Chapter 1—2009: The New Reality
I bet you are scared. Angry, too. And confused. These are absolutely rational and appropriate responses to the global credit crisis that erupted in 2008 and continues to send tremors through every household in America. And I do mean every household. No matter how conscientious you have been with managing your money, the events of 2008 have battered us all.
The one in 10 homeowners who are at risk of facing foreclosure on their homes are obviously scared, but so too are the 9 out of 10 homeowners who can afford their mortgage but are watching plummeting home values jeopardize their financial security.
It’s not just the overreaching Wall Street firms who are paying the price for those risky investments. Every U.S. taxpayer is now on the hook for a massive bailout—a bailout engineered by the same players in the federal government that had turned their back on regulating the very practices at the root of today’s financial crisis. Angry? You should be.
But wait—it gets worse: The colossal miscalculations on Wall Street have contributed to a massive decline in the value of your 401(k) and IRA. Years of diligent saving have been wiped out, and you are afraid that your retirement accounts will never fully recover.
Early predictions that the fallout in the consumer credit markets would be limited to subprime lending to borrowers with low credit scores proved terribly wrong. The truth is that credit lines are being reeled in and home equity lines of credit are being rescinded across the board as banks worry that their clients—even those with solid payment histories—won’t be able to keep up with the bills if the current crisis turns into a deep recession. A sparkling FICO credit score is no longer a guarantee that you will land a mortgage or car loan with decent terms. Right now lenders are more interested in keeping any available cash on their books, rather than out on loan.
There is also a growing sense that repercussions from the credit crisis will turn what might have been a moderate economic slowdown in 2009 into an especially deep recession. If that scenario plays out, businesses will likely announce more and bigger layoffs than we saw in 2008, when unemployment rose from 4.9 % to 6.5 % at the end of October. In 2009, your job may be on the line as your employer, or your own business, struggles with the fallout from the credit crisis.
That’s a daunting platter of problems to contend with. Did I say daunting? What I meant was overwhelming.
As the economic outlook grew more troubling, I came to the realization that I had to write this book and get it published quickly. You want to do what’s right, but it’s no longer clear what right is anymore. Or perhaps you are someone who always figured you had time to deal with the money issues in your life later. The credit crisis has woken you up; later is now—but where do you start?
This book’s title is a promise. This is my Action Plan for every important financial move you need to make in 2009. Follow the advice here and you will know exactly what you nee d to do to adapt to the new post-meltdown reality. Just as important, you will know what not to do. In times of great stress, it is natural to react by making decisions and taking actions that bring instant relief. When it comes to financial matters, oft en the decisions that calm us amid tumult are actions that can imperil our long-term security. In the pages that follow, I will tell you when to act and when to leave it be—which will, in some cases, require a little bit of faith and nerves of steel, but I promise I will never steer you wrong or put your dreams of a secure future in peril. You can count on me.