Monday, September 15, 2008

Join the Party

I don't know how much insight my readers have into the inner-workings of the United States financial system, though there are so few of them I could probably ask each person individually. I studied finance only minimally in school, but I do a lot of reading on finance these days as I try to figure out if the $10 I have invested is going to increase in value, or if I will have to redevelop my long-term plan to purchase all the cheeseburgers I can eat for the rest of my life from this investment. My current outlook: I may have to figure out another way to fund cheeseburger consumption.

Maybe if the interest is out there, I can work to put my simplistic spin on an extremely complex financial problem that the United States is currently experiencing. If the interest is not out there, then I will work to put extra time into this subject - because we should all be really, really interested and aware of what is going on right now.

The news at hand today is that in the last 18 hours, Lehman Brothers, an investment bank and brokerage, had to file for Chapter 11 bankruptcy and Merrill Lynch, one of the best known names in finance, was purchased by Bank of America. This is big news for lots of people all over the world, but we in Michigan are relatively insulated from these events because the finance industry is not really our forte. There are lots of individual topics to discuss regarding these events, but the one I want to mention here is this article about layoffs in the finance business, including probably more than 20K employees at Lehman alone.

Truly, my heart goes out to everyone who has lost a job recently in these and other financial institutions, and this problem is compounded further by the fact that the industry as a whole seems to be inevitably shrinking for the foreseeable future - also meaning that individuals will have a much harder time finding work in their field. Clearly and unarguably this is terrible news, but it does highlight to me (and my Michigan focus) some of the problems with the way that the media covers (or fails to cover) some of the problems with Michigan's economy. This coverage also indicates some of the anti-Michigan sentiment that exists in the media.

Michigan workers have lost hundreds of thousands of jobs, primarily in the automotive industry, over the past decade. Non-local news sources cover Michigan layoffs and buyouts in the following paraphrased manner "Another 20K lost their jobs in Michigan. That's too bad, boy do they suck, but I don't care that much because it doesn't impact me." However, the job losses in the financial system are a huge deal because they indicate that rich people may lose their money. All of a sudden, 20K people losing their jobs at Lehman is the end of the world, but 100K in Michigan is essentially irrelevant. The 20K people at Lehman who make over $200K in a year are significant, but the 100K who make $60K are not worth worrying about. That is outrageous to my simple mind. Isn't it the people who are making less than $100K in a year who are going to be struggling more? On the issue of job loss, there is significant inequity in the way the news is reported based on who is losing the job.

All of this comes to a main point of valuation that I want to make - specifically the value of a goods-based economy (such as manufactured products) versus that of a magical economy where people in New York and San Francisco invent money from nowhere. We here, in Michigan, are responsible for mass producing and selling actual products that people want to buy. Our industries are not generating profit these days, but they continue to produce actual, specific products that are available for purchase - not collateralized debt obligations that were generating greater than quarter-million-dollar-a-year salaries for former employees of Lehman and almost no one understands. And yet, almost no one outside of Michigan and other parts of the Midwest values that we continue to produce products that are desired in all places on the globe. We are struggling mightily, but our economy is understandable, quantifiable, and fixable. Our jobs may not provide the type of wealth that you might find at Lehman Brothers or Bear Stearns, but at the same time, it is not hard to explain to someone where the employees' salaries come from and how to fix a struggling business (i.e. sell the product for more than it costs to produce the product). We are considered an undesirable place to live because job opportunities are not available, but the jobs that we do have are not based on (clearly flawed and failing) razzle dazzle. It is time for the rest of the U.S. to realize that we are an important component of the backbone of our national economy and we are not second-class citizens because our available work doesn't offer BS humungous salaries.

I'm all over the place here and I know that. I'm a little jumpy because I was stuck inside all weekend from the rain, but maybe I managed to make a couple of points that make sense. If not, WHAT'S THAT?!


Dan A. said...

I read a week ago or so about ML having trouble. I was worried of course because I remember my parents having money with them. Though now, I believe most of the money is gone and (as cold as it may sound) I don't really care quite as much.

Brad said...

Title suggestion - "Welcome to the party, pal!", from Die Hard.