I want to share with you one bit of insight I picked up from one of the last stories I will probably ever read in Vanity Fair magazine. I say this not because I don’t like Vanity Fair……I love Vanity Fair….. but I will not  be renewing my subscription, partly due to what I’ve learned there and partly due to the economic horror stories I see going on all around me.  I see the handwriting on the wall and know, beyond certainty, now is the time to cut back.  I hope we all are able to do that, one subscription at a time, one Starbucks coffee at a time.  Or however one has to do it. So you might say Vanity Fair itself, and particularly its article Profiles in Panic, is responsible for losing one of their subscribers…..or scaring some commonsense into one of their subscribers, before it’s too late.

Ok. Here’s what really caught my attention…. aside from the one page color graphic of a bear, as huge as King Kong, dangling a Wall street exec off the Empire State Building:  this time the big boys were going down, too:

Summer Redstone, Chairman of Viacom and CBS had to sell $233 million of stock in those two companies to pay down part of an $800 million loan. Chesapeake Energy’s Aubrey McClendon, was forced by a margin call to sell 94 percent of this 32 million company shares into the bear market; worth $2.2 billion last July, sold in October for $569 million.  And Kirk Kerkorian, 91, lost about $12 billion on his 54 per cent ownership stake in MGM Mirage which owns about half the hotel rooms on  the Las Vegas Strip, including those in the Bellagio, MGM Grand, the Mirage and Mandalay Bay. The company’s stock is down 86 per cent this year and it’s bonds are deep into junk status.  Ouch!

Ok.  Those guys are billionaires.  You and I probably don’t have to worry about losing as much as they did. But it’s the dynamic beneath that which worries me and has affected even the mid-level Wall Street executives. In many cases, half of what they earn is in stock.  So they have a big net worth on paper.  Let’s just take one example from Profiles in Panic: Feature an executive who has worked at Lehman, has accumulated stock, some of it discounted at purchase, then the stock has accumulated value over time. “Let’s say a guy in that position borrowed $5 million against $30 million in stock.  It would seem a very conservative loan, right? Until the $30 million goe down to zero, which is what happened.  So now he’s negative $5 million.”  That’s $5million in the hole, in the red. And no way to make it up.  Oops.

Well, perhaps these numbers are too large to connect with, unless you subtract a few zeros.  Last night driving to Costco, telling my partner we had to cut our usual Costco spending spree in half, we were listening to NPR which was explaining the collapse of real estate values in Las Vegas.  One man, a realtor himself, I think, had bought a house last year for $350,000.  He had to stand in a long line to get a chance to make an offer on it. Now he had just had it appraised.  The new number was $150,000.  So, if he owed more than that on it, he was “under water” as they say, conjuring up images of holding one’s breath, trying not to drown, with the weight of a $150,000 house on your back.

So, the lesson to be learned is “Look brother, or sister, there but for the grace of God, go you….. and me.” If you have any big weights on your back….. extravagances, credit card debt, business costs… that you can get rid of or trim, now is the time to do it.  Somewhere, perhaps in this article, a pundit said, roughly, every 30 years or so society needs a shake up to readjust it’s values and how it spends its money.

While at Costco, we saw a junior size, motorized Cadillac convertible for youngsters who had parents willing to fork over $277.  Time to readjust.  Don’t let that be you.  At the risk of being a bit retro, tell your kids to put aside their Wiis for a bit and get on their computers to read Horatio Alger rags to riches stories, illustrating how down-and-out boys ( and now girls)  might be able to achieve the American Dream of wealth and success through hard work and determination. No mention there of Manolo Blahnik $700 shoes or little over-priced faux Cadillacs for the kiddos.

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