Thursday, October 2, 2008

Politics 101

There are two things you don't want to watch being made, law and sausage. The senate bailout included:

Revisions to the AMT
Corporate tax cuts
Clean energy tax cuts
Earmarks, like something about wooden arrows for use by children

Why exactly didn't either candidate make a stand against a bill loaded with pork? For one, it's because most of the provisions amount to logrolling and earmarks designed to buy votes from his own party in the house. For the other, he needs to keep his post-partisan get-things-done image of civility and compromise. I'll let readers sort out which candidate did which.

Why not to Sweat your 401k (<45 age group)

If you're under 45, then your 401k is probably mostly growth-oriented (somewhat aggressive). Many republicans are trying to sell their changes to the bailout by scaring "average folks" ….less over their 401k's. If you're in just about any age group, fiddling with your investments now is probably a knee-jerk reaction that won't do anyone much good. First of all, most of the current volatility is fueled by panic and a general sense of uncertainty, so after the 777 drop one day, it's not uncommon to see a 550 jump the next (like we did this week). But think about it: Do you really know more than the people who do this 24/7? If you did, you'd have already jumped out of your risky investments. Right now, you have to consider yesterday's loss as sunk, as hard as that is, not panic, and think about your expectations for the next month, year, decade, etc.

For the younger bunch, the value in your retirement is still climbing a lot on the back of your (and your employer's) contributions to it. That means that your contributions are getting stocks relatively cheaper, and that can work to your advantage, looking over the window over which you'll be continuing to participate in the labor force. It's the simplest rule in economics: BUY LOW SELL HIGH.

Tuesday, September 30, 2008

Good One-Liner, Mr. Reich

Robert Reich had a good one-liner on This Week, this week: What do you have when you take the greed out of Wall Street? Pavement. For some, that's high praise for Wall Street; for others, not so much.

Monday, September 29, 2008

Kudos to the Republicans

Many Republicans stuck to their conservative principles, and voted "nay" and kudos to them for that. I just wanted to put that out there before you read my rant (below).

Theocratic National Socialists

When exactly did the Republican Party trade in its stripes of classic fiscal conservatism for whatever it is some of them now espouse? Many voted "nay" for the right reasons; others, like Rep. Tom Price (R-GA) mainly held out for a variety of dogmatic reasons, namely the irresponsible lowering of capital gains taxes without showing any real fiscal restraint (beginning at about 5:50 into the clip):



I'm the first (well, maybe not the first, but definitely not the last) to admit that lower capital gains taxes are a great help to investment and GDP growth in the long run. There are several problems with invoking these cuts in the current crisis. First, we are not in a debate over long run economic performance, we are in a crisis of financial liquidity to the banking sector. Second, a percent or two cut in capital gains tax rates is unlikely to have much impact on the aggregate because private investors are scared shitless (technical term). Third, as it pertains to the current problem, capital gains tax cuts are unlikely to have a substantial impact for the sector in crisis. Even if the across-the-board cuts are generally a good thing, they would do quite a bit to cut government revenue while doing little to supply private funds to the financial sector because private citizens will avoid those corporations and institutions that are vested in securitized mortgages. Finally, there are more efficient and effective ways of reforming capital gains taxes that would have a greater impact on the amount of money invested than cutting the rates would. Namely, the value basis for calculating the gains should be deflated against price changes, which would increase the level of certainty about the net after-tax returns to assets for any tax rate.

This is an issue for another day, however. The priorities for the here and now are: 1. supplying funds, and; 2. implementing warrants to hedge the government's outlays against information asymmetries whereby firms that dump the most toxic assets for prime prices will have to pay a return for the changes to make up the difference between what they got from DOT and what the toxic assets were worth.

What's more disturbing, is the fact that Republicans, in large part, are becoming less like the true fiscal conservatives they've always purported themselves to be. What they do these days, more and more, is buy your vote with: 1. tax cuts; 2. government intervention in their own pet industries, directly through spending in non-entitlement areas, and indirectly through subsidies, tax loopholes, and no-bid government contracts, and; 3. distracting middle/working class issues by raising nationalism and xenophobia while attempting to monopolize religion and morality.

Stop drinking their Kool-Aid.

Sunday, September 28, 2008

Industries Where the Customer May not Always be Right

Found this on Freakonomics. Consumers who bone up on their own health may actually interfere with their own health care. Interesting. Any other applications where the customer may not be "right" and "information may actually lead to worse service? Education? Investing?