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Which War Are We Fighting??

Which War Are We Fighting??

March 27, 2023

The Maginot Line was built in the 1930s by France to prevent another invasion by Germany, similar to what happened in World War I. The line was named after the French Minister of War, Andre Maginot. As you can see below, it is a line of concrete fortifications, obstacles, and weapons installations that were meant to deter an invasion along the French/German border.


Military experts around the world believed that the Maginot Line was a work of genius, and they believed that it would successfully protect France from invasion. The line was impervious to most forms of attack. The French were confident that they had protected themselves and this led them to a false sense of security and complacency.

Source: Military History Now

However, when Adolf Hitler decided it was time for Germany to invade France in the spring of 1940, they simply went around the Maginot Line and invaded through Belgium, outflanking the line of protection. At the end of the day, the French had created a tool that would have protected them during the last world war but not the next one.

Similarly, after the Great Financial Crisis, Congress passed a set of banking regulations known as the Dodd-Frank Act, which were designed to make certain that the banking system would not fall prey to something like this subprime mortgage crisis ever again. This was hailed as the most far-reaching set of reforms in Wall Street history. Its goal was to prevent the excessive risk taking that led to the crisis. It also created a new watchdog to help protect Americans known as the Consumer Financial Protection Bureau.

Now, as we are watching banks in both Europe and the United States fail and be taken over or merged with other banks to prevent their collapse and potential contagion to the rest of the financial system, many people are wondering why the previous reforms and regulations are not preventing this new round of volatility and dislocation.

It is important to note that the current banking crisis is not being driven by excessive speculation and risk in the mortgage markets. This means that the previous legislation, which required banks to be more careful with their lending and keep more capital reserves on their balance sheets has so far prevented another subprime mortgage lending crisis.

Ironically, the Maginot line, which would have prevented invasion across the French-German border during World War I, did not protect them from the German invasion in World War II

Similarly, the Dodd-Frank legislation did not protect us from the next crisis. It may have exacerbated some of it because banks were holding substantial amounts of government securities on their balance sheets at a time when the Fed was raising interest rates dramatically. We all know that when interest rates go up the value of these bonds and mortgage securities goes down. We also had more bank deposits than ever that were not protected by the current $250,000 FDIC insurance limit. This means that they are more likely to pull their deposits out of a bank at the first sign of trouble.


Inevitably, we will end up with new regulations to make sure that something like this does not happen again. Unfortunately, this will likely be focused on what just happened versus what will happen in the future. This is analogous to driving a car while only looking at the rearview mirror and seeing where you have been, instead of looking through the windshield at where you are going.

This leads us to our title question “Which War Are We Fighting?”. When the French tried to fight World War II using tactics that would have won the previous war, the results were disastrous. There is a significant financial and economic corollary, that we should all be paying attention to. We thought we would share this historical context to give you a better understanding as we continue “Moving Life Forward”.

© 2023 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.