I agree strongly, SaveBuyLive. I think that acknowledging this is the key to getting ourselves out of the ditch.

The only part I would add is that it is the Passive Investing model of understanding how stock investing works that caused us to overspend so much. At the top of the bubble, stocks were valued at three times fair value. So the person who had $100,000 of real money in his portfolio was being told that he had $300,000. Wouldn’t you expect a huge amount of overspending when millions were being given wildly false information about how much money they had at their disposal?

We need to begin adjusting the numbers reported on people’s portfolio statements for the effect of overvaluation. That way, people will be able to plan their financial lives more effectively.

Rob

Rob Bennett’s last blog post..Podcast #96 — It’s All Schroeder’s Fault!

http://arichlife.passionsaving.com/

http://arichlife.passionsaving.com/2009/01/22/my-e-mail-to-the-virginia-police-re-the-campaign-of-terror-against-our-board-communities/

The people who held on to their stocks during the Great Depression recovered in 4 years and 4 months. It’s those who sold that realized a 78% loss.

And isn’t the very idea of Passive Investing that you hold on to your stocks until you actually need the money? Not until the market drops?

It ain’t over ’til you sell. I haven’t lost a penny!

(Great Depression info courtesy of http://www.townhallforhope.com)

Maybe not ALL of us, but everyone who spent themselves into debt, took on mortgages they couldn’t afford and falsely believed that housing prices would go up forever. Some of these people are economists, some are bankers, many are just average people.

SaveBuyLive’s last blog post..51% of Americans are now committed to either spending less or saving more

Thanks for sharing your thoughts, Shadox. I strongly agree with you that the problem is systemic. I am going to head over to your site and check out that long post. If I can think of something intelligent to say in response to it, I promise to leave the first comment!

I don’t agree with you re Passive Investing. My belief is that it is the massive marketing push that sold us all on Passive Investing that is the primary cause of the systemic problem. Our common sense told us that we should have been selling stocks when prices got to insane levels. But Passive Investing told us that stocks are always best for the long run and timing doesn’t work, common sense be darned.

I’m asking various blog owners if they would like to run guest blogs re the problems with the Passive Investing model. I’ll shoot you an e-mail asking if you would like to take a look at some words re this topic. The one that I am looking for a happy home for today is entitled “Passive Investing Is a Strategy for Extremists.”

Rob

Rob Bennett’s last blog post..“I Am Sorry to Take This Unprecedented Act”

However, as some of the other commenters mentioned, the real problem is with the bail-out. A bail-out was necessary to reduce the impact of bank failures on the economy, but the first step of any such bail-out should have been to wipe-out the existing shareholders who allowed management to take the risks that they did.

Finally, I am still a strong believer in passive / index investing. You can’t argue with facts.

Shadox’s last blog post..The Economy: What to Expect

Rob (author of the guest blog entry)

Cathy’s last blog post..A Tale of the American Car Company

The reason that people hate on the bankers is that, while everyone else is losing jobs and cutting back, the bankers have the ear of the government, and are taking taxpayer money to secure themselves and take their bonuses. Same deal with GM and Chrysler.

The Merrill Lynch bonuses were greedy at best, and criminal at worst.

Two specific examples happened recently,
I was hanging with Mom-in-law who was blaming the evil lawyers (I am one) complicating the passing of assets when someone dies (sort of what I do)…but who should she have been blaming? The legislatures who created the rules (probably lawyers also)!

Something a little more on point – a person was complaining about how if GM went completely under who the defined benefit pensions would be adversly affected, and this was the GOV’Ts FAULT!!!!

Just know who you should be blaming. Great Post.

My Journey’s last blog post..My Last Income Tax Update (hopefully)