Well, here's the rub for me.
I do get the basic day-to-day financial stuff. Ten years ago, I not only asked my acquaintances how the hell they thought they could afford a silk purse home on a pigs ear salary... I also secretly made a habit of stopping off occassionally at the balloon-flying, banner waving preconstruction sale sites and explaining the nuts and bolts meaning of balloon mortgages to the people standing in line. I can honestlly say that, of the hundreds of people I "educated", only one person followed my advice and that was my husband - who had other motivations. Universally, the response I got from folks was that yes, they understood my message, but the short term reinforcer far outweighed the long term consequences.
Since I am not a financial wizard, a few weeks ago I had a little spare time and I thought, oh what the heck, maybe I should learn a little about the whole AIG thing. YIKES! Forget about peeling an onion, this is like peeling the universe! I was doing okay on the greedy insurance policies, the bank rating system manipulation, the astounding leverage amounts ....heck, I was even hanging in there on things like the decimation of Iceland. But, then when i realized that, hell yeah AIG is holding us hostage and -even better- they can! On to international trade agreements and how we need a bad guy because we need to keep trading with all those nations we have agreements with. So,China is elected to be the bad guy ...oh yeah, pay attention, because their election as bad guy actually began a few years ago through selective media presentation. Could it really be that China has all the toxic paint and meds? So, from there I took a peek at things that had been restricted for import from other nations .....uh oh
Before my brain melts, I am going to stop this little financial sel-education and go back to figuring out quantum physics and why gravity is not really what is holding us to the earth.
P.S. I have been known to read Mad magazine also.
THE LAST WORD
Anna Quindlen
Dollars and Sense
It would be so much easier for Americans to get a handle on the financial crisis if they knew what it was about.
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Come on, be honest: you never really understood most of this stuff. Not just the more complex terms, like credit swaps or derivatives, but the basic material. Compound interest. Balloon payments. You pretended. We all did. You would read about a hedge fund, and nod. You had no idea what a hedge fund did.
The great unspoken issue behind the tanking of the market, the mess in subprime mortgages and the bailout bill is that Americans don't understand the basics of the economy. Faced with financial instruments increasingly arcane and complex and financial institutions increasingly faceless and vast, most outsourced knowledge and responsibility to those they assumed were ethical and responsible. The banker, the broker, the rating agencies: they would look out for us.
Part of the current distress is discovering that this was not necessarily true, but part is knowing that we left ourselves no other choice. Most of us didn't know enough to suspect the emperor had no clothes, much less say it aloud. Is there any other possible explanation for the fact that millions of people clearly signed mortgage documents without understanding them, or that thousands gladly handed off their money to Bernard Madoff without ever hearing a clear explanation of his investment strategy?
John McCain took a lot of heat during the presidential race for saying he'd never really understood economics as well as he should have. But McCain's real sin wasn't only ignorance, but also candor, combined with the suspicion that many of his colleagues were no better versed in the subject than he was. When one senator inveighed against those who had not read the bailout bill, he was missing the point: if you read it, would you understand it?
Maybe this has always been so, given chronic math anxiety, but modern finance made widespread ignorance both more inescapable and more perilous. When pensions were a given, it was not necessary to understand the basics of a 401(k). When mortgage instruments were of the one-size-fits-all 30-year-fixed variety, it was not necessary to understand that "subprime" might become a synonym for "foreclosed." The United States was once a country whose biggest businesses provided goods and services. Only recently did it become a country whose biggest businesses provided financing for companies that provided goods and services, often through a process that resembled blackjack.
Don't get me wrong: this is not a big-bad-banks rant, nor is it a suggestion that the average taxpayer is responsible for corporate misfeasance. But if the current repression—worse than a recession, not quite a depression—can teach us anything, it's that you can't proceed knowledgeably, in terms of personal finance or political judgment, in an area you don't really know much about.
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