In the world of counselling, there is much faith placed in the five stages of the so-called Kubler-Ross grief model, notes Tom Freke, editor at Loanradar, on his blog cashandburn.
This model can also be applied to other areas, including the credit crunch (see graph below). Others have made the comparison previously, at earlier stages of the crunch.
So, first, there is denial: a refusal to accept the facts. Then there is anger, the emotional reaction to the facts. Third comes a bargaining stage, when people try to accept the situation on their own terms. When this fails the fourth stage arrives – depression – as the reality begins to sink in.
Last comes acceptance, which brings some degree of emotional detachment and objectivity.
It’s hard, says Freke, not to see this process working with the credit crunch.
First there was a flat denial that there was anything wrong. Deals would still get done on the same terms as before, it was only a blip. This phase lasted from July to around September or October.
Second came anger, when people began to first lash out at the banks for lending excessively. In the UK, Northern Rock and the government attracted much of this upset. In some quarters, this phase does not seem to have ended.
Third came bargaining. This could be seen in the markets from around October to December. During that time, many thought that 2008 would be fine, and that they had managed to ride out the credit crunch without too many losses.
Fourth came depression, when in January and February the markets realised that bargaining had failed and that something would have to change, and it would not be nice. This led to severe equity market stress.
Fifth and last comes the acceptance phase. Are we there yet?, he asks.
Did UBS’s announcement early this week of $19bn in additional losses — and the market reaction — equity prices rising — demonstrate that the markets want closure? We shall see.
Grief is the reaction to an extreme and often unexpected event. Different people respond in different ways. It is not inevitable that everyone makes it through the five stages. Some people get stuck, adds Freke.
In the markets, however, the profit motive drives the cycle through. There has to be acceptance for the good times to return, and that acceptance has to be based on reality. So has today’s feeling of acceptance come too soon?
Courtesy of rainycityguide.com:
