As featured in The Wall Street Journal, Money Magazine, and more!
     

The Greatest Loss of This Recession

This article was written by in People. 31 comments.


This is a guest article by The Weakonomist, an anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he’s witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic.

My retirement accounts have dropped as hard as any index, I’ve watched friends and loved ones lose jobs (and fear for my own), you can’t go through 30 minutes of news without a sad story about someone losing their home. You can’t trust your government, you can’t trust Wall Street, some can’t even trust their own families with money anymore. We have no money, no way to make more money, and no end in sight to this vicious cycle. All of this is a result of the worst recession since the Great Depression, but none of the above is the worst thing we’ve lost.

As much as I pretend to be an amateur economist, I’m just as much an amateur psychologist. I’m a student of behavioral economics. And our economy has taken its worst blow in the form of self-esteem. More powerful than the loss of trillions in wealth and more devastating than losing your home is the long term effect these events have on your state of mind. It’s important not to get caught in this trap as it can hinder you from getting back on your feet. Let’s look at three examples of how you might get damaged:

The Terrified – Knowing the rules for retirement saving, our friend here diligently saved 15% of his income for retirement. After 10 years of saving he is basically no better off than before because the markets are so down. Distraught, he loses faith in the market’s ability to fund his retirement. He won’t put any more money into stocks and mutual funds because he’s afraid of losing it.

The Failure – This guy has worked hard his entire life. He never made a ton of money but was able to finally buy a house in 2004. He lost his job and then lost his house. Saddled with the guilt of letting his entire family down, he has lost the will to pursue the American Dream.

The Worthless – School never came easy to this guy, but he worked hard and got all the way through college. Having been told all his life that a college degree will help in his career, he graduated only to find there are no jobs to be had. He feels there is something wrong with him. Despite his desire to contribute positively to society, he instead sees a world that doesn’t want him.

These three guys have the same thing in common, they followed the rules, they played the game, and they lost. Due to factors they couldn’t control their self-esteem and faith in the system is tarnished. If you’ve seen the effects of depression first-hand you know exactly how bad this can be.

But all hope is not lost for these folks. They need to get back on their feet and find ways to get over this slump. It will do no good for them to try and convince themselves it’s not their fault and they couldn’t have stopped it, the human mind is too stubborn to accept that. Instead they must trick their own consciousness into feeling good again.

Our Terrified friend must forget about the past. Rule number one of the investment rules he learned was that past performance is no indicator of the future. That goes for the good years and the bad years. Don’t pull out of the market, because if the month of March has taught us anything it’s that the best returns come right after the worst ones.

The Failure has forgotten what the American Dream is all about. Half of the dream of success is failure. You can’t completely win at something until you’ve lost. It’s true some people hit a stroke of luck and it makes it look easier, but if you give up on a dream because of a setback then you aren’t working hard enough for it. The only way not to feel like a failure after a loss is to turn that loss into a lesson and then create success.

Finally, Worthless can look into new methods of adding value to this world. If you’re out of work or hate your job, volunteer. Making your resources available to a cause without an expectation of being compensated is perhaps the greatest value offered to the world. It fills whitespace on a resume, makes you a few friends, and most importantly makes you feel needed.

Just as a recession can be a vicious cycle of layoffs, deflation, and negative market returns, your mental health in this environment can be a downward spiral of pessimism, depression, and fear. However identifying these feelings is the first step towards recovery, just like an economist identifies the weakest points in the world of commerce. Be proactive; help yourself and help others stem these emotions and we’ll all work faster towards recovery.

Updated February 8, 2011 and originally published April 16, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦144
Rank: Cent
About the author

The Weakonomist is the anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he's witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic. View all articles by .

{ 9 comments… read them below or add one }

avatar Nate

I think that one way for people to avoid the mind sets that you explained in participating in other activities. Do not make work your life. Be with your family, get a hobby, write a blog ;). When you have other focuses, loosing a job is not so hard.

Thanks,
Nate

Reply to this comment

avatar Misty Jane

Good comment. I would add this: Look around and find someone to help. Everyone is needed somewhere.
MJ

Reply to this comment

avatar The Weakonomist

Nate you are 100% correct. That’s a great addition.

Reply to this comment

avatar BobD

Great Article….There are several who need to hear this message

Reply to this comment

avatar Dana
avatar the weakonomist

I would tell him to:
A) Not write articles so long
B) Stop complaining about that fact that he didn’t take ownership of his own money
C) Not waste 30 minutes of my time when all he had to say was on the second page:

“It turns out that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart”

D) Learn from your mistakes and move forward. He’s one of the “terrified”.

Reply to this comment

avatar James

Flexo,

Another great posting. I think whats likely to happen is that people who have lived through this period of uncertainly will likely be more risk averse in the future. Its hard not to get anywhere for 10 years and not have it leave an impression on you.

Best,

James

Reply to this comment

avatar Mike

“C) Not waste 30 minutes of my time when all he had to say was on the second page”

Don’t exaggerate; this article takes 5-10 minutes to read, max.

Reply to this comment

avatar Ben

Our Terrified friend must forget about the past. Rule number one of the investment rules he learned was that past performance is no indicator of the future. That goes for the good years and the bad years. Don’t pull out of the market, because if the month of March has taught us anything it’s that the best returns come right after the worst ones.

Atta way to ignore the Rule Number One right after you state it.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: