ınthek[now]
BY Allen Kenney
Of Butterflies
and Bailouts
Abutterfly flaps its wings
in Brazil, and a tornado
ensues in Texas.
Academics who
study chaos theory
use this metaphor—
popularly known as the
“butterfly effect”—to describe
the link between a seemingly
trivial occurrence and an event
with far greater consequences.
The theory is that the minute
force generated by the butterfly’s
movement can spark a meteorological
chain of events leading to the tornado.
More generally, unique events within
a minor part of a dynamic system can
upset its equilibrium, setting off a
chain reaction with significant
long-term results.
Here’s a variation that might
resonate a little more in 2009: a missed
mortgage payment in Missouri sets
off a financial panic in Paris.
Who could have predicted that
some risky home loans made years
earlier eventually would trigger the
greatest global economic crisis since
the Great Depression? Or, that the
upheaval would have the former CEO
of investment bank Goldman Sachs
pushing Capitol Hill for a bailout
bill so broad that its critics said it
smacked of socialism?
History probably will look
back on 2008 as the year we
finally came to understand
just how interconnected the
global economy truly is. One
set of missteps in home lend-
ing exposed risky cracks in
the entire framework of the
financial system. As a result,
even venerable financial
institutions such as Lehman
Brothers and AIG were swept
away in a panic that touched
markets and industries far
and wide.
Like the Texans picking up
the pieces after a tornado, it may
come as little consolation to
commercial real estate companies
that the macroeconomic storm
of 2008 seemed to spare no one.
After all, the industry continued
to boast strong fundamentals
and post solid operating results
throughout the year. Yet, what
was the reward? A 40 percent
drop in the F TSE NAREIT All
REIT Index as of mid-November.
Of course, every rebuilding
project must start with a solid
foundation. There’s no reason
why commercial real estate can’t
be the first link in the chain leading back to economic recovery.
COLIN ANDERSEN/JUPI TER IMAGES ( 2)
