Madoff's auction

More on Mr. Madoff who seemed to become an epiphany of the Wall St. tycoons of late- recent auction of his personal possessions gave us a glance of his hyperexuberant lifestyle. Among other items is his wristwatch worth of $85K.

What I don't understand about all this is why people like him needed to keep on buying these items? He proved that he is "wealthy" many times over to all of his acquaintances and to himself many, many years ago, so no matter how he dressed, where he lived or what wristwatch he wore he still would've been thought of as the financial titan. I can't explain this by any rational means. I guess, it was pure greed...

Recently I visited that part of Europe that never been rich, and just recently became flush with cash. There most of the people would judge the degree of your success purely by the clothes you wear, the car you drive, and... you guessed right, the wristwatch you wear! Stories of your interesting, challenging , accomplished and, overall, happy life matter not to them. And I sort of understand them- they grew up in abject poverty, and now all the external attributes of wealth are perceived as success in life.

But to see the same logic emanating from the educated, albeit criminal, financial tycoons of the modern Western world??

The only saving grace in all of it is that Wall St. is not Main St.

http://www.msnbc.msn.com/id/33917333/ns/business-us_business/

End of conspicuous consumption?

I could not believe my eyes when I saw this article about people becoming frugal all of a sudden. There was even a mention of a Great Depression mentality of extreme frugality (rhyme unintended)
http://www.chicagotribune.com/business/sns-ap-consumers-changing-habits,0,5126139.story

People trying to get rid of their gas-guzzlers. Discounters see brisk business. Bicycling to work. Will we see the death of conspicuous consumption and see the dawn of ...living within one's means( and maybe even below those means)?
It was 30 years overdue but better late than never.

Living rich without BEING rich

Now, foreclosures hit the Hamptons' properties. People face foreclosures on their $1-10 million houses. As it turns out, these people are (or were?) living like rich without being rich.
The Wall Streeters mentioned in the article might not have any wealth built during all these years of financial boom( the same Wall Streeters serve as financial advisers for lots and lots of people!)
Instead, they had a lifestyle of the rich.
http://www.nypost.com/seven/05122008/news/regionalnews/trouble_in_li_paradise_110497.htm

Wealth ≠ earnings: vivid example

This is sort of a follow up post on current real estate problems, but not only that: it illustrates that your true wealth has very little to do with how much you make.
This very well known professional athlete who made millions of dollars a year had to foreclose on his $2.5 mil. house. Unbelievable? Well, how about some well compensated doctors ( orthopedic and plastic surgeons, some ENT docs, etc.) who despite their OK income are in debt (credit cards, HELOCs) up to their eyes? How do you explain that?
All the usual evils are to blame, it seems: complete lack of even basic financial education, conspicuous consumption (I'm sure that above mentioned professional athlete didn't really lead a frugal life) and mental substitution of true wealth by high income. Very much applicable to all of us.

Here's a link to this article
http://ap.google.com/article/ALeqM5iXHQ2UrDf4uDtCVTVo85dGcxrjqQD90D82101

Media vs. my take on current mortgage problems

CNN yesterday broadcasted their Special Investigations Unit program on mortgage meltdown.I'm not a big fan of all those TV "talking heads" and self-proclaimed financial (or, like in this case, mortgage) experts, but one thing I couldn't help noticing: CNN, like many other major media outlets, portrayed the borrowers posed to lose their houses in foreclosures as unquestionable victims, and financial institutions as , obviously, villains.
It seems to me that these somewhat simplistic views are quite far from reality( although, as a doctor and a researcher I should now better that it's close to impossible to define reality!)
Sure enough, financial institutions (banks, brokerages, mortgage companies etc.) are there only with one thing in mind: profit. They'll try to extract it from whatever they do.They couldn't care less about all those political promises of affordable housing. Left unchecked, this drive for profit ( or "greed" as per Gordon Gecco, the famous character of Michael Douglas from "Wall Street") can wreck a havoc on everyone and everything.

Now, the borrowers' part: their greed, it seems , was in trying to obtain what they could not possibly have. It was hard to comprehend how a lady, a truck driver, interviewed for this program, was realistically planning to afford a 6-bedroom house for $180,000 when our family with 2 relatively high income earners couldn't afford an apartment for more than $280,000( on the emotional level, I sympathize people like her) Now her house is in foreclosure, and , obviously , there was no equity in that house, and the bank has to take losses when they auctioned off her house. So the people left holding the bag at this point, in my view, are this bank's investors (which included our own 401k, our own pension funds and IRA's, so the taxpayer started getting hit at this stage), who took possession of a lot of loans like this, thinking that they're high grade because their rating by those bond insurance agencies.

Now, the fun part: we are now entering the era of socializing the private debt. Institutions like Countrywide are about to collapse without federal government bailing them out for the sake of the "economy at large". So their(now almost worthless) private debt will now become a public debt. Taxpayers, at this point, will get another punch in the form of high taxes-overt and hidden to pay for this debt.

The only people left holding the bag at the end will be taxpayers.

So at the end, we have conspicuous consumerism (desire to possess, "everyone has it so I deserve it, too" etc.) on one hand, and greed of financial institutions who couldn't care less about true interests of their clients, having their interest as the only thing to be considered.

Both of these forces are equally destructive.

Conspicuous consumption

Conspicuous consumption pervades our society. You can see poor people wearing brand name clothing, listening to iPods and playing hand-held video games. You can see middle class people driving expensive cars, living in big houses in swanky suburbs.

Neither group can really afford those luxury items.Nevertheless, the message from the society at large is to maintain your status, to show(mostly to others, but to themselves too) that you've made it. This notion is what makes people to spend, spend at all costs. Take on those ARMs, consumer credits, HELOCs etc. Max out those credit cards. We live only once, you know.
70% of our GDP comes from consumer consumption. That is, our economy is totally dependent on it.

It's a small wonder that a notion of building of true wealth is more of a counterculture.
In a way, the beautifully wrapped box becomes in and of itself a goal instead of its contents.

Who is rich?

Who can be called "rich"("affluent", "wealthy")?

Most people would define this category by income ( and I don't). With the median annual US household income of around $47,000, are those making more should be considered wealthy?

Would making $100,000 a year make a person wealthy? Maybe $200,000? The prevailing societal notion of wealth = high income. Even more so, as I stated in my previous post, certain professions by default are considered to be wealthy. And with wealth, conspicuous consumption should follow( I hope to add on conspicuous consuption among professionals later).

Not all agree with such definition, however.