AskDong

I booked a trip to Mexico for the 1st week of June two weeks ago.  I had decided on Mexico because of the the great deals being offered.  Mexico had been getting a great deal of bad press from drug related violence.  Given that I’m neither a drug dealer or violent, I thought it was great opportunity to take advantage of the negative press.   I like to “buy low.”

Two weeks later, all that violence is long forgotten.  Now, Mexico is at the epicenter of the swine flu pandemic (or atleast media pandemic).   And to think I thought I got a great deal two weeks ago?   Today I can pay $1800 for the same trip (all inclusive for two) that cost me $2600 two weeks ago.   Given the huge price difference, I decided it was in my best interest to cancel my trip.  

I’m not particularly concerned about the swine flu, but my girlfriend is.   I had also heard the airlines were waiving cancellation fees.  I called Expedia, and canceled as much as I could.  I was able to cancel my hotel reservation worth $2000.   I didn’t cancel my airline reservation as I learned that Delta had only waived fees for flights in the next 5 days.  I was not planning to travel for another month.   Canceling my Hotel early was the right thing to do as I could incur a cancellation charge the more I waited.  Given that the airline had not decided to waive cancellation fees for flights in June, I had no reason to cancel my flight now.   I have a free option to wait and see if Delta decides to extend the waivers.

Even if I were to absorb the complete cost of my flights, I could still book the same trip right now and save $200.   The more probable outcome is that I don’t get a waiver on the change flight fee, and end up with a $600 credit - $300 flight change fee = $300 credit on Delta.    But more importantly I have the option of waiting and seeing if things getter better in Mexico, or booking another trip.   The swine flu could dissappear and I could end up with a even better deal in two weeks…

Last night, my girlfriend and I went out to dinner at the local tapas place.  They have outdoor seating, and last night was the first truly warm day we’ve had this year.  The day was beautiful.

We got there around 7, and were told there was 1 hour wait for a table outside.  The restaurant is small, and has limited seating.  We put our name in, strolled next door and had iced coffee while we waited.  We came back after 45 minutes, and checked on our table while waiting at the bar.

They were able to accommodate us little early.  While we waited we for our table to cleaned off, I heard the hotess talk to an older couple a few seats down.  She told them that there weren’t any no shows and it would be at least another half hour to hour wait for a table.   They were of course free to eat at the bar which they chose to do.

We sat down shortly, and from over my girlfriends shoulder I saw the couple eating akwardly.   The bar at the restaraunt is not designed for eating.  The bar is intended to serve as waiting station for a table, not a place to share tapas.  The bar is extra high, chin height while seated on the bar stools.

I mentioned to my girlfriend that I felt bad for the older couple.  She concurred.  We quickly discussed, and decided that we should give up our table to the couple.  We were in no hurry to eat.  I caught the eye of the hostess, and let her know of our decision.  The hostess was extremely appreciative of the offer, and arranged for the older couple to take our table.

Back at the bar, we waited for another table.  The manager, and I believe owner, informed of our decision offered us drinks on the house and told us that we would have the next table for two.  We waited another 15 or so minutes and were seated with drinks in hand.

I was happy that my bill for the evening was $20 less than usual, and happier still that we did something “good.”   When the couple waited at the bar, I had already thought about giving up my table, but didn’t do anything.  I was lucky that I had another opportunity to correct my initial inaction.  Too often, we don’t have a second opportunity to do the right thing.   It’s better that we be our better selves at first opportunity rather than try to make amends later.

The White House called the banker’s bluff.  Banks, lenders to the Auto industry, proposed to forgive 35% of the debt for an equity stake.  The White House which at this point is effectively the de-facto head of the industry rejected this proposal, saying it was not in the national interest.  Kudos to the administration.

One can debate if the Government should be involved at all in rehabilitating the auto industry.  Is it in the national interest to save the industry?  Does it make sense for the Government to make decisions for a private industry (even one it’s bankrolling)?  There are good arguments to make on both sides of those questions.   What is clear, however, is that the Government should not be letting the banks or any other private party to push either the Auto industry or it around.

One the smartest things that the adminstration has done in the course of the Auto bailout was to put bankruptcy clearly on the table.   By putting bankruptcy on the table, the auto industry and the government are both better able to bargain from a place of strength.  Bankruptcy is the ultimate bargaining chip.  What is better argument for debt relief than saying, “don’t give me what I want, and I’ll give you nothing.”

Big Fat Zero - that’s what I have left in my student loans.   I’m student loan free! It’s taken me ten years, but I have no student loans.  Of course, I only have an undergraduate degree, but it’s an accomplishment none the less.  I paid off my first higher interest private loan three years into my working career, seven years ago.   This month I paid off all my Stafford loans.

I was lucky, I left college with only a little over $15k in student loans.  Paying that 15k over the course of 10 years in one of the most favorable interest rate environments has been a relatively easy task.  My monthly payments were never much more than $150.  I could’ve paid the Stafford loan off earlier, but I was enjoying rates that were a shade over 3%.   While I’d like to say I beat that with my investments, I didn’t.  Still, I feel the flexibility having the money in hand rather than paying a loan off was worth it.  It’s not like I could ever borrow at such low rates again.  With the student loan done, the next debt on the list is my first mortgage.   That’s not happening anytime soon (26 years left).  Oh well.

I ask this question not because I have the answer.  I don’t, just some thoughts.  Given the current financial crisis, salaries and bonuses for financial workers seem awfully inflated.  Believers in efficient economic markets would argue that the high salaries in the financial world are just the product of supply and demand, and that the best and brightest are paid what the market will bear.   I don’t believe the labor market is as efficient as it could be, and I definitely do not believe the best and brightest have all become financial wizards on Wall Street.

While I think most wages are efficient.  Retail workers at one store do not differ greatly in pay from a worker at a another competing store, or differ too much even from and entry level clerical worker.  The market efficiencies breakdown higher up the income ladder, and especially in the financial world.

Those who believe that the titans of Wall Street are paid what they deserved will argue that these titans bring in the revenue.  They are not paid from money conjured from thin air.   They are paid because they make money trading, or bringing in deals.   This is true, the money is coming directly from individuals and corporations.  The problem lies with large numbers that are spread across even in larger numbers.  Individual investors hardly object to a few extra dollars a year that add up to millions for a fund and some its employees.  Nor do shareholders object when millions are turned over to the investment bank in the form underwriting fees.  The stock and bond issues are magnitudes larger.  What is a few million when we’re talking billions?  This ability to spread costs to many and funnel them to a few is at the heart of what allows Wall Street to pay itself so well.

Also if it’s truly talent that’s paid then why is that every head of Goldman Sachs has managed to do so well?  Wouldn’t we expect that they may have at some point promoted a dud?  In baseball, the top paid players are not necessarily the one’s who’ve stuck around a long time, but players who are at the top of their game.  Lloyd Blankenfein seems like a nice enough of a guy, but I do not believe he is at the top of the game.

What’s really happening at the top of the pecking order in finances and elsewhere is the operation of a micro ogliarchy.  At every level there are rtificial barriers to entry that prevent the optimal number of people from actually getting a job at that level.  Didn’t go to the right school?  Too bad, the analyst program is probably off limits.  Want to become a Managing Director?  Too bad you don’t have the right experience from bulge bracket bank.

While I believe it’s possible to overcome any of these individual obstacles to land a great a job with great pay, in total it creates aartificial limits on supply.  Of course this begs the question why any efficiently run bank would want to do this?  Wouldn’t they want to hire as cheaply possible from an over-sized pool of applicants?  Sure if they were run efficiently and without regard to precedent.   However, they are run by employees who consciencely or unconsciencely want to justify their own credentials.

Many finance people may be paid too much, but this does not mean I believe they should not be paid well.  It’s true many of the best and brightest are working in the financial industry.    And most of them have worked tirelessly to make sure that our capital markets are amongst the best in the world, and moneyis funneled into the right places. (obviously this has not worked too well in the past few years, but better days will come.)  I encourage our socieity to reward them handsomely -  as handsomely as we reward good doctors, engineers and scientists.   The problem today is that money that accrue to middling wall streeters far outstrip the financial rewards that go to even the best scientists and engineers in the world.