Saturday, March 21, 2009

What Do We Do?

We tax all the others and pass the revenue on to you

Ransom asks a simple and good question: "What do we do?" Meaning, I think, what personal course do we chart given the economic crisis and our current leadership void.

The stimulus plan amounts to putting up gobs of money for borrowers ... as opposed to the bailout plans, which put up gobs of money for people who borrowed recklessly. For postponed business investing, that sounds OK. Problem is, you need a reasonable chance of repayment before you decide to make a business loan. That's why business plans exist. "Make it make sense to us and we'll loan you the money." When that works we all win, the loan gets repaid, jobs get created and the lender and businessman are rewarded with profits. When it fails we get GM, a convenient example. I'm glad I'm not a GM creditor.

It's hard to make a case for new business lending right now. If it weren't, BofA would be lending instead of hoarding the money they have. It still sounds good, that's why congress keeps trotting it out, but no one's doing it because the crisis is going to get worse and borrowers can be unnecessary risks. Why lend if the government's giving away free money? But there is no free money, just like there's no free Mexican food, remember?

Can you name any successful business people who gave it all up and become congresspeople? A darn short list. The really successful ones, Perot and Forbes come to mind, wouldn't demean themselves, seeking only higher office. Congress: The best of the unemployable. Would you hire Chris or Barney or Nancy or Harry to do anything important? TimmyG? Really? Nah.

Admit it, we wouldn't hire a congressman if we wanted to produce something. So why are we listening to them tell us how the American business model should run. Stop doing that. They don't know.

Consumer lending is another matter entirely. As the stimulus is currently contemplated, that involves loaning YOU a lot of money to buy things you don't need. Sure, some people need a new car but most people buy new cars, or name the purchase of your dreams, just because they want one. They used to do it that way. Their parents did it that way. Now we're being asked to close our eyes and pretend that today is the same as yesterday. It's not. Now I want to give the next sentence it's own line:

Consumer borrowing shifts the crisis to you

Pile up your debt to save the economy? That idea doesn't work for me. It shifts the center of the crisis but it doesn't solve it. The lenders get money and you get... stuff. Do you really need more stuff... and debt?

The idea doesn't work for lenders either, even though they want you to think otherwise. That's why they lobbied so hard for the last couple of bankruptcy reforms. They prefer your indentured servitude over your opportunity for a "fresh start", the heart of bankruptcy laws.

What do we do?

STOP BORROWING! If you can't afford it without borrowing... you can't afford it. The stimulus isn't in your best interest. I make an exception for housing but even then only if you can make a substantial down payment. Need a car but can't afford a new one? Buy a used one you can afford and save your money for something better later on. Do what you taught your kids to do.

Save something every month and put it in the bank. If the deposit limits scare you, open another account and thank God for your good fortune. Pay cash whenever you can.

Make do with what you've got. Cut back. Do the things that you talked about doing when gas was approaching $5/gallon. That was only last year.

Increase your marketability by getting more education and learning more about how your employer works.

Make yourself indispensable to your clients by helping them succeed.

Get a second job, even if it's flipping burgers.

Grow a Victory garden and put some flowers in with your veggies. Free beauty is good for the soul and so are home-grown tomatoes.

Refinance high mortgages if you can. Lenders may be more sympathetic now.

Invest conservatively.

Wait it out.

Here's what not to do:

1. Don't believe in crackpot solutions that involve replacing our government with something else.

2. Don't believe anyone who tells you that they know what you should do but they won't tell you unless you pay them. I'll tell you for free and I'm at least as likely to be right as they are.

3. Don't believe that help is on the way. The crisis may be someone else's fault but the solution for your family is up to you. Just like in the 1930s, 50s, and 80s. Get on it.

* * * * *

The time to save is now. When a dog gets a bone he doesn't go out and make a down payment on a bigger bone. He buries the one he's got. -- Will Rogers


  1. Excellent advice! And the best part is that we are doing this stuff it (except for the burger flipping job)...

  2. So . . . what you've said raises more questions for me:

    1. If we shouldn't trust the group of people you listed (in government, one way or another), why NOT consider some kind of radical change to the present leadership (beyond the "you can vote" solution)?

    2. You're a much more accomplished historian than I'll ever be. I'm wondering if during the 30s, 50s and 80s you mentioned, there actually were those who prepared for the downturn and weathered it well (besides the very wealthy)? Could we glean some kind of direction from them as to how to embrace what's ahead?

    3. Is saving today's dollars really a good approach, considering the inflationary period we're entering? In 1975, we bought a 3 bedroom, two bath, two car garage home on an acre, it included a water well and septic system. The price? $19,500 That same home today would cost $300,000 to $400,000. Is it worth more? No - the currency's just worth less. Maybe exchanging today's dollars for tires, or tools, or seeds, or cloth, or whatever might have intrinsic value. Don't really know . . . but I hate to think of the value of those funds in the bank just shrinking away.

    Maybe I'm just tired tonight. It's been a long day after all. I've worked hard. Yeah, that's it, I'm just tired.


  3. 1. 60 days isn't enough time to judge the efficacy of an administration. That's why we have presidential elections every four years. That interval was decided for us and has not of late been up for reconsideration.

    We have congressional elections every two years because two years is enough time for us to weigh the current administration and change our congressional representation to express our mood.

    Losing an election is a humbling experience. It brings into question one's core beliefs and sense of worth. That's not the fault of the winners, though. They won and our responsibility is to support America, not one party. If the Dems are in charge, fine, they benefit. Same for the Repubs.

    There simply isn't going to be, nor should there be, a Seven Days in May answer for dissatisfied Americans, now or ever. Did Curtis Lemay's hatred for JFK or his apocryphal coup plot really inspire that movie? Doesn't matter. Little else would galvanize
    American opinion and action more than an internal revolt, and little else would harm America's world standing more.

    We're going to stick to the alternatives our forefathers handed down to us. We re-learned them in 1861 and from time to time since. Two many have died to preserve them for anyone to give them up now.

    2. I don't know that much about The Great Depression. Studs Terkel did, though. Consider reading his outstanding Hard Times: An Oral History of the Great Depression. There are lots of lessons for us there.

    3. I am unqualified to advise on currency speculation except tp advise against it. Some fortunes will be made in that field but mine won't be among them. Some will be lost, too, and I won't be among those either. Some of the greatest financial losses and crimes of the 20th century involved currency speculation by people who were supposed to know what they were doing... and didn't.

    For all but a miniscule number of Americans, our only political responsibility is to be an informed voter, then vote. That's it, all of it. If you are moved to participate, go for it. About the same number of people will love you as hate you. That's just the way it is and it's an arean I'm not drawn to.