Friday, February 20, 2009

Post No. 90: Making Use of the Current Financial Mess

© 2009, the Institute for Applied Common Sense

Mark Twain observed that if a cat sits on a hot stove, she will never do it again. Unfortunately, she'll probably never sit on a cold stove either.

Everyone has their favorite villain for the current economic collapse. The Logistician sent me a list of 10 ways in which he felt consumers were responsible.

I told him that I did not buy into his premise, but in thinking about it further, I realized that if we only point the finger at the fat cats, we will have learned little. We all bear some responsibility.

We are behaving much like Mr. Twain’s cat. Despite our efforts to revive our financial system, we have little to show for it… yet. We definitely can’t sit at the starting line waiting for the next guy to say, “Go.”

We simply need to use some Common Sense, on which the left and right should be able to agree.

According to the Scientific Method, bad ideas and experiments that don’t work are as valuable as those that do, provided we learn from the experience, and use that knowledge productively.

So, with 2/3rds of our economic well-being based on our own behavior, we would like to suggest a few topics for discussion, the results of which may assist us in finding our way out of this financial wilderness.

1. If a deal sounds too good to be true, it probably is.

You don’t need a Ph.D. in economics to realize that markets don’t always go up. The observation that a few people are making great sacks of money, and violating the rules of Common Sense, does not relieve us of the obligation of doing our own home work.

If you can’t make the numbers work within your current income, don’t bet on massive increases in the value of your investment to bail you out.

You have a better chance in Vegas than in a financial commodity you do not understand. (And the truth be told, few of us really understand them.)

2. Don’t bet your home on things you don’t need.

Contrary to the Logistician’s mantra, there is nothing wrong with wanting a better, more luxurious life, but not at twenty percent interest. Here there are demons…like bankruptcy…and acid rain falling on your childrens' heads.

Save the money 1st; then buy the Lexus. It’s only Common Sense.

3. Ignore herd instinct.

When everybody agrees on the direction of a market, guess what…?

4. Be careful when building and buying things which are more than you need.

Advertising not withstanding, buying an Escalade won’t make you an NBA star. There is a reason why the Toyota Camry and the Honda Accord are the 2 best selling cars in the country.

5. Particularly avoid using credit or going into debt to build or buy things which are more than you need.

We went into debt, both individually and collectively, based on the assumption that the party would never stop.

Pick up any book on history…it always does. And, you don’t want to be the guy playing musical chairs when….

6. Remember that gluttony and greed are 2 of the 7 deadly sins.

Really want to make a 20% return on your income? Pay off your credit cards.

7. Carefully weigh the impact of retirement on an individual and societal level.

The Logistician and I differ on this point. The Logistician feels we got lazy and retired too early. My take is that we took the money and ignored our inherent desire for a more worthwhile job… and after 30 years we couldn’t wait to get out.

With our most experienced workers, although still productive, leaving the workforce early, all of this experience went to waste… and it is experience we can ill afford to waste.

8. Avoid being seduced by the short-term Sirens.

There was a time when we bought things to last. Next time you are in the park, look at the number of people taking pictures with manual focus SLR cameras.

This desire to last drove a subsequent demand for quality… producing a pride of workmanship that represents the essence of “Quality of Life.”

9. Don’t leave the education of your kids to the entertainment industry.

Not wanting to engage them, we abdicated our responsibility to the likes of Nintendo, Disney, and MTV, as long as they didn’t interfere with our pursuit of the “good life.”

If you don’t want children, don’t have them. You can not experience the sense of wonder children project, as they learn about the world via remote control.

You have to be there… and evolution suggests that this is one of the few primal pleasures we have inherited undiminished.

10. Lend a helping hand.

If you know someone in need of a job, through no fault of his own, ask around. Do what you can to help him get re-employed.

Want to raise the “quality of your life,” watch the face of a man or woman you have helped put back to work. Government can’t do that.

You see, we do most of the spending. No income, no spending. No jobs, no income.

Is there anything on this list which defies Common Sense?

After all, we should be smarter than Mr. Twain’s cat.

© 2009, by the Laughingman for the Institute for Applied Common Sense


  1. My basic rule is "Always pay off the credit card balance each month."
    After that, everything else falls into place.

  2. Right on! All points well taken. I am able to survive in this economic downturn because I have NO debt and only use my credit card for what I will pay in full or in advance every month. My retirement funds--cut in half. I worked in an investment related field for 11 years, but the packaged REITs were never clearly evaluated by me--MY BAD! Rebalancing helped somewhat, but the barn door was closed. It is only common sense to live within your means. Most, having not learned that, now find themselves without the means to live within!

  3. This would seem to apply both to individuals and to the government. Unfortunately it seems that neither have taken time to consider the advise.

    Luke 14:28 (New International Version)

    28"Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?

    If you wish to stay out of debt and trouble that one verse encapsulates what one needs to follow

  4. Jeff Sykes had a good example of what I mean about allowing ourselves to become slaves in our effort to recover.

    I am afraid there are too many people in America today like those Jeff reports on. BB

  5. Thanks much Ticker. Our suspicion is that most of us appreciate what we should do, but simply do not practice what we know. We assume that is why we received so few comments to this piece. There is very little here about which any one can reasonably argue.

  6. This comment has been removed by the author.

  7. Yes that was me that posted then deleted my post. Misspelled word!!!!

    Excellent on all points. I do and have always lived my life that way and it’s sure worked for me.

    When first reading the phrase about the cat, my mind immediately went to the failing mortgages. I’d like to say something about that. (I hope that’s okay?) I guess item #2 does pertain to it:

    I have a real problem with people being bailed out on their adjustable rate mortgage that THEY selected to buy. I paid mine off my morgage (and yes it was adjestable on this house) by working and saving and using reasonable judgment on other purchases in my life. Is the government going to hand me an award for being a good girl? Or do we only award those that overspend, use poor judgment, buy what they can't afford and fail to make their payments?

    Sorry - but it just irritates me to no end.

  8. Didn't want to delete a second time. That's just to embarassing. -And it was an adjustable morgage'- not adjestable. Although we might want to look at ajestable loans. You never know. They may be the answer!!

  9. Vikki: And here it was that we thought that you were so taken by what we had to say, in three separate instances no less, despite you being busy as all get up! We're just pulling your leg.

    Much of how we evaluate conduct is dependent upon how it ultimately turns out, and when. There are those who play it safe, are conservative, and plod along just fine. There are also those who take somewhat more risks, and reap the rewards. Then there are those who take big risks, and reap big rewards, or suffer huge losses. Timing can be an important factor also.

    We need all three groups as a practical matter. Some of us need to survive to carry the ball forward. Some of us need to be big winners to do other big things.

    Is that unfair? Perhaps, but so is lots of stuff economically in our society. Some are born with wealth; some are born in wealthy parts of the country; some are born to exceptional parents; some are born in university towns, etc.

    We love the story of Andrew Carnegie's Father essentially drinking himself to death following the Industrial Revolution dramatically altering the landscape in the textile industry.

    Stuff's never equal, and there's always some uneven distribution of the burden.

    That being said, you raise a very important philosophical question. Should we in society come to the rescue (or bail out) anyone who makes a poor economic decision or pursues an unsuccessful course of action? Should bankruptcy be eliminated? Was there any value to debtors' prisons of days past?

    We often think about Pan American Airlines. A host of events eventually led to its demise. If any portion of a company's financial problems can be proven to be related to decisions that it made, should government funds be withheld? What if the company was too conservative, and did not change quickly enough with the times or changes in technology? What if the company compensated its employees above the industry average and provided excellent benefits?

    Tough choices. Nothing's ever "fair."

  10. Vikki's point is one which seems to be gathering momentum of late. People who followed the rules, pay (or paid) their debts, accepted foreclosure when things went bad, struggled and worked hard feel they are being made to "carry" those that won't. I recently read that 40% of the foreclosures are on "second homes"; houses bought for investment or vacation or purchased in anticipation of selling the first. That's a lot of houses that didn't need to be bought in the first place. Ok, some of the third category might have been necessary (moving to a new area, for instance) but the vast majority were people trying to take advantage of the R.E. boom and who got in at the wrong time.

    You mentioned Pan Am. There was also Eastern, National (which bought Pan Am) and a number of others. TWA was bought out by American Airlines. Where are REO, Studebaker, Stutz, and a few other auto makers?

    I don't think it's that we are upset by the loss of company so much as we see a number of companies going under around the same time. There's a bit of panic in the air. "Something must be done!" is the cry. "And quickly!" follows soon after. I am one who worries that we are trying to do too much and will end up simply spreading the misery too broadly, thereby, extending the period of that misery.

  11. To gain some appreciation of the dangers associated with behaving like Mr. Twain's cat, check out this article about the Japanese offspring of his cat:

  12. Douglas: To borrow a phrase from the Laughingman, "Beware of the static evaluation." Picking a point in time and performing an analysis always has its complexities, and that's because we're in a constantly changing, dynamic environment.

    If you have all of your clothes in the washing machine when the earthquake hits, and you run outdoors naked, you will be judged a streaker, obviously trying to seek some perverted attention.

    A question arose during the week about the creative manner in which some employers are handling the downturn in business. Workers were asked whether everyone should take a decrease in pay and keep the same level of workers, or whether some should be laid off. Some chose the first option, while others suggested that some of their workers were screw-offs with little work ethic who should be dismissed.

    Douglas, we are beginning to suspect that you have some English ancestry in your family tree. We find your continued references to "panic in the air" and the suggestion that this is much ado about nothing as an interesting forms of British understatement. Most folks seem to think that this is really serious, even the non-politicians.

    Finally, we did not read this but rather heard it on a news radio broadcast: that the statistic to which you referred was in connection with 2nd mortgages, not 2nd homes. We may be wrong. Probably something which we should research. Thanks as always.

  13. My gosh- I thought I'd be attacked on this blog for being such a b--ch. (You would have laughed.) I was terrified to come back and look at the responses this morning.! Bless Douglas' heart and Logistician- you're way to logical!

    I hate those screaming morans: 'Save me! I'm loosing my house!'

    Whose fault is that?

    I paid for 2 moragage for over five years! This place was my vacation place and second home! And I never missed a payment because I didn't buy 2 morgages that I wasn't capable of paying for. It's that simple: You don't buy what you can't afford.

    Sorry- but I really think they should all be required to live in tents and fetch water from the city pond!

  14. No attacks on our regular contributors are allowed on THIS blog Vikki. You're part of the "protected class" by virtue of the special membership fee which you pay regularly.
    (Others, please inquire about our new platinum membership.)

    There is quite a bit of justifiable indignation that all of us should feel about certain aspects of this "response" which some have termed a "bailout."

    This difference in attitude about the responsibility attributable to the affected class, according to some, appears to be due to the number of affected individuals, and its cumulative impact on the larger society.

    Let's play with this for a minute or two. In our sessions, we try to have our participants adopt the philosophy that we are personally 100% responsible for EVERYTHING that happens to us after the age of majority. By doing so, we highlight the importance of personal responsibility. It may be a little artificial, but it works.

    You live near the water. Let's say the surf and tide report indicates that there will be record breaking waves on the west facing beaches during the afternoon, and all of the surfers in town head that direction.

    When the monster waves hit the beach, first we see one surfer struggling to survive, then 30, then 150, and then 300, and then 1,000. Should we use the county life guard service to rescue any of them, part of them, or all of them?

    Hmmm, let's move to motorcyclists who ride without helmets. Should we restrict the provision by paramedics of medical attention to injured motorcyclists when they have head injuries, but allow medical assistance for other injuries? Or perhaps, should we restrict the provision of any assistance since everyone knows that motorcycle riding poses a higher risk of injury?

    Let's take it away from the physical, and just talk about money. The Logistician was previously on the Board of a non-profit which addressed senior citizen issues, including senior fraud. Opps, that's no good, because they are a vulnerable segment of society.

    Ah, let's use 40 somethings as our victims of fraud. Should any organization, government related or not, assist victims of fraud, or perhaps identity theft, who are so unaware as to place themselves at risk? Would you want your tax dollars or your charitable contributions to be used for this purpose? How about your tax dollars going to law enforcement officials and the court system to prosecute these folks.

    Better yet, schools in many parts of the country used to be subsidized by property tax revenues. Why should those without children have to pay those taxes? Good for the general society, eh? Why penalize those who chose not to have children? Maybe we should restrict the number of children who can receive free public education? Only two publicly schooled kids allowed per family, eh? Those of you who have more and do not put them in private institutions are taking advantage of the system and using our tax dollars in a disproportionate manner!!!!!

    Tough stuff.

  15. Reminder: As we type this, C-Span2 Book TV is airing a book discussion centering on a book written by Dean Baker, entitled, " Plunder and Blunder: The Rise and Fall of the Bubble Economy."

    He is discussing the growth and "predictable" collapse of the housing and stock market bubbles, and is critical of both the Clinton and Reagan administrations. He claims that the economy is in free fall and accelerating.

  16. Vikki, we have been thinking extensively about your comments. For many years, we would not use electrical components or electronic equipment made in China because of concerns about quality, and the potential for fire.

    Just a few minutes ago, we pulled some catfish out of the freezer, and noted that the label indicated that it was grown on a Chinese fish farm. Knowing all of the food related problems with products coming out of China, why would anyone continue to eat that food, correct?

    Once individual consumers are aware of the dangers, shouldn't we relieve the FDA or the Consumer Products Safety Commission of the responsibility to review these items at taxpayer expense? Isn't it foolhardy and ridiculous for Americans to continue to eat and use Chinese products at this point?

  17. My agitation at bailing out those I believe share so much of the blame for the current economic crisis had caused me to beome anxious. However, thanks in part to posted comments, I've managed to assume a more global and perhaps compassionate view. For a moment I reflect on the words of Dr. Martin L. King, Jr. who stated "In a real sense all life is inter-related. All men are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly affects all indirectly"... "This is the inter-related structure of reality." These words provide a source of inspiration, bring comfort, and remind me that to some extent I am my brothers keeper. How much of a keeper is questionable. In with ethics, greed be gone!

  18. Well said Laughingman. I agree with every word.
    Logistician-Dean Baker is correct in examining the faults of the Regan and Clinton administrations. Regarding the economy as being in freefall; well yes but it will bottom out some time or other. I have it on good account that this is not the end of the world. Maybe a tiny preview but not the end.

    I was interested in one of his earlier books:The Conservative Nanny State-How the Wealthy Use the Government to Stay Rich and Get Richer as it focused on how the modern Conservative movement is not so much for less government but rather in favor of government help for the affluent
    So called "toxic" debt being taken on by the U.S. taxpayers does not make me happy.
    The whole matter of those who took on debt they could not repay does stick in the craw. As much mortgage companies should not have given them the mortgage, anyone adult enough to be getting a mortgage should be adult enough to understand what a balloon payment is and that an ARM means the rate is adjustable and will more than likely be going up dramatically. The companies who made loans to those people need to deal with those people and not be looking to the taxpayers to make good on their bad decisions. PERIOD. Let the chips fall where they may and we'll be out from under far sooner than if we play this game. Honestly folks the bandaid has to come off. Do we do it a millimeter at a time? Rip it off in one fell swoop? Ease it off with baby oil? Whatever the method something has got to give.
    Debtors prison, well I have never read of debtors prison as having helped either the person/s who were owed money nor society as a whole. Next to slavery it is one of the worst ideas I can imagine. What would make more sense to me is the repayment of debt over whatever time it takes with a reasonable ( to be determined ) amount of interest to be paid to the debtor. One of the sorry stories that is not being told in the media is the extent of credit card debt and the usury of interest rates as high as 28 percent. Certainly the persons who got themselves into that debt are to be blamed but what has been happening is that people have gotten themselves into a corner and up till now the credit card issuers would rather have the cardholder go bankrupt and have the debt charged off leaving the institution either getting the money from insurance or having a nice tax writeoff. Well a tax writeoff doesn't look all that attractive when your company isn't turning a profit and insurance companies are squeezed to the limit so why not negotiate with those in deep credit card debt to be repaid even if it is only with a 4 or 5 percent interest rate?
    Is it foolhardy to eat and use mainland China's foods and products? Maybe. But it is cheap and we need to be free to make the choice as long as certain minimum standards are met. Personally I mourn the fact that you can no longer purchase any canned pineapple made in the USA. Remember when Dole of Hawaii was the biggest producer of canned pineapple in the world? Pineapple is labor intensive, labor is expensive in Hawaii, now it is almost all coming in from Thailand. Oh well, Heinz is doing pretty well. Their first quarter profit is up 11 percent. They are also a family owned, non-public company. Hmmm. Something to that isn't there. That plus more people are eating franks and beans and using ketchup with those fast foods.

  19. Sharon, Sharon, Sharon. Welcome! What you described is a succinct expression of one the purpose of this blog. Namely, to get people to consider the views of others, take time to listen, and then reflect.

    There is apparently a saying out there, "There, but for the grace of God, go I," or something like that. Thanks for weighing in.

  20. Thanks June. Reading through you comments reminded me of how complex governance of a society can be. Let people make some choices but not others. Let people suffer the consequences of their choices, but not others. Let certain classes or groups of people control certain things, but not others. There's an argument to be made that we ought to have one or the other in a society, isn't there? We could either let people do anything they so desire and let the chips fall as they may, or place restrictions on all decisions. Is either one better than the checkerboard pattern we now have?

  21. It really is a lot more complex than it might seem at first glance. Good or bad consequences are bound to flow from action or inaction. That does not mean that certain regulations meant to protect the public should not exist. Let me use the example of tobacco. It is legal to buy and use it. We all pretty much agree that it is harmful. Does that mean the choice to purchase it should be prohibited? People who want tobacco will get it one way or another so education, regulation and taxation are reasonable ways of dealing with tobacco. All people should experience the consequences of their actions. It is a matter of measure of consequence and degree of responsibility. Not always an easy thing to parse in every situation. Martha Stewart who had worked as a licensed broker had greater knowledge of the law regarding insider trading as that had been her profession than the average Connecticut soccer mom. Greater consequence not just because of arrogance and an inability to ask for mercy but because the court had every reason to believe she had greater knowledge of the law involved. I know, I know, ignorance is no excuse but malfeasance execution of a matter for which you have full knowledge is worse.
    We are make to "whom much is given much is expected" Doesn't mean that if you are given little than nothing is expected.

    Life being the messy thing that it is we do need a patchwork but we need to be much more careful of the pattern and ought to mind the seams and edges..BIG TIME

  22. My agitation at bailing out those I believe share so much of the blame for the current economic crisis had caused me to beome anxious. However, thanks in part to posted comments, I've managed to assume a more global and perhaps compassionate view. For a moment I reflect on the words of Dr. Martin L. King, Jr. who stated "In a real sense all life is inter-related. All men are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly affects all indirectly"... "This is the inter-related structure of reality." These words provide a source of inspiration, bring comfort, and remind me that to some extent I am my brothers keeper. How much of a keeper is questionable. In with ethics, greed be gone!

  23. Didn't want to delete a second time. That's just to embarassing. -And it was an adjustable morgage'- not adjestable. Although we might want to look at ajestable loans. You never know. They may be the answer!!


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