No Longer Possible To Pretend

[HFWR]

Boring, orderly markets that make investors sleep well at night don't get ratings.

Bingo!

Or is that DING-DING-DING? I can steal from CFB, now that he's gone...

 

[Purron]

IMHO, we can put much of the blame on the lack of effective regulators. This is not something we can pin on Republicans or Democrats. They have both contributed to the problem. Republicans have pushed an "anti-regulatory" agenda and made deregulation the catch phrase of the last decade. The Democrats let this go on in the name of helping those of "modest means" attain the dream of homeownership and further encouraged regulators to turn a blind eye to unacceptable levels of risk. Naturally, we are on the hook as our financial instituions are federally insured and many are “too big to fail”.

The end result was the perfect storm including the worst of both the right and left. Unbridled greed and quest for profits plus unrealistic social agendas. The subprime fiasco was supported by both sides of the aisle for different reasons. Who knew it would get this big and bad and take down the likes of Merrill, Lehman, and maybe even BofA and Citi? Dang, we can all share in the blame here. Total bummer.

 

[RAE]

IMO, the heady days of the post-WW2 boom are over, and have mostly been since the '70s. We have to readjust to a new norm, one that doesn't rely on excess leverage. Grandma was right. How can we best make that economic transition (that has been needed for decades) and set a new baseline that doesn't occur so quickly and violently that it wrecks the economy?

I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address. Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

 

[FIREd]

Okay, okay, y'all -- speaking to no one in particular, I fear we may be headed toward Bush versus Obama "celebrity death matches" or drawn out partisan debates long on partisanism and ideology and short on substance of the relevant issues. This has been a good thread so far, and we've mostly stuck to the issues that are critical to money, investing, economics and the politics of FIRE. I'd like to present some thoughts for consideration.

Let me start with a hypothesis (which you're free to rebut): What we're seeing now is the final chapter, the denouement if you will, of a society which has tried to pretend that the post-WW2 economic bubble which has been deflating since the 1970s was actually sustainable. And to try to sustain it, we've been throwing more and more debt at it -- personal debt, corporate debt and government debt -- so the people currently expecting certain levels of largesse got it. Over time it took more and more debt and leverage to keep the prosperity train rolling along.

And then we hit the wall. It's ending with a sickening thud. I guess the only bright spot is that if we stayed in denial a few years longer, the sickening thud would have been worse.

Given that (or a rebuttal if you disagree), what now? Looking at the issues and the prudence of public policy that affects the economic future of every single one of us, how do we climb out of this mess? Yes, government has to play a role in something this massive, I think, but what role? The transition to a nation of better savers is a good thing, but the sudden and dramatic shift to it -- the almost unprecedented slowing of the velocity of money -- is brutally pummeling the industries and businesses that keep people employed. Many people (myself included) who currently have pretty good times going are pulling WAY back just in case they wind up with a pink slip; we want as much cash in the bank as we can muster "just in case." Multiply me by millions of folks who have good circumstances *now* but fear their own personal economic crash in the future, and you have a massive slowing in the velocity of money, combined with the Tragedy of the Commons: What good does it do me to live my life as I normally would unless I feel others in my position would do the same and make enough of a difference to boost the economy?

IMO, the heady days of the post-WW2 boom are over, and have mostly been since the '70s. We have to readjust to a new norm, one that doesn't rely on excess leverage. Grandma was right. How can we best make that economic transition (that has been needed for decades) and set a new baseline that doesn't occur so quickly and violently that it wrecks the economy?

Please feel free to disagree strongly and spiritedly with each other. But hopefully we can do it with civility and without straying from the core issues that affect those of us who are FIREd and those of us in the Quest for FIRE.

Thanks!

Unfortunately I can't disagree with you. And if you are right, then it's not bullish at all for the stock market. If I understand this, we could only grow our economy at 3-5% per year by leveraging to death, so without leverage growth should be much, much slower, and it looks like we will start over from a much, much lower baseline. Not good! Perhaps, it's time to "Ziggytize" my portfolio (i.e. stop putting more money in stocks).

 

[ERD50]

Let me start with a hypothesis (which you're free to rebut):

Good synopsis ziggy, (and thanks for the gentle public reminder to keep things on track).

I generally agree with your analysis, now - what to do about it?

When I struggle with macro-economics, I sometimes try to bring it down to the personal level. If an individual kept living the high life by borrowing and borrowing, what would they do when they maxed out all their credit limits, and also "saw the light" that they can't do this forever?

I think the answer is pretty simple, and applies to the whole country. You stick to an LBYM budget, you start paying down debt. Maybe you take a second job. Eventually, you have the debt paid off, and you can start building up a portfolio.

Nothing about that is easy, and nothing changes overnight. It is a slow, drawn out, deliberate process. Some people on this forum have turned around from being deep in debt to approaching FIRE. The country can do it, I believe. But not w/o a plan.

While I think we do need some liquidity injected to soften the blow short term, I think we also need a real plan to get out of leverage, slowly, a step at a time. And the USA needs to hear the message that unless we can innovate beyond the rest of the world, we can't realistically expect to have a standard of living better than the rest of the world.

Ok, I just skimmed the entire address again, and I just don't see that message in there. I see "the govt is going to fix this all for us". The only mention of "sacrifice" I see is that the top 2% will pay more taxes.

I just don't believe that that's the message that needs to be told.

-ERD50

 

[ERD50]

I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address.

RAE, maybe I'm missing something in the address that you see. Where is the President addressing the issues of the nation getting too far out on credit? I see that he wants to get credit flowing (probably needed in the short term), but....then what?

Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

Sorry, I just can't be that cavalier with so much at stake. The plan needs to be something that stands up to critique as having a reasonable chance of success. I don't think a spending and tax the top 2% plan does it. Neither does the market. So no, I don't think we should just "give it a chance" until it meets some acceptance.

No question that he inherited the mess, that's obvious. But we are looking forward, so whether he inherited it, or somehow he was magically 100% responsible for it, the action moving forward would be the same. This is Friday, Feb 27th, 2009. I'm looking forward, not backward (other than to learn from history).

-ERD50

 

[laurence]

Do people really think this is worse than 1979-82? Gas lines and crazy inflation and deep recession etc.? I keep hearing from the news whores, "WORST DOWNTURN IN OVER A QUARTER CENTURY!" where they could say, "not as bad as '81. I've been hearing the "country in decline" talk, comparing us to the Roman Empire (which is totally invalid since if you combine the republic years and take the traditional end of ~450 AD it was around 3 times longer than us) and it just doesn't seem legit to me. It's like my coworkers who are convinced it's the end times next month, the rapture if you will. I think it must be tempting in some way (vanity) to imagine oneself living in interesting times, to be a witness to something, even a global car wreck. What is an ending even mean, anyway? Japan had two cities nuked, it's cities ravaged, millions of servicemen killed and ultimately occupied by a foriegn army at the end of WWII. 35 years later they were the scary economic powerhouse of the globe. What is decline mean? The British Empire has certainly declined over the last 100-200 years, but it's still a lot nicer living in England than most other places in the world. If it means I have to put away my big foam "#1" hand for a while, I think I can live with that.

 

[haha]

IMO, the heady days of the post-WW2 boom are over, been and have mostly since the '70s.

I can't say whether you are right or wrong as to the future, though if you go back and read what people were writing in the 30s this is what they said then. In other words, this is how people think in bear markets.

But your idea that the economy has been getting worse since the 70s is hard to understand. Have a look at real GDP during whatever year of the 70s you would like to choose, and compare it to what came after. Taken as a whole, the roughly 30 years from 1975 to 2007 were years of huge growth.

Let's see, since 1970 we have created or seen come into wide usage -personal computers, cell phones, DVD players, videogames, military drones, the world-wide web, browsers, GPS, joint replacements, huge advancements in medical imaging, and last but not least-Giselle Bundchen. Though she may be Brasilian, she is based here in the USA.


You guys don't need to listen to CNBC to get depressed; just tune in to E_R.org.


Ha

 

[Bikerdude]

I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address. Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

You are correct that Obama inherited the financial mess we are currently in. But he ran on a platform that said he was the one to correct it. He marketed himself to the American people as the person that could fix our problems. That's why he was elected. Now he has to produce and not keep saying it was not his fault. You wanted it buddy , now you got it.

 

[laurence]

You are correct that Obama inherited the financial mess we are currently in. But he ran on a platform that said he was the one to correct it. He marketed himself to the American people as the person that could fix our problems. That's why he was elected. Now he has to produce and not keep saying it was not his fault. You wanted it buddy , now you got it.

You say this as if to add, "Put this in your pipe and smoke it!", well, o.k., so he's been in office less than two months and already taken a lot of action (whether you agree with the action I can't say) but considering the mantra for 7.5 years was "how dare you criticize the President when troops are in harms way?!" at least the new one could get 7.5 months.

Selective memory is a wonderful thing sometimes, I saw another comment about "W and the democrat congress messing things up"....never mind it was a Repub congress for most of his Presidency.

I'm don't agree with all the moves he's making, but I'm not ready to throw him under the bus either. Reagan presided over most of the last truly awful recession, but no one thinks it was his fault, he inherited that mess. He turned out o.k. And certainly no one is willing to give Clinton an ounce of credit for the 90's. It seems the equation is bad times + your party in control = inherited problems, bad times + other party in control for more than 3 minutes = all their fault I don't remember anything else that happened before. I know everybody does it, but we expect better logic on the creme de la creme ER.org board.

 

[BunsGettingFirm]

Maybe. But perhaps "this time it's different" because in those prior national emergencies we didn't have CNBC, 24-hour cable news or the blogosphere to remind everyone 24/7/365 about how we're all doomed.

No, we just had crappy journalists who never went to journalism school and therefore had no ethics and would print anything that suited their purpose. Instead of blogs, we had pamphlets in which no holds were barred. At least now, crap get called on as soon as they are printed. In the old days, you'd need to be able to 1) read, 2) write, and 3) have enough money to fund a printing run.

 

[Texarkandy]

Do people really think this is worse than 1979-82? Gas lines and crazy inflation and deep recession etc.? I keep hearing from the news whores, "WORST DOWNTURN IN OVER A QUARTER CENTURY!" where they could say, "not as bad as '81. I've been hearing the "country in decline" talk, comparing us to the Roman Empire (which is totally invalid since if you combine the republic years and take the traditional end of ~450 AD it was around 3 times longer than us) and it just doesn't seem legit to me. It's like my coworkers who are convinced it's the end times next month, the rapture if you will. I think it must be tempting in some way (vanity) to imagine oneself living in interesting times, to be a witness to something, even a global car wreck. What is an ending even mean, anyway? Japan had two cities nuked, it's cities ravaged, millions of servicemen killed and ultimately occupied by a foriegn army at the end of WWII. 35 years later they were the scary economic powerhouse of the globe. What is decline mean? The British Empire has certainly declined over the last 100-200 years, but it's still a lot nicer living in England than most other places in the world. If it means I have to put away my big foam "#1" hand for a while, I think I can live with that.

I don't have a big foam #1 hand & could really give a hoot whether you or the USofA has one or not - as long as we actually are #1 - I don't have to crow about it - but, if Pres. Obama's agenda of "sharing the wealth" results in my having to put away my big foam Early Retirement hand for a while - that's getting a little too personal!

(BTW - which country in the world should we hand that "big foam #1 hand" over to? And shall we just hand it over willingly or insist it be taken?)

 

[ziggy29]

No, we just had crappy journalists who never went to journalism school and therefore had no ethics and would print anything that suited their purpose. Instead of blogs, we had pamphlets in which no holds were barred. At least now, crap get called on as soon as they are printed. In the old days, you'd need to be able to 1) read, 2) write, and 3) have enough money to fund a printing run.

True, but my point wasn't that these types of inputs didn't exist before -- it was that now we're saturated with it and it spreads instantly.

 

[ziggy29]

I don't have a big foam #1 hand & could give a hoot whether you or the USofA has one or not - but, if Pres. Obama's agenda of "sharing the wealth" results in my having to put away my big foam Early Retirement hand for a while - that's getting a little too personal!

The stock market has already taken care of that for me.

 

[RAE]

RAE, maybe I'm missing something in the address that you see. Where is the President addressing the issues of the nation getting too far out on credit? I see that he wants to get credit flowing (probably needed in the short term), but....then what?

Sorry, I just can't be that cavalier with so much at stake. The plan needs to be something that stands up to critique as having a reasonable chance of success. I don't think a spending and tax the top 2% plan does it. Neither does the market. So no, I don't think we should just "give it a chance" until it meets some acceptance.

No question that he inherited the mess, that's obvious. But we are looking forward, so whether he inherited it, or somehow he was magically 100% responsible for it, the action moving forward would be the same. This is Friday, Feb 27th, 2009. I'm looking forward, not backward (other than to learn from history).

-ERD50

Obama talked about some of this just the other day, actually. If you recall, he mentioned in his 2010 budget address that some of the housing mess was the result of some homeowners buying more house than they could afford. He has also talked about the sacrifices we are all going to have to make in the coming years to reduce the deficit to a level that our kids and grandkids won't be forever burdened with. The first course of action, though, is to get the economy back on track by creating jobs. You may feel that there is too much pork in the stimulus bill, but without some kind of govt. spending right now, how is this economy going to turn around? I'm sorry, but cutting taxes is not going to do it....that's been tried and it didn't work. I think you will see much more emphasis from Obama on the need for people to get off credit and live within their means as time goes on - but the immediate problem is to stabilize the dying patient, and get the economy moving again. Let's give him a chance, folks, he has been in office for less than 2 months!

 

[Texarkandy]

...... I'm sorry, but cutting taxes is not going to do it....that's been tried and it didn't work. ......

Examples please?

 

[Leonidas]

You may feel that there is too much pork in the stimulus bill, but without some kind of govt. spending right now, how is this economy going to turn around? I'm sorry, but cutting taxes is not going to do it....

I'm with Andy, could you elaborate on when it failed?

There's no poster of John Maynard on my bedroom wall, but if we're (the government) going all Keynesian, aren't tax cuts part of the formula at this stage?

I'll admit I haven't read the 1,000 odd pages of the bill, so I don't know that there are nearly 9,000 earmarks in it - despite the President's promise that he would not allow earmarks. Taxpayers for Common Sense

But I do object to the process that created the bill and rammed it down our throats. Not only was there no time for the public to read the bill and comment on it, nor the news media, but the people who voted for it could not have read it before the vote. I don't care if it's the next best thing to the second coming of our Lord, that is wrong.

Party politics is leading this country to ruin. And, yet again, as I did during the last administration, I volunteer the use of all that rope I have in my garage to help fix the problem. Somebody else will have to supply tar & feathers, pitchforks, etc.

 

[newporttony]

I am hopeful that the good news is that we are experiencing a buyers' remorse backlash of monsterous proportions. Even the wall street managers and bankers that voted for the BHO experiment are distraught about what is occurring. The suburbanites with the Obama/Biden bumper stickers on their $75K cars are now in shell-shock over the loss of their beloved morgage interest deduction ("I really thought he would govern from the center" is the current refrain).

The outcome will be a bloodbath for the Dems in the midterm elections, particularly in the blue-red suburbs. This country is, and will always be, a center-right nation.

 

[RAE]

I am hopeful that the good news is that we are experiencing a buyers' remorse backlash of monsterous proportions. Even the wall street managers and bankers that voted for the BHO experiment are distraught about what is occurring. The suburbanites with the Obama/Biden bumper stickers on their $75K cars are now in shell-shock over the loss of their beloved morgage interest deduction ("I really thought he would govern from the center" is the current refrain).

The outcome will be a bloodbath for the Dems in the midterm elections, particularly in the blue-red suburbs. This country is, and will always be, a center-right nation.

You guys keep saying how shocked all the Obama voters are about what he has proposed to do since taking office. On the contrary, I know a lot of folks who voted for the guy, and I've yet to talk to any one of them who is shocked. He's actually doing just about what he said he would do, which is quite refreshing (for a politician).

As for the mortgage interest deduction, my personal opinion is that it is one of the things that got us into the mess we're in, by encouraging some people to buy more house than they could afford. Others have stated in this thread that people getting too far out on credit is a major cause of this mess we are now in, and I agree. I know I won't be shedding any tears if the mortgage interest deduction away.

 

[newporttony]

You guys keep saying how shocked all the Obama voters are about what he has proposed to do since taking office. On the contrary, I know a lot of folks who voted for the guy, and I've yet to talk to any one of them who is shocked. He's actually doing just about what he said he would do, which is quite refreshing (for a politician).

As for the mortgage interest deduction, my personal opinion is that it is one of the things that got us into the mess we're in, by encouraging some people to buy more house than they could afford. Others have stated in this thread that people getting too far out on credit is a major cause of this mess we are now in, and I agree. I know I won't be shedding any tears if the mortgage interest deduction away.

I am speaking more for the former Reagan Democrats that traditionally have voted Republican. These tend to be people that also have more skin in the game.

 

[haha]

I know I won't be shedding any tears if the mortgage interest deduction away.

Great idea. But let's take away yours as well as those of people who make more money than you.

Lots of unattractive sentiment here about how "I don't care what they do to those rich people (since I am not now and never will be rich)."

Ha

 

[ziggy29]

Great idea. But let's take away yours as well as those of people who make more money than you.

Lots of unattractive sentiment here about how "I don't care what they do to those rich people (since I am not now and never will be rich)."

Helping the less fortunate is a noble thing. And even aside from my belief that this should be accomplished through private charity to the extent reasonably possible, I'd also say that it's not the poor who generally start businesses and hire people.

Something to think about before going all-out with redistribution.

 

[RAE]

Great idea. But let's take away yours as well as those of people who make more money than you.

Lots of unattractive sentiment here about how "I don't care what they do to those rich people (since I am not now and never will be rich)."

Ha

If you re-read my post, you'll see that my concern was that the mortgage interest deduction is one contributing factor in leading to the mess we are in (as a country), by encouraging too much credit when deciding how much house one can afford. Not the major factor, I realize, but a contributing factor. Nothing about my personal situation, and how that may or may not be affected (although I would be glad to give up the deduction, if I had a mortgage, to respond to your suggestion). You may disagree with the opinion I stated, but please don't change the meaning of what I said, or put words in my mouth. By the way, I have absolutely nothing against people that have worked hard and taken risks to get where they are economically. The country needs people like that, of course. I think there is room here, though, to disagree about the policies that should be implemented from this point forward, to help get us out of this mess. Encouraging people to live within their means, and get off of credit, is definitely one thing that is needed in the long run.

 

[haha]

If you re-read my post, you'll see that my concern was that the mortgage interest deduction is one contributing factor in leading to the mess we are in (as a country), by encouraging too much credit when deciding how much house one can afford. Not the major factor, I realize, but a contributing factor. Nothing about my personal situation, and how that may or may not be affected (although I would be glad to give up the deduction, if I had a mortgage, to respond to your suggestion). You may disagree with the opinion I stated, but please don't change the meaning of what I said, or put words in my mouth. By the way, I have absolutely nothing against people that have worked hard and taken risks to get where they are economically. The country needs people like that, of course. I think there is room here, though, to disagree about the policies that should be implemented from this point forward, to help get us out of this mess. Encouraging people to live within their means, and get off of credit, is definitely one thing that is needed in the long run.

Well you are preaching a good sermon here, but let me ask directly. Would you personally pay more taxes as result of the proposed plan to phase out mortgage interest deductions?

Ha

 

[RAE]

Well you are preaching a good sermon here, but let me ask directly. Would you personally pay more taxes as result of the proposed plan to phase out mortgage interest deductions?

Ha

I assume your point is that people will ONLY support policies that they perceive to be in their self-interest? I respectfully disagree that we, as a people, are not capable of looking at the bigger picture and making decisions based on what is good for the country as a whole, not just for us individually. And by the way, who is to say that what you perceive as good for you now (at this moment) is not going to be bad for you in the long run? Is it still a bad thing (for you personally) if the removal of the mortgage interest deduction results in general improvement of the economic health of the nation over the longer term? Don't you think you might benefit in some way from that?