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Commentary

Letter from the editor: It feels like Lehman again

By David Skok
A trader has his head in his hand on the floor of the New York Stock Exchange, Thursday, March 12, 2020. Photo: AP Photo/Richard Drew
Mar 14, 2020
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I normally begin this column by saying I hope you’re having a great weekend. This morning, I’m just hoping you’re doing okay.

It’s been a somber few days as the stark reality of COVID-19 took hold, and the waves were felt in businesses, communities and in our homes.

Some of the difficulty I’ve had processing the past few days has been in separating two crises inextricably linked, but each posing its own unique challenge. First, the virus itself, which struck this week with reckless abandon, resulting in dramatic changes to how we live. Then, the disastrous collapse of the financial markets, which despite a healthy surge on Friday, ended the week well into bear territory and which will almost inevitably cause a recession. 

Each crisis requires a unique tourniquet to stop the bleeding. 

In the case of the virus itself, it seems like nothing short of a complete cessation of public activity will help to flatten the curve. This was brought home clearly during a conference call with The Logic’s subscribers on Wednesday afternoon. Helen Branswell, the infectious-disease reporter for Boston-based Stat, and a Canadian who’s covered emerging pathogens since the SARS outbreak of the early 2000s, advised that people should avoid contact with each other as much as possible. “It’s not going to be life as normal for a while, and we need to get ready for that,” she warned. 

Shortly after that interview, we began encouraging our own employees to work from home until the end of the month and have since made it mandatory.

In the case of the financial collapse, all week I’ve had the same feeling in the pit of my stomach that I had during the early days of the 2008 financial crisis. And I’m not alone. As one senior banking executive told me on Thursday, “It feels like Lehman again.”

It’s so much more than a supply-chain problem, as I heard some call it this week. As the CEO of a small business, I can already see the impact reduced spending will have on the economy. 

For example, we decided last week to cancel our first-ever Subscriber Summit, which was slated for June. Along with generating no sponsorship and ticket revenue for The Logic, it also means no revenue for the event organizer and host venue, no revenue for the airlines and hotels flying and accommodating our keynote speakers and no revenue for the caterers. It also means no wages for the travel, hospitality and event staff—which means less discretionary spending for all involved. 

Magnify our 200-person event by all the Collisions and Shopify Unites that have been cancelled, then add in every postponed sporting event and concert, the trillions lost in the energy sector and the savings wiped out in the last week, and you get a small sense of just how severe this downturn could be.

One big difference between now and the 2008–2009 crisis: that was a collapse of the financial system. This time, it’s a collapse of the social order. And this time it may be the financial system—with injections of liquidity from governments—that ends up saving the economy. 

It seems like nothing short of a stimulus package like those deployed during the Great Recession will ease the shock of what’s about to steamroll through the economy. 

In 2009, a federal stimulus package of $47 billion over two years helped lessen the blow. This time, the parliamentary budget officer estimates the federal government has the flexibility to permanently increase spending by $41 billion. In other words, even with the $10-billion stimulus announced on Friday by finance minister, Bill Morneau, the government still has room to act. As Scotiabank deputy chief economist Brett House told me on Thursday, “It is the risk of inaction, rather than the risk of action, which may prove dire.”

That’s a lot to process in just one week.

For The Logic, this is a galvanizing moment. We have already witnessed an immense desire from you, our loyal readers, for more coverage to help navigate you through this crisis. We do not take that responsibility lightly.

We have assigned our reporter Fatima Syed to cover the fallout of the crisis full-time, and you will have noticed an increased presence of COVID-19 in our Daily Briefing. We have also made all of our COVID-19 coverage available to non-subscribers. 

But it costs money to do the high-quality, trustworthy reporting that you’ve come to expect from us. If you like our journalism, please consider subscribing.

We’re keenly aware of the trust you’ve placed in us and our mandate is to be an indispensable part of your news diet over the coming months. To separate fact from fiction, to provide analysis not rhetoric and to give you the information you need to make smart decisions.

We’re all in this together, please take care of yourselves.

Get complimentary access to award-winning reporting to navigate these unprecedented times. Sign up now.

#COVID-19 #Letter from the editor

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