Glass Half Empty
We spent the morning opening up new IRA CDs at a local bank. We have now left our “market” days behind us. We are both getting too old to ride out this particular cycle on Wall Street and needed to find a safer haven for our money. Should the government go belly up, we’ll all be in the same place anyway, but for the time being our money is safely ensconced in FDIC-insured banks. We also intend to keep more cash on hand and to stock a pantry with additional food. Overreacting? Perhaps, but I don’t see a big enough downside not to do this.
I had an interesting conversation with the “investment” banker who opened our account this morning. Prior to working for the bank, he worked for a mortgage broker. This was during the time when President Bush was pushing his “Ownership Society” meme. The banker is relatively young, under 40, I think. So even as a young man, this guy understood that not everyone qualified to own a home and he knew what was being done was borderline criminal.
Our investment banker lasted only 6 months with the mortgage broker because his conscience wouldn’t allow him to continue working under such conditions. This morning he squarely put the blame for the mess we are in on unscrupulous mortgage brokers who knew exactly what they were doing. Lying to get people into homes they couldn’t possibly afford, and then selling these risky mortgages as quickly as possible. It wasn’t that the borrowers couldn’t afford the loan when it was made, but that they wouldn’t be able to afford it when the loan reset 3 or 5 years down the road. Any borrower concerns were put aside by the broker reassuring them that a) their house would appreciate enough to cover it, b) their incomes would rise sufficiently to pay any additional interest, or c) they could always refinance.
When people don’t understand the terms being thrust upon them, they have a tendency to listen to the “experts” believing they wouldn’t lead them astray. In some ways it’s similar to our being told this morning, by this young investment banker, that the market will come roaring back and will rebound to 14,000 within a year or two. It’s easy for him to say that because he’s young enough to remain optimistic. It’s also easy for him to say because he’s not risking anything by encouraging us to stay in the market. In fact he probably benefits from it because the more people like us pull out of the market, the lower the market sinks. He thinks we are being foolish by trying to protect what we’ve spent decades accumulating, because inflation will erode it. But given the choice between inflation erosion or having the stock market implode, I’ll take the inflation.
This financial crisis just feels different to me than others in the cycle. For one thing, no one seems to know what we are facing. Some are predicting that the bailout (or now the euphemistic rescue) really won’t solve the problem but will make the same people responsible for this disaster that much richer.
I sincerely hope I’m wrong about all this, but I’m no longer willing or able to take the risk to find out. YMMV (your mileage may vary).