When looking at the future, remember there was no iPhone before June 2007
The New York Times published a story from Financial Advisor Carl Richards this weekend with the attention getting title: “How a Financial Pro Lost His House”. Even though I like the humility of Carl Richards’ exposé and the ongoing questions he has, even now that life seems to be getting back onto the tracks, just a relative short couple of years later, I do have some serious footnotes and potential repercussions to add to his story, especially since it is presented in a “feel good coming of age story” type scenario that is not likely going to be your typical outcome for many other victims of the housing boom debacle.
First of all Mr. Richards’ trajectory to become a certified financial advisor seems a bit thin and the product of typical high speed low quality output of this country’s educational system. If you want to know why I make that statement, than check out the training involved here.
By his own admission Mr. Richards had no clue about securities in 1995 and the shear fact that he accepted a job as a call center sales person for Fidelity Investments later that year, turned him into a financial adviser and certified financial planner with Merryll Lynch, less than four years later. In my humble opinion, a certified financial advisor needs the basis of the profession and its constant updates PLUS a little life experience under the belt, and at least have consciously gone through a couple of economic cycles to understand how the world works and the vulnerabilities that come with human nature.
Before anyone should be allowed to call themselves “certified financial planners” they should have a much deeper understanding” of Alternative Realities and how they play havoc with people’s emotional and financial lives. We humans have a unique tendency to create alternative realities. I would even go as far as to state that there are now more than 7 billion different realities on this planet, all of which operate within the cycle of such perceived entitlements as: I have – I need – I want – Nice but not necessary. Many of these realities include possible future outcomes that people feel the need to prepare for (family planning, college education, retirement planning,etc.), though few are as predictable and repetitive as for example the arrival of winter or yet another Holiday Season. It’s easy to prepare for those with Hard Realities.
Many realities are of no real consequence to daily life – for instance, if the color blue is your “lucky color”, it may cause an unnoticeable blip in the color of shirts sold by your favorite retailer, but there is no life altering consequence attached.
If however a large part of the population can be convinced that this winter is going to be the coldest in 100 years or that only blue clothing will protect you from the cold, alternative realities may have huge consequences.
Let me at least try to explain .
Back in the days, when tribes coalescing into small nomadic villages were the primary organizing structures for the human race as it developed, I suspect the number of human realities were quite a bit more limited than they are today. For instance, in addition to the certain knowledge that winter was coming, the villagers understood certain basics required to live off the land. For example, the best methods for bringing down game, the optimal times to plant and harvest, when the growing and flooding would come and so forth.
But, side by side with those hard realities, there were other commonly accepted realities – for instance, that angry gods periodically took aim at earth with lightning bolts and thunder (Thor, Zeus, Perun, Indra) or furiously whirling winds (Juracan, Huracan). And if enough authority around the campfire decreed that by jiggling dressed in animal furs, the tribe could command or even ensure a more successful hunt or growing season, an alternative reality based on no other fact than power of persuasion, would become “true” realities. Human sacrifices of witches and virgins became hard reality based on these superstitions.
Over time, as humanity reproduced and morphed into an almost endless number of cultures, the hard realities of life on earth remained essentially unchanged – but the number of alternative realities exploded exponentially.
Today the alternative realities extend well beyond the obvious. We look for and welcome the evidence that fits our favored theories and we ignore or question the evidence that contradicts it. We all do this all the time. It’s not, as we often assume, something that only our opponents indulge in. I do it, you do it, it takes a superhuman effort not to do it. That is what keeps myths alive, sustains conspiracy theories and keeps whole populations in thrall to strange superstitions.
I can give you thousands of examples to underline this human behavior, from believing that crop circles are extra terrestrial long after it’s proven not, to scientific heresy or the reality behind the frantically growing number of vampire like horror flicks these days, but since we’re talking about political economics in the case of financial advisor Carl Richards, I’ll stick to hard reality versus alternative reality.
It never fails to amaze me how two people for example can receive the exact same input and come to diametrically different or even opposing interpretations. While much of this can be harmless, the crust on planet Earth is stacked high with the dried skeletons of broken relationships, ruined mega-bands, shattered marriages, collapsed business partnerships and more – all without exception due to alternative realities derived from viewing the same events through different lenses.
Interactive Tug of War
Carl Richards story reminds me a little of my favorite Cable TV program “International House Hunters”, in which couples for various reasons such as a vacation home outside the US, a job transfer or a true life changing experience, have a realtor select 3 possible homes for them, based on family and business needs and financial means. It is alarming how many times the couples in the end select the home priced substantially beyond their stated budget and it is a bit chilling to witness how many times the man, at first with a strong opposition to going beyond the budget, will in the end bow to his partner’s desires. Now I’m not saying that women are the culprits here. What I’m saying is that there are alternative realities that play a major role in the decision making process, dealing with children’s wishes, family needs, visitors, commute costs etc. etc.
Carl Richards, certified financial planner, in a way also committed the sin of letting society’s status appeal and circumstances dictate his obligations and responsibilities, rather than choosing for the hard realities of his life and family. He selected for example a pick-a-payment loan, the ultimate creation of alternative reality during the housing boom. He rode the wave of credit cards, equity loans and living the high life until the sky came down as the only hard reality that exists.
What is a moral obligation?
Although it has been argued that banks were at fault for pushing excessively available cheap money to boost homeownership, it still does not free the buying individual from the moral obligation to pay for what they wanted. At least not from where I stand because it would imply that we actually people that need to be protected against themselves, hence more government. If that is the case we need to seriously start discussing the hard reality of secession
But then during the breakdown phase in the aftermath of the financial crisis, banks actually made it mandatory for people to be at least 3 months in arrears before any action of short sale, loan adjustment or foreclosure could even be scheduled on the discussion board. That action has delayed a housing market restart by more than 2 years now, adding excessive home inventories to new construction stagnation, to stagnated employment opportunities. Talk about confusing hard realities with alternative realities!
I do now know people that have been living in their underwater homes, without any type of payment (including property taxes) for almost 4 years! And that’s absurd. The hard reality is, if you can’t pay for what you ordered, you won’t get to enjoy it. Many people couldn’t pay for what they had ordered, but still got to enjoy many aspects of the ownership, often for extended periods of time. When banks and credit card companies, two major culprits in this sordid scenario, started pushing homeowners and credit card owners even more into the corner with higher rates and penalties, while at the same time accepting or even demanding bailout monies from tax payers inputs, morality became an academic reality, a new creation that now hangs between hard fact and alternative options.
Rationalizing Wants into Needs
Life, more often than not, won’t let us make a clear distinction between hard and alternative realities anymore. The choice of options provided by alternative realities are simply too numerous, while magnified even more by the fact that in the end we are social beings who, for the sake of children, the family, the neighborhood, the numerous social, cultural, economic, political and religious affiliations etc. can rationalize almost any WANT into a NEED and thus justify almost any form of acquisition – purchase, layaway, theft, beg or borrow. We have entered a world where we have to decide whether certain Hard Realities can be softened and at what cost.
If you don’t understand, than it’s time you realize that much in today’s society is laid down in judicial spreadsheets. A burglary gets you 6 month, with 2 months for good behavior and 2 years probation. Armed robbery gets you 2 years with 6 months for good behavior and 3 year probation etc etc. The lines between nature’s hard realities and human alternative realities are getting vague, not because nature has changed, but because humans are increasingly accepting virtual reality as truth.
Carl Richards even at the end of his confessionary tends to justify his behavior by stating that his ordeal has taught him that ‘we’ are a nation of risk takers and that some of us were were just overoptimistic; some were ignorant; some were deluded; some were greedy; some just had bad timing.
And even though I think Carl Richards may have learned some value lesson from his ordeal that may help him as a certified financial planner, I still feel that his education in Hard Realities versus the Creation of Alternative Realities, has not been completed yet. He still is struggling with the acceptance that the unscrupulous, which among others includes mass media, rent-seekers and power grabbers alike, magnificently understand the buttons on human emotions and push those buttons relentlessly in the pursuit of their self-interest.
If you really want to avoid certain future misery you have to accept the hard realities that are time proven and were already very obvious to the old tribes around the campfires:
• If something sounds too good to be true, it probably is. Check the facts before you get emotionally or financially invested in it;
• Be skeptical of dire predictions for the future. Carl Richards is right, we are a country of risk takers and especially when someone plays the threat of the end of the world card in order for us to open up our wallets, we tend to jump into the chaos quite readily.
• Don’t believe anything a politician tells you. It’s in their interest to tell you what you want to hear, and that can be a wide margin away from reality and most likely is. With apologies to Herman Cain fans (I too was hopeful about him) – but if a woman is willing to step into the docket of public opinion by saying that Cain offered her help getting a job in exchange for sex, and there are four others saying pretty much the same thing, it’s probably true. Did you actually expect him to ‘fess up any more than Clinton did when confronted with his Lewinsky moment? And no I don’t take his wife’s stand as any proof that he’s not smelling a bit different these days.
• Don’t fall in love with bloggers (including me). Anyone who can write reasonably well can now make a rather popular stand into the public discourse. People who can actually think, however, are another thing altogether. Learn to tell the difference.
• Follow the money. If a pharmaceutical company funds a survey that benefits the sale of their product, then you need an extra dose of salt in your diet.
• Find trusted sources, but even then keep your skeptic’s checklist close at hand.
Arbitrage Reality when it comes to your life.
Be aware that given the open-ended nature of government these days, no corner of society is off limits and no expense is too great for them. These days there are few greater fictions prevailing than that the government has a cure for all that ails, even though they will go to great lengths to make you think they do.
If we all agree, and many do, that we’re definitely living in a tough time right now, we should realize that this is the inevitable result of trying to manage far too many alternative realities instead of focusing on the hard realities of how things actually are. It’s kind of fundamental in a sense.
BUT….we also need to realize how far we have come most people will muddle on through, and in no time at all, in the historical context, things will be smoothly humming along, better than ever. And if you need a vision to get a sense of how quickly things change and will continue to change, answer this question: When was the first Apple iPhone offered for sale? Barely 4 years ago in June 2007. Take it from me: The world is going to change for the better, even faster than you can imagine it will.
Carl Richards’ closing sentence in the New York Times article somewhat confirms that statement in the fact that his ordeal had “only” a two year time frame: two years he actually needed to finish his financial planner education taken from the books into the streets: “All I have to do to remind myself is to remember what it felt like to stand outside the kitchen window only TWO YEARS ago, looking in on my life t the dinner table, and fearfully thinking I might not get it back.”