A Sack of Seattle

What's the impact of the 2009 financial crisis on American culture?

I was recently asked this question by a reader of my blog -- and thought it was such a good question that I'd ask all of you.

My initial answer -- "I don't know" was accurate but insufficient.  I think that this past year is going to be perceived as having a significant impact on our culture. Below are some random thoughts on the question in the title of this post:

• The crisis was self inflicted and could not be externalized that easily. It's a little like a smoker who develops a bad cough.
• The crisis was not bad enough to cause real crisis in the streets -- or more specifically, the crisis wasn't so bad as to unite people in an emotion of grief, frustration, anger.
• The Madoff story gives both an externalized bad guy and a mechanism for uniting people emotionally. 
• People who were conservative with debt are the ones that worked through this period the easiest. 
• Our way out of the crisis includes the issuance of massive amounts of country debt -- the repayment of which remains a question.
• I like the idea of Pres. Obama and Gov. Schwarzenegger as the best bond salesman in the history of the world.

Aggressive steps for dealing with financial distress

I was speaking with a friend of mine this weekend. His situation is as follows:

• He runs a business that a year ago was doing 3MM in revenue with almost 500K in ebida. The business was growing 15+% per year.
• He bought a big commercial building for 4MM and has 2.5MM in debt on the building.

In the last six months:

• His business has been cut in half and ebida has been cut more than 50%.
• He hasn't been able to rent the commercial building and is using (more) debt to keep current on payments for the building
• Each month that goes by, he is risking bankruptcy (of one form or another).

My advice to him was as follows:

• Meet with 3 people whom you respect and present your business plan for dealing with your personal financial crisis
• After you get feedback, devise a plan and be aggressive in attempting to renegotiate debt with all lenders.
• Sitting back and waiting for solutions to appear is not a good strategy ....(Nor is waiting for a tenant to rent the space)

Sound familiar to anyone you know?

And coming to a theatre near you....the commercial mortgage crisis

This was taken from an article I read yesterday. Read the entire article here. 

The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.

"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything."

That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.

"The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.

One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.

Economic outlook

Mark Pincus has a great blog entry on the US economy here.  A portion of his post is posted below:

"I can't see how the dollar can't decline given that the fed is dropping rates to save the economy and counter tightening credit markets; meaning rates paid on dollar fixed income deposits will go down relative to other worldwide oppts. It seems that at some point the federal govt will have to start offering higher rates on t-bills as noone will be willing to buy its paper at low these rates.

So what happens when the fed is lending cheap and borrowing high? Seems like that spirals deficits even faster which btw contribute to obama's calls to raise taxes and 'pay our fair share'.

Where does this all go? Seems only outcome is higher taxes and interest rates along with record inflation as the dollar dives and real assets esp commodities skyrocket. Assuming that the rich give their money to hedge fund managers who are smart enough to bet on these trends, we end up with even greater concentration of wealth as a very small few avoid the economic landslide and increase wealth while the majority share a fairly equal misery."

The things I'm doing besides Founder's Co-op which I admit is not totally in synch with this economic outlook are:

1. International Real Estate
2. Google stock (yes, I bought a bunch at $415 -- feeling happy about that today
3. And I just bought SKF -- shorting the financial sector again. With all the people thinking we're out of the woods on the economy, I still don't think so. I bought it at a price of $99.