*As usual, please remember that I am not a financial advisor and that these posts of mine are not advice for you to take without talking to your own financial advisor and giving serious thought to your own finances. Seriously.
So we have good guesses as to the origins of the present crisis and have some good practical tips for the kinds of short-term things we ought to be doing. What next?
First let me say, somewhat tangentially, that President Bush’s speech last night was, in my opinion, a fairly clear and concise summary of the recent crisis, and it did a good job of conveying the urgency behind finding a solution. Some may decry him as being too much the Chicken Little, but I suspect the urgency is warranted. As the President said, the first priority is freeing up the financial markets and stemming the risks of further market degradation; then we will be able to turn to issues of market regulation and enact policies that make sense more than mere knee-jerk reactions that stifle us all.
Anyways, here’s my quickly-scribbled wishlist for some policy changes, both near and far-term. None of this is particularly noteworthy.
–Better regulation of the credit rating agencies, particularly with regards to securitized assets. It is clear that a AAA rating on a CDO is not the gold star of secure investment that such a rating ought to be.
–Vetting of prospective borrowers and lenders. This is a hard one. I don’t like the idea of telling young couples that they cannot buy their dream house — and I also don’t like the idea of telling a bank that they cannot loan money to such young couples because it would be too risky. But it is obvious that somehow we all started thinking that home ownership is a right, and lenders were eager to use predatory lending practices and foist balloon loans on unsophisticated borrowers. The weak need to be protected here, and we all need to be protected from the marketwide damage that can occur when poor loans are granted on a massive scale.
–Limits on CEO pay. I believe Warren Buffett when he says that CEO pay is the barometer of our willingness to regulate markets.
–Higher taxes for the top 0.05% earners. Yes, I know Mormons hate taxation (as Satan’s corrupted form of the United Order). If any of you are top 0.05% earners and don’t like my proposal, email me and we can talk about it. Better still, hire me and I’ll revise my post.
–Fewer foreign wars. Wars are EXPENSIVE.
–It seems to me we need a better market clearing mechanism so that the downfall of any single entity is not capable of generating marketwide instability as it has.
–Freddie Mac/Fannie Mae need to be spanked. I would seek some serious investigation of their former executives.
–Executives of failed institutions (or those who stand to survive only via the bailout) should forfeit their bonuses (and possibly their salaries for a limited period). They have failed in their jobs.
Now, some general thoughts on long-term investing.
First, I believe the Church’s general financial advice is immensely valuable in this respect. Provident Living has a number of articles and thoughts on investing and managing your money, and I believe it’s good advice. The epic pamphlet One for the Money is worth printing out and reviewing. Elder Marvin J. Ashton wrote that sucker in 1975 and it’s still great today.
Second, I think the most important thing is to keep going. Keep working, keep saving on a regular basis, keep on spending less than you make. Keep maxing out your 401(k), keep contributing to your Roth IRA. Keep using a flexible spending account for medical expenses. Keep using an FDIC insured online savings to make sure your basic accounts are earning interest. Don’t make rash financial decisions, don’t needlessly second-guess yourself and micromanage your investments. Similarly, don’t get overconfident — just because there’s a bailout for Wall Street today doesn’t mean that there will be another one, or that anyone will be there to pick up the pieces if you make bad investment choices today.
Third, I would get educated. Basic self-help books like The Millionaire Next Door or Rich Dad, Poor Dad are a decent starting point. The Wall Street Journal puts out a small book on personal finance that is pretty helpful. More important than book-learnin’, learn your financial state. You should have a pretty darned good idea all the time of what you are worth. That short-term list of assets and liabilities should be constantly updated.
Fourth, I would get organized. Organize your taxes, receipts, etc. But put your house in order generally. Get term life insurance. Get a living will and trust set up. Organize your assets so that they will pass efficiently should anything happen to you. Make sure your spouse knows where the keys to safe deposit boxes (and passwords to bank accounts!) are to be found.
I welcome your thoughts.