Bad Financial Advice (or bad advice, period)

It is a bit morbidly entertaining to watch someone in financial disarray give financial advice. Tell me you haven’t observed this! You likely have an uncle or friend of the family that is full of get rich quick schemes, ideas for making money if it weren’t for a distinct lack of financing, and on-demand (or without request) advice for the would-be investor or the financially troubled.

This character has even made its way into movies. You’ve seen it, right? The semi-crazy street vagrant dressed in rags carrying around a disconnected rotary dial red telephone yelling “Sell, sell!” into the handset.

The world is full of self-proclaimed experts and as a result it is always important to ask the right qualifying questions before even listening to advice to plague your mental process. Take for example, an old lost friend. He used to talk about money quite a bit. If you were to simply ask him if he was a business magnate or someone of just relative success he would be quick to tell you about the number of entrepreneurial businesses he was brought in to consult with on their way to the big-time. If you simply said, “Well, that works for me!” you wouldn’t ever hear the part of the story where nearly all of those businesses took his advice and are currently either in various stages of bankruptcy or in some cases the executives lost their right to be executives in any business ventures for nearly a decade as a result of them taking advice from him directly. Asking the right relevant questions is as important as getting purportedly good advice from “experts.” You can’t outsource your intelligence.

Such is the financial political world in the U.S. at the moment. If you are finding yourself affected at all by or thinking about the new national direction on issues like welfare, immigration, taxation, lending, regulation, government (deficit) spending, ecology, environmental laws and policies, housing market trends then you might want to ask yourself, “Where are we getting our advice on these new moves?” The answer is, well, no single source really. But what a reasonable person can do is look at parallels and say, “Are there states or governments that have already moved in the direction our nation is now headed in and what is the outcome of the progress they have made as a result?”

This is by all means not a foolproof technique in estimating the potential for success, even if it is how most of us make our daily decisions on a broad cross section of situations (i.e. we consult friends who have been through similar situations and learn from their missteps or successes.)

Our best parallel on nearly all of these socio-political fronts is both a U.S. state as well as the 9th largest economy in the world: California. Since the end of 2008 and in the beginning of 2009 California is, for lack of an actual legal ability to declare itself as such, bankrupt. States can’t declare bankruptcy, while local community governments and cities (more specifically) can do so, and in the case of California have (or in some cases nearly have if it weren’t for Federal bail-out.)

When you look at the policies in all of these categories it is no surprise that California runs a regular annual budget deficit of over $30 billion. It has falsely propped up its housing market. It has publically funded healthcare and lax boarders that allow illegal immigrants the benefits of legal immigrants and U.S. citizens. It has the highest personal income taxes in the country. It has the highest energy costs partially due to so called "green" legislation. It has the second highest unemployment rate in the nation (at 9.3%, and second only to DC which is nearly 10% unemployment.) It has completely over-leveraged its value against its lending power. It has been bailed out by the Federal Government and it has its hand out again!

Now, if you listen to the New York Times, they would have you believe that this is a shared story amongst Americans. Our American spirit should have us rally behind supporting a Federal bailout for California (as they ask for it again) because, well, this will likely be our states story too, right? Well, unless you are in New York City, that just isn’t true. And the runner-up for “in between a rock and a hard place” NYC is still only half as hard off as California. All of the states in between these two monolithically self-important socio-politically similar communities are not nearly in the same situation financially and otherwise. Oddly, if you go back as "far" as October of 2008 you can see Nancy Pelosi claim that bailouts are "bad policy" as she spoke out against it then and later wrote checks to NYC and now possibily against her own advice, to California. So why would we bail out these clear exceptions to the rule if the rule across the country doesn't trend into the toilet like these less-than-apologetic examples that spend and legislate themselves into a hole (and don't look like they are about to change that trend)?

The answer is simple, and you’ve likely heard this on TV: we can’t afford to let them fail. What you haven’t heard is the reasoning behind that statement. The can-do-people behind such statements need California to be a raging success because they epitomize the model implementation of their current nearly-manifest dream for the nation. If California can’t survive, and all of the states between California and DC are being turned into little Californias (politically and financially speaking through legislative action and spending) then naturally, California cannot be left to fail.

Maybe in this context, the New York Times would then be correct for once. If we all become little Californias, then maybe our states would all genuinely have a financial fate similar to the aforementioned. Then the Fed will swoop in and buy up the political landscape through the power of bailout funding that forces states to conform to the new political agenda.

In response to this unparalleled federal spending spree that attempts to change the socio-political momentum of the country through the power of financial leverage using these bad-example-communities, I have decided to start a mock campaign against this very obvious political movement called…

“Bailout BONANZA! America sells low.”

I am thinking about creating bumper-stickers.

On a more serious note, I think the solution could be a whole lot smarter. If we allowed for the creation of state to state lending where profitable states could provide contingent financing for less profitable states, then we sell out less and can skip the more costly middleman (the Federal Government, who would have to take money from the more profitable states anyway.) And contingencies could be established by the more profitable states, demanding that states requiring bailout take a few lessons on management from those more well-off states and set into motion plans that move them in the right direction. Now, mind you, my bias shows through in this statement, because the most profitable states across America are all fiscally and politically conservative states. At the same time, and with less bias, the upside is that funding would come from real sources and not the Fed which would either print more money lowing the value of the dollar or by just taking it from other states in the least efficient manner possible.

Living On Credit Cards

Dear Friend,

For some time now my budget has been busted. I have been spending way more than I can afford or even have. And right now I feel so sad because the people around me are also suffering financially. So here is what I have decided to do. I have asked all of my friends to pool as much of their disposable income with me as they can.

Some can afford a little and some can afford more. Many are not giving at all. I am doing my best to lay on thick the guilt trip to those friends who are doing well (or at least better than me.) The tact I have taken is to make them feel bad for being a success when people around them are not. The trick is that I say this fairly loud and in the presence of people who aren't doing well. The people who are poorer than me even add to the angry feelings toward the folks that are doing well.

I mean, who do those wealthier people think they are after all? Why do they have money while others don't? Wait. Don't answer that. I don't even want to know. I just want to hear the sound of them opening their wallets.

Now, once I have created this pool of funds, I have decided to turn around and open a huge line of credit using those funds as collateral. Sure the interest rates are fairly high on this sort of fund, and I am having to borrow that money from people not in my neighborhood, but in the end, it feels soooooo good to hand out wads of cash to people. I mean, they need the money right? And I am giving it to them, right? How cool is that. By the way, I actually took the loan out in their name. So when the lender from the other neighborhood shows up to collect, well, let's just say that won't really be my problem.

It just feels good to help, well, to help right now. Right now is when we need it the most, right? I mean, sure, we are living on credit together, but as long as I keep handing out the cash, it seems to me that nobody is asking questions, you know? They just need the cash.

So what if in a while they figure out the cost of that cash? They need it now, no matter the cost. And I am willing to help, no matter the cost. Gosh, that makes it sound like I have values and like I am taking on the responsibility of that cost. I am not. My friends and neighbors are, but let's not get distracted by those details. Let's just be good neighbors and get out there and buy new microwave ovens and locally manufactured automobiles and homes.

Oh man, take the wad of cash I handed you and follow my example by getting out a loan against your wad of cash. It is amazing how you will feel, well, right now! Maybe later you will realize it costs more, and more for a fairly long time (how long have we all been making payments on those crazy credit cards now?) but that is the magic of living on credit. Sure you are paying for it until you die, but man what a house, right? Well, what a house until the not so close neighbor takes it away when they come to collect their loan back. But I just can't think about that right now.

Right now I need to do something. And not a smart well thought out something, but a right now kind of something. A quick close your eyes and sign on the dotted line and ignor the fine print kind of something. We don't have TIME for talking about alternatives or shopping for better loans or whatever! Because, in the end, I know that I will feel good once they hand me that briefcase full of money. And I know I will feel better once I am handing that out to my neighbors! Who cares if it comes from China, right? Who cares if we are paying for it darned near the rest of our lives. We just need to focus on the cash, people! Focus! Over here! Not over there, over here! Seriously, stop looking at the fine print over there and just look at the cash in this briefcase over here.

Clearly this is the answer. Just ask all of my friends. When the chips are down and we are out of money, we just pull out the credit card and go have dinner and movie, right? I mean, what else could we do? Wait. Don't answer that. Focus!

- America, 2009

Updated:

Hi! America here! That was me back in 2009. Wow, I was not really thinking of my future. I quickly found myself buried under amazing debt and it wasn't until I stopped panicking and started talking to all of my friends that I started to get things under control. Unfortunately, here in 2030 life is getting a little better. I have paid down a lot of debt, but it started with getting my spending under control. My friends called it a budget and while it took a few false starts to learn how to live on one, I am now doing much better. Budgets really help you to prioritize, I tell you. For a while there I was calling things priorities that should never have been. After the spending was under more control and I was doing a lot better monitoring my ability to live under my budget, next I was able to refocus a bit. It is funny. Living under a budget helps you set realistic goals (and in my case my goals were all over the place.) By re-examining my purpose I was able to focus on my goals again, pay down my debt and focus on that purpose. It's funny what happens when you are in a tight spot and panic sets in. I really stirred myself up and got all freaked out. Thank goodness some of my friends were not all joining me in my panicky freakout sessions. I even accused those friends of not caring because they weren't freaking out with me (I was such a dork!) If they hadn't been patient and forgiving I might not have chilled out and took their advice. It is funny. I really knew what I needed to do all along. It is just too bad I made the decisions I did anyway (I guess the fact that I am still paying for it serves as a good reminder.) In the end, I can say that being in a tough spot was somewhat my fault and somewhat not, but my reaction is something I needed to own up to. And I continue to own up to it each day. Thank God for caring, patient, long suffering friends.

VOTE NO... on the Stimulus Package

It is an important day. The country needs a good healthy shot in the arm to get things rolling again. What we don't need is a short term quick recovery that many future generations will have to pay for (including our current generation.)

Currently, the proposed stimulus package contains plenty of "special interest" spending that will not (1) create jobs or truly (2) bolster the economy. It surely will not (3) help people stay in their homes. Some estimate that nearly half of the economic plan could be trimmed out and not harm the above 3 objectives.

There are plenty of programs included in the stimulus that are good, worthy programs, but they are not stimulus and will not directly help the objectives. We need to send a strong immediate message that says, "Hey! First things first! Let's approve a solid stimulus package that aims to achieve the actual objectives. Let the other good programming stand-alone and be voted for on their own merits!"

So, what can you do?

First, go and sign the "country first" petition and tell the Senate to vote no on this package as it stands today:


Next, pass this blog post along to friends. You likely have a healthy digital network of friends, using tools like facebook or myspace. And those "networks" might include multiple groups of friends. Immediately reposting a link to this blog post in your social networking site will ensure that more people can encourage the Senate to focus on "First things first!"