Meg Stivison very kindly provided the topic for today’s post. She voices a thought that I am sure just about every American has thought over the last several days. Her version:
So if you are making minimum-wage as a cashier and at the end of the day, your drawer is missing $20, you probably get fired, because losing a twenty is either stealing or incompetence. But if you’re making a huge salary as a CFO, and large amounts of money disappear from your bank, the government will come in with lots of money to help you out!
The thinking goes, they got themselves into this mess. They can just get themselves out. If they get hurt, they deserve what they get. Sounds fair, but…. real life is never as easy as theory. I agree, they should be allowed to fail (for reasons I will talk about later), but unfortunately, when they fall, they are going to hurt a lot more people than just themselves.
First, though, I want to talk a little about that blundering cashier. As a former manager of cashiers, I would not fire you over $20 the first time, maybe not even the second time. Good employees are hard to find, and expensive to train.
We would have a talk, and I would explain the importance of keeping other people out of your drawer and verifying all transactions. If it happens again, and I think it is just a matter of incompetence I might assign you to a part of the store that does not involve handling money.
Firing someone for theft (or any other reason) should never be taken lightly, even when it is required. What most people forget is how much it costs the employer when they have to fire someone. Training new people is expensive. You have to pay someone to train them instead of doing something that generates revenue. You have to pay the new employee for a few weeks while they are learning and generating less revenue than someone better trained. And then you have lost customers, since new people tend to chase away a higher percentage of customers. In addition to training, you also have unemployment insurance, background checks, interviews, and hundreds of other costs associated with replacing someone.
Same goes for the CEO’s of the banks or the CFO’s if that is who you would rather fire. Training these guys takes a lot more time and costs a lot more money than training a cashier. If you try to pick anyone with any experience at all, they probably made the same assumptions that got the big cats in trouble. If you want someone with a clean nose, who is going to pay to train a whole new generation? And what are we going to do in the mean time. Really, we are talking about thousands of people who made hundreds of thousands of mistakes, based on the assumption that housing prices would continue to go up, and that other risks were really not that big of a deal. It is just not practical to fire that many people.
I think most people would prefer that instead of firing them we just let them go broke. That is a noble thought, the problem is that the whole economy is connected. You can’t “let” that many people lose that much money without it affecting everyone else in the world. It really does not matter whether we do the bailout or not. The money is still coming out of the same pocket. We are just fighting over which hole it is going to leak out of. In the end anyone that has any money at all is going to end up losing about half of it (more or less). You can pay it through lost investment, lost jobs, higher taxes, or inflation, but one way or the other if you have money you are going to pay.
If it makes you feel any better, americans are not the only ones that are going to be hurt by the results of amerca’s greedy consumerism, and foolish pride. The people of many nations around the world have their life savings invested in american currency or debt. They may not have less dollars at the end of the year but those dollars are going to be worth less than they were. The nation that has the most to lose is actually China. I just hope for their sake they have put more into gold or other currencies than it looks like based on “official” reports, or they are really going to be in trouble. They are also going to have to deal with pathetically small factory orders for the next year or two.
Is this Great Depression 2.0?
This mistake is going to hurt a lot of people in a lot of ways, but it is not really as big as the crash of 1929. If we can figure out how to recover quickly and the economy really takes off then we might be able to reproduce that crash. Otherwise, all we are going to get is a bit of a recession. Sorry to disappoint you, but this one is not the big one. The main thing we need to focus on right now is purging the system of bad debt and identifying other high risks. If we use this as an opportunity to clean the system instead of slapping on another layer of bandages, we can set ourselves up for growth in the future.
I do not think that any politician in their right mind could vote to put americans and the world through the pain of a crash without bailouts. What I am hoping is that market forces will outsmart the government (should be pretty easy right?), and go ahead and do the needed purging. If we do not clean out the current mess on Wall street it is just going to pile higher and crash harder in the future.
So, what do we do?
Take your medicine. Remember that this was not caused by the government failing to bail us out. And it was not caused by any of a hundred other things you could blame on the government. It was caused by ordinary people taking foolish risks. People that were too lazy to find out what they were getting into. People that assumed that real estate always goes up. People who spent money they did not have to buy stuff they did not want. Stop blaming other people and take responsibility for your own mistakes.
I have been warning people for nine years that this was getting progressively closer. (BTW, Bush did not cause this Greenspan and Bernanke just delayed it. It was supposed to happen in 1998) Hopefully you have been preparing. If not, keep working. Keep taking smart risks. Buy the tools you need to produce stuff that people will still need during tough times – food, clothes, alcohol, shelter, transportation, and communication all make good choices, but I would not be surprised to find that many other things are still considered necessities even in hard times.
Do not hoard cash or keep it all in savings. Put the money into something that can earn money during a recession. I am not going to attempt to list the thousands of options you could pick from, but I would say, don’t count on any form of interest or stock dividends. Traditional investments are going to be really awful for a few years.
And most importantly, remember that I am probably wrong, and usually way too early. We may still have another three years of really great growth. Enjoy life, and have fun!
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