Family Finance Parallels Stock Market

I help perform research and market analysis for a consumer advocacy web site. Part of my research includes reading documents filed with the Securities Exchange Commission. Quarterly and annual statements containing 100s of pages can be reduced. In a nutshell, the reports are digested to the following: Profits are the result of refinancing debt to lower interest rates, increased security, and reduction in operating expenses. Investors receive dividends. The future outlook is stable. Companies have more debt at lower interest rates, reduced operating expenses, and moved off-shore. The companies are balancing more debt against future earnings.

The Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into effect July 30, 2002. I can not assess the impact across all companies, but Chief Executive Officers and Chief Financial Officers are not holding their positions for as much time in the sectors I research. One of the companies is on their third CEO in 4 years.

Compare any company to a family and introduce a sub-prime or Alt-A mortgage into the equation. A homeowner refinances an existing mortgage to a lower interest rate. Fees are included in the new mortgage and the debt obligation increases. Possibly there is cash out or the term is extended from 30 to 40 years. The new mortgage payment may be less than, or equal to, the original mortgage payment. Money is available to reduce other debts, make new purchases, or react to increases in expenses.

The measures are not very different between the business and private sector. Families reduce their operating expenses. Security is improved. Support staff is reduced and energy saving measures are implemented.

Translation of family budget measures: Lower thermostats, use photocells and timers, and eat less meat. Get a locking gas cap and only fill the tank when departing for a major trip. Fire the maid and the lawn service. Consider relocating to an area with a more favorable climate or research becoming an Ex-Patriot in Mexico or U.S. held territories.