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Fraenkel: “We are in the middle of a business cycle”



Fred Fraenkel ’71

A Wall Street stalwart who once led Lehman Brothers’ global research team, Fred Fraenkel ’71 offered a critical analysis of government intervention, questioning recent S.E.C. policies and congressional action on Tuesday afternoon.

Fraenkel’s lecture ushered in the new Donald M. Gruhn ’49 Distinguished Finance Speaker Series at the College of Business and Economics.

It was a provocative and unconventional explanation of the financial crisis.

“The government thinks it can own everything top-down through bailouts. But TARP, TALFs, public-private partnerships—they just haven’t done the job,” he said, arguing that the stimulus package is “too much package, not enough stimulus. It will take too long.”

Fraenkel was the latest industry expert to discuss the current economic climate at Lehigh’s College of Business and Economics. In the past few months, Lehigh has welcomed back such leading voices as Joseph R. Perella ’64, Robert Doll ’76 and John Chrin ’85. The latter will join the college’s faculty next year as its Financial Services Executive-in-Residence. (For video podcasts and news articles of those and other events, visit the college’s financial crisis information page).

“Fred seemed like such an obvious choice to launch the Gruhn Distinguished Speaker Series. He has such an interesting and passionate outlook on finance culled from over 30 years as a leading voice in the investment community,” said Paul Brown, dean of the College of Business and Economics.

Recession resulted from "a fairy tale gone wrong"

Fraenkel said the ongoing recession is the result of a “fairy tale gone wrong,” a misguided effort by Capitol Hill and Wall Street to spread the American dream by encouraging home ownership among those who probably couldn’t afford it. The subsequent collapse of the housing market is now shaking the foundation of the American psyche, he said.

It was an in-depth, historical look at economic cycles, particularly, the latest “Super Cycle,” and included a close examination of the impact of inflation and interest rates since the Carter Administration. He also drew contrasts to other economic downturns, specifically drawing attention to December 1974, when unemployment hit nine percent, commercial property at the World Trade Center couldn’t be leased, and Harvard MBAs found new jobs as Manhattan taxi cab drivers.

Just six months later, he said, the stock market had jumped nearly 50 percent. It was an unexpected chain of events that should provide some context for Americans dismayed at the current state of affairs.

“What happened over the past eight years was not evil—it was rational,” Fraenkel said. “The country just became addicted to debt. That’s our disease that needs to be cured.”

Fraenkel included numerous references to pop culture during this speech, each designed to emphasize his disapproval of the recovery plans. Among them was a video clip of Howard Beale’s famous “mad prophet” monologue in the movie Network. He later said, “Congress miscalculated just how smart the American public is … we’re much more smart than Fredo Corleone,” a reference to a naïve, but obedient, son in “The Godfather.”

But his message to the audience, most of whom were business students, was simple: Perseverance pays off, and things will rebound. “We are in the middle of a business cycle, and there is nothing you are going to be able to do about it,” he said. “It really has nothing to do with you.”

The speaker series is being endowed by Donald Gruhn ’49, who spent more than 40 years in the financial services sector as a member of the New York Stock Exchange and a general partner in two firms.

“It took about a nanosecond for me to say, ‘Yes, this is a great idea. Let’s do it!’” said Gruhn, explaining his original reaction to hosting a speaker series. “I’ve got a feeling that the speaker series will present marvelous opportunities for our students to listen to and learn from experts in finance.”

Gruhn has long been affiliated with Lehigh’s College of Business and Economics. He is a long-standing member of the college’s board of advisors, having created the Judy and Donald M. Gruhn '49 Endowed Scholarship Fund a few years ago.

He continues to support many Lehigh initiatives, including the university’s athletics program, its journalism department, and Lehigh’s Martindale Center for the Study of Private Enterprise. Gruhn was also been instrumental in developing Lehigh’s Financial Services Laboratory.

--Tom Yencho


Posted on Wednesday, April 08, 2009

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