The obligatory "stock market" post
Unless you're living in a soundproofed house without connection to any media, you should have heard about the stock market panic.
Long story short, inasfar as I understand it:
- Lehman Bros called Chapter 11. The Fed wouldn’t bail them out, so they filed for bankruptcy.
- Merrill Lynch opted for euthanasia. Lehman left a lot of uncertainty. Merrill Lynch wasn’t ready to gamble. Bank of America bought it up.
- AIG is saved. Despite putting its foot down with Lehman, the Fed announced it will guarantee up to $85 billion for AIG.
- WaMu sinking? There are rumors that the government is going to help out this bank, which has been foundering for some time.
According to experts, this is only the beginning. Or the middle, if you see this as an extension of the subprime crisis.
Point is, there's much wailing and gnashing of teeth. People are panicked, anxious, angry, pessimistic -- all sorts of unpleasant adjectives. An MSN Top Stock's blogger even went so far as to refer to the "stock market collapse" which I think is still a tad premature.
That said, this isn’t my area. I didn’t want to do a post about it. But as crisis piled on crisis, I started seeing an underlying theme near and dear to my heart:
We've stopped seeing money as real.
Of course, there are plenty of other factors: too much risk, too many rewards for those risks, greed, myopia, arrogance, etc. But, really, at the base of a lot of these problems lies a common thread: People deal with money as an abstraction.
The art of the abstract
We're all guilty of this, to some degree. More technology meant more convenience – but it also meant that money stopped automatically being equated with cash. Instead, it's theoretical money, bits of information, numbers on a page.
The main thing is money isn’t really money anymore.
Most Americans get a slip of paper each payday. It tells them how much they made, how much they kept and whether it's already in their bank account.
We might withdraw some cash for day-to-day needs, but most of the money remains in our accounts.
And what about those accounts? How real are they?
- Can you point to your account?
- Is it in a physical location?
- Is there a cash-filled cubbyhole with your name on it ?
- When you pay bills, do the bankers bundle up some $20s and run to the post office?
Of course not. The idea is laughable. But if it’s not really anywhere, how do we know that it’s really there?
You could argue that those numbers in your bank buy goods and services. But with checks, debit, credit and EFTs, we still aren’t dealing with actual money. It’s still a game, shifting numbers from one spot to another.
Don’t fence it in
The fact is, this society really can’t handle the limitations of physical money. As it stands now, our money exists everywhere.
- It could be at any one of several bank branches.
- It could be in an ATM (and not even, necessarily, your bank’s ATM).
- It’s always in your debit card, just a PIN number away.
- It could even be online, so that we can pay bills without stamps.
Cash, on the other hand, is only ever in one place. And if that place isn’t in your pocket or wallet, you’re pretty much out of luck.
So, you can know that your money is real – and risk limitations. Or you can take the bank’s word that it’s available. And, of course, the government’s word that you’re safe in the hands of the FIDC.
Out of sight, out of mind
I really think this is a big source of our growing carelessness with money.
How are you supposed to treat money as real when it’s nowhere and everywhere? How do you take money seriously when it’s all just a bunch of numbers?
We know that this is an attitude that lets people get into debt. They think of credit card purchases as something other than real money. They lose track of their spending. It’s just so easy to spend when it’s numbers, not bills.
And when the debt gets bad, those numbers become pesky or depressing or maybe even scary. So they ignore the numbers. Because how much can figures on a piece of paper really hurt you?
Eventually, this cavalier attitude was bound to spread to mortgages – especially in high-priced areas.
Housing in most metropolitan areas is beyond expensive. This means that mortgages are bound to be sky-high. Since those numbers were so ludicrously large, people were able to dismiss them as abstract. (I’ve noticed a strange trend: The bigger the number, the less real it is.)
The numbers were too big to comprehend, and so people didn’t try. They relied on banks to tell them what they qualified for. And that’s what they spent.
I think we all know how most of those stories ended.
So what now?
I’m not sure there is much of an answer. We’re not going to undo decades’ worth of technology so that money can be a more solid concept in people’s minds. But as long as we’re able to transfer huge sums with the click of a mouse or a swirl of a pen, money isn’t going to seem real.
A small start is what many of you are already doing: using cash whenever possible. But this system only makes a small dent. Even people who only use cash throw around an awful lot of big numbers.
Net worth. What does that mean? It certainly doesn’t mean they could cash out tomorrow. Often it includes a house (minus any remaining mortgage) and retirement accounts they aren’t supposed to access for at least another decade or two. But a net worth of $200,000+ sure sounds nice, doesn’t it?
Salary. It sounds impressive to make say, $60,000 a year. But is that really what you get paid? Yes, in a sense. But a more concrete answer is the amount you actually take home in pay. Planning out finances using pre-tax amounts is just budget suicide.
Debt. Some bloggers are tens of thousands of dollars in debt. Tim and I owe $12,000. I can’t even begin to picture what that looks like. To me, $12,000 is pretty abstract. It’s not real money. It’s money we owe. Money that's already spent, which means not actual cash.
Expenses. Can you picture what it would look like – your entire debt as a stack of bills? How about shelter costs? Can you picture paying your rent or mortgage in cash each month?
Fuel. What about gas? If you had to pay cash at the pump, would you be carpooling more? Would you have traded in for a smaller, more gas-efficient model?
In all, it just makes me wonder: If we didn’t have credit to fall back on? Would people be better or worse? (Tim would be worse off: We financed his expensive oral surgery and dentures on a card.)
Would no credit help inflation? Hurt it?
Most importantly, would people have a better sense of fiscal responsibility? Would they be less prone to thoughtless consumerism? Or would innate greed simply find another way to come out?
These are questions I do not know the answers to. But I feel like I should. What about you?