Financial Meat and Potatoes

Today I treated myself to a steak lunch. It was for a celebration of sorts. In a fortunate happenstance, a competitor purchased my ailing “financial institution” through the device of a U.S. government sponsored shotgun wedding. Despite assurances that my deposits were insured, this at least gives the promise of a future uninterrupted by having to wait for the Fed to actually let me have my money. In short, business as usual is the order of the day. I am particularly glad as having been able to use sharp objects on the steak and not on myself. Shareholders who invested in my erstwhile bank are not so lucky.

As I ate my lunch I thought about the amount of time, investment, and risk wrapped up in such as simple thing as the coming together of a restaurant meal. So many participants in the free market work together to make it so. This is something we all take for granted. A rancher had to feed his cattle and bring them to market to make my steak possible. Farmers had to grow wheat, potatoes, and vegetables to furnish the side dishes. The restaurant itself had to be financed and built so it could enter a market crowded with competitors. Anywhere along the line the components of this lunch could fly apart due to a realized risk as diverse as bad weather, poor local zoning ordinances, or a transportation breakdown.

Much like that restaurant meal we also take for granted that our government and financial industry work in harmony to promote a fair and honest market for investors. But unlike the items on a restaurant menu it is harder to value and select items from financial markets. Restaurant items are tangible. You can smell, touch and taste them. Items on a financial menu are sometimes not only themselves intangible but are also based on or derived from other intangibles.

It is not new that people of bad intent exist in financial markets as they do everywhere. And it is also not new that these people seek to hide their bad intent through smoke and mirrors investment “opportunities” based on nothing more than a wink and a nod. Their cause is aided and abetted not just by the gullible and greedy ones who fall for these scams without asking to see what backs the claims but also by the range of “intangibles” they are allowed to traffic in. The phrase “If it sounds too good to be true” applies whether the seller is chewing on a stalk of hay or a $100 cigar. A sucker is truly born every minute and a huckster nearly as frequently.

Nothing so illustrates the unevenness and ultimate futility of government regulation. I was free to put my money in any bank just as those who bought shares in the bank were free to do so. Yet one has protection while the other has none. Some people would say this is an injustice and that shareholders should have insurance as well. But practicality tells us it is impossible for government to insure everyone against every risk in a world where risk is ever present. So government is constantly pushed and pulled by those wanting more or less regulation. And the goal of crafting the rules of the financial road is always a work in progress. The trick is to write the rules so even a Harvard MBA can understand them. But if that MBA despises or does not see the need for rules he or she will violate them just as surely as rumrunners in Prohibition times.

Those who say you can’t legislate human nature or morality when it applies to drugs, gambling and alcohol are all too willing to have regulations designed to stop “Wall Street greed”. Money, like morals, eventually finds its truest level. That level, or value, of money had been inflated for some time within my bank. Over the past several months those who set the value, also called the market, punished this bank for its lack of integrity and shortsighted greed. The market might be slow in its reaction but eventually, as in when the truth is known, exacts its economic justice. One might also say the same, when intestinal fortitude is present, about government criminal prosecutions of financial and other miscreants. Neither the market nor government is perfect because both are administered by men. And men, to borrow from the writer, are so easily corrupted.

Funny Money - Carbon Auction

Liberals have a history of trying to create substitutes for things of real value and then first cajoling and ultimately coercing, through onerous legislation, the great unwashed into buying their snake oil. The "cap and trade" ruse of carbon credits is just the latest example:

For sale: Northeastern states hold first US carbon auction aimed at curbing global warming

http://www.startribune.com/nation/29760 ... :_Yyc:aUUJ

Excerpt:

The program puts a price on carbon dioxide pollution, giving power plants a financial incentive to cut emissions.

Auction proceeds will go toward energy conservation and renewable energy programs in each of the 10 participating states: New York, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island and Vermont.

The program aims to hold carbon dioxide emissions steady through 2014 and then gradually reduce them; it is widely viewed as a model for future programs nationally and around the globe.

"It's historic," said Lance Pierce, climate program director of the Union of Concerned Scientists. "The carbon markets have arrived in the United States. And carbon markets, if designed correctly, hold the promise for development of cleaner energy ... and reductions in global warming pollution that benefit consumers, businesses and the environment, as well."

A key phrase from the above is "if designed correctly" and another is "hold the promise". Call me old school but that is not much justification for using the energy market, of in this case the Northeastern United States, as a guinea pig for a feel good political experiment. This is especially so when we know of an alternative to reducing pollution which is much more effective but politically less appealing, namely fines and criminal prosecution.

Instead of using existing statutes and enforcement personnel, the left instead creates an entirely new bureaucratic mechanism and at the same time creates a market for these credits which in themselves have no discernible value and are not supported by any form of collateral. This cap program is just the latest in a series of funny money economics which brought us travesties such as food stamps. Rather than hurting a hungry families self-esteem by actually having that family pick up a care package of actual food, the government in its infinite wisdom decided upon issuing food stamps. These stamps were then, in many cases, sold at discount in order that the recipient could buy alcohol or other prohibited items. Leftists routinely wag their fingers at "Wall Street corruption" yet they continually create imaginary "currency" having no intrinsic value which is eventually used for speculation inspired by the same greed they so ardently oppose.

Such has been the case with the current mortgage crisis as the do-gooders have devalued mortgages from a hard-headed investment into a "hoped for" tool to set up poor people for failure by getting them into homes they cannot afford through NINJA (No Income, No Job, or Assets) mortgages.

Is it any wonder then that this program will inevitably fail as have funny money programs such as food stamps and NINJA mortgages have failed?

Ethics and Schooling - Cause and Effect

With all the corporate and governmental irresponsibility going around storing money in a mattress is looking like a better alternative all the time. As many commentators are now in retrospect saying, no one has been effective in stopping greed. It's likely they never will. Government regulators both Executive and Congressional have been asleep at the switch, or actively involved in taking payoffs while shamelessly promoting bad economic practices thinly coated by a veneer of multiculturalistic feel good puffery. Corporate leaders have cravenly tended well to their own golden parachutes while being ignorant of their corporate and industry goals and objectives. Private audit firms have been in disarray for years. Business ethics once again rivals Congressional ethics for the title of gold-plated oxymoron. As in all artificial economic booms no one thought the housing bubble would burst. No one saw anything wrong with housing prices going up exponentially.

The irony is that while Washington has seemingly contradicted itself by selectively bailing out some companies while leaving others to twist in the wind the American public has contradicted itself as well. Americans have increasingly been willing to go deeply in debt without concern for consequences relying somehow on faith that their home equity will eventually save them. They have this notion that the equity in their home will immunize them from economic hardship. Not only that, this equity will allow them to both live well in retirement and put all their children, no matter how many they have, through college.

Americans rightly hold government and corporations responsible for doing their jobs efficiently, effectively, and ethically. They do not however hold educational institutions to the same standards. While the cost of a college education routinely goes up each year at rate much higher than inflation they shrug their shoulders and accept it. "Well", they say, "you have to have a college degree to make anything of yourself today". So the cost of a college degree is given a big pass while it is equated to the air we breathe as a necessity in life. This might be so if the product furnished was of good quality sold at a reasonable price. You know, like when you buy a pair of shoes.

Based on their track record the American public is obviously better informed about buying shoes than about buying a college degree. Not that this is totally the fault of the consumer as colleges and universities don't come equipped with price sticker information or a list of ingredients. In most cases the only "product" of any immediate value produced by colleges is technical research, which is most often supported appropriately enough by sources other than college tuition. After all, as the saying goes necessity is the mother of invention. If something is seen as necessary then it is funded. It is funded by private or public investors. These investors look for a good potential return on their investment. To do otherwise would be madness. So why would outwardly sane people go heavily in debt to offer thousands of dollars for a college degree from a "quality" university without seeking a potential return? Why would they ignore the fact that many universities sit on obscene amounts of cumulative endowment funds yet will not directly offer discounts on the total cost of education to students based on their ability to complete coursework in an exceptional manner? We generally expect pay for performance at our workplace so why not from our colleges and universities?

Both Presidential candidates talk of reform and at least one of them calls education the civil rights issue of this century. Yet no one talks about the yearly extortion of the American public exacted by a cartel, not of nations that don't like us very much, but by out of touch domestic educational institutions that view tuition, books, residency and other costs and the burden they place on educational consumers only in the abstract. No one seriously proposes "reform" for an intolerable system concerned more with contemplating the lint in the collective navels of its classroom-phobic professors. So year after year these institutions of "higher learning" continue hectoring students with discredited social and political theory rather than imparting traditional classic knowledge to young men and women about to enter the very real and competitive world of adults.

It seems therefore no coincidence that the abject failure of colleges and universities to do their job effectively has contributed mightily to our present ethical crisis. At most colleges and universities Western Civilization is systematically belittled, moral ethos is condemned as being jingoistic and is replaced with moral relativity, and collectivism is substituted for individual initiative and responsibility. It is no wonder that at least some of this toxic intellectual waste is carried by students for most if not all their remaining lives.

Americans look at corporate executives and politicians with some disgust, a disgust we do not apply to administrators at institutions for higher learning. For all their craven practices however we cannot forget they are people who were once like us. While they may have let power, influence, and money affect them we have the same pressures and temptations to deal with in our own lives. We also have to remember that these people were directly or indirectly put in power by us as shareholders, consumers, and voters. It would serve us well to think about that every time we purchase a product or service, review the offerings of a college or university, exercise a proxy, or vote in a local, state, or Federal election. We may not solve all the problems of the world but at least we can say we tried.