Archive for October, 2008
October 27th, 2008
Published Sept. 8:
The generation gap is alive and well in the U.S.
But instead of the social and moral gap, in which the latest generation to discover sex, drugs and rock ‘n’ roll rebels against parents who did the same thing, this one, among other things, is about money.
Debt, to be specific.
Thousands of stories have been written about the amount of debt young adults carry in credit cards and student and personal loans.
Some of them, apparently, are actually worried about it. But keep one thing in mind when reading all of the stories and studies and surveys about the debt load surrounding younger generations: They are written or conducted by people who don’t really understand them.
Society has changed since baby boomers grew up under the watchful eye of their World War II-era parents — even since Generation Xers and their boomer parents began arguing.
To the Greatest Generation, those 84 and older, or the Silent Generation, ages 63 to 83, “debt” was always a dirty word. They didn’t buy anything if they didn’t have the cash, and they worked to pay off the house and the car.
That’s what they taught their kids, the baby boomers, who embraced sex, drugs and rock ‘n’ roll with a public vengeance, then swept into the Go-Go ’80s, when galloping consumerism really took off, without missing a beat.
Those are the parents of Generation X, ages 32 to 43, and Generation Y, ages 13 to 31. As emerging technologies in all industries and a loosening global economy enabled them to earn salaries their parents never imagined, they were able to indulge their kids in a manner hitherto unmatched.
It brought about a sea change in the way the generations look at finances, one that boils down to one essential fact: Most of the people who make up generations X and Y never expect to be out of debt. Ever.
Most of Generation X and all of Generation Y have never known a world in which instant consumer gratification didn’t exist.
Hungry? There has always been fast food, available 24 hours a day. Short of cash for lunch? There have always been ATMs. Really short of cash? That’s what credit cards are for.
And 30 years from now? That’s impossibly distant — it might as well be in another epoch. So they’ve become comfortable knowing that their 30-year mortgage (assuming they qualify) is never going to be paid off.
The crucible through which they view the world was forged in a far different environment than that of previous generations. They have learned that debt is something to manage, not avoid. After all, they have no desire to live in a world without Visa.
As those ideals changed, so did others: The 2000 census found that more than 25 percent of 18- to 34-year-olds (Why can’t the guys who study demographics agree with the generational guys? The group is mostly Gen Yers with a few Gen Xers thrown in) had moved back in with family.
The stigma of living with Mom and Dad has faded — as long as you’re in your 20s. The 30-year-old who still sleeps in his old bed at Mom’s still isn’t getting much respect; until then, parents aren’t showing kids the door as soon as they graduate from high school.
These parents also tend not to balk if Junior needs a little extra money until the next paycheck.
This, of course, begs to know how the next Generation Next — the offspring of the Y Generation — will turn out.
In a recent poll, 53 percent of respondents, including a majority of Gen Yers, believe Generation Y is the most self-indulgent. Depending on the state of the economy through 2018, it could mean a distinct reversal of recent trends.
In other words, I wonder if this means they’ll be kicking the kids out the door as soon as they graduate.
October 27th, 2008
First published Sept. 1:
As consumers, we are fickle creatures.
Sadly, it’s true. Despite our best efforts, even with our insistence on reasoned, deliberate thought, it turns out that we, too, do the same thing as the traders on Wall Street. When one guy buys, everyone else buys. When they sell, we figure they must be right and sell, too.
We, unfortunately, blow with the winds buffeting us. Even the ones we only think we feel.
A maddening tendency, that.
In many ways, it leaves businesses at the whims of fickle customers. There’s only so much one business can do about a nation full of consumers who are too financially jittery to consume much of anything.
At least that was my first reaction to a Better Business Bureau/Gallup poll, which ranked the businesses we trust and those we don’t.
After all, a lousy economy doesn’t breed a great deal of trust.
But there’s much more to it.
From September 2007 to April 2008, consumers’ trust in 13 of 15 industries dropped, with an overall decline of 14 percent. Nearly half of those surveyed said they have “some, very little or no trust at all” in companies with which they do business every day — among them retailers of all stripes, cell phone service providers, contractors, real estate brokers and auto dealers.
Some of the drop in confidence, I figured, probably reflects today’s new reality. Nearly 80 percent of consumers noted rising costs for food, health care and energy as negative influences. So it isn’t surprising that grocery stores and gas stations are suffering from a drop in consumer trust.
Still, I was surprised by some of the findings.
Banks, financial institutions and stockbrokers fell significantly on our trust meters. The highly public failures of a few banks across the country this year might have had something to do with the confidence drop. But only eight banks of the thousands in the U.S. failed.
And two other categories that lost a lot of trust with the public since September puzzled me as well: home-improvement and department stores.
What in the world could those guys be selling to inspire such significant declines in consumer loyalty?
As it turns out, nothing. It’s what they aren’t selling: It seems we just don’t like the way we’re treated there. In other words, customer service just isn’t what it used to be.
“If the business (ignores) problems, then the problems magnify,” said Dennis Horton, director of the Better Business Bureau’s Rockford office. “That is what angers most people. It can be home improvement, it can be your bank, it can be cell phone or telecommunications people.
“It’s the most amazing thing. It does appear that businesses just don’t care as much as they should.”
It’s a page right out of Business 101, one most businesses seem to forget — at their peril.
We don’t like to give our money to people who don’t appreciate it. And who among us doesn’t have a story to tell about the clerk or teller who was sullen, harried, insincere or otherwise bored with our problems?
“A lot of people feel like they’re being nickel-and-dimed to death,” Horton said. “Products are costing a lot of money, and in some cases the quality of the product isn’t what we expect, and the service we expect isn’t there.”
And then I remembered the coat. And the wretched woman responsible for closing the sale this year.
She closed it, all right. I left without the coat and have no plans to return to that store. I do, however, enjoy the coat I bought from its competitor.
“Businesses that show they value their customers, that can demonstrate they can do better, won’t suffer the same consequences,” Horton said.
October 27th, 2008
First published Aug. 25:
Poor Ben Bernanke. The Federal Reserve chairman just can’t seem to get a break these days. As it is, he can only wish that the dollar was still backed by gold.
If it were, and if he brushed up on his people skills, he might have been in a position to engineer a few more Wall Street bailouts — provided he was able to convince a few Olympic gold medalists to contribute to the cause.
I can just hear the phone call between Bernanke and swimmer Michael Phelps:
“Mr. Phelps, your country’s proud of you, son. Real proud. Er … tell me, son. Do you own your own home?”
It’s looking more and more like the Fed will have to step in and take care of ailing Fannie Mae and Freddie Mac, the government-backed mortgage giants. And Phelps’ eight gold medals would come in right handy for Bernanke, whose cash reserves have been looking a mite shaky lately, given the staggering amount of bad debt still floating around out there.
As Fannie and Freddie flail about, telling everyone not too panicky to listen that the nation’s two largest mortgage issuers and backers are doing just fine, really, investors remain skeptical, worried that the bailout is imminent.
The ironies inherent in this situation are delicious, if troubling.
First, the self-fulfilling prophecy provision of the federal government seems to be working in good order. Amid rumors that shareholders will end up with nothing if the government bails out the troubled companies, shareholders are doing the bailing.
Which, of course, guarantees that Fannie and Freddie will need a bailout from the government to prevent outright collapse.
Still, what’s more likely are emergency loans from the Fed or the Treasury Department.
The Fed doesn’t want to own a company. It has enough to do.
But, much like a bank doesn’t want to own a foreclosed home — banks are financial institutions, not real estate agencies — it may not have a choice.
Too many banks own too many foreclosed homes these days.
And another thing …
I’ve said I support the Fed’s decision to bail out the likes of Bear Stearns Cos., even though I’m still not convinced that its engineering of the Bank of America/Countrywide Mortgage deal was necessary, or even beneficial. Bank of America is still trying to figure out what kind of deal it got; it may yet throw the irresponsible mortgage lender into bankruptcy before it can drag the bank down with it.
Besides, the one face I can hold accountable for this mess is Countrywide’s founder, Angelo Mozilo, who should be hoisted on his own petard. And would be, if I had a say in it.
Sorry. I digress.
In the midst of all this federal hand-wringing for Fannie, Freddie and the like, I’m seeing precious little concern for the average shareholder.
The regular guys. The Joe Averages of the world who pay their bills on time, including their mortgages, give their credit cards some down time occasionally and even manage to sock a little money away.
The people who keep the country’s economic engine from sputtering out and locking up.
The reward for such responsible behavior? Dwindling job security, inflation that keeps inching up and the interest rates on our nest eggs tumbling down. Record job losses, especially here in the Rock River Valley. Falling home values.
In the meantime, the companies that helped foster these conditions are getting paid by the Fed.
Why does Washington reward those who behave badly by putting at risk taxpayers who play by the rules? When do we get bailed out?
October 27th, 2008
First published Aug. 18:
Like many people, I’ve learned to tolerate some things I never thought I would.
I’ve learned, for example, to give merely a resigned sigh before deleting the spam choking my inbox. I can now sit patiently as the latest unfounded conspiracy theory is explained in painstaking detail to me. Heck, I even caught myself thinking happy thoughts when the price of gas dropped to $3.99 a gallon.
Of course, if $3.99 was enough to provoke happy thoughts, you’d think I’d be well on my way to becoming hysterical. As of this writing, gas was threatening to fall to $3.75 a gallon in the Rock River Valley.
Why, even the Energy Information Agency, the beleaguered arm of the federal government that predicts (not terribly successfully) what we’ll be paying for gas in a few months, has lowered its previous prediction of $4-plus-a-gallon through next year.
It seems others are paying attention, too. At least, the number of truly hysterical conspiracy theorists who have identified the wretch conspiring to keep gas prices high — one day, Big Oil; the next, gas station owners — has dropped in proportion to the price of gasoline.
I’m just hoping that the latest round of EIA predictions, released last week, hold true through the fourth quarter. Or at least through August.
In September, you see, Congress will be back in session. And lawmakers have their own method of introducing conspiracy theories. They call it legislation.
There has been a veritable flurry of it lately, much of it directed — or, rather, misdirected — at the latest darling of the conspiracy world: oil speculators. And lawmakers, as they are wont to do, started throwing hastily written and poorly researched bills around to convince their constituents that they feel their pain.
It’s human nature to look for someplace to lay the blame for whatever is troubling us. It’s just no fun to get mad at the laws of economics. And it seems pointless to blame a third of the world’s population. Congress hasn’t yet identified a good way to legislate the 2.5 billion people living in China and India, and nobody is suggesting another economic ideology, so it looks like capitalism is here to stay.
And the rest of the usual suspects — Bill Gates, Wal-Mart, Paris Hilton — don’t really fit.
But someone must be to blame for this. Who’s left?
According to proposed legislation, it’s the American public’s failure to demand renewable fuel sources (no argument there) or the malevolent oil speculator.
And blaming the American public has never gotten any politician very far. Therefore, it must be the other guy.
If that speculator alone set the price of a barrel of crude oil, I’d probably agree that something should be done.
But he doesn’t.
The problem is, there is no simple, or quick, solution. And we are, after all, the land of immediate gratification: of ATMs and drive-through restaurants, microwave meals and Internet shopping.
If we want to pin the blame on our dependence on petroleum, I have no argument. I’m actually quite interested in studying wind as a power source, and I think the sun is an underutilized resource as well.
But one of the reasons renewable energy has been such a hard sell is that fossil fuels are easy. We’re already hooked up to one pipeline or another. And let’s face it: If we were feeling truly pinched by high energy costs — to the point that we had to change our lives dramatically to compensate — we wouldn’t have enough money to make politicians care about us anyway.
October 27th, 2008
First published Aug. 11:
I’ve never been a big fan of too much government involvement, in business or in my personal life. In fact, I’d say I get suspicious the very minute I hear that the government has decided to save me.
My suspicion springs in part from my unwillingness to give someone else — particularly lawmakers who will have forgotten all about me in four years — too much say over my life. It’s a peculiarly American virtue, the same one that drove the British off the continent more than 200 years ago.
But the rest is largely practical:
The only money lawmakers have to spend is mine. And yours.
And if someone is going to be spending my money, I’d prefer they take a careful, reasoned approach and not go chasing after a shadow that someone with an agenda has convinced them is there. (Even though Wall Street seems to have been following the latter model.)
You can understand, then, why I become alarmed when the beady eyes of the federal government turn toward Wall Street.
Then again, it’s not like it hasn’t been invited, even unwittingly.
Wall Street’s latest comeuppance for the floundering reality of its investment strategies, which began in earnest a year ago but really picked up speed six months ago, have brought about some of the most stunning events to hit the financial markets since the Great Depression.
The Federal Reserve’s 11th-hour campaign to salvage collapsing investment bank Bear Stearns Cos. cemented its newfound reputation as the lender of the last minute. The hastily produced deal allowed JPMorgan Chase & Co. to buy the failed investment bank at a fire-sale price — a week after the Fed made its first unexpected announcement, becoming the lender of last resort for investment banks.
Those were bellwether moments on the Street, when joyous bankers knelt at the feet of Fed Chairman Ben Bernanke and wept.
Six months later, despite the involvement of the Federal Reserve, I’ve decided they were necessary.
Bear Stearns’ near-death experience was sparked by its reliance on mortgage-backed securities, but it flamed out of control because of its investments in complex financial instruments that only about seven people in the world can figure out — or value. If those securities succeeded in strangling the bank, it could have killed others.
It could, in other words, have caused a financial breakdown of catastrophic proportions.
Here’s where I start to contradict myself, because all those complex instruments — with exotic, if obfuscating, names like collateralized debt obligations — are terrifically hard to explain. As it turns out, they’re even harder to quantify.
So when the markets determined that they were worthless, they were. In many ways, they’re what got us where we are today.
But here’s Wall Street’s real comeuppance: Wall Street has bitterly opposed any sort of government intervention in its strategies. It can handle itself, it argued every time the government decided that more regulation was needed.
For a number of reasons, I used to agree with them. And while I believe global finances need to be handled by those who actually know what such things as collateralized debt obligations are — I don’t trust them anymore.
Wall Street has just introduced itself to a hell of its own making:
Welcome to Wall Street, congressmen.
October 27th, 2008
First published July 28:
I have always been of the optimistic, if narrow, view that there’s no such thing as a dumb question.
In my admittedly rather Orwellian world, certain questions maybe aren’t as incisive as others, but I’ve always considered the pursuit of knowledge an admirable undertaking, so I try to be patient with the questioner.
Until recently, that is, when a friend asked me how long I think it will be before the economy rights itself.
In the movies, such blockheaded questions are invariably met with sputtering and spitting because the Hero happens to be sipping his drink when said question is asked.
I was spared that indignity, but I did some sputtering of my own before I could frame a suitable answer, and even then all I could manage was something along the lines of “Get real.” And as soon as he opened his mouth, no doubt to ask some pithy follow-up question, I stuck my fingers in my ears.
So I might have been a little more childish than patient. But he deserved it.
Part of my problem just then was his intent: He wasn’t motivated by anything as lofty as the pursuit of knowledge. His motivation had more to do with vague discomfort than a search for a real answer.
In other words, he wanted to know when he could retreat to those halcyon days of yore — last year — when he didn’t worry about the state of his 401(k) and was still blissfully ignorant of terms like “optional adjusted-rate mortgage.”
I stand by my answer. And I defy anyone to come up with a better one.
The truth of the matter is, no one knows. Investment bankers — the ones still in business, anyway — Wall Street analysts and economists of every stripe have been paraded through the media for the past year, all of them spouting the same message: The end is near.
The end of the credit crisis, that is … of mortgage defaults and food that costs a little more than it did last year.
Every week, we are assured that we’ve hit “bottom.” Or, at the very least, that we don’t have much further to go before we do.
In fact, late last year, bold predictions held that the necessary correction in the mortgage market would most certainly have bottomed out by the end of 2008, maybe even by the third quarter. They pooh-poohed suggestions from rogue analysts who suggested there was no way the situation was going to right itself as soon as all that.
Then results from the first quarter of 2008 were announced and, suddenly, the imminent demise of the boom times didn’t seem to be so greatly exaggerated after all.
These days, sheepish analysts have rallied around a new banner: the third quarter of 2009.
Don’t you believe it.
Anyone who’s spent any time studying the vagaries of the economy knows that predicting the market is about as easy as predicting the outcome of a football game. There are far too many dynamics involved to do it with any sort of accuracy.
Sometimes, the best strategy is just to keep your fingers in your ears.
Next Posts
