Sunday, April 05, 2009

Moral dimensions of financial crisis

Last week I met a man who was enraged. Like so many of us, he had lost about forty percent of the value of his investment portfolio, and he was at a loss to figure out where to put his anger. Yet he sensed that the other side of his anger and grief, there was a different perspective. He was anxious to get there, to be free of his distress. He wanted to move on.

Most of us weren’t dealing with confessed fraudsters like Bernie Madoff. So should we be angry at our advisors? Maybe. Certainly, Bernie Madoff and his like should be put in prison, regulation should be re-written and actually enforced, and the pay structure at financial institutions should be brought in line with performance over some reasonable time frame.

But I think there is a bigger issue here. I think most of us are really angry at ourselves. At least for a short time, we believed in bubbles. We believed that real estate prices would go up and up. We believed that the inflated price our neighbor received selling last year would drive the price of our own homes next year.

We believed that credit would always be easy to get. We believed that huge financial institutions could not, would not fail. And, most dangerous of all, we believed that the crazy things that happened in some markets (sub-prime, alt-A, CDOs) would not affect us as long as we were not directly participating in those markets. We were wrong.

I think this means that if we want to get past our anger, we need to stop looking outward and start looking at our own lives. Fundamentally, this is a moral crisis. We had money, we thought, and now we have less of it. Things like this happen, as the disclosures on our brokerage accounts and retirement funds say: You can lose money. If your financial advisor told you otherwise, then your advisor may belong in jail with Bernie.

We were wrong. We lost money. And now we need to forgive ourselves for it.

If anger at our advisors represents the first layer of the onion, and anger at ourselves is the second, then the next layer of the onion is fear that we may run out of money. Thirty-somethings are a lot more likely to be able to shrug off big losses than sixty-somethings, who have less time to catch up. Those of us who are older are facing the necessity to retire later than we planned, work part-time in retirement, travel less than we had dreamed, or make other adjustments along two themes: planning and stewardship.

I’m a planner by nature, creating alternatives for a variety of contingencies, so this is second nature to me. I chose my house partly because it has a first floor bedroom and bath, although I trust I am a good thirty years from needing to live on one floor with a caretaker upstairs.

If I lose more money before the time I need to start drawing on my retirement plans, I can sell my house and live somewhere more modest. That’s a contingency plan, and it is also a nod to stewardship, by which I mean not taking more than I need.

Right now, I live on two acres, I drive a car that gets 36 miles to the gallon, and I limit my trips to my Burlington office to two per week. I compost. I garden. Could I do more? Yes. I could live in a smaller house, even shared space. I don’t want to do that because I am a very private person, and I love having large dogs. But if I had to give up privacy and dogs, I could do it.

Not everyone is as fortunate. Many people in these times have cut their use of resources, their own and those of the wider world, to the bone. So they need more from the rest of us. That means our charitable contributions, our taxes, the prices of goods and services are going up. Which brings me to the next layer of the onion: anger at other people who now need help so desperately, our anger that drives a wedge between humans.

And our anger was supposed to be about money? No, it is about unfairness, taking more than belongs to us, stewardship of our own and others’ resources, forgiveness of others who need our help more than ever, and perhaps most of all, forgiveness of ourselves. Once we get past the moral dimensions of this crisis, we can focus on rebuilding financial plans.

1 comment:

Robert said...

I feel his pain. I've often wondered about my financial planner. Even during the boom of the late '90's, I was losing money, while everyone around me owned Qualcomm.

We must meet again on one of your trips to Burlington. We haven't chatted in a coon's age (about the time it's been since I blogged, which I'm trying to do again).

Hope you are hale, healthy, and happy!

-robert