Material Adverse Change

CHAPTER 10Where Do We Go from Here?

Some of the best lessons we ever learn are learned from past mistakes. The error of the past is the wisdom and success of the future.

—Dale Turner, American musician

HOW FAST WE FORGET

Toward the end of the 2007–2008 financial crisis, many pundits proclaimed that we had finally learned our lesson and we would never go back to the crazy days of the heated economy that immediately preceded, and arguably caused, the market crash. Market experts were sure that we would be more careful from now on. We would no longer leverage up our homes. We would pay off personal debt on time. And we would encourage corporate executives to be more conservative in their approach to business.

But look at what is happening in our economy less than ten years later. Despite increasing geopolitical and business risk, interest rates remain near the lowest levels in history. The cost, availability, and terms on debt are as friendly to borrowers as ever. Consumers are starting to lever up again. In May 2017, total U.S. credit card debt passed the $1 trillion dollar level for the first time in history. Yet the equity markets continue to perform as if nothing has changed. By the middle of 2017 the Dow Jones Industrial Average had closed over 20,000 for the first time in history. There was an ever-increasing gap between the amount of risk inherent in the global economy and the inflated asset values that did not reflect this level of risk. In this final chapter, we will ...