A Market Mirror Image

How baseball and the markets mimicked each other for years.

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Ugh.

I don't usually pay close attention to my investments. The other day, though, as I was checking the value of my WaMu holdings (still unchanged), I noticed that the stock market had fallen to the same level as in 1998. Ah, 1998, the Year of Sammy Sosa and Mark McGwire, the home run derby that supposedly saved baseball. And now, more than ten years later, people are wondering if baseball, like the entire US economy, was nothing more than a pumped up bubble of short-term excess.

If the 1980s were about "greed is good," then the last decade has been "bigger is better." The cars got bigger, the houses got bigger—and so did the ballplayers.

It's hard to argue with success. In 1993, home runs per game jumped 25 percent, an event that likely pre-dated the widespread use of chemicals in baseball. In the same year, attendance per game also rose 25 percent. Over the next 15 years, baseball revenues and baseball salaries tripled, as did the prices of single-family homes. The numbers seemed outlandish to people with a historical perspective, but they didn't understand that the game had changed as had the players involved. Roger Clemens' incredible workout routine and the marvels of the growing global economy both masked the reality that something less honorable was going on below the surface.

It was the triumph of math and science over old-fashioned thinking. Sophisticated models made it possible to combine risky assets and somehow, the risks disappeared. Equally-sophisticated lab experts were developing programs to boost this and increase that while covering up the evidence of anything fishy. If it wasn't exactly legal, it wasn't exactly illegal either. As for ethics—here, the only thing really unethical is losing the edge and falling behind. After all, it's not really about "me," right? It's about the little people, the shareholders, the fans, the ones who count on me to keep putting up bigger and bigger numbers.

And the people at the top didn't complain. It wasn't their job to point fingers and start questioning results, certainly not as long as the money kept bubbling up to them.

And why was everyone doing it? Because everyone was doing it, that's why!

A few years ago a Fed survey of bankers asked why they were lowering their lending standards. The main reason given: competitive pressures. In other words, "everyone was doing it." And why was everyone doing it? Because everyone was doing it, that's why!

The same held true for steroids and other PEDs. What once might have been seen as an illicit way to get a leg up was eventually justified as necessary to keep up with the competition. "If everyone else is juicing, why can't I?" And if every other firm is dangerously leveraged, why can't we at least match the industry's new benchmark?

Another similarity is that even today, no one is really sure what is what. NINJA Mortgages (No Income, No Job, or Assets) were heralded as A-rated bonds; A-Rod and Barry Bonds were heralded as sure Hall-of-Famers. There were a few whistle blowers; they said the problem was real—more severe, more widespread than anyone wanted to believe. But why spoil a good time, eh?

Pride goeth before the fall. The collapse of the financial sector was swift and brutal; that is the nature of a market correction. As for baseball, the correction will never be so precise. But fans will again be reminded of that old adage that serves the game and the market so well: "If it looks too good to be true, it probably is."

Peter Bernstein is a Chicago-based baseball writer and economist.

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