I hope everyone has been following the historic events that are upon us these past few weeks. Everyone is asking the same question: "How did we get to this point?" Unfortunately, we don't like the answers that the experts are bound to give us.
I've heard a lot of theories from a lot of people in the past few weeks about whose fault it is: Wall Street was being too greedy, homeowners were being too greedy, the fact that the middle class is increasingly shrinking and that so much wealth is concentrated among so few people in this country. This last idea is very interesting to me because it is true, but it is also emblematic of the problems that I feel have truly brought us to this point: the lack of financial knowledge and sense of entitlement among Americans, and the pervasive desire for safety and security (ie, jobs) at the expense of innovation and progress.
If you study history, there are very few periods where a secure middle class exists. Most of the capital (ie, farmland) was in the hands of the ruling class and there was little leverage available, so barriers to entry were very high. The middle class began when professional guilds and merchants emerged. The ultra rich non-aristocrat business man did not really exist until other types of capital became available to own (intellectual capital, merchant ships or factories) and capital became available (such as the formation of corporations by the pooling of many investors' money).
Throughout history, the middle class has also been "squeezed" by the adaptation of the old guard to the innovations of the times. Once the big guys get the gist, they swallow or copy the innovator. Constant innovation is required. The same is true today. Those who have the ability to recognize changes and work with them are the ones who will be able to survive the constant storm as it roars around us. Those who have given up their desire or ability to innovate, and instead are happy with "a good job" are the ones with the least security, because when the market changes, they can't change with it.
In fact, an argument can be made that the distortion of certain industries which have been slowly dying for years though government subsidy is what really caused the bubbles we have had recently. Under the humanitarian banner of "saving jobs", we prop up many industries, which then have no reason to innovate. The steel industry, automobile industry and airline industry are obvious examples. I'm sorry, but no one has a born right to a specific job. Subsidies have a place in business when the government wants to make new technology viable (such as cleaner energy), but the politicians have to have the gonads to end these subsidies when the industry can support itself. And they also need the strength to withhold subsidies to industries on life support. Let the owners of these companies come to them with truly innovative ideas that will change the course of those industries, not with a hand out for a bailout.
There is no question that we are going to suffer for the next few years. But how can we avoid this happening again? We need to get back to roots. I almost feel like some kind of "entrepreneurship service" should be required of young Americans. Instead of being trained to seek jobs, young Americans should be required to come up with and run a business for a year or two. It might be a one-person freelance business, or a consumer product business that is destined to become a juggernaut. The passion and energy of young people gets wasted in "entry-level" jobs that, from my own experience, never translate into upper management jobs anyway. To gain admittance to that rich table, you really need to be lucky or connected, it seems to me. But to be the chief architect of your own creation, that is a feeling that would keep many college students from ever seeking their first job.
Unfortunately, I am cynical as to the ability of the masses to govern themselves into that situation. Individually, you or I may be willing to take on the sacrifices necessary to turn around what is right now a broken system that has been leaking at the joints for decades. But politicians cannot do so, because they want to be re-elected. Every so often, we need someone who doesn't care about the quid pro quo system to shake things up. Abraham Lincoln did it, as did Franklin D. Roosevelt. Bush could have been the one to do it - indeed, we all thought our first MBA-possessing president would be an excellent choice to provide leadership on financial policy and regulation. Instead, he expanded the powers of the presidency in ways that no one wanted and hastened the decay inside our financial systems with the strain of two foreign wars. It's hard to say if the current crisis will allow the next president to push through serious reform, although honestly I can't see that either candidate has a good plan for such reform. But we should hope.
In the meantime, those of us in the tenuous middle class need to make the right decisions for us. It's hard to summon up the fortitude to invest in the stock markets right now, but it might be a good idea to do so, particularly if you are under 30.
The real estate market inNew York held steady through most of this mess but has finally begun to slow down. While most transactions that were already in contract continue to close, sales activity is considerably slower at open houses around the city, and the fall selling season has been given up for lost by many agencies. If you can afford to wait it out, you would be wise to do so. If you must sell, do not try to get the maximum for your home. Instead, price strategically near the median of comparable properties. If you are in a situation where only the top dollar will pay off your mortgage, call your mortgage company immediately to discuss the situation with them. They are available and ready to help you; it is in their best interest to do so.
However, if you are a buyer with a solid down payment available to you, this is a great time to look. The owners who have their properties on the market at this time have to sell, and they are going to listen to fair offers. Talk to your mortgage broker to keep your approval up to date, and start shopping.
One quick note of hope: my good friend emailed me a few days ago. She lives in a highly-priced suburb in Michigan, one of the hardest-hit states due to the years of bleeding auto jobs. She recently noticed that several higher-end homes that had languished on the market for two years or more were now all sold. To me, this little annecdote could be a ray of sunshine peaking through the clouds. If it has gotten so bad in most of America that people are finally buying again, we may have reached the bottom. Look for little nuggets like this, gird your loins, and listen to your gut!