So... do you REALLY think we are headed for a New Depression? - Page 6

[thewaggonerfamily]

Originally Posted by monkey's mom

How many "stupid people?" The BANKS aren't even lending to each other for fear they won't get that money back. Don't most retirees keep their money in their mutual funds and draw fixed amounts? I guess that's their dumb mistake. Oh well. Hard lesson learned, huh? The market hasn't seen the economic failures we're seeing now. I think you are missing some of the very historic and never-before-seen failures here. The global economy is tanking around us. And I guess I have to wonder what "basically fine" means to the frugal elderly around me who are begging my husband for advice on how they are going to keep from freezing to death this winter since they can no longer afford oil.

Retirees are supposed to move the money needed in the next 5-10 years to more conservative vehicles within their mutual funds, like bond funds. From my understanding, that is a big part of the stock market debacle. The banks were making ridiculous sub-prime mortgages and then bundling them into what were basicallly junk bonds, which no one wanted to buy since the foreclosures started going crazy on those. And people buying bonds (Bond fund managers and individuals) want fairly safe investments and take the tradeoff for a low rate of return. Nobody buying them made the bonds market value zero. And that matters because of a law that came out of the Enron (and others) mess. It is called Sarbanes-Oxley (sp?) and a part of that is what is called the mark to market rule. What mark to market says is that publically traded companies have to say what they are worth every day. (The Enron fraud is that they took assets worth, say, 10 million when they bought them and when the assets value went down to, say, 7 million, they kept the value at 10 million on their books) Another rule that was changed lowered the minimum that banks were required to keep in cash. Now logically, these sub-prime mortgages stand good for actual houses on actual land. They may be worth less than their original appraised value, but even if the house burned to the ground, they are worth something, right? But with the mark to market rule they are worth nothing on the banks books. So some of the proposed solutions to that are to lift the mark to market rule for a short period and extend FHA type insurance to these sub-prime mortgages. That should make these bonds much more "safe" in the bond buyers eyes. They then start buying and the market logjam starts to break free. All these sub-prime mortgages wont go into foreclosure and so the cost for the FHA type insurance would be significantly less than the multiple inputs of 700 billion by the gov't. I heard numbers estimated in the 40 million range. I'm not saying that the markets not bad, nor am I saying that it won't get worse, but if you allow the market to do what it does and you follow classic conservative investing advice, like only be in the market if you don't need the money in the next 5-10 years, dollar cost averaging, and not buying single stocks, and diversifying your portfolio you wouldn't and shouldn't sell right now.

I agree stupid is too harsh of a word. I was tired. I apologize. A better word would be ignorant. Panicking because of the media frenzy and selling because they make you feel like its the end of the world is ignorant. This is not rocket science, it is high school economics and if you missed it there, it is freely available from Dave Ramsey, Suze Orman, Jim Rome, the Wealthy Barber, the Beardstown Ladies or most financial teachers who are not a fly by night get rich quick money guru. And, as for me, I have an economics and political science degree.

But the truth is panic is driving a lot (note I didn't say all!) of the market mayhem. If people would just calm down the market would smooth out a lot. What market indicators have we not seen before? Want to compare great depression unemployment to now?

And as for the frugal elderly, I'm guessing they are not in the market, but rather living off of social security and pension money. I empathize. We can't afford to heat our big old drafty house either. I think a couple months last winter were $1000. We are still paying that off. We are closing off half of our house house the winter, plasticing the windows and using a woodburning stove to heat whats left and wearing heavy layers at home. Perhaps your neighbors might close off all but a room or two and heat with a space heater? (I'm assuming they would not be physically able to keep a woodburner going) I know not perfect, but desperate times call for desperate measures. The heating oil has more to do with the price of oil than the market. Heating oil comes from the same part as diesel and (I think) aviation fuel. Hopefully with gas prices coming down it will help some.

I am oht nak, so please excuse any typos.

[velochic]

Originally Posted by thewaggonerfamily

I agree stupid is too harsh of a word. I was tired. I apologize. A better word would be ignorant. Panicking because of the media frenzy and selling because they make you feel like its the end of the world is ignorant.

I agree that when you are near retirement, you should be conservative. I've made that point here before.

But you know, emotions are the primary factor of investing. It isn't ignorance, it's emotions. If you can block your emotions, you can come through. If you can't, you are taking risks.

When our taxable investments went down in $200,000 unrealized losses, I felt the acid taste of panic rise in my mouth. I'll admit it. We don't rely on that money for anything. It was put there for our dd to inherit when we are worm food. I still felt the panic. And I am a veteran investor, with an iron stomach. There is nothing wrong with feeling emotions about money. Everyone does. Making bad decisions out of panic is not good, but can you blame anyone for it?

It has nothing AT ALL to do with ignorance. I consider myself well-educated in the area of personal finance. I still feel unsettled. Everyone *should* feel unsettled. These are trying times.

We haven't changed anything, but when people rely on those funds for a reason, I can't blame them for panicking and jerking their money out of the markets. I would advise them not to, but what's a person to do?

I also don't think it's panic that is driving the markets right now. These are calculated moves that professionals are making. It's a confidence issue.

[monkey's mom]

Maybe folks aren't as ignorant as you think. Maybe they are just poorer than you think. Maybe they can't afford to just "ride it out."

I don't know. I don't have any econ education--I went to college prep school and university. But, for me, if I was one of the mamas coming here to figure out to stay in my house or cash out my 401 or put food on the table, I'd feel like a big piece of doo doo after reading some of the stuff here.

And like I've said before, if our economy can't withstand some panicking on the part of its "ignorant" investors, then maybe it's not much of an economy to begin with. But I think blaming the victim has been a long-used tactic and I don't subscribe to it. THis is way bigger than panicky investors.

[smeisnotapirate]

Originally Posted by monkey's mom

and like i've said before, if our economy can't withstand some panicking on the part of its "ignorant" investors, then maybe it's not much of an economy to begin with.

...

This is way bigger than panicky investors.

ita.