AskDong

The House passed new legislation intended to protect consumer from the big bad credit card companies.    I’m both personally ambivalent, and politically ambivalent about the new regulation.  Personally, I realized that I’m probably going to be hurt by the new legislation.   The new laws are not intended to protect me as I’m the type of credit card user credit card companies don’t really like.  I sign up for lots new credit cards, snapping up all the great offers, and don’t carry a balance or pay my bills late.   They don’t make money off of me because I don’t fall into their traps.  The credit card companies never have a chance to raise the rate on me or stick me with exorbitant late fees, but I still benefit from the teaser offers.   The new legislation is likely to reduce the number of great offers that come my way.

I’m willing to take a personal hit if I think the new legislation will truly help most Americans.   Sadly, I don’t think it will.   The new regulation will help some, but not enough.   The true costs of credit card debt will become more transparent and that is good.  Some of the worst practices such as puting payments towards the lowest interest rate balance should be eliminated.   However, the legislation fails to address the other side of the problem - credit hungry consumers.   Yes, the credit card companies need to be reigned in.   I believe in many of the provisions of the legislation, but we should also be issuing a firm rebuke to credit consumers.   Consumers are in trouble not just because credit card companies have taken advantage of them, they are in trouble because they have shirked tomorrow’s responsibilities for pleasures today.

It’s hard to believe that the stock market is about as low as it was when I first graduated college, over 11 years ago.  Taking inflation into account, it’s even lower than that.  I’m not sure it can go much lower, but in truth it can go all the way to zero.  While I’m certainly poorer for it, I’m young and have a lifetime of earnings ahead of me.

In the end however, I hope for the nation that this collapse is not a momentary dip before the next meteoric rise.    Like the last turn of a century, this recent speculative bubble across all asset classes has been fed by unrealistic greed.    As a nation we’ve forgotten that real wealth comes from real work.    Some believe that real work only produces real tangible things, i.e. manufacturing.   I don’t subscribe to this limited view.  Music and film have little worth if measured solely in physical terms, but have enormous value in real terms.   Making scientific discoveries even if they have no practical value increases our understanding of the universe.   I don’t believe knowledge is worthless.

What true wealth is not - is the act of buying something for $10, and turning around and selling it in month $20 more.   This is not to say there isn’t room for wheelers and dealers, speculators and their ilk (I could be counted amongst these people).    There is real value when someone recognizes what is truly undervalued, and is able to buy at a discount.   Such individuals facilitate the process of price discovery which benefits everyone involved.  Sellers get a fairer market price, and buyers learn of something that they might want.  There is also value creation when financiers allocate capital between different business opportunities.  I do not discount the value that financiers, and financial institutions provide the economy.  A solid banking system is critical to well functioning economy.

What I do discount is rampant unabashed speculation of the last quarter century.   We’ve become a nation of get rich schemers at every level.  From the house flipper in Florida, to the hedge fund mogul in Connecticut.   As a nation we’ve decided the way to riches is to sell higher rather than to add value.   The greater financial mess in some ways mirrors the truly egregious financial scams that have already to come to light.   The wealth of nation when built on rampant speculation is not much different from Madoff’s Ponzi scheme.

It’s my hope that we as individuals and as nation learn some valuable lessons in these difficult economic times.   Get rich quick schemes are built on castles made of sand, sustained wealth only comes from true work and real sacrifice.  Is it any surprise that the “Greatest Generation” rose from the ashes of the Great Depression?  That was generation that learned the value of saving over transient paper profits.  I hope my generation can be such a generation.

I don’t say any of this imply that there isn’t a place for investing.  There is, but people should neither expect or desire to quickly double their money.   Investors in companies that add real value to society will continue to be rewarded.  The illusory profits tha puffed up the “earnings” of many of the financial istutions have been revealed to be what they always were - smoke and mirrors.   Banks should have spent more time worrying about who they lent money to instead of selling the next mortgage backed security.

I’ve been somewhat disappointed by the early numbers for holiday shopping season.   The season has started off strong.  While a strong consumer is important to economy, I’ve been hoping against hope that Americans were ready to turn a new page in it’s book of consumerism.   It seems however that Consumer Americanus is still going strong.  Though early indicators show that the beast has evolved into a bit more of bargain hunter.

Personally, I’ve yet to start my holiday shopping, but I plan on doing it soon.   I don’t enjoy shopping, and I’m not very good at picking out gifts.  I hate giving bad gifts and as a result to go immense pains not give bad gifts.   Of course, I’ve taken the easy route to avoid giving bad gifts - I limit my gift giving to the bare minimum.   However, I do have a few people on my list that I do have to get some gifts for.  This year, I want to do it early rather than late and get it all out of the way.

Left to my own devices, I’m likely to do all my shopping online.  As much as I don’t like shopping even for myself at a mall or department store, I find shopping for gifts in the crowd of the mall even more loathsome.  This of course might be attriubutable to fact that I’ve found myself shopping on December 23rd of 24th 3 out of the last 4 years.  Picking from the dregs is never very much fun.   Hopefully this year, nobody will find me at Target this year at 7pm the night of Christmas Eve.

Today I overheard a few people on the locker room of the gym talking about their upcoming holiday party - it wasn’t happening.  This was quite unusual.  I rarely go to the gym.  I wasn’t surprised to learn that a holiday party had been canceled.  Perks like those are often the first to go.   My company when it went through some very lean times severely downsized it’s holiday party from the usual elegant catered affair to a few beers and pretzels at a college bar.  In the current economic environment, I’ve heard many stories from family and friends on cuts that the companies have or are going to make.

The financial crisis has been the grinch of this Christmas season.   It’s not only the corporate offices making cuts both on perks or more drastically by letting go of people.  Individuals and family seem to be getting in on the action as well.  Planned Christmas shopping is at a millenium low.

I’m a little afraid.  I’m all for cutting out personal excess, and would even go as far to say that sometimes corporate layoffs are good.  Ideally when layoffs happen, companies become better and individuals have the opportunity to find work that’s a better fit.   I fear this is not what’s happening in the current economy.  The magintude and depth of layoffs imply that gainful employment will be hard to find.   This is a problem.    Despite my personal beliefs that the nation is better off shedding some of it’s consumerist attitude, and return to thrifty ways, the nation cannot handle a sudden dropoff.   Ultimately the belief that the economy is in dire straits makes for a self fufilling prophecy.   I don’t believe we’re there yet, but black friday will be very telling.

Fortune a few weeks ago had an article on the plight of the HENRYs (High Earners Not Rich Yet), the AMT set.   These are folks and their breathren, the Richs (Replete In Cash and Holdings), are in the bullseye of the Obama tax plan.  If I had to include myself in some class group I would fit pretty well in this group.  Personally though, I wouldn’t call myself not “Rich Yet.”  The fact is, I’m plenty rich as I think most of these HENRYs actually are.  There’s always more money to be had.  If there’s one plague that modern Americans are afflicted with it, it’s the propensity to always want more.

I certainly have my own personal stand on taxes.  I don’t like them very much, and think they need to be as low as possible to provide all the services required by Americans without adding to the national debt.  Yeah, I’m ok with higher taxes (though raising them in the current economic environment is probably a very bad idea).  That said, I think it’s very reasonable to demand lower taxes.   High or Low, I think most reasonable people understand taxes are not a goal unto themselves.  They are the tool of broader government policy. Be it smaller government, or universal health care.

I may not agree with some of these HENRYs on taxes, but what I find really irksome is the whining on the part of some of these HENRYs.  They’re doing really really well, and I find the “if you had to walk in my shoes” attitude a little more than offputting.   I live in a expensive city, work hard, and pay alot in taxes.   But, I also realize at the end of the day many of the activities I enjoy are luxuries for most people.  There are likley 7 billion people in the world willing to switch places with them, and have the choice to put $4,000 into retirement.

All that said, I think much of the angst these HENRYs have are worrying about how to provide for their children.  I don’t have children, so I can only intellectually empathize.  It’s funny how often succesful people who’ve pulled themselves up by their own bootstraps are often inisistent that their children have all the advantages and privileges that they themselves never had.   Still, everyone should be able to step back at least a little and realize what a privilige is to be able to send their kids to the best private schools, and individual piano lessons.  Even though I’m not a parent, I think good kids will turn out well regardless of the dollars spent as long as the actual parenting is good.