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Only healthier economic lifestyle will put an end to Greedcession

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POSTED March 7, 2009 3:52 a.m.
Gasoline per gallon at the Chevron I go to is down to two shares of Citibank stock plus a half a share of GM stock.

If that doesn’t tell you the world has gone crazy, nothing else well.

Those who believe we are heading toward another Great Depression have it all wrong. This is a Greedcession, pure and simple.

The companies tanking or teetering share a common factor. They were inflicted with the same problem as those homeowners who made $12 an hour but were buying $350,000 homes – greed.

Financial experts call it being overleveraged. The truth is these companies – and home buyers – were driven by greed. They wanted it all and they wanted it now regardless of the cost. The theory was if you got into a jam you just flip the house or sell off a business unit. Large chunks of Corporate America and those buying into the American Dream on steroids complete with granite counter tops believed 20 percent annual returns were sustainable forever.The tightening of credit is posing problems for businesses and individual across the board. Have you noticed, though, the ones still standing didn’t get in over their heads by expanding at hyper speed and not losing sight of their core business?

Circuit City was about expertise and service beyond Best Buy – or at least that was the niche they claimed to carve for themselves. When the overpaid corporate staff decided they needed to focus on short profit first and foremost they got rid of their highest paid – and most experienced - sales staff that also happened to also work on commission. If you can get hourly wage costs down to $9 per employee from $12 per employee they figured they could pocket a bundle of money. The perceived edge that Circuit City had with some consumers was thrown out with the higher paid employees.

It did the trick for me. I tried to get a simple cable for a computer cable modem box and twice Circuit City personnel steered me to the TVs. I ended up going to Best Buy and getting helped by staff that didn’t brush me off and actually knew more than I did which is a great way to build consumer confidence.

The same is true of home builders. No one is having a fun time right now but you’ll notice the ones that are still standing approached things during the boom times in a conservative fashion and didn’t end up imploding like Beck Homes. Beck still holds the record for the Mother of All Housing Foreclosures in San Joaquin County for the once ballyhooed Oakwood Shores gated community that promised $1 million plus lakeside homes.

The same is true of newspaper companies. Those who stayed lean and mean and didn’t leverage up to their necks in debt – read that get greedy – are weathering the storm.

You can’t simply brush this all off as hindsight being 20-20. A lot of firms resisted the get rich quick allure of the past 10 plus years. And for every person who blindly believed they could buy a $400,000 home, with zero down, and a minimal monthly installment debt load of $355 while making $37,000 a year as one guy did in Primavera Estates in early 2005 there were literally dozens upon dozens who knew it didn’t make sense.

If you doubt that, who do you think the record number of home buyers were in Manteca last year? Between existing and new homes, there were 1,427 homes that exchanged hands in Manteca during 2008. By not letting greed get the best of them, they are weathering the Greedcession and are able to buy a home.

The unfortunate thing about the Greedcession is that a lot of people are getting hurt by it that had the restraint and solid financial principles to begin with whether they’re a business person, homeowner or retiree.

Most, though, are weathering the Greedcession. If you doubt that, look around. Yes, there are stores and restaurants that have closed or are struggling but people are still spending. They’re simply not using housing equity – which doesn’t really exist until you go to sell – as a bottomless ATM.

If you think of this as a Greedcession, then you’ll have the patience to understand consuming spending has to still adjust down to a sustainable level in terms of affordability.

It’s coming, but it won’t happen overnight.

It takes years for someone to reach 300 plus pounds. They rarely lose the weight overnight and if they did – say drop 150 pounds in six months due to some artificial help such as a fad diet - they run an extremely great risk of putting the pounds back on and damaging their health further.

It is the risky in expecting the government to bail everyone out in a bid to make the recovery happen sooner. It’s wise to start going a little bit nice and easy when tossing money around like confetti. If not, a healthier economic lifestyle will become a fleeting goal and we’ll be dealing with other ills such as hyper-inflation.

The only way to truly get out of a Greedcession is not a stomach pump to purge the toxic mortgages and commercial credit from the system but to change our economic lifestyle.  

And if you need a bit of encouragement, remember most of us had a better year in 2008 than AIG, Washington Mutual, General Motors, Chrysler, and Citibank, to name a few.
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