The sky is falling! (Or is it....)

Occasionally I'll start blog posts and never finish them. For some reason, be it an idea that comes to me on another topic or the call of unfinished laundry, I'm just not feeling it. This has been happening a lot more often lately so today I found myself looking at old, unfinished posts. What I found was interesting...

On March 23 of this year, I started this post. It was in response to people's attitude about our financial difficulty. What I wanted to explain was that we were not in a recession, what a recession was, and the state of the economy. This was another one of those "just not feeling it" kind of posts. I thought I knew it all and couldn't voice my feelings that we had battled much worse before, we were not in actual economic chaos, and that the outcries were an overreaction. People were losing their homes and their jobs but only a fraction of what we faced in the Great Depression, and still much less than we faced in the 80s.

I wanted to shake the people who were claiming financial Armageddon and explain that the economy is cyclical, therefore, we will survive and live to tell a brighter story. There was no reason to worry if you were doing everything you should be doing. Responsible people, the ones who lived frugally and did all the right things, many of my dear readers who diligently planned meals and bought a home they could afford, those people would be unscathed.

I feel much differently today. Our future, both as a nation and as individuals, is a little more uncertain now. This may mean many of us will have to pull our belts tighter, and think even more creatively about cutting back. Although Mr. Cents and I have a relatively frugal lifestyle, we've already begun thinking about changes to discretionary spending. We have our regular budget as well as a contingency plan B in case we lose our jobs. We've also been tossing around the idea of drastically downsizing our lifestyle for the past several months and call this the "minimalist budget".

Mr. Cents talked about selling our home and living more simply with our friends in the past. Sadly, instead of supporting our lifestyles, our friends looked at Mr. Cents as though he had two heads and one of them spoke Latin. I find it amusing that now simple living and frugality has become almost trendy, instead of completely alien to our culture. A definite improvement in the times which comes from a dire necessity. Magazine covers now feature headlines like "Getting the most for your money at the grocery store" instead of "How to dress like Paris Hilton". These days, as people realize they need to make real changes to their lifestyles, saving money is in. That change in people's attitudes gives me hope that we will be resilient and overcome our current economic situation. Perhaps the original post wasn't as far off as I thought.

Bright words for dark days

Today is a typical October day in Chicago – it’s brisk and overcast, the leaves are beginning to turn and fall off, summer plants are reaching the end of their life or have been replaced by mums. Under normal circumstances, I love fall – the smell of the cold air, the vibrant foliage, excitement around upcoming holidays, anticipating crackling fires and apple cider so hot it burns your mouth. Today though, the ominous clouds hanging low overhead and the complete lack of sunshine make my mood all the more reflective of my current interpretation of the weather – dark. Gloomy. Depressing.

By nature, I’m very introspective. I could spend hours in self reflection without a second thought, and it’s as much a blessing as it is a curse. Case in point –
• I can learn very quickly from my mistakes and rarely repeat them more than once = good.
• I often spend far too much time worrying about the way events transpired, or paralyzed in fear of what’s to come = not so good.
Recent events in the marketplace, the uncertainty of our country’s future and sensationalist media (Dow drops 1000 points! The sky is falling! Etc…) doesn’t help my case. It also doesn’t help that I feel far from alone in my concerns. People outwardly discuss worry about their jobs, their homes, and their 401k balance in the way with as much casualty as the latest antics of Britney Spears. They want understanding and sympathy and someone to point the finger at RIGHT NOW.

But this is not the time for placing blame on greedy Wall Street, unethical Washington, or predatory mortgage brokers. Instead, now is a time that we all need to take responsibility.

-crickets-

Yes, I know it’s not your fault. You saved diligently before you bought your mortgage so you had a big down payment, you were educated about your financial situation, and you didn’t take a home equity loan you couldn’t afford to pay. And likely you were very, very far removed from anyone who had any direct responsibility. Chances are you were closer than you think. Even if all your money was in cash under a mattress (which I really doubt, knowing anything about my target audience) and you rented an apartment from your mother, this situation has touched nearly everyone. Even if you don’t know a single person who took a home equity line of credit only to later have to foreclosure on their home, you probably have a parent with a substantial amount of money in an IRA that was in a “safe” investment of CDOs (collaterized debt obligations, which are essentially a mutual fund of home loans). Perhaps your employer was affected by the credit crunch and backed away from the necessary capital to stay competitive because they were investing in a higher return mutual fund. But what does it really matter now? What can we do about it? As I tell the people who work for me “Blaming only wastes time and energy – don’t blame, create solutions.”

The fact is, there is very little we can do right now, so it might be prudent to do a little ostrich emulation (putting our heads in the sand). Make a disaster plan for what you could do if the sky really felt, and then put it away. Stop checking your 401k. Stop listening to the downward slope of the Dow (again) today. Surround yourself with as much positive energy as possible. Take joy in small things like hot apple cider and vibrant fall foliage. Do something nice for someone without expecting anything in return. Volunteer. Bake. Exercise.

There’s an interesting relationship between anger, worry and health. People involved in lengthy lawsuits nearly have a much higher incidence of serious health conditions. People who suffer depression are more likely to have accidents, develop cancer, and die of stroke. Financial uncertainty can cause depression.

It’s no coincidence that we are all so downtrodden.

Anyone who took Psych101 (and didn’t sleep through it completely) knows about the self-fulfilling prophecy, aka – what you focus on becomes reality. There is no stronger proof of this phenomenon than in the stock market. If everyone is scared that everything is going to hell with no recourse and promptly depletes every stock they own in order to keep all their money “liquid”, guess what – the stock market drops.

Focus on what you can control, not what you cannot. If you have people who work for you, focus on helping your employees improve at their jobs, instead of where your next paycheck is going to come from, or whether you will be the impact of a job cut to reduce expenses. If you work for someone, focus on adding value and continuous improvement, so you can be resilient in times of change. Do your best and relish in the sense of satisfaction of a job well done. Help someone less fortunate to give yourself some perspective. Tell your family and friends how much they mean to you and watch how rich you suddenly feel.

I’m always amazed that we live in one of the richest nations of all time and we still complain about how much we lack. It’s sad that we rarely talk about how much we have. In times when I dwell on fear and impending financial doom, Mr. Cents has a way to ground me like no other – by talking about the “worst thing that could happen”. The conversation usually goes something like this:

And what if you lost your job, what would happen then? I would have to try and find a new job. But if I couldn’t in time, we would not be able to pay our bills.
And what then?
We would lose our savings, our house and all our things.
And why would that be so bad?
We would have to start over from scratch.
And why would that be so disastrous?
We wouldn’t have a place to live.
You’re saying if we were completely destitute we would have no where to turn?
Well, I suppose we could live with our parents or our friends until we were able to get on our feet.
And that’s the worst that could happen? Is that really so bad? Is that the end of the world?
Well, it would be awful, but I guess…we would survive.
Right, we would survive. And we could pick ourselves up again.

He's so smart.

Though I’m no stranger to dark days, I do see much brighter days ahead. Money means nothing if you don’t have something to live for, and we have far more than we need to survive. That, my dear readers, is true wealth.

Whenever life gets particularly difficult, I turn to an inspiring passage left on a church pew by an unknown author in the late 17th century. It’s still as true today as it was hundreds years ago. Below is an excerpt of the Desirada. I hope you get as much peace and satisfaction out of it as I do:

And whether or not it is clear to you, no doubt the universe is unfolding in an ordered manner. Therefore, be at peace with nature and the mysterious process of evolution, whatever you conceive it to be; and whatever your labors and aspirations, in the noisy confusion of life, strive to maintain your own inner peace while you do those things bring you happiness and contribute to the survival of humanity. With all its sham, drudgery and broken dreams, it is still a beautiful world.

Baffled by the bailout? You're not alone

 
 

After searching for answers on the bailout all weekend with the fervor of a quest for the Holy Grail, I came up a little short. Amid hundreds of opinions, newscasts, and political propaganda, what were we actually signing up for, and was it all worthwhile? I found an incredible lack of answers, seemingly because Congress completed avoided any persuasive ideas or explanations toward the public.

 
 

Like nearly all of my fellow Americans, my confidence in the President and Congress are at an all time low - how was I, or anyone, supposed to support something I didn't understand, from people I didn't necessarily trust? Joel Achenbach of the Washington Post said it best - "a political establishment held in higher regard may have been able to hold together some kind of coalition of the willing, but distrust of the nation's leaders, from the leaders of Congress to the President, foreclosed that possibility."

 
 

So when Henry Paulson came up with a plan that was supposed to save our nation from financial Armageddon and said "just trust me with your $700 billion" and didn't offer further explanation, we didn't.

 
 

How did something that was suspected to be a landslide victory fall short on Monday? There are many speculations, but in a nutshell, it probably comes down to politics. Thousands of concerned voters called and emailed their Congressmen, and although they were told to vote with their conscience, I have to applaud Congress for exactly what they were criticized for: voting on behalf of the people they support. Yes, they may have done it to protect their jobs (the vote occurred just weeks before all 435 members of the house are up for re-election), but the lesson learned is that you, Joe Average voter on Main Street, do have a voice, and it does matter.

 
 

Unfortunately, many of us (me included) were woefully uneducated to make this decision. Many very, very smart people (I'm talking to you, Nobel Prize Winning Economists, authors, professors, scholars, doctors, lawyers, Mr. Cents, etc.) stood on opposite sides of the debate. Although you will probably be reading this after the bill has been passed through the House, I want to present to you, dear readers, the information I was sorely lacking before spending hours researching it - a summary of each position to the questions that are foremost on my mind.

 
 

What happened?

 
 

CNN has a great timeline of events leading up to the crisis. Basically, many investment houses on Wall Street were borrowing a lot of money to make risky bets on subprime mortgages. Bear Stearns failed and the government stepped in, Lehman Brothers failed and the government walked away, saying they were only picking industries to save that were "too big to fail". What was the criteria for too big to fail? AIG met the standard, and then suddenly we were looking at bailing out the entire system to the tune of $700 billion dollars or face financial Armageddon.

 
 

I wish someone would just tell me what the heck this bailout plan was for.

 
 

The New York Times printed an article that was the single best original source of information on the subject, and I don't say that lightly. If you read anything - read this article. If you don't want to read it (well, you really shouldn't be reading this either, but regardless…) here's a brief synopsis:

• The plan is asking for up to 700 billion to buy distressed mortgages. The government cannot go beyond the $700 billion without further approval from Congress, but estimates run from $500 billion to $1 trillion. However, the $700 billion is in addition to the 85 billion for AIG, 25 billion for Freddie and Fannie, and $29 billion to help JP Morgan Chase merge with Bear Stearns.
  
• Taxpayers will ultimately bear the burden of the bail out. Congress hopes that the bailout will help the overall marketplace more than it hurts the taxpayer.
  
• Main Street is being asked to cleanup Wall Street because the markets are so pervasive that they, ultimately, affect nearly everyone. The bailout plan will also likely include limits on payouts for executives and relief for homeowners facing foreclosure.
  

   
   

  700 Billion is a lot of money - how did they come up with that number?
  

   
   

  When pressed for an answer to this question, the Treasury said they just wanted to come up with a really big number. No, I only wish I was kidding.
  

   
   

  What are the experts saying?
  

   
   

  Here are some arguments for the bailout:
  

   
   

  This isn't just a Wall-Street bailout!
  

   
   

  How Main Street will Profit
  

   
   

  And here are some against:
  

   
   

  Newt Gingrich, former Speaker of the House
  

   
   

  Rep. Robert "Bobby" Scott (D-VA)
  

   
   

  Jeff Miron, Harvard Economist
  

   
   

  If you are reading this post I'm assuming you are interested enough in our political system to have a vested interest in its outcome. So, now that you are informed (at least slightly more than before you read this post), do what's right for government, get out and vote. Because we've proved a lot of things that are much more valuable than money - that the democratic system we love and stand behind still works, Joe Average voter still has a voice, and, most importantly - every vote matters.
  

Making sense of the markets

Even as someone who avoids traditional news sources, it’s hard to avoid the ubiquitous headlines “$700 trillion bailout – that means you, Mrs. Common Cents!!”. It’s an exciting time for those of us who drool over economics like it’s an intellectual hot fudge sundae. For some reason, friends have been coming in droves asking what our opinions are on the current status of our financial crisis. I was embarrassed on more than one occasion to say I don’t know, because I don’t quite understand how we got here or why. I’m only somewhat comforted by the idea that many people – including some brilliant minds on Wall Street, in Congress, and even in the White House – were uninformed as well. However, ignorance does not allow me to excuse myself from my own intellectual curiosity, so I pressed on for more information.

A great primer for those trying to make sense of the amount of commentary and information and have been left with nothing but scratching their head is this fantastic Q&A explaining the Wall Street bailout plan. In a nutshell, yes, you, Mr. or Ms. Taxpayer will be paying for this, but the government hopes that this bailout is better than the alternative of letting the market collapse onto itself and that hopefully, it won’t be the entire $700 billion and maybe, just maybe, Uncle Sam will even make a few bucks on the risk (I’m not holding my breath).

So how much is $700 billion, and what does that have to do with the price of milk? According to the New York Times “A $700 billion expenditure on distressed mortgage-related assets would roughly be what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation.” (Dear Mr. President - Perhaps it’s time now to forgo the defense budget in lieu of the impending financial doom – whattaya think?) $700 billion equates to roughly 2 grand for every tax payer, which is probably a price I’d be willing to pay to ensure that our country doesn’t end up going back to a depression synonymous with that of The Grapes of Wrath.

At heart, I’m a liberal who favors capitalism and free market economics, so I’m not thrilled by the current bailout. Admittedly, I haven’t fully grasped the reasons behind Congress’ decisions and I need to do a lot more research to make sense of how and why it came to this before I make any judgments. However, until things go back to “normal”, I’ll be content sitting here and drooling on my intellectual hot fudge sundae.