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One of the most difficult tasks for the asset management community in the current crisis is communicating to clients who are not investment professionals, exactly what is going on in financial markets and how things came to be as they are.

On September 30th, I received a question from a friend in Vermont on the nature of the financial crisis.  I wrote a series of emails in response which have been consolidated below. I hope it will provide a few ideas of how to communicate with your own constituencies.

Question

If you have a moment, here’s a question I keep returning to every time I hear pundits and prognosticators say the cause of the fiscal crisis is the sub-prime lending mess and/or the lack of liquidity in the market.  This logic leads one to believe that solutions include purchasing bad assets or infusing capital into the system some other way.  But, isn’t the mortgage mess really just a symptom of the American tendency to live beyond one’s means?  The solutions mentioned above don’t address what strikes me as a deeper, broader, and more culturally engrained problem – that we aren’t able to pay for everything we want and then purchase.  Following that logic, the term “crisis” is a misnomer as it implies a sudden (often unexpected) problem that can be remedied in a relatively brief period of time.  Seems to me that the real way to solve this problem is for both the government and individual citizens to reduce the amount of debt they carry and to be realistic about their capacity to repay future debts they are willing to incur. 

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