Wednesday, February 4, 2009

My Piece of the Mess, Part I

OK, ok.

I made no millions by investing with Madoff, nor did I lose millions investing with him.

But life is pretty good. No complaints. Nice New York apartment. Wonderful healthy family. Steady work. Can pay my bills, up to now at least. What's not to like?

True, some of the business prospects I thought were very likely a few months ago have started to slip away. There's a pattern there to be sure, but there's still enough on my plate to keep me busy (that's my pathetic explanation for why no posts since January 15).

And, yes, in the last six months my retirement date has slipped about five years. Already being in my dotage, those five years are a considerable chunk of whatever I have left. But the economic turmoil that has devastated so many people has, so far, left me pretty much unscathed giving me the luxury in the current climate of trying to look at the Big Picture.

So, here's the question for today. Since I am part of the economic/social reality in this country and in this world (as are you), I must have contributed to the economic meltdown, at least in some small way. Even if most of what I do and how I behave and what I believe has had no impact, there must be something, however small, that actually helped bring this mess about. In short, what's my piece of the mess?

The purpose of this inquiry is not self-flagellation. But if I could identify my piece of the mess, then I might learn something about myself, about the economy, and even about what to do about it.

Here's the best I have been able to come up with. Part of what created the mess we are in was a belief, really a fantasy, that good times would never end, that growth was a given, and that the theoretical downside risks of holding that attitude were just that, theory. Peter Schwartz, an acquaintance of mine, co-founder of Global Business Network and inventor of scenario planning, legitimized this fantasy with the 1999 publication of his book, The Long Boom.

Holding on to the silly and illogical but enormously seductive idea that our portfolio would continue to grow and that income from work would do likewise made me an enabler, a contributor to the bubble, a part of the "irrational exuberance" that Alan Greenspan warned about in December of 1996.

My piece of the mess manifested itself dramatically twice. First, about five years ago, I wrote a long e-mail to our financial advisor suggesting it was time for us to move a considerable chunk of our investments for retirement into low/no risk instruments such as Treasuries. I let him talk me out of it. I’m not angry at him, but I am furious at myself for being seduced by the illusion that the gravy train was going to go on forever and I did not want to miss out, even though I didn’t really need that kind of growth. Then, two years ago, my wife and I and dear friends from Australia decided to build a house together in Italy. The house is wonderful and has already given us much joy, but it ate up a considerable portion of those retirement savings and will be an expensive continuing drain in order to maintain it and to fly there to use it on a regular basis. I do not have the kind of self-loathing over Italy that I do over failing to move funds into Treasuries, but both of those decisions were based on greed and my own version of “irrational exuberance.”

What are the lessons? Pretty basic. There is no such thing as a free lunch. Nothing is forever. Don’t confuse want with need. Trust your gut. Investment advisors have biases and defaults just like the rest of us. And no one is going to take care of us if we don’t take care of ourselves.

Going forward, we are making a family budget for the first time ever. I am adapting to the reality that I will be working hard longer than I had hoped. And we can save much more than we thought if we put our minds to it, without affecting our daily life in a noticeable way.

So, what’s your piece of the mess? And how are you going to learn from that and adapt to a new reality?

4 comments:

Ejaj Ahmad said...

I enjoyed reading your lively posts on owning our pieces of the mess. It raises a very important question about personal responsibility. The global financial crisis has affected us all and most of the time I hear people complaining about policy makers. As countries around the world prepare to adjust, learn, and recover, it is imperative that we, the citizens, also think deeply about the issues and analyze our own personal choices that contributed to this in whatever small capacity.

I recently read a quote from a long discarded German that made me question some of the values of economic growth that I hold dear.

“Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt
will lead to bankruptcy of banks, which will have to be nationalized, and
the State will have to take the road which will eventually lead to
communism."

Karl Marx, 1867

Anonymous said...

That supposed Marx quote is a hoax that has been repeatedly debunked. See:

The Atlantic
http://meganmcardle.theatlantic.com/archives/2009/01/faux_marx.php

International Herald Tribune
http://www.iht.com/articles/2009/02/25/business/col26.1-437515.php

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