Waiting For The Economic Recovery, Going Broke During The Recession

by Silicon Valley Blogger on 2009-05-279

Do you believe the news? According to top economists (“a prominent panel of 50 professional forecasters”), we’re supposed to be seeing the economy recover later on this year. If things go as expected, unemployment numbers and job losses should start shrinking fairly soon and economic growth should resume by next year. Economic statistics should start looking better.

But not all is well and good as the path to recovery is rife with barbs. The fundamentals are still shaky and may get worse before they get better (a warning I’ve read many times in the past several months). Supposedly, we can thank government policy, heavy spending and stimulus packages for pulling us out of the financial quagmire and the deeper pit of depression we were on the verge of collapsing into.

Waiting For The Economic Recovery

You may have done a better job escaping the wrath of this recession, but it seems that almost everyone was impacted by this event. Unfortunately, the recovery may come a little too late for some people. I’d written a piece on how and why the rich get richer sometime back, but I find myself facing a bit of irony here when I read stories like this one, which imply that the wealthy are NOT immune to a drastic reversal in their personal fortunes (unlike what you may expect).


With all the money in the world some people have, you may wonder how they can go from riches to rags just like that, courtesy of this downturn. You may also wonder how a lot of rich people could have had their fortunes crash and burn in much more spectacular fashion than the rest of us. Well, I can offer a few theories why:

How The Affluent Went Broke

  1. No diversification. Remember the Lehman executive who got wiped out because his net worth was tied to his company?
  2. Victims of fraud. The gilded age spawned fraudsters who preyed on everyone, from the unsuspecting first time homebuyer who fell victim to mortgage fraud to the sophisticated affluent bunch who signed their lives over to Madoff.
  3. Living large. Many people thought that the economic boom and the accompanying party in Wall Street would go on indefinitely; then the spigot was unceremoniously turned off, leaving the big spenders to overextend themselves. Living beyond your means will always bite you in the end.

Many of us have been torpedoed. Our assets have evaporated. We’re washed out (somewhat). So what next? It’s time to live more simply and rebuild. With life so short, we should try to get over our losses, dust ourselves off, move on and allow ourselves that tiny bit of hope and anticipation for the economic recovery that financial gurus are predicting we’ll be greeting in a year’s time. For it could always be worse.

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 9 comments… read them below or add one }

Bargain babe May 27, 2009 at 9:10 pm

Great piece. Thanks for this.

Mikael @ Retire Rich May 27, 2009 at 11:38 pm

Well for one I find it worrying that some people will actually choose the path of “waiting for the economy to get better”. I’m not even sure you can call that “a plan”. Well it might be the lazy persons plan. Personally I find that if your finances are in a bad shape then YOU will start ACTING instead of just waiting and hoping. But I am also realistic enough to know that most will rather wait and hope…

As for the Lehman guy who lost everything his problem was not that he didn’t diversify but rather that he picked the wrong investment. Just look at Warren Buffet who states that diversifying is for the lazy (and not knowledgeable) investor. I think the Lehman guy fell for the part about knowledge. 🙂

Anthony May 28, 2009 at 12:01 am

“Victims of fraud”

– Probably the most frustrating reason.

Reality Check May 28, 2009 at 2:02 pm

I am not convinced the stimulus spending has anything to do with any recovery. Last numbers I saw only 6% of the stimulus money had been spent. Now math is not my strongest subject, but if we only needed 6% of the trillions of dollars to launch a recovery then why did we spend so much beyond that?

Second, most of the stimulus money was financed with a lot of short term debt and the interest rates on that debt is now rising. All that excess spending may just pull us into a second recession even if we manage to somehow claw ourselves out of this one. It will look a lot like a “W” in terms of recovery, down, up a little, back in, before a real recovery can take place. That may still be a couple of years or more away.

Last, economic recovery does not reach all people equally. Some areas of the country may take years to feel the effects of an improved economy. I live in one such area that is heavily dependent on auto manufacturing. It may take many years until we can climb out of this.

Alex B. May 28, 2009 at 4:05 pm

Great post.

But I have to say that Mikael is the first person I’ve ever heard bash diversification. Sure, putting all your eggs into one investment is fine if *know* that it will turn out to be the “right” investment, but nothing’s ever a sure thing — I don’t care how smart or non-lazy you are. Of course, if you’re more interested in gambling than investing, go for it!

Kristy @ Master Your Card May 28, 2009 at 9:12 pm

I have to agree with Mikael…people who are just “waiting” for the recession to be over are going to be in no better shape when it is than they are now. If your financial house needs cleaning, then you have to take action. You must be proactive in finances anyway, so I don’t think those who are hoping the recession ends this year might find solace when it does. I can understand the sentiments for those who are struggling to find a job, but overall, people need to start planning better.

Sandra May 29, 2009 at 12:08 am

Great Blog! Would you be interested in mentioning a movie about Stock Market Manipulation that is coming out on June 10, 2009?

Please check out the site and movie trailer at stockshockmovie.com

It has been a really fun project and will hopefully help thousands of people to protect their investments!

Movie is called: Stock Shock!

All the best, S

Merra Lee Moffitt June 7, 2009 at 4:43 am

Now that the recovery is in sight, it’s time for those of us who own a business to get ready for it. We should start planning for it by re-evaluating our price list and planning how to raise prices if we’ve been giving too much away for free.

Alex August 24, 2009 at 1:20 pm

Becoming a victim of fraud is easily the most frustrating of the reasons, the rest are all tied to poor foresight in one way or another.

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