josetann wrote:That's how I look at it, except I call it "planning for the worst case (realistic) scenario." Zombie apocalypse counts as a worst case scenario, but not realistic. Stock market crashing, that's realistic. If my house and car are paid for and the economy takes a nose-dive (causing my retirement accounts to fall 90%, or lose our jobs, or whatever), I'm screwed, but can still have a halfway decent life (living off foodstamps, welfare, and unemployment if young, or social security if older). If my house and car are NOT paid for and the economy takes a nose-dive (again causing retirement accounts to fall 90%, losing our jobs, etc.) then I'm screwed, soon to be car-less and homeless.
I don't know, I'd put zombie apocalypse and a 90% stock market drop at about the same likelihood.
Clearly you have a good qualitative point. We should all plan for weathering realistic threats. But if the market falls 90% so many people will be in such bad shape that collecting on loans will not be a priority. I dare to say that in such a dire situation you'll see angry mobs beating up the bankers that come to evict you from your house. On the other hand, there will be no food stamps, social security, and so forth. Such a calamity would eliminate most banks and large corporations over night and that is not an exaggeration. There would be no one to distribute food, cash, and so forth.
But I don't see any of that happening. There is a reason why, after all the name calling and bickering, that Congress approved the bailouts in 2008 and those with half a brain in both parties supported it at the time. It was necessary to keep the country running. We can look back now and criticize and try to revise history but the reality is, even the relatively modest "crash" of 20-30% started an avalanche that had to be stopped and our leaders recognized it and actually came together to take action.
But if we make your scenario more realistic, say an 40% fall in asset prices, 25% unemployment, and so forth then, sure, I think everyone should have a plan for surviving that. But personally I find that so unlikely that I think eating eating dried beans and rice with homegrown vegetables, turning off the utilities, walking everywhere, and other extreme measures could be a part of the long term plan in such a major disaster. I can make my mortgage payments from my mortgage offset fund for a few years and largely eliminate most other costs.
The trouble is that planning for a worst case scenario is not what you want to do. People need to plan for realistic scenarios. Worst case is that a UFO crashes into your house but planning for that makes no sense.