Top 10 Lessons from the Great Recession

Summary:

A few tongue-in-cheek tips on how to be ready for the next economic debacle.

MotiFake.com Posters Promote the Great Recession brand

This ‘Demotivational Poster’ helped the struggling yet resourceful folks at MotiFake.com to stay afloat by branding The Great Recession.

Everyone should have learned something from the economic debacle dubbed the Great Recession. Then again, why should regular folks focus on self improvement when the villains were so plentiful and repeatedly vilified, if not actually prosecuted?

Sometimes, the outcomes of historic events are clear even when the causes are arguable. In 2001, George W. Bush did indeed move into the White House. The circumstances about how he got there became incidental if not entirely meaningless.

Drawing conclusions about things like climate change and economic cycles is trickier. Judgements about when they begin and end, who won and who lost are too often in the eyes of the beholders.

C’mon, what’s with the name?

The ubiquitous (for a while) title of this most recent crisis paired it with the Great Depression, an event which defined the lives of two generations of Americans.

The Great Depression devastated both of my immigrant grandfathers. It featured more than the collapse of financial markets and massive unemployment. My parents and everyone else who lived through it could never forgot the years of fear and pessimism. And, it enabled the U.S. Government to engineer projects and institutions that now have been in place for around one-third of our nation’s history.

That’s what it took to earn the title Great Depression. Yet, no one really knows when it was first called the Great Depression.

In the era of Siri and Superstorm Sandy, a nameless recession was never an option. In March 2009, only five months after Treasury Secretary Henry Paulson promised collapse of the world economy without government intervention, The New York Times investigated the moniker in ‘Great Recession’: A Brief Etymology. Reporter Catherine Rampell concluded that:

“Nobody can take credit for coining the term ‘The Great Recession during the last year. Why? Because (this) is not the first recession to be slapped with that lofty title.”

It turns out that economic downturns of 1999, 1991-92, 1979 and 1974-75 were all called the Great Recession by authorities including Nobel Prize economist (and NY Times columnist) Paul Krugman, Forbes and Newsweek.

That is a fun fact, but this post is about insights to help people prepare for and face future economic maelstroms.

Can’t write a blog without a list

Blogging gurus suggest that a list is best way to serve facts and insights. They say people love lists and info-graphics, rather that fact-rich analytic prose. (People loved cash-back mortgages too, but that’s another . . . no it’s actually kind of the same story.)

10. Assume an Economic Hurricane Season is Imminent

When I was growing up in Florida, natives knew that hurricane season came every year, yet we never panicked when storms approached. Experience taught us how and when to get ready. But, people who relied on newspaper and television meteorologists were either over or under prepared. Those who who get washed away by economic storms are usually those who ignore or disregard the warning signs.

9. We Should Name Them Before They Strike, Just Like Hurricanes

In the 19th century, the U.S. economy experienced 29 official recessions, depressions or panics. They were simply called The Panic of 1819, The Recession of 1873, and so on. Today, no one will pay attention to unbranded hard times. When the weather people want you to start paying attention, they have Hurricane names ready. If the government did the same thing with economic downturns still on the horizon, people would lose a lot less money. They might want to name them for the first big company that produces an “oops” moment to tremble the markets.

Henry_Hank_Paulson

Henry ‘Hank’ Paulson, U.S. Treasury Secretary from 2006 – 2008 was one of the few leaders who saw the threat coming and tried to prepare for it. Thanks to him, we will never know how bad it could have gotten.

8. Americans Often Misplace Their Fears

Politicians, media windbags and everyday people spend countless hours (and billions of dollars) on the threats to our great nation posed by immigrant restaurant and farm workers, a distant and impoverished dictatorship (North Korea) and other domestic and foreign risks. But, we give little thought to the real damage that was (and can again be) done to our lives by a bunch of greedy, 29-year-old Ivy League MBAs. These Machiavellian punks — who sit cramped together 14 hours a day mainlining energy drinks behind rows of computers almost just like third-world textile workers — toss billions of dollars around the world. They scare me as much as Osama bin Laden did. I know they have destroyed more commercial real estate.

7. Charts Don’t Even Feed Goats Anymore

Until recently, economic forecasts and academic studies were printed on reams of paper, later used for feeding hungry goats, ticker tape parades, chicken litter and packing breakable items. Now, they are digital and utterly worthless. An excellent example is The Failure to Predict the Great Recession. The Failure of Academics?, produced by Banco de Espana in 2012. For these folks, “the key question is to what extent the level of credit to GDP (or its variation) observed in period ‘t’ increases or not the probability of being in a recession in ‘t+1’, or whether it changes the characteristics of future cyclical phases.” They concluded that the evidence shows that it was unlikely, but not conclusive. If that makes you laugh, then maybe it was worth something.

6. Know Your Place in the World

Unfortunately, the most innocent people are punished the most and the guiltiest are most rewarded. During civilization’s 5,000 years of advancement, things have gotten better, but actual fairness is a long way off.

So, you need to know that you are not going to get rich investing in real estate and the stock market if you work for a salary, have dependents and are short on powerful, influential friends. You will get screwed unless you save cash.

5. When It’s News, It’s Too Late

U.S. laws and regulatory institutions represent an honest attempt at a fair and transparent marketplace. At the same time, successful investors will always make their fortunes by knowing things other people do not know and keeping that information secret for as long as it is useful. Therefore, assume that any published or broadcast “tip” — even the premium-paid-for variety — is already a dry well. Do your own homework. If Jim Cramer made more money investing than he does screaming on TV and selling newsletters, you would not see or hear from him.

4. Rib’s Ratio for Foolproof Investment by Normal People

I once watched a man lose $350,000 at a roulette table in 15 minutes while remaining as nonchalant as someone buying a cup of coffee. His demeanor said that he did did not work for it. Before the Great Recession, millions of Americans risked their hard-earned credit and equity just as carelessly. Using Rib’s Ratio you will never lose money again.

Commit a minimum of three hours personal due-diligence for every $1,000 you invest in anything. That means you will spend 300 hours (a total of 7.5 typical work weeks) before you invest $100,000. Of course, it only applies to people earning less than $333 per hour. Anyone earning more doesn’t need my advice.

3. We’re All Children and the U.S. Government is Our Parent

My children have the same attitude toward me as I had toward my parents. We don’t want our parents nosing about our business. We think we know more than they do. We resent paying for the things they do for us. We lie to them and do things behind their backs. But, when we start sinking, after walking right past a sign that says “Warning Quicksand”, we seek and accept their help unflinchingly. Sometimes, we even appreciate it, unless our siblings get more help than we think they deserve. The lesson is: If we help our parents around the house all of the time, they will do a better job helping us.

2. Adversaries and Competitors Have to Respect Each Other

Members of our species who drive the economy are competitive, aggressive and arrogant. But, it is only the third characteristic that causes trouble. Bankers, mortgage brokers, automakers, unions and lots of others thought they were smarter and better than everyone else when they were actually out of touch with reality. Capitalism, like competitive sports, is at its best when rivals work as hard as they can to produce excellent results, rather than cheat or run up scores on weaker players.

1. The U.S. Economy is an Amazing Organism; a Wonder to Behold

It has been five short years since the plagues of vanishing equity, mortgage foreclosures, crippling job losses, bank failures, construction shutdowns, auto company takeovers, Bernie Madoff, etc. The U.S. economy has not only recovered but remains incomparably preeminent in the world, no matter what you hear from media noisemakers and political partisans.

The Great Recession produced a moment of truth requiring the the most powerful people in America work together intelligently, selflessly and tirelessly. The epic problems they solved in days, weeks and months could have shut down every industry in the world and impoverished billions of people. Most importantly, they did it as only Americans can, because only the United States has the character and resources to pull shit out of the fan when it is already being sucked into the blades.

No joke, these guys are heroes

Detailed accounts offer compelling evidence that the mess could have been as bad or worse than the Great Depression. No matter what else you think of them, Bush, Paulson, President Barack Obama, Federal Reserve Chairman Ben Bernanke, current Treasury Secretary Timothy Geithner, Steven Rattner (the man who led the auto industry restructuring), Congressman Barney Frank, chairman of the House Banking Committee and others showed the rest of the world that our DNA remains fully saturated with the best kind of leadership.