Shock Happens II

Dave Johnson

Earlier today I wrote that External Shock Happens, and “we should be shoring up our public structures, our infrastructure, our protections and empowerments. That is what government is and what it does, and we need it.”

I just came across a post, Black Swans, 100 Year Floods, at Barry Ritholtz’ blog The Big Picture,

The time to look for the emergency aisles and where the exits are located is before takeoff, not after the wings fall off the plane. You must have a plan in place to deal with unanticipated events, a just-in-case things head south scenario.

Ideally, you put this plan together when you are objective and unemotional and calmly contemplative — not when things are figuratively and literally melting down.

Ritholtz looks at some major unanticipated economic disruption events that have occurred:

Black Swan events over the past decade

• Sept. 11, 2001, attacks on the World Trade Center and Pentagon;
• 78% decline in the Nasdaq;
• 2003 European heat wave (40,000 deaths);
• 2004 Tsunami in Sumatra, Indonesia (230,000 deaths);
• 2005 Kashmir, Pakistan, earthquake (80,000 deaths)
• 2008 Myanmar cyclone (140,000 deaths);
• 2008 Sichuan, China, earthquake ( 68,000 deaths);
• Derivatives roil the world’s banking system and financial markets;
• Failure of Lehman Brothers and the sale/liquidation of Bear Stearns;
• 30% drop in U.S. home prices;
• 2010 Port-Au-Prince, Haiti, earthquake (315,000 deaths);
• 2010 Russian heat wave (56,000 deaths);
• 2010 BP’s Gulf of Mexico oil spill;
• 2010 market flash crash (a 1,000-point drop in the DJIA);
• Surge of unrest in the Middle East; and
• Thursday’s earthquake and tsunami in Japan.

While Ritholtz’ post is about how to invest and be prepared financially (and it is a good read) the point is the same as my earlier post. We should be shoring up our government, not dismantling it. There is a solid and very important purpose for government. You want it there and strong when you need it. The current proposed budget cuts included cuts in Tsunami Relief And Preparedness. Let that be a lesson to you. Shock happens.

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