How to survive a recession

The way that you survive a financial panic is by the stuff you don't do in the two or three years leading up to the recession. There really isn't that much you can do to prepare for a recession unless you're an expert at making short sales several times a day.

I have been unemployed for the past nine months, having quit my job the same week Lehman Brothers went bankrupt. That part may not have been the best-timed decision, but now that I have plenty of time to ponder such things, I can remember a couple of moments when I blew some people off for their outlandish suggestions.

The first was at the beginning of 2005, when I became friends with a mortgage broker.

After he told me what he did, I said, "Sounds cool, but I have no money, just debt. It'll be a long time before I can buy something."

"You could borrow money from family," he said, "and then rent the house to people to pay the mortgage. You can make money off the rent from the increase of the house's value."

And I laughed. My new friend didn't know me that well yet; he was obviously assuming I had some resources I didn't have.

A couple of months later, I opened a bank account at Washington Mutual Bank in San Francisco. I had a personal liking for this bank because they gave my great-grandmother a home mortgage during the Great Depression on the house where my family lived when I was a baby. My initial deposit was less than $1,000. At the end of the initial meeting, the woman in the collared WaMu shirt gave me a certificate saying that I had been pre-approved for a home loan of $250,000. I snorted, quietly. I knew that offer wouldn't hold after I filled out all the forms and put on a tie and came in and tried to explain to a suit-wearing mortgage officer I could pay for a house or condo in San Francisco with my $30,000 salary.

Obviously, these people were talking about someone else. I blew them off. It wasn't a temptation I was resisting, as much as a joke that I thought was mildly funny. I forgot all about it.

As it turns out, they weren't joking. A month ago, I read this first person account by an economics reporter at The New York Times who really wanted to buy a house but was paying two-thirds of his salary to his ex-wife in child support. He found a mortgage broker who told him that wasn't a problem and started descending the credibility scale for types of mortgages available until he found one that would not require that aspect of his background to be put on a loan application. He told the broker he felt guilty asking with such bad history, and the broker told him that the broker's job was to make things possible for the customer, not to judge them. He bought the house and a year later, he had a hard time making payments, and called up the same broker to refinance. "No problem," he said. Calling the broker felt like calling a drug dealer. Eventually, he started missing payments and the mortgage was underwater, but the bank was too busy to foreclose. At the time he wrote the article, eight months after he stopped paying, he still had not heard back from the bank.

Reading this article made me reconnect the dots of some forgotten memories. I was angry over the fact I had been unemployed for eight months and living with my parents, but I hadn't understood that I had been very close to this bad mortgage nonsense without even knowing it. Washington Mutual, a leader in subprime mortgages, probably would've given me a home loan in 2005. Now they're gone, but my checkings account got bailed out by the FDIC. My friend the mortgage broker is still my friend, but isn't working now, either, trying to find a new job outside of real estate.

Now I have just finished a temp job. I have a moderate amount of debt (that isn't growing) and a room at my parents' house where my wife and I sleep. We're doing all right, mainly because of all that stuff we never did.

Thinking in negative terms -- benefits of things not done -- is so counter-intuitive, but now I know what economics professors mean when they tell us about opportunity cost.