A decade ago the story of the Titanic was retold. It was a box office hit. Not just due to cast members like Leonardo DiCaprio, but because of the story behind the tragedy.

Some of my personal favorite channels such as Discovery, The History Channel, and The Learning Channel have all dedicated time to the story of the Titanic. Special subs have gone out in search of the wreck, major research studies have dedicated countless dollars to investigating what happened.

Overall, it’s safe to say that decades later, we as a population have an interest in the story of the Titanic to this day. Is it the timeless love story of two people who were unfortunate enough to be on the ship? Is it the wonder that technology did not triumph over nature? Maybe it’s the arrogance of being too big to fail, and not bringing enough life boats…..?

Whatever it is, whatever the major fascination has been, we’ve learned nothing from the story.

You see, for more than a decade and a half now we’ve all bought into the concept of “too big to fail.” Think back just a short way. The Internet revolution had brought on a “New Economy.” An economy that seemed to defy business cycles. It created profitless businesses that we were all eager to get in on. Buy a stock today, sell it tomorrow and retire to a small tropical island.

Too big to fail…….. the unsinkable ship of the new economy.

But the new economy (it just doesn’t deserve capital letters) was not too big to fail. And it still isn’t. It was built on fast talk, profitless companies with promises of a new age, and it was built on the same hype that made the 1920’s the “Roaring 20’s”.

Every IPO in the 20’s seemed to be for companies with the word Motor or Radio buried in the name. Thousands made their debut. Only a handful of truly profitable companies survived. The same can be said today of the Dot Com’s, Wireless, Communications, etc. Every technological revolution promises and delivers a lot. However, only the “real” companies survive. Many others toss their names into the ring just to capture the dollars of the over enthused and under informed. So went the 20’s, and so went the 90’s.

After our dot com bust people still had a ton of liquid finance to invest. And the over enthusiasm (irrational exuberance, as coined by a seemingly responsible Fed Chairman at the time…) carried itself right into the real estate markets. Housing prices went up not due to higher quality, better neighborhoods, etc. The prices went up because bidders had more money to bid thanks to low rates, loose lending, and more liquid finance pulled out of the last bubble.

Now as we find ourselves unwinding the errors of the real estate bubble mania most pundits believe it’s just the bad loans. Not even close. Since the 90’s the derivatives trade has grown to proportions that dwarf global economic production. The best part……Nobody understands how derivatives work. Many do acknowledge that they could be dangerous. Just like icebergs, derivatives are much bigger and more mysterious below the surface. And they could easily sink a ship like the Titanic.

In a recent Market Watch article, derivatives are described as “the new ticking time bomb.” Funny, they’re not new to me. Back in 98′ I was concerned about these financial devices. And they’ve only spread into more corners of our economy. Be sure to read the entire link.

So, where is the ship known as the American Economy really going? Some claim there’s no recession, but a risk of recession. They’re the folks on the deck telling the band to keep playing, and asking the guests to continue dancing. They surely don’t want you heading for the life boats or panicking that the unsinkable ship is indeed going under. But there are others who will still call it as it is……From the London Telegraph we have the following….”Fed takes boldest action since the depression to rescue the US mortgage industry.”

It’s nice to see some folks are getting escorted to the life boats. Keep in mind, just like the Titanic, seating is limited. For a society enamored with the Titanic story, you’d think more of us would have learned more from it. Are you watching the band, or are you looking outward at the rough seas around you?

***Note:  The photo in this article was licensed through Dreamstime.com.  

This entry was posted on Wednesday, March 12th, 2008 at 7:59 am and is filed under Economics.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.