Comments on: The bailouts, in perspective http://www.politigenomics.com/2009/03/the-bailouts-in-perspective.html Politics, Information Technology, and Genomics Fri, 06 Aug 2010 21:21:45 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: david strong http://www.politigenomics.com/2009/03/the-bailouts-in-perspective.html/comment-page-1#comment-7137 david strong Sun, 08 Mar 2009 01:20:59 +0000 http://www.politigenomics.com/?p=914#comment-7137 I listened and yes, they do a nice job explaining how a bank works and how we got into this mess by a combination of lack of due diligence and restraint on the part of lenders and lack of discipline and wisdom on the part of borrowers. Still, you can't help but wonder how these obscure financial "instruments" (terrible term: a CDO or a MBS is not a pair of needle-nose pliers) got created in the first place. It's the same twisted accounting logic that rationalized the creation of shell companies such as the ones that doomed Enron. What I mean to say is, there was duplicity on the part of financial companies to create something new to sell to us hillbillies. Also of note is the personal savings rate and how it tracks to the cited data for personal debt to GDP ratio. While that debt/GDP ratio took off like a hockey stick from 2000 to 2008, the personal savings plummeted, eventually reaching zero. See the attached text data file from the St. Louis Federal Reserve. http://research.stlouisfed.org/fred2/data/PSAVERT.txt The good news is that the personal savings rate is creeping back up. The 5% rate in January 2008 was the highest since 1995 and undeniably a healthy indicator. Savings will solidify personal and home finances, bank finances; it's a win-win. Anyone who discusses the "paradox of thrift" is barking up the wrong tree at this point in time. If this were a nation with 10+% savings rates and a sluggish economy devoid of investment and entrepenuership, then it might be valid, but it's not and we're not. Bottom line to all of us: put away 10% of your income. keep 6 months of expenses in cash for emergencies. fund your retirement. accept money other people give you (401k and credit card matches). buy your own debt (don't run a balance on credit cards, pay off loans early). It's not rocket science, but every so often we convince ourselves we can cheat the system and ignore those cardinal rules. You just plain can't. I listened and yes, they do a nice job explaining how a bank works and how we got into this mess by a combination of lack of due diligence and restraint on the part of lenders and lack of discipline and wisdom on the part of borrowers. Still, you can’t help but wonder how these obscure financial “instruments” (terrible term: a CDO or a MBS is not a pair of needle-nose pliers) got created in the first place. It’s the same twisted accounting logic that rationalized the creation of shell companies such as the ones that doomed Enron. What I mean to say is, there was duplicity on the part of financial companies to create something new to sell to us hillbillies.

Also of note is the personal savings rate and how it tracks to the cited data for personal debt to GDP ratio. While that debt/GDP ratio took off like a hockey stick from 2000 to 2008, the personal savings plummeted, eventually reaching zero. See the attached text data file from the St. Louis Federal Reserve.
http://research.stlouisfed.org/fred2/data/PSAVERT.txt
The good news is that the personal savings rate is creeping back up. The 5% rate in January 2008 was the highest since 1995 and undeniably a healthy indicator. Savings will solidify personal and home finances, bank finances; it’s a win-win. Anyone who discusses the “paradox of thrift” is barking up the wrong tree at this point in time. If this were a nation with 10+% savings rates and a sluggish economy devoid of investment and entrepenuership, then it might be valid, but it’s not and we’re not. Bottom line to all of us:
put away 10% of your income. keep 6 months of expenses in cash for emergencies. fund your retirement. accept money other people give you (401k and credit card matches). buy your own debt (don’t run a balance on credit cards, pay off loans early).
It’s not rocket science, but every so often we convince ourselves we can cheat the system and ignore those cardinal rules. You just plain can’t.

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