Toronto Real Estate Blog

Daniel Muzyka and Lawrence Weiss – Globe and Mail

On the roof,
it’s peaceful as can be
And there the world below
can’t bother me
– from Up on the Roof

We need to listen to this sage advice from Carole King and Gerry Goffin: It is time to gain some altitude and perspective.

Watching the past few months unfold in the financial economy, then the real economy, and now in the press, you would think that everything that is happening is unprecedented. It is not.

For starters, economic cycles have had some pretty nasty twists and turns over the past century. It is just that our money managers and brokers – who are generally in their 30s and have only seen the market for the past decade – just don’t have it in their collective memory. The relative lack of massive swings over the past few years has led us into a comfortable lull, with a false belief that “risk” only has upside.

A friend recently noted that a client of his was outraged that his investment had declined in value. The client argued that the high-risk instrument he bought had a “guaranteed track record” of high returns. Hmmm.

Second, greed, “self-dealing” and frauds have been with us for time immemorial. Have we learned nothing from the tulip bulb mania (1637), Charles Ponzi (1920), Tino’s salad oil scandal (1963), Equity Funding Corp. (1973), the Hunt Brothers and Silver Thursday (1980), Enron and WorldCom (2001) … to name just a few of the most spectacular ones? (And as 2008 winds down there is the alleged fraud committed by Wall Street’s Bernard Madoff through a Ponzi scheme.)

During good times, people get greedy and stop doing proper due diligence. When markets turn down, we panic, thinking all the self-dealing will bring on an economic Armageddon. It won’t. The ebbing economic tide is likely to expose more of the rocks that have always been there as well as those that were tossed in during the bubble. We must modify Gordon Gekko’s comment: Greed may be good, but only with some common sense and care.

Third, the economic woes of some industries, such as the North American auto industry, are neither new nor fully caused by the economic conditions today. The industry has been having difficulties since the 1970s when the consumer markets told them they were building the wrong automobiles and foreign competition started to take considerable share.

Fourth, our world of instant communication permits media not only to report information, but to focus on a continuing series of negative reports. Reading some of the reports about value destruction in real estate might make you forget that most of the “value” now lost was only created in the past five years, during a bubble. Balance and perspective is important.

All of this leads up to the point that it is time to start thinking positively. We need to get back on an upward spiral.

The world has problems, the economy will have some twists and turns, but we have made some significant progress. Unemployment may reach 8 per cent, but realize that 92 per cent are employed. Yes, some industries will get hit, but the resources unleashed will make new opportunities and renewal possible. Our lives are better than those of our parents in so many ways. We have the capacity to feed much of the world and the power to conquer diseases that made our ancestors live much shorter lives just 50 years ago.

Whatever you do, don’t simply cut off spending. Reacting to trends and issues is important, but try to keep balance in your actions. Cancelling projects may make sense, but put them in perspective. Stretching them out, modifying them or pushing forward with the realization that new capacity will likely come when the markets turn up is often better for you and the economy.

In the end, we wish you peace, health and prosperity during this holiday season. Enjoy your family and friends and count all of the good things you have. And please, take heed of Carole King’s lyrics and get “up on the roof.” We can become part of the problem or part of the solution. We prefer the latter.

Daniel F. Muzyka is dean of the Sauder School of Business at the University of British Columbia, where he is RBC Financial Group professor of entrepreneurship. Lawrence A. Weiss is a visiting professor at McDonough School of Business at Georgetown University.

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This entry was posted on Sunday, January 4th, 2009 at 9:01 am and is filed under Miscellaneous. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.