Ed,
You really asked two questions:
How do I go forward with my investments?
How do I deal with the anger?
You have professional help on the first question, so I'd continue to follow their advice. As for me, after reducing my equity allocation a bit over the past year (but nowhere near enough in 20/20 hindsight
), I have started to slowly buy equities again. Stocks are on sale. Doesn't mean that they might not go lower again; but I like my odds in the long run.
On the anger front, I'll let you know what I have been doing about the second because I am pretty angry as well.
1. I have spent a lot of time thinking about this as it hits me both personally and professionally. I read a lot in the real estate press and financial press. My favorite blogger is a guy named David Smith, who is a big deal in my field, the somewhat arcane world of affordable housing. His writing is clear and entertaining and IMO not particularly partisan (YMMV).
Invalid Link Removed . Part of the reason I do this is that I am angry at the media and by partisan voices of all stripes that seem to focus on talking points rather than solid analysis.
2. Part of the reason I spend a lot of time thinking is to help me properly distribute my anger. As with my investments, I am a big believer in having my anger broadly diversified. (We need a smilie that says that I am not sure if I am serious or joking; I think I'm both in this case) My own list is pretty long and it includes people who signed on the dotted line for more debt than they could afford whether in a first purchase or a refinance; but it also includes everyone in that particular supply chain that made money on the deal.
3. I try to take comfort in being a little better off than folks who went too far with the debt. My balances are lower in the savings and retirement accounts, but I know my wife and I earn enough to pay our bills (partly because we have always tried to live below our means). That piece of mind is priceless. It may be corny, but I find that taking more pleasure in the stuff money can't buy has helped me the past month or two or twelve.
4. One thing that I have learned in my bureaucratic life is to not get too excited about plans and proposals until they pop out of Congress and the regs are written. The support that overstretched borrowers are likely to actually obtain now in declining order are:
a. repayment plans - still owe all the payments but stretched over time
b. no interest rate increase - still owe all the principal on a house that is probably worth less. The subprime loans that I have seen have starting rates above a prime loan, so while this is a break over what they signed up, it is not a great deal and doesn't have any real impact on you or I.
c. rate reduction - again they still owe all the principal on a house that is probably worth less. Maybe this gets the rate down closer to prime; maybe it gets it to prime; maybe it even gets to below prime. At least here the lender is taking a bigger part of the pain. Not sure how this would impact you or I.
d. allow a short sale - the owners lose whatever equity they had and this will negatively affect their credit, the banks lose money on the sale. Shared pain by lender and owner.
e. HOPE for homeowners loan - if you can afford a mortgage, and your bank is willing to take a 10% haircut, then you will be refinanced into a loan that gives the banks and the government a share of future equity. Not sure how many people will actually fit in this box but there is a distribution of pain here and a possibility that we the taxpayers might make some money on the deal.
f. principal reduction - unlikely to happen at any grand scale whether it is McCain's plan buy the mortgages at full price and have the government eat it or varous Democratic proposals to give bankrupcy courts the power to cram down mortgages. The first is very expensive and the second creates far too much moral hazard and could very likely have very bad unintended consequences as lenders change their practices to account for the possibility of future cramdowns. I'm not that worried that either of things will ever come to pass.
5. Whatever happens, even if some version of principal reduction takes place - I know I would not want to switch places with someone in a position to benefit from any of the above options.
6. I believe that life is a risky proposition; we can do what we can to minimize it but we can't eliminate it. I also believe that life is not fair. Lastly, I believe I am relatively powerless to change either of those two things, so I try not to worry about them too much.
Ed,
I'm not sure that any of the above will help. For what it is worth, I feel a little better just having gotten some of these thoughts out, thanks for giving me a little nudge to write.
.
) out a thin, but real, hope. This country has been in these kind of situations before and we have pulled through. I fully expect we will do so again; it won't be easy and it won't be pretty, but we will do it.
Thank God I was there to learn 'em the finer points of cheffin', else they'd have gotten real skinny! People these days literally have NO CLUE. No wonder the elite take advantage of them!
