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.

The Cost of Doing Business (formally or informally)

A lot of deals go south these days between people trying to do business with each other and someone recently asked me if there was a new norm for dealing with people who seem to be acting flaky with regard to a perceived deal. I think a lot is at play and some of it is the current state of affairs.

I think the game is changing a little but I think the change is that people are becoming keenly aware of the already established sets of rules about how it works. A lot of times we can dodge the formality of the rules, but that is the exception to the rule these days and hardly ever the rule itself. Back in the day we could depend on perceived intent. That is no longer a reasonable expectation.

The "rules" in my opinion are established around the ideas of legal partnership, contract law and legally defendable intellectual property. This doesn't mean that we have to run off and only work alongside of people where we have established a legal partnership and a defendable boundary and agreed relationship about intellectual property or a written contract. I think what it means is that we have to understand what those legal boundaries actually are, in all three cases, and each time we get into a situation where we are operating with respect to a perceived partnership, a social contract or intellectual property, both parties should understand and set expectations - at least verbally. This is the old law and the new norm: if no expectations are verbalized, then the assumption is the boundaries established in the law, forget handshakes or unspoken intent or "a good vibe." If someone wants to walk away, then the law establishes their right as well as the expectation to do so. Any other expectation assumed is only personal and not considered a social contract, defendable intellectual property or a partnership.

Having said all of that, when I was working with one company not long ago we brought a group from Madison up to work on a project with us. They were simply going to finish the project. Once we hired them it seemed that they were unable to do the work and needed us to show them how to do their job. I was put under pressure to teach them how to do it. I told my company that what we did (our implementation) should be considered intellectual property and if they said they could do it but brought nothing to the table outside of interest, then they were actually in breach, not us. The vendor preemptively fired us (which was funny, since they were the ones getting paid.) Here is my rule of thumb on this stuff:

1. Is the partnership established or am I still pitching?
   If we are still dreaming and not working on a work order, then I am still selling and not partnering.
2. What do they/are they bringing to the table?
   If we are still talking about ideas and not implementations, then I am still selling. If they are discussing more than project ideas, then I should be past selling and working to establish a contract.
3. What do I/ am I bringing to the table? If I think we are in a partnership and we both understand the ideas at hand, but I am already hashing out implementation ideas, but without a contract, I might do better to switch back to establishing a contract. Otherwise, they could take what I have said and go with some other vendor (who is cheaper/crappier?) and the law would absolutely defend their right to do so (and I would feel like they were violating some unspoken social contract, partnership and/or my intellectual property - and I would be to blame for that; I would have decided to assume the risk.)

Put the "golden rule" into action: Proactively establish reasonable and understood boundaries in partnership, contracts and intellectual property, as you would have someone do with you (and if you do not have that, then you shouldn't expect people to act as if you do.)

I think I like the idea that people could just let their "yes" be yes and their "no" be no, when it comes to talking about doing business with you. But I think that is what a contract actually does for people and anything short of that is OK to get excited about, but not go put money down on a new swimming pool with regard to it. We are working with the world and just because I said "iguana-flavored popsicles" out loud first doesn't mean they weren't thinking the same thing and now violating my intellectual property (that is a common misunderstanding of intellectual property rules.)

I also think stuff doesn't work out all of the time, the law defends their right (my right as well) to decide that, and I also reserve the right to simply be disappointed about it. I think that is OK. But in short, I think a familiarity of the law with regard to legal partnership, contract law and rules about defendable intellectual property are worthy of reading and letting those realities establish the boundaries of expectation in me. I think that we can reserve the right to convince people of more informal contracts and expectations, but they reserve the right to disagree (and likely would.) But I think it is OK to be disappointed about that.

Check out Wikipedia (for a free starter resource and I am likely preaching to the chior here):

Contract law: http://en.wikipedia.org/wiki/Contract
(as well, check out http://www.cei.org/sections/subsection.cfm?section=43 )
Intellectual property: http://en.wikipedia.org/wiki/Intellectual_property
Partnership: http://en.wikipedia.org/wiki/Business_partnership

If someone isn't at the point of establishing any of the above three expectations, and something doesn't work out, it is OK to be disappointed, but their expectations and communication skills should be adjusted to establish this stuff (at least verbally) earlier in the process. Heaven forbid, if you are operating as if these things are established (especially in terms of intellectual property), stop right now and fix what's clearly broken.

You need to do this to be fair with yourself and the ones with which you are working!