As I was leaving school last evening, I ran into a Business colleague who was off to his evening seminar. He is in his early 60s and planned to retire in about 3 years. He looked so sad. Our 20 minute conversation went something like this:
His sadness came from just reviewing his retirement funds - he has lost 40% in just that past few months. He is now planning to delay his retirement date for an extra 4 to 5 years.
Academically, he lamented that the "numbers are crazy" and the market is not acting at all like he has been teaching his students for the past 40 years. As a strong advocate for American capitalism and deregulation of the markets, he put most of the blame on this now discredited ideology. He correctly noted that both Democrats, but largely lead by his Republican party, deregulation and secrecy were not a good idea. For years he has claimed that "markets correct themselves" and you can trust big business to do the right thing. But last night he was calling the CEOs by names I should not repeat here.
Fortunately, Democrats had not listened to Bush and McCain to privatize Social Security - something my Business Professor friend had once supported. But this crisis might be so severe that it could destroy Social Security as we know it.
Then he told me about a new upper middle class housing scam I had not heard about. People who bought houses a year or two ago at $400,000 with 10% down have now found their house has dropped in value to say $250,000 but they still owe $350,000 on their house. So what are they doing? They are buying a new home that last year sold for $500,000 (they still have money) but is now selling for $300,000. They then default on the $400,000 home - in other words leave it to the banks and taxpayers to pick up the bill. They now have a $500,000 home and a smaller mortgage. The down side is their credit is shot - at least for a few years - but they have no plans to borrow in the next few years.
His final comment was "That is so immoral, but it is now everyone for themselves." Then he rushed off to class.