Tuesday, April 21, 2009

No One Knows Nothing. Personal Finance Edition.

Exhibit 1.
Professor Stephen Greenspan wrote Annals of Gullibility: Why We are Duped and How to Avoid it. In his book, he analyzes the topic of financial scams and a great number of other forms of human gullibility. Why do so many people behave in a manner which exposes them to severe and predictable risks? The book was released right around the time of the Madoff scandal. And, it turns out, Professor Greenspan lost a good chunk of his retirement savings to Mr. Madoff. This becomes the starting point in his article on Ponzi schemes.

Exhibit 2.
New York Times personal finance columnist, Ron Lieber discovered that his family's financial planner was being investigated for fraud, because millions of dollars had been transferred out of clients' accounts without authorization.

If the experts get taken, what chance does that leave for us amateurs?

On the Wrong Track

The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.

The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, "is a really bad program," Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses, he said.

"You’re really bailing out the shareholders and the bondholders."

It's worth reading the entire article.

And now a word or two about those announced bank earnings:
The banksters who have emptied the US Treasury of its money continue the same games of accounting sleight of hand, financial engineering, and other tricks of the trade that helped cause the meltdown in the first place.

Instead of recievership and liquidation, we rewarded these cretins with your grandchildren’s lunch money. It is idiocy on a grand scale, beyond my feeble imagination.

Wednesday, April 15, 2009

Other Ways We Are Wasting Money

Brave New Films has put together a documentary called "Rethink Afghanistan". Part three is the "Cost of War", which delves into the financial costs of this military conflict which will reach over $1 trillion and could last a decade or more. This is the trailer:

Monday, April 13, 2009

Tax Policy

This doesn't have quite as much to do with The Meltdown as it does with how our government raises money via the income tax. Warren Buffett noted in a speech he made in 2007 that "he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent". A truly progressive income tax policy is a vital component of a healthy economy. As it is now, our income tax policy contributes to the formation of bubble economies, huge disparities in wealth and income, underfunding of vital government services and infrastructure maintenance, and, by extension our current economic mess (I guess it does relate to The Meltdown after all).

Nate Silver at fivethirtyeight.com has an excellent post on marginal tax rates over the last 95 years. It's worth reading to put our administration's current proposals on tax policy into perspective.

One more quote from Mr. Buffett: "If class warfare is being waged in America, my class is clearly winning."

How's your class doing?