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Financial risk takers are like drug dealers, apparently

Watching the UK’s Channel 4 programme tonight, hosted by Jon Snow, whose leftist views are easily discernible, I sensed an aspect of the coverage of the present financial turmoil that bothered me. Several times, during various back-and-forth questions with such luminaries as the left wing journalist Will Hutton and the Cazenove economist Richard Jeffries (I know Richard, he is a smart guy), Snow came up with the idea that instruments such as financial derivatives were “peddled” by banks and other institutions to investors. You see, the viewer was supposed to understand, buying or selling a swap, or a future, an option, a warrant, or basket of bonds and equities is like buying or selling crack cocaine or a porno magazine, not that I have a problem with porn magazines.

Of course, given the way in which hedge funds have been accused of colluding to destroy financial institutions such as Britain’s HBOS – which is beyond daft given that only a small fraction of HBOS shares were available to be short-sold in the first place – we can expect more of this demonisation of financial markets. Please understand me, gentle readers. I am not saying that banks and other intermediaries are not at times at fault for what has happened. Clearly it sticks in the throat to see bankers earn vast salaries in the good times and then bawl like so many 1980s coalminers or wheat farmers when the taxpayer refuses to get them out of trouble. I was grimly satisfied to see that the US allowed Lehman Brothers to go down, since it showed that at least some policymakers in the US were willing to see risk-takers pay the price of risks that have gone awry. But let there be no mistake: the financial derivative instruments that are being credited with voodoo powers by financial dunderheads like Will Hutton or Mr Snow are not the essence of the problem.

Derivatives are, after all, borne out of the desire by people to offload risks and by the desire of others to take those risks on; they are a consequence of the different appetite for bearing risk that occurs in any open market economy. Some people like uncertainty, others do not. That difference explains how, in a world of price movement, it is possible for people to swap uncertainty for certainty and vice-versa. It is the basis of insurance, for example. Without speculators willing to bear risks of fluctuations in everything from wheat to interest rates, other, more timid souls would not have fixed-rate mortgages or upfront payments for their wheat. Without those hedge funds, other, more cautious investors would not get prices for their investments, and so on.

We are in the midst of a very scary time in the financial world and there is no point in my trying to obscure that fact. I work in the wealth management business and have seen even some of the smartest minds in the business lose their heads. But I detect a decidedly unpleasant whiff in the air of scapegoating in the current time. One almost can hear an echo of anti-semitism, or something very similar.

Meanwhile, Roger Kimball pins much of the blame on US policies designed to encourage risky borrowers to get credit. He has got a point. I would also repeat the point that with Japan and other Asian countries operating ultra-low interest rates for a long time, these countries acted like ATM machines for the rest of the world. As Paul Marks of this parish likes to point out, until interest rates are based on a genuine balance between the demand for and stock of savings, the monetary system of the world will keep creating bubbles like this.

Update: here is a fine essay by economics historian Robert Higgs about how disastrous policy responses in the US ensured that the Wall Street Crash of 1929 mutated into a decade-long slump. Over and over again, it is necessary to nail the myth of Roosevelt’s New Deal. Far from “saving” US capitalism from itself, FDR lengthened the misery; unemployment was higher by the outbreak of WW2 than when he was elected to office.

26 comments to Financial risk takers are like drug dealers, apparently

  • llamas

    The analysis that blames all this on CRA is fair – up to a point. But the underperforming loans are not primarily in low-income or minority areas – quite the opposite. The problems are in places where sub-prime loans were jiggered-up into instruments to allow people to ride the housing bubble – on someone else’s dime. The bulk of the losses are in tony, upwardly-mobile middle-class neighborhoods where people were allowed to finance their lifestyles and/or play the property market with their equity, real or otherwise.

    While there’s plenty of blame to go around, there’s not yet enough blame being applied to the people who took these loans so that they could play at living like a rock star, or make a quick dollar ‘flipping’ homes in hot markets – or to the lenders that made them the loans and then sold them on inside opaque derivative products.

    That’s why the firestorm of public pushback against the bail-out – it’s like the dog that didn’t bark. People are not mad because huge hedge funds and the Freddies and Fannies were stupid. To an extent, they expect that, and they understand that the political choices that were made (like CRA and its consequences) will have a cost. No, they’re mad because they don’t see why they, as individual taxpayers, should carry the load – again – while other individuals who made poor choices are held harmless, as this bail-out package proposes to do. They want to see those who chose poorly pay some penalty for their foolishness. They also want to see the companies who originated and perfected this genre of whacky loans get a long and brisk haircut. They’re not seeing any of that in this bail-out package.

    llater,

    llamas

  • Don’t forget that until the bailout demands, the banks were just losing their own money … and it’s everybody’s right to be a damn fool.

    It’s only when you socialize the losses that this becomes a moral issue.

    Of coruse, there is some risk, since government foolishness created institutions which were ‘too big to fail’, but really, that’s more an issue of perception than reality. If institutions are ‘too big to fail’, and they fail, the market will recover.

  • Brad

    I can see that for some financial gurus the “game” provides an excitement and that they may make bad decisions (misallocations). As long as they suffer the consequences (just like true addicts of any kind) what is the harm in general? Making laws banning this and that only clips the wings of those not addicted and does little to stop those who would be thrill seekers one way or another. The heart of the matter in many addiction scenerios is that of the enabler, the one who cleans up the vomit and dirty needles and makes excuses for the addcit’s actions and subsidizes their failing life. The government is the enabler in this case, and those who have made bad allocations are askiing to be bailed out of their misfortune. Basically the market is an unforgiving mistress, mistreat it and you will suffer; treat it right and all is well. But the government has been an enabler for the better part of seven decades now and the junkies are strung all up and down Wall Street and the “herion” has just all run out.

  • Too many people have taken on too much debt that they cannot afford to pay back. That isn’t just the “subprime” loans, but it goes all the way up through vast numbers of middle class people who bought houses which were manifestly not worth the prices being paid for them and who used debt to fund lifestyles the sustainability of which was dependent on rather heroic assumptions about their incomes and the economy going forward.

    Responsibility for this lies partly with the banks, who did not do proper due diligence on the people they were lending to. It lies very much with governments, who encouraged and required banks to make some of these loans. It lies partly with ratings agencies who became co-opted by the system and gave blatently dishonest ratings to debt. But a great deal of blame also lies with people who borrowed more money than they could reasonably ever afford to pay back, particularly if they lied about their income in order to be approved for loans (as many did).

    A little obligatory personal information. I work for a hedge fund. One of the things that we do is sell stocks short. (Of course, when you sell something, you are also usually buying something, if only a cash position that generates interest income. The direction of the trade does not really matter. You are making a statement about the relative value of something with respect to something else. It is only trading). So if people want to see me as a villain, fine. Fuck you, but fine. On the other hand, I have no debt, I live in a rented flat, and I have considerable savings. The prospect of people who have borrowed irresponsibly demanding that the state bail them out enrages me, because this simply translates as “steal my money to bail out the irresponsible”.

  • Kevin B

    I’m sure that Channel 4 will now stop broadcasting ‘Build a new home in the Country’ or ‘Abroad’ or where ever, and all the other ‘How to make money buying and selling houses’ type programs.

    After all, they wouldn’t want to encourage people in their nasty habits, would they?

    Still, one good thing to come out of this mess is a dearth of adverts for cheap credit and loan consolidation companies.

  • Hmm. I believe I’ve mentioned that my knowledge of economics is [ahem] somewhat blunted by my sleeping through class. However, I can say this much…

    … ATM stands for Automated Teller Machine. You do not call them ATM machines, they’re ATMs. Occasionally, it may stand for Asynchonous Transfer Mode, or At The Moment. Neither of which makes sense in context…

    /hates redundancies like this. Or the hoi polloi, when hoi polloi already means ‘the many’.

  • Laird

    There are a lot of sensible posts on this thread, and llamas has it exactly right. There is blame enough to go around: CRA and similar laws mandating that banks lend to non-credit-worthy borrowers for the political advantage of ambitious but not-too-bright politicians (would anyone hire Senate Majority Leader Harry Reid to run even a convenience store?); ACORN and similar groups which are nothing but socialist extortion rackets; greedy brokers and lenders anxious to churn out ever more mortgages; greedy borrowers whose only goal was to profit from the seemingly endless increase in home prices (who thought that the tree would grow to the sky); other borrowers who foolishly used the irrational increase in their homes’ appraised values to fund extravagent consumer spending; rapacious investment bankers devising ever-more-complex financial structures which became increasingly divorced from economic reality; foolish investors who purchased those securities without really understanding what they were buying; and of course rating agencies and monoline bond insurers whose loss models were woefully naive. A pox on all their houses! Oh, I guess that’s what they’ve got.

    But to return to the topic of Johnathan’s original post, derivatives are indeed very useful tools for managing risk, but to be fair I think it is also true that they have been misused (one might even say “perverted”) in recent years. There are species of derivative which don’t exist to hedge any sort of risk at all, but to facilitate pure speculation. There are others whose chief purpose seems to be fooling people (creating vehicles to permit fund managers to speculate in areas outside of the range of their permitted investments). When county treasurers and local pension funds are buying complex foreign-currency-denominated bonds which are so complicated that a computer is needed to value them, or esoteric instruments such as IO strips and inverse floaters, you know something has gone wrong.

    This is the sort of once-in-a-lifetime environment in which immense fortunes are made. I just need to figure out where to look!

  • Anoynmous

    On the other hand, I have no debt, I live in a rented flat, and I have considerable savings. The prospect of people who have borrowed irresponsibly demanding that the state bail them out enrages me, because this simply translates as “steal my money to bail out the irresponsible”.

    That’s my situation too – but to those in charge, we are the problem. We don’t consume excessively. We don’t get in hock and pay loads of interest. We want interest rates to go in the ‘wrong’ direction and by virtue of having deposits we create liabilities for the banks – they have to insure our deposits and that means they have to comply with the parameters of the insurance schemes. We don’t ‘drive the market.’

    We are also very much in the minority – and there’s no question of ‘right’ or ‘wrong’ when it comes to voters. The majority is right. If that means debtors and people with huge mortgages have to be bailed out at our expense, so be it. It’s not like the USA where it was vaguely optional – in the UK you _had_ to play the game if you wanted a house or an apartment – the price inflation was that universal as it wasn’t driven so much by ‘subprime’ loans as by banks following the japan-before-the-bust model and lending absolutely as much as possible, to try and shore up margins against artificially low interest rates (pushed down by the low inflation that was entirely related to the deflation in the price of consumer goods.)

    The news reports ‘house prices falling’ and the government flaps about like a headless chicken. Do you think this Labour government wants to preside over more negative equity and more reposessions than Thatcher – and we’re talking more by about 10x more?

  • I am sorry, but I don’t buy this whole ‘blame sharing’ thing. Blame for what? If the government hasn’t been printing money like there’s no tomorrow, the only thing all these people Laird mentions could be blamed for would have been their own problems, if even that. Not only that people have the right to be greedy or stupid (or both), but the simple truth is that although not all of us are stupid, most of us are greedy, when given the right (or wrong) incentive.

  • llamas

    Alisa – don’t follow you? It’s not greed or stupidity – it’s BOTH.

    Regardless of what games the Government plays with the money supply (and I don’t disagree with you that those games have been often of stunning silliness), much of the blame for this mess lies with individuals – borrowers and lenders.

    The average Joe may become easily lost in the sea of mortgage-based derivatives, I agree.

    But anyone who thinks that borrowing 125% of a home’s appraised value, no-money-down, with 4 points rolled into the principal, interest-only, with no proof of income and no comps, is a prudent, low-risk transaction – deserves to take a serious haircut when it all goes sideways. Whether he’s the borrower or the lender. That’s how the market teaches its lessons. No other mechanism has ever been found which teaches those lessons so effectively.

    And make no mistake – loans that silly and sillier were freely on offer in the US, and not in disadvantaged minority neighbourhoods either – in white-bread, outstate Michigan, I was inundated with offers for this sort of crap for the best part of a decade.

    Sure, the hogs further up the trough – the ones who smeared this s**t on two slices of bread and sold it on as a caviar sandwich – are just as much to blame. They don’t even have the excuse of stupidity or ignorance – they’re supposed to know better. That’s why the voters want to see them pay where it hurts – in the pocketbook – for what they did.

    But the voters especially want to see those individuals who succumbed to a combination of greed and stupidity – those who took these POS loans, and those who offered them – take the consequences. The attitude that I hear – and share – is ‘I paid my mortgage on time, and went without to do so, I didn’t walk away from my obligations, I borrowed prudently and within well-understood limits – what principle of law or equity now requires me to pay the mortgages of others who ignored all those well-understood principles and let their greed overcome their caution? Let them be foreclosed, let the lenders who offered this s**t on a cracker go bankrupt, let the hogs further up the trough who dealt in this s**t wither and die.’ And the voters also grasp, much better than many in the Congress, in how far this mess is a result of state and party-political manipulation, and they have no confidence that any state ‘bail-out’ will have the desired effect. Quite the opposite. The voters now trust the heartless forces of the market to correct with minimum pain, over the caring desires of our leaders to ‘help’.

    Speaker Pelosi struck the perfect note of tone-deafness in her stupid, stupid speech yesterday, in which she rushed to blame all this mess on Republican policies. But at least we were treated to the Kafka-esque sight of Democrats claiming that it was absolutely vital to the economy to hold Wall Street wheeler-dealers harmless for their losses, while Republicans argued the exact opposite – and then to see the voters give them all a good shellacking, hold their feet to the fire, and refuse their ‘help’.

    McCain and Palin – especially Palin – could harness this sentiment all they way to the White House, and both houses of the Congress, too. The voters hve shown that they can stand the straight talk and the pain that accompanies it – in fact, that that’s what they want. But McCain, bless his heart, has gone all wobbly on us – like so many in the established state, he’s begun to believe that he’s part of the solution.

    I’ll take the hit on my 401k. I’ll take reduced effective income. I’ll take higher interest rates. What I won’t take is paying higher taxes to cover some other guy’s mortgage payment because he wanted to live like a rock star and didn’t have the smarts to figure out he couldn’t. Or to keep in business the broker who sold him the idea that he could. And I especially won’t stand to give politicians and their overpaid toadies any more say over what can be bought and sold – because we all know where that leads. We’ve all seen it already.

    llater,

    llamas

  • llamas: there is no way I could have put it half as well myself.

    Regardless of what games the Government plays with the money supply (and I don’t disagree with you that those games have been often of stunning silliness), much of the blame for this mess lies with individuals – borrowers and lenders.

    Of course. My point was that had the government not set the rules of the game the way it did, the mess would have remained a private matter for all those individuals to sort out, and they would not have taken the entire economy (i.e. people like you and me) with them on their way down.

  • Oh, and:

    and I don’t disagree with you that those games have been often of stunning silliness

    ‘Silliness’ is not the word I would use. My granny had a saying (an awkward translation from Russian follows) : ‘stupid for others, smart for himself’. She must have had politicians in mind.

  • RAB

    On the money Llamas.

    I come from a generation whos parents fought the War.
    They got bombed, they made do and mended.
    They got through.

    But the Peace was threadbare and bankrupt.

    But they didn’t resort to “Tick” or easy credit.
    Everything we had, had first to be earned then saved up for.
    I still do not use credit. It’s the way I was raised.
    Oh I have Credit cards, they facilitate transactions, but they are always paid off first of the month.
    I bought this house in 1979 for cash.(with help from the family. Paid them back in a couple of years, interest free credit).
    When the wife and I were first looking for property back then, you had to have saved with the Building Society for x number of years, have y thousands on deposit, and could still only borrow 2 to 3 times combined salary.
    No glib asshole was offering us a 125% Mortgage.
    That’s why we went for cash.
    We were just a bit short of the asking price that the Society would lend us even then.
    That was prudence on their part. Whatever happened to Prudence?
    Oh yes! He became Prime Minister!
    Without a vote being cast.
    Wait till next time Broon and you will lose your deposit.

  • Daveon

    I’m pretty much in agreement with Llamas (not all that unusual, but still note worthy for we do disagree) about this mess, except the CRA stuff is less to blame than other things and Googling around for the numbers, the CRA loans themselves seem to (a) be performing better than a lot of others and (b) be a small part of this.

    I’m frankly torn. While I have a home in the UK, I borrowing less than half our joint income, something I was pushed hard on when we bought it, I am a renter in the US where I was, when we moved here, pushed hard to buy. As the houses I was looking at circa $650-$700K when we moved are all in the $500k range now and falling that’s good for me.

    I’m pretty annoyed at the idea that I’m going to be bailing out the idiots who lent stupid money, and I’m spitting teeth about the f***wits who borrowed against non-existent equity to fund their lifestyles while I’d been making a conscious effort to have no debt except items aimed at building a decent US credit rating.

    However, I also had my money market instant access account frozen last week because we came close to a money market melt down. That isn’t meant to happen and it’s one step away from finding that the ATMs don’t work either.

    There needs to be liquidity, real liquidity, maintained in the system or we’re all going to be in serious trouble.

  • llamas

    Daveon – obliged to you.

    You want more liquidity in the market – I have a sure-fire answer.

    Suspend the capital-gains tax.

    You wouldn’t be able to stand up against the flood of money that would pour into the markets.

    It needn’t be forever, and it needn’t be a cut to zero. But nothing would encourage more cash back into the market as the prospect of keeping a lot more of the earnings.

    Of course, since this is a solution that relies on keeping the money out of the hands of lawmakers in the first place – it will never happen.

    llater,

    llamas

  • Daveon

    Llamas,

    My worry is less for the stock market – frankly it’s still over inflated against historical PE ratios – but for the global credit and money market system which effectively keeps things running.

    I don’t think lowering Capital Gains tax will have much of an effect on that because the reality is you’re not going to be trying to use the other markets that way because you can’t handle the risk.

    You shouldn’t be using stocks or bonds for short term liquidity anyway. Hence I’m not really worried about my 401K, I am, however, worried about some of my other stock which I’d been using to save for a large purchase next year and that’s coming out of the market and would be capital gains or not. I need the cash next year, not a 60% return in 5 years (which is what I fully expect on the 401K).

    Last week the entire Money Market system almost stopped. That would affect the ability of banks to handle cash; shut down any kind of large business short term credit for handling cash flow (i.e. making payroll transfers); closed down the ability of traders to even handle share selling.

    The idea that that part of the system almost fell over last week scares the living hell out of me; not least of which because I’ve got several tens of thousands in one, but because of the implication for how business works these days.

    We work in global services. We have several thousand engineers working on projects all over the world for lots of mostly blue chip customers. We’re also pretty big and well financed, but that’s the kind of thing that could shut down our ability to manage cash flow effectively. And we’re small fry in comparison to other companies who could have worse problems.

    I don’t like it but that side of the system needs to be underwritten. I especially don’t like the idea that I’m going to be paying for it.

    But, on the up side, I’ve at least 15 years until I want to retire, and I’m going to be able to get a second property for a really cut price amount, which is excellent news. I remortgaged the place in London before credit got really tight and got an excellent straight repayment deal.

    That’s all good providing the global financial system doesn’t stop running.

  • Sunfish

    Llamas-yeah, you pretty much nailed it there.

    Daveon-

    I must not be understanding something important. If there’s no liquidity, then where did all of the money go? When people bought anything, they (presumably) paid for it. That means that the seller received money.

    Unless you’re telling me that the seller is banking at the First Bank of Serta, that is. (Which, with the ‘d’-word being kicked around here and there, may not be a bad idea.)

    As far as a bailout, I bought a slightly ugly and not particularly large house that needs a little work that I can’t afford to do right now, on 20% down and a fixed-rate mortgage. I haven’t taken any equity out, and my transportation consists of a used truck (or, at the current gas prices, a UJM that’s almost as old as I am that I bought for cash out of the back of the paper)[1]

    Call me ‘unsympathetic,’ but I’m in the torches-and-pitchforks crowd. I’d rather donate ten hours a week of sitting on my front porch watching an unoccupied bank-owned house to prevent vandalism or squatting than cough up double the US defense budget to bail out people who made their own beds.

    [1] As an aside: when I first went bike shopping, I looked at dealerships. And heard all about their finance plans. Who the hell buys toys on credit like that? Wait, don’t answer that.

  • Daveon

    I must not be understanding something important. If there’s no liquidity, then where did all of the money go? When people bought anything, they (presumably) paid for it. That means that the seller received money./i>

    How did they pay for it? Cash in Hand? A Personal Cheque? A Credit Card?

    Warning, poor analogy coming up: the credit and money markets function as an overdraft facility and checking account for banks and large institutions to handle flows of money between them.

    On a personal level most of this is invisible. I only found out because I keep short term savings in a Money Market account because they’re basically checking accounts with better interest rates (nothing super high but 4%+) – mine is currently frozen and another that my broker uses has been devalued 5%. Its more than a little like having your bank account go down by 5% in an afternoon.

    At a business level short term credit resolves cash flow problems. We’re a medium sized company, about 2500 people world wide and we regularly live with 30-60 net cash payment terms – that effectively means, especially on time hire (T&M) contracts we have to fund the difference between our payroll and getting the money from the customer.

    This isn’t an issue for our P&L because we build the cost of that into the margins we make. Same for most businesses who have to work on that kind of payment front. As I understand it the short term lending rules are going insane at the moment – a bit like the difference between having a relatively low interest Overdraft Facility and having to do any emergency spending on a Credit Card with a penalty.

    Banks also use these systems for handling the money flows between them and customers.

    From the reports the whole system almost went down last night, which is kinda like every single bank in the world finding that they’ve simultaneously had a run on them. Basically the current banking system would shut down, no cash, no ATMs, no credit cards, no cheques…

    Now, while we might not have a lot of sympathy for the idiots who got us into this mess, that’s not much comfort.

  • Daveon

    NB: Correction – last night = last week.

    Sorry.

    I’m actually coming around to Paul Marks position on available liquidity in the banking system, but that will significantly throttle the ability of people to make serious money in the market which ultimately will have an impact on the overall, and partly, illusionary rates of economic growth we’ve seen in the last couple of decades.

  • llamas

    Daveon & Sunfish are both right – to greater or lesser degrees.

    Daveon is right to be worried about mid-to-longer term stability and liquidity in the money markets and a potential longer-term squeeze in business credit. I worry about this too, which is why I am adjusting my deposit rate to slightly-more favour the People’s First Bank of BeautyRest. If my employer experiences a hiccup of a couple of months, I want to be one of the ones who can say ‘No problem, boss – pay me when you can.’

    But Sunfish is also right to observe that the cash didn’t just disappear, and it can be enticed back in the short(er) term. Right now, all the usual idiotic responses are being seen – the rush to gold (which we’ve talked about before) and similar sillinesses. I actually got an invitation last week to an event where I would be offered a once-in-a-lifetime chance to invest in a rock-solid hedge against market instability – Alpacas! mrs llamas and I both about laughed up a lung over that – we know the real economics of keeping camelids!

    Sunfish’s point about toy stores is well-observed. The toy stores around here (Harley dealerships and RV dealerships) are now over the edge of desperate, and mnay will soon close their doors – they can’t give their wares away because every street corner is crowded with lightly-used toys for sale at cut-throat prices. But when you offer no-money-down financing for 10 years – on a leisure-time motorcycle – you should not be surprised if you attract a lot of customers who are at best barely-able to afford what you’re selling.

    Sunfish’s comment about preventing ‘squatting’ has me in a quandary. If we’re talking about preventing unoccupied homes from being taken over by squads of soap-dodging alternative-lifestyle types, then yes, I agree. But there’s actually (I think) a case for tolerating ‘squatting’ – as, for example, in turning a blind eye to people who stay in their homes when they have been (theoretically) evicted, or who move into homes which have no reasonable expectation of selling or being legally occupied any time soon. Those folks have a better chance of recovering their lives with a roof over their heads, and the homes will be better-served for having people living in them. There will also be a positive impact on the local economy. We all tend to think of ‘squatters’ as long-haired flute-players smoking dope and selling the plumbing, but in various places and at various times, ‘squatters’ have been (at worst) a neutral influence and (at best) a positive force for recovery. A middle ground might be to seriously-overhaul rent and leasehold laws to make it much easier and more-secure for the bank or the county to rent or lease for shorter terms and below-market rates just to keep homes occupied.

    llater,

    llamas

  • llamas

    There’s a syndicated-radio financial-advice guru in the US called Dave Ramsey. He comes from an unabashedly hard-evangelical Christian viewpoint, and is mostly heard on Christian radio stations.

    While I don’t share his beliefs in any way, he dispenses an approach to financial planning that’s in tune with my thinking, and mrs llamas and I often listen to him when we’re in the car.

    He’s putting forward an approach to the crisis that explicitly rejects the $700 billion bail-out and instead suggests alternative approaches. You can find it here

    http://www.daveramsey.com/etc/fed_bailout/3_steps_to_change_the_nations_future_10928.htmlc?ictid=sml

    Take his religious message or leave it, just as you like, but I’m bound to say that I think there’s a lot of good sense in what he suggests. A quick exploration of his site will demonstrate the general tenor of his financial advice.

    llater,

    llamas

  • Sunfish

    llamas,
    By ‘squatting,’ I was referring to soap dodgers, and in particular the sorts who use borrowed property or land for cooking meth. An evicted former owner who hasn’t vacated or who vacated and then moved back in is, IMHO, a different case.

    That is at least partly a civil situation, rather than exclusively an instance of criminal trespassing. I don’t like being in the middle of civil situations.

    I’ve shifted some of my savings to the Sealy Credit Union, but times like these…I watched the stock markets shit the bed and is it bad that my first thought was to increase my 401(k) contribution by a point or two?

    As far as toys go: even in good times, Harleys were not exactly an investment. They’re like cars: they depreciate. Only they’re more like cars that people don’t actually need. Or, in the case of Harleys, cars that make plenty of noise but don’t have any of that embarassing horsepower or torque. ;-B

    So, is that how you picked the name ‘llamas?’

  • I work in the wealth management business – I’m an engineer.

    You work in the money management business – a different thing altogether.

  • llamas

    Sunfish wrote:

    ‘I watched the stock markets shit the bed and is it bad that my first thought was to increase my 401(k) contribution by a point or two?’

    No, I think that is what many smart people are doing. The time to buy stock (like anything else) is when it’s cheap, and the way to buy it with with tax-free dollars. And the stock market has never failed to increase value – in the longer term. If, as I surmise, you are a few years away from using your 401k – or at least, a few years more than I am – on balance, maximising your 401k contribution is the least-worst thing you can do with any cash you have beyond the emergency fund.

    “So, is that how you picked the name ‘llamas?'”

    Yes, we have a string of the furry darlings. Do you have a fish-tank?

    This being Michigan, the toys-of-choice are boats and PWCs. I met my buddy last night, the retired LEO with the big pistol and the van that only unlocks from the inside – the fellow who has a side-job providing secure transport for workers in the adult-entertainment field. He’s branched out, and just shipped out a 40′ sea-container filled with repo-ed boats and PWCs to the Far East, where such things are hard to come by, it seems. He sold me 6 Penn 209’s for $10 each – if you lost your downrigger boat to the bank, there’s not a lot of call for downrigger reels, and these things were simply left in one of the boats.

    llater,

    llamas

  • Paul Marks

    Dave Ramsey may not know much about economics (but very few people do – virtually no “economists” do, the trash employed by tax money eating universities and politically connected companies), but he was against the bailout, and for many years he has been warning people not to borrow for consumption (or for normal business expenses) and to live within their means.

    Those who followed his advice have a much better chance in the hard times that are comming. This includes business enterprises – people who do not borrow money to even “finance” the payroll bill each week or month.

    Hardly anyone seems to regard a “normal business practice” like that as insane – although it is. And the need for “normal borrowing” was cited as a reason for the bailout.

    Dave Ramsey is NOT some “anti usury” nut – he has just long argued that borrowing should be a rare thing, and that even normal investment should be out of profits.

    He has also agued that people should save up for nice things they want to buy.

    Basic common sense in a sane world – that would not be worthy of comment.

    But rare indeed in this insane world – and so meaning that Dave Ramsey deserves much praise for his warnings over many years.

    He has a big following – espeically in the South, and my gut tells me these people will survive just about anything.