Call a Spade a Spade

Amidst all the talk of how to regulate financial markets, it seems like there's one simple solution that will prevent a lot of the wild speculation and financial bubbles that have caused so many problems. Let's call a spade a spade and treat financial derivatives and options and short term trading for what they are: gambling. Gamblers can only deduct losses up to their winnings in a given year. They don't get to carry losses over to future years.

Betting on short-term fluctuations in stock prices is no different than gambling. There's not an honest trader or economist or banker or finance professional anywhere who would say otherwise. And there is no greater benefit to society from betting on stocks than betting on cards.

Legitimate investment is a great thing. Giving a company money to do something productive and reaping the rewards for it is a valuable foundation of a healthy economy. But confusing short-term bets with investment is a huge mistake. It's a mistake that brought about a collapse in our financial markets. And it's a very easy mistake to fix.

A Biblical defense of Keynes

I've listened with interest as commentators have talked about the revival of Keynes-ian economics. Not being an economist myself, I guess I didn't realize he had fallen so far out of favor. The notion that a government can spend in lean years from the excess from the good years as a way to ease economic hardship just seemed fairly obvious to me. But then, I was raised with a thorough knowledge of the Bible.

Of course, the Bible doesn't talk a lot about government fiscal policy. But one of the most famous stories of the Bible seems to be a pretty clear endorsement of Keynes' ideas. I'm talking about the story of Joseph in Pharoah's court. Long story short: Joseph was a government official who advised Pharoah to save up grain for several years. After years of saving grain, a famine hit. There wasn't enough grain to go around and the government used the reserves it had been saving to get the people through the lean years. Joseph was a hero, the nation was saved, everybody lived happily ever after...more or less.

Today things are more complicated. We deal in dollars and other currencies, not just grain. The world of finance has allowed us to borrow "grain" from future years to consume today. But when you get right down to it, the Keynes-ian notion of government spending to ease economic hardship is a notion nearly as old as government itself and endorsed by the Bible.

Oddly enough, some of the loudest remaining critics of these ideas are Christians conservatives. I just saw where some Christians are going so far as to point out "un-Christian" elements of the recovery plan in their wild efforts to oppose it. Of course, many of these same Christian conservatives were also opposed to the government saving up during the good years, preferring tax cuts and deficit-spending even when the economy was growing.

Maybe they should try reading their Bibles...

Our health care system works perfectly

As I was listening to "Fresh Air" on NPR yesterday, I was astounded to hear some expert attempting to dissect why our health care system works so poorly. Really? Our health care system works poorly? This "expert" clearly doesn't understand. Our health care system works brilliantly. It is the best in the world at doing what it is designed to do. It's just that our health care system, unlike those in other countries, isn't designed to make sick people well. Our health care system, because it is run entirely by corporations, is designed to make money.

And our health care system makes more money than any other health care system in the world by far.

Corporations are legal entities governed by one basic principle. The primary motive of a corporation is to make money for the investors in that company. Any officer in a corporation who does not put the financial interest of the corporation above all other interests is subject to not only dismissal, but legal action. It is actually a crime for a corporate officer to put any motive above profit in making decisions regarding a corporation.

Let me be clear: If a child is dying and the insurance company can avoid paying for treatment because of fine print in the contract, the corporation is under a legal obligation to let the child die.

Some people think it's cruel to refuse somebody vital medical treatment over a technicality in a contract. Well, cruel or not, this is what any corporation is legally obligated to do. When corporations hire people to search out every conceivable possibility to deny payment for a treatment, they're simply fulfilling their legal obligation.

As we consider altering health care in America, we need to ask one vital question: What should be the primary goal for our health care system in America? If the answer is to make money, then we shouldn't change a thing. But if our goal is something other than spending as much as possible on health care regardless of the physical outcomes for patients, then we need to consider that any involvement by corporations is fundamentally at odds with the notion of treating people with the most medically necessary treatment.

People opposed to universal health care often like to pose the question of whether or not Americans want some government bureaucrat making our health decisions for us. Well given that our health decisions are currently made by accountants whose legal obligation is to put profits before health, you can count me firmly in the camp that would rather have my treatment options determined by a doctor (even a government doctor) than an accountant.

Lament for the savers

I'm an incurable saver.

I hate spending money.

Despite years as a raft-guide, snowboard instructor, outdoor guide, and general live-for-the-now lifestyle, I never learned how to overcome the basic impulse to live within my means. I've taken out one auto loan in my life, and I paid it off in three months. I've never carried a balance on a credit card. I bought a home during the run-up in the housing bubble...after moving from California to Kansas City, because there really wasn't a housing bubble there, and I currently have about 30% equity in the place by even the most conservative valuation. Yes, despite many years surrounding myself with people who spent all their money before they earned it, I remain stuck in my ways as an incurable saver.

So am I bitter about the current bail-out of the irresponsible? Angry?

No. Not really.

The financially literate and responsible like myself have benefited from the foolish for years. We will continue to benefit from the foolish for years. Why should I be upset that in one instance, in order to save the economy that everybody (including myself) depends on, the irresponsible get a hand-out? People who get a great new loan deal, or get their principal value written down, or receive some other benefit from all the economic rescue efforts, are going to do one of two things. Either they're going to learn their lesson and start to live within their means as productive members of society. Or they're going to go back to squandering their money in ways that allow the wise and responsible among us to benefit.

At 19, I learned my first lesson in how the responsible benefit from the irresponsible. It was a simple thing. At a Cardinals baseball game, I got a free Cards T-shirt for signing up for a credit card. I had no intention of using the card, but I got a free T-shirt out of the deal. I realized the reason the credit card companies give away all those goodies is because of friends like the one I had at the time who was always struggling to just pay his minimum balance. I'm sure they've made thousands of dollars off of him during the years. Meanwhile, I get goodies for signing up for credit cards, and then collect points and rewards. I've received two free flights, one to Europe, just by signing up for credit cards and using them for everyday purchases. Again, I never carry balances, and I'm not the kind of person who buys things just because I have the ability to do so. So the credit card costs me nothing, but because irresponsible people rack up huge interest charges, the credit card companies can afford to give me something for nothing.

And it doesn't just stop at credit card goodies. As an investor, there's countless great investments out there because of irresponsible people. For starters, I could buy shares of credit card companies. Or Apple. Does anybody think Apple would have been such a great investment over the last decade if it weren't for hordes of young people buying iMacs and iPods and iPhones they can't really afford? Countless companies have made mountains of cash by selling products nobody really needs, but irresponsible people buy up by the truck-load. And savers have had plenty of opportunities to profit from this.

Then there's the housing bubble. There's a lot of focus on the downside, but what about all the people who made huge amounts of money selling their homes during the bubble? How about all the people who made a living from building and selling homes, and of course dealing with the loans? Sure, the well's dry now, but irresponsible people spending too much money on homes supported a lot of people for a long time. And for people who didn't own homes when the bubble started, now they have the chance to snatch up great deals among the wreckage of foreclosures flooding the market.

I agree that, generally speaking, society should not reward irresponsible actions. I also agree that killing is wrong. But we recognize as a society that there is a time to kill when it comes to defending our nation from ruin. And by the same token, we seem to be at a point where the only way to save our nation from economic ruin is bailing out a lot of people who just don't deserve it. If that's what is required, so be it. Sometimes what is necessary is not pretty.

If the economy breaks down, we all suffer--responsible and irresponsible alike. If the economy recovers, some people will benefit more than others over time--and I think it's pretty clear that over time it's always the responsible who benefit most.