Ten Things to Ponder About the Current Recession

1. Anyone who does not want to risk his money should not put his money in the stock market. Yes, yes, I know all the statistics about how the market performs over a fifty year period. But let me tell you about a woman I know who is long past retirement age. About a year ago she got a final settlement of $100,000 from her ex-husband and she was complaining that it was now only worth $56,000. How is that possible, I asked her ....

I had assumed she put this money in a bank. She told me she had put the money in a money market fund and that it had gone way down and she was going to take the money out. I gather she didn’t know, or her broker neglected to tell her that the instrument into which she put her money was, as the name implies, in the market. Some instruments of this type available at your bank are insured by the FDIC. Hers was not. In these uninsured funds your NAV (Net Asset Value) is not guaranteed. You could blame this mistake on a clueless old lady, but I heard someone as intelligent as journalist Bill O’Reilly say recently that his market investments of the past seven years have been wiped out in the last two months this should not be allowed. Unfortunately it is his tough luck. Market fluctuations are not against the law.

2. Want to be sure the Net Asset Value of your cash does not go down? Put it where your assets are insured. Risk/reward ratios mean that when there is a higher reward, there is a higher risk. Lower risk, lower reward. Among the least risky things you can do with your money is to put it in a bank. The reward will thus be lower. But unlike my friend, you will not look at your statement one day and see that your savings has dropped in value by fifty percent.

3. What if the bank fails? If a bank fails your savings are insured by the federal government up to $250,000.

4. What if the federal government goes broke? If the government fails, then we’re all up a creek.

5. If your company has a 401k program and they will match some of your contributions with stock, there is risk in counting on this as your only retirement plan. Yes you get a tax break for participating. But you might put some pre-tax money into a program like this and use some post tax money to invest elsewhere. Yes, you will pay taxes on any interest you garner, or any profits you make. But which is worse: paying taxes on a capital gain, or having nothing to retire on?

6. Beyond the ignorance that has surrounded the stock market: there are a lot of crooks to blame for the current mortgage and credit meltdown. President-elect Obama should promise to put the culprits in jail. The bad guys in this deal are in the American establishment, and they make Martha Stewart’s crimes—for which she went to jail—look like a taffy pull. If President-elect Obama doesn’t make these people pay for their crimes, he will not serve a second term.

7. Those guys who win Nobel Prizes in economics don’t know any more about solving the problems of the recent world-wide economic challenges than you do. If they did, one of them, prize in hand would have knocked on the White House door, handed in his Einstein-like equation, and presto change-o all would be put right. There is no quick fix. Anyone who says there is, is someone you should definitely avoid voting for.

8. Want to help America cut the trade deficit? Stop buying goods from countries that dirty the earth’s air and water. I’m reminded of a drive I took from the airport to the center of Sao Paulo, Brazil. I think about it now because Brazil is being held up as some kind of paragon for running its cars on the ethanol it produces itself. Yes, that’s great. But take a look at the “river” beside that Sao Paulo highway one day: it is a cesspool. It is filled with sludge and refrigerators. Imagine that times about 100 in the far-more-populous country of China. Until the developing countries can show us that they have an investment plan to clean up their environments, we cannot call any trade with them “free.”

9. This is a really big recession but it is not the end of the world. Keep a clear head, tighten your belt, and forge ahead. Our parents and grandparents lived through some very bad times, from the Great Depression to World War II. They managed and so can we. What? We’re going to weep for ourselves because we can’t buy the latest flat screen television (built in China, most likely). Come on, get real. Stop thinking of money as something magical that other people know more about than you do. Stop investing it with con men and wasting it on things “everybody” has to have. We could all cut back on fast food and walk a little more. And maybe we could help out someone less fortunate while we are at it.

10. If things get really tight in your family, run for office. Members of the U.S. Congress have the best retirement and health plans in the known world. Heck, I just read today that the President (salary $400,000) and his family don’t have to pay anything for their prescription drugs. America is supposed to be a citizens’ government. Build yourself a Web Site, start raising money and go for it. Consider it your own federal relief plan.

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We're in the Money: We've Got a Lot of What it Takes to Get Along

There are many signs this week that the U.S. is headed for—or is already in the midst of—a deep recession. The Department of Labor reported this month that the net job loss in the U.S. over the last year was 760,000, with 159,000 of those jobs lost in September alone. A year ago, the unemployment rate was 4.7% and has now risen to 6.1%, the worst showing in seven years.

In Orlando, where the Walt Disney World Company has an entire staff devoted to projecting just how many people will visit each of its parks on any given day, hotel occupancy has made its largest single one month drop (September 2008 compared with September 2007) since the September 11, 2001 terrorist attacks. That drop was nearly 12%, one of the worst year-to-year showings ever.

General Motors and Chrysler continue to be mum about reports that the two are talking about a merger, but what happens with these two auto giants could very well affect each one of us. GM lusts after Chrysler’s supply of cash (about $11 billion, most of it borrowed) and Chrysler isn’t making it financially and needs a partner in order to survive. But survival as what? If the two companies join forces, analysts believe that something like 66,000 jobs (mostly at Chrysler) will be “redundant,” which would mean at least that many people applying for unemployment. Auto Week reports that for each job lost on an assembly line, ten more jobs would be lost in related industries. You can do the math on that one.

And any deal between these two enormous companies would need an alphabet soup of approvals from the UAW (United Autoworkers Union) to the FTC (Federal Trade Commission) to the JD (Justice Department). And that’s just for starters. It could take up to a year to work through the details, if there is a deal at all, and during the delay, if sales continue to drop, more jobs would be lost.

In the meantime GMAC Credit, owned 49% by GM and 51% by the holding company that is the majority owner in Chrysler, has reported it lost billions in the mortgage crisis, and has closed 20 offices in North America and laid off 930 people. GMAC has also tightened its credit standards so that only those with a credit score of 700 or above can borrow money from GMAC to buy a new car. Nice to know George and Laura Bush, at least, will be able to afford new wheels when they move back to Texas.

Finally, analysts of the Auto Industry say no matter what happens they expect GM and Chrysler to appeal to the U.S. government for some kind of bailout, and that’s in addition to $25 billion in loans Congress gave the automakers in the recent Energy Bill, ostensibly so that they could begin to build more fuel efficient cars. It begs the question: how long can the U.S. treasury keep handing out money?

The U.S. Central Bank announced yesterday it is itself getting into the credit business, providing $540 billion in capital for money market mutual fund investment. This is designed to ease up on tightening credit (see above paragraphs) but now that we’ve seen how the for-profit banks, investment firms, and mortgage companies handled their assets in recent years, we can only imagine how efficient the federal government will be at this same job. And, on that same theme, yesterday Yahoo announced the layoff of 1500 employees. Financial firm National City Corporation let go 4000 employees.

It would take a great deal more bad news than we have seen so far to bring us to the 25% unemployment that marked the depths of the Great Depression. But it is very clear to me that in all the deregulation fervor of recent years, the federal regulatory agencies and Congress, as their watchdog, forgot what they were supposed to do. The mission statements of those agencies included preventing corruption and prosecuting it when discovered. Preventing ursury and predatory lending. Instead, we have seen every big corporation lining up at the Congressional trough, and (practically) every member of Congress lining up at the lobbying trough of every big corporation. A truly symbiotic relationship.

It is tough to imagine that anyone in the White House could really make much of an impact on this mess. I haven’t heard either of the candidates promise to seek out the bad guys who corrupted our system and put them in jail. It is almost as if one has to wait for the whole thing to fall in on itself before the system can be cleansed. Unfortunately, that is going to be a really painful “cure” for the American people.