"Boy, I'll be glad when things get back to normal!"
"When will we get back to normal?"
"When things get back to normal, I'll........

How often are you hearing these comments?  Whether it's in everyday conversation or the news media, everyone is talking, wondering & speculating "When will we hit bottom?" and when we do hit bottom,  "How long will it take to get back to normal?"  It's funny that no one seems to be asking, "When we get back to Normal what will Normal look like?"
 
Lylene & I attended a business meeting a few weeks ago. The subject was the economy on both the local & national levels.  The program was put on by a highly respected educator from Western Washington University.  He opened the session asking for the audience to put aside ideology completely & instead provide dialogue regarding the "State of the Economy" in Whatcom County.  There was no such thing as a right or wrong answer, no pre-judgments, no-judgmental comments - just dialogue, just ideas.  Just open it up and let it all pour out.
 
Unfortunately, that is easier said that done - but not impossible.

I was part of such a group 5 ½ years ago when I was treated at Loma Linda University for prostate cancer.  Being treated at the same time were 350 other guys, all with the same ailment.  The thing that was interesting was that whether they drove a Cadillac or Chevy Nova, whether they had a PhD or a high school education or whether they vacationed in the Caribbean or their local camp grounds, when this group was together, the conversation always very open & sincere.  "How long have you been here, How's it going, Are you feeling okay, Can you pee, or Can you...?"  Believe me, the truth was laid bare with no reservation.  Dialogue?  You bet.  Judgmental?  Not a chance.  Supportive?  I have not seen anything like it since I was in the Marine Corps.  Ideology?  No such thing - just honest dialogue, plain & simple.  It's amazing what happens when the only common denominator is 350 guys in hospital gowns with their rear ends exposed - pretty hard to be judgmental in that sort of environment.  Things got to the basics real quick.

It's too bad that the sense of urgency & openness that existed among this diverse group of guys can't be replicated in meetings such as Lylene and I attended in Bellingham a few weeks ago.  I guess a pre-requisite to attending the meeting could be a dress code requiring only white hospital gowns, but probably no one would show up but the Bellingham Herald reporter - and then only for a photo op.

Anyway, the call of the speaker for dialogue instead produced one liners, hard and fast opinions and accusations, leaving little room for open ended discussion.  Interestingly enough, the overriding theme was how long will this last (the recession), when will we hit bottom & how fast will the recovery be so that things can get back to normal.  The thing that was especially interesting was that in the Q & A session of the meeting, no one talked about what the "New Normal" will look like. That, to me, is the question that would or could result in some interesting discussion and needs to be reckoned with.

The reason for the "New Normal" is that just as the world changed after Sept 11, 2001, I think the financial tsunami that has hit the world economy will change us in ways we can't yet imagine.

My "Financial Normal" has evolved over time:

1) Early 1950's:  I opened up a saving account  to save for college
2) Late 1950's:  I bought a guitar from Deye's Music Studio & paid for it $5.00 at a time until it was paid in full & then was able to take it home.
3) 1940's through 1965:  Customers charged their merchandise at my Mom & Dad's drug store.  No interest was paid on past due accounts.  I'm sure that Mom & Dad suffered some loses but at that time a man's word was pretty much his bond.
4) 1965:  I was discharged from the US Marine Corps & used the GI Bill to help finance my college education
5) 1970:  Lylene & I were turned down when we tried to rent a TV for a few months because we didn't have a credit card
6) 1960's through 1970's:  Major department stores had layaway programs.  If you couldn't afford to buy things, the merchant simply put it away for you.  You paid them monthly for the item until it was paid for & then you'd take it home.
7) 1972:  I graduated from college and went to work for the largest retailer in the world.  They didn't have a credit card option but instead had a "layaway program". 
8) 1972:  Lylene & I bought our 1st house in Tacoma.  We bought it as a veteran with 0 down & a low interest rate.  The price of the home was $16,000.00 & the payment was less than $100.00 per month
9) 1975:  My 1st credit card was a Union gas card
10) 1980's:  I always felt bad when I saw someone using their credit card at the grocery store because in our family it meant that you were on hard times
11) 1991:  Lylene & I re-financed that house in Tacoma to buy some real estate in Bellingham
12) 1990's:  We started to use a VISA card for the majority of our purchases to include groceries - Wow, had we changed!

So that was our "Normal."

Obviously, not only did we change but so did lending practices. 

Up through the early 1990's, if you wanted to buy a house & had only a minimal down payment, the options were usually either FHA or VA financing.  There were limiters on the use of  VA loans which limited the veteran to only 1 active VA loan & thereby eliminated the use of this product for the accumulation of real estate.  FHA had similar restrictions ie: you could have only 1 outstanding FHA loan with a loan to value higher than 75%.  At the same time, a borrower could usually only have a maximum of 4 home loans outstanding that were backed by Fannie Mae or Freddie.  So if you wanted to get creative with financing, you usually had to work with the seller, because there were no programs available though conventional lenders. Throughout the 1980's & 1990's Republicans and Democrats agreed that while on the one hand, home ownership was one of the keystones of a solid economy, on the other hand it was getting more difficult for Americans to buy.  From 1980 to 1995 the number of Americans who owned their own homes stayed pretty much at 64%.  The goal of the US government was to increase that percentage and therein lay the seeds to the crisis we are facing today.  

Until 1995, if a bank loaned money for a conventional home loan, the buyer typically had to come up with a down payment of 20%.  It's not hard to imagine how difficult this was for the average home buyer as prices increased.  The Community Reinvestment Act, passed by the US Congress in 1977 to make it easier for banks to loan to people with low incomes, was revised in 1995 to allow banks to "securitize" these loans.  They could bundle their loans & sell them at a profit to large investment companies, who then sold them to individual investors in the form of stocks & bonds.  This took the loans off the banks' books, making it possible for them to make more home loans.  This they did repeatedly & effectively.  To make loans more attractive to the consumer, new loan products were developed:  adjustable rates, shorter terms, interest only, 80/20 loans, lower down payments...and so on.  As a result, many people were put in homes that they could afford only if values continued to increase so they could re-finance them at their inflated value. Home prices were rising so quickly in many areas that buyers felt little risk.  Even if they still couldn't afford the payment after the run up in value, they could sell the house and make a handsome profit.

Running side by side with this investment frenzy was the stock market bubble with "Tech" stocks in the late 1990's.  As investors in these stocks took their money out of the stock market they invested into the real estate market, which only added to the price run up.

In 1999, Congress repealed the "Glass-Steagull Act" which until then had prevented commercial banks from owning stocks & other securities.  This allowed Banks to actually own mortgage backed securities, which, as real estate pricing continued to heat up, looked like a great investment for the banks.

President Bush wanted to increase the number of home owners, and, in particular, the number of minority home owners.  In June of 2002, he announced "America's Home Ownership Challenge" which called on the lending industry to increase the number of minority owned homes by 5.5 million units.  Congress then passed the "American Dream Down Payment Act" allowing minorities with poor credit & no savings to get a mortgage with the US government picking up the down payment. About the same time, the government encouraged Fannie Mae & Freddie Mac to increase the number of home loans to minorities.

The stage was set for a real "Wild West Show" in lending practices.  Banks were falling over themselves to create the greatest number of loans.  Standards for income levels, credit scores and down payments were all thrown out the window in the enthusiasm of making the deal.  The "Perfect Storm" was set for the greatest financial catastrophe since the Great Depression.  In 2007 it all started to unravel, and the entire economy was impacted.  The hope today is that the Stimulus Package that President Obama will be signing this next week will bring to the economy enough shock & awe to break the back of the recession & get things back to "Normal".

And what will that look like?

Will normal be easy access to credit card purchasing?
Will normal be easy access to lines of credit?
Will normal be easy access to car loans?
Will normal be home ownership for everyone?
Will normal be a college education for those who choose to go?
Will normal be a standard of living that has been unattainable for the rest of the world, but that we have all become accustomed to?
Or...will normal become more of what Lylene & I experienced through the 50's, 60's, 70's and 80's?

I think whatever normal will be and how soon it can be achieved will be determined not by those who wear their opinions & ideology on their sleeves but by those who leave their egos at home & bring dialogue to the table.  Our history suggests that it is possible.  The Colonists did it in the Constitutional Convention in the 1780's, American citizens did it when they worked their way out of the Great Depression of the 1930's, those who lived through the 2nd World War did it with the Marshall Plan & those who wondered if all citizens of the US would ever be truly equal proved it with the election of the 1st black American to the White House.

How quickly we can establish the "New Normal" that we want to live in will depend in large part on whether we can mentally approach the problem in hospital gowns with our rear-ends exposed & not get hung up on ideology and positions.  Without true dialogue, where all parties are considering all options and focusing on the needs of the country, the "New Normal" & when we arrive there may be a long ways off..