The Economy

[5ft Diva]

I turned on the news tonight and was shocked to hear about the "Financial Meltdown" on Wall Street. What are your thoughts on the matter? What are your thoughts on how the government is handling the situation?

[natickgirl]

My husband works for Zions Bank. I am really nervous that the failure of these big banks will somehow trickle down to the smaller ones. Up until now, I didn't think the whole housing & financial "meltdown" would really effect me. It is conceivable that it could hit our family really hard.

[5ft Diva]

It's hard to wrap my head around all of this. I hear so much and I'm not sure how much of it is drama/anxiety on the matter. I'd like to get somebody's opinion on the matter that is of sound mind. Someone who can tell me how it really is. Oh, now that I think of it, the person I really care about hearing from will be speaking to us in about three weeks. I am still interested in hearing from someone who isn't too dramatic about all of this, though. (Not like those people you see on the news.)

[bookworm]

What's interesting to me about this is how most of us are at the mercy of other, "higher-up" people on the financial totem pole. I have no control over what rates do, or housing prices, or wall street or any of it, but I am paying high gas prices, higher food prices, and my husband is definitely affected by the economy. That's what's frustrating. Now if I had a farm and was self-sufficient, maybe that would be better, but I would still require gas for vehicles and some outside products, as well as water and my property would still be taxed by the govt. We are kind of at the mercy of our leaders, aren't we?

For my family, I have faith, though, that we are in the Lord's hands and that He will provide for our family according to His will, as long as we do all we work hard and open ourselves to it. God is able to go beyond our economy.

I do think the urgency of the situation is testimony to our country's need to get back to basics- worship God, help our fellow man, live righteously...

I agree, Diva, I would like more sound information that what we get from the media. Verbal hysterics don't really tell us anything!

[5ft Diva]

No, they don't. You got that one right!

Okay, confession time. I failed economics in high school. I just didn't understand it - and still don't. BS gives me a lesson every once in a while, but it's hard to remember how it works. So really, what I'm trying to do here is just understand what happened. And.....how does it affect me? All I'm really understanding is that I'm gonna feel a ripple of this (what exactly is THIS?), but that it's no tsunami and it'll settle down in about 12-18 months.

[Dia Minha]

I am a lot like you Diva. I don't understand. I don't know what "this" is either. What I do know is that by having my finances in order I will be able to ride out the storm and it will not affect me as much. Yes, I will also pay more for groceries (which I wouldn't be if I had my year supply) and more for gas (but I've cut way back and that helps). The people that are getting hit the hardest seem to be those that are in debt and/or counting on debt to make ends meet. It is amazing how much comfort there is in listening and obeying the prophet.

Back to having a year supply of food. I think it is really easy to see why having a food storage would help in emergencies. However, have you ever stopped to think how it would help just with the rising prices? If you have a year supply, you are always paying last years prices for your food. You are always one year ahead of the rising prices. If we just listen to what the prophets are telling us we will make it through this mess and many more to come.

Oh and of course living within our means and even better living way below our means doesn't hurt either. Again something the prophets have told us for years. DH and I have made financial mistakes and are paying for them now. But after working really hard all year we are on schedule to be debt free (except for the house) by the first of the year. And then we will have the means to finish the basement and the yard. It has been so hard, but well worth it.

I guess what I'm trying to say is, that I believe if we are listening to the prophet and doing our best to accomplish all that he tells us to, we will be blessed and although we will feel the ripple it will be tiny compared to the wave it could have been.

[5ft Diva]

Well put, Dia. I appreciate your positive outlook on the situation. And....I had never made a connection between paying last years prices on food because you have a year's supply of food. Great thought!

I'm still waiting for someone who knows something to help me understand what happened on Wall Street. I am doing a lot of reading on it (well, a lot w/ the time that I have which ends up not being very much) so if I find something out I'll share it.

[natickgirl]

Great thoughts, Dia.

It's very interesting to me that the main cause of this "financial meltdown" is greed, pride, and lack of accountability for personal & corporate choices. Mortgage companies & stock brokers were looking for big commissions & bonuses, so they sold mortgages & investments that were less than "safe". Investors were looking for big returns, so they didn't check into the security of their investments. The general public wanted to keep up with the Jones', or with the American dream, so they bought more house/car/toys than they knew they could afford. When prices went up & loans were called in, they didn't have the reserves to stay afloat. The net effect is that everyone in the nation pays the price for those who were greedy. I know two friends who will probably lose their homes. I understand that the government wants to prevent further meltdown, so they're bailing out big companies; I'm just miffed that ultimately, the taxpayers will end up paying for it all, whether it's in the form of taxes, welfare, or even lower interest rates on our savings. (Of course, the CEO's already have their multi-millions in bonuses from the last few years...they're doing OK.)

[Dia Minha]

Ok, here's a thought I had this morning. Why can't AIG sale some of their 3 trillion dollars in assets instead of borrowing 85 million from the feds, which in reality is our tax dollars? This makes absolutely no sense to me whatsoever.

[natickgirl]

They will, eventually, when their assets are worth something again. Right now, their net worth is really low, which lowered their credit rating, which made them unable to borrow money from private parties, which led them to borrow from the gov't. In return for the gov't loans, they give up some of their control of the company, mostly in shareholder/governing power (the gov't now has a say in how it is run). When AIG's stock is back up, and it's assets are too, they will begin to repay the gov't. There is a slight chance the gov't may actually make money on this deal, if AIG rebounds well.

[5ft Diva]

From what you're saying, NG, that those who are in way over their heads in debt are the ones who are going to be caught up in this. For instance, if I have debt, but it's only my house and my mortgage is only 25% - 33% of my net income, I'm probably going to be okay. Am I way off base here?

I'm sorry to hear about your friends. I can't imagine how difficult it must be for them at this time.

[natickgirl]

I don't know...I'm no expert, I just like to listen to NPR. I think the average person who is not in tons of debt will still feel a little pain. It will be more difficult to get loans, more difficult to make interest money, a further recession may lead to more layoffs in many industries. It will be interesting to see what happens. According to the "experts" our economy has been overinflated for too long and is due for a downswing.

[Erudite]

Great discussion! To begin to understand the economy (and a bunch of economics history), I recommend "The Commanding Heights: The Battle for the World Economy" which is a PBS documentary on the development of economics and the economics that are in use today (we got it on Netflix). I saw it last year and have been a changed woman...in the sense that I can now use the terms "market economy" and "socialism" in a sentence and know what I'm talking about. The documentary was SO fascinating that it's on my list of items I'd like for my birthday. As a result, I also read New Ideas from Dead Economists which is a book for beginners in learning about economics theory. I didn't get all of that, frankly, but it added to my foundation which can be more effectively built on now.

I also highly recommend The Commanding Heights, because it'll give you new insight into the economics policies of the presidential candidates. For me, it makes me shudder to think that Obama might come to power, because oh my...he's got some very dangerous and long ago disproved ideas. He really is a socialist in the worst sense of the word.

BUT...on the economy....when I heard about the meltdown, my good intentions to update our food storage became my number one priority. It had gotten quite low due to my illness last year (because I couldn't keep up with making sure it was stocked) and it needed to be seriously restocked. My wonderful DH went to the store last night and took care of that for us. I had been feeling seriously paranoid (or was having serious promptings...I'm not totally sure which) about it and was wondering if the world was going to fall apart on Thursday. It didn't...the DOW is back up today to where it was last week and things seem to be rallying despite all the doom and gloom rhetoric from the candidates.

If you need anymore doom and gloom, FYI, one of the big banks in England also needed to be bailed out this week. They aren't kidding with this stuff. It begins a process of "contagion" which you can learn about in the Commanding Heights...it's more or less the dominoe effect, when one economy after another will topple if the right supports (loans) aren't put into place. Luckily for us, this is all well-known. We bailed out Mexico about 15 years ago to stop the contagion that was toppling Asian economies left and right.

The thing about the economy is that everything is tied together and as NG explained, we're all connected to it. We can be good about our personal debt and it'll still affect us as home prices drop (which is a good thing if you're going to be in your home for the long haul because then your property taxes drop too...whoever thought property taxes should be tied to the "value" of your home was such a nitwit!) and gas prices rise and food prices rise.

But the bail-out of AIG and the English Bank has more far reaching consequences than tomorrow's dinner. AIG controls millions of retirement accounts. If they fall, the retirements of millions of Americans is wiped out. When we stepped in to save Mexico 15 years ago it was the same thing...it was if the big guy be penalized for being too big, the little guy is the one who gets hurt. And it includes little guys who are good about their debt in life and have no control over the choices of AIG. It's scenarios like that that make the merciful bail-out a good thing. It isn't the "keeping up with the Jones" people, though they get helped too, it's the innocent bystanders that they're trying to protect.

Did that make any sense?

[natickgirl]

Thanks for the insight. I might have to check into that program. My husband majored in economics, and has tried to explain things to me many times, but I just don't get it like I should....

On the bright side (and contrary to what I stated previously) savings interest rates are actually going UP now. They are still frustratingly low, but 3-4% is better than 1-2%. Banks are so low on "cash" right now that they are trying to lure more savings & investment customers. People who actually have money left over at the end of the month (which is getting more difficult as food, fuel, utility, and health costs rise) will build their savings even faster with climbing interest rates. In the late 70's and early 80's when the economy was bad, savings interest rates were around 10%! Wouldn't that be nice.

[5ft Diva]

10% would be nice indeed!

E, thanks for your insight. You've told me about this documentary before, but I had forgotten it. It would be fun to have a documentary club. We get our hands on this video and then discuss it's contents after all who are interested in watching it have had a chance to view it. (w/in a certain time frame, of course.)

I feel like I am empowered to understand what's going on in the world around me better now. Thanks!

[Big_Sissy]

Great thread. I really enjoyed reading what all of you had to say and simply watching some of you try and figure this out. Keep working at it, it will all come together if you persist.

[Dia Minha]

I'm learning a little bit more everyday from the news. It seems like there must be a lot of people like me, or us, because there seems to be a lot of people giving simplified answers to some really hard questions. Or maybe it is because I'm learning more.

The one I heard this morning was saying that the companies that gave out all those bad loans are to blame. When people borrowed 100% or more on their house and then house prices dropped and those people couldn't pay, there ended up being more money borrowed than there was anything to back it up. I'm still not sure how that directly affects the stock market, but some how it does.

All I know is that is is very frustrating. DH and I have worked very hard to get out of debt. We were looking forward to being able to really start living and not just getting by. Now everything is supposed to get more expensive and we will most likely still just be getting by. I'm trying really hard not to focus on what I future plans I may have to give up and just being grateful we are still in the position to get by at our current standard of living.

[5ft Diva]

Originally Posted by Big_Sissy

Great thread. I really enjoyed reading what all of you had to say and simply watching some of you try and figure this out. Keep working at it, it will all come together if you persist.

So what exactly are you saying here, BS?

[Big_Sissy]

Uhm, just what I said. Economics is not an easy topic to understand, and I think you all are getting it. It's just fun to see you working through it is all.

[5ft Diva]

And....do you have anything you'd like to add to help us understand it a bit better? I only ask because your post sounds like you know more than you're leading on to know and I'm interested in knowing what it is you know if it'll help me know more.