how the bailout failure affects us

NY Stock Exchange

I didn’t see that one coming. Then again, nobody did.  I’m a little bit shocked – our family’s net worth dropped about 10% in one afternoon, wiping out years of savings – but then again, I think the cure would have been worse than the disease.

In every analysis and op-ed I’ve read, I’ve failed to understand one point:  why should the government assume the risk taken on by private companies?  Yes, it’s all interconnected, and yes, there’s a trickledown to Main Street, etc., but wouldn’t there be a trickledown effect from taking on an additional $700 billion in debt?  The rule of capitalism is that risk is inversely proportionate to reward. Now we are seeing the market adjust itself to where it should truly be, sans government meddling.

I know the most likely scenario is a watered-down bill, similar but less expansive. That’s a good thing.  The pain we’re all feeling (and trust me, anyone with a toe in anything more complicated than a checking account feels this) is the cost of living in a capitalist society.  No socialized medicine, no socialized pensions, and hey – no socialized banking bailouts.  It’s philosophically consistent.

I’m tired of worrying about macroeconomics. I know that I’ve written more articles than usual on that subject, simply because it’s hard to pretend it’s not happening.  It is.  But let’s face it, the same things are true, over and over again, regardless of the Dow’s value, or the latest governmental power grab or the death throes of a theoretically conservative administration.  Here’s how the bailout failure does not affect us; you still need to:

  1. Spend less than you earn. If you don’t need it, don’t spend money on it.
  2. Find out ways to earn more. Don’t sit on your current income.  Hustle.  Make more.
  3. Stay healthy. Getting sick in America is going to be a more and more expensive event.
  4. Take care of your environment. Even if you don’t believe in climate change (and if you don’t I’m not sure what I could convince you of, anyway), keep your little corner of the world clean as you can.
  5. Be kind. Not much else matters in your interactions with the world.  There is evil in the world, and it must be fought, but let’s face it – in most human interactions, a moment of kindness is worth a month of assaults.
  6. Vote. I know presidential elections get all the attention, but let’s face it – yesterday’s events were the results of votes by congressmen, ALL of whom are up for re-election this November.  Make your voice heard.

So tomorrow try not to read the papers, and eat a piece of fruit.  The Vitamin C and fiber will do you good. Keep your chin up.

photo credit: pheezy

just imagine for a minute

Aggressive.I’m writing this Sunday evening when the bailout package has been finalized but not yet voted on. I’ve been stunned by the speed that this bailout has rushed through Congress, much like the Iraq war rushed through.  I stopped and imagined for a minute what would happen if we had an all-hands massive push combining the executive branch and both parties in both houses of the legislative branch to enact:

  • Meaningful healthcare reform
  • Decisive actions to achieve energy independence in ten years
  • A comprehensive and complete revision of the tax code, eliminating loopholes for lobbyist-inspired deductions and adding good ones, like tax credits for hiring Americans (for example)
  • A massive effort to audit and slash wasteful spending across the board for the federal government.

You get the idea. The frustration is enough to make you grind your teeth to the bone, isn’t it?

All of this furious rush to save Wall Street should demonstrate to everyone at least one small bit of absolute truth about life in America today:  the rich and powerful watch out for their own. The rest of us should learn that lesson and watch out for ourselves.  If your Congressman votes for the bailout and you don’t like what you see in the final package, make sure you remember it come Election Day.  Take your business away from companies if you feel they unfairly benefit.  Don’t be passive if you don’t want to be.  Imagine for a minute what would happen if we all stood up to punish this kind of excess just once.  It might not be the disaster they want you to think it will be.

photo credit: Porcelaingirl° {enthusiastic foolish}

second marketplace interview

As I mentioned yesterday, my second marketplace interview with Jim of Blueprint for Financial Prosperity and Lynnae of is now available. You can listen to it here. You can also download an MP3 of the show here. If you like the interview, it would be a great help to Digg it (just click that link) or use some other social media to promote it. I think it’s a good interview – I hope you agree!

If you’re just arriving at my blog for the first time after hearing the show, welcome! Here are a few of my most popular posts on money:

  1. 38 random thoughts on building prosperity
  2. a little-too-late advice on building wealth
  3. spend less than you earn – the wrong way to think
  4. follow the white rabbit to financial freedom
  5. how to talk to your teenager about personal finance

And some other posts which have also been popular:

a second marketplace appearance

If you remember, I taped an interview with Tess Vigeland of American Public Media’s Marketplace Money show that ran back in August. Today I was interviewed for a second time, once again along with Jim of Blueprint for Financial Prosperity and Lynnae of  The radio program is scheduled to run this weekend if they can get it edited in time.  This time we’re weighing in on – you guessed it – the current economic crisis.  If you missed the earlier interview, you can go here and listen to it online, or download an mp3 of the show.  I’ll put a link up to the next interview when I have it.

And if you want my two cents on the package, it stinks. Let me tell you that the company I consult for has no idea – none – how much exposure they have to these bad securities.  And the $700 billion figure is a GUESS (read that link, you’ll be horrified).  And this:

…it lies between the optimistic estimate of $500 billion and the pessimistic guess of $1 trillion about the cost of fixing the financial mess. But the $700 billion is in addition to an $85 billion agreement on a bailout of the insurance giant American International Group, plus $29 billion in support that the government pledged in the marriage of Bear Stearns and JPMorgan Chase. On top of all that, the Congressional Budget Office says the federal bailout of the mortgage finance companies Fannie Mae and Freddie Mac could cost $25 billion.


(my emphasis)

I’m not sure why we are trusting the same administration that rushed us into a war we didn’t need to rush us into a bailout with minimal oversight, but hey, that’s our elected officials for us – always looking out for the best interests of the American people. It seems not to matter which party we vote for, because the end result’s always the same.

But we’ll see how it all shakes out, because at this point that’s all most of us are – observers. It’s an odd feeling to watch people debate how to spend your money for you, isn’t it?

photo credit: Nite_Owl

frugality versus self-sufficiency

In the midst of all of this talk of financial apocalypse – which is probably a little bit overstated – I realized that the idea of saving money in times of crisis is a lot different from saving money in a time of plenty.  Cutting back on Nintendo games is a lot different than learning how to heat the house with paper scraps.

A common debate that goes on in my consultant-infested workplace is the debate over “good” investments. I have some colleagues who cling to the stock market; some who swear by real estate; some who preach the mantra of gold and commodities; and some who have just decided to spend their money as it comes and damn the consequence.  I fall somewhere in the middle – increasingly skeptical of the stock market but more skeptical of the idea that commodities or real estate can pick up the slack for the whole US market.  I’ll beat that topic up a lot more in the next few days.

But in times of distress, learning to save money on things that make a difference can matter a lot, too. Learning to grow your own food is different than chopping off a few bucks on eating out.  The former will create value out of nothing – the latter simply cuts out an expense you didn’t need to have.  For the record, I don’t think we’re there yet.  We don’t need to all start planting potatoes for the next great famine.  And I’m not convinced that we need to hammer down on luxuries yet, either.  If I dropped Netflix it equals less than .1% of my income.  You might say, well, take .1% here and .1% there and soon you have a few percentage points, but you don’t – I don’t have that many minor expenses.

I do think now is the time to start focusing on stupid expenses. Nobody needs a new TV now.  You might need a new computer, though.  You don’t need a new CD – but a book (depending on the book) might be money well spent.  Is it time to start wearing that crappy old shirt that’s out of fashion a bit longer?  Yes.  Is it time to keep wearing that worn-out old coat that doesn’t protect you against the cold enough – no.  Spend money like a smart person.  That means you need to apply a simple question to every expense:  do I NEED this?  If the answer is no, pass for at least a few days.  You’ll see a difference in your bottom line in a hurry.

hazard pay

About 11 years ago, living in Moscow, I was approached – like most of my fellow expat managers – with a bizarre proposition. Leave the relative safety of Moscow and head out to my firm’s furtherestest outpost – Bosnia.

I’ll take a step back and point out that I was already in what was considered a hazard-pay environment. Mid-90s Moscow was a place ruled by the mafia – a wild and unregulated place in which shootings in broad daylight were conducted with impunity.  Businesspeople were assassinated.  Death was a palpable presence.

Imagine coming into this environment and recruiting for a place like Bosnia. I’ve read a lot about the conflict there – far more than is healthy.  I’ve read at least two books that shook me so much that I threw them away afterwards, rather than ever risk reading them again.  A coworker of mine, a wonderfully cheerful young woman who had been a TV personality in pre-war Bosnia told me gruesome tales of crawling through mud and being repeatedly beaten and humiliated trying to escape (she was an ethnic Muslim, and I assume probably far worse occurred that she didn’t want to share).  She was happy, nonetheless, because she made it out and got to America.

Cathedral in Bosnia
photo credit: leestudent

But back to Moscow, circa 1997:  my firm wanted people to come into Bosnia. Money was screaming for the gentle validation of auditors.  Hotels needed to be built.  Imagine this job advert:  come to a place where you will need to wear bulletproof vests in public; where you will be hated and reviled everywhere you go; where you will work like a maniac to reestablish your profession for the benefit of your firm but not yourself. Oh, and you will get tons of money, a promotion and live life at the edge – accountant on fire.  It may sound awful but I was tempted.

The money was good – hazard pay of double normal salary plus a massive per diem. Drivers, personal assistants, 2 months per year time off.  In an environment like that a hard-working young lad like yours truly could grab the future by the, er, horns and go along for the ride.  But I passed.  It wasn’t for me.  Moscow was close enough to the edge.  The first time I walked out of a bar and stumbled over a corpse (not kidding), I decided that was close enough to the edge for me.

But there are people who want that kind of experience. Smart Spending tells us one such story.  For me it was easy – life is not ALWAYS about maximizing income.  Moscow was risky enough.  Bosnia was for the adrenaline junkies.  Let’s be fair here – if I worked in medicine or some other profession where people might benefit from my presence, I might’ve considered Bosnia.  For accounting and fairly audited financial statements?  Er, not so much.

I don’t regret not going to Bosnia to work. I’ve been offered a lot of hazard-pay assignments:  Saudi Arabia, Bosnia, Siberia…  and I’ve come to realize that while I’ve got a streak of risk-taking in me, it only extends to so far.  I commend people who do go work in dangerous parts of the world like Bosnia, or the Middle East, or Newark.  But everyone has a limit, and mine was reached when I was told I would have to wear a bulletproof vest when outdoors.  Call me kooky.

even my barber

I got a haircut Friday. It’s usually a traumatic event.  I’ve never enjoyed going to the barber.  I had one barber I loved – her name was Victoria and she worked in a fancy high-end spa-type Manhattan place.  She was perfect – she didn’t ask me what I wanted, she just told me what I needed.  I had other barbers who were OK – Don and Dale back in my hometown, the team at the Manezh in Moscow, and my current guy, Mike.

Missionary haircut

Mike does a good haircut. He deals with a lot of overstressed back-office guys like me, since I work in a downtown skyscraper filled with the stress monkeys – Morgan Stanley, Prudential, Deutsche Back, AIG.  It’s one of those old-style barbershops where you get a hot shave, get slapped around and leave feeling refreshed – a man among manly men.

But let me tell you – Mike is worried. He’s been working there a long time, and he’s seen the ups and downs of Wall Street.  A barber to Wall Street types hears a lot of gas, and frankly passes a lot of gas.  That didn’t come out right.  He gossips a bit.  Mike wants to make sure everyone has a tip.

He wasn’t happy last week. “Times are not looking good,” he told me.  “I’m bracing for a rough time.”  We commiserated.  I mentioned that I work in corporate governance and audit and he snorted.  “Best of times and worst of times for you, then, huh?”  he said.  Then he told me about his position on the market.  He thinks it’s time to get out.

Joe Kennedy got out of the stock market right after his shoe shine guy gave him a tip. But here’s my question:  when my shoe shine guy – my barber – tells me it’s time to get out, is it time to get back in?  I’m thinking it is…
photo credit: Wm Jas

timing the bottom

The idea of ‘timing the bottom’ as applied to stock market investing is to find a stock and predict – before it happens – the last moment when a stock is at its lowest price in a given time period and starting buying in. The idea is that if a stock has reached its ‘true bottom’ you are making the absolute best possible starting point.  The other side of the equation is to sell at the exact moment of peak prices, as well.  If you can buy at the 52-week low and sell at the 52-week high, you will be maximizing your gains.

In truth, this is a difficult trick to achieve. A stock – particularly a large one – fluctuates a lot each day, with millions of shares being sold at different prices.  The price can shift from second to second, and unless you are very lucky – or put some very good stop-limit guesses in there – you won’t manage to time your buying and selling perfectly.

The idea that you can maximize your income through massive amounts of effort (or luck) around the fringes has always been foreign to me. Take credit card arbitrage.  It’s not a tremendous amount of work, depending on how you define “tremendous,” but there is a lot of risk involved and the extra income generated is not that great in most cases.  Many people are willing to day trade, or work on side jobs like blogging that make pennies on the hour, hoping to time the bottom.  I’ve seen a lot of bloggers come and go, thinking that with a few lucky links and some clever SEO they’ll become the next six-figure blogger. All of that time and effort is probably better spent maximizing (existing) job skills, or working on building a business or learning how to invest long-term.

The truth is that in life it’s better to attack problems without attempting to time the ‘perfect time’ to attack them. Waiting until you have ‘just enough’ money saved to start that business?  Likely you’ll wait forever.  Waiting until you’re feeling ‘good enough’ to start exercising?  Delaying asking for that raise until your boss is in a good mood?  All are examples, and you could go on forever.  Bubelah and I have a favorite:  all of our friends with one kid who are ‘waiting for a good time’ for a second one.  A little secret:  every time is a good time, and every time is a bad time.  If you want two kids, have two kids.  Money may be a little short today, and sleep may be erratic, but you know what?  It will be that way whenever you have a second kid, no matter if you wait 10 years or do it tomorrow.

So don’t try to organize your life around waiting for the best moment. Life is full of ‘80% right’ moments, but there is a paucity of ‘100% right’ moments.  If you decide you want something, go get it.  Don’t waste time on small efforts to bring you to the ‘right moment’ or wait until that ‘right moment’ appears.  Finance will teach you that it’s much better to make $100 today and start earning interest on it than making $1000 15 years from now.  Take your small gains and run with them.

if you believe they put a man on the moon

This is a reprint of an article I published then took down because I was concerned my client at the time might figure out who it was about.  Since that client is long in the past, I’m putting it back up.  I’m reprinting an old article because it’s been a hell of a week – the industry I work in (financial services) is collapsing, I’ve been struggling with a meltdown client, multiple utilities have been down in our house and last but not least my daughter’s been suffering through thrush (a throat infection).  Hopefully I’ll be back on track next week!

Half Moon 26th Feb 2007
photo credit: Rhys Jones Photography

When I started working at my current client, I was lucky enough to get an office that was being vacated by a retiring officer. This arrangement made things very simple for everyone – no need to set up a new desk, get a new PC or even get office supplies. I just sat down and started to work.

Imagine my surprise when I found out last week that I was ‘unofficial’ and technically just squatting in the office. I probably should have suspected something since I never received an extension or voicemail (irrelevant to me, though, as a Grand Central user). So a small political disagreement arose between the head of my sub-department and the head of another sub-department over the usage of the office.

I was not terribly concerned about the office. As a consultant I’ve grown accustomed to cubicles and random desks here and there. I found that losing my corner office with floor-to-ceiling windows and a view of lower Manhattan only affected me for a month or two. After adjusting to the lack of an office, I have become uninterested in my physical location as long as I have the basic amenities – a moderately comfortable chair, some tabletop space and adequate air and light. Sounds like I’m a hamster, practically.

The next step in this process, though, was ridiculous. The company has tight budget on the purchase or lease of new PCs, and I was told that temporarily I would have to share a laptop computer with one other consultant (from a different company) and an employee. More than just the logistical insanity of a setup like this, the sheer short-sightedness of it was amazing. I protested that I would just bring my own laptop from home and at least piggyback onto the nearby public library WiFi. I wouldn’t be able to get on the company network but at least I could work offline on reports or documents.

After inquiring why I couldn’t keep the desktop I was currently working on, I was told it was because as an ‘unofficial’ they didn’t want to alert the department executives that a move was taking place, because it might alert them to the empty office and spare equipment. Sadly, it took me two days to realize what this meant – the employees weren’t going to physically move the computer without a work order and the desktop was going to become a paperweight. The office was going to be converted into a room for several new consultants, and they were bringing their own computers.

Frustrated by all of this, I decided to do something myself. So I solved most of my problems this morning by simply unhooking the desktop and physically carrying it over to my new cube and plugging it back in. This bold and decisive step took some of the regular employees back and I was told to assume complete responsibility if asked how it was moved, since apparently I could trigger all sorts of ‘asset removal’ problems. And of course my new cube is also ‘unofficial’, so I continue a vague status as a gypsy consultant. My pay continues to arrive, though, so the other details remain fairly inconsequential to me.

With a decision-making and action-taking process like this I wonder about the future of American business. It’s hard to believe we put a man on the moon sometimes.

building wealth in an age of thieves


I’m sure that if you’re an investor in AIG this morning you aren’t too happy. Or maybe you are.  You can call up your friends who invested in Lehman or Bear Stearns, I guess.  There’s certainly a clear implication from the recent news – if you rely on being an employee or an investor in the stock market as a route to wealth you have some sneaky obstacles to overcome.

This age of thieves – stealing from individual investors in the name of “stability,” using money sucked from the pockets of taxpayers – makes me believe more and more that the only real hope for wealth building in this country will be through one of three paths:  creating a business, creating creative content, and real estate (and that’s questionable).  Investing in individual stocks has become a fool’s game until regulations reestablish the need for transparency.  A market where the government has become a major institutional player is no free market anymore. Being an employee of one of these ridiculous companies is no sure bet, either.

Times are changing. Bubelah and I worry a lot that even though we’re relatively young we are inadequately diversified for the future.  I remain in the market, and I continue to contribute to retirement plans, but I have yet to hear one satisfying argument why putting the rest of my savings into cash right now isn’t a good idea.  Maybe that cash will go to a business idea, or a real estate purchase, or even just to peace of mind in the event of a financial services consulting drought.  But it is clear to me that the old paradigm of “just invest in the market and ride the ups and downs” may not be applicable anymore.  When bank regulators start buying insurance companies, anything becomes possible.  Maybe HUD will buy Boeing next.

I will wait and watch like the rest of America as the system grows more and more perverted, and more and more individual shareholders are wiped out in favor of “system stability” and protection of corporate loans.  The WPE cruises off and we remain to reap the whirlwind.  Good times.

Yet at the same time, the basic principles remain: invest in index funds.  Live below your means.  Save until you have an adequate emergency fund.  Make sure your insurance (!!) is adequate and up-to-date.  Eat, drink and be happy.

photo credit:

a day away from the edge

scrub jay
I spent today at a seminar on an emerging “sexy” accounting topic, if such a beast exists. I drove mid-morning to a bucolic corporate office park to listen to an (actually) quite fascinating lecture on future accounting issues.  The day – coming after a week away in the Poconos – was a good transition, mentally, back into the consulting world.

During breaks I wandered out with some of the odd mix of clients and fellow consultants and watched CNBC playing out on the plasma screen in the lobby. We sipped catered coffees and watched our retirement accounts shrink.  More importantly, a few of the consultants and I who were involved in one of the players in today’s drama watched as things, well, changed.

I have seen people laid off and rebound to bigger and better things. I remember one of the early traumatic moments in my working career, when a young woman who had worked earnestly for me had been deemed unworthy of continued employment by my superiors.  I was asked to let her go, and did, knowing full well she supported her family by herself.  A year later, she was employed by the client she had worked on with me, happier, healthier and better paid.  Leaving Mother Corporation does not always result in the immolation of the individual.

Yet at the same time, it is amazing to watch your client die in a flicker of numbers on a cable business channel. I thought about the people I like at my client, and the people I don’t like, but all people with lives like mine – a new dishwasher being delivered, hopes to replace that junker ’98 they’ve been driving, the good intentions to finally start saving for retirement this year.  It’s not an easy thing to think of the looming impact of a systemic failure on these people.  I know these people – if they are smart and personable and capable – will survive and move on.  But at the same time, the flickering numbers have become more and more deadly to more and more of us.   Thousands of people who worked overtime without pay, who didn’t expect anything but a biweekly paycheck and a shot at a promotion will find themselves scanning and nibbling at their savings while executives cruise off with multimillion dollar exit packages.

“Every little thing is gonna be alright” is Little Buddy’s favorite lyric from his favorite song, Bob Marley’s “Three Little Birds.” I hope he’s right.  I think he’s right.  All of us, at a primal level, want to believe he’s right.  Bloated corporations have failed throughout the history of capitalism and new, hungry, opportunistic corporations have arisen on their ashes.  I know my current client will die – if not today, tomorrow or the next day.  Good riddance.  I hope the people who keep the corpse propped up manage to slog through to their next mortgage payment.  I have to believe they will, and I will.  I know I will, because I’m already attending seminars and getting educated in the next wave of accounting and governance regulations (that, and my writing career will take off like Stephen King’s – positive thinking, eh?)

So this was a good day to spend away from the belly of the beast and watch another collapse unfold silently, with close captions, on a lobby TV. The eerie quality of a collapse on mute was worth seeing.  Watching a ship run ashore from the shore is more abstract that watching from the deck, but – perhaps – no less disturbing.  Two vast and trunkless legs of stone, eh?

photo credit: emdot

10 reasons to be a good neighbor

Seaside garden

I certainly have a mixed-bag relationship with my neighbors. This article made me think about that relationship.  Several of my neighbors are very pleasant people. Some are worthless – and I mean that in the nicest possible way. The trick, when living in a townhouse community like I do, is to coexist with a minimum of headaches. Here are ten reasons I struggle to coexist with my neighbors:

1. Da kids. My son has a lot of good friends his age around our neighborhood. In the normal course of events, I might not have crossed paths with his friends’ parents, but for his sake I hang around with them – and eventually it has paid off as I got to know them.

2. Zen housing. It’s just easier to live your life if you don’t give your neighbors a hard time – primarily because they won’t give YOU a hard time.

3. Speak no evil. If you do something, well, semi-illegal like having a bar-b-q in an area where technically bar-b-q’s are, well, semi-illegal, it’s nice to be on good enough terms with the neighbors not to worry about tattle tales.

4. Lookouts. If you go on vacation, you’re going to want someone to watch your place. I’m wouldn’t expect anyone to be a hero, but just stopping someone from backing up a truck by calling 9-1-1 would be nice.

5.  Saving money. You can save money borrowing a rake if you’re on good terms with your neighbor.

6.  Being able to pick on the little things. If you’re on good terms with your neighbors, it’s a lot easier to ask them not to shovel snow in your driveway than if you’re barely on speaking terms.

7.  Built in socializing. If you work at a job with late hours or long commutes (or both) it’s nice to have someone 100 feet away who you can socialize with, rather than needing to hop in the car and drive halfway across town with kids in tow to meet someone for dinner.

8.  Networking. Oddly enough, since I live in a neighborhood full of people who commute to lower Manhattan I’ve discovered that I have a lot of networking possibilities from people who I know due to the accident of living in the same neighborhood.

9.  Advice. If your neighbor’s been in the area longer, you’re going to appreciate getting to know them all the better when they can recommend the best neighborhood plumber or dentist.

10.  Longer life. Most studies of happiness show that most people’s happiness relies on a few basic factors.  A healthy relationship with your community increases your happiness, decreases your stress and thereby lengthens your life.

Everyone realizes that life is easier if you have a good relationship – or at least a neutral one – with your neighbors. The problem is that unless you have kids (or dogs, I guess) who sortof force you into socializing situations you’re often going to have a tough time forming a connection unless you’re the naturally gregarious type.  The benefits are there, though, so just remember that the next time you see the neighbor you don’t know so well out on the street – say hi and walk a while together.

photo credit: *Susie*


And just in passing, I was saddened to see that David Foster Wallace (apparently) committed suicide.  I was not a huge fan, but having read a few of his books and nonfiction works I was struck by how terrible it is to see another talented artist giving in to his demons.  His writing was amazing.  A shame, a shame, a shame.