We business journalists are suffering from an acute shortage of crisis metaphors. Or so it appears from this morning’s newspaper, in which Fannie Mae’s accounting scandal, the Pension Benefit Guaranty Corporation’s (PBGC) solvency problems and the growing demographic pressures on Social Security are all likened, in different articles, to the savings and loan crisis of the late 1980s.

I like a good metaphor as much as the next guy (as long-suffering Worth readers can confirm). But while all three of these problems arguably have something in common with the sorry S&L spectacle—they all demonstrate what happens when government regulations and institutions fail to keep pace with structural changes in the financial markets—the specter of impending disaster is overbought.

Fannie Mae remains solvent; its ability to increase its capital reserves to levels the government now demands without flinching demonstrates the depth and liquidity of its asset base. The PBGC’s growing deficit will be a mounting burden to taxpayers as healthy companies continue to opt out of its insurance, leaving it to tend to the walking wounded. But barring a massive downturn in the economy (which could suddenly lumber the agency with a host of failed companies’ pensions), it is a tragedy that will most likely play out over decades. Social Security—well, that’s anyone’s guess at this point, but I think its constituency is so broad, and the stakes so high, that the government won’t screw it up too badly.

Indeed, as Alan Greenspan likes to remind us, spectacular meltdowns of the S&L ilk are less of a problem for the financial system now than they were 15 years ago, due to advances in financial risk management technology. The 9/11 attacks, the dot-com bubble’s bursting, the Argentine debt default, the partial collapse of the energy trading markets after Enron’s bankruptcy—all these events would have laid banks low had they occurred two decades earlier. But now, despite their enormous human cost and their impact on individuals’ investments, they left the financial system largely unscathed.

The problems that dog investors today are not the financial Tunguskas favored by headline writers, but more mundane and exasperating issues. Where can we find income when risk-adjusted returns on all asset classes are meager? What assets are “safe” enough to park our low-risk capital in? How can we make important financial decisions and time their execution when all the moving parts—currencies, credit, rates, equities and commodities—are flopping around like so many newly gaffed bluefish? When political and macroeconomic trends—the wars on terror and in Iraq, the twin deficits, the disparities in the costs of international capital and labor—add to the uncertainty?

We posed these questions to a panel of some of the financial services industry’s leading lights, and published their insights, beginning on page 54. While they agree that the current financial and economic climate is generous with its challenges, they also point out that, apart perhaps from the upward slope of the 1990s bubble, no period has been without problems. To deal with today’s, the key is to think strategically, and act opportunistically. As David Darst, chief investment strategist at Morgan Stanley put it, we need to become much more Machiavellian.

Dwight Cass
Editor-in-Chief