Financial crisis 101

“This was completely preventable. ...The parallels to the stock market crash and this are eerie.”
Rand Scarbrough, Silver Valley High School teacher

BARSTOW • Jon Bonvillain handed each of his students $50,000 on Tuesday and turned them loose on the stock market.

It is a project the Barstow High School economics teacher assigns each year. The students invest $50,000 of fake money into different stocks, track them for 12 weeks and see how much they made — or lost. In the past, students have almost doubled their money at the end of the project.

“I doubt that's going to happen (this year),” Bonvillain said.

The stock market project is one tool Bonvillain uses to teach the complexities of the economy. His class will dive into the national banking system and the heart of the financial crisis in November and December, but this project gives his students a first hand look at the stock market right now. Kyle Bowen and Amaney Museitef, both seniors, said Bonvillain's examples, like the stock market project, make the confusing crisis a bit easier to understand.

“He visually breaks it down for us, gives us of examples,” Bowen said.

Another senior, Kayla Torrez, said the Bonvillain has shown her areas where the economy reaches that she did not know about, like her clothing. Bonvillain said he looks for items that all his students have access to, the price of a gallon of milk, the price of fast food meal, where his students shop and where their parents work to try and explain the economy.

“You boil it down to its simplest components and you look for things that are in the student's experience,” he said. “Most students understand about borrowing money to buy a car, borrowing money to buy a house. You start with that basic. They understand that and you can build from there.”

One thing his students seem to understand, Bonvillain said, was that the $700 billion approved to rescue the economy would come from them. The students do not own homes, do not own stock and do not have much money. Bonvillain said there are many fingers of blame to point, one at the banks, one at Wall Street, one at the government but also one a taxpayers, taxpayers who bought homes they could not afford with mortgages they could not pay back.

“The market is made to correct itself,” Bonvillain said. “But getting back into balance can be painful.”

Out at Silver Valley High School, teacher Rand Scarbrough takes a historical approach to teaching the current crisis. He said a lot can be learned about what is going on today from studying the stock market crash in the 1920s and the savings and loan crash in the 1980s. Many eerie similarities connect the three traumatic economic periods, he said.

In the 1920s, people bought stock on margin, meaning with money they did not have, hoping to pay the margin back with the money they made when the stock went up. The market does not always go up, the roller coaster of the economy as Scarbrough calls it, and when stocks began to fall in 1929, the losses on borrowed money compounded and in part, the Great Depression ensued. During the 1980s, the financial markets deregulated, letting companies into the business of loans and hurting the savings and loan markets. Today, risky lending and bad mortgages have toppled economic powerhouses and brought the county to the brink if not in the middle of a recession.

“There's a thread that runs through,” Scarbrough said of the history of economics. “The troubling thing about it is we don't apparently learn anything from these episodes.”

Already, students at Barstow are learning some of the ins and outs of the stock market. Isabel Herevia, a senior in Bonvillain's class, looked at stocks on a computer Tuesday afternoon. Coach, the maker of upscale purses, was slightly up on the day, but most other stocks were down. Museitef also noticed that many of the stock of companies she was familiar with, mostly retail, were down. It is not real money, so the decisions before Herevia and Museitef will not effect the money in their pockets, but Bonvillain hopes it will help them make better decisions when they play, and pay, for real.

Lessons learned

Rand Scarbrough, a teacher at Silver Valley High School, said much can be learned from looking at the economic disasters of the 20th century. The 1929 crash created the Federal Deposit Insurance Corporation, which recently bumped up its coverage, insuring all money in bank accounts up to $250,000. What will this crisis create? Scarbrough has some ideas:
• Do away with adjustable rate mortgages, balloon payments (large payments made at the end of the term of loan) and interest only loans.
• Discourage the practice of flipping homes, buying homes and quickly selling them at profit, but lowering the capital gains tax assessed on home sales over time.
• Impose tougher sanctions against risky lending practices and enforce them on Wall Street and corporate executives.

Contact the writer:
(760) 256-4121 or aaupperlee@desertdispatch.comm