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After the Crash

After the Crash …From the pages of South Jersey Biz…

As we recover from the near economic meltdown, we take a look back at the top lessons learned and how we’re moving forward.

Not too long ago, the word “recession” was on everyone’s tongues. Job loss, real estate struggles and a rapidly rising debt ceiling turned 2008 into an economic nightmare, leaving people everywhere with no choice but to slowly pick up the pieces and start from scratch.

With that fateful crisis behind us, it’s important to remember how we got there. While the recession may have taken some by surprise, plenty of local professionals are moving on, and are looking to take the right steps to avoid another disaster.

What went wrong
“I’m not so sure that 2008 was a huge surprise in hindsight,” says Albert A. Fox, senior vice president of Fox, Penberthy & Dehn of Morgan Stanley in Mount Laurel.

“You had a lot of people that were over-leveraging, not living within their means and taking all sorts of risks, risks that they not only had no business in taking but also didn’t understand.”

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Think back to the early 2000s, a time when property value, spending and disposable incomes were at a high. Financial experts like Fox will tell you that it was only a matter of time before what he calls a “gradually expanding cycle” of nationwide over-spending and under-saving led to a crisis.

“The crash of 2008 was really bad, and was unavoidable based upon the events and years that led up to it,” explains Christopher DeYoung, owner of Moorestown’s DeYoung Financial Group.

Up until that time, prospective homeowners were signing off on subprime mortgages, living well beyond their means without considering the future. Substantial rates of return masked a crippling credit crisis. Eventually it all came crashing down under the weight of an ever-expanding credit problem.

“The demise and bubble burst of the real estate market was a major, if not the major, factor of the crash of 2008 and the subsequent bad economy,” says DeYoung. “Housing sales, construction, mortgages, title, inspections, legal, the investors, etc. etc., so many people made tons of money as a direct result of the strong real estate market. Once the bubble burst, you had a huge number of people without a way of making any money and a simultaneous shift in banking regulations that grinded the money flow to a standstill.”

The result was a loss of almost nine million jobs across the country, and an immediate decrease in housing prices.

Getting things together
But by looking at the 6.8 percent unemployment rate in New Jersey as of May—the lowest since 2008—it seems like things are improving. According to the New Jersey Department of Labor and Workforce Development, the state has created more than 125,000 jobs since February 2010, the recessionary low point.

“We’re just pulling out now and it’s [more than] five years later; that should tell you how bad it was and still is for some people,” says DeYoung. “I believe that we are repairing and the economy is much better now. It still has a ways to go, but I don’t know anyone who wants to go back to 2009. We need slow and steady growth, not put a Band-Aid on the problem and have another mess to clean up in a few years.”

For John Torrence, managing partner of Masso-Torrence Wealth Management in Marlton, his entire company was built to survive the crash.

“The year 2008 was actually the year we formed our company, and all of the business decisions we have made were shaped by the events of that year,” says Torrence. “To a great degree, companies were forced to examine all aspects of their business and immediately reduce expenditures if they hoped to weather the storm.”

“Frankly this is an exercise in rebuilding,” says Fox. “I think for people that were over-leveraged, they learned the lessons of paying yourself first, spend off of the bottom, save off of the top, live within your means, have an aggressive savings plan and debt reduction strategy, but recognize that nothing lasts forever. What did really successful people learn as a result of this? That even the really basic lessons cannot be forgotten.”

Lessons learned
But what should the public consider when moving forward from such a sensitive time? According to seasoned pros like Torrence, the key is to remember that there is never an easy way to fortune.

“There is no such thing as easy money for individuals, companies or financial institutions. Someone always pays the price ultimately,” says Torrence. “The crash was avoidable if we simply exercised some common sense and sound judgment along the business cycle. As we have emerged from the crisis, companies have found that they can operate efficiently with fewer employees.”

Decreasing spending through staff or wage cuts is always an option, but basic rules of spending were largely to blame for the original crash, and remain at the forefront of today’s solutions.

“The lessons from the real estate bubble and 2008 crash could read like a book on clichés,” says DeYoung. “Don’t speculate, don’t be greedy, plan for the rainy day, save more money, spend less, keep overhead low. People and businesses learned to not over extend as much, no matter how good things are going, and to be more conservative with spending.”

According to Fox, planning for the future is vital, and one of the biggest reasons that so many Americans fell victim.

“Think about, do you need this or do you want this, before making every decision,” he says. “The three biggest lessons I can offer when dealing with a financial crisis are to constantly re-evaluate your situation and the steps you need to stay on track; to always pay yourself first and live within your means.”

Looking forward
According to DeYoung, if our recovery is to continue, we need consumer confidence to stay high and money to continue to flow. However, “hopefully we’ve learned a lot about speculation and the dangers of it,” he says.

It’s this learning curve that will hopefully set the country—and South Jersey, for that matter—on a brighter path for the next five years, as long as the lessons are remembered.

“I hate to say it’s all about the basics, but that’s what it’s all about,” says Fox. “What’s different about this time? Nothing. We’ve had leverage and real estate bubbles before, and people said this time it’s different, but how? When you think this time is different, just remember, history always repeats itself.”

Published (and copyrighted) in South Jersey Biz, Volume 4, Issue 6 (June, 2014).
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Author: Erica Bauwens

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