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Charles E. Johnson, Chairman and Managing Director of Tano Capital, LLC,
said today “our clients have been curious and
asking many questions about the likely progression of the Crash of 2008
from here. To better answer them, we went back and studied in some
detail what went wrong in 1929, and from that compiled a list of
similarities and differences between now and then. What we found led us
to some rather startling conclusions, which we decided to release for
public view on our company website.
“The Crash of 2008 vs. 1929: Similarities and
Differences” examines the underlying dynamics
of the 2008 global economic crisis against those in 1929. The paper
explores the roles played by the Federal Reserve Bank and the Treasury
in both the 1929 and 2008 crises.
Some excerpts from the actual paper:
…The theology of free markets and lack of
direct government intervention in the markets were deeply ingrained
fundamentals of the Republican Hoover Administration. Hoover’s
first plan of attack to the Crash was to exhort verbally businesses and
individuals to accept personal responsibility to expand in order to
forestall further economic collapse. He did push through a tax cut of
1%, but almost all of his subsequent “assistance”
came through jawboning participants and not direct action and
intervention…
… Treasury Secretary Mellon consistently
advocated the total liquidation of labor, stocks, farmers and real
estate, to reset the economy and start over. He reinforced Hoover’s
emphasis on maintaining a balanced budget regardless of the cost to the
real economy…
… The Federal Reserve displayed no pro-active
leadership during this period, and clearly felt that preserving the
credit of the overall banking system was beyond the purview of its
mandate. The “lender of last resort”
was considered to be the bond markets, not the Fed…
… Investor’s
attitudes were still bullish in the first half of 1930, and they were
all sucked back into the market just in time for its next wrenching
decline. They were all caught up with backward focused memories of what
prices and earnings had been. Earnings that came out in the first half
of 1930 still looked pretty good on their face, mostly because they
incorporated a large part of 1929 in them…
…major difference between 1929 and 2008 is in
the overall health of the financial systems. In 1930, as we have seen,
the administration ran a balanced budget, the United States was the
business leader of the world, and business itself was conservatively
financed and had not over expanded, as had the stock market. The dollar
was strong and the nations’ gold supply was
large. In 2008, in contrast, we face instead a veritable mountain of
debt, much of it of the “toxic variety”
across all sectors of the economy, from government to corporate to the
consumer…
…global markets are now very intertwined and
interrelated, as can be seen from the chart below, but we believe that
they will begin to decouple and trade more independently as a direct
result of the crash of 2008…
…
Fifth, commodity prices have
collapsed just like they did in 1929, with almost identical percentage
declines this far into the crash. The markets are rapidly discounting
the implosion of corporate activity and the likely outlook for future
earnings and profits. The difference between now and 1929 is that there
are still economies that are growing globally, such as India and China,
and while demand for commodities may cool for some time, the
reflation-commodity scarcity theme will come back in spades. It has to…
Tano Capital, LLC is an alternative asset management firm, founded by
Charles E. Johnson (formerly Co-President of Franklin Templeton
Investments and CEO of Templeton Worldwide), that makes private equity
investments into rapidly growing private companies in India and China.
Tano Capital currently has offices in Mumbai, Shanghai, Taipei, Tianjin,
Mauritius and San Mateo. To view the full version of the white paper,
please visit Tano Capital website at www.tanocapital.com.
CONTACT:
Tano Capital, LLC
Sara Saardwutijaroen, 650-292-5933
ssaardwutijaroen@tanocapital.com
KEYWORDS: CONSUMER, BANKING, BUSINESS SERVICES, STOCK EXCHANGES
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