It’s quite understandable that most individuals are freaking out about the current economic disaster. While few people actually directly buy stocks—thought plenty of people have dormant Ameritrade accounts for when they thought they were going to be crackerjack day traders back in 1998 but gave up after one week of taking a bath on internet pet food companies and incorporated European “tanning” salon chains—many people have 401(k) accounts. And these retirement accounts have not exactly responded how imminent retirees want them to—namely, up. It’s rather understandable that a nation of reluctant investors has suddenly realized how distant pages in the financial section of the local paper now officially matter to them beyond checking the potential interest rate on a loan for that sailboat they will never buy.
Thank goodness that people are reacting rationally about this, such as thirty year olds waiting all of four hours until they get home from work to accept the tax penalty and pull all their money from their retirement accounts and stuffing it under their mattress, causing most financial advisors to fall over in pain after listening to small parts of their soul die. While the market is being unpredictable, there are certain rules of finance that are immutable, one of them being reckless changes in your financial spending are the equivalent of the cross between a women two weeks before the announces she wants a divorce and…every other woman.
Well, at least journalists are being reasonable. Such as Time magazine, which ran a cover story entitled “How We’re Going To Be Sipping Bone Marrow Soup And Eating Crabgrass Clippings For Breakfast For The Next Three Decades.” For style, they put a stock picture of a soup line from the Depression on the cover; stock photos being necessary since there aren’t exactly any modern soup lines to snap pictures of, a fact no doubt quickly ascertained by the crack objective journalists at Time. One assumes that journalists study to become journalists because they already understand everything there is to know about finance and economics (cough, cough).
So at least television financial advisors are acting like reasonable human beings, right? Such as Jim Cramer, the host of Mad Money, declaring that anyone who hasn’t converted all of their shares into gold bullion being stored in small compounds in the Pacific Northwest is going to be first up against the wall when the revolution comes. Most financial advisors try to avoid such broad-based panic-generating statement, though in Cramer’s defense he is certifiably insane.
While it’s certainly possible the economy will spiral out of control and falling stockbrokers will force the creation of a new task force within FEMA, things are a lot different than they were in the 1930’s. The banking system now resembles what happens to my DVD player after the power goes out and comes back on during a storm—it’s a lot of interconnected wires and signals that create a lot of flash and activity that doesn’t really show that anything productive is happening. But tinker with it for a few scary minutes and it will still play Suburban Commando like a champ like it always has, at least until a power surge destroys the whole thing.
Of course, there is one unfortunate similarity between now and then, and that’s bank failures. Bank failures have been virtually nonexistent for the past sixty decades or so (the legal system delineating the different types of banks in such a way as to make Andy Warhol a beacon of sense and clarity), owing in part to the fact that, unlike now, most banking CEOs aren’t complete amoral idiots. An elaborate system of balances has been set up in the financial industry for years effectively guaranteeing that banks won’t fail. They mostly do this by forcing banks to hold on to a certain level of assets in relation to the money they are holding, a concept so simple that no one ever followed it.
During the savings and loan crisis in the late 80’s and early 90’s, financial institutions were using any and all random items to claim as assets—everything from artwork with deliberately overinflated worth to all the crap they could find in their grandmother’s attic—and in many cases would simply declare their grandmother’s attic to be worth what it theoretically would be worth if anyone wanted to actually go root around and inventory the place while she prattled on about a sale at the Hallmark store and meat rationing, which of course no one ever did. Because of the resulting financial mess from this scandal, many regulations we see today being flaunted were initiated—and the reaction, alas, seems to be much the same.
Unfortunately, new regulations didn’t help, since banks went ahead and used mortgages on homes that had highly inflated prices to begin with as assets, and the exact same story started over again—when the depositors knocked on the door, the bank found nothing but a burned out DVD player in granny’s attic. So it may be a while before we see any part of a recovery. If only there was a way to make embarrassingly clunky metaphors a solid asset, we could finally get ourselves out of this mess.