Lately, it seems like we can't go one day without hearing (or reading) about this being the worst economy since the Great Depression (or the Carter years). Regardless if this is true or not, one thing is for certain - "things ain't like they use to be".
Ever since the "Dot Com" bust followed by the 9/11 market meltdown, I have wondered how robust (or fragile) our economy really is. I have looked at it as an investor, as a citizen and most importantly, as a "baby boomer" getting close to retirement. Like many of us, I had been living in a matrix - generated by Wall Street. And like many of us, I went though the 80's and 90's fat, dumb and happy - totally oblivious unless one peeked underneath the economic covers. My 401k was zipping along nicely and visions of a very comfortable (and early) retirement were dancing in my head. Because I was employed at IBM, working side by side with many technology companies, I became heavily invested in the NASDAQ. In March of 2000 when the NASDAQ soared above 5,000 (some thought it could go even higher) few realized the profit projections made by many of the Internet based companies were beyond normal market speculation. In other words, they were smoke and mirrors. Once the NASDAQ went into free fall, many began to look at the tech market through a different lens. Licking our wounds from the carnage that resulted from the NASDAQ collapse, we fled to the more stable Dow investments. As we all know, the second shoe fell at 8:45 EDT on September 11, 2001.
After a few months, the slow recovery started after having a major attack on our financial infrastructure. To help speed the recovery, our government told us to "go out and buy something". We did, however in reality we set our financial sights on shorter and shorter financial objectives. Long range strategic thinking all but disappeared and was replaced by making the current quarter and "beating the street". Stock price inflated, bonuses and options handed out like candy, and CEOs were enriched beyond reason. We will worry about tomorrow, tomorrow - we were living the dream and ignoring the developing nightmare which no one wanted to believe. Everything was for the moment - it was financial hedonism. Our financial house, which was once built on a solid foundation, was now dependent on soft wood which would soon become sand. Due to poor management and strong arm tactics from the United States Congress (thank you Barney Frank!), we were giving out "NINJNA" (no income, no job, no assets) loans to people who did not have a prayer of paying them back. Mortgages were bought and sold many times without anyone paying attention to their value. By the time the toxic nature of these mortgages were realized, the poison had already been ingested. It was not only risky people that were getting ill advised loans - it was also companies which were not capitalized properly. We were watching a perfect storm of financial collapse which seemed to happen overnight. However, if we had been watching the ball instead of having a ball, we would have seen this coming long before October of 2008.
Since the crash of 2008, we have been dusting ourselves off and attempting to determine what happened (and most importantly, how it happened). Because of ill advised knee jerk, panic responses, we are taking a rapid fire dose of financial cures which may be far worse than the disease itself. This is not political - it was embraced by two administrations and members of both parties of congress. TARP, stimulus, buyouts, rescues, give aways and on and on. We are trying to fix the economy by spending an amount of money which is nothing less than staggering and unsustainable. Currently, our national debt is projected to be between 10 and 20T dollars. If we add in the projected payouts for Social Security, Medicare and Medicaid, the total amount we are leaving our children and grandchildren could reach far beyond that. In other words, compared to the financial opportunities my parents left me, I am leaving a real mess for my kids. For whatever part I played in creating this travesty, I am truly sorry.
Enough about history - now what? First, if we try to fix the economy so we go back to where we were, we will take this ride all over again. We are now living in a brave new world with not one straight path to follow, but rather numerous circuitous routes. We need to rethink and re-do. One of my former managers use to say when things got really screwed up, a "do-over" was in order. We need to take a "do-over" right now with every aspect of our economy. We need to reboot or hit the reset button. Yesterday's solutions will not work in today's world. We need to look at education, health care, manufacturing, investing, infrastructure - basically everything. And we need to reset the economy without going into bankruptcy during the journey. However, not all change is good - things that worked well in the past and are sustainable should be retained. Things that did not work well or are not sustainable should be taken out with the trash.
I have been giving much thought to this topic during the past few months. Where to go from here will be addressed in subsequent posts. Stay tuned... and please, if you agree or disagree, lets have a dialogue. Respond to this post (and subsequent posts on this topic) with your ideas. We are all in this boat together, and if it sinks or stays afloat depends on all of us staying engaged.
Ever since the "Dot Com" bust followed by the 9/11 market meltdown, I have wondered how robust (or fragile) our economy really is. I have looked at it as an investor, as a citizen and most importantly, as a "baby boomer" getting close to retirement. Like many of us, I had been living in a matrix - generated by Wall Street. And like many of us, I went though the 80's and 90's fat, dumb and happy - totally oblivious unless one peeked underneath the economic covers. My 401k was zipping along nicely and visions of a very comfortable (and early) retirement were dancing in my head. Because I was employed at IBM, working side by side with many technology companies, I became heavily invested in the NASDAQ. In March of 2000 when the NASDAQ soared above 5,000 (some thought it could go even higher) few realized the profit projections made by many of the Internet based companies were beyond normal market speculation. In other words, they were smoke and mirrors. Once the NASDAQ went into free fall, many began to look at the tech market through a different lens. Licking our wounds from the carnage that resulted from the NASDAQ collapse, we fled to the more stable Dow investments. As we all know, the second shoe fell at 8:45 EDT on September 11, 2001.
After a few months, the slow recovery started after having a major attack on our financial infrastructure. To help speed the recovery, our government told us to "go out and buy something". We did, however in reality we set our financial sights on shorter and shorter financial objectives. Long range strategic thinking all but disappeared and was replaced by making the current quarter and "beating the street". Stock price inflated, bonuses and options handed out like candy, and CEOs were enriched beyond reason. We will worry about tomorrow, tomorrow - we were living the dream and ignoring the developing nightmare which no one wanted to believe. Everything was for the moment - it was financial hedonism. Our financial house, which was once built on a solid foundation, was now dependent on soft wood which would soon become sand. Due to poor management and strong arm tactics from the United States Congress (thank you Barney Frank!), we were giving out "NINJNA" (no income, no job, no assets) loans to people who did not have a prayer of paying them back. Mortgages were bought and sold many times without anyone paying attention to their value. By the time the toxic nature of these mortgages were realized, the poison had already been ingested. It was not only risky people that were getting ill advised loans - it was also companies which were not capitalized properly. We were watching a perfect storm of financial collapse which seemed to happen overnight. However, if we had been watching the ball instead of having a ball, we would have seen this coming long before October of 2008.
Since the crash of 2008, we have been dusting ourselves off and attempting to determine what happened (and most importantly, how it happened). Because of ill advised knee jerk, panic responses, we are taking a rapid fire dose of financial cures which may be far worse than the disease itself. This is not political - it was embraced by two administrations and members of both parties of congress. TARP, stimulus, buyouts, rescues, give aways and on and on. We are trying to fix the economy by spending an amount of money which is nothing less than staggering and unsustainable. Currently, our national debt is projected to be between 10 and 20T dollars. If we add in the projected payouts for Social Security, Medicare and Medicaid, the total amount we are leaving our children and grandchildren could reach far beyond that. In other words, compared to the financial opportunities my parents left me, I am leaving a real mess for my kids. For whatever part I played in creating this travesty, I am truly sorry.
Enough about history - now what? First, if we try to fix the economy so we go back to where we were, we will take this ride all over again. We are now living in a brave new world with not one straight path to follow, but rather numerous circuitous routes. We need to rethink and re-do. One of my former managers use to say when things got really screwed up, a "do-over" was in order. We need to take a "do-over" right now with every aspect of our economy. We need to reboot or hit the reset button. Yesterday's solutions will not work in today's world. We need to look at education, health care, manufacturing, investing, infrastructure - basically everything. And we need to reset the economy without going into bankruptcy during the journey. However, not all change is good - things that worked well in the past and are sustainable should be retained. Things that did not work well or are not sustainable should be taken out with the trash.
I have been giving much thought to this topic during the past few months. Where to go from here will be addressed in subsequent posts. Stay tuned... and please, if you agree or disagree, lets have a dialogue. Respond to this post (and subsequent posts on this topic) with your ideas. We are all in this boat together, and if it sinks or stays afloat depends on all of us staying engaged.
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