Tuesday, November 10, 2009

Lifestyles of the Formerly Employed

The WSJ has an interesting article today about unemployed Americans who have blown through severance and savings in order to maintain their lifestyles who are finally waking up to a new downsized reality. The article is merely anecdotal, with no statistics, but it offers a harsh look at how the length and depth of this recession is truly worse than others we have faced in the past couple of decades. It seems that the recent spate of quick and light recessions has lulled many Americans into an overoptimistic sense of their future prospects. Even when these avid consumers lose their jobs, they continue to spend as if they had jobs, refusing to face the realities of much worse job prospects at lower levels of compensation.

The WSJ introduces us to Paul Joegriner, who was laid off in March 2008 from his CEO position at a small bank that paid $200,000 a year. Mr. Joegriner is not unemployable, in fact he has turned down several job offers in hopes of finding one that matches his former rate of pay. In the meantime, the family has blown through most of its $100,000 in savings and has only recently begun to cut back on fancy vacations, expensive Porterhouse steak dinners, and other amenities. One would think that a 44-year old who used to make $200,000 a year would have more than a year and a half's worth of savings, but the family is upside down on the mortgage on its primary residence, as well as two investment properties that produce no cash flow. So it seems as if poor investment decisions are also an issue. Furthermore, he recently turned down an out-of-state job offer because it didn't include severance pay. "I just couldn't take the risk," says Mr. Joegriner, of uprooting his family just to get laid off again. Although somehow, taking the risk of continuing to be unemployed in this economy is somehow a better idea. To summarize: no revenues, plus excessive spending, plus poor investment decisions, plus lousy risk management skills, equals the kind of guy you'd want to hire to run a bank, right?

For those interested in more stories of BMW-driving, $150 haircut-wearing, $200-a-month flower-budgeting, $36-a-bottle case of wine-purchasing types who are unemployed and have blown through their severance, just click on the link above. The article has many examples of folks who earned far less than $200,000 a year, who are just waking up to the reality that they can no longer live beyond their means. No more cash-out refis, because there's no equity in the house. No more zero percent credit card transfer offers in the mail, because banks aren't passing along their gift from the Fed. Investment portfolios are still battered, even with the recent rally. Fortunately, the government is offering some relief by extending unemployment insurance benefits up to 20 weeks. This should help soften the blow for the 1.3 million or so whose benefits are set to run out by the end of the year. Unfortunately, $150 haircuts are no longer an option.

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