Common Sense in Finance

Recently Hurriance Ike strikes but the finance world is striked by another kind of storm: Lehman Brothers go bankrupt and AIG is rescued by the Federal Reserve. Yes, you hear about those in news too.

Whoah, stocks can fall 90+% in one day!

Of course, the question is WHY?

The answer that I am given through radio talks and news is this: mortgage problems. So it was too easy to get loans. You can even buy a house without proof of income. Lose job? no longer can pay? Foreclosure. but no one buys that house now. So a ripple effect occurs and can bring down giants like Lehman Brothers and AIG.

Of course, any bad news come and people sell their stocks in panic. Snowball effect occurs.

Bad unemployment numbers? stocks tumble.

Bad relation with foreign country? stocks tumble.

People are so sensitive to news.

This game is too volatile to play. But everyone is playing it. Your 401k is at work.
Your retirement depends on this game.

Ok, why are all those supposed-to-be-smart business executives in expensive suits are so DUMB to let people to easily get loans? Should they know better? Perhaps we should simply use common sense in finance.

The underlying problem is people can't pay. Jobs are not here. Things are not produced here. How do you suppose to make those payments? "Well it is cheaper from China and India" Although this is true. but this is so short-sighted, Mr. Expensive-Suit-and-tie-Executive. Let's see when you get bankrupt next.