The New York Times featured an article earlier this week that offered, “In Greece, Some See a New Lehman.” That’s a pretty scary concept, and one that deserves a deeper dive.
In February 2010, I drew a parallel between the five widely accepted stages of grieving and the potential for a “sovereign sequel” to the first phase of the financial crisis. The evolution went a bit like this:
In April 2007, U.S. policymakers assured an unsuspecting public that sub-prime mortgage concerns were contained. Six months later, the stock market began a slide that ultimately would shave 50 percent of its total value.
Last year, Greek Prime Minister George Papandreou insisted that Greece was being victimized by rumors and denied seeking aid from European partners to finance the country’s burgeoning budget deficit.
Populist uprisings, rejection of wealth — and icon LeBron James — and emerging class wars are symptomatic of this dynamic, as are the overseas riots in response to proposed austerity measures. That specter of discontent has gone airborne and the Middle East is now infected with social strife, revolutionary wars and cross-border conflicts.
By the time it was obvious that sub-prime mortgages weren’t contained, the damage was already done. Our government responded by consuming the cancer — buying toxic assets from the banks — in an attempt to stave off a car crash (avert a stock market apocalypse).
As European officials wrestle with how to address the sovereign mess, our financial fate can be drilled down to one very simple question: What if Greece is Fannie Mae, Portugal is Freddie Mac, Spain is AIG, Hungary is Wachovia Bank, and Ireland is Lehman Brothers?
If society is a sum of the parts, can we surmise that if more and more folks feel financially depressed, that mindset could evolve into a financial depression? Social mood and risk appetites shape financial markets; the Crash didn’t cause The Great Depression, the Great Depression caused the Crash.
Contagion arrives in phases and Greece is a symptom, not the problem itself. Regardless of the European "solution," it'll simply buy time, much like the bearded nationalization of Fannie Mae and Freddie Mac pushed risk further out on the time continuum.
Generational opportunities will present themselves; our goal is to navigate the journey and be in a position to prosper when they arrive.
Todd Harrison is the author of “The Other Side of Wall Street” and founder and CEO of Minyanville, an Emmy Award-winning financial media platform. Read him daily at www.minyanville.com.