Please Pay Your Bills

Dear Consumers,

I realize that the economy sucks. Many of us had a large portion of our net worth wiped out in the last 18 months. For some, that was a 45% haircut to their investment accounts, IRAs and 401Ks. For others, it may be a 30-40% paper loss on their house. There are those who took a job they were overqualified for, or underpaid, just to make sure they can pay the bills. And there are those, most unfortunately, who are still unemployed in a job market that may be the worst any of us have ever seen. I've certainly experienced a lot of this myself, and it isn't fun.

However, I am now becoming fearful. Not fearful that things won't turnaround anytime soon, because, honestly, I already have chalked that up as a given. What I am fearful of is a cultural shift. A complete lacking of accountability and responsibility that we've just never seen as a nation. President Obama, who I do like tremendously, has spoken far too often of 8 years of poor leadership and an uncontrolled, greedy Wall St. that forced exotic mortgages to the unsuspecting masses. Yes, corporate leadership at the big banks looked the other way. There was an opportunity to generate loans and profits at rates never seen before. CEOs and executives racked up millions (some even billions) in bonuses and stock appreciation, with very little penalty when things blew up.

While these are probably true, we, as people, simply can not wash our hands of all the blame. We all knew, KNEW, that you shouldn't take out a mortgage for a home you can't put 20% down on. That's how it always was, and probably always should be. We all knew, KNEW, that house appreciation has always barely outpaced inflation, and anything materially in excess of that is a bubble. We knew 25 year olds shouldn't be home owners, and most certainly shouldn't be land lords. And lastly, we knew... we knew... we knew... that taking out 2nd mortgages, option ARMs, and god forbid, negative amortization mortgages, were all ridiculously risky...

But, we signed on the dotted line anyways. We had the fever. Mr Jones' house was up 20% last year, and already 20% this year. We have to get in on that action!! We can't miss out!! Well, as we've seen before, bubbles always pop. Always.

Now don't get me wrong. I'm not only a Bubble president, but I'm also a client... I worked for the very institutions that invented CDSs, option ARMs, negative amortization, and the 3rd lien. I also invested in them, salivating for the profits that these instruments would generate. Furthermore, I purchased a home in my 20's (thanks 80/15/5!!), and even purchased one last year without yet even having a job (also 80/15/5... YAY!!)... How arrogant. How stupid... How GREEDY!!!

But I've learned my lesson. Hopefully we've all learned our lesson. A negative savings rate in the US is what has caused China to grow at 7-9% every year for years. A negative savings rate isn't something the government can cause through failed policies and it isn't something Wall St. can create through exotic financial smoke and mirrors. Nope, the only one who can spend your money (my money) is you (and me). It was our fault... "our bad"... oops. Shame on us.

That being said. There are two ways out of this.

1) "It was the bank's fault... they should have never overextended me so much credit... It was the government's fault... they should have had better laws to protect me. I'm not paying my bills. Screw them... Let them foreclose... I'll just go rent a luxury condo for some great price, because the owner is equally screwed. So what if my credit score goes down? Better than eating a $100K loss on my house!!"

Yes, I hear you. I've thought these very things. The problem with this is, if everyone does it, housing prices will absolutely collapse (like, another 75%). Banks and other companies with large Accounts Receivable will all go bankrupt. The government will no longer be able to save us, as government debt will lose it's AAA rating. The government will have to pay at higher rates, with money they are printing (not like taxes are paying for this - a workforce with 10-15% unemployment certainly can't afford a tax hike, can it?)... Resulting in hyper-inflation and a crushing of real growth. All empires before ours have eventually collapsed. We just don't have the competitive spirit and values that made America great. Now we're lazy and entitled. Guess it was just our time... Are you ready for that?

2) "Time to pay the piper... no more crazy spending, no more buying stuff we can't afford. Credit Cards get chopped up. Debt gets paid down. Take a job bartending on the weekends, even though I have my MBA. Work my ass off... Pay my bills"

God, that sounds horrible. That's a sacrifice. The next 3-5 years would be horrible if I did that. HORRIBLE.

Yup, but I have news for you. It's going to be HORRIBLE either way. But at the end we can be the next collapsed dynasty, or the first to kick and scream it's way back to greatness. It won't start with government. It won't start with Wall St. It starts with you... It starts with me.