Enlightened Money: Part 1 - Recognizing the Problem.
The first of a three-part series that lays out the path to enlightened money.- Smart money, dumb money, blah, blah, blah -- what does that even mean? How do you tell? Why should you care? Well, let's start with first things first. You might be smart money if:
- you get paid no matter what's happening with the economy or the markets. If I sell, my broker makes money. If I buy, my broker makes money. If I'm saving for retirement, my broker makes money. And I probably pay the broker to give me advice on how to make the broker money (while I take ALL the risk of losing mine!)
- you run a company that produces disappointing performance, get fired and still walk away with hundreds of millions of dollars, while I and my dumb money brethren, as investors or employees, are left holding the bag. Feeling pretty dumb, yet?
- you can buy a public company with borrowed money, pocket all the company's cash, fire all the employees, sell off half the equipment and assets to pay some of your debt expense and then relist the supposedly new and improved company in the stock market where dumb money like me pays way too much for the IPO.
In that weird fishbowl typified by Wall Street, there are only 2 kinds of people: smart money and dumb money. And it breaks down simply. Smart money are the people who make money no matter what the market or the economy does. Dumb money is you and me.
Credit card companies, banks, mortgage lenders, etc....the list goes on and on. All these entities make money off schmucks like us. The amazing thing is that they make no effort to hide this soft extortion scheme from anybody, including us lemmings
These smart-money types like to use big, obscure words to make sure that any typical American will keel over from boredom. Once your eyeballs have rolled into the back of your head, you won't pay attention to what they're actually doing (which is fleecing the public at large) and to what they're saying (which is that they're going to make a lot of money by fleecing the public at large).
No one less than the country's top banker -- Fed Reserve chairman Ben Bernanke is on record and will tell anyone until he's blue in the face that one of the top concerns for the Fed is "wage inflation." What he is saying is that it's ok for other kinds of inflation -- that stock prices go up, that real estate prices go up, even fine art goes up -- basically everything that RICH PEOPLE own -- it's ok as these things go up as long as the normal person doesn't make much more than he/she was making a year or two ago (i.e. wage inflation). If that happens, then it's time to put the lid on inflation
"Wait a minute," you might be saying, "I have a house and it's gone up 100+% in the last few years. I'm rich so what's the problem??!!??" Yes, your house might have appreciated in price (not value!) but unfortunately, the only people who made any real money these last few years in the real estate bubble were, drum roll ...... SMART MONEY: the mortgage lenders, the bankers, the financial exotics markets, the homebuilders. The dumb money is now stuck with a bigger mortgage on the same house that is now falling in value (and price!).
Fact: Before the bubble, American homeowners retained 58% equity of the homes they lived in. Now that the bubble has popped, they actually have 54% equity of homes that are now higher in price. Most people with a mortgage did not make out during the housing boom
And ultimately, even those without mortgages suffer as the taxpayer is going to be the big loser as government steps in with a bail-out program that far exceeds the Savings and Loan fiasco
That, my friend, is the essence of smart/dumb money. Make off with all the profits and saddle the peons with all the consequences
The economic recovery of the last five years has been the weakest on record in terms of job and wage growth. That means regular folks missed out on most of it
Energy costs for individuals have soared in the last few years.
Healthcare costs are so ridiculous that even large corporations (notably GM) are now crying about healthcare
Higher education costs have gone crazy since I graduated in 2001
Finally, the price of food is hitting the family pocketbook as the costs of basic food staples are rising noticeably
Put it all together and what comes out is that the I as an average working person is getting screwed big-time.
And the only person I have to blame is myself. More on that next time
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