It feels like we are moving through a watershed moment in both the U.S. and global financial markets. When the mortgage securities market collapses as though it was the tulip bulb market centuries ago in Holland it is truly time to take pause and look at what has been allowed to occur.  Mortgages, secured by real estate, have long been considered as a secure type of investment, unlike say junk bonds.  Now the marketplace is saying that they cannot value them so no one is either buying them or allowing them to be used as loan collateral.  Wow!

In the new global electronic trading marketplace, mentioned in the last post, there has been a vast amount of new investment vehicles created in the past 20 years.  These new investment products, ever more sophisticated and varied, gave investors new ways to hedge portfolios, take on or alleviate risk and accelerated the electronic flow of capital around the world.  They also were created, in part, by investment banks to create new sources of fee revenue.  This was the beginning of the problem as it led to investment instruments to become disconnected from the underlying asset.  Once a mortgage was granted to a home buyer, that same mortgage was pooled into a mortgage backed security and sold to a buyer, often in a matter of weeks or months.  There was no longer any connection between the home owner who was paying down the mortgage and the holder of the mortgage.  No relationship existed.  …

There are two future thinking filters through which I view the recent upheavals in the financial markets.  The first is that we are moving to a new and developing global society and that this can first be seen economically.  The second is that debt is something that must be looked with new perspective.  Today we look at the first filter.

Humanity has conclusively moved into the global stage of its evolution. There is no turning back.  There are more than six billion of us and that fact alone is enough to reorganize human endeavor to a global orientation. Human history shows us that economics usually leads the way with politics and culture following close behind.  Columbus ‘discovered’ America because he was looking for a trade route to India (at least now we refer to our indigenous people as Native Americans, no longer Indians) for the economic gain of Europe.  American politics and culture ultimately followed this initial economically driven endeavor.

BNP Paribas, the largest publicly traded bank in France suspended investors’ ability to withdraw money from funds that had invested in American mortgage securities.  When one of the largest financial institutions in Europe shuts down trading because of rising foreclosures in California it is clear that the financial marketplace is global.   Of course we have known this for years, particularly since the advent of electronic fund transfers.  Money flows electronically around the world without any regard to borders or time zones.  Now that money has lost much of its’ physical characteristics, it …

The news out of Detroit last week was that GM had given up the title of the world’s number one auto company to Toyota.  This was a development that had been expected, but when both companies reported first quarter sales last week, the numbers made it official.  Toyota sold 2.35 million cars and trucks, about 100,000 more than GM. These numbers were expected, as GM had made a decision last year to cut back on bulk sales to rental companies which have historically been included in the total sales numbers.

The reporting in the media was predictable.  Why did this happen?  What did GM do wrong?  How will Toyota take over the title of being number one without stoking nationalistic trade conversations?  Then of course there were all the interviews with executives and assembly workers who have worked for GM for decades, discussing this occurrence with sadness and frustration.

Let’s take a look at this changing of the guard at the top of the automotive world through another lens, the lens of history.  First, it must be pointed out that GM has been the number one auto company in the world since 1931.  That is impressive!  Seventy-six years as the number one company in its category.  Do you think Microsoft will have as long a time as the number one software company?  How long did Xerox stay at the top of the copier heap?  How long did monolithic IBM stay at the top of the computer world?  All things must pass.

In addition …