Bail Out or Cop Out?
Yesterday I looked at the front page of the Wall Street Journal and had to chuckle. The main headline concerned WaMu’s (WM) failure and JP Morgan’s (JPM) scoop job on the assets. Another article reviewed the ugliness that has become the political landscape of today, while another article noted that there are few good scenarios that are likely to arise from this “crisis.”So, was I laughing at the misfortunes of others? Not at all — there is no humor in those headlines because the current crisis is not funny; it is pathetic and tragic. More than anything else, this financial crisis is the end result of a Beverly Hills 90210 society where the “New American Dream” now means that anyone can get anything they want at any time they want it, without even the slightest regard for the reality of their own personal financial situation. “I know we can’t afford this, Honey…but it’s too good a deal to pass up. Let’s get it.”
When I was growing up, the American Dream meant that everyone had a chance at prosperity. Work hard, make the right decisions, be prudent with your finances, and pursue your own vision. Do that, and you’ve got a great shot at living the Dream. Nothing is assured…but life is not fair. Deal with it.
The Cause of the Crisis Is Staring At You — From the Mirror
Let’s cut to the chase. Rich people live in big houses in expensive neighborhoods. Rich people drive brand new, expensive cars that burn gas faster than a bulimic goes through a Christmas party buffet table. Rich people own more than one house; they buy new expensive clothes.
If you’re rich — you know exactly what I’m talking about! And if you’re not so rich…well, sadly, you probably know what I’m talking about, too.
…and therein lies the problem. You’re not rich, but that doesn’t stop you from living the New American Dream.
If you’re in the latter group, run to yesterday’s Wall Street Journal! Ignore all the dire headlines that describe the inconvenient reality that the national bank is busted. Instead, check out the lower right corner of the front page, advertising a brand new 2009 Escalade Hybrid that gets a whopping 20 miles to the gallon. Oh, and there is limited availability, so you’d better get down to your local dealer today!
Rome is burning, yet many folks would love to buy a vehicle they really can’t afford…but it’s OK because it’s “green”. In fact, how could you not buy that new Escalade? When you really think about it, you can’t afford not to buy it. We’ve got a planet to save and this is a Big Green Machine! In your own little way, you are part of the solution, not the problem — all with 0% financing.
Um, wrong.
Recall all the “no payments until 2009” offers? How about those limited time incentives to buy the brand new whiz-bang vehicle at the same price that the car company employees pay? With such great terms, you really can’t afford to not own a brand new car. Just trade in that old piece of crap you bought two years ago and get the new one with all the bells and whistles. Oh, and don’t forget the DVD in the back so the kids can watch their favorite movies on the way to the mall!
I hear the perma-bulls constantly chant the mantra that you must never underestimate the power of the American consumer….like that’s a good thing! It is the American consumer that got us into this mess (with much help from Washington, of course). At the risk of offending those folks who work to pay the interest on their 5 figure credit card debt each month, I suggest that we never underestimate the overwhelming stupidity of the average American who will buy the next big thing…even if he cannot afford it. That’s the power of the American consumer — a power made up of a combination of short-sightedness, greed, self-satisfaction, and an overwhelming need for instant gratification. (And if this offends you, then just chalk it up to “tough love.”)
The Enablers: “Chain, Chain, Chain…Chain of Fools”
Regarding the current situation, action needs to be taken now. Fine. I’m for that. But longer term, the real solution won’t come from Washington D.C. No solution has ever come from Washington D.C.; only adjustments to problems created by Washington D.C. The self-absorbed narcissists we call our “leaders” are merely the cast in one big government-sponsored reality show with a distracting, evolving plot mimics the “Survivor” show — only in this one, nobody ever gets kicked off the island!
Want to know how I’m voting on November 4th? I’m voting against every single incumbent — irrespective of party. My preferred fix would be to take a pressure hose, start at the north end of town, and systematically wash all the filth into the Potomac where it will ultimately wind up in Chesapeake Bay, at which time Virginia and Maryland can clean up the toxic mess — hopefully with funds from the federal government. (Nothing personal, Virginia and Maryland — you’re victims of geography). Once having cleaned out the place, perhaps we can get some folks into office where “public service” actually means “service of the public” rather than “the public is here to serve us.”
The Solution
The real solution begins on an individual basis. Personal responsibility and accountability are not bad things. And all the legislation in the world will not negate the fact that personal responsibility and accountability are prerequisites to success. Take control of your own destiny. Here’s how:
1. Don’t borrow money to buy things you don’t need. (And define “need” narrowly, and exclude the term “want” in the definition of “need”).
2. If you bought a home at the top of the market and are upside down, then stop whining and start paying off your mortgage as quickly as possible. By paying off your mortgage at an accelerated rate, you’ll save tens of thousands (if not hundreds of thousands) of interest payments over the life of the loan. The money you save dwarfs the equity you’ve lost in this housing downturn. Think long term. I know this runs counter to your Beverly Hills 90210 lifestyle, but most rich people got rich because they thought long term. Once rich, you can indulge yourself with short-term gratification.
3. When you hear those re-finance commercials urging you to “unlock the equity in your home and let your home work for you”, change the channel. Your equity shouldn’t work for you — you need to work for your equity. You don’t want to unlock it! You want to protect it and grow it.
4. If you think you got a bad mortgage that is something other than what you bargained for (a clear distinction than one where you knew exactly what you were getting…you just figured that ‘things will work out’…and they haven’t), then go to the bank and renegotiate. Or sue! You’ll blow up your credit report waiting for Washington to act. Get an attorney — they are now cheap because of the opportunities presented by this crisis. The National Organization of Ambulance Chasers (otherwise known as the Plaintiff’s Bar) is all over this mess and there are firms and sole practitioners who are taking these cases for cheap. Take some responsibility for your own situation — it can be cathartic.
The bottom line is this: Don’t do crack, and that’s exactly what easy money is — it is “credit crack.” That is why Alan Greenspan was so popular when he had the best crack supply in the neighborhood. And now that the crack supply has dried up, the junkies aren’t too happy with Easy Al.
Don’t wait for the government to legislate a cure for the side-effects of credit crack and enable you to keep smoking that stuff. Pay off your debt and get the monkey off your back.
The Missing Essential Component of the Bailout Package
What about the bailout plan that will likely be unveiled on Sunday night as the happy strains of “Kumbaya” emanate from Capitol Hill and float through the cool air in our nation’s capital? Well, I can’t support that, even though I understand something needs to be done.
I believe this massive injection of taxpayer-funded liquidity will ultimately be judged as one huge fiasco. Here’s why:
There has been no promise that the profits (if any) will be used to pay down the increase in national debt that this program creates. If history repeats itself, any profits will ultimately go to special interest groups with large voting blocs. Classic stealth redistribution of wealth by the same folks who sanctioned the crack dealers over the past couple of decades.
In essence, you and I have become partners in a business deal where we bear all of the losses…and have no assurance that we will share in any of the profits. That’s not bad business — that’s just stupid. Anybody who knowingly makes a deal like that deserves to lose all their dough. In fact, it should be a crime that they be allowed to keep it.
Win Your Own War on Poverty
The War on Poverty is an unanswerable riddle. “Have we won the War on Poverty?” Both “yes” and “no” are correct answers. “Yes“, we’ve won the War on Poverty because many folks continue to climb up the ladder of success, from poverty to prosperity, without regard for the disadvantages they were saddled with. We just never hear about those guys because fighting the War on Poverty is a big bucks venture. It is the gift that keeps on giving. “No“, we have not won the War on Poverty. Why? Because the people who make up that group of poverty-stricken people on whose behalf the war is waged is constantly being replenished by newcomers to the workforce. By definition — The War on Poverty is an unwinnable war, but oh so profitable to wage.
Do your part to win the War on Poverty. Pass up the Escalade Hybrid and leave it for someone who can actually afford it. And if you want to go green, plant a tree. And if you want to buy some luxury item, then take out some cash and buy it. If you don’t have the cash to buy it, then you have a chance to be even more environmentally friendly by turning green with envy. It’s fine to envy the rich folks who can afford what you cannot. But don’t wallow in your envy. Instead, do the things you need to do to become one of them.
Win the War on Poverty one bank account at a time. And start with your own.
—Dan Fitzpatrick
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