Saipol Personal Financial Blog

Why The Preoccupation With Bad Financial News?

aid to you, “aren’t you sick and tired of hearing negative news”, I would feed into more of the negative news as there is chance that my question could trigger a negative response. Aside from that, I wonder what it is about some people that seem to enjoy being right about some sort of pending doom and gloom.

I believe that we give the news media a bad rap and the reason I say this is because of Ian’s Brown’s February 26th article in The Globe And Mail – Divas of doom find their fame in pedaling the direst of fortunes to pessimistic masses – Bleak is chic as demand grows for dark oracles of blood-filled streets and ‘zombie banks’.

Ian’s article isn’t talking about the doom and gloom of blood in the streets, civil wars, the collapse of Eastern Europe, and toppled governments coming from the news media. The bulk of the bad news in the article is coming out of the mouths of university professors.

I mentioned Ian’s article to Robert Gignac, author of ‘Wealth Is A State Of Mind’, at dinner on Tuesday, March 3rd and Robert’s response was that these purveyors of Financial Armageddon have been around for years and publish the same book every five to seven years with a different cover … sooner or later they will be right. It’s like the 36,000 DOW, sooner or later, it is going to happen as I recall someone saying in the early eighties that the DOW will never go past 3,000 points. Let’s all hope that prediction does not come true today.

My interest in Ian’s article is not about the doomsters and their predictions; it is about why they do it aside from the $50,000 speaking fees. There has got to be more to it than “bad news sells”.

On one hand we have the oracles of bad news and in the other we have the unconscious masses.

Ian writes that we seem to enjoy hiding under the blankets, being told how bad the future looks and that it shocks us into feeling like grownups and getting real and at the very least we should stop and take a closer look at what we are afraid of. (for a day in my life of taking a closer look at what brings up the fear in me, see the following article – Do Something That Scares You! )

It is like we have to become five years old again and get slapped and then be put in a corner to take a ‘time out’ and beg for forgiveness.

“There is a peculiar human need to contemplate disaster,” Vivian Rakoff, professor emeritus in the department of psychology at the University of Toronto says. Because there is the sense that if it gets bad enough, we can start over again”.

BTW – Rakoff is not a doom and gloomer.

There seems to be a thread in writing about and reading about doom and gloom.

As I get into this I want to preface that I am only wondering about all of this and wish to shed some insight and it is not my intention to attack. I say this because I believe that I will make real whatever I attack.

The creator of the doom and gloom could be attacking the system whether the system is right or wrong because they lack fulfillment in some way shape or form and still have something to prove. They could have an unconscious negative belief of “if I can’t or didn’t make the system work for me then I will attack the system in an attempt to destroy it and try to make everyone else as miserable as I am”. A person will get their need to prove met in a functional or a dysfunctional way, this law is non-negotiable.

The reader of the doom and gloom could be stuck in some kind of pattern that goes back to when they were five years old and sent for a time out awaiting forgiveness from the matriarch or patriarch that sent them there. Their past time out is now replaced with taking a bad news break expecting that good news will show up and that they will be forgiven for their sins.

This same pattern reminds me of what is happening with some corporations who were asleep at the wheel for the best part of the decade having to go back to the government for forgiveness in the form of a bailout.

So here we are in the process of having a financial time out waiting for the matriarch and the patriarch of the money to forgive us for our senseless ways so that we can start anew.

I believe we are in one of the most significant times in history where governments on a global scale are reinvesting in infrastructure to jump start the economy without having to experience a world war … this experience that we are having will pass.

Tags: Eighties, Oracles, S Brown

Financing A Small Business – What Alternatives Are There To Finance Your Business?

A lot of reasons exist why you should not only get into business, but also endure in business. You may want to take any of these decisions because of the love of a particular business, because of a need to do so, because you are bound to continue from where someone stopped or because you simply have a feeling to do so. In almost every country of the world, people are looking at the business sector as one of the bests. There are always statistics of these found in all countries. For example, the United States Department of Labor produces statistics which indicate that for almost the first three quarters of last year, unemployment was very high and a lot of people resorted to doing business.

There is no need to trouble yourself on the way your business is going to look like. All that is necessary for you to do is to develop a plan and seek for any of the so many options of securing finance for the business. The following lines are meant to encourage those coming into business and even those already in business to seek for means of financing their businesses:

Loans

This type of finance for a business is common all over the world and it can easily be gotten. In some cases, there is often a belief the loans can easily be gotten by everyone who applies for it. This may be true or false. It all depends on your business plan, the lending policy of the bank and the type and value of security you have. What makes this source of finance much considered is that interest rates on the loans are also reasonable. It should be warned that you should not get into taken of loans without seeking for proper recommendations from experts. Remember that it is always good to know the ins and outs of every type of loan ahead of getting into it.

Angel Financing

This is also another common source of finance that is common among new businesses and even those that are already in existence. What obtains here is that there are so many people who have the willingness and ability to pump finance into any business which have potentials to grow. Angel financing can be a family type. This will involve members of the same family pulling their resources together and investing it to develop a business plan. This is good but not preferable because of the close ties that the members may attach to each other, which may not be best for the health of a business. Angel financing can also be an affiliation angel. This will involve an association of friends willing to see a business plan from conception to completion. Another strand of angel financing is idea angel. These are financiers who are involved at the conception and actual progress of the business. Whatever the form of angel financing that you may opt for, you must get into the set of connections that these angels operate before you can benefit from financing.

Equity Financing

This involves raising money for the business by using what the business owns and can give out to the public. There are individuals willing to pay for equity in the business and even take part in the running of the business. Although this type of financing is common, it may not be available to every type of business. This is the more reason why every business owner must always carry out enough research in order to get the appropriate financing for his or her business.

Tags: Department Of Labor, Loans, United States Department Of Labor

Financial Crisis – Dynamics and Causes

A financial crisis has happened with regular intervals throughout the last century, it happens again in the year 2008, and probably will happen in the future in much the same way. There is no fundamental differences between such crises in our time and former crises, except perhaps that they occur faster, occur more frequently, but fortunately also heal faster.

THE TYPICAL SITUATION BEFORE THE CRISIS

The crisis often occurs after a long period of economic growth, high employment and high activity. The situation for companies and individuals are typically as follows:

- The economic activity in the whole society is very high after a long period of growth, but is beginning to decline.

- Stocks are traded for historically high quotes after a long period of rise of 300% or more, they have reached an all time high level, but they are beginning to decline again.

- The prizes of real estate properties are also high after a long period of growth, 300% or more, but they also are beginning to decline after an all time high level.

- Companies are often over-established after aggressive investments for borrowed money. The investments have not yet shown profitable, but the companies estimate great profits from the investments because they think the general growth will continue uninterruptedly.

- Also the average individuals have high debts after having invested massively in their homes and in luxury objects. They have some beginning problems with payment on their debts, but think these problems soon will go away with an anticipated further rises of personal income.

THE INITIAL STAGES OF THE CRISIS

The crisis usually has a slowly developing initial face. During this face the situation can reverse and the economy recover without great damages. In this initial period one can observe the following process:

- Steadily more companies realize that their massive investments do not pay back with the expected revenues and they have problems paying on their loans. They abruptly reduce further investments and begin selling off assets.  

- Steadily more individuals also realize they have a too great debt to handle with their private income. They reduce their consume and sell off properties and luxury objects. 

- Companies are getting steadily less orders, are selling less and have less to do because of reduced consume and investments.

- Earnings of companies and individuals are declining and many are downright loosing money.

- The stock market values are sharply declining, often 20-30%. 

- The property prizes are sharply declining, often 20-30%. 

THE FURTHER STAGES LEADING TO A FULL-BLOWN CRISIS

At some time there can be a critical turning point leading into the development of a full blown crisis that it is impossible to recover from in an easy way. This turning point occurs when a certain percentage, for example 10%, of individuals and companies realize that they do not have enough income to handle their debt, and that sell-off of properties and stocks will not nullify the debt. The full-blown crisis has these properties:

- The activity and earnings of companies are abruptly declining.

- Many companies experience massive losses.

- The number of companies and individuals with debt trouble is abruptly rising.

- The number of bankruptcies is abruptly rising.

- The unemployment level rises abruptly.

- Banks get into serious squeeze due to customers unable to pay on their debts and due to the decline in the value of properties serving as security for the loans.

- The troubled banks have to rise the interest rates by many percent to counteract the losses. But this act only increases the problems for other banks, individuals and companies and accelerates the crisis.

- A high percentage of the banks get unfunctional and bankrupt

- Now there will be massive sell-offs of properties and stocks. The sell-offs are exerted by individuals trying to free themselves from some of their debts and by banks trying to stop losses on loans.

- The stock market cracks down by an new 50% or more driven by the massive sell-offs.

- The real estate market also cracks down a new 50% or more due to massive sell-offs, but usually somewhat slower than the stock market.

THE CHARACTERISTICS OF AN ULTIMATE CRISIS

The ultimate stage of the crisis is seldom reached, because the governments will at some point take control of the financial systems and secure a minimum functionality. 

In the ultimate crisis the production of goods and services in the society has fallen 30% or more and continue to fall. Investments or building activities have totally halted. There is mass unemployment, 30% or more.

The financial system has nearly totally collapsed, and is only able to support the daily payment for food, energy and other necessities. The production facilities and organizations of the society have fallen apart 30% or more due to lack of maintenance, which means that the society is not able to recover in a short time.

THE END OF THE CRISIS

Before the crisis can end, all sell-offs to pay back on loans must be fulfilled. Then every actor in the society has to accept their losses. Debts that actors are not able to pay back must in some way be nullified. Then all the pieces remaining of the former companies must be fixed together again into new functional units. Then the society can slowly rebuild its strength.

THE CAUSES OF THE CRISIS

An important cause of the crisis are over-optimistic companies and individuals during the foregoing period of economic growth. They tend to believe that the general growth will continue forever without interrupting periods of economic decline. They also tend to overestimate themselves and think they will be a winner in the competition against other companies or persons, not a looser, not an average performer, but the winner.

This optimism, which is a general human property, make all actors borrow massive amounts of capital and invest them in homes, luxury objects and expansion of their business. This expansive behaviour tend to accelerate for quite a long time untill in meets the wall. 

Another cause are executives in banking companies tempted to lend out as much money as possible to the borrowers, regardless of the consequences for the bank and the borrowers, because this behaviour gives the executives an enormous short term personal gain.

HOW TO AVOID FINANCIAL CRISES

Future crises can only be prevented by hindering financial institution lending out more money to anyone that the borrowers can pay back in a comfortable way. This can only be done by governmental regulations that set clear criteria that must be fulfilled when a certain amount of money is lent out. 

Also banks must be forbidden to establish employment contracts for their executives that reward them directly for the amount of mortgages they establish.

Tags: Economy, Loans, Profits