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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How A Bank Was Saved in the Last Crisis: The Story of the Men and the Model "A" That Did It

Writing Irving Bacheller in the study of his Florida home, about 1925.

Bacheller's 1929 Ford Model "A," restored by its new owner.

The recent decision of the U.S. Treasury to buy a stake in a number of large U.S. financial institutions in order to guarantee their assets and ease up on credit reminded me of a story I unearthed several years ago about the way one bank was saved in Florida in 1930. In 2006 I won a research grant to write about the life of best-selling writer Irving Bacheller, who made his name during the first half of the twentieth century with tales of American pioneer life. His first novel, Eben Holden, the story of an orphaned boy who is raised by neighbors in a log cabin, sold more than a million copies and made Bacheller both rich and famous. He went on to write seventeen more best-selling novels and counted other literary lions among his friends, including Mark Twain, Arthur Conan Doyle, and Stephen Crane.

By the end World War I, Bacheller was wealthy enough to build himself a lakeside winter home on fifty acres in tony Winter Park, Florida. He was a genial man who liked golfing, cocktails, and friends as much as he liked his writing so when he was immediately drawn into the civic and social life of this little Florida town he could not have been happier. He joined the board of Rollins College and taught a creative writing class there. He was a founder of Winter Park’s University Club, and began a scholarship program for local high school students. In 1927 he was drafted to be Chairman of the Board of a local bank, the Union State Bank at Winter Park.

Things were going so well for him by 1929 that he bought himself a brand new Ford Model “A” Sport Coupé with a cloth top and a rumble seat, just for his use during his winters in Florida. And then, in October, the stock market crashed. During the summer of 1930, which he spent on Long Island to escape the Florida heat, he wrote his friend Hamilton Holt, president of Rollins College: “I have never seen such an atmosphere of puzzled discouragement [in New York]. My own losses have been heavy for a scribbler.”

When he returned to Florida, he discovered that things were even worse than he thought. The Florida real estate market had crashed and there had been runs on banks throughout the United States. The President ordered all banks to close for a “bank holiday,” so that the surviving institutions could hold onto their cash reserves. What it meant in those days before Automated Teller Machines and the widespread use of charge accounts and checks, was that all commerce and business was frozen too. People without access to their bank accounts often did not have the cash to buy their food or pay their rent.

Bacheller conferred with George Kraft, the founder of the Union State Bank, and the two men decided on a bold plan. They hopped into Bacheller’s little Ford and drove all night to Tallahassee where they met the next day with state bank regulators to plead that the Union State Bank be allowed to stay open, for the sake of the community. They showed the regulators the bank’s credit and debit statements and proved that the bank was solvent and had enough cash reserves to survive a run. But state regulators could not violate the federal bank holiday order and Bacheller and Kraft made a new proposal. What if they started a new bank, not then subject to the federal order, transferred the assets of the Union State Bank to this new institution, and guaranteed all the deposits with their combined personal savings of $50,000?

The regulators scratched their heads, conferred with counsel and said they didn’t see why it couldn’t be done. Back the two men drove to Winter Park where they established the new Florida Bank at Winter Park. It stayed solvent during the entire Depression. Nobody lost a dime.

That is how a writer, his banker friend, and a little Model “A” Ford Coupé saved a bank one day. It was like a George Bailey moment from the film “It’s a Wonderful Life.”

Addendum of Coincidences:

Banker George Kraft died in 1937. Bacheller’s own fortunes as a writer did not survive the Great Depression. By the beginning of World War II, he was 81 and no longer in touch with the new realism that had entered popular fiction. He sold his Winter Park estate and fifty acres for $37,258 and lived on the proceeds of that sale until his death, at the age of 90, in 1950. During the war he sold his Model “A” to a soldier whose wife was a teacher and needed transportation to her job.

Fast forward to 1960, when banker George Kraft’s son Ken looked out the window of his Winter Park home one day and saw a hot rod buzz by. It looked to him like an old Model “A” that had been souped up by a local kid and he had always wanted to restore a Model "A". Winter Park was still a small town, and when Ken Kraft asked around, he found the young man who owned the car and bought it from him for $50. But it wasn’t until Ken Kraft began to restore the old Coupé that he uncovered the car’s history. It was Irving Bacheller’s car. The one Ken’s father George, and Irving Bacheller had driven through the night to the Florida state capitol in order to save the bank and thus, save a little town. Ken Kraft still has that car. The bank, after changing hands a number of times, is now a Bank of America. Bank of America is one of the banks in which the U.S. government will soon invest. It’s true. You can look it up.

I'm Going to Need More Than a Dime