Do you have any idea what has happened during the last couple weeks? Can one of your friends answer that question? If not, it’s time to start paying attention: During the last couple weeks our financial system has seen some of the most significant developments in its history.
Last week, in an unprecedented move, the U.S. government seized control of Fannie Mae and Freddie Mac, two of the largest financial services corporations in our economy. During this past weekend, the securities firm and investment bank Lehman Brothers filed for bankruptcy, the biggest bankruptcy ever recorded at $613 billion. What these companies do is a complex financial topic, but their problems are closely tied to the housing bubble crash and mortgage market decline.
So I ask you, did you know what happened? Did you hear about it but not fully understand? Should you care? The answer is yes. Many students assume matters of finance and the economy are too complex and do not concern them. Some students might even read or hear about events but disregard them. The simple truth is that the economy affects everything we do. Though some may find it sad that matters of money and finance are such a large part of life, the practical reality is that they are. And if that is the case, then ignorance about these topics, in my opinion, should not be tolerated.
How then, do you break out of economic ignorance? The first step is curiosity. Remember months ago when Chipotle raised the price of a burrito? Have you heard about the subprime crisis? Does anyone know why gas prices rose so high and then fell? Students rarely seem to understand and mostly appear to complain about or disregard these questions. With the realization that these matters affect your everyday life, there should come a burning desire to learn about what is happening in the economy.
With your newfound curiosity, the next step is to be informed. Strive to understand. We are at this University to expand our intellectual capital — and what is better to learn about than the driver of our society, the economy?
There are masses of resources available to people to understand the economic and financial world. The Wall Street Journal is incredibly informative as is the business channel, CNBC. And take my word for it — these resources are not just for Commerce School students.
Reading a few articles or watching a business show that interests you is a great way to understand what is happening in our economy and its effect on your life. Remember Chipotle’s more expensive burritos? Corn prices have been going up because the demand for corn to make ethanol has increased, making livestock feed more expensive. Expensive feed raises the price of dairy and meat, which causes Chipotle to raise its prices.
So what? Well, the last step is to use this understanding to make better, more informed decisions. I concede that paying an extra 50 cents for a burrito might not bother you. Nevertheless, many economic matters affect you directly.
The $200 billion bailout of Fannie and Freddie comes directly from your tax dollars. So, maybe it is time to look closely at the economic platforms of our presidential candidates. Also, this bailout puts downward pressure on mortgage rates and creates a good home-buying environment; perhaps after college renting versus buying a home merits more consideration. A slowing economy and increased bankruptcies means some people will have trouble finding jobs and may instead apply to graduate school, making applications more competitive. Maybe it’s time to think twice before blowing off the GREs, LSATs or MCATs.
The ability to find, research and understand our economy and financial topics puts you ahead of the curve. It is learning that has a huge practical implication on your life, which means that economic knowledge is power.
Puneet Maheshwari is a short fund manager for the McIntire Investment Institute. He can be reached at
puneet@virginia.edu.
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