On October 11, 2007, life in America changed. On this date, which will go down in history as an end of an era, we experienced the bursting of both the real estate and stock market bubbles and the end to the easy credit that caused the bubbles. The effect of both the real estate market and the stock market simultaneously crashing plummeted America and the rest of the world into one of the worst recessions ever experienced by those who did not live through the Depression of the 1930s.
Easy credit began when President Jimmy Carter decided banks needed to lend to those who otherwise would not qualify for a home loan so that everyone, regardless of their income or credit worthiness, could realize the American Dream and own a home.
Laws were passed that required banks to lend to most everyone -- and they could be fined if they didn't. This led to the so-called stated income loans, which allowed a borrower to state their income, whether they had any or not.
As a result of these liberal lending policies, millions were able to purchase either their first home or upgrade to larger homes, which created unprecedented sales. As supply became limited and the demand increased, home prices went through the roof.
From 1980 through 2007 it was not uncommon to buy a home with nothing down using a stated income loan, then resell the same home a few years later and pocket six figures. We knew this couldn't last and it didn't; for on October 11, 2007, it came to an abrupt halt when the real estate bubble popped. It burst because millions who bought these homes didn't have enough income or the stable jobs to keep up with the payments. With none of their own money in the home, it was easy to just walk away, causing millions of foreclosures.
As home values plummeted, the loans they collateralized began to default. Many of these poorly qualified loans were packaged together and resold to large companies such as Bear Stearns, Lehman Brothers and AIG. When these giants began to fall, it brought the stock market down with them.
On October 11, 2007 the Dow Jones was at a record high of just over 14,000. As of the writing of this article, it hovers at around 8,000 points.
For more than 25 years, Americans have been able to live beyond their means by purchasing their wants and desires with credit. When the payments became unbearable, they simply borrowed against their 401(k)s at work or refinanced their homes to access the increasing equity. Easy credit and available equity allowed people to buy homes, which drove up the price of homes. They allowed the purchase of consumer goods such as refrigerators and cars, which, in turn, drove up the stock price of the companies that manufactured those consumer goods. It quickly became a vicious cycle.
The American motto has long been, "Who needs savings when you have stocks and homes whose values appreciate almost every year?" And true to their motto, they didn't save. In 2008 Americans saved .36 percent of their income, when by contrast, the Chinese saved 40 percent.
October 11, 2007 saw the end to easy credit and, as a result, the end of increasing prices in both real estate and the stock market, which stopped the vicious cycle in its tracks.
In 2009, the only thing I see increasing is the number of Americans who are putting money in savings. Americans are becoming fearful. They are losing their homes, their portfolios are worth about half of their high-point value and they are losing their jobs.
Consumer spending accounts for 70 percent of our GDP (gross domestic product --which is the total of all transactions, both bought and sold, within the borders of the U.S.); and when consumers are afraid to spend, it drives the economy to its knees, further deepening the recession.
Warren Buffett said, "...the recession will be longer and deeper than most people think. This will not be short and shallow." (USA Today, April 28, 2008)
In a January 12, 2009 Forbes article, Bill Gross, Managing Director of PIMCO Bond Funds, the world's largest bond fund manager, predicted: "Americans will shift from risk to thrift for at least a generation."
Paul Volcker, Chairman of President Obama's Economic Recovery Advisory Group, interviewed on the Fox News Channel on January 21, 2009, said, "This recession has no end in sight... our financial system is broken."
The entire world has been affected by America's downfall, as they too have engaged in some of the same detrimental financial practices.
The most calamitous issue is Iceland, which closed its stock exchange after it had plummeted by 95 percent. The banks then failed and Iceland stopped trading its currency, the Krona. Finally, in January 2009, the country declared bankruptcy and asked the International Monetary Fund to bail them out. I've heard of companies going broke, but a country going broke is a first. Most recently, as a result of rioting in the streets of its capitol city, Reykjavik, the government was overthrown by angry mobs.
I hope this country's saga is not a foreshadowing of what is yet to come in America. Americans are scared. In less than 10 years they have lived through two stock market declines of 50 percent or greater and now a real estate crash, as well. Twice burned in a decade is bad enough, but thrice has changed the way people think. Bill Gross is right. People are leaving the stock market and investing elsewhere, possibly not to return for a generation.
The direction Americans are taking is first to look for safety, then ways to generate income. The flight to safety has been so strong that recently, the U.S. government offered $30 billion in treasury bonds paying 0-percent interest, and they were oversubscribed.
Variable and indexed annuities are selling like hotcakes in this climate. Do you think they are selling because of the link to the stock market or because of the guarantees? My bet is on the guarantees.
You couldn't find yourself in a better economic climate to be successful at selling annuities than the one you are in today. People are looking for the solutions your product has to offer. All they have to do is find you, and you only have to do three things.
First, help them find you. If you are ever going to spend dollars on marketing, now is the time. If I drive into your town, can I find you? Will I see your face on a billboard? If I turn on the radio, will I hear your radio show or ad? I'm surfing the television -- will I stop at your infomercial? I'm reading the paper -- is your ad there? Finally, I go to my mailbox to see what has arrived -- is there an invitation in my mailbox to your seminar? If the answer is no to all or most of the above, then the fact is I could live right next door to you and be in desperate need of someone who can help me stop the losses, get me safe and stable, headed in the right direction and even possibly help me with income, and yet I wouldn't know you could help me.
Second, you need powerful solutions in your briefcase offered by variable annuities, indexed annuities or the new traditional fixed annuities with bonuses as high as 10 percent to 12 percent with guaranteed income riders of 8 percent to 10 percent for 20 years or longer.
Third, you must be able to close the sale. At the end of the 1999 World PGA Tour season, the only top-20-ranked golfer to play the same number of tournaments Tiger Woods played that year was Nick Price. Nick's average score per round at the end of the season was 70.37, while Tiger's average score per round was 70.14. I'm told that roughly equates to an eight-stroke difference -- for the entire season. Those eight strokes cost Nick Price $5,046,713, the difference between his and Tiger's winnings in 1999. Everyone can improve their stroke (close), and the person driven to make the needed adjustments and improvements will find a much larger payday as the reward.
Remember, don't waste a good crisis: Money is moving and people are changing relationships by the thousands. Can they find you? Can you close them?
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