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March 8, 2011 07:55 pm PST

Fear: Control's Best Friend -- excerpt from Losing Control, Finding Serenity

Shutterstock image by Bianda Ahmad Hisham (The following is the second excerpt from Losing Control, Finding Serenity. Read the first excerpt.) Flashback to November 2008. Breaking news: investor panic causes Bear Stearns to go belly-up in a few short days. Several weeks later Lehman Brothers goes under. The financial travails reported by the Wall Street Journal and CNN grow more alarming by the day. Huge IndyMac Bank is taken over by the Feds. Large European banks are on the verge of insolvency. Pundits use new and confusing financial vocabulary to describe some of the culprits: Derivatives. Credit default swaps. Mortgage-backed securities. In short, we are in a full-blown credit crisis, the likes of which have not been seen since the Great Depression. No one knows when it will end, how bad it will get, or what to do. Everyone blames everyone else, citing a litany of contradictory reasons. Confusion, uncertainty, distrust, and fear abound. Our money may no longer be safe at our own banks. The government is forced to step in to bail out banks and pass emergency legislation that few understand. Pervasive fear had also entered the life of Reese, a home painting contractor who was finally living the American dream. Three years ago Reese purchased a three-bedroom home with a 5 percent down payment and easy subprime financing. He soon added a swimming pool and outdoor recreation room to the home. He had both an investment account and a retirement account at a large brokerage firm and a savings account at a local bank. His daughter, Kim, just finished her second year of college. Life was good for Reese and his family at the start of 2008. In the ensuing months, however, Reese took a big hit. The mutual funds and stocks in his brokerage accounts had dropped 35 percent in value. His house decreased 30 percent in value since the beginning of the year. Like many homeowners, he owed more than the house was worth. Moreover, his painting contracts were down 25 percent in October 2008, and November was looking worse. What home-owner wants to continue paying for a house in which he has no equity and when he feels his job may be in jeopardy? Reese cut back on personal and business expenses but was still losing money each month. And how could he tell his daughter that he could not pay next year's college tuition?...


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