You Just Want My Money
by James Smith on 02/20/12
Perhaps you’ve heard, or even said, “You just want my money.” It is often said and while it can mean many things, what it really is saying is that “You are trying to deceive, cheat, or in some way defraud me.” It might also mean, “You are insincere.” Or “you are a liar or thief.” Of course, no one who lives or works near another person is going to want to leave that kind of impression so the meaning of this phrase can be softened to something like, “You’re not really serious are you?”
However, this phrase is most usually said by those in a fear state of consciousness and for many possible reasons. Some people do just want others money, are thieves, and do defraud. But let’s look at the pizza man or woman. Do they “just want the money” when they bake pizza for sale? How about the electric company, or the doctor? Other groups have a more “seamy” reputation such as attorneys, “big pharma”, and especially politicians who want to get more “revenue” that rarely does what is claimed it will do.
What can be “monetized” and to whom? Most people just draw the line at family and very close friends. They know who is in their group. Family and very close friends are “free”, the rest pay. This pattern is simple, concise, and mostly observable though groups often keep on the “down-low”. It is not 100% accurate but nothing is. I do find it funny when working with those who have great connections and they try to “monetize them”. It seems they each find the others doing the same and get angry at each other when they do it to each other but not to others who are “less socially connected”.
Overall, this statement betrays either a lack of social skills in communicating value and exchange, and relationships between people and things or it shows a lack of understanding about the true purpose of money. What is surprising to unsophisticated people is that socially adept persons often speak very differently to others depending on their social status, especially about money. Those with less money are more boxed out from doing business, or even socializing with those who consider themselves “elite”, unless the elite are doing you a favor and see you as a charity case.
What is really to be avoided is the situation articulated by sociologist George Homans in what is called “Exchange Theory”. It is clearly observable that those with more power and resources use that power and those resources to “extract value” from those with less power and resources. This can be done through legislative power or just social strategy. The next time someone says, “All you want it my money,” consider that all they may want, if anything, is your money.
There is not anything intrinsically wrong with this at all. It just is and it is valuable for those who are the target of others to know.
Must my Financial Advisers be "Rich"?
by James Smith on 11/26/11
“How can someone who is not rich, make a great financial advisor or manager?” This question came up again recently. The question is a “red-herring” because it only seems to make sense on the “surface”. Let’s set some context.
Making money is not the same as managing money. Those who are rich usually became wealthy by conducting profitable business and making profitable trades of tangible goods or services. Some simply inherited it. Neither of these shows any investment management skills at all.
Once they get a “nest egg”, someone must manage it in order to keep it safe and grow as much as appropriate. Running a small business can get people rich as they grow successful. These same people knew what they were doing after a few years of running the business yet did not become "wealthy" for a few more years. In the same way, some managers can be on the way to becoming rich and know very well what they are doing but just not be there yet. Make sure your money manager knows what they are doing by having some experience and great support under their “belt” but they don’t have to be rich either. Great support may be a major money management institution, investment team, or a strong background in some similar situation. You can always use more than one manager too.
At the same time, if you select a financial manager with a “Wealthy and Successful” firm, then that firm is the “rich” one who proves the ability of the manager. It is not just the manager you’re getting, it is the entire firm. That is critical. The firm actually got rich managing money. Good sign. If you have accumulated a great deal of wealth, you likely prefer working with others who have done the same.
However, we know, that just being rich is not enough because some of the rich firms have not succeeded at all recently. Yet, the principle of hiring the entire firm of the money manager, whether that manager is rich or poor, means you get the support of the entire firm and that means a super wealth of information. Bet on the combination of firm and manager.
Money managers are a bit, just a bit, like car mechanics. Many people who are expert mechanics at fixing Bentleys or Rolls Royce, do not own them. Still, they know exactly how to keep them in top shape. I actually called a Bentley dealer in New Jersey and confirmed that the mechanics do not own Bentleys yet they are trusted to “manage” them. It works that way with many money managers too. These managers work for the family offices yet they are not “part” of the family. They manage money for the wealthy yet are part of a team. Money management is a team game.
Given everything above there is one more danger in believing a requirement for managing savings and investments must be done by someone who is wealthy. While that may not be a bad idea be careful that they actually know what they are doing. Did they make their money investing or by selling imported Italian shoes or diamonds? If someone is very wealthy, why would they want to keep doing this work? Obviously, they would usually hire less wealthy people to work under the watchful care of their expertise. Thus we are full circle back to the beginning.
Three Bean Business Salad
by James Smith on 10/21/11
Business is like a three bean salad in a bowl. Bean one is the people involved. Bean two is the product or service. Bean three is the money exchanged. The bowl is the legal system that guides the every part of the transaction and keeps the beans together. Ok, if you want to have some dressing on it, the dressing is the media hype and the sales hype.
How good are your people beans? Are the people trustworthy? Do they do as they say consistently? Are they honest and hard working? Will they be there when you need them as they promise? Are they all in, holding out, or somewhere in between? Are they back stabbers, money grabbers, or unable to get the job done? Be careful not to get beaned.
How good are the product service beans? Do they do all they claim to do? Are the product/service beans really great tasting as they claim? Do people really like them? Will you? Is it a scam, sham, misapplied, or otherwise un-merchantable? Usually, it is not quite all it is hyped up to be. Let the buyer beware of these beans.
What about the money bean? This blog already mentioned the types of money: Good money, bad money, and funny money. Add to that bad checks, empty accounts, fraudulent presentations, and shills of a most deceiving kind. Is the whole deal a ponzi scheme built on the money of those who already invested with no revenue of it’s own? If you’re global and pay in drachma, be sure your contract says you will be paid in Swiss Francs.
The bowl must be clean. That means the laws and contracts must be clear and enforceable. Without that, the beans will be spilled and your time wasted. Even worse is the possibility that you will have no recourse if there is a problem with the transaction or product because of a contract or legal situation. Clean the bowl, do due diligence on politics and law thoroughly or don’t do anything.
Finally, there is the sales and media hype. Misrepresentations, false promises, social expectations, and many bluffs can really spoil a business bowl salad. They can also make it great when well done honestly.
Know your beans. Enjoy your salad. Keep your bowl in good shape.
Laisse-faire: Where'd you get such a "Bad" name?
by James Smith on 10/17/11
Old Economists: According to Wikipedia, the term Laissie-faire first appeared in print in 1751. It is reportedly from a group of French businessmen saying to inquiring governors “Let us alone” (translated Lassie-faire). Economists never had firm evidence that "letting people alone" was either good or bad. As a matter of fact, most economists just make everything up from ideas that sound plausible yet they have little to no evidence. Does Laissie-faire work or not? That is the question.
Old Sociologists: More devastating than any economists’ opinion on Laissie-faire were the opinions of sociologists Herbert Spencer, Karl Marx, and Emile Durkhiem. The sociologists were even further from having any evidence then economists. Still, they concluded that if Lassie-faire were allowed, anyone who could not keep up in one way or another would die. Only the fittest would survive. This is where the despicable term “social Darwinism” comes from. They believed that self organizing individuals, were brutish and cannibalistic. Nice sociologists? Their proof was nothing. I personally think they listened too much to the news. However, the “man is evil” viewpoint remained the basis for giving Laissie-faire capitalism such a bad name.
No proof: Here is how the sociologists and their companion economists argue from “out of their heads”. They have no proof at all. They say, “Laisse-Faire capitalism may help some people tremendously but it leaves many hurt or dead. Therefore it is bad and our "socialistic" systems are better". But the socialistic system is many times worse. This system of social justice leaves people devastated. There is no system where everyone lives "happily ever after". The system that exists only in the imagination of some economists and sociologists brings “death to freedom” and death to those who disagreed with their opinion. Nice sociologists! The best response I have to this is that the forms of government control over the economy they propose help very few and leave many more dead and without.” But is it still opinion without facts to back it up even in the 21st century? No!
Proof: There is unequivocal proof that laissie-faire capitalism is by far the most moral, life giving, beauty creating system known. His name is Rudy Rummel. There are many others now as well but Rudy is enough. Rudy Rummel started studying and measuring the effects of freedom on people in the 1950s. He studied how it affected learning, education, health, wealth creation, and poverty. Professor Rummel, Nobel Prize laureate, and winner of many distinctions showed that the countries with the most freedom had everything good and nothing bad compared with those less free or even un-free. All that is still needed is to say that freedom is the same as laisse-faire capitalism. It is. Though no country has perfect freedom, and though the United States is not the “most free” country in the world, the results of Professor Rummel’s real live human being global research shows that Laisse-faire capitalism is the best for supporting life and quality of life. The rest is just a “pipe dream”. Google search for “Saving Lives, Enriching Lives” by Rudy Rummel and find out.
No Famines or Wars: Among his conclusions are that laisse-faire capitalistic countries have never had a famine and do not ever start wars. This Irish potato famine happened mainly because England had taken over the country fifty years prior and suppressed Ireland’s ability to engage in global commerce, and the ability of the large Irish-Catholic population to be educated or work to gain wealth above a certain pittance. Even England was not a “free” country at that time. Another famine people often refer to is the US during the “dust bowl” days. This was the 1930s. Millions fled their ranches as the winds blew away all their livelihood. Still, there are few, if any, reports of death from starvation. Why? This was the time of the great depression, yet unlike oppressed Ireland, no one in the US died from starvation.
Implications: Non profits are busy over all the world helping feed the poor. That is noble and understandable. My opinion is firm and based on solid evidence. Bring freedom and laisse-faire capitalism to these countries and the rest will all flow beautifully compared with any other system. People are smart and industrious when their “flow” is not cut off by an idealist bureaucrat. Let them alone. Give them liasse-faire.
Makings of a Money Crisis: Whose the vampire now?
by James Smith on 10/16/11
Loan Packages
The real crisis started with mortgages. These mortgages were not loans in the traditional sense. The only reason that banks across the nation gave these loans was because they could soon put a few dozen of them together and sell them at a profit to the government of the United States entity. This is called “loan packaging”. They made loan “packages”. It was the United States’ great economy and history of paying its debts that gave everyone involved a feeling of security and assurance. Everything would be fine in the end “no matter what”.
“Good loans gonna go bad” or bad loans showing their “true colors”?
The United States worked closely with the big banks and Investment banks to keep all these loans flowing. The government expected that the private banks would be careful in the way they made the loans but there was a conflict. The government wanted the banks to make loans to people who could not otherwise afford them. The government also decided, through the national bank, The Federal Reserve, to keep interest rates very low. This put a lot of money to work for home buying, and everything else. Low interest rates are like putting money “on sale”. People, businesses, and banks could borrow very cheaply. In this way more loans were “affordable”. The interest repayment part of the loan (the other part is the principal or “the actual home price”) was very low. The government was guaranteeing the big loan packages (meaning they would repay if anything went wrong) and many of the loans were insured with companies that insured individual loans. In the end, they all went “bad”. Not all the individual loans went bad but enough of them did to spoil the loan package by making it unprofitable.
Where did the profit go?
Imagine the loan package as one big loan to keep it simple. What if ten of a hundred loans goes bad? What if the owners can no longer pay or if the payments are late? The owner of the loan package makes the money back by loan payments month after month. Suddenly, the millions of dollars that the package cost is not working to repay itself. OMG. There is nothing the owner can do but sell at a loss if a buyer can be found. There were few buyers.
The investment banks were caught right in the middle. An investment bank will buy a loan package for just 5-10% of the package’s real price. This is buying on margin and there are lenders and arrangements between investment banks that provide the other 90-95% of the money. That is where the global financial system comes in. The system loves good investments that can be margined (or “leveraged”) because it is usually good for the smaller banks, home owners, bigger banks, investment banks, and governments that also invest. These are loans on loans.
Two things happened quickly. The federal government decided to raise rates slightly. Don’t ask me why but it may be because people were borrowing too much money. When that happened borrowing went down and so did demand. Also, loans with interest rates that were linked to the present interest rate also went up. It was a double whammy of lower demand and higher payments. Lower demand meant housing values went down. Higher payments meant more people could not pay. Imagine you borrowed money to buy a loan package that suddenly paid you much less because the people paying the mortgages couldn’t. Now you can’t even pay what you borrowed to buy the package. It wouldn’t pay for itself. Then imagine the bank who lent you the money to buy a billion dollar loan package suddenly said the package was only worth a few million. Your lender wants to foreclose on you just like the lending banks want to foreclose on the individual borrowers. This is collapse. It happened.
Winners and losers
A few people made a lot of money selling the loan packages. Groups like “Occupy Wall Street” think this in unfair. The banks as a whole lost tremendous value or went bankrupt. Homeowners’ results were mixed. Some lost homes. Others kept them. Insurance companies went bankrupt for the most part. A few of each of them survived.
The lesson is for everyone to note for their benefit. When interest rates are low it is “raining money” and bubbles happen to the “flavor of the year”. “Irrational exuberance” steps in and the crowds and banks go a bit wild. People make lots of money. Then the rate is raised and loans are called and there is less money to work in the money system to pay everything. It is like the blood is drained from the body and people feel faint, some die in bankruptcy. This is what happened in the “great depression” too.
This I’ve written so the other danger points can be more clearly understood. The other points are the when public and private enterprises work together and political pressure comes to bear. There are dangers when the actual lenders become far removed from the loans through reselling. It is dangerous to ignore these activities. Get a job. Work with people you trust. Learn about money and responsibility. Invest in people who respect you fully and support your life as you support theirs.
