Smarty_Pants'  Instablog

I recently received an email from an old friend who retired to manage his money about 20 years ago.  He is a very astute and conservative investor.  The majority of his money goes into municipal and corporate bonds and with the remainder he often takes positions in the stock market which might last for a year or two, based on a trend he perceives as inevitable.  He has done very well with his money and lives comfortably.

Upon reading his email however, I discovered he was somewhat less than happy about his long-standing position in GM debt.  He reads widely, and is aware of the state of GM, and fully understands the ramifications of bankruptcy.  What prompted his email wasn't the pending GM collapse, but the attempted rescue effort.

In case you don't know, when a corporation is liquidated in bankruptcy the assets are sold off and the proceeds received are used to pay off secured creditors and debt holders (based on the priority of their debts).  What is left over is used to repay unsecured creditors.  Anything remaining after that is divided among the stockholders.

One has to be amused at all the blather spouted on the tube coming from self proclaimed economists.  They all have their favorite pet theory, usually one that's very complex and hard to follow.  Something we "little people" could certainly never comprehend, so we should just 'trust them' to interpret economic law for us.

Well, in my humble opinion, economics is pretty simple to understand at its basic root.  Simply put, "Economic Law" is nothing more than a formalization of natural human behavior. 

A bit over a week ago, I took a drive to a nearby small city a little over an hour away.  On the way there I took the main highway and on the way back I tried the scenic coastal highway dotted with expensive vacation communities which sprouted over the past decade.

What I saw was telling.  There were 'For Sale' signs everywhere.  On everything.  Empty houses, empty condos, empty storefronts, empty commercial lots, used cars, used boats.  There were even a few sizeable boats which were run aground or sunk and abandoned.

The recession is starting to pinch hard.  John and Jane Q. Public are cutting back to bare necessities and doing their best to sell what ever else they own to raise cash.