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A Bumpy Ride
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A little excitement–—bordering on chaos—in the financial markets last week gives us pause to reflect on the issues of risk, greed, and (financial house) maintenance.

In the world of business, profits are good, but greed can warp one’s judgment, with potentially disastrous consequences for all concerned.

The current turmoil is blamed on high-risk loans, some of which have been repackaged as bonds, purchased by funds, and now sit like dry rot, weakening the overall strength of various portfolios.

As subprime lending became increasingly risky, defaults on mortgages also began to increase, and the flow of money slowed...

(Let us pause here to suggest that some of these problems may have been mitigated if lenders and the houses of finance, in essence, followed the practices of a well-run pulp or paper mill and adopted a regular schedule of fiscal inspection and maintenance to their investment programs.)

… In recent weeks, as the situation threatened to destabilize financial markets worldwide, an influx of cash into banking systems, followed by the Federal Reserve’s decision to cut its discount rate by half a percent, to 5.75%, helped calm the market. Analysts suggest further repairs will be needed. Some say the risk of recession now overshadows inflation as a concern and the Fed should also lower its funds rate.

Immediate trends may be rough on segments of the forest products industries. Concerns over subprime lending practices will likely make it harder to borrow money for many months to come. That means it may be harder for people to qualify for home loans, which could further dampen housing starts, reducing demand for lumber, potentially leading to more downtime at mills, or worse.

Longer term, the trend is for stocks as a whole to continually rise in value. Demand for housing will fluctuate, but eventually rebound…

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