In Hindsight

By Ken MacFadyen, M&A Magazine

September 22, 2008

Roughly a year ago in this forum I predicted that our economy would be in for a rough stretch. It wasn’t at all a bold prediction or even all that insightful considering the signs -- emerging then on a daily basis -- that pointed to the distress we’re all feeling today. To take everyone back, we were just a few months into the dislocation in the credit market; Bear Stearns had just seen two of its hedge funds collapse; and consumers, those of us who don’t make over six figures, were gasping for air.

Despite the obvious nature of my prediction, the gloomy forecast yielded more angry emails than perhaps anything else I’ve ever written. It was surprising because to me it amounted to a report that the sky was blue.

I’m not bringing this up to vindicate myself. What is interesting, though (and telling), is that so many people not only refused to acknowledge the possibility of a downturn, but were indignant that anyone would even suggest it. It’s akin to Richard Fuld blaming the shorts for Lehman’s failures. I think in hindsight his time might have been better spent finding a fix.

There are plenty of examples of companies that took a more proactive approach. Go back a few months, and CIT Group appeared worse off than any of its bulge-bracket rivals. The firm, though, moved quickly to sell off its exposure to mortgage-related debt and student loans and also raised billions in new capital. Last week, CIT lined up a $500 million secured facility, reflecting, perhaps, its renewed stability, and since July the lender has supported more than $1.4 billion in new commercial loans.

Maybe it’s just one example, but to me it underscores the difference when you face a problem head on versus counting on blind faith that everything will be okay… Of course, now that everyone and their overextended mother is getting bailed out, who can really say that the latter approach won’t also work.

Ken MacFadyen

ken.macfadyen@sourcemedia.com