the world, a rethinking of the role of government in the labor market, and a rediscovery of trying to promote manufacturing (in response to a sense that we have allowed finance to become too large).

A second panel at this conference (Andy Cross of The Motley Fool, Joshua Gotbaum of the Pension Benefit Guaranty Corporation, and Maya MacGuineas of the Committee for a Responsible Federal Budget) presented a range of problems that should keep us up late into the night, as well.   

Rather than a cause for celebration, one panelist saw the confidence reflected in the CAQ survey as a simple exercise of people needing to have hope in something and choosing an entity “that burned  them the least.”  Another noted that the government’s lack of understanding of where we’re heading results in budget impasses and public economic policy proposals that do not get at the heart of what will fix us.  And the inequality of income in the U.S. will continue to fuel resentment while the tension between government (it bailed out Wall Street which should be grateful and cooperate) and Wall Street (government is incompetent) has lead to a further impasse, leading one participant to admit “no question we are a mess.”  

So, where is the ledge to grab in an environment that one panelist called “idealogically homeless” and that “couldn’t feel more broken?”  It may be the severity of the current crisis, the same panelist offered. In the past decade politicians have done “fairly easy things.” Now they are facing the really hard stuff.  Perhaps it will be this urgency of need that will propel serious and innovative work to resolving the compelling issues facing us.

Yes, we all need something to believe in.  But believing in politicians who, on the eve of an election year, are needing to work together more than ever?  Now that’s enough to lead to a long round of insomnia.   

 

About the Author(s)
Linda Rittenhouse, JD

Linda Rittenhouse, JD, is a director of capital markets policy at CFA Institute. She focuses primarily on issues related to investment products and investment regulation. Rittenhouse holds a JD degree.

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