THE COLLAPSE AND WOULD-BE RESCUE of our financial systems have brought about a lot of talk about Wall Street, the people who supposedly got us into this mess, and Main Street, the people like you and me who are paying for the bailout and hoping that what goes on on Wall Street stays on Wall Street.
As a denizen of Main Street (oh, how we love our quaint, overly simplistic categories), I'm naturally worried a bit that the fire over there will spread to my side of town. But only a bit worried. Maybe that's whistling past the graveyard; maybe I should be more concerned. But, even if I had a good reason to feel that way, I'm not sure I would have many options for dealing with it.
Unlike the traders on Wall Street, I don't have the luxury of suddenly pulling all my major assets (mostly my house, IRA and 401k) out and putting them into, say, gold, the safe harbor when the seas are rough. In fact, not only is that impractical, to say the least, in the case of my house (where would I live?), but there are serious penalties for doing so with my IRA and 401k accounts.
We here on Main Street (not Easy Street, mind you) are told by all prudent financial planning advisors to be patient, to ride it out, to take the long view, which has historically paid out a tidy return. Good things come to those who wait, we are told in tones that reflect America's Puritan Ethic.
Of course they're right. The late '90s stock bubble brought with it the new sport of "day trading", which allowed Main Streeters to play like the big boys. It coincided with revolutionary new cellphones that sent up-to-the-minute text messages giving you the most important information for your life: sports scores (one must be up on the injury reports and drug scandals), major news headlines (from the E! Network, I presume) and, of course, stock quotes. That was always the pitch in the ads, and I wondered how many people were monitoring their stocks, much like the proverbial 1920s high rollers who stood by their stock tickers, watching every gyration of the market so they would could spring into action and "sell!" or "buy!" I would think: What am I missing here?
Turns out I was glad I missed that train. The lesson from the late '90s -- that is, of the bursting of the bubble -- was that unless you had a deep understanding of the markets (and, thus, a lot of time to devote to keeping up with it), you had no business in this business. A mere mortal can get hurt. Just put your money into a mutual fund and sit back and let the market (and your fund's manager) work for you. No need to be checking your stock quotes every ten minutes. Even a quarterly glimpse at your portfolio would give you an unrepresentative snapshot in time.
It's a good lesson, but what puzzles me most about the current crisis is that it was good enough for those of us on Main Street, but not others -- the Wall Street crowd.
I'm reminded of this every time I hear of a trading day when stocks rise or fall precipitously, in some cases in near-panic proportions. While we on Main Street are told to be patient and to take the long view, the pros -- the ones who are being paid lavishly for their Chuck Yeager-like cool under pressure -- are panicking.
I think of this, too, whenever I hear how the big financial institutions rewarded overly relaxed standards of credit worthiness. Here I am, a guy with a strong credit rating, and I was put through the ringer by mortgage banks when I took out a loan to add onto my house a few years ago and subsequently refinance my long-term mortgage. It was utterly ridiculous and maddening, and I know I'm not the only one who experienced some of the silly bureaucracy of the banks.
Meantime, however, there were people who had no visible means of repaying their loans getting pretty huge piles of cash. I don't blame them so much, though I wouldn't have encumbered myself as many of them did. I do blame the banks who just wanted to grind out loans in volume, in large part because there was so much cash in the system and because, at least at the ground and intermediate levels, they could do so without any apparent risk (they could sell their loans almost as fast as they closed them with the homeowners).
Talk about your double standard. While, frustrating as it was at the time, I guess I'm glad that someone was scrutinizing my loans so much, but why wasn't that universal across the system?
If anything comes out of this mess it should be that all of us, not just those of us who have little control over the system, should play by the same rules of prudence. And it should be that the hand that supposedly guides a purely free market, unregulated system is unseen perhaps because it does not exist at all.
We've had too many lessons. It's time now to learn.