Sunday Election Issues: 19 October 2008
Astronomical Increases For 2009 Medicare Part D

Irrational Beliefs

[EDITORIAL NOTE: Elaine Frankonis has joined the Quarterstaff Revolution. See her photo and if you haven't joined, you can find out about it here with all the other photos.]

category_bug_politics.gif When I was growing up and for a long time into my young adulthood, ordinary, middle-class people did not generally invest in the stock market. That was a game for rich people and until the mid-1970s, there were no IRA and 401(k) retirement savings programs. It took a few more years after their creation before those plans became commonplace, so many working stiffs didn’t pay attention to the stock market for another decade or more.

In the 1990s, stock trading arrived for everyone, and online brokerages made it easy. When I would sometimes join my internet colleagues for drinks after work, all the talk among those 20-somethings – they were all 20-somethings but me – centered around comparisons of the killings they were making with online trades.

One might say, “I cashed out (stock name) after my profits hit 400 percent and I put it all in (stock name).” Another would one-up him or her saying, “I let mine ride for a few more weeks until it hit 600 percent.” Others would tout the stocks of companies where friends worked.

I would sit there listening, amazed at how cavalier these kids were about dumping hundreds, sometimes thousands of dollars into new companies (they were always tech or internet stocks) with, apparently, little knowledge or understanding of the businesses they were investing in or their prospects for future growth.

Assuming I was mucking about in the NASDAQ too, someone would inevitably ask, “How are you doing, Ronni?”

“I don’t buy stocks,” I would answer. “I don’t understand how to know a good company from an iffy one and I’m not willing to take a chance on losing my money.” Sometimes I would add, “It’s just a big casino, you know, no different from Las Vegas or Atlantic City and I suspect, like those casinos, the deck is stacked in their favor.”

Always, always, there would be a chorus of, “Come on, Ronni, you can’t lose.” “Tech stocks can't go down, it's a new world.” “I’ve never lost a dime.” “It’s easy, I’ll show you.”

Undoubtedly they thought (although they were polite enough to not say it) I was an old fogey stuck in her old-fashioned ways. Once or twice, I mentioned the Great Depression, getting only blank stares in return. (What ARE we teaching kids in school these days?) If they had heard of it, I suspect they believed it was ancient history that had no relevance in the final decade of the 20th century.

Then, in 2000, the dotcom bubble burst and all those young people lost a lot, many all, of their money.

Investments of all kinds always go up - and, they always go down. My apartment in New York City’s West Village was so charming and located on such a beautiful street that never, in 25 years of ownership, did a month pass without an unsolicited offer to buy it. During the recession of the early 1990s, one offer was 20 percent below the price I had paid in 1983 - about right for the market at the time.

I didn’t care. I wasn’t interested in selling and at age 50 or so, I had the time to ride out that Manhattan real estate dip. When I did sell in 2006, although there were already unnerving intimations of the coming housing decline, I got out under the wire and made an excellent profit.

There have been numerous recessions, downturns and, conversely, bull markets in my life and it didn’t take any effort or certainly no special knowledge on my part to learn from them that nothing goes up forever.

Nevertheless, against all historical evidence that even a financial dolt like I can see, Wall Street “experts," supposedly smart people touted as masters of the universe with advanced degrees from Harvard and Yale, believed prices would never drop. These are the same people – one named Henry Paulson - who are now being paid taxpayer big bucks to run the bailout of the banks.

One of them, hired by Paulson to oversee the Troubled Asset Relief Program, was about the same age as my exuberant young colleagues back in the days of the dotcom bubble.

What other irrational ideas, I wonder, do these people believe in now, and are Senators Barack Obama and John McCain, whichever becomes president, gullible enough to believe in them too?

[At The Elder Storytelling Place today, Norm Jenson holds forth on the up/down, on/off, left/right choices we make every day in The Button.]


Comments

Nice summary, Ronni. Illustrative of your point that most of us took several years to learn of Congressional establishment of the IRA, which took place in 1974, I learned of IRAs in 1981 or 1982 when "they" came out with a one-time good deal on CDs as IRAs. And, yes, investing is a crap-shoot; but, so is life. What is a person to do with her money? Inflation makes storing money in our mattreses a non-starter.

Congratulations on making a nice profit on your Manhattan apartment--nice timing! My timing? Not so much. Of the houses I've owned, the only one that ever turned a profit was one that I rented out for 15 years, after I moved out of it. Figuring in inflation and taxes, even that modest "profit" really wasn't. Fortunately, I've done better in the stock market--even though it's dumped on me, again, recently.

I suppose it's simplistic to say what goes up must come down. The so called experts don't always know when to buy and sell. In my lifetime I have seen the stock market rise and fall like an elevator. You're right Ronni, the Market is a crap shoot.

I've wondered, over the years, if it's silly for somebody like me - with a one-person household income of $49K - to invest in the stock market. Am I beating inflation, or am I just inflating values for those who are far richer than I am?

Just in case it gives you some hope for the world, not all of us younger set were left ignorant of the Great Depression or the fact that the stock market will, in fact, come down again. I suspect part of what you were dealing with was the mentality that they were invincible (more common among younger people than elders, I think, because elders have had longer to discover that yes, bad things will happen to most everyone eventually) as well as lack of knowledge.

In the early 1990s, I was in high school - being taught about, among other things, the Great Depression by a wonderful man who did a "stock market" simulation for us over the course of several days. We knew it was modelling the Great Depression, and yet I was appalled at how many of my classmates got into the market heavily and didn't get out when things started to wobble...and they knew what was coming.

It was a real eye-opener lesson for all of us, whether we'd been aggressive or conservative with the "money" up to that point.

I can remember seeing the way the 'funny money' was being multiplied, with currency trading, derivatives and the rest, ten or more years ago.
Without being a financier or an economist I knew the system was bound to collapse like a house of cards. There seemed no point in saying anything - it would have been like insisting that the earth was flat after all. But I did stick what money I had into cash and building societies, feeling rather pathetic as I did.

I went to see my financial advisor after the big crash to find out what my damages were and he tried to explain what was going on to me in layman's terms. One of the things he said was a quote from Templeton (sorry, don't know his full name but he's the Templeton of Templeton Funds), that the four most dangerous words in the investment world are: "This time it's different." When the market is going up, it's going to keep going up because This Time It's Different. And when the market is going down, it's going to keep going down, because This Time It's Different. I'm holding him to it, ;-), 'cause this time I sure don't want it to be different, "this time" the market WILL recover!

I'm not surprised that Bush appointed someone like Henry Paulson to oversee the bailout of the banks. After the stock market crash of 1929 Franklin Roosevelt appointed Joseph P. Kennedy Sr. as Chairman of the newly formed U.S. Securities and Exchange Commission (SEC).

Kennedy was heavily involved in the inside trading and stock manipulation (not illegal at the time) that lead to the collapse of the stock market in the first place.

Roosevelt thought the best man for the job of cleaning up the market would be a man who knew all the ways to cheat.

I grew up with parents who were deeply impacted by the Great Depression. My father had to quit high school to work so his family could get by. We were taught to be very conservative with our investments (when we had money to invest at all!), and this is an attitude that has followed me throughout my life. The closest I've come to the stock market is investments in mutual funds, and lately I've rued the day I did that!

Paulson dodges the question of whether we are in a recession, probably frightened of the effect of the r-word on our fragile economy. The news media is shouting that this is the worst economic crisis since the Depression, which has those with a memory of the Depression -- either direct or through stories of the hardships -- very frightened. For those for whom the Depression is just a word, the news media is just hyping as usual.

But Obama and others are talking about Depression-era strategies to get the economy back on its feet, like massive infrastructure investment. The Federal backing of banks and mortgages is another idea from that era. It's my opinion that, though we may not be in a depression to equal that of the 1930's, we may well be so before this latest economic crisis plays out. The economic capital built up under the boom times has been squandered by deregulation and bone-headed policies of the past eight years, and I believe that it's going to take at least eight years to regain anything approaching that former state, if at all.

Like Ronni, I cannot help but wonder what economic illusions our leaders and would-be leaders are laboring under. We hope and pray that the best and the brightest are working on these problems, and that their decisions are the right ones, but who knows? I do not envy Paulson his lot; whatever he chooses to do will help some and hurt others, please some and infuriate others. It is a grim truth that any mistaken decisions will be borne on the backs of the lower and middle classes, and will take a great toll on the elderly.

I tend to think that the greed of so called "experts" got us in this financial mess Ronni...

Yes, I agree with Paul, greed is a basic human trait. That is why there must be "rules of the road" to keep our greed in check. That is one reason we have laws in the first place--to keep us from taking what belongs to someone else. Now we have to reintroduce some rule of law in our economic system. It won't be an instant fix but some time down the road, when we have absorbed the poison from all this unbridled greed, those rules will come in very handy in avoiding a repeat of this fiasco.

I was always told never to put in stocks and shares more than I can afford to lose and if one is in it it is for the long game so panic selling just makes things worse. Sadly greed seems to have supplanted basic common sense and I find the credit card culture a bit unnerving.

It's still astonishing that these eminence grise figures of Wall Street let some whiz-kids, and their own hopes,blind them to basic sense. We've all got to work on making sure we're equipped to analyze what they're telling us. (Here's a handy-dandy vocabulary checklist, and here's a guide to the last time this happened, in the words of some of the best American writers.)

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