Monday, April 19, 2010

Lifting the Dark Cloud of Depression



"Big Banks: Too  Big for Congress to Handle?"








Daily, we are bombarded with sobering messages about the state of the economy.  Everywhere you look, people seem to be struggling financially. Foreclosure, bankruptcy, unemployment, and discouragement are rampant, and no longer newsworthy.  People turn in vain to the government for reform and relief.  The headlines listed above are from today, but could just as easily be from the 1930's.  It seems as if not much has changed since the days of the Great Depression. 

As George Santayana (1863-1952) said, "Those who cannot remember the past are condemned to repeat it." In an effort to understand our current economic situation, I  turned to the past. As a country, we have been here before, and will likely be here again, if we don't individually, and collectively, figure this out.


Last week I read the Great Crash of 1929 by John Kenneth Galbraith.  Originally this book was published in the 1950's and was updated in the 80's with some insights regarding the economic recession of that decade.  I will admit, that I had a hard time getting excited about this book. Frankly, the details of the events leading up to the stock market crash in 1929 were tedious and boring.  The inner workings of the stock market and the associated foreign language were uncharted territory for me.  I am sure that I am not alone in my attitudes and general lack of knowledge on this subject.  Unfortunately, ignorance offers no protection, under the law, or in financial matters.

The 1920's were an era of great speculation.  People were excited about the future and the prospect of getting rich.  The real estate speculation boom in Florida was in full swing.  Individuals were purchasing the option to purchase swamp land sight unseen.  Investment trusts were a recent invention, and everyone was jumping on the band wagon.  If some is good then more is better, right?   Discontent and ingratitude can turn a healthy desire for the good life to self-destructive greed.  Everyday citizens were investing their savings in ventures they knew little about, on the lofty promises of getting rich quick. The caustic combination of ignorance and greed lead to the great crash in October of 1929.

How many of us have a solid understanding of personal finance?  Do you know what tax bracket you are in?  Do you know what interest rates you are paying versus being paid?  Do you know the tax implications of home ownership versus renting?  Most people want MORE money and the things money can buy, but do we really understand how money works?  I know that I don't.  It is a subject that I have ignored and felt best left to the experts.  That was the attitude of the general population of the 1920's.  They trusted their bankers, investment advisers, Wall Street executives, and their government. Then, one by one these guardians began to crumble.

Once the crash hit, the tides turned quickly.  Those that were revered were now hated.  Institutions of trust were now feared.  The rich became instantly poor and the poor became destitute.  Fortunes were made and lost on what today we would call "vapor-ware".  In many cases the assets traded at high rates of return had no actual tangible value.  The prevailing attitude of the nation was fear laced with a heavy serving of doubt.  Distrust of Wall Street, banks, industry leaders, and government officials was pervasive.

Once down, the economy of the country did not recover for a long time.  During this time the distrust, fear and doubt only increased.  These attitudes prevented individuals from starting businesses, making investments, purchasing property & goods, or taking any kind of risk that would ultimately lead to financial gain.  With no financial activity there can be no financial growth.  The extensive lack of faith, kept this country depressed for a decade.

The combination of ignorance and greed  produces an individual easily exploited.  Individuals  armed with financial knowledge make better investment decisions and  raise the stability of our economy as a whole.  It starts with the individual, with you and with me.  

Realizing that my attitudes about my personal finances are tied to the generations before me has been a huge eye opener.  Having never lived through serious deprivation, I often wondered why I had a strong aversion to eat or use the last of anything.  It didn't make sense that I would fear homelessness and starvation when I had never experienced these for myself. They are deeply ingrained behavior patterns that are both intentionally taught and energetically passed down to us in our DNA.  To dispel  the lingering dark cloud each of us must gain more factual financial  knowledge, and determine to consciously let go of the negative emotions  that tie us to our collective, tragic past. As Knowledge and gratitude replace ignorance and greed, fear and doubt will give way to faith and hope.



No comments:

Post a Comment