A View On The Collapse

I've heard a lot of politically motivated talk about the global financial crisis. There are some who'd like to place all the blame at the feet of a couple of government programs.

However, I'd like to highlight one of the factors that I consider important. It tangentially deals with the issue of regulation.

The reason for our crisis can be put down to one simple word. Greed!

It was reckless greed when the rating agencies, having no clue how to rate the mortgage derivatives simply declared them as AAA and accepted their payment for assigning a rating.

It was greed when the banks originating mortgages created incentives for closing deals and then turned a blind eye on how these mortgages were actually structured when sold to end consumers.

It was greed when credit default swaps, an unregulated financial vehicle which serves the same function as regulated insurance, were sold with the assumption that housing prices would never go down, such that there was no need to maintain reserves for defaults on the loans they insured.

It was greed when unsophisticated purchasers didn't look closely enough at the terms of their deals and they thought they were getting a great deal on their mortgage from the banks when they weren't.

It was greed when the fat cats at the top made huge profits on this process, especially when at some point they actually knew how and why housing defaults were increasing but they continued to milk the process for all it was worth.

It was greed when banks, pension funds, and investors around the word saw great supposedly low-risk AAA rated mortgage derivatives and snapped them up without looking into them deeply enough to determine that they were risky.

It was greed when the fat cats mentioned above used their offshore accounts to sell their own companies short when they knew the bottom was going to fall out. I don't have any proof of this, but I'd very surprised if it didn't happen.

The result, greed has taken a toll on the global financial system and in the process hurt the average North American consumer. Billions have been sucked out of their pensions and investments. Billions.

So, where does this leave us. Am I against free markets? Not at all. Am I against capitalism? Not at all. Personal and corporate financial motivation is certainly an appropriate decision making mechanism. However, greed is a very powerful force, and some level of wise regulation needs to be in place if we are to maintain an environment safe for the average working family.

Economic Turmoil

Although nobody has ever cited an actual source it has come to be understood that there is an ancient curse that involves living during interesting times. Well, these are certainly interesting times.

So, what should we do now that there seems to be an impending economic storm?

My first suggestion is that you review the Financial Risk Advisory System. Look at stages that are worse than where you are now and make sure you are ready for an "involuntary transition".

To avoid such a transition consider ways to reduce spending and increase income. It's not usually as hard as it may seem, but you may have to change your comfort zone a little bit. For example, to cut back on food expenses consider making rice a staple of your diet. For more ideas go through my Extreme Frugality Meal Plan and pick out portions you can adopt now, if you are trying to put a little money aside in case of future need. It probably goes without saying that now may not be a good time to buy gadgets and toys that require data plans or other ongoing payments.

Increasing your income can happen several ways. For example, you may be able to rent out one or more rooms of your house to students or relatives. Some of you may find that because companies are not hiring right now that there will be periods of overtime availability that you should take advantage of. Obviously, you can always look for a job if you aren't working now. If you are working there is often a better job or a second job out there if you look for it.

Of course, the steps you take will be based on how secure you feel your income is and how deep you think the expected recession may be. For a few more ideas about raising revenue see this recent post about becoming debt free.

Personally, with a new child in the family, I'm more concerned about financial issues than usual. Frugal Mom is going back to the workforce after staying at home with Frugal Baby for the last while. Luckily, she'll be working for the government in a fairly recession proof capacity.

On the frugal front we decided to elope when we were married. We saved all the time, expense and hassle of a traditional wedding and are much happier for it. When asked about the possibility of wedding gifts we've decided that perhaps what we would like most would be a little help with an educational savings plan.

In any case, no matter where you are or what your situation, it's a good time to take a look around and make sure the decisions you are making are good for you and your family right now and for the foreseeable future.

Finally, take a look through the archives as there is plenty of real world frugality advice available here...

Fighting Debt: Turning The Corner

The battle against debt is finally starting to happen. It had been months and months since I became fully employed and the sheer inertia of mandatory and deferred expenses kept me from doing anything that felt like forward progress.

Now, finally, progress. Progress is fantastic. It's motivating. With respect to my last post, the logjam is finally broken!

The result of all this monumental progress?

My credit card balance has come down a tiny amount. Boo. Hiss. My debts are still a daunting pile of obligations. However, compared to facing ruin, whittling away small amounts of debt here and there feels as good as a vacation. Besides, even if I was forced to maintain financial stasis I have an ace in the hole. Generally, I always like to have a zinger, an advantage, an ace that I can pull out of my pocket.

My car should last a lot longer than my car payments are going to last. The piggy bank will get fat much faster when that finally happens.

I can hardly wait. Too bad my last payment is still so far away...

Whittling Away at the Backlog

Wow, sometimes it's not easy to simply turn a corner and actually end up going in a new direction.

Things like vacations and visitors, a wedding, losses in the family as well as direct financial issues that have become more pressing, due to years of neglect, all get in the way of that new direction. So, like the title suggests, progress is slow.

However, while the debt goal isn't moving quickly, it is nice to have some clothes that fit and aren't too ragged. It is nice to have brakes on the car that I am sure will serve well as I cart my family around town. Issues such as these, and many others, build up through years of neglect and confront a return to income with a vengeance.

It's similar to my work in a way. When a project nears completion there are a ton of issues that pop up and require attention. These get tackled, nerves get frayed, and another series of issues pop up. However, just when everyone assumes the project will never finish successfully, the issues quickly fade away. I'm waiting for that to happen to all the pent up needs that have been neglected over the years.

I'm getting frustrated, so that point is probably closer than I think!

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On an unrelated front, I've put together a small sweepstakes on the Grokodile blog directory. Blogger's adding their US or Canadian sites during the month of August will be entered in a draw for $50 to be paid via PayPal. I'm not sure if this will prove to be a cost effective promotional method, but I thought I'd give it a try.

If you haven't added your blog to Grokodile yet, this might be a good time to check it out...