Life on the Bubble
What is a bubble? On the one hand a bubble is a globe-shaped amorphous item with a gas inside of a liquid formation. If you had to live on a bubble, it would be a very tenuous existence for sure. A bubble can also be a situation where market prices are unsustainable and artificially high. That’s an economic term usually applied to situations that cause many people to make a bunch of money and then, suddenly, a whole lot of other people lose a bunch of money. And when the bubble bursts, it can even splatter those not involved, but just close by. It’s not hard to understand how that use of the word came about. Financial collapses often happen suddenly and unexpectedly and are messy as hell. One moment things are fine and holding together and the next everything has changed with shit splattered everywhere, just like a bubble. The very nature of a bubble of any kind is unstable and fleeting. And then there is the use of the word to describe someone who has been duped or fooled. Those people have been ‘bubbled’ for some reason.
Think about the beauty of bubbles. Their soapiness gives them a light-diffusing iridescence. There are often rainbows, a universal sign of good fortune, all over a bubble. They float carelessly in the wind, the little ones bouncing along briskly and the bigger ones wobbling here and there working hard to maintain their surface tension and their shape. Give a child a bubble loop and some soapy water and they can entertain themselves for hours on end. Bubbles are magical. They are whimsical and hold hidden promise. They float in the air, stick to the water surface, cling to solids and are both here and gone in an instant. They come from nowhere and disappear just as quickly with a moist pop.
I’m not sure what would make someone think a bubble is untruthful. It seems to me that it’s hard to expect too much from something as inherently ephemeral as a bubble, so where does the deception lie? For a steel bridge to collapse or a brick tower to fall is a shock and one can claim surprise and disappointment. A bubble is more a surprise in its formation and existence and its disappearance is fully to be expected. There is no fraud involved. Nobody is being duped or fooled. Bubbles do more to inspire us than to delude us.
People think in a one-dimensional context of the “now-you-see-it-now-you-don’t” nature of the beast. Markets do overheat and people do sometimes get irrationally exuberant. And then markets seek out weakness and exploit it and then double their damage when they detect panic, the unfortunate, but natural fire-sale knee-jerk reaction of people caught in a free-falling market. The only thing worse that dropping a knife on your foot is trying to catch the falling knife on the way down.
Everything I’ve ever done in business or life is a bubble. Permanence is more the illusion than the bubble. The bubble is what we dream. It takes all the right factors and forces to be aligned to form, none more than patience and perseverance. I could no sooner predict the path of my life and career than one can predict the flight of a bubble. When the movie Forrest Gump opens and closes, there is a small feather blowing in the wind, hither and yon. The symbolism is clear, life is on the wing. One must expect the randomness of life to take us on whatever journey destiny ordains. While I think Robert Zemeckis should have used a bubble for the scene, it was probably a lot easier to use something as stable and predictably solid as a feather. A bubble is simply too much like life in its very fragility and beauty.
Put a whole bunch of bubbles together in one place and what do you have? You have yourself a regular bubble bath. I enjoy bubble baths occasionally. They seem decadent and indulgent. I’ve never heard anything disparaging about a bubble bath. Even when someone talks about taking a financial bath, I don’t recall them ever suggesting it was a bubble bath. I may just be playing with words and bubbles, but that’s the very point. Bubbles are good things of whimsy, not things to be feared or avoided. Just don’t expect them to last forever. Don’t hold high expectations of a bubble. Just like a bubble bath, if you want to get the most out of them, gather them around you and relish them for their immersiveness.
I always want my life to be lived on the bubble. It’s more fun. It’s more exciting. It’s more realistic. Life is fragile and all aspects of it can be beautiful and amazing one moment and be over just as quickly the next. I lost two friends last week and heard from another friend who shared one of my friendships that he too lost two friends last week. At the same time, he gained a new granddaughter last week as well. We lose and we gain. Bubbles form and bubbles burst. Markets rise and markets fall. We win and we lose. I always think of that grandmother in Parenthood who prefers the rollercoaster than the merry-go-round. She claims she got more for her money. I have a big Fortune poster of a rollercoaster in my office. To me it speaks to the nature of business and life. It’s a helluva ride that you might as well enjoy since there are no smooth roads in life, just a series of bubble rides.
To make a bubble something has to fill it. While you surely know the intricacies of lending institutions far, far better than me, I recall a few things that seemed to coincide with the bursting of bubbles.
In 1980 and 1982, the federal government loosened regulations on savings and loans banks. They were allowed into markets that they previously weren’t and jumped in with both feet. The trouble is, as I see it, ‘they didn’t know the territory’ and made far too many risky loans ending up in a financial quagmire. By 1986 when the bubble burst, the fed had to jump in to bail them out and it took until 1995 to get the situation under control. What were investors to do with their money?
In 1996 the investments in the technology companies began to soar. Unlike the savings and loans that had actual physical properties, the tech area was ethereal and companies that had little more than ideas had money being thrown at them. Their values grew at astounding rates. But by 2001 it became clear that too many had no ‘real’ viable ideas or value. The tech bubble burst. As a quick observation I knew many people who claimed to have lost millions. When asked about their initial investment they would say $20K perhaps. So their real loss was just that, $20K. Try telling them that reality.
So we once again had money that needed to be put somewhere. Plus, in 2000 and 2002, the federal government had passed some laws and repealed others that had previously curtailed areas investment banks could invest in. This extra flood of money added to what was already out there needed a big place to go. Along comes HUD, the only agency that controls Freddie Mac and Fanny May. Also, many legislators wanted to see more lower income families in their own homes and pressed for things to make it happen. A laudable idea. The lending institutions saw a tremendous opportunity. They complimented, wined and dined the then chairman of HUD, Andrew Cuomo. His appointment to that position was purely political because he had never had any experience anywhere near the field he was now head of. But what could go wrong? The Federal Housing Administration would back them up! Well…..not so fast. The situation grew out of control and into unsustainable proportions by 2008. That was when we all saw things come crashing down in 2008 when the housing bubble burst.
Those are my thoughts. Would anyone tell me if there is even an iota of truth there? I really would like to know one way or the other.
The dates and facts are right, but it’s hard to say the cause and Effects are that simple. S&L had lots to do with corruption and junk bonds. Tech bubble clearly got overdone, but it wasn’t tulips. NASDAQ and tech now dominate our lives, it just got ahead of itself. As for housing, it surely was not all Cuomo and HUD. All the Pols (Dems and Reps) pushed a broadening homeownership mission to illogical extremes. Wall Street loved it and fed it, but so did Main Street brokers and mortgage originators.