I want to blame people too!!!

All the talking heads on TV get to blame people...all the local rags get to blame people...writers all over the Internet are blaming people...SO WHY NOT ME!!

The financial condition of America and the world is a product of the times. There were a lot of unfortunate things happening all at once that have snuck up on us so to speak. Let me take you down my train of thought. I will try not to discuss what is already known to be a problem: Americans depend too much on debt to live like they want. I will however point out something that many might not be considering....

Katrina was the start of this downward spiral. When we were faced with the first oil shortages I was working in as a product manager for a petrochemicals line. There were price increases on top of increases coming in back to back. I hadn't finished calculating the effects of the first and another would show up. I was working hard to find a way to offset the costs of certain products across my entire line so that one item didn't take sudden dramatic increases over others. It was a nightmare and my management was frustrated. You know the phrase “Shoot the messenger”; well I know its true meaning.

Outside of my corporate experience were the fuel shortages. We started to experience just after the hurricane. I remember watching the prices shoot up and sitting in the lines at the pumps. People went into a panic about not having gas and more than a few fist fights resulted. Refineries were damaged, crews were missing in the wake of the disaster, and people were displaced. So began what I believe is the largest price increase in history on a consumer good over the course of 2-3 years.

When you think about crude oil, you have to also know about all of its uses. Crude oil isn't just made into fuel and engine oil. Crude is refined into a large number of products. Some of them are used as ingredients in others, and some are more specialized. (More information on How Stuff Works, look at the flash animation if you'd rather not read).

There is a lot of stuff that crude goes into - Plastics, Soaps, Detergents, Greases, Oils, Additives, Glues, Etc...Etc. Crude oil is used in some form or another in every industry. When you raise the price on something that impacts every industry, that cost is passed on in every industry. This is the first step or first phase.

Phase two is the budgetary crisis on "Main Street" after prices have been increased so many basic needs items. Take this example: the average household has a 15 gallon car that gets 25 miles per gallon. Before Katrina the average price was $1.50 a gallon. The average distance commuted is 25 miles a day (55 minutes a day if you cared to know that, too.) So that tank of gas cost $22.50 (without taxes) and few people just drive 25 miles commuting...most drive out to lunch, then do errands, drop off the kids, pick up the kids, go to soccer practice...you get the idea. So that 25 miles per day is really 40 miles per day during the week, and weekends are usually more hectic so assume they are 60 miles a day. The average car has a 375 mile range under optimum conditions (which we will assume here) so you’re expecting to get at least 1 week out of a tank given my hypothesis. That would be spending $22.50 a week for gas - which was $90.00 a month for fuel.

Now we have to look at today’s situation. Assuming that nothing in your driving habits has changed you are now spending $3.50 up to $4.50 a gallon. We will use $4.00 a gallon for this example or $60.00 per tank which is $240.00 a month. $37.50 more a week and $150.00 more a month than a couple years ago! That’s a lot of lunches out, or Wendy’s double-stack sandwiches! Want another twist? Most families have two cars, going two different directions. That would mean that families have to have $500.00 a month going to fuel compared to $180.00 a couple years ago. If you are under whelmed at this point with my analysis take into consideration that the average income has not kept pace with this increase.

Households were not singled out by this. Companies large and small are feeling this crunch. Particularly hard hit is the fresh foods industry (meat, produce, and milk products) that uses fuel to harvest, process, and deliver the food to the stores we shop at. There are very few consumer goods that you can buy that did not get shipped by truck. That means that shipping companies have had their own increases and every industry that depends on them have passed them along. This was a cost of living increase that might not have been noticed, or publicized as much as the fuel increases. According to my wild assumptions, we have seen a 36% increase to the cost of living that has not been matched by increases to household income. The typical cost of living increase is 3% a year which doesn’t match current conditions.

What do people do when they are low on cash? They eat in, buy fewer name brand products, and go on fewer vacations. They invest less, save less, and spend less. If they have investments they may cash out to get needed money. The vacuum caused by people pulling money out of investments and the reduction in savings is causing banks to have less money to lend and less money to invest on their own. When banks have less money to lend and less money to invest, they have less money to cover their own obligations. People and companies that have payments to make, pay the minimum. Are you seeing what I see yet? We are all to blame in some way or another. We have all worked together to cause this situation, but we didn’t do it maliciously.

Mortgage companies don't usually hold onto the mortgage, they sell it off after you signed the paperwork. This happened to me (I have a fixed rate loan at a respectable rate, but due to my veteran status I used a lender that specialized in VA loans) and now I do business with Wells Fargo. So, did the banks know what crap they were buying from the lenders? Someone may have been asleep at the wheel, but there are people out there that are walking away with millions in profits but no share of the blame. Predatory lenders setup the impossible terms and drew up mortgages that should never have been allowed. They turned around and sold these to the unsuspecting banks. These banks are now hemorrhaging because of it. I would love to know the percentage of bad loans that were purchased from bad lenders vs. the ones issued by the banks themselves.

In finance and economics there is never one person to blame. There is always lots of blame. In the media and the white house they only blame the most visible causes to get the most attention from taxpayers and consumers. I like to call that fearmongering. Exciting the public because it gets attention or creates viewers thus increasing ratings rather than actually telling anything closely related to the truth. Truth as it is doesn't always sizzle; it needs twisting and manipulation to really sizzle.

We are going to have to learn from past experiences to plan our way out of this. What worked and what didn’t. My own experience has taught me that throwing gobs of money at a problem never solves anything. The only real fix is finding the problem, analyzing the causes, and developing solutions to pick from. Gobs and gobs of money only act like gauze over an open wound. It will slow the bleeding, but until the doctors do x-rays, diagnosis, and stitch up the gash nothing will be solved.

I feel better now for having gotten that off my chest...thanks for reading.