Summoning the Courage to Continue Investing

As president, FranklinRoosevelt confronted far more dire circumstances than anything we've experienced in my lifetime, let alone last week, and yet he never succumbed to panic, desperation, greed or, most famously, fear.

In 1932, in the depths of the Depression, Roosevelt gave the commencement address at Oglethorpe University in Atlanta: "The country demands bold, persistent experimentation. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something."

The proximate cause of last week's crisis in the financial markets, which evidently brought us to the brink of economic catastrophe, was paralysis: the refusal of banks to lend virtually anything, even overnight loans to their fellow bankers; the immediate demands for repayment of collateral and the refusal of investors to trust counterparties; the aversion to all forms of risk, real or perceived.

As paralysis seemed to grip our major financial institutions, I felt some of this myself. One day last week I returned to my desk to find Morgan Stanley (MS) trading at $18 as rumors swirled that it would be forced into a merger by week's end. Goldman Sachs (GS) (whose shares I own) had plunged to $100 as speculation mounted that it, too, couldn't survive as an independent institution. Had anyone told me even a week ago that two of the most venerable and respected names not just on Wall Street but throughout the world stood on the brink of extinction I would have said he or she was delusional.

I told a colleague that this was irrational; Goldman had just reported healthy earnings even under dire circumstances and was worth far more than $100 a share. At the same time, I said I couldn't bring myself to buy. "Who am I, one small investor, to stand before this tsunami?" I felt helpless in the face of forces far greater than myself.

Details of the Bush administration’s bold and costly plan to break this market psychology by providing up to $700 billion to buy the mountains of mortgage-backed debt and other toxic securities which are crushing the balance sheets of financial institutions remain unclear, perhaps by design. Congress can and should debate issues like excessive executive compensation and foreclosure relief, but these are not the issues that have caused today’s crisis. The government needs a bold, simple plan that offers maximum flexibility and jolts the financial heart into beating again.

So I am not going to dwell on the uncertainties and details, important though they are. There have been times in history when we as individuals have been summoned to a higher purpose than partisan ideology or what may seem to be our immediate self interest. This is one of those times.

In times of financial crisis, collective action can achieve what would be unacceptably hazardous for any one individual, J.P. Morgan's 1907 summoning of the country's major bankers to share information on the ongoing financial crisis being one famous example. Deploying principles of Keynesian economics for the first time, Roosevelt borrowed against the future productivity (and tax payments) of American workers to intervene massively in markets and the economy. This past week, we, as taxpayers, have again been asked to stand together in the face of crisis, to the tune of $2,000 for every man, woman and child in the country, the New York Times reported.