The economic meltdown effected almost everyone.
This article is dedicated to those individuals who did the right things have still been hit hard financially.
It addresses a philosophy of financial responsibility that is needed in this insane world of market meltdown and volatility.
Today it isn’t just good enough to have a good paying job, work hard, have a sound financial plan, spend prudently, save wisely and diversify effectively.
You need more to keep ahead of the economic meltdown in the marketplace.
There are many reasons for the economic meltdown. Those reasons are both convoluted and complex. They have been decades in the making. But what happened a few years ago started the domino's falling.
The Reasons for the Economic Meltdown
1. Adjustable mortgage rate mortgages had become king. Not only that, mortgages were given to way too many people who could not afford them.
The belief was that as long as housing prices increased, people could sell the houses if loan payments increased past what they could afford.
A. The strong belief (by most so called experts as well as most people ) that housing prices “would never go down appreciably” was proven false. That was a major flaw in the model.
B. Mortgages were bundled and packaged in many vehicles that are difficult to understand for the layman as well as the experts.
C. The fire was stoked by the greed and corruption of lenders and legislators who encouraged too many unqualified people into loans they couldn’t afford.
2. Adjustable loans started kicking in with higher payments. Many people who couldn’t make the higher loan payments went into foreclosure. Housing prices were decreasing at the same time.
3. Giant financial institutions that held these loans started to fail.
4. Questionable government bailouts started.
5. More loans went into foreclosure. Many financial companies started failing. They started falling like dominoes.
6. Fear and panic caused the stock market to drop precipitously. The economic meltdown continued. The stock market doesn’t like insecurity.
7. The economic meltdown was stoked further when people quit spending as much due to fear. Gas prices went up dramatically for awhile stoking the fire even more.
8. Businesses that were not running sound business models started to fail when incomes decreased because people weren’t spending as much.
9. Many state and local governments that were not run efficiently started to have major problems when revenues started drying up.
The Remaining Questions
The economic meltdown continues to work its way thought the system. There are many questions that remain.
• Are insurance companies and/or credit card companies (people defaulting) the next businesses to be hit hard?
• How many more banks and businesses will fail?
• Will all the money that the Government is injecting into the economy (some of it being printed) lead to hyper-inflation in a few years?
• How much more money will the government inject into the economy?
--Will it help, or is it exasperating the problem?
--Will the money go the the right projects or into pork barrels?
--How much of this money will go to corruption?
----When there are large sums of money, crime will get involved.
• How long will the Credit Default Swaps take to work their way thought the system?
• How far down will the stock market go before it rights itself?
These are incredibly tough questions and ones that will be pressing for some time. Keeping one’s financial sanity will be tough.
So here we are today. What can you do?
There are always choices in life to keep one’s financial sanity.
In this current economic meltdown, one path is to sit tight, just wait it out and hope for the best. Another path is to take the advice of the talking heads that change their tune every time the stock market dips or rises. A third path is to take a proactive path.
What can you do to get though this mess?
1. Work hard - Keeping a job right now is important. Adding that little extra oomph may be the difference between keeping your job and being laid off if your company starts having financial problems and begins laying off people.
2. Trust yourself - You are more concerned with your financial sanity and future than anyone else. There is a lot of good information available, but someone has to sort it all out and make the financial decisions needed to survive. Good or bad, that person is you.
Many people will spout that they know what is going to happen next. This is a critical time to be careful of taking advice without studying yourself.
Also, if you have a close friend or family member who is sharp financially, consider their advise. It is always prudent to use someone you trust as a sounding board...especially in this complex and convoluted mess wea are in.
For example, I have a wise uncle who was an excellent banker for many years before he retired. His conservative and prudent investment advice is always well thought out. My financial decisions though, ultimately weigh on my shoulders.
3. Study like a maniac – Adding to number two, study like a maniac. Your financial sanity and future are at stake. Read a ton of articles. Average 3-6 articles a week “minimum,” from the Web, magazines and newspapers. Also, watch financial videos on the web (http://moneycentral.msn.com/home.asp has some good ones).
Beyond reading these articles and watching videos, read some high quality books on finances to understand why the financial crisis happened, how you can protect yourself, and prosper when this mess is over. Two books I have found excellent are: Financial Shock – by Mark Zandi, and Chain for Blame –by Paul Mualo and Mathew Padilla.
There are several others good ones.
If you currently aren’t that versed in financial investments, it may be time to start. It’s a shame that doing the right things financially is not good enough today, but that is the world we live in.
4. Learn from History - No one knows what will happen next—not even the experts. Having said that, history repeats itself and for the astute student there are some bread crumbs to follow. Poor oversight of the financial markets allowing high leverage investments has occurred before.
For example, the 1929 stock market crash was triggered because of high leveraged investment instruments. Some of the things that happened and the stories of how people made it though the tough times can be useful.
Trimming back to needed essentials, pulling together and working hard are all good lessons.
Today, credit default swaps are a key culprit of this financial mess. They were allowed to be outside the regulatory system and were able to leveraged up to 40 – 1!. The store wasn’t watched by regulators and the vandals got in and ransacked it. Until these toxic instruments work their way thought the system, winter probably will not subside.
Also, the domino effect of banks and companies toppling and taking other weak companies with them will continue to occur for awhile yet.
Darwinian theory will prevail and the forest will be thinned out before financial spring will return. Financial sanity is critical.
5. Keep your Financial Sanity - There will be opportunities for the astute student to prosper in the future. Knowledge is power and one must be ready to move forward when financial spring arrives and financial sanity returns.
- Your best path forward is to work hard, become better educated and learn to trust your own instincts and knowledge to keep your financial sanity.
Learn from others, but define your own path to make it through this financial winter. Use your
critical thinking skills
to their maximum capabilities.
When preparation meets opportunity good things can occur.
“Fortune favors the prepared mind” ~ Louis Pasteur
This economic meltdown was a long time in the coming and it’s not over yet…and won’t be for awhile.
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