AskDong

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 media outlets are abuzz with the AIG Bonus fiasco. First I will state my opinion.  I like most of the known world am outraged at the bonus payments.  They are unconscionable.  Why should the very same people who have brought the world’s financial system to the brink of disaster be paid any kind of bonus after demonstrating at best incompetence and at worst reckless disregard for the world economy?

All of that said, actual situation is both more complicated and less clear.  On one hand, we should not worry about millions when the magnitude the crisis is a few order of magnitude larger.  450 million is less than .5% percent of the bailout, and less than .01% of the total AIG Credit Default Swap risk.   Still, just because the percentage is small does not mean we should not do the right thing.    Sadly, however, the clear right course of action is neither implementable nor practical.

Much of the problem is cultural.  I found the graph below from EconomicPicData very illustrative of how Wall Street and the financial world views bonuses.

In the case of AIG, the employees effectively negotiated as if they were in the lower right quadrant.  The threat was that they would go elsewhere and leave AIG and the Government in a lurch.   Part of the problem is that eleven of top 73 best compensated employees already have left.   If million dollar plus bonuses for employees who have demonstrated abject failures of judgement isn’t enough to maintain a 90% retention rate than I don’t know what would be?

For too long individuals in the financial world have held other effectively to gun to get what they want (more money) regardless of outcome.  The retention plan was put in place before the avalanche of the financial crisis, before AIG was bailed out.   The retention plan was put in place by management under a gun.  They worried that these employees who had managed to accumulate 2.3 trillion in exposure would walk.  Even though it was already clear at this point, the business was going to lose hundreds of billions, there was still more to be lost if AIG were left in a lurch.   These positions had to be managed, and the current employees were probably still the best people to do so despite the massive losses.  It’s disgusting that employees who were pushing the company across the cliffs of doom thought they could still squeeze more for themselves despite the havoc they already wrecked.   These retention bonuses are little more than blackmail.  The employees had effectively accelerated the car to dangerously reckless speeds, and were now basically threatening to cut the breaks if they didn’t get paid to slow the car down.  Disgusting.

While the right and wrong of the matter seems clear enough to laymen like myself, the legal issues are much less so.   AIG did sign these contracts, and the sanctity of the law should be upheld.   Nor, do I believe we should be setting up specific laws to target specific individuals.   That is a very dangerous precedent.   Allowing and supporting a government that retroactively targets individuals just because it doesn’t like them is akin to fascism.  That said, had AIG actually gone bankrupt these bonus payments would not be paid.  When a company enters bankruptcy, broad authority is given to determine who and when people are paid.   Many bondholders are not paid despite being under the auspices of contract law.   There is no question that AIG would have had to file for bankruptcy protection if not for the Government intervention.   The Government failed in giving itself more broad authority on controlling these payments in the haste of bailing out AIG.   While the Government did place clawback provisions when it first issued TARP money, these provisions however were limited and not applicable to the bonuses being paid.

Some believe that some of the AIG particpants should be convicted of fraud.   They are certainly guilty of bad, risky, behavior, but are they guilty of breaking any laws?  That is unclear.   AIG has wrought more financial destruction than Enron but it seems like most if not all of its employees will escape prosecution.  There were no laws or regulation that prevented from selling more CDS than the could actually insure.  Should not reckless endangerment of the whole financial system be a crime?  Misleading investors affects millions of people, reckless leveraging of the entire financial system endangers billions of people. What is a greater crime?  Even if such laws were in place, in practice they would likely cast too wide net that makes for abuse.   As I’ve stated before, it’s not that we need more regulation, just better regulators.  Would AIG behaved a little differently had regulators at the SEC come down and questioned their behavior.  What if they had been threatened by the regulars with criminal action?  Might they have given their actions a second thought?

It looks almost assured that Obama’s stimulus package will be passed.   While I’m happy to debate the finer points of the stimulus.  Is fiscal spending more effective than tax cuts?  Is there too much pork in the bill?

I won’t discuss any of those issues today.  I ask a more fundamental question.  Is the stimulus really necessary?  I ask this even in more fundamental way.   I’m not asking if the Economy needs a stimulus package to continue chugging along.   I’m asking the question behind the question, “Does the economy need to chug along?”

The conventional thinking is that economy has to grow.  We have to be more productive.  We have to be competitive with the rest of the world.  We have to have more things.  Do we really?  Slate published an article late last year asking, “Why not start the weekend on wednesday?“  Despite whatever economic hit we might be taking right now, Americans are still far more productive than they were a generation ago.  The Slate articles asks why have people not made the choice to work less and yet still have the same lifestyle their parents may have had 40 years ago?

The problem is that not the pie isn’t big enough.   It is.  We still live in a country of plenty.   The “problem” is that we want more, and wanting more isn’t about wanting absolutely more but just more than the next guy.   Slate cites the oft cited study that shows that most individuals prefer not so much making more money, but making more than their peers even if that is less money overall.   This in itself is not a bad thing.  This very human characteristic is what encourages us to always want to better ourselves.   Otherwise, society would stagnate.  Now when the tide rises, we set new goals.   My question is, have we pegged our goals to the wrong stakes?

Like many other personal finance bloggers, I am curious if others are feeling the pinch of economic downturn. Almost everyone I know has had an “all hands” meeting at work.  Many of these meetings has been to calm the nerves of uneasy employees.  Still, many others have been to announce that layoffs are coming or that have come.   In my limited career of 10 years, I have witnessed my fair share of layoffs.   I saw the tech bubble crash around me.   I also experienced the ripples of the Enron collapse cascade through the energy industry.   This downturn, however, has had an auspicious start.  Few industries seem safe.  Not banking, not manufacturing, not technology, maybe health care.

So what any of us to do in these uncertain times?  There is always one investment that is always worthwhile, and that is the investment in yourself.

• Learn New Skills - these could be related to your job making you more valuable, but it could also completely unrelated.   A hobby can sometimes turn into a new career.
• Get reaquainted with a forgotten colleagues.    You might not be looking for a new job, but networking is best started when you’re not looking.
• Start working on plan B.   Doesn’t matter where you are or how you’re doing, everyone should have a plan B.
• Be optimistic.  I firmly believe that economic downturns offer unique opportunities for those who are willing to persevere.   Down markets offer great opportunity for investment.   This is when the chafe gets separated from the wheat.

I was readding CNN’s Gallery of America: Better Off and Worse Off. I’m always curious to read what people’s personal stories are.   The problem with any such gallery like this is that it’s neither statistically signifigant nor random.   There are two few people profiled, and it’s usually a self selected crowd that is actually profiled.  Still, I found it interesting reading comparing those who thought themselves better off rather than worse off.

If I can generalize, and I do, there is one theme that stands clearly out.  Those who feel like they are “better off” are almost in the bloom of youth.  I think many of the reasons that make younger individuals more optimistic are more obvious than others.

• Young people feel generally more invincible.
• Career options are unlimited.  Making career switches when you’re young is much easier.   Even though I’m only in my thirties, I would be hard pressed to switch careers.  Not only would I without a doubt have to take a pay cut, but also convince potential employers that I’m not too experienced to take a job.
• Young people have less fixed obligation.  They may not have children, or older parents who need care.  If anything they might have parents that can often provide support in times of need.

I believe another great cause for the greater optimism amongst the younger set is a generational one, but not one of age.  The twentieth century was a century of change.   Few people at the turn of the last century worried much about saving for retirement.   Most people worked until they died and had the support of younger family members.   Baby boomers who were raised in economic boom of the 50s and the 60s grew up expecting greater job stability.

I believe younger individuals have fewer expectations of such stability.  That said, the statement I respected the most came from a family man of near 50 who works in the most beleaguered of industries, the mortgage industry.    What I respect is that he’s dealt with adversity during the last recession, and has made changes.  He hasn’t given up hope, and understands that while everything is not roses.  He believes he has control over his life.   While there are many things to complain about, and things about our economic system that need tobe rectified, most individuals are still very much in control of their own destinies.