Part 1

All my phones ringing awakened me yesterday morning: the home phone, my cell phone and even the fax line were ringing. As if that was not enough, doorbell ringing was ringing too. It was too early thus the business office and phones were not answering. And it made some very nervous people decide to come directly to my home.

“What will happen to my pension and my money? You said Bank of America passed your grading system of the banks so I did not pull out my money on time. Now they are filing for bankruptcy,” screamed an older gentleman at me at my doorstep. I called him in the house, calmed him down, offer him coffee and asked him to repeat himself. Apparently he was a little disoriented and confused with all the financial news and got the news backwards about Merrill Lynch and Bank of America. He has substantial assets in B of A and yet has not heard from his broker at all for the last 9 months. As his Enrolled Agent/Tax Advisor I discussed and provided him with what I believed were best tax strategies related to his investments to provide him maximum cash flow every month. But I told him that professional tax and investment advices are given only by licensed finance professional. I only offer investment related advice in specific context related to my client’s overall tax strategies and financial education. Investment management practice that includes advising clients on their investment portfolio requires a license as does auditing or tax practices. They should be calling their brokerage firms not me. But I had always been available to them in previous years and been offering them advice in a few areas that in ways impacted their investments indirectly and it made them feel I was their investment advisor as well. I had very careful in the manner I gave tax strategies and financial education to my former clients so as not to be construed as giving investment advisory services – because I am not licensed to do that.

Habits die hard. My former tax clients call me all the time the whole year round asking anything from taxes, finance, business, loans, credit cards, real estate, stock markets, etc. Many have forgotten the letter I sent them at the beginning of the year advising them of my plan to close my Tax Practice. They have been calling me this whole month and I found that I could not very well simply turn a deaf ear on them. They are nervous and full of questions and understandably so. Unfortunately I could not give them answers they wanted to hear. They want me to assure them that their investments are safe and want to know the safe banks or brokerage to transfer to. No investment advisor can give such assurance especially at this time.

Some of these former clients are retirees who are 100% dependent on cash flows coming from their pensions and investments for their monthly survival. Fortunately they were willing to craft a lifestyle that was suitable to the size of each of their monthly cash flow. They adjusted their attitude regarding spending using credit, gave up illusions of buying vacation homes that they could not afford. Some of them actually sold their vacation homes and got rid of the second mortgage and time-shares expenses. They are happier living within their means than trying to keep social appearances.

However, their cash flows from their financial security with their simplified lifestyles are threatened by these man-made financial tornadoes and hurricanes. They want to know who should be made responsible for these messes. My heart fully goes out to them. I was glad to calm down this one man about the misunderstanding about Bank of America and Merrill Lynch. I only wish the problem was that simple – as simple as straightening out facts or news.

But this unprecedented financial crisis in our hands is real and of incredible magnitude that it behooves everyone to understand how we got here and what lessons can be learned and what should one be doing given his/her personal situation.

I personally resent and find it condescending the tone of government that somehow underestimate the ability and desire of the average America to understand how all these came about and want to know who should be held accountable and what lessons should be learned.

It seemed not enough that the taxpayers are the ones who will be left holding the bag at the end of all these. The corporate executives are not the ones suffering from cash flow to pay their mortgages or put food on the table. They harvested millions of bonuses for all the financial gymnastic performances they did in the past years that built the pyramid of these investing instruments that were highly leveraged in ways only the financial scientists can understand their true values. It looks like we have not learned our lessons from the Enron debacle. Many of these investment transactions were recorded as off balance items to hide the nature of the debts like they did in Enron days. But we have learned from Enron that these can only stay hidden for a while. When the true value of assets is not there, the truth is bound to come out. The sad thing is that the consequences sometime do not fall necessarily on the right shoulders – the culprits’ shoulders.

 To be continued with:

1. The perfect Storm and The Zero Factor

2. What is America Left With?

3. What does this problem mean to you?

4. Any opportunities to be mined from this mess