Thursday, March 05, 2009

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.


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