That Depressing Bag of Bills

One of the more trying aspects of the current economic malaise is the subtle way it has stripped too many of us of our pride and sense of accomplishment with how we have conducted our lives. The 90% of Americans who still have jobs don’t remotely understand the degree to which those who are out of work have been made to feel helpless. If you are a striver who has done well in life until now, you are quite ill equipped to deal with your present situation. It’s likely you have been caught up by global events more than you have underperformed at your job and you don’t deserve to have lost your income stream.  It’s clear to me that those still working cannot imagine your anguish.
You may be a person who is drowning in a home that you can no longer afford and in which you now find yourself trapped. The property may be worth less than you paid for it and even worse, less than your mortgage.  Your income may have fallen with the economy even if you still go to work each day. You may have seen your hours cut, your pay reduced, or work on commissions selling things that others just aren’t buying now. You felt proud when you bought your home. But now it is slipping away from you and your pride is slipping away with it. If it isn’t your home, it might be credit card debt with exorbitant interest rates that is forcing you into a corner.
When you talk privately with your close friends, many are suffering from this same syndrome of embarrassment at their current situation. This downturn has affected folks over 55 the most. They are closer to the end than the beginning of their expected working lives and income stream. They have less time to make back the money they had saved for retirement that has now been washed away. Whether it is your home, art, or your investment portfolio, almost everything is down by 30% from two years ago. No wonder we all feel poorer than we did then. Some were offered early retirement packages which they gleefully took. However, after a few months of “hanging out” they try to figure out what to do with themselves. They don’t feel that they are fully utilizing their minds. They also begin to realize they don’t have enough money to live as long as modern medicine is making it likely that they will. After being out of work for a year or two, many have given up hope that they will ever be able to reenter the workforce in a meaningful way. So they quit looking. Others are just seeking employment at a meager pay level even if it wastes their knowledge and skill set because it gets them out of the house and with other people.
The bedtime prayer is that you can find someone, anyone, to take that house off your hands that is draining you dry. While waiting and praying that something good will happen, many of us carry around a bag of bills. We don’t have the money to pay them so we throw them into a bag and take them with us wherever we go. At night you say to yourself: “No, not doing that now. I’ll take them to work and pay them in the morning.” But then you go to work and are too busy or too embarrassed to deal with them. So they get carried back and forth; to and fro. You go off for a weekend to visit friends or family or just to have a treat you can ill afford. The bag of bills gets thrown into the trunk. You might finally sit down and sort them out and find that there are three electric bills, 4 phone bills, several doctor bills, tax bills, insurance premiums, car payments, rapidly escalating credit card balances and the other things we are supposed to pay. You sort through them and decide which must be paid most urgently and which can go back into the bag to await your next commission check or loan from a friend.
Last week Fidelity Investments reported the biggest surge in retirement fund redemptions in decades during the second quarter. Be sure to consult with your own tax advisor before you go this route because withdrawal rules differ from IRA’s to 401K’s to pension plans which you may feel you need to tap to pay your bills. If you are under 59 ½ there is a 10% tax penalty for early withdrawal but when that’s the last savings account left, you have no choice and you take the money to pay your bills. You’ll just have to worry about “later” later. IRA money may only be replaced within 60 days but depending on the rules of your particular pension plan, you may be able to borrow up to half of your vested interest in the plan for medical bills, educational expenses or to buy a first home. Since you are “borrowing” the money, you may have up to five years to repay the money with interest to the plan. Not all of the folks borrowing or raiding their investment plans are in the older group. Some are younger, in their 30’s and 40’s. 
Recently, one friend came sailing with me for a few days of my vacation. Upon arrival at the boat, the bag of bills came out of the suitcase and was sorted into neat piles on the table. Then the process began to figure out which bills were in most dire need of attention. I described this scene to a second friend who lives out west. He admitted to me that he carries his bills around with him, too, like a roll of midriff fat you wish you didn’t have and that never leaves your side.
This second friend has a house with an underwater mortgage from which he is trying to escape. He wants to rent elsewhere, maybe even in the same neighborhood for a fraction of the current cost of his mortgage and taxes. He has a firm offer from a buyer who wants to buy his house. Bank of America won’t even answer the phone to discuss the offer, just shy of the most recent bank appraisal of the property. Six homes are for sale on the same cul de sac but, luckily, the buyer likes his the best. The offer is a valid one. The homeowner calls daily and so does the realtor. The bank won’t respond to either of them but has scheduled a foreclosure proceeding for the fall.
There is no hotline or helpline to call. It’s just a bailed out Bank of America working its way through all the now underwater loans it made a few years ago. B of A does so without any regard for the human toll on good people with fine intentions stuck dealing with a megalithic financial machine that didn’t manage its own affairs any better than these folks did. Bank of America got a taxpayer bailout to tide it over the rough times. It can borrow money from the Federal Reserve Bank at 0.25% until it gets its own house in order. Wouldn’t we all be fine if we had that option, too? Nothing Treasury Secretary Timothy Geithner has offered up yet pays any attention to the wrecking of lives the banks are inflicting on people whose cost of capital is 30% on credit card balances they can’t pay off, even if they try to pay the minimum each month.
Misery loves company so rest assured that if you are agonizing over which bill to pay first with your dwindling funds, you are just one of many moving through life these days with a dreaded bag of bills close at hand and hoping for better times soon. 
Joan E. Lappin CFA
Gramercy Capital Mgt. Corp.