Wednesday, February 18, 2009

A Bong, an IOU, a Favor

While I was stopped unnecessarily on the freeway this morning for President Obama's speech that was less than 15 minutes from my home, I recalled one of my favorite scenes from Dumb and Dumber. It's where the evil kidnapper finally tracks down Lloyd (Jim Carrey), grabs the briefcase and opens it while pointing a gun at Lloyd's head. Instead of finding a suitcase full of ransom money, he finds a bunch of I.O.U's, meticulously accounting for every dollar Harry and Lloyd spent upon learning there was actual money in the briefcase. Lloyd, apparently recognizing the kidnapper's distress, gently picks one of the pieces of paper off the ground and says, in a gentle voice, "Those are I.O.U's, that's a good as money. Look, this one for $250,000 (for a Lambourghini), you might want to hang on to that one..." So classic.

My amusement quickly diminished as I replayed the scene in my head. In the replay, I played the role of Lloyd, my son played the one opening the briefcase (only he wasn't an evil kidnapper), and instead of $250,000 the price tag was $1.5 trillion, and instead of a lambourghini, it was social security. Yep, you can obviously tell that I'm worried about our future generations and the obligations they'll have to face, or not. Todays economic climate is in many ways primal and its given me reason to pause and consider a few random thoughts.

Impact of Today on Future Generations: Economists and politicians have said very little regarding the impact of todays decisions on our children. To what extent are we mortgaging the future? At what point does someone (meaning someone in Washington) stand up and excersise some monetary and fiscal discipline now so that we pay for our decisions, and not our kids? We need to take action and solve the entitlement problem in the U.S., meaning health care and social security. In investing, you are taught to always look at a companys unfunded liabilities (i.e. pensions that are underwater or other obligations they can't meet) and run the other way if they have any. Then that begs the question, why would anyone want to invest in the U.S. with our underfunded pensions, broken social security and medicare programs? Could the U.S. default on its national debt? It's possible, but not probable. I think it would be more politically expedient to pick hyperinflation over default, but I'm not an economist. Time will tell what "kind" of Obama emerges. Will he step up and demand that deficits created from todays debacle be payed back with future suprluses, similar to the EU? Or will he continue to allow politicians make decisions based on the short-term and stick our children with the bill? I'm not saying that's irrational, as the current incentive program enduces such behavior, but we shouldn't expect legislators to act altruistically, better to make it law, which I don't think is probable. But that all leads me to my original soap-box that the problem with politics started when we made it a career.

And another thing. Much has been written about Michael Phelps' bong debacle. Phelps was pictured smoking some herb at the University of South Carolina a week ago. I believe he should definately be more careful as he is a role model but, the amount of outrage over this matter is completely unnecessary. I mean really, even if it is deplorable, is that what we need to be focused on? A swimmer smoking a drug, which to my knowledge, has killed zero people? This seems to be a recent development in America--we're captivated by "breaking" yet useless news which only serves to distract us from other problems we should be dealing with. What's ironic about America's "outrage" is its generally directed toward people engaged in an action that the majority of american's have also participated in, but have not been caught. I love how the news anchors shake their heads in disgust when reporting stories about marijuana use, teen sex, or drunken icons, as if THEY have acted any better (see youtube "newscaster bloopers" if you don't believe me). Anyway, I'm not saying that such actions like those of Michael Phelps or others are acceptable, but I am asking that 1) is that really the most pressing news? Doesn't it just cheapen American intellect? I know that's what sells, but is that the point? To report only what sells? How about what's important? and 2) why should we be accusatory for something the majority of american's have engaged in? C'mon, FOCUS AMERICA! We're too distracted by shiny things--like clearance tags. We love to point the finger and blame other people for their "mistakes". Rhetorical question. Are you saying we are to blame for this mess and not Wall St. executives? I'm choosing not to answer that. But let's scream and throw chairs when discussing their bonuses. Is anyone else concerned that we are outraged at the bonuses of professionals who work in banking (a necessary industry) and not the compensation of professional athletes? Wait, wait, before you respond with "Professioal atheletes haven't caused any harm", I would like you to think about that question (since the two fundamental assumptions can be debated 1) did bankers actually cause today's issues? or did debt hungry Americans and 2) professional atheletes haven't caused any social or economic problems. To which I would say "really?")

Monday, February 16, 2009

A Note About "Interesting Websites"

Some of you may have noticed that I have a list of interesting websites to the right. Every so often I add a site to the list but I have never introduced them as I've posted them. So, since I have some spare time on President's day, I thought I would write a sentence or two on each of them. There is one commonality--all are backed by well known venture capitalists.

  1. Zemanta. Contextually relevant pictures, links, and suggestions for email and blogs. Ba

    Blog better using ZemantaImage by chucks via Flickr

    sically, you download Zemanta to your browser and while you are typing an email or blog post, Zemanta suggests pictures, links, or tags you may want to add. You can even easily pull a quote from another blog and include it on your blog. Even as I type this, my Zemanta tool bar to the right suggests several pictures for "President's Day" as well as links to useful trivia and blog posts. See the image to the right.
  2. BillShrink. Checks credit cards and cell phone offers to ensure you are getting the best deal possible. You enter your balance/monthly fee, your interest rate (for CCd's), zip code, usage, etc. and BillShrink will come back to you with the best result. In the case of cell phones, it list alternatives by signal strength.
  3. ScrapBlog. You can create stunning multimedia scrapbooks online for free! Rather than simply send your friends sterile pictures, you can personalize your vacation, first day of school, with one of Scrapblog's templates or create one of your own. It is free to register, create and share your multimedia scrapbook online, but if you want to print it out, that will cost you. Not a bad business model.
  4. SearchMe. This is a new way to search the web. SearchMe lets you see what your looking for. Choose your category and you'll see pictures of web pages that contain your answer. This way, you can scan the web page for the necessary information before clicking through. It uses "stacks", which, if you've cycled through the top-movies section on iTunes, it has a similar feel--web pages cycle through your view as you move the toolbar from left to right, or right to left.
  5. Yelp. No rocket science here. Yelp is an easy way to find what's good, or not so good, in your area. You type what your looking for in the search bar and then your zip code and a list will populate with user reviews.
  6. Wetpaint. A Wetpaint website is built on the power of collaborative thinking. Here, you can create websites that mix all the best features of wikis, blogs, forums and social networks into a rich, user-generated community based around the whatever-it-is that rocks your socks. A social website that’s so easy to use, anyone can participate.
  7. Widgenie. If you're one to include polls or other types of tables in your blogs or just want a sharp looking graphic then Widgenie is for you. You can register for free, customize data and create a graphic to post to your blog, facebook, or igoogle account.
  8. Prosper. Looking for extra money? Prosper creates an online meeting place for those seeking money and those that have money but want a higher yield on their investment. It's a social lending site. You can apply for a loan or make a loan. Only there aren't any banks involved directly here. If you're looking for a loan, then you enter your information and those willing to make loans, will bid on your loan. Prosper asks for a lot of information on the borrower and will pull a credit score to show to potential lenders. Lenders can slice the data any way they want and bid for high or low-risk loans. What if you don't want to expose all your money to one person? You can spread your money around. If you have $1,000 to lend, you can parcel that out between different borrowers.

There you have it. Some creative sites all aimed at making the universe more efficient. Also, since these are all venture backed companies they are all in the early stages of creation and I know CEO's are open and anxiously awaiting feedback from interested users. So take a look and don't be afraid to drop them a note via their "feedback" links if you don't like something. They will welcome your input with open arms.

Tuesday, February 3, 2009

Why Not Give Bailout Money to Taxpayers?

In keeping with the theme of shedding a little light on financial topics you may be forced to discuss or have an opinion on at parties, funerals and baptisms, I would like to highlight a common question. It generally sounds something like this...

"Why not give the bailout money to the taxpayers? We'll spend it. If they want to help us, just give us the money? How come the government is still giving it to irresponsible Wall St. companies? Bailing out Wall St. creates a moral hazard."

Those who hold this view are assuming that 1) all bailouts create a moral hazard, 2) giving money to taxpayers in lump sums is preferred and 3) taxpayers will spend the "stimulus" money. I'd like to present a few alternatives to each of the three basic assumptions. And since the party you are speaking with will probably hold the "pro" side, it will be your job to introduce an alternate view (unless you don't care for confrontation, in which case you can smile and nod, or make a trip to the bathroom).

1) Moral Hazards. This is the idea that if people are insulated from their bad decisions, they are more likely to act irresponsibly. Therefore, if Wall St. knows it's going to get bailed out in a pinch it will continue to act recklessly, or so the argument goes. If I have fire insurance then, according to the argument, I would be less vigilant about having fires in my home. But let me assure you, I would be equally concerned about a fire in my home with or without insurance. Likewise, we would expect banks that have received bailout money to continue in rash behavior. But we haven't seen that. In fact, they've pulled back too much and no lending is going on. Perhaps one solution to the moral hazard issue lies in the perceived outcome. For example, most people are ambivalent towards which banks hold their deposits because of FDIC insurance. That's because FDIC insurance offers a quantifiable solution, a known outcome. But a bailout or a house fire creates uncertainty and potentially complex and messy situations. I think the less certain the outcome, the less impact the moral hazard argument holds. As I stated in an earlier post, I don't think shareholders in Bear Stearns, who lost 100% of the value of their shares, or unemployed CEO's, are still running around like druken frat boys looking for more mischief.

2) Giving money to taxpayers in lump sums. I've heard ridiculous numbers running around the internet about how much we'd all get if the government were to cut us a check. I think CNN ran an article today or yesterday showing the number to only be $9,500 (far below some claims of $100k). There is a psychological difference between a windfall (such as a stimulus check) and increased monthly wealth. Americans tend to save windfalls and spend when long-term prospects for personal wealth increase. Which is why...

3) I don't think consumers will spend like we say we will. I'm not going to spend anything extra this month if I think my income will be zero next month. I believe the issue here is perceived job security. Stimulus from 2002 wasn't very helpful, nor was the stimulus from last year (so far). In environments of financial turmoil and uncertainty Americans save bonus money. However, this is why I think President Obama's taxpayer stimulus might actually work. His idea is to give taxpayers a credit by decreasing the withholding amount. Pretty clever. For most, it will amount to an extra $50/mo. in our paychecks for one year. Some economists think that this will help Americans spend money because we see a long term, fixed increase in our take home pay.

To conclude, I'm saying the moral hazard argument should not be overstated, that if the governemenet wants us to spend, then they should attack the heart of the uncertainty--the job market, and that Pres. Obama's proposed stimulus is fairly astute.