My Husband Is Still Employed. Maybe.

~ Laura

The situation on Wall Street continues to worsen.  Two more broker dealers are struggling. Investors are taking their money out of the banks and the market or demanding additional protections. As Jonah says, "we’re heading into the Great Impression."

Most Americans are alienated by complex economic terms and are confused about what’s happening. They aren’t sure this is going to affect them, but as I said on Tuesday, "Bad things that happen on Wall Street don’t just stay on Wall Street." Oh, look Friedman said nearly the same thing yesterday. "We need to make sure that what happens in Vegas stays in Vegas — and
doesn’t come to Main Street. We need to get back to investing in our
future and not just betting on it."

We need to break down in simple terms how the Wall Street fiasco is going to affect Main Street:

  • Retirees are watching their 401K plans evaporate. It’s Alpo for dinner.
  • Every time somebody sells some stock, Uncle Sam gets his share. With no profits coming out of Wall Street, no tax money for us.
  • When investment companies make big bucks, they have to share that money with the government. So, when things tank, no tax money for us.
  • The government has had to spend hundreds of billions of dollars to clean up this mess. That’s hundreds of billions that will not be spent on schools or health insurance or roads or defense.
  • With less money in circulation, people aren’t going to have money to buy homes. The price of homes is going to drop. People are going to owe more on their mortgages than the market value of their homes.
  • These broker dealers aren’t just investing some rich guy’s extra cash. They are also investing the state of New Mexico’s bond revenues and the pension funds of teachers in Indiana. What happens to that money now?
  • With all these government expenditures and loss in tax money, some of the things that we really want to happen, like universal health care, isn’t going to happen. There isn’t going to be the money and all the smart guys in the room are going to have spend all their time thinking about the economy, rather than solutions for health insurance.
  • Who’s helping the US with this mess? China. Do we really want to be that indebted to them?
  • To come up with the money to bolster Wall Street, the government is printing tons of money. More money in circulation means inflation. Inflation that isn’t going to go away for a long time.
  • With less money in people’s pockets, people aren’t going to be buying new plaid dresses at the Gap. (damnit) They are either going to keep wearing last year’s dress or picking up something cheap at WalMart. Gap will have to lay off workers, who then will even have less money in their pocket. Every business across America suffers, except for WalMart.

I think this stuff needs to be broken down in plain English for Americans. They need to understand what’s going on. If I now own part of AIG, I think I should really have a better idea of what I own.   They also need to know how we got here. I blame TLC for all those house flipping shows.   

Published by Laura

42 thoughts on “My Husband Is Still Employed. Maybe.”

  2. “With less money in circulation, people aren’t going to have money to buy homes. The price of homes is going to drop. People are going to owe more on their mortgages than the market value of their homes.”
    Lower housing prices are a good thing, just like lower food, clothing, or gas prices would be a good thing, too.

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  3. I’m worried about run on the bank scenarios. I listened to the NPR report saying that wasn’t going to happen precisely because the government has the capacity and will to step into situations like the AIG mess (unlike during the great depression).
    I think so, and hope so, but I am starting to feel a need to keep my money in lots of different pots (and not just diversified pots, but different company pots — that is that it doesn’t make sense to have all your money in Citibank — owed 100+ billion from Lehman, or WAMU, which might go into receivership, . . . ).
    Anybody feeling the urge to take all their money out of financial institutions and keep it in big piles of gold under their bed? I’m resisting the urge, but it’s giving me pause.
    Boy, it’s a mess.

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  4. I was stumped a bit by Friedman’s phrasing, ’cause none of the betting on Wall Street wouldn’t have happened, if it wasn’t coming down to main street (i.e. people having easy risky money for fueling the housing bubble).

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  5. Whether lower housing prices is a good or bad thing depends on why they are lower. Look at Detroit or (parts of Pittsburgh within walking distances of my house). Houses are essentially worthless because nobody who can put together $20,000 wants them unless they are in the Section 8 business. In addition to everything else, the city of Pittsburgh has been basically bankrupt since the height of the boom. They had a hard time getting their bonds sold during the easy money times.
    I blame California and Florida.

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  6. I’ve wished I was a soprano this week. money in the attic and the floorboards. Better to have a bunch of accounts at different banks…at least you get a tiny bit of interest.

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  7. Having your house worth less than you paid for it is never a good thing. Buying a house on the cheap might be great. Having to sell it on the cheap, not so much.
    I heard a story yesterday on NPR of a guy in a WaMu bank parking lot telling his wife to go get all their money out, he was on his way to get a safe for their house. I’m sure he is not the only one.
    I’m just scared to even look at our retirement or the kid’s college funds. All of them are invested really, really conservatively, but still.

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  8. Best of luck. Nothing worse than job insecurity. And both Morgan and Goldman are down another 10-20% this morning.
    Hopefully just some irrational inuberance (opposite of exuberance?).

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  9. “Anybody feeling the urge to take all their money out of financial institutions and keep it in big piles of gold under their bed? I’m resisting the urge, but it’s giving me pause.”
    The reason it’s a bad idea is that a lot of people are having the same thought. Stand by for a lot of scams–one of my now deceased relatives got taken big time by a Y2K mail order gold scammer.
    I don’t like having money in invisible digital accounts, but I confess that having a lot of valuables at home would make me feel nervous, too. We keep $200 at home for dire emergencies. I barely remember that it’s there, so it doesn’t cause me any anxiety.
    “Whether lower housing prices is a good or bad thing depends on why they are lower. Look at Detroit or (parts of Pittsburgh within walking distances of my house). Houses are essentially worthless because nobody who can put together $20,000 wants them unless they are in the Section 8 business.”
    In my local real estate listings, there’s some poor sap offering a “$400,000 investor bundle!” of 12 houses, presumably of the quality MH mentions. I’d heard that Rochester, NY is pretty depressed, so I was looking it up right now on realtor.com. In our town (one of the poorer in Texas), the cheapest house is currently $10,000. In Rochester, the cheapest house is about $1,000, and there’s nearly a page of listings before you hit the first $10,000 house. Meanwhile, in Detroit, it takes an entire page of listings to get to the first $100 house. That is not a typo.

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  10. In our town, I’ve been watching the progress of a very ill-conceived downtown “loft” condo project. Single family home prices here are about $100 per square foot in the very ritziest neighborhoods. I finally got a look at price list for the new downtown loft project, and they’re trying to get $200 per square foot, not to mention whatever the condo association fees are. You can also rent a one bedroom unit there for $775 a month, which is what it costs to rent an entire house elsewhere in the area.
    I applaud the aim of the project, which is to reclaim a downtown that has seen better days from the legions of homeless guys pushing their stuff around in strollers, but that’s no excuse for the total failure in market research that this project represents.

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  11. We’re certainly not on Alpo but it’s hard to see the tough savings we did over the past year wipe out in a week. They were in pretty standard 401k or 403b type retirement plans. all gone.

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  12. Dave Price (a Detroit-area blogger at dprice.blogspot.com) has a post up entitled “Great News!” As he puts it:
    “I woke up this morning and found out I now own one of the biggest insurance companies in the world!
    “Whoo-hoo!
    “My first action as owner is a sweetheart deal–lower insurance rates on the coverage area of your choice (home, fire, car, etc.) for all my readers!
    “Stay tuned: I get the feeling I’m about to acquire an ownership interest in three Detroit automakers, too.”

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  14. bj (et presumably al.) if you’re over the FDIC limit at any one institution, you’re way up past my pay grade. If you’re under the FDIC limit, no need to take the money out ’cause if we get to a point where the feds aren’t honoring that obligation we’ll be so well and truly f*cked that lack of retirement savings is one of the least of our worries.

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  15. Doug, as far as bank deposits go, I agree. But, you are forgetting about the 401k, 403b, 529, and whatever else there is now. Those aren’t insured and, for very sound public policy reasons, are difficult and expensive to liquidate. And they very rarely have any assets but stocks and bonds. I suppose those plans might help put a floor on stocks. People who get an employer match will keep contributing.

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  16. Doug, I’d agree with that except for one thing: 401k plans and the like. They aren’t insured, invest nearly everything in stocks and bonds, and incentives for participation are very high (employer matches, tax advantages). Allot of people with very ordinary incomes have taken a very big hit this year.

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  17. Really, if you want to take your money out and use it for something, buy food and household supplies. Not more than you’d use in a year, and get stuff you’d buy anyway…but it’s an important cushion in case something goes awry in your life.
    Freeze-dried camping meals, toilet paper, soap and detergent, shampoo, lotion, first aid supplies will all be useful; if you’re not in dire straits, use the stored ones as you buy new in your weekly or monthly shopping, but when the dire straits happen you’ll have it when you can’t afford to replace it.

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  19. “Those aren’t insured and, for very sound public policy reasons, are difficult and expensive to liquidate.”
    Ah, but now we have the 401(k) debit card. The websites I was looking at just now keep calling it “one of the worst ideas ever.”

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  20. “Really, if you want to take your money out and use it for something, buy food and household supplies.”
    I actually thought about doing this this morning — stocking up on supplies. I think that if *I* even gave it a passing thought that we seriously need to think about what’s happening to the economy. And, we recently switched to buying generic breakfast cereal.

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  21. Good point, bj, on the alphabet soup of retirement plans. On the other hand, unless you’re close to retiring keeping the plans going seems the thing to do. On the other other hand (got it special order, thanks), the Dow is essentially flat even in nominal terms over the Bush years, so buy and hold might not be what it used to be.

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  22. One of the most fun stories from Econ class was the hardtack story: when will someone rationally take negative interest? And that’s when you have a declining-value good. If you are adrift, and you have hardtack, and it’s molding, you will rationally take a promise of less hardtack in a month in trade for hardtack now. So, Doug, there’s your rationale for buying flat Dow.

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  24. My wife had just e-mailed to see what I wanted her to get at the store, so diapers and bourbon were already on my mind. Sorry for the similar posts above. I should try for more patience.

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  25. Dave S. Are you speaking English 🙂
    I think you gave me some reason why I shouldn’t take all my money out and hide it in a mattress, but I’m not sure what the reason was.

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  27. Amy, that’s like one of those articles on the benefits of getting older where all of the advantages boil-down to “at least you’re not dead.”
    BJ, Dave S. was simply saying “the other options are even worse.” Hardtack is just a kind of very inferior (and unsweetened) biscotti that was used back before there were decent methods of food preservation.

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  28. Ok true believers. There have been lots of firms and Savings and Loan(funny McCain is running right now for Prez considering his ties to the Keating 5[and yes I do judge you by the friends that you keep])but…. all is not lost. Yes, people will get laid off just like in 2001 after September 11th.
    But where is everyone going to go? Into different busiensses? I think not. Will they go to other bansk. You bet your ass they will. And don;t give me the BS that there are not any other banks for people to go to. There are other banks just like there are counter parties to all of these deals that made heaps of cash.
    Your hubbie will be fine. He’s not at LEH or BS.

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  29. There’s a cold wind blowing for nearly everyone: at my wife’s firm, something like 5% of the billings last year were from firms which are now gone. We feel a little tentative about making purchases, haven’t closed down the checking account but we’re not looking at new car ads either, the van’s a ’99 BUT IT RUNS PERFECTLY WELL THANK YOU VERY MUCH.
    Many commenters on this and other blogs, and out there in the world, too, are suggesting that there’s been excess and this will be a swell cleansing. It’s hard not to go too far with something like this. Most of us could likely get by not buying any new clothes for a year. The old car can be kept running. Then, Laura, the car dealer suggests to his kid that she stay home for a couple years after high school, to figure out what she really wants to do, and you have fewer students. Old Navy doesn’t open a new branch so the woman who would have been its manager stays at her old job and makes no investments for your husband’s firm to manage. Things slow down. Good? Bad? Well, slow, at least.

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  30. Dave, I hear what you’re saying, but it raises a philosophical issue: is consumerism good for the economy? Is frugality bad for the economy?

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  31. Wendy, consumerism raises the number and value of transactions, so people get employed. On the other hand, if what they get paid to do is crap, what do you have? Driving around in the affluent burbs on trash day is sobering: two year old televisions, computer monitors, last year’s chairs.
    My wife and lived like grad students for years – with much of the same furniture! – sort of the AmyP strategy of financial success. We drove the Taurus til it died, only then got another car. It has worked for us, we have a couple years’ income in the bank, the mortgage is paid, and the kids’ college tuitions are prepaid – but we haven’t done a damn thing to keep people working in the furniture factories of North Carolina.
    I assume, though, that the money we have squirreled away in the bank has been lent out through HELOCs to somebody who is buying frivolous flivvers.
    The economy has produced a lot of goods which seem silly to me – short-lived, expensive, quickly forgotten. People have bought those goods with credit which they are now regretting. Short time frames.
    How do you adjust the incentives to help people act prudently? Jeez, I don’t know. A lot of people who didn’t are in a world of hurt now.

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  32. “Driving around in the affluent burbs on trash day is sobering: two year old televisions, computer monitors, last year’s chairs.”
    Rumor has it that at the end of the year at our campus if you know where to look it’s possible to pick up a sweet flat-screen TV that’s been ditched by the fleeing student body. The mind boggles.

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  33. “Driving around in the affluent burbs on trash day is sobering: two year old televisions, computer monitors, last year’s chairs.”
    Yesterday at a yard sale we bought a tv better than the one we have had for $20.
    I’m not being critical of what you’re writing, I just think that it’s an intriguing dilemma. The economy benefits from the moving around of money. But what would really be better is for people to buy less crap. Is there a way to have a successful economy without creating so much crap? What does that economy look like? Is it a capitalist/free-market economy?

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  37. I’m wondering if the change in economic conditions will change end-of-the-year dumping habits. The student body also has some of the nicest vehicles I’ve ever seen, but they don’t leave those behind!

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  38. Saw news today about Goldman and Morgan Stanley. Hubby still okay?
    (And it’s our turn for dinner…. Soon, maybe?)

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  39. Thanks for asking, Julie. Hubby is still okay. But in a few months, he may be asking customers if they want kitties on their checks.
    We’ll see you Saturday, right? Remind me to take some pictures of you. With all due respect to J, I think I can do better.

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