The 100 year crash: Just nature's way of saying you were getting too rich!

I love the idea of a 100 year crash. It makes the market seem mysterious and inexorable, a force of nature that is completely uncontrollable.

Hearkening to the image of the 100 year flood or the 17 year locust, the 100 year crash seems to make sense. After all, seasons go in cycles, oceans rise and recede, and it seems natural to assume that our economy's cycles of expansion and recession would hit the occasional neap tide, resulting in massive growth or massive reduction. Best of all, the 100 year crash gives us the idea that financial crises are nobody's fault: they are part of an eternal process, like the movement of Apollo's chariot across the heavens or the seasonal chill caused by Persephone's return to Hades.

It isn't all that hard to figure out how the idea of the 100 year crash came about. Right now, we are a few weeks away from the 101st anniversary of the 1907 stock market crash; a couple of weeks after that, we will have the 79th anniversary of Black Sunday, the crash that signaled the start of the Great Depression.For people who are desperate to read portents and find patterns, this must seem like a sign from the gods. In truth, though, it's a nice little history lesson: The 1907 panic, caused by a botched scheme to corner the copper market, led to the creation of the Federal Reserve. Later, the 1929 crash led to the creation of the FDIC and the Securities and Exchange Commission, as well as the passage of the Glass-Steagall Act, among other reforms. In other words, the cycles that lead to crashes are caused by exuberance and restraint, regulation and deregulation, not cosmic forces, seasonal changes, or the will of the gods.

The truth is that the beautiful, poetic idea of the 100-year crash is absolute and total dreck. While markets seem to move in waves, those peaks and valleys are not regular, nor are they subject to the whims of nature. In the case of Wall Street's current crisis, the market's failings can largely be chalked up to human activities, including foolish deregulation, unrestrained greed, and the apparent inability of many Wall Street analysts to read a history book or, failing that, to think logically.

The current recession has produced a nice lineup of potential villains, including excessively optimistic borrowers who were desperately hoping to refinance their mortgages before they converted to variable rates, gimlet-eyed lenders who encouraged subprime borrowers to buy houses that they couldn't afford, and giddy Wall Street traders who never bothered to think about the end of the gravy train. Whichever demon we choose to blame, the simple fact is that everybody is guilty of willful ignorance and a failure to look past the next bonus, the next merger, or the next mortgage payment.

In the end, ideas like the 100 year crash are attractive because they relieve us of the burden of self-education. For the same reason, they are also very dangerous. Financial news is complicated, confusing, and ultimately boring; it is easier and much more pleasant to believe that Wall Street will take care of itself and that the actions of our economy have little or no effect on our wallets. Unfortunately, ignorance will not pick up the bill for the AIG loan, the Freddy/Fanny buyout or the Bear Stearns deal. That tab is going to come due every April 15 for the foreseeable future. Personally, I'm going to celebrate it by grabbing a copy of the Financial Times!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He's currently developing his hundred year theory of world-shaking desserts; after all, it can't be merely coincidental that tiramisu was invented 100 years after fudge!
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