Life without financiers?

While it is too early to declare the death of the American Financial Industry, it is not too early to think about life in a post-financier age. In fact many of us are learning to cope without credit, to think of retirement less as an investment strategy and more as a savings plan and to temper our expectations for a gold-plated future. As we stand around the hospital bead of our comatose rich Uncle Wall Street, perhaps we should take some time to think about what life would be like without him...

It is often stated that without fluid credit markets the American dream of owning your own house would be out of reach for most of us, that college education for the masses would be a thing of the past, and that business would close without access to easy credit. Perhaps, but we have to question the extent to which easy credit has simply driven prices up. There is a parallel correlation between the loosening of credit markets in the early 1990s and the dramatic increase in housing prices. If this is the case, is it reasonable to assume that without easy finance, and with a glut of empty houses on the market, that home prices would go down? Perhaps becoming much more affordable through private mortgage arrangements via the homeowner? Considering the damage to the world economy, we have to ask if the 15% increase in home ownership since the beginning of the 20th century (see Smeins 1999) was actually worth the trouble--especially since that very increase (once a point of validation for the finance industry's late 20th century alchemy) is slipping away at an alarming rate.

College education is easier to address as modern finance has little to do with students getting the necessary loans to attend college. I am case in point. I managed to run up fantastic debt in college without appeal to non-government backed loans. Of course there are other issues here. College endowments will shrink and that will affect scholarships and plans for college expansion--hopefully, it will force colleges to decide what their purpose is, are they a business or an educational institution? Often enough the two are at cross purposes. When tax revenue falls off, it will become harder for Uncle Sam to extend education loans in the same quantity, or so one would imagine. But I think that the Obama administration will place college education for the next generation high on its list of funding priorities. 

As for the infamous "bridge loans" businesses apparently require to operate, perhaps businesses should, like households, operate within their means. For example, if a business owner regularly needs a quickie loan to make payroll, then perhaps she should stow that amount into savings and make it a part of her financial plan. If that doesn't work, maybe she needs to narrow the scope of her business. Business around the world are currently making these kinds of adjustments.

My point is that easy credit, as is now glaringly obvious, has been more of a problem than a solution (to paraphrase Uncle Marx, Groucho not Karl, "with a solution like that, who needs problems"). From multinational corporations to my house and your 401K, the current financial crisis is a re-evaluation of everything. Through across the board deflation, prices, salaries and futures will find a new level. My question is, will we be better off without Uncle Wall Street? Should we leave him in his coma, and get on the best we can? I think many of us already are.

Speculation, thy name is Ponzi

A Ponzi scheme, named after 1920s financier Charles Ponzi, is an investment operation that offers high returns to investors based on an increasing influx of money from new investors. It is a classic pyramid scheme based on speculation, greed and naivete. Since the Madoff scandal a few days back, this term has been thrown around a lot (Bernard Madoff apparently lead an investment firm whose Ponzi investment strategy began to fall apart in the face of the financial meltdown--some 50 billion dollars evaporated). But, really, the Ponzi strategy is not all that different from what was happening in the housing market, the financial sector and even in the average American household these last 15 years.

Based on speculation, rather than economic fundamentals, we all have been deluding ourselves that a) the stock market can only go up, b) the value of our homes can only go up, and c) we can live on credit indefinitely. But when the economy goes in the tank, our savings and the equity in our homes vanishes, while the bills keep rolling in. This crippling delusion is connected to all boom/bust cycles and underlies the vast social devastation that occurs when the bubble pops.

There are other kinds of value that do not decline with the markets and we might start investing in those rather than placing our savings with the running dogs of Wall Street. What, other than the almighty dollar, has value? you may ask. Let offer a few examples:

1) personal talent: invest in your inner musician, artist, architect, gardener, inventor, tae kwan do master, sculptor, etc...
2) education: nothing can enrich one's life more than broadening one's mental horizons
3) experience: a rich life means an active engagement with world around you
4) vital communities: support your community institutions, festivals and businesses with your presence as well as your wallet
5) local arts scene: work to support or develop a regional musical/artistic/theatrical identity--know who is who on the scene and attend and/or sponsor events
6) local cuisine: support local restaurants, bakeries and chefs
7) world travel: not everything worthwhile is local, get out of your town or, better, country to know the world in which you live
8) the commons: support efforts to conserve local forests, wetlands, mountains, rivers, etc... quality of life is inseparable from our natural environment (most of us, I think, would rather live on the edge of a forest than on the edge of a strip mall or sub-division)
9) end poverty: actively engage with the causes of poverty in your area and support organizations that address these issues
10) get religion: support, through your attendance and wallet, a religious organization of your choice. Church, temple or mosque, many of these organizations gather local resources and invest heavily in items 1-9 -- even the non-religious can recognize the positive effect of local religious organizations on soup kitchens, food banks, scholarships, global initiatives and environmental stewardship.

But, some may contend, money must be made to support most of the above items. And I heartily agree! Communities cannot be supported on good will alone. The modest suggestion being made here is that instead of throwing good money after bad into speculative industries, allocate some of that (we can now call it for what it is) gambling cash into endeavors that will enhance the quality of our lives and the lives of those around us. So, reject your inner Ponzi and support the vitality that flows from personal accomplishment and active and supportive communities.

Canary in the coalmine

It is terrible turn of phrase, and I don't mean to belittle anyone caught up in the following scenario, but according to the Oct.26 Washington Post Online, food prices in developing countries are starting to be affected by the global financial crisis. The ripple is beginning to affect those least able to absorb the shock. There are two points in the article that should give us pause.

The first point: "As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself. Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and fertilizer from leaving the country."

Here we see a state that has been in thrall of the open market for years, reasserting itself to feed its own people. There's nothing wrong with that, indeed protecting its populace from famine could be considered one of the most important functions of a state. But it does mean that all that good cheap food that flies around the world to stock our shelves may become scarce in the near future, driving prices up more than the cost of fuel threatened to do earlier this year.

The second point that should concern us is that, "[c]ommodity prices have plummeted in recent weeks as investors have shown increasing concern about a global recession and a drop in the demand for goods. Wheat futures for December delivery closed at $5.1625 on Friday -- down 62 percent from a record set in February. Corn futures are down 53 percent from their all-time high, and soybean futures are 47 percent lower...Such declines, while initially welcomed by consumers, could eventually increase deflationary pressures -- lower prices could mean less incentive for farmers to cultivate crops. That, in turn, could exacerbate the global food shortage."

The Wall Street Journal published something similar last week. As commodity prices fall, and production costs rise (seed, fertilizer, pesticides, etc...), there is less incentive for farmers to plant. These two points alone should convince anyone concerned by the eventual effects of the meltdown to begin to stock up on food items and sundries to take the edge off the jump in prices we'll likely see beginning next year and to avoid any kind of nightmare scenario where food scarcity really threatens our families and communities.

Here is a short list of things I would invest in now...

Starches: rice, pasta, flour, corn meal (degerminated), dehydrated potato products

Protein sources: texturized vegetable protein (TVP), beans, lentils, wheat gluten (for seitan), nuts, soy beans

Vegetables: canned tomatoes (though technically fruit I guess), really any veggies canned, pickled or dehydrated (dehydrated carrots, celery, onion and potatoes make for an easy soup base)

Fruits: anything canned, dried or dehydrated (if you have a dehydrator, now is a good time to dehydrate apples)

Dairy: dried milk, dry cheeses like Parmesan can have a long shelf life, dehydrated eggs


Misc: vegetable oil, shortening, chlorine bleach (for emergency water purification--look online for procedure), salt, sugar, spices, soy sauce, vinegar and dried herbs

Medicine: any over the counter meds like tylenol/ibuprofin, antihistimine for allergies, antibacterial cream, cough syrup, Pepto, an assortment of bandages, gauze, tape, etc...

This is just a start. But the point here is that the window for buying cheap food, in bulk--the kind that will see you and those with whom you share (hopefully you will purchase enough to contribute if need be)--is closing. Bulk items might not be within your reach by next summer, so start stuffing that pantry now.