Thursday, September 18, 2008

market meltdown


This photo is from Nikki Finke's Deadline Hollywood. I know, it's a cow not a bull, but let's just pretend, eh? Anyway, it's a good representation of how I feel about money today.

Some perspective: from 1929 to 1932, the DJIA lost 89%. In the crash of 1987, in one very scary week, it lost 31%. When the dotcom bubble burst, the NASDAQ fell from 5,048 to 1,114 about two years later. By comparison, this year the DJIA is down about 25%. So far.

But what makes it all so stunning (and not in a good way) is the cracking of the bases of the global economy. AIG, the biggest insurer in the world--the people who insure bonds, among other things--just got eaten by the US Government. The government had to do it--if AIG had gone down the global market would have been a bloodbath--and they bargained hard, getting a pretty good deal for taxpayers like you and me who now have an 80% controlling interest in the company (and are charging a swingeing 8.5% over LIBOR--a punitive rate, which I'm not saying isn't deserved...) but wow, the US government now owns a lot of what, two years ago, were thriving independent beasts of the finance world. And that means government will probably start regulating the hell out of everything, which means that growth will be much slower during the next recovery, which means we all suffer. (We would have suffered a lot more without the bailouts, no question. And of course this mess wouldn't exist without deregulation in the first place.)

What does all this mean? I don't know, exactly. For once I'm having a really hard time wrapping my head around it. I like money. I like playing with it; I don't have issues around it. For me, money is not an emotional marker, it's more like a game chip. Yes, when we lost 80% of everything six years ago I felt like throwing up but, hey, I told myself, it's just money; we can always earn more. But this morning I woke up and found I suddenly didn't understand what all this means. I find myself unmoored. Kelley and I have lost 25% of our pension fund; we've lost the ability to get loans (as has most of the world); our odds of getting a last-resort job have tanked; the likelihood of publishers and studios paying us a zillion dollars for our brain work just evaporated; our house is worth a lot less. Yet we still have money in the bank (the bank, though, is for sale), the trees are still shivering in the breeze, the squirrels are still industriously collecting nuts for autumn. So in the ultimate scheme of things, does this mean much? Probably not, but I don't actually know. That's what bothers me.

So here's my question: how do you feel about what's been going on in Finance World? Does it bother you? Do you shrug and think, hey those bastards deserve all the pain? Are you aware, or not, of what's going on? Does it impinge on your daily life? Do you feel any different today than this time last week?

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23 comments:

  1. In the short-term, it is bloody depressing. But I keep telling myself that markets are cyclical, and by the time I do want to retire (20-25 years from now)my stuff will have recovered all that I've lost in the recent months and will be much larger.

    If you hold onto your house, its value will rebound. You'll only lose out if you sell. It's likely the same with your mutual funds. The only thing I would worry about is the FDIC insured limits on your bank accounts ($100,000 per insured per financial institution; if you had a joint account, it would then be $200,000).

    It looks ugly now, Nicola, but it will get better.

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  2. patti, thanks for the reassurance--but that's not what I'm after. I'm looking for information on how people see the world, how much financial new impinges on their sense of well-being etc.

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  3. I am 48, spent 20 years working on Wall Street and in consulting. I am neither a banker nor a consultant, I was a researcher, gathering information for said individuals. I have been out of work for a year now. In my down moments I think I am well and truly fucked, for the same reasons you mention.

    Fortunately, I am by nature an optimistic person and I know that I will reenter the workforce, I will have money in the bank for my retirement and I will survive.

    What is so distressing is that people do not seem to be learning from the mistakes that are made in the marketplace. I do not relish the notion that the government will be stepping up and imposing all sorts of regulations and constraints, however I am not sure where the answer lies.

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  4. rory, in terms of solutions some kind of magic potion to make CEOs less greedy and grandiose would be a good start, followed by regulators with grit, and financiers able to actually learn. Some basic regulation also might be good, e.g. a return to the separation of commercial and investment banking. Basically, to change human nature...

    Meanwhile, I wish you great good luck with your job search.

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  5. I lost my savings over a period of seven years, once I passed 50, few folks expressed interest in hiring me. So I have nothing left to lose. At age 60 I am hoping for enough employment over the next 5 years to bring me back to zero. My major concern with this is that my clients and employers will no longer have the money to pay me or the desire to hire me. But when you have nothing to lose, you lose nothing.

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  6. So many variables have to be addressed. My main concern is that the pendulum will swing too far in the other direction.

    I have put my job search on hold for the time being. I am attending school and working towards a certificate in the paralegal field. I should be done by December and hope to be employed early next year. Thank you for your good wishes.

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  7. I feel a tremendous sense of disconnection with it. The way the news stories are written, the very headlines themselves--we live in the midst of a financial system that is largely invisible, or at least impenetrable, to many--probably most--people. We are told to pay attention only when disaster strikes, and thus the striking of disaster repeats. It doesn't help to have such a worthless administration in place, because no context they try and put things in can be believed, and yet, what do I believe? That I'm glad we've put off saving, but still know that the shockwaves from this will reverberate through the economy at every level, through health care costs and the cost of everything, ultimately, and maybe nothing will change, and most people will never understand why. If I'm angry, yes, it's at greed and willfully, ridiculously irresponsible actions of very rich people, but as much at people who might still be considering voting for McCain while all this turns to rubble.

    I'm sure it will stabilize and everything will be fine. I take great comfort in books, tea, house, dogs and cat, life, and know those are the important things and yet...

    And yet, I feel this sensation that we're all fucked but I don't understand _why_.

    And I still had a pretty fine day.

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  8. Well, let's see: I got laid off in December 2005, tried for a year to find a job, found one, was laid off again six weeks later, tried again for a year to find a job, found one, was laid off six months later. In the meantime I went through both my savings and my entire 401k, to - ya know - pay the rent.

    I've been living paycheck to paycheck for so long that the whole financial meltdown was really just a non-issue for me. I have no investments, no stocks and no property. I have nothing to lose, essentially. I don't even have credit cards to default on. So, yeah, I guess it hasn't affected me personally at all.

    But I'm not happy that so many of my friends are having such a hard time, particularly since so many of them have children under the age of three. They've watched their (admittedly small) college funds melt away, the equity in their homes drop down to nothing, and their pension funds evaporate.

    Additionally, a good friend of mine just left a long-time job at Random House to take a job at AIG as a corporate communications specialist. All I could think this week was "JAY-ZUS H. CHRIST! What piss poor timing!" She must have been working 24/7 to manage the spin on this mess...

    Oy.

    I always blame George Bush for everything anyway. :-)

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  9. I'm like you: money is a tool. It's almost a game. Thing is, I like what it buys. I like my cell phone and internet service. I like long airplane rides to foreign lands and my cars. Dang it, but I like 'em!

    The thing that frightens me most about money is that it breeds an attitude of more. I sense no satisfaction. I sense no accomplishment. It's all focused on a vague "more." That's what I think when I see the downfall of these giants. They wanted more, and maybe the world is actually giving it to them.

    I'm researching my new book, a futuristic, and my biggest impression, no matter how dire or optomistic the prediction, is that humankind is meant to live in a limited community. Human nature, the nature of the world itself, will drive us back into that: a small, manageable community. Even on the WWW many of us seek it-- people gather to talk on blogs in small groups.

    Economically, I think these failures will drive us to live closer to home. Local goods, local services. And to me it feels right. Nature will out, and I think AIG (or Walmart) is an example of anti-nature. Humankind has gotten too big for its britches, but the world will set it right in the end.

    So fear, yes, but a certain joy, too.

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  10. chadao, on paper, you'd think that having nothing to lose meant that, well, you had nothing to lose--that one acquired a zen sense of life. But it was never like that for me in the days I literally didn't know where my next meal was coming from. I was stressed, unhappy, and bitter--envious of all those with more. Fortunately I was also very young. I don't think I scarred. But I don't forget, either. I hope you get your five years.

    rory, I honestly can't see this country submitting to too much regulation. From my admittedly foreign perspective it's in the citizenry's DNA to believe in free will, free markets, and capitalistic freebootery. I bet you're looking forward to December...

    gwenda, yes, it's that sense of bewilderment: why? Why are people so bloody blinkered, why do they blunder along believing the rules are somehow different just because they're playing, just because they *want* them to be different? It does my head in. McCain is truly dim when it comes to economics. I suspect Obama isn't as dim, but it's infuriating to hear him talk about restricting free trade--that's pandering populist poppycock. Sorry, I seem to be in the Anglo-Saxon Alliterative place :) Right now I'm having weird double-vision of the world: I'm listening to a horned owl hooting away outside and raccoons churring, half-dreaming about Hild world, and seeing also the red numbers on my portfolio. Time for one last cup of decaf and to settle down with the new Robin McKinley. (Yay!) To hell with all this stress.

    colleen, oh, yep, Bush has a lot to answer for. Wouldn't it be lovely if those Andover lawyers found a way to prosecute him?

    ssas, I love money because it buys things that make my life easier. Being able to fly first class means that I can travel without crippling myself for a week. Being able to buy one of those ridiculously expensive academic texts means I don't have to do the constant inte-library loan borrow-an-return, borrow-and-return dance. Money is a lubricant.

    I have mixed feelings about the small-community thing. Small scale means expensive. Sustainable, yes. Healthier, yes. But, wow, pricey. And that's okay when everyone has money but when we don't, ooof.

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  11. I do like money, I'm no zen person. I especially like buying music and books and concert tickets and delicious dinners to share with my friends.

    And I also remember the days when I had to decide between taking the bus with my $3 pesos or buying rice and beans for nourishment. I always chose food and ended up walking the two hours it took to get from the cockroach-infested room I rented and all the way to school under the rays of a Mexican sun.

    But market meltdowns don't stress me out that much. I freak out way more when I read about massive bee and bat die-outs and other ecological disasters.

    I probably got the cool head for money crisis from my parents. In 1994, the Mexican economy went from $3.5 pesos per dollar to $7.3 pesos over the course of a day. A lot of people had acquired debts in US dollars and there was a wave of suicides all across the country. Some of my friends' parents were among the business people who blew their brains out. My parents didn't even look worried, not more than usual. They just sat us down and said, "We're lucky to have jobs and if things get really bad you all have good enough grades to ask for scholarships. We don't need more than that." Then, just a few years ago, my dad lost his retirement fund during the Enron bankruptcy scandal. He had invested in the stock market, but didn't bother to monitor. It was my sister who read the newspaper and asked him, "Hey, dad, didn't you put all your money in one of those companies that went down?" My dad read the paper and said, "Oops..." and I even remember he laughed. I'm sure he must have been nervous and worried and all that, but the overall attitude remained, "Oh, well, we still have jobs."

    Either I picked up that outlook on things or I'm so pessimistic that I'm just waiting for the world to run out of food and water and other human-life sustaining things. I do believe it's the latter. I think the scenario will kick into full gear too soon to even give us a chance to really worry about how we'll deal with the mortgage.

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  12. I think we're not having too bad a time in Australia, but we're on the cusp of getting into a rot along with the US imposed financial crisis or maintaining our strong fundamentals. Unlike the US, we've a socialist democratic government along the lines of the UK, with a competition watchdog and heavier market regulation. But if you look at the US, and this is something I learnt from analysts, it doesn't have a truly free market economy. The US govt has kept interest rates deliberately low so that consumerism drives the economy. The choice to bail out ailing financial organisations is not typical of a free market regime. The question then is, if the government hadn't interfered at all, would this mess have happened or would the market have corrected itself earlier?
    To answer your question, Nicola, we can't escape US woes but on the ground, we're not experiencing a lifestyle change no.

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  13. Yes, the US economy affects many countries around the Globe, even as far as Australia. Back home, we say that when the US sneezes, Mexico goes down with pneumonia. And it's true. But I guess my southern country has been going to hell for so long that we've gotten used to walking on blistered feet.

    If the outcome of this crisis is a more restrained consumption of resources, I'm all for it. Even if it means immediate hardship for us all, in the long-term it may well delay my ecological doom scenario.

    Nicola, you and Kelley have gathered a healthy small-community around you. Fear not. If things get really bad, the crazy Mexicans who live only three hours North of Seattle will find a way to smuggle you into the secret island where coconuts, avocados, mangoes, papayas, Margaritas and beer are served around the clock. Transportation is one of Esmeralda's family businesses. And food and logistics are mine.

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  14. Well, the roller coaster is back up again since you wrote this post. I do not have a lot of faith in these govt bailouts. I guess I'm one of the americans you were talking about re the free will thing. But more than that, I just don't think the feds are smart enough to do it properly. It seems that a lot of their interventions have and will cause more harm in the long run. This is not to say that I don't believe in some forms of regulation, but I think that part of what got us into this mess is that regulations were ignored.

    I don't feel any different today than I did last week, but last week I was pretty stressed about money already. That is pretty unusual for me. Money is not an emotional marker for me either. I usually trust that there will be more when I need it.

    The thing is I've known for a few years now that this was coming. There's a brilliant man I listen to in so. cal who has been forecasting this for a long time. He's a real estate investor and he's been studying market trends for many years and has never been wrong so far. When I first heard him speak on this crisis coming, I thought wow, be afraid, be very afraid. But you know, I wasn't. Somehow, I always figure I'll be ok. It may not be easy, but it'll be ok.

    Besides that, what's the point of worry? It's obviously good to pay attention to what's happening and do the best we can to make money, but the knowledge has to be put to a more constructive use than worry. It's just tough to keep a positive outlook sometimes.

    Basically this has happened because of greed. By a lot of people -- from the average person who bought a house they couldn't afford, all the way up to the top of the financial pile.

    I don't see that kind of greed going away anytime soon. Somehow we'll weather this storm, the cycle will swing the other way, people will be cautious for awhile, but then something similar will probably happen again. Not on this magnitude probably, but in the same vein.

    It's just really bad timing. With the combination of the global warming problem, it worries me what the fallout will be; it's going to be a very bumpy ride. We may be using less resources, but it's going to take a lot of money to switch to a more sustainable kind of living.

    I think most people don't think about market fluctuations all that much; they think it doesn't matter to them if they have nothing in the market, and they don't realize or care until it actually trickles down to their own immediate cost of living. They are too busy with everyday struggles anyway.

    Anyway, yes, I'm aware. Yes it's impinging on my life and the lives of those I love. And I think it's going to get worse before it gets better. How much worse is the unknown that scares me. I think the economy will recover, but we will not be the same afterwards; some ways of living are going to have to change given everything that is looming.

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  15. Having been laid off just over a month ago, I guess I would have to say that I am concerned about the market. I must also add though that I was laid off just before 9/11 and I was able to survive being unemployed for a year.

    My biggest concern right now is finding a new job and dealing with all the changes that have taken place in the job market.

    If I have to, I will sell my place and live off the proceeds for a while. Having just turned 50, I am at a point where I am ready to simplify my life and make a change in career that is more rewarding than what I have done in the past, and I am not talking financial rewards.

    I see a lot of people getting stressed over the situation. I have learned that if I am to get by and survive this, I just need to keep plugging away and not let it get to me.

    I am going to stay optimistic and hope that I can find some sort of geeky work that will allow me to get by while I pursue my goals.

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  16. karina, I'm actually not fearful. I was bewildered. Now I'm not. Now I'm nodding my head, going, 'Right, it's one of *those* weirdnesses, where nothing makes sense because herds of people are being totally, utterly fucking irrational'. People are acting like spooked cattle--which is something I understand. What screws me up is when I'm completely immersed in my novel, then I come up for air and for a moment--just one moment--I forget that all those people who think they're rational are, in fact, not; I mistake the market for a cool and rational place. That's when this kind of thing hits me like a 2x4. But now I've got my sensible hat back on (though it meant missing nearly a whole day's work, tuh) I see more clearly. It's just a thing.

    evecho, I wasn't for a minute suggesting the US economy is actually a free market (there's no such thing) but that the citizenry hereabouts like to *think* it is, which leads to all kinds of tortuous decision-making. I think the next few years in Australia will be very interesting: water, regional peace-keeping, mineral management. I hope your ride is less bumpy than this one.

    jennifer, I think the rollercoaster has a lot more rolling to do. Personally I don't think we'll see the beginnings of any real stability until February or March. The herd is well and truly spooked now, and every twig crackle or bird song will set it running. And there's a lot of crackle-and-song to come, in terms of fallout from this subprime mess. In my opinion.

    jim, I think the job market is going to be okay. And the world needs geeks. Good luck.

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  17. I think it's going to go well into next year, and we're going to see more an loans fail that aren't even subprime. On top of that people - who live next door to sub-primers with variable interest rate loans that get bailed out by the government (and reduced loan amounts)- are likely to walk away from their fixed rate loans that are way more than their property is worth. At least in states with non-recourse laws.

    But guess what. Something really good just happened to me today because of the down economy. I just won a cruise on Olivia! Didn't even remember entering. Because people don't have extra cash for cruises, they had extra space on board and gave some away. Can't win if you don't play.

    In two weeks, I'll be basking in the sun in a deck chair reading a book and sipping a beer. Things are looking up for one lucky duck.

    Next up: the lottery.

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  18. Holy shit! That's great. Where's the boat going?

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  19. I read this blog entry at lunch time and have thought about a lot about how to answer this on a personal level.

    My grandmother always said that "more than a mouthful is just plain bad manners." And I guess that sums up how I have lived my life in terms of money and possessions.

    Please, this is not a "I walked two miles in the snow" story but,and you knew there would be one,I have always made my own way. I have worked since I was 14. I came from a modest family and I will inherit nothing but a work ethic,integrity, and the philosophy "to have more, desire less."

    I did not buy more house than I could afford predicated on my future earnings"maybe" catching up with an ARM. I have a nice car, a Toyota, not a Lexus,-my first new one in 30 years. I am blessed to have been able to finish college-at age 40(I swept floors at Sears to pay tuition), and have worked hard and with sacrifice to earn my current job which will afford me a small retirement and benefits in a few years from now.I have planned for my debts to be gone by age 64.

    I do not have investments, CDs, stocks or the like. I would like to do a heck of a lot, to buy many gadgets, to travel, own a Harley,but to choose that is to choose accountability and with that, there can be no expectation that others will bail me out of poor choices, bad planning, heavy debt when the money is gone. Do I deny myself everything? Nope. I'm rich in books and music.

    I live simply,I am not discontent, and does the state of the economy impact me personally ? Yes, of course. I see the "other America" everyday, and their numbers and needs are growing. But there is just so much "free stuff"to go around and, unfortunately, when it seemingly has become an "entitlement", those who are truly in need pay the price for the expectation of those who seemingly believe that "someone will bail me out."

    I think to view the issues globally one needs to first reduce it to its smallest component-personal choice for managing our own resources.

    Of course I DO know that s- happens and many people have events visited upon them not by choice. And of course there is a moral obligation that others do need to help.

    I would hope that we will rebound but the health of our collective economy, and country, can be only as healthy as the sum of its parts.

    If this is a provincial view so be it and slap a 'P' on my dress...

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  20. linda, I don't see anything wrong with being fiscally cautious (aka sensible aka realistic). We're still driving a 1992 Toyota (my very first car). No judgements here, at least not from me. Congrats on the degree, by the way.

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  21. Linda, in my books a work ethic,integrity, and the philosophy "to have more, desire less" is a pretty rich inheritance. Plus literature and music... What more can one ask for?

    And I already did the "walking two miles under the sun" and "dances with chupacabras". It doesn't get any sappier or provincial than that, does it? You can't go wrong.

    I do wish an easy (or at least manageable) passage for us all. And lots of tasty (even if they are simple) dinners shared with our loved ones.

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  22. karina, linda, yes, 'work ethic, integrity, and the philosophy "to have more, desire less"' = not only a get-your-head-around-it coping skill, it's also a survival skill, one that I think is increasingly rare.

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  23. I get lost with the entire concept of money. Especially since it has nothing to back it up. Its either complicated beyond my intellect, or, its way to simple. All in all it just seems so darn artificial.

    However, since most of the world has bought into the idea of "money" I guess one should pay attention.

    It seems to me that the US still has a lock on being the financial kingpin. If this economy collapses I think the world would be in big trouble. That's today.

    When the rest of the world catches up, which seems to be what's happening in our time, I think the US is screwed. Once we don't hold up the economics of the world, we have no holds over anything or anyone.

    I think the unrest is justified maybe not for me at my age, but definitely for the younger folks. That doesn't mean its a "bad" thing but it will not be the same world that my ancestors had. If things keep going like they are the place to be looks like it will be China.

    Meantime I am infavor of regulations. Its obvious that the braintrusts for these fiancial institutions are not cabalbe of honet business management so government involvment needs to be inplace to keep them honest.

    Whose the "we" who lost 80% of what they had? Were you speaking of yourself, Nicoloa? That would be real tough.

    My own tactic has been to divest myself of almost everything. I hav a house and a car. I have a bank account, but no charge cards. My material wants have become simple, reading, chatting with friends and acquaitences via the ether, and simple enjoyments of spending time with my mate and our fourlegged friends. If I buy something on time its going to be the motorcycle I get just as soon as I can find one. Seems that Honda Rebels were a very popular machine this year.

    duff

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