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My Two Cents

Market Meltdown

Chris Farrell Jul 27, 2007

Does the global market meltdown signal the end of the global boom or, at least, a dramatic slowing in the U.S. economny? I don’t think so. The reason is that abrubt downturn is largely a welcome turn of events.

For one thing, the sun is setting on the golden age of private equity deals, and that’s all for the good. There was too much money paying too much for increasingly marginal leveraged takeovers. Management and the private equity folks joined forces to drain corporate coffers of cash to line their own pockets (forget about investing the in future). And now we are in this ridiculous situation where multi-millionaire finance gunslingers are claiming all kinds of bad things will happen if they are taxed at the same rate as their secretaries. Right.

For another, even congenitally optimistic real estate industry titans like the head of Countrywide Financial are conceding that the housing market isn’t going to turn around anytime soon. But the turmoil in the market won’t take down the economy.

Taken altogether, credit sanity is returning. The tightening of credit standards will fall far short of a classic credit crunch, however.

It still seems that the best forecast for the U.S. remains moderate economic growth and lower inflation, especially if the global economy keeps expanding. .

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