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Working through adversity

| Thursday, Dec. 25, 2008

It's true that these are the worst economic times since the Great Depression.

It's also true that what we're experiencing is nothing compared with what folks went through in the 1930s. I'm sure people who stood in bread lines or were forced to work 72 hours a week for $17 would have gladly exchanged places with us.

While we're losing our jobs at a rapid clip and watching our net worth plummet, our economic woes don't approach the destitution of that decade of want.

It's difficult now to think about a merry Christmas when a Wal-Mart Stores Inc. temporary employee gets stomped to death by onrushing shoppers, when the governor of Illinois disgraces himself, when a well-known investment adviser confesses to what he says was a $50 billion fraud.

We keep wondering when the trillions of dollars committed by the Federal Reserve and the U.S. Treasury to resuscitate the economy will begin to work.

Still, our troubles can lead to a catharsis.

We will give ourselves fewer holiday presents this year. Will it hurt• Our closets are still full from past years. The real joy is having a house full of people jabbering happily while they unwrap their gifts, no matter how few or how small.

Shorter gift lists also mean we're beginning to pare our debt, which is a good thing for our mental health as well as our finances.

Looking ahead

Because we aren't buying as much, retailers will have a bad Christmas season, which means they will have a bad year. Smart merchants, though, will keep inventories lean, preparing for a profit boost when the recession finally ends.

The U.S. auto industry is in worse shape than retailing. Treasury on Friday announced $13.4 billion in loans to keep General Motors Corp. and Chrysler LLC going. To survive long term, dollar-a-year executives, assembly-line workers with reduced pay and investors who forgive some of the companies' debt may find common ground.

Banks are reworking mortgages, allowing homeowners to stay out of foreclosure. The bankers may find as much pleasure in giving as their borrowers do in accepting.

It's been a terrible year for investors. About the only people who made money were those who put everything in Treasury securities. Maybe they'll treat the rest of us to some eggnog this holiday season.

Reform

Investors can learn from these losses. Diversify more, perhaps. Beware of money managers promising outsized returns or, in the case of Bernard Madoff's customers, slow, steady returns. They may want to insist on mark-to-market accounting, reformation of the credit-rating system, an exchange for credit default swaps, a return of the uptick rule on short sales.

This is an opportune time for Wall Street firms to change, to reduce leverage and the appetite for risk -- I don't like to say greed here -- as they reduce their bonuses. That might renew investor confidence and revive the market for securities industry jobs.

None of this is meant to make light of today's economic problems. Still, working through adversity has its benefits. I know from experience that New York City found its gentle side after the awful events of Sept. 11. God bless us, every one.

David Pauly is a Bloomberg News columnist.

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