Some Random Incomplete Thoughts

There was an article I read not too long ago, and I wish I could find it, that demonstrated the effects on lifetime income of graduating from school into a shitty economy. If I remember correctly, this applied to MBA grads, but I assume it would also apply to PhDs, college grads, and high school grads as well.

Basically, it goes like this:
When one graduates, whether from a graduate program or college, one gets a job at the bottom end of the hierarchy. Even MBAs start low on the totem pole in the lucrative i-banking and consulting fields. Yes, there are fresh out of college kids below them, but they aren't typically considered in the pipeline as far as promotion goes. Most of them will simply move on to get an MBA or another career entirely after a couple of years. So, for the purposes of the firm, MBAs are at the low end.

Anyway, two factors hit MBAs when the economy is shitty. First, their aren't that many places open to get their foot in the door at a i-Bank or consulting firm right out of school. So, they take management track positions at Fortune 500 firms, if they are hiring. After a couple years there and the economy rebounds, it's difficult to transfer over to the i-Banking or consulting fields because those firms recruit right out of business school to fill their positions. So, you got skipped over in a sense.

But even if it's not about i-banking and consulting, in an economic downturn the good job openings dry up. Those graduates then can't get the experience in those good job openings, and therefore are hurt later by not having that experience. If the economy picks up and they apply for the newly opened jobs, then they will be competing for those jobs with freshly minted MBAs. So, in reality the economic downturn delayed the trajectory of their careers.

I can't imagine that the same thing doesn't happen to other graduates. So, a lot of your long-term income is caught in when you graduate. I wish I could find that article again.

Also, I should look at the projections from even April of this year about how companies were hiring and expecting to hire even more. At the time I thought it was idiotic. This credit crunch thing began in August 2007, and I knew then shit was going to hit the fan. I didn't think bulge bracket investment banks would collapse like a fucking house of cards, but I knew something was coming. I can't believe that businesses didn't see it coming.

In fact, I don't think business people know shit about macroeconomics. They know their little niche of the world, and this myopia is why we have huge economic swings. For example, back in 2002-2003 I was yelling at mortgage brokers and their managers to their faces that what they were saying, while not a lie, was misleading. And furthermore, that these teaser rate arms were going to be bad news. This is almost a word for word transcript:

FLG: These ARMs are bad news. And the interest-only loans are even worse. And I can't even believe you are fucking selling loans that require less than the interest on the loan. That's just fucking stupid. In three to five years when these things come due, what if they can't make the payment?

Mortgage Vice President: FLG, as long as the house prices go up, then they can rollover and use increase in equity to get the loan. Plus, the interest is tax deductible.

FLG: What if housing prices stay flat or God forbid fall? What if they can't rollover for some reason?

Mortgage Vice President: Housing prices have never fallen.

FLG: That's not true. They've fell in the New York area in the late 80s.

Mortgage Vice President: Oh, there might be metropolitan areas that have difficulty, but never a nationwide fall in prices. Listen, a lot of these loans are investments. These people are flipping them. So, it's not like they are going to lose their house.

FLG: Like musical chairs.

Mortgage VP: Like musical chairs.

FLG: What happens when the music stops?

Mortgage VP: Why would it stop? People always need homes.

FLG: Yes, but me and Mrs. FLG are the prototypical first time buyer, and we can't afford homes with a 30 year fixed loan. Eventually, there won't be any buyers.

Mortgage VP: Yeah, that's why you get an adjustable and rollover.

FLG: I'm not getting an exotic loan on my home. I want a consistent payment that I can make long-term plans around.

Mortgage VP: Well, you should buy soon, or you'll be completely priced out of the market.

FLG: That's precisely the point. The market will collapse when you completely price me out of the market. I'm too smart to get a variable mortgage, but others aren't and see the prices going up. Eventually, there will not be enough stupid people with my income. And then the music stops.

I didn't predict they would start ignoring income to keep the game going. It's almost as if the music stopped, and everybody began whistling the tune and pretending it hadn't.