[...]... fairly logical Next, they developed a scenario for how each factor was likely to evolve, starting from a baseline, deteriorating at first, and then slowly improving After that, they created what they called the “stressed” scenario a characterization of the worst case And finally, they applied the stressed scenario to the actual income statements and balance sheets of each of the 19 banks that were to. .. created excess investable dollars in countries that ran a surplus, and much of it was allocated to fixed-income assets At the same time, the baby boomers, approaching retirement, put a growing proportion ■ 11 ■ ACCELERATING OUT OF THE GREAT RECESSION of their savings into fixed-income assets Not surprisingly, these savings found their way (directly or indirectly) into the U.S housing market, which was... five years was 34 percent greater than the average performance of other companies The real question, therefore, is what drives a winning performance in a downturn and the following upswing? To find some answers to this question, we have dug deeply into the history of past recessions, particularly the Great Depression and Japan’s Lost Decade, to learn from the companies that fundamentally improved their... investments in these risky assets to mask the deteriorating profitability in their core traditional businesses ■ 9 ■ ACCELERATING OUT OF THE GREAT RECESSION In the early part of the decade, with U.S Treasury bonds offering low returns for the foreseeable future, Wall Street met investors’ demand for new instruments by packaging higheryielding mortgage debt into (apparently) AAA-rated securities But the incentives... money, after successful reorganization and reprivatization have taken place So governments typically have opted for a fourth way— muddling through They have dabbled in asset purchases or guarantees and pursued a bit of recapitalization Mainly, however, they have relied on making money available at very low rates of interest, allowing banks to earn good margins And they have crossed their fingers and hoped... by ever-rising home prices The introduction of ■ 7 ■ ACCELERATING OUT OF THE GREAT RECESSION home-equity release products enabled many borrowers to treat their homes as if they were ATMs (automated teller machines) For those who wanted to look, the information about what was really happening was readily available: the doubling of U.S house prices in real terms over just 10 years, the fact that consumer... because of the costs involved but also because the approaches—with the exception of the third—involve the transfer of taxpayer money to the shareholders and bondholders of the failing institutions Only in the case of receivership do share■ 13 ■ ACCELERATING OUT OF THE GREAT RECESSION holders and bondholders lose (some part) of their investment, and taxpayers get the option to claw back some of their... particular industry Most important, companies that outperform in a recession tend to enjoy a sustained advantage They tend to retain their performance leadership in subsequent years in terms of both revenue and share price Indeed, an index of stock prices, baselined to 1932 (the trough year of the Great Depression), shows that the average stock price appreciation of the top performers over the subsequent... could They should be figuring out now how to thrive in what many believe will be an economy operating in a damaged state for years to come They should be acclimatizing to what has become known as the “new normal.” There are, of course, many voices arguing that nothing has really changed, that things will soon return to the “old normal.” As evidence that not so much is different, they point to the apparent... world, deregulation of markets and industries, and lower tax rates All these factors, which had such a positive influence on profits in the past, are now likely to go into reverse In early 2009, Frank-Walter Steinmeier, then Germany’s vice chancellor and foreign minister, told the Financial Times that the turbo-capitalism of the past few years is dead.”1 He laid much of the responsibility on shareholders . years was 34 percent greater than the average performance of other companies. The real question, therefore, is what drives a winning per- formance in a downturn and the following upswing? To find. or any econ- omy in particular. This is a book about strategy and manage- INTRODUCTION ■ xii ■ ment. We are interested in the fallout of what is being called the Great Recession because the nature. an economy operating in a damaged state for years to come. They should be acclimatizing to what has become known as the “new normal.” There are, of course, many voices arguing that nothing has really