Filed under: Budgets, Debt, Extracurriculars, Wealth, Relationships, Recession
A couple of weeks ago, I was reading a backlog of newspapers and happened across two articles that addressed the rippling effects of the country’s current economic woes. Although these two stories had nearly nothing to do with each other, it seemed to me that, between them, they very eloquently showed how economic problems have a way of affecting everybody.
The first article dealt with food banks in the Bronx. The area’s food banks, food pantries, and soup kitchens provide food to unemployed and lower-income individuals, often on a short-term, emergency basis. These organizations, in turn, receive their food stocks from a combination of personal and corporate gifts. Unfortunately, higher food costs and smaller amounts of disposable income have translated to huge drops in donations. Added to this, the unemployed population is steadily increasing, which means that a smaller and smaller pie is getting divided into more and more pieces.
This problem is, apparently, very widespread. For example, a food bank in Idaho has reported that the number of jobless people that it helps has increased by 10% each month this year. Moreover, these new food bank clients often come from the ranks of the middle and even the upper middle classes; for example, CNN recently reported the story of Patricia Guerrero, who went from having a $70,000 a year job in February to using a food bank in March. While Ms. Guerrero might have had fewer money in savings than most people in her economic position, hers is still a very eloquent cautionary tale.
At the other end of the spectrum, The New York Post recently reported ways in which the current economic downturn is affecting even the wealthiest segment of the population. A March article, Execs ‘Bear-ly’ Surviving, dealt with the economic woes suffered by Darren Henault, a high-end interior designer. Apparently, some of Henault’s clients are employed by Bear Stearns, which has caused major problems for his business, as he’s had to cease work on one redecoration and scrap plans for a second. In the first case, the redecoration was about $50,000 away from completion; in the second, this was to be a $300,000 contract.
Henault was optimistic about his loss of revenue, noting that he has numerous wealthy clients and will be able to weather this economic downturn. However, he’s not the only one to feel the pinch since Bear Stearns’ fortunes started tumbling. In the same article, Tom Martignetti, a bar and nightclub owner, noted that his sales had dropped about 25% since last year. Given that most of his revenue comes from workers in the financial district, Martignetti theorized that fears over potential firings had dampened the spirits of his regular patrons.
As the New York Times noted, one of the first things that many Bear Stearns employees did when their financial fortunes soured was to put their summer cottages on the market. Given that several of Bear Stearns; top-echelon executives count on yearly bonuses to provide most of their income and are heavily invested in Bear Stearns stock, the plummeting fortunes of the company hit them particularly hard. For example, James E. Cayne, Bear Stearns’ Chairman, holds stock that was worth over $1 billion a year ago, but plummeted to $28 million in March.
Apparently, like Ms. Guerrero, many Bear Stearns executives weren’t all that careful with their savings.
Even in the darkest times, however, there are businesses that know how to make lemons out of lemonade, and this is certainly true in the case of BF Designs, a firm that “stages” houses in the Hamptons. Basically, the company will repaint, refinish, and generally spruce up properties that are for sale or rent. According to one source, BF Designs has offered a discount staging fee to anyone who has worked for Bear Stearns and wishes to sell his or her weekend house in the Hamptons.
While these two stories couldn’t be further apart, they tell about a similar progression: as economic woes increase and budgets get stretched tighter and tighter, we’re apt to see ripples working their way through each segment of the population. I don’t know about you, but I’m mighty pleased to see that, at least at BF Designs, the recession is inspiring unprecedented levels of charity!
BusinessWeek recently asked two experts — a college professor and a senior fellow at the Competitive Enterprise Institute — about whether laws should be passed to protect consumers from sudden increases in the interest rates on their credit cards. The 
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