Can’t Shed All 2008 Debts

Blessed are the meek: for they shall inherit the earth. --Matthew 5:5

This is a new year and it always feels like this is a great time to turn the page, erase all the bad memories and look forward to things getting better.  Without a doubt, few investors alive could say there has ever been a time when they needed to shed the nightmares of the previous year and pray for better tidings in the New Year.  

Yet, we also understand that in life we accumulate debts.   There are financial debts, spiritual debts, debts we owe to society for breaking its rules or for enjoying its compassion and there are debts we think we owe but maybe don’t and debts we actually owe but are loathe recognizing or acknowledging.  

Despite the fact everyone would like to enjoy greater financial riches, we understand that the more money we have the more debts we incur. 

This notion was immortalized by Notorious B.I.G in the lyrics of “Mo Money Mo Problems” on his Life after Death album.  (What an ironic name for an album by a man whose controversy raged during life and after his death.  The movie of his life comes out in a couple of weeks -- I hope they keep it real.)  The more-money-the-more-problems phenomenon is another way of saying the more financial success the more debts (not always financial in nature), and yet we all yearn for a little extra cash.  So, in this world it would seem the less money the fewer the problems and certainly the fewer the debts. 

Well, not so fast -- because for a while in this world no money was greeted with a reply of “no problem."  Cheap money made its way to the masses and we got the most incredible housing bubble imaginable.  Heck, there isn’t a weapon any terrorists group or enemy nation could have conceived that would have wrecked more havoc on the nation.

The aftermath is still reverberating, having taken down Wall Street and threatening to take down Main Street. The housing meltdown may have reached terminal velocity but it's still widening its sinkhole in the nation’s wallets and psyches.  We all got a taste of the good life, or at least access to play in the big leagues.  Loans were given to people that simply haven’t been able to pay them back.  Those folks now really know firsthand that mo money means mo problems.  

So, during the course of 2008 we saw the pendulum swing completely the other way -- and even people that didn’t consider themselves lower middle class found loans for homes and autos to be elusive.  The era of easy credit ended long before the ball dropped in Times Square.  It wasn’t a noble move on the part of banks to get back to basics. It was a move driven by panic, but it may be too late and unrealistic.

The rules of the games can be changed in an orderly environment but what we are finding out in this era changing the rules back now is going to be difficult to say the least.  There is a cleansing feeling to being in a new, fresh year, filled with history and the wind of hope at our backs.  But, there are those debts that still jump from the old pages of 2008 (and earlier years) onto the pages of 2009.  How we deal with them is going to go against the grain of everything we’ve come to believe.  

That’s right. Earlier in the week General Motors (GM) said it would lower its lending standards to move 2008 and some 2009 models.  With a record amount of homes languishing one wonders if banks will have to eventfully lower their standards to move them or whether they’ll be content sitting on them while they erode balance sheets just as the structure themselves erode from lack of occupancy. 

I always believed the meek would inherit the earth but now its looks like the meek are going to subsidize the earth or at least that niche of it called the United States.  You see the meek are the ones that probably don’t own shares of American International Group (AIG), Fannie Mae (FNM), Freddie Mac (FRE), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), GM, Ford Motor (F) or any stocks at all, yet will see their tax dollars be funneled to these business and many others to keep them alive.  

It really doesn’t seem fair and more often than not what isn’t fair will eventually fail.  I’m a pro-business person and believe corporate tax rates should be lowered and new regulations should take good care not to impinge competitiveness.  By the same token, if the average person out there was late on their credit card or car payment at some point the banks would repossess those things yet now that the tables of fate have turned the average person is being hosed with the bill.  

These days the song goes: “No Money Mo Problems”. 

The meek aren’t inheriting the earth just yet; instead they are inheriting the financial woes of the earth.  Something about this is blatantly wrong.