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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Bearing the Bad News

by Ben Stein

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Posted on Tuesday, March 18, 2008, 12:00AM

Let me be the first to agree: The finance news lately is bad.

The collapse of venerable firm Bear Stearns in the past few days has been dazzling. The company was supposed to be worth a bare minimum of $80 per share. It turns out to have been worth one-fortieth of that -- a catastrophe for its employees, whose fortunes lay largely in Bear's stock (a super-good lesson in diversification for everyone).

That a business with a stellar reputation for measuring risk got it so wrong is a bad augury for other Wall Street firms. It turns out that the Street has been run largely as a gigantic casino, only a casino in which the house could lose big.

Waiting for the Other Shoe

Obviously, we're all wondering when the next shoe will drop, or if there will be another one at all.

In this environment, bank lending is curtailed and the legitimate work of Wall Street -- financing business investment -- slows down drastically. This, and not the collapse of Bear, is what will hurt the economy, and affect stock prices in the long run (or the medium run).

There's also an endless torrent of bad news about the falling dollar. Seven years of wild mismanagement of the federal budget by the Bush administration are coming home to roost. Bush, for whom I voted twice, inherited a giant surplus, and turned it into a giant deficit by his greatly excessive tax cuts. The need to finance the deficit has made the United States into the world's beggar, going from door to door with a tin cup.

A Perfect Storm

The need to finance the staggering trade deficit is even more horrific. We borrow close to $1.6 billion a day to feed our cars and air conditioners. These two deficits have simply demolished the value of the dollar. This has led to a self-reinforcing cycle in which oil states demand more dollars to offset the falling dollar and we need to borrow more to pay for those higher prices; this in turn leads to a still lower dollar, higher oil, and on and on.

Then there's the housing correction. Housing prices are falling in every part of the nation except Manhattan, and you can be sure Manhattan will join the ranks as soon as bankers lose their jobs. Homeowners get a bit discouraged when their homes fall in value, and this keeps them from buying at the local department store, which slows down the economy, too.

In other words, there is what some might cal la "perfect storm" of bad news on the economy.

Anti-Depression Tactics

However, as your oldest columnist, let me give you a few words of encouragement:

First, when recessions are building and when economic activity slows, the landscape always looks uniquely bleak. Commentators always say, "This time it's different and this time it's going to be another Great Depression." It isn't going to be another Great Depression, not by a long shot.

The Great Depression was caused by a Federal Reserve deliberately trying to slow down the economy and drastically overshooting its mark over and over again. This time, the Fed is actively stimulating the economy and flooding it with liquidity. To be sure, this effect is damped by the dim mood on Wall Street, but it always eventually gets traction and money starts to spread throughout society.

Unless the Fed is actively seeking to crimp economic activity -- as it did in the late 1970s and early 1980s, when we had the worst postwar recession -- there will not be a genuine depression. There could be a recession and there probably will be, but a real depression, with long-term unemployment over 15 percent, is a most unlikely prospect with a pro-expansion Fed.

Expansion on the Horizon

True, there are those immense federal budget deficits, which undeniably create havoc with our long-term dollar valuation and also create inflation. But in the short-run they're stimulative. They basically borrow from our grandchildren to buy goods and services today, and this is good for us right now.

So to have a serious downturn with a super-stimulative Fed and stimulative fiscal policy would be extremely rare.

Wall Street will suffer, and it will drag down the innocent as well as the guilty for a time. But eventually, the Fed moves will ease the pain for everyone, and people will once again start making money by lending money. Commodities will be a problem, too, but they always move in cycles. This one will come down, too, although it may take a very long time.

Finally, the immense surpluses that the far Eastern states and the petro states generate have to be invested here. There's simply no other market large enough to absorb them, and that, too, will be expansive.

Buy Now, Reap Later

In a word, this is going to be a rocky time for a while. Good people will suffer. But we'll get through it, and there will be no Great Depression in the foreseeable future.

If you have a good, long time horizon, it's time to buy European stocks, emerging markets, even our own market. But don't let yourself get short of liquidity. If you have a few years of cash and bonds on hand, get some stock now while there's blood in the streets. The good times will come back when you least expect them.

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178 Comments

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  • Andrew - Wednesday, March 26, 2008, 11:26PM ET  Report Abuse

    • Overall: 1/5

    Good ole' BenStein. Gotta love him. A few months ago he was telling us subprime was no big deal cuz it was only a small poercentage of loans. Then he mis diagnoses the great depression (as most mainstreamers still do today). It was caused by the malinvestment which was a response to the Fed's inflation, not the opposite. And the New Deal extended it, it didn't solve it. Also, he tells us budget defecits are no big deal. "Borrowing from our grandchildren". In other words, stealing from our grandchildren to cover for our own overconsumption and debt. Nice try, Ben, but you need to read some good books on economics, to say nothing of ethics.

  • sentimentum - Tuesday, March 25, 2008, 11:21AM ET  Report Abuse

    • Overall: 1/5

    2 months ago you were pooh-poohing the naysayers. And now it is going to be alright because the FED is in charge? Why didn't you just tell everybody to start singing "Happy Days are here again" while dispensing all the rest of your sunshine? A good actor never deviates from his script: Ben, who is pulling your strings to further separate trusting souls from their hard earned coin?

  • Sage Investor - Monday, March 24, 2008, 10:24PM ET  Report Abuse

    • Overall: 5/5

    I gave this 5 stars to offset the idiots that are giving this one star. Ben is right that now is a buying opportunity for those wise enough to buy low and sell high. The U.S. economy is not going anywhere. The economy is simply in a slump, which is always the best time to buy. There will always be extremist bulls and extremist bears. The wise will continue to buy when the bears say there is no bottom and sell when the bulls say there is no top.

  • HughR - Monday, March 24, 2008, 8:03PM ET  Report Abuse

    • Overall: 1/5

    Ben "Bad news" Stein is a joke.

  • Da Big Guy - Monday, March 24, 2008, 1:03PM ET  Report Abuse

    • Overall: 1/5

    Ben PLEASE give it up! You're beginning to sound like a moron!

  • Yahoo! Finance User - Monday, March 24, 2008, 2:37AM ET  Report Abuse

    • Overall: 2/5

    I won't be holding my breath for the good times to come! The increase in the cost of living is killing me and let us not forget that we still have to pay for a war of which there is NO end in sight!

  • Yahoo! Finance User - Monday, March 24, 2008, 12:35AM ET  Report Abuse

    • Overall: 1/5

    The quote " Bush, for whom I voted twice" should be enough to let readers know that there won't be any useful information in this article. For a true fiscal conservative, Bush's first term would have provided more than enough evidence of the free-spending, economic disaster that is today's republican party. Now, in large part due to the reckless fiscal policy of the "party of Reagan" the United States is in a position to pay an increasingly large percentage of GDP to service our national debt. Borrowing from our grandchildren to do this is not only selfish, it's self-defeating. Americans need to stop believing the myth that modern conservatism has anything to do with fiscal responsibility and wake up to the fact that there are very real economic problems in this country, and these won't be easy to solve. It's time to stop listening to the cheerleaders who espoused the supposed benefits of tax cuts, deregulation, and deficit spending and expose them for the opportunistic frauds that they are. Ben Stein is one of them.

  • Sol - Sunday, March 23, 2008, 9:23PM ET  Report Abuse

    • Overall: 1/5

    I'm still waiting for Ben to admit he was wrong advising Yahoo readers last summer that the credit crunch was all a illusion made up by hedge funds to scare investors out of their positions so the hedgies could scoop them up cheap. Who is Ben consulting with before he deals out all this abysmal investment advice? The billionaire Paris Hilton?

  • Steve - Sunday, March 23, 2008, 6:17PM ET  Report Abuse

    • Overall: 3/5

    Some good points, some bad, but unfortunately the immense federal deficit problem he sites is now, not some amorphous time in the future along with the inflation and "havoc" on the dollar. George and most republicans and some democrats may have borrowed and spent us into a crisis that more borrowing and from the feds point of view spending will not fix. I only hope those countries that continue to loan us money at unfathomly low interest rates considering the long term risk, don't figure it out to soon.

  • Yahoo! Finance User - Sunday, March 23, 2008, 3:03PM ET  Report Abuse

    • Overall: 1/5

    Let's face it, the party is over. The largest single employer in the US (the Federal Govt) has a balance sheet that would make Enron blush. When these federal employees begin to hit the bricks within the next 4 years, only then will we start to see the problem for what it is. All domestic markets have been propped up by massive federal spending disguised as govt. paychecks without which the housing and auto markets would have crashed already. Sooner or later the monied world will realize our country is financially insolvent and will abandon us quicker than a Zimbabwean bond offering. All those prudent people putting good dollars into their 401K and Roth accounts will see their payout made in the equivalent of Confederate money. There is one small comfort in all this however. As Rhett Butler so aptly stated, "There is slow money to be made in the building of an empire, but fast money to be made in the destruction of one." Start getting prepared to take advantage of the destruction of our empire.

  • Yahoo! Finance User - Sunday, March 23, 2008, 11:40AM ET  Report Abuse

    • Overall: 2/5

    Good 'ole Ben is very conservative and has many ideas. He always keeps up-beat, because we need some w/ a "Pillar of Strength", unlike our current administation.. OK people...our country has ENCOURAGED SPENDING with a capital "E". Revolving credit lines, car loans, student loans, home equity loans, 3rd party retail financing, etc. All this will extra equity will evaporate ! I hate to be an "alarmist", but w/ people losing their jobs, the USD$ falling, because of expensive energy imports, lack of an energy policy. The banks and/or retail lenders will wrote off MUCH more. Think about it --- credit cards & home equity loans were like people's piggy banks. Brighter note: We need an IMMEDIATE energy policy: 1) encourage natural gas, nuclear electric generation for immediate relief of electricity rates. 2) get rid of corn ethanol & use cellulose ethanol instead, to keep our food prices lower. 3) Policy makers should allow more oil drilling off the coasts of California, Alaska, Florida & the East Coast. The only relief for our economy is PROBABLY pumping more USD$$ into our economy, but that will "HURT" the USD$

  • K T - Sunday, March 23, 2008, 7:51AM ET  Report Abuse

    • Overall: 1/5

    Old Ben has become so marginalized, he will say anything to get anyone to read (or watch), whether they agree or not. How do you explain a film he is releasing next month that actually tries to validate creationisim as an intellectual position? Ben, you've gone off the deep end. If Yahoo is paying you to write this tripe... I guess you should be lucky you have a job. Pseudo-intellectual nobody. How's that for a tombstone inscription. I'm done with ya. It must be pretty sad for you to wake up and know that Jimmy Kimmel (?) is infinitely more popular than you ever were or will be. In a short period of time, trivia types will be asking "Does anyone remember the name Ben Stein? Anybody? Anybody? Anybody?" Your 15 minutes is up.... leave the stage!

  • Mark - Sunday, March 23, 2008, 1:18AM ET  Report Abuse

    • Overall: 1/5

    Wow! I thought we were just going to have a recession, but it's going to be a depression. Ben Stein has been soooooo wrong for so long now on everything that is happening on Wall Street! Last summer he was saying subprime was "NOTHING"! He has been so completely wrong for so long that I believe he's probably wrong on the "no Great Depression" quote. Yikes! I'm hiding my money under the mattress!

  • Dane - Saturday, March 22, 2008, 11:27PM ET  Report Abuse

    • Overall: 4/5

    I'm surprised to see Stein voted for Bush twice as an expert in economics, I guess to each his own. Personally, I think supply-side economics are just downright stupid. Bush obviously knows nothing about economics based on his quote when asked about the failing economy: "I am not an Economist, ask an economist that question!!!!". He didn't even know about the predictions of gas prices that have been put forth by several analyst around the country. The fact that his policies have any relation to the laffer curve whatsoever says a lot and cutting taxes along with increased government spending (war) has always been an equation that equals failure and turmoil (late 60's, late 80's, now). This could potentially turn into an inflation spiral if McCain goes into office considering he has admitted he is know good with economics either and I'm sure to appease the conservative movement, he will end up with a supply-sider as well. The deficit needs to be financed now, thats it. It's time for tough times (even though it's tough now) and taxes should go back up, especially the capital gains tax. I'm not a big believer in tax rates largely affecting the incentive to work. If taxes go up, well the check will be a bit lower. My family has been through the poverty level, and are now up the middle class level as of now. Tax rates were the last thing on our mind as far as working is considered, no matter what the laffer curve says.

  • Yahoo! Finance User - Saturday, March 22, 2008, 8:06PM ET  Report Abuse

    • Overall: 5/5

    I have to give Ben 5 stars for trying to pull a Warren Buffet move on us. Based on speculation from history text books, you would think now is a good time to buy. The market is low and sure there is some blood on the streets. I am an Investment Banker for one of the largest investments banks on Wall Street. I see and understand too much about the current market. I would agree with Ben, their is some buying opportunities. Not based on history however. Buying opportunity of the survivors is a whole new entry to the 21st Century. If you choose to invest your money now in the market, in any stock what so ever, expect to see a decline. Investing in the market now is extremely risky. The problem is no one knows where the bottom is. When you buy stock in this type of market condition, especially bank stocks, you are betting on what bank will survive. I predict that 1 out of six major banks will survive and make it through this horrible nightmare. Great Depression????? We are closer to one than you think. Recession???? Who the heck is still talking about a recession? We are done past the recession; the USA is on the brink of another Great Depression. The fed cuts interest rates and the market surges for a day and dazzles maybe the next. The truth of the matter is, interest rate cuts are hurting the dollar, which allows oil to rise, causes foreign money to leave the USA and causes the market to crash further. On the flip side, the dollar is so weak, some Europeans investors are willing to be aggressive investors and will buy our weak stocks based on the value their Euro dollar against our peso, excuse me… I meant to say dollar. Canadian Aggressive Investors are even getting excited. It is a double value for foreigners. The reality is that most investors don’t like to roll their dice, even on a double run table. My prediction of 1 out of 6 banks will survive is truly a random number. Who really knows the number of banks to fail? However, I prepare for the worst and expect the best. The Fed’s would have to send each American a $40,000.00 rebate check and take on all the current mortgage debt to get us out of this one. Welcome the 21st Century Great Depression. A couple more banks down and their will be a run on banks.

  • Yahoo! Finance User - Saturday, March 22, 2008, 10:23AM ET  Report Abuse

    • Overall: 2/5

    Et tu Ben? I can't believe that you have bought into the canard tht the Bush tax cuts caused the deficit to soar. As Casey Stengel said, "You could look it up". Tax revenues actually soared after the tax cuts as the economy grew and people took advantage of a reduced capital gains tax to sell assets. The problem wasn't the tax cuts it was (and remains) the spending spree the administration, with Congress's help went on in the last seven years.

  • t - Friday, March 21, 2008, 6:44PM ET  Report Abuse

    • Overall: 1/5

    http://blogs.orlandosentinel.com/entertainment_movies_blog/2008/02/is-ben-stein-th.html

  • jimsmename - Friday, March 21, 2008, 6:33PM ET  Report Abuse

    • Overall: 1/5

    Ben, why do you still have a forum for your financial opinions? You have been consistently wrong for years! Anyone can google back and look at your past prognostications and see that. And you are getting really wacky with all your biblical creation nonsense. You should retire today.

  • MonamiS - Friday, March 21, 2008, 2:15PM ET  Report Abuse

    • Overall: 1/5

    What kind of person votes for an idiot like Bush twice and then complains about the economy which he has been destroying since he got into office. I work on Wall Street and contrary to what some uninformed people might think, Wall Street HATES Bush and has given him little support knowing he would be bad for the economy. The only people that don't understand this are the illiterate types who watch Fox. Congratulations to everyone who voted for Bush, you were singlehandedly involved in bankrupting our country. Hopefully you're still making your payments on your pickup trucks and backyard deep fryers.

  • Yahoo! Finance User - Friday, March 21, 2008, 2:10PM ET  Report Abuse

    • Overall: 1/5

    Clinton left Bush the biggest budget surplus in any of our lives, every single president since Reagan has had to take from Social Security to pay interest on the national debt, the debt that was spearheaded by Reagan. Bush has weakened our economy to the point where we are having third world type debt problems. Any moron that voted for Bush twice deserves the huge burden that's been dropped on him. Read a recent Merrill report on how virtually every market and the economy in general are leaps and bounds stronger under Democratic administration than Republican ones. Republicans have done a good job convincing the trailer trash crowd that they're good for the economy, while at the same time those people are the last to see any benefit under their administrations. The typical Yahoo user who is probably middle class (earning under $150K) has actually lost income during the Bush administration, this is the first time this has happened since the 1920s. But trailer trash types don't really understand numbers anyway, just what dumb fat hicks like Rush Limbaugh rants about.

  • Yahoo! Finance User - Friday, March 21, 2008, 1:57PM ET  Report Abuse

    • Overall: 1/5

    Sorry to disagree, Clinton did not leave a giant surplus, if you take out the social security surplus, he didn't even balance the budget. While creating the greatest financial bubble in history, Clinton couldn't even pay off any of the national debt. Bush has not done well, but Clinton was just as bad.

  • Steve - Friday, March 21, 2008, 1:33PM ET  Report Abuse

    • Overall: 3/5

    I love ya Ben, but the tax cuts are to blame?! Are you kidding me? Last year my wife quit work to stay ay home full time. We then reduced spending (slightky, wew were always living below our means) and have managed to stay afloat. Maybe I could have continued to live high off the hog and just blame our lack of income, rather than profligate spending, for the resulting backruptcy.

  • Yahoo! Finance User - Friday, March 21, 2008, 12:53PM ET  Report Abuse

    • Overall: 1/5

    Ben, while you cleverly hide your democratic party credentials by saying you voted for Bush twice, that's nice, but you miss the mark by indicting Bush for tax cuts. The current deficit is a result of spending, not declining tax revenues resultant from a tax cut. Tax cuts pay for themselves in stimulating the economy and there is more than sufficient evidence over the years to prove that, but you just don't want to leave the comfort of those democrat platform tendencies for "tax and spend". Moreover, while you're a seemingly nice and entertaining guy, I can't help but wonder if hanging out around all the power and intellect of upper eschelon environs give you the mindset that you (and government) knows better how to spend people's money than they do themselves, so you always default toward more taxes through wasteful confiscatory tax programs. I'll pass, but if you feel more taxes are necessary, you can send some of your money to the Treasury anytime.

  • Yahoo! Finance User - Friday, March 21, 2008, 10:06AM ET  Report Abuse

    • Overall: 1/5

    Bush did not cause the deficits by tax cutting. He did it by signing every spending bill that congress sent by his desk. He also had to (or chose to) deal with some abnormalities - significant information technology and security spending after 9/11; "bailout" of New Orleans and gulf coast after hurricanes, ongoing war against terror, now the the misguided bailout of the mortgage mess and wall street and banks that you so wholeheartedly endorse. Ben, as far as the economy, you and the fed need to realize that easy money is not the answer. Indeed, it is what got us into this mess. You should read Bill Fleckenstein's articles at MSN Money to understand why.

  • Rudy - Thursday, March 20, 2008, 5:40PM ET  Report Abuse

    • Overall: 3/5

    One quibble: I agree with Ben that the Bush Administration is responsible for this huge deficit, but I DISAGREE strongly with his statement that it's because of "greatly excessive tax cuts." It's not the tax cuts that are greatly excessive but the increase in SPENDING. All those trillions for Iraq, prescription drugs, No Child Left Behind, Katrina Bailout, and now Wall Street Bailout. I too voted for Bush twice. I like him EXCEPT that he does spend money like a drunk sailor on port leave.

  • Willy - Thursday, March 20, 2008, 5:20PM ET  Report Abuse

    • Overall: 4/5

    GW shouldn't even be mentioned in the same breath as Reagan -- who history will prove was the greatest US President. Please, let's not forget the second half of the word-pair "deficit spending". It's spending that has caused America's financial problems -- including ill-advised bail outs, social - ist programs, and all the rest. Cut government spending back to solely providing for highways and national military security, let us keep the money we earn, and get out of our way! Watch what America could do and become then!

  • Nemo - Thursday, March 20, 2008, 4:48PM ET  Report Abuse

    • Overall: 4/5

    Yes, this recession will come to an end. And then the bill for all Bush's mess comes due. Thank you for honestly admitting you voted for the worst President in U.S. history. The first time I could understand, considering Bush Sr.'s willingness to sacrifice his career to balance the budget; but by 2004 everybody who was paying attention realized that Bush Jr. is NOT conservative, NOT responsible, etc. That means you & all who voted for him the second time ARE responsible for his mistakes. I wish ONLY those who voted Reagan & Bush Jr. and the deficits they created (the Laffer curve is really a laugh, isn't it!) were the only people who had to pay for their abuses. And it's not the recession that scares me - it's the freezing up of credit and the long-term deficits.

  • Yahoo! Finance User - Thursday, March 20, 2008, 3:57PM ET  Report Abuse

    • Overall: 5/5

    Closing bell is imminent. The world forgot to end this week I guess.

  • taopraxis - Thursday, March 20, 2008, 2:54PM ET  Report Abuse

    • Overall: 1/5

    You stated: "Commentators always say, "This time it's different and this time it's going to be another Great Depression." It isn't going to be another Great Depression..." As *you* happen to be a commentator yourself, this statement has the delightful quality of being simultaneously untrue, illogical, incoherent, and meaningless. Moreover, it is an entirely unoriginal idea, typical of that parroted by that peculiar group mind that shill for the inaptly named "securities" business. What a joke.

  • Yahoo! Finance User - Thursday, March 20, 2008, 2:34PM ET  Report Abuse

    • Overall: 5/5

    To the liberal coolaide drinker and Bush hater: Your party will bankrupt this country with wealth redistribution! Lets keep the Clampits and the Race Baters out of the White House!

Showing comments 6-35 of 178<< PreviousNext >>
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