One of the most famous lines from Shakespeare is "THE FIRST THING WE DO, LET'S KILL ALL THE LAWYERS." It is amazing how a line written 500 years ago so powerfully resonates with our modern society. The public's perception of lawyers is quite complex. On the one hand, there is this idea that lawyers are the root of all evil in America, with their crazy lawsuits leading to all sorts of consequences from dumb disclaimers ("hot coffee is hot") to rising insurance and health care costs. On the other hand, lawyers are idealized in pop culture with a myriad of works glorifying their profession. Arguably, lawyers have surpassed doctors for the title of the #1 "power" profession.
When I was a boy, my grandmother urged me to become a doctor, and why not? Doctors had prestige, financial security, ability to set their own hours, Wednesday golf outings, etc. However, thanks in part to lawyers and insurance companies, the medical profession isn't what it once was. HMO's, PPO's, malpractice insurance, high student loans, and the like have made the medical profession less desirable. Certainly there are very few doctors who are on welfare. However, the medical profession just ain't what it used to be.
Lawyers, on the other hand, seem to have it all, if you believe what you see on TV. Meaningful jobs, lots of sports cars, lots of intra-office romance, and the utmost respect of society (except maybe for divorce lawyers). The interesting thing is that the truth doesn't quite match up to perception.
Exhibit A: A few years ago, I was at a wedding where I was talking to an old buddy from school who had gone on to become a successful attorney. From talking to him, it sounded like his whole live was consumed by his job: 80 hour weeks, no time for vacation, no time for a social life, etc. I'm sure he was making a good amount of money doing what he was doing, but unless you absolutely love what you are doing, you can't live like that without some sort of drug addiction.
Exhibit B: Everywhere you turn, you hear about lawyers who have dropped out the profession to go into less "stressful" or more "meaningful" careers. The lawyer who went back to culinary school to become a chef. The lawyer who bought an old Victorian and turned it into a B&B. The lawyer who started a home-based business selling quilts. The examples of this sort of thing are endless. Maybe it is because there are so many lawyers that there are a lot of ex-lawyers, but you rarely hear about doctors doing the same thing. So maybe there is something to my grandmother's advice to become a doctor. Yes, maybe it isn't the same as it was decades ago, but at least I would be happier than the lawyer down the street.
[Editor's Note: I am neither a doctor nor a lawyer, and no doctors nor lawyers were harmed during the writing of this post.]
Wednesday, August 22, 2007
Sunday, August 5, 2007
Investing Made Simple Part IV - Getting Started
When people want to jump into investing, they often are overwhelmed by the amount of different options available to them. This "information overload" can result in "information paralysis". The endless possibilities are enough to render the most intelligent investor numb with inaction. Fear washes over you as you become afraid to take that first step - afraid that the first step will be a misstep. Never fear - your humble host is here to provide you with some advice of things that you MUST do to get started investing.
1. If you are eligible to contribute to a 401(k) plan that offers a company match, contribute at least enough to get the FULL match.
A 401(k) plan is a employer sponsored investment plan. In a nutshell, you can have some percentage of each paycheck deducted and put aside for your retirement. There are rules and restrictions, but the main things to know are:
A. You do not pay tax on the money that is deducted. Taxes are postponed until you withdraw the money.
B. You cannot use this money until you are 59 1/2 years old (although there are some circumstances where you can access this money sooner). The money is intended to be used for one's retirement.
Some companies offer to "match" your contribution as an incentive to get its employees to save for their retirement. For instance, the company that I work for has a 3% match. What that means is that they will match your contribution up to 3% of your salary. So if you have a paycheck of $3000 and you have 3% deducted to go into your 401(k) plan ($90), the company will also contribute $90. If you only contributed 2%,the company would also contribute 2%. If you decided to contribute 4%, the company will contribute 3%, since your contribute goes beyond the maximum that they will contribute.
Basically, you want to be contributing AT LEAST enough so that your company contributes its maximum. So in the case of my company, you want to be contributing at least 3% to your 401(k) plan.
The reason why is simple: this is the one of the only investments where you can IMMEDIATELY get a 100% return on your money. In my example above, if you are contributing $90 and your company is contributing $90, you will immediately double your money. You have invested $90, but $180 shows up in your account! That is a rate of return of 100%.
Not all companies match your contributions dollar for dollar. Some will only match 50%. That's okay. A 50% return is still a great return. Other companies don't match anything. In that case, a 401(k) might still be a good investment for you, but then it isn't the "no brainer" that it would be if your company did have a match.
401(k) plans offer a variety of "funds" in which you can invest your money. How you should invest your 401(k) money probably the subject of another posting, so stay tuned for that! However, I'll give you a little preview....
If your retirement is many years away, you want to invest most of your money in a stock index fund (S&P 500 index fund is a good one to start with if you aren't sure). As you get closer to retirement, you will want to shift money out of stocks and into some sort of a fixed income option.
2. Get a checking account and a savings account with a bank.
If you have any sort of job, chances are that you already have a checking account. A checking account provides a way to have easy access to your money when you need it for your day-to- day bill paying. Checking accounts are not investments, per se, since you usually MAKE money from having a checking account (Yes there are checking accounts that pay interest, but they usually have a very low rate of interest, so they is hardly investments). However, a checking account is a convienent place to park money that you will need for your daily needs.
When you are looking for a checking account, here are some things to consider:
A. Get an account that is federally insured (FDIC or the credit union equivalent). FDIC is a government insurance program which protects your money that is deposited at the bank if the bank goes out of business. If that happens, the government guarantees that you will get your money back, up to $100,000.
B. Get an account that has as low a minimum balance as possible. Many checking accounts have a minimum balance requirement. Unless you keep X dollars in the account at all times, you get charged some fees. Some banks will waive this fee if you have some other relationship with the bank (ex: you have money in some other account, you have a mortgage with the bank, etc). Your goal is to get an account that has as low a minimum as possible, and of course you want to make sure you keep that amount in the account so that you avoid any fees. Fees are BAD and should be avoided at all costs.
C. Get overdraft protection. If you write a check for more money than what you have in your account, you get hit with even more fees. These fees can eat away your hard earned money. To avoid this possibility, you want to get some sort of overdraft protection. This can take the form of a "line of credit" (sort of like a credit card where the bank lets you write the check but then charges you interest until your account is "in the black" again - the interest is sort of a fee, but it is usually cheaper than the overdraft fee), or the form of a transfer from a "linked" savings account that you have with the bank.
Other things that you might look for are ATM locations, online banking capabilities, friendliness of the bank staff, etc. I didn't list those are "musts" since those are personal preferences.
In addition to a checking account, you should also get a savings account where you can park extra money. A savings account is different from a checking account in that you can't write checks to access your money, but you earn a higher rate of interest than you would in a checking account. This account serves two purposes:
A. You can stash your emergency fund in this account. An emergency fund is money for those unplanned, unbudgeted expenses from time to time. Normally, you won't be touching this account except in an emergency (hence the name emergency fund), but if you DO need this money, you want to be able to access it at a moment's notice.
B. You can park extra money here that you will be investing at some point in the near future.
You want the money to earn interest so that at least the money is "working" for you, but you also want the money to be easily accessible for when you need it.
Since your savings account will be at the same bank as your checking account, the bank is already chosen for you. Most banks will have a variety of savings account choices. Usually the difference in accounts boils down to the following characteristics: minimum balance and interest rate. Accounts that have a lower minimun balance usually have the lowest interest rate. Choose the savings account that has the highest interest rate for the amount of money that you will be keeping in the account. You want to avoid going below the minimum balance at all costs.
There are various "online banks" that offer money market funds, which are essentially savings accounts. In many cases, the online banks offer higher interest rates than the interest rates at your local bank. Because they can be linked to any checking account, some people will have a checking account with a local bank and a savings account with one of these online banks. However, I prefer having my checking and savings account with the same, local bank for the following reasons:
A. Having accounts at the same bank allow me to transfer funds between checking and savings accounts, and have the funds available immediately. Transfers between institutions often take a day or two to clear.
B. Banks often use the total of all accounts with the institution to see if you meet the minimum balance requirements.
C. You can get perks when you have a ongoing relationship with one bank. For instance, my bank offers services for "preferred" customers, such a free travellers checks, notary services, discounts on safety deposit boxes, etc.
D. As mentioned above, you can use your savings account for overdraft protection to save you from paying fees or interest.
E. Call me old fashioned, but I like to be able to have someplace where I can talk to someone, face-to-face, when I have a problem.
So in closing, if you want to get started investing, make sure you get your company's full 401(k) match, and make sure that you have a checking account for your day-to-day spending along with a savings account where you can park your emergency money.
1. If you are eligible to contribute to a 401(k) plan that offers a company match, contribute at least enough to get the FULL match.
A 401(k) plan is a employer sponsored investment plan. In a nutshell, you can have some percentage of each paycheck deducted and put aside for your retirement. There are rules and restrictions, but the main things to know are:
A. You do not pay tax on the money that is deducted. Taxes are postponed until you withdraw the money.
B. You cannot use this money until you are 59 1/2 years old (although there are some circumstances where you can access this money sooner). The money is intended to be used for one's retirement.
Some companies offer to "match" your contribution as an incentive to get its employees to save for their retirement. For instance, the company that I work for has a 3% match. What that means is that they will match your contribution up to 3% of your salary. So if you have a paycheck of $3000 and you have 3% deducted to go into your 401(k) plan ($90), the company will also contribute $90. If you only contributed 2%,the company would also contribute 2%. If you decided to contribute 4%, the company will contribute 3%, since your contribute goes beyond the maximum that they will contribute.
Basically, you want to be contributing AT LEAST enough so that your company contributes its maximum. So in the case of my company, you want to be contributing at least 3% to your 401(k) plan.
The reason why is simple: this is the one of the only investments where you can IMMEDIATELY get a 100% return on your money. In my example above, if you are contributing $90 and your company is contributing $90, you will immediately double your money. You have invested $90, but $180 shows up in your account! That is a rate of return of 100%.
Not all companies match your contributions dollar for dollar. Some will only match 50%. That's okay. A 50% return is still a great return. Other companies don't match anything. In that case, a 401(k) might still be a good investment for you, but then it isn't the "no brainer" that it would be if your company did have a match.
401(k) plans offer a variety of "funds" in which you can invest your money. How you should invest your 401(k) money probably the subject of another posting, so stay tuned for that! However, I'll give you a little preview....
If your retirement is many years away, you want to invest most of your money in a stock index fund (S&P 500 index fund is a good one to start with if you aren't sure). As you get closer to retirement, you will want to shift money out of stocks and into some sort of a fixed income option.
2. Get a checking account and a savings account with a bank.
If you have any sort of job, chances are that you already have a checking account. A checking account provides a way to have easy access to your money when you need it for your day-to- day bill paying. Checking accounts are not investments, per se, since you usually MAKE money from having a checking account (Yes there are checking accounts that pay interest, but they usually have a very low rate of interest, so they is hardly investments). However, a checking account is a convienent place to park money that you will need for your daily needs.
When you are looking for a checking account, here are some things to consider:
A. Get an account that is federally insured (FDIC or the credit union equivalent). FDIC is a government insurance program which protects your money that is deposited at the bank if the bank goes out of business. If that happens, the government guarantees that you will get your money back, up to $100,000.
B. Get an account that has as low a minimum balance as possible. Many checking accounts have a minimum balance requirement. Unless you keep X dollars in the account at all times, you get charged some fees. Some banks will waive this fee if you have some other relationship with the bank (ex: you have money in some other account, you have a mortgage with the bank, etc). Your goal is to get an account that has as low a minimum as possible, and of course you want to make sure you keep that amount in the account so that you avoid any fees. Fees are BAD and should be avoided at all costs.
C. Get overdraft protection. If you write a check for more money than what you have in your account, you get hit with even more fees. These fees can eat away your hard earned money. To avoid this possibility, you want to get some sort of overdraft protection. This can take the form of a "line of credit" (sort of like a credit card where the bank lets you write the check but then charges you interest until your account is "in the black" again - the interest is sort of a fee, but it is usually cheaper than the overdraft fee), or the form of a transfer from a "linked" savings account that you have with the bank.
Other things that you might look for are ATM locations, online banking capabilities, friendliness of the bank staff, etc. I didn't list those are "musts" since those are personal preferences.
In addition to a checking account, you should also get a savings account where you can park extra money. A savings account is different from a checking account in that you can't write checks to access your money, but you earn a higher rate of interest than you would in a checking account. This account serves two purposes:
A. You can stash your emergency fund in this account. An emergency fund is money for those unplanned, unbudgeted expenses from time to time. Normally, you won't be touching this account except in an emergency (hence the name emergency fund), but if you DO need this money, you want to be able to access it at a moment's notice.
B. You can park extra money here that you will be investing at some point in the near future.
You want the money to earn interest so that at least the money is "working" for you, but you also want the money to be easily accessible for when you need it.
Since your savings account will be at the same bank as your checking account, the bank is already chosen for you. Most banks will have a variety of savings account choices. Usually the difference in accounts boils down to the following characteristics: minimum balance and interest rate. Accounts that have a lower minimun balance usually have the lowest interest rate. Choose the savings account that has the highest interest rate for the amount of money that you will be keeping in the account. You want to avoid going below the minimum balance at all costs.
There are various "online banks" that offer money market funds, which are essentially savings accounts. In many cases, the online banks offer higher interest rates than the interest rates at your local bank. Because they can be linked to any checking account, some people will have a checking account with a local bank and a savings account with one of these online banks. However, I prefer having my checking and savings account with the same, local bank for the following reasons:
A. Having accounts at the same bank allow me to transfer funds between checking and savings accounts, and have the funds available immediately. Transfers between institutions often take a day or two to clear.
B. Banks often use the total of all accounts with the institution to see if you meet the minimum balance requirements.
C. You can get perks when you have a ongoing relationship with one bank. For instance, my bank offers services for "preferred" customers, such a free travellers checks, notary services, discounts on safety deposit boxes, etc.
D. As mentioned above, you can use your savings account for overdraft protection to save you from paying fees or interest.
E. Call me old fashioned, but I like to be able to have someplace where I can talk to someone, face-to-face, when I have a problem.
So in closing, if you want to get started investing, make sure you get your company's full 401(k) match, and make sure that you have a checking account for your day-to-day spending along with a savings account where you can park your emergency money.
Tuesday, July 3, 2007
The Problem of "Identity Theft"
We have all heard horror stories about people whose credit ratings have been damaged by unscrupulous individuals who obtain credit using a person's Social Security Number. There is a cottage industry around providing services that allow people to monitor their credit report and get a jump on those scumbags who would ruin their good name. The sad part is that there are so many ways to prevent this type of fraud that it is not even funny. The problem is that nobody seems to want to do anything about it, because it is cheaper for the financial industry to just ignore the problem.
First, it seems outdated to rely so heavily on a Social Security Number. For whatever reason, a SSN is the golden ticket that allows you to identify yourself to creditors. However, there doesn't seem to be any check on whether the person providing the SSN is who they say they are. Banks are happy to loan you money as long as you provide a SSN of someone with a good credit rating, even if you are not that person. Now if I were a business person and someone came to me asking for a loan based solely upon them providing me with a nine-digit number, I would be foolish to trust them, wouldn't I? However, banks don't seem to care. If somebody de-frauds them, they just write off the loss, saying that it's part of the cost of doing business. They forget that the reputation of whoever is being impersonated is forever tarnished, because those losses are erroneously attributed to him or her. Tha bank just reports the person to the credit agency irregardless of the fact that the person was being impersonated. That, to me, is akin to somebody spreading nasty, false rumors about a person.
If I were to go around saying that person X is a deadbeat dad - repeating that rumor despite evidence to the contrary - then person X would most likely be very upset (and rightly so). In legal terms, I would be guilty of slander, which is "an untruthful oral statement about a person that harms the person's reputation or standing in the community". This is essentially what banks are doing when they wrongly report to the credit agency that you are a deadbeat. They are making an untrue statement about your character that harms your ability to find credit.
So what should banks do? For one, they should not just accept that nine-digit number as proof of your identity. There are a myriad of ways to further validate one's identity: digital signatures, RSA tokens, fingerprints, retinal scans, etc. The problem is that all of these solutions are expensive, so banks just write off the fraud and leave the consumer holding the bag. However, if banks were forced to endure some type of additional monetary loss for improperly identifying a person, then they might feel moved to change their lending practices. Not only should they be fully on the hook for any monetary losses, but they should bear the cost of making sure that the person's reputation with the credit reporting agencies is restored, AND they should pay a fine every time they wrongly put a black mark on someone's credit. By giving banks an additional incentive to check, double-check, and check again everyone's identity, you will see the crime of identity theft become obsolete.
First, it seems outdated to rely so heavily on a Social Security Number. For whatever reason, a SSN is the golden ticket that allows you to identify yourself to creditors. However, there doesn't seem to be any check on whether the person providing the SSN is who they say they are. Banks are happy to loan you money as long as you provide a SSN of someone with a good credit rating, even if you are not that person. Now if I were a business person and someone came to me asking for a loan based solely upon them providing me with a nine-digit number, I would be foolish to trust them, wouldn't I? However, banks don't seem to care. If somebody de-frauds them, they just write off the loss, saying that it's part of the cost of doing business. They forget that the reputation of whoever is being impersonated is forever tarnished, because those losses are erroneously attributed to him or her. Tha bank just reports the person to the credit agency irregardless of the fact that the person was being impersonated. That, to me, is akin to somebody spreading nasty, false rumors about a person.
If I were to go around saying that person X is a deadbeat dad - repeating that rumor despite evidence to the contrary - then person X would most likely be very upset (and rightly so). In legal terms, I would be guilty of slander, which is "an untruthful oral statement about a person that harms the person's reputation or standing in the community". This is essentially what banks are doing when they wrongly report to the credit agency that you are a deadbeat. They are making an untrue statement about your character that harms your ability to find credit.
So what should banks do? For one, they should not just accept that nine-digit number as proof of your identity. There are a myriad of ways to further validate one's identity: digital signatures, RSA tokens, fingerprints, retinal scans, etc. The problem is that all of these solutions are expensive, so banks just write off the fraud and leave the consumer holding the bag. However, if banks were forced to endure some type of additional monetary loss for improperly identifying a person, then they might feel moved to change their lending practices. Not only should they be fully on the hook for any monetary losses, but they should bear the cost of making sure that the person's reputation with the credit reporting agencies is restored, AND they should pay a fine every time they wrongly put a black mark on someone's credit. By giving banks an additional incentive to check, double-check, and check again everyone's identity, you will see the crime of identity theft become obsolete.
Thursday, June 14, 2007
What a Country!!!
Back in the 80's there was this comedian known as Yaakov Smirnoff (I hope I spelled that right because I am too lazy to look it up!). He played the part of a recent Russian immigrant to the U.S., and his whole act was based upon the culture shock he felt when he compared the New World to his old homeland. He would often exclaim the phrase "What a Country!" in reference to his excitement over things in the U.S. which we took for granted, like supermarkets with stocked shelves for instance.
While Mr. Smirnoff's observations were meant to be humorous, he did illustrate the serious point about how lucky we all are to be living in a free and prosperous society. Of course, that not only applied to the U.S., but to many other "first world" countries as well. Since I am a biased resident of the U.S., I will use that country as an example, but I do not want to exclude other fine nations which are equally free.
Many times you hear about people who bemoan their "bad luck". They complain about how fate has conspired against them to somehow limit their opportunities. They feel sorry for themselves that they haven't achieved the success that they believe that they deserve. To them, I say this: stop looking for pity, grow up, and make some different decisions in your life.
I don't care if you weren't born into a rich family. I don't care if you are a single parent. I don't care if you have credit card debt. I don't care if you have some other perceived disadvantage that you feel holds you back. It is all in your mind. You are living in the United States - the so-called Land of Opportunity. You can make your life better. You can be a success. All you have to do is to want to change. The old song about New York says that if you can make it there then you can make it anywhere. If the song was about the U.S, the words would be slightly different:
"If you can't make it here, you can't make it anywhere!"
So you weren't born into a rich family. So what? I wasn't born into a rich family, at least from a monetary standpoint. However, I worked hard in school and did well enough to get accepted to Princeton University. I went to a public school, and not even the best public school. It was a middle-of-the-road public school. There were other classmates of mine who went to even worse public schools than me who had a harder road to travel. However, they made it to Princeton, too. I had one classmate who went to a school that I would consider to be in a "tough neighborhood". His family were immigrants from another land who barely spoke English. However, this was a person who worked very hard to get the most out of his public education, and he ended up getting a full scholarship at the world's elite university. Today he is an doctor with a very successful and rich life, in terms of his happiness. Here was a person who had the deck stacked against him, but he didn't feel sorry for himself. Instead, he decided to work hard, and he was rewarded. Was it luck? Not a chance! It was determination. What a country!
[And if you think that he was just lucky to be smart enough to get accepted to Princeton, you may be right about that. However, there are plenty of successful people from poor backgrounds who went to other colleges, too.]
So you are a single mother? Yes, you made a bad decision by letting yourself get pregnant. I am not going to sugar-coat that. However, that doesn't mean that your life is over. First, you have a wonderful child whom I am sure you would not trade for anything. Second, we live in a generous country. There are plenty of opportunities to get help to better your life. There are programs in place to help with child care so you can get yourself an education and learn a trade. My mother used to teach electronics to "disadvantaged" adults. This program paid for the classes, provided child care if necessary, and provided job placement once the program was completed. Some of her students were there only because otherwise they would lose their unemployment or welfare benefits. They goofed off, cut classes, and ended up regretting it. Then there were others who took this opportunity and ran with it. They soaked up the knowledge that was being provided to them, realizing that this could be their ticket to success. Those that embrace the program are now off the welfare rolls and making a better life for themselves and their children. There are countless programs like this, both public-funded and privately-funded, that you can take advantage of if you have the desire. What a country!!
If you have credit card debt, then the solution is well within your means. Either you have to stop spending or start earning more. Unfortunately, we live in a cosumer society where we are judged by our possessions. This causes some people to spend more than they can afford to keep up with their friends. However, if you get caught up in this trap, you have nobody to blame but yourself. On the other hand, the solution is at hand. Spend less!! Do you really need that iPod or those $150 sneakers? Probably not. However, if you really want those things, then go back to school and earn a degree or learn a trade (see above). Can't afford school and don't qualify for a special program? Then you will just have to work and go to school at the same time. Many companies offer programs to employees to pay for a degree. Will it be hard to work and study? You bet! Is it possible? You bet! Thousands of people do it every year. Another plus is that you won't have time for all that partying and spending, so you won't be running up those big credit card bills. Take advantage of community colleges, which are the best deal around. Your tax dollars are subsidizing them, so use them! What a country!!
For generations, people have come to this country with nothing more than the clothes on their backs and the change in their pockets, and they have found a way to succeed. My family alone has many such stories like that. If they can build a comfortable life for themselves with nothing at all, then why can't everyone? After all, living here already we have a built in advantage. The only thing that we are missing is the drive and determination. Walking out my door, I see all sorts of "immigrant" small businesses run by people who aren't afraid to work hard at something. Sure it isn't glamorous running a convienence store, a cleaners, a gas station, a cleaning service. However, sometimes you have to use a little elbow grease to get ahead.
If you are lazy and sitting on your backside feeling sorry for yourself, think about the people who live in Darfur, or in Gaza, or in many other places in the world where the opportunities are limited. If you told them that you are feeling sorry for yourself, their response would be, "Why are you feeling sorry for yourself. You live in a great land of hope and promise. I would trade places with you in a heartbeat".
So PLEASE remember that you are living in a great country where you can achieve whatever you want. All that is required is hard work and dedication.
While Mr. Smirnoff's observations were meant to be humorous, he did illustrate the serious point about how lucky we all are to be living in a free and prosperous society. Of course, that not only applied to the U.S., but to many other "first world" countries as well. Since I am a biased resident of the U.S., I will use that country as an example, but I do not want to exclude other fine nations which are equally free.
Many times you hear about people who bemoan their "bad luck". They complain about how fate has conspired against them to somehow limit their opportunities. They feel sorry for themselves that they haven't achieved the success that they believe that they deserve. To them, I say this: stop looking for pity, grow up, and make some different decisions in your life.
I don't care if you weren't born into a rich family. I don't care if you are a single parent. I don't care if you have credit card debt. I don't care if you have some other perceived disadvantage that you feel holds you back. It is all in your mind. You are living in the United States - the so-called Land of Opportunity. You can make your life better. You can be a success. All you have to do is to want to change. The old song about New York says that if you can make it there then you can make it anywhere. If the song was about the U.S, the words would be slightly different:
"If you can't make it here, you can't make it anywhere!"
So you weren't born into a rich family. So what? I wasn't born into a rich family, at least from a monetary standpoint. However, I worked hard in school and did well enough to get accepted to Princeton University. I went to a public school, and not even the best public school. It was a middle-of-the-road public school. There were other classmates of mine who went to even worse public schools than me who had a harder road to travel. However, they made it to Princeton, too. I had one classmate who went to a school that I would consider to be in a "tough neighborhood". His family were immigrants from another land who barely spoke English. However, this was a person who worked very hard to get the most out of his public education, and he ended up getting a full scholarship at the world's elite university. Today he is an doctor with a very successful and rich life, in terms of his happiness. Here was a person who had the deck stacked against him, but he didn't feel sorry for himself. Instead, he decided to work hard, and he was rewarded. Was it luck? Not a chance! It was determination. What a country!
[And if you think that he was just lucky to be smart enough to get accepted to Princeton, you may be right about that. However, there are plenty of successful people from poor backgrounds who went to other colleges, too.]
So you are a single mother? Yes, you made a bad decision by letting yourself get pregnant. I am not going to sugar-coat that. However, that doesn't mean that your life is over. First, you have a wonderful child whom I am sure you would not trade for anything. Second, we live in a generous country. There are plenty of opportunities to get help to better your life. There are programs in place to help with child care so you can get yourself an education and learn a trade. My mother used to teach electronics to "disadvantaged" adults. This program paid for the classes, provided child care if necessary, and provided job placement once the program was completed. Some of her students were there only because otherwise they would lose their unemployment or welfare benefits. They goofed off, cut classes, and ended up regretting it. Then there were others who took this opportunity and ran with it. They soaked up the knowledge that was being provided to them, realizing that this could be their ticket to success. Those that embrace the program are now off the welfare rolls and making a better life for themselves and their children. There are countless programs like this, both public-funded and privately-funded, that you can take advantage of if you have the desire. What a country!!
If you have credit card debt, then the solution is well within your means. Either you have to stop spending or start earning more. Unfortunately, we live in a cosumer society where we are judged by our possessions. This causes some people to spend more than they can afford to keep up with their friends. However, if you get caught up in this trap, you have nobody to blame but yourself. On the other hand, the solution is at hand. Spend less!! Do you really need that iPod or those $150 sneakers? Probably not. However, if you really want those things, then go back to school and earn a degree or learn a trade (see above). Can't afford school and don't qualify for a special program? Then you will just have to work and go to school at the same time. Many companies offer programs to employees to pay for a degree. Will it be hard to work and study? You bet! Is it possible? You bet! Thousands of people do it every year. Another plus is that you won't have time for all that partying and spending, so you won't be running up those big credit card bills. Take advantage of community colleges, which are the best deal around. Your tax dollars are subsidizing them, so use them! What a country!!
For generations, people have come to this country with nothing more than the clothes on their backs and the change in their pockets, and they have found a way to succeed. My family alone has many such stories like that. If they can build a comfortable life for themselves with nothing at all, then why can't everyone? After all, living here already we have a built in advantage. The only thing that we are missing is the drive and determination. Walking out my door, I see all sorts of "immigrant" small businesses run by people who aren't afraid to work hard at something. Sure it isn't glamorous running a convienence store, a cleaners, a gas station, a cleaning service. However, sometimes you have to use a little elbow grease to get ahead.
If you are lazy and sitting on your backside feeling sorry for yourself, think about the people who live in Darfur, or in Gaza, or in many other places in the world where the opportunities are limited. If you told them that you are feeling sorry for yourself, their response would be, "Why are you feeling sorry for yourself. You live in a great land of hope and promise. I would trade places with you in a heartbeat".
So PLEASE remember that you are living in a great country where you can achieve whatever you want. All that is required is hard work and dedication.
Tuesday, May 29, 2007
Are Seat Belt Laws a Good Idea?
I am sure you have all heard about how the Governor of my home state, the great state of New Jersey, was seriously injured in a car accident because he failed to buckle up. As expected, the incident has reinforced the support for the mandatory seatbelt laws that we have in NJ and in other states as well. Personally, I never go anywhere in the car without wearing my seatbelt, and I always insist that my passengers wear them as well. Quite frankly, it seems idiotic to NOT wear a seatbelt given the fact that there is no downside to wearing one. Anybody who doesn't wear a seatbelt ought to have their brain checked for extreme stupidity. Despite this, I firmly believe that most of these mandatory seatbelt laws should be eliminated.
The only seatbelt law that I am in favor of is one that mandates that children under the age of 18 must wear a seatbelt (or sit in a car seat or booster seat, as appropriate). As minors, parents have an extra obligation to protect them, since they are (in theory) unable to make choices for themselves. However, if an adult feels the need to not wear a seatbelt, who am I to stop them? Not wearing a seatbelt does not impact society as a whole. If somebody else isn't wearing a seatbelt, does it make me more likely to get into an accident? Well, maybe if I am dodging the flying body or something, but that is a danger that I don't lose any sleep over.
Part of living in a supposedly "free" society is that we are supposed to lean towards giving people the freedom to be an idiot, especially when a person's idiocy does not directly impact anyone else's freedom. We accept the fact that people might be idiots in exchange for the ability to live our lives the way that we please. Sure it can be messy when people don't make what society views as being the right choice, but that's the price that you pay for living here.
One might argue that not wearing a seatbelt DOES impact society through added medical costs, cost to support the orphans who are left behind, etc. However, I find that argument to be somewhat disturbing.
The first way I can approach that argument is to say that, if we are going to go down the path of accounting for the "costs" to society, then it is only fair to offset the costs with the "benefits" to society as well. Yes, it sounds morbid to think that the death of somebody has a "benefit" to society, but if you really want to be a real accountant, you have to be dispassionate about such things.
So what are the benefits, you might ask? Well, for one thing, now there is one less person that our society has to support through things like public assistance, Social Security, and the like. That is one less person who is wearing down our roads, and emitting greenhouse gases into the air. That is one less person we have to produce food for. And so on and so forth. I agree I am being insensitive here, but it only seems fair to point out the benefits if some politician is going to point out the costs.
The second way to approach the argument that there is a societal cost is to wonder if seat belt laws are going to send us down a "slippery slope" towards a more socialist society. On the one extreme you have anarchy, where the rights of the individual trump the rights of society. On the other extreme you have socialism, where the rights of society trump the rights of the individual. Our society in America is supposed to be somewhere in the middle, with some leanings away from the socialist side. In theory, we have a lot of latitude over how we live our lives, even if that means we live them in a way that might not be "optimal" from a societal standpoint. For instance, society might have a shortage of pharmacists, but the government isn't going to step in and tell John Doe on the street that he has to become a pharmacist instead of a lawyer, just because the country needs more pharmacists and fewer lawyers.
Laws mandating the use of seat belts tend to push our society towards the socialist end of the spectrum, where our individual rights are curtailed in favor of what is "perceived" as being best for society as a whole. Taken to the next level, I can see where our government might pass other behavioral laws using this same justification. Maybe they'll pass a law to tell us what we can eat or where we can go. Now we are starting to move away from being a "free" society and moving towards a centrally controlled society where the government dictates more and more of what we can and can't do.
You might say that I am being an alarmist. After all, seatbelt laws seem so harmless. However, it is not the law itself that I am against; it is the principle. The sad fact is that our legal system is based upon the concept of precedences - meaning that the past is used to justify the future. It is not far fetched for some politician to point to the seatbelt law as a justification for passing another law that restricts our freedoms in a slightly more intrusive way. And then that law is used to pass an even more intrusive law. And so it goes...
The only seatbelt law that I am in favor of is one that mandates that children under the age of 18 must wear a seatbelt (or sit in a car seat or booster seat, as appropriate). As minors, parents have an extra obligation to protect them, since they are (in theory) unable to make choices for themselves. However, if an adult feels the need to not wear a seatbelt, who am I to stop them? Not wearing a seatbelt does not impact society as a whole. If somebody else isn't wearing a seatbelt, does it make me more likely to get into an accident? Well, maybe if I am dodging the flying body or something, but that is a danger that I don't lose any sleep over.
Part of living in a supposedly "free" society is that we are supposed to lean towards giving people the freedom to be an idiot, especially when a person's idiocy does not directly impact anyone else's freedom. We accept the fact that people might be idiots in exchange for the ability to live our lives the way that we please. Sure it can be messy when people don't make what society views as being the right choice, but that's the price that you pay for living here.
One might argue that not wearing a seatbelt DOES impact society through added medical costs, cost to support the orphans who are left behind, etc. However, I find that argument to be somewhat disturbing.
The first way I can approach that argument is to say that, if we are going to go down the path of accounting for the "costs" to society, then it is only fair to offset the costs with the "benefits" to society as well. Yes, it sounds morbid to think that the death of somebody has a "benefit" to society, but if you really want to be a real accountant, you have to be dispassionate about such things.
So what are the benefits, you might ask? Well, for one thing, now there is one less person that our society has to support through things like public assistance, Social Security, and the like. That is one less person who is wearing down our roads, and emitting greenhouse gases into the air. That is one less person we have to produce food for. And so on and so forth. I agree I am being insensitive here, but it only seems fair to point out the benefits if some politician is going to point out the costs.
The second way to approach the argument that there is a societal cost is to wonder if seat belt laws are going to send us down a "slippery slope" towards a more socialist society. On the one extreme you have anarchy, where the rights of the individual trump the rights of society. On the other extreme you have socialism, where the rights of society trump the rights of the individual. Our society in America is supposed to be somewhere in the middle, with some leanings away from the socialist side. In theory, we have a lot of latitude over how we live our lives, even if that means we live them in a way that might not be "optimal" from a societal standpoint. For instance, society might have a shortage of pharmacists, but the government isn't going to step in and tell John Doe on the street that he has to become a pharmacist instead of a lawyer, just because the country needs more pharmacists and fewer lawyers.
Laws mandating the use of seat belts tend to push our society towards the socialist end of the spectrum, where our individual rights are curtailed in favor of what is "perceived" as being best for society as a whole. Taken to the next level, I can see where our government might pass other behavioral laws using this same justification. Maybe they'll pass a law to tell us what we can eat or where we can go. Now we are starting to move away from being a "free" society and moving towards a centrally controlled society where the government dictates more and more of what we can and can't do.
You might say that I am being an alarmist. After all, seatbelt laws seem so harmless. However, it is not the law itself that I am against; it is the principle. The sad fact is that our legal system is based upon the concept of precedences - meaning that the past is used to justify the future. It is not far fetched for some politician to point to the seatbelt law as a justification for passing another law that restricts our freedoms in a slightly more intrusive way. And then that law is used to pass an even more intrusive law. And so it goes...
Sunday, May 6, 2007
Subprime Mortgages, Redux
In my last post, I talked about how stupid this whole concept of a subprime mortgage bailout is. Today I read an article talking about how lenders are now less likely to loan money to people who are questionable credit risks. Of course, that is a good thing. The interesting thing to me was near the end of the article, where they describe the situation of a young woman who qualified for $600,000 worth of mortgage loans on an income of only $20,000 per year!
Why would anyone in their right mind loan someone making near the poverty line that much money?! And why would anyone in their right mind take on mortgage payments of $5000 a month with an income that low?!
Now I understand that there was some rental income from tenants that probably helped out, but come on. One of her tenants was her mother who was on disability, and unless her home was a mansion, I don't see how she could rent it out for enough to make up the difference. I feel no pity for the borrower, and I especially feel no sympathy for the lender who will probably end up taking a big loss on the transaction.
As an aside, I always found it somewhat funny that lenders will charge bad credit risks HIGHER rates of interest on loans. These people already have a questionable ability to make payments, so it would seem silly to make them pay more than the average person, thus decreasing their chances of meeting their obligations even more. Now I understand that the reason has to do with the fact that lenders need to be compensated for taking on a credit risk, but it still seems a little funny to me.
Why would anyone in their right mind loan someone making near the poverty line that much money?! And why would anyone in their right mind take on mortgage payments of $5000 a month with an income that low?!
Now I understand that there was some rental income from tenants that probably helped out, but come on. One of her tenants was her mother who was on disability, and unless her home was a mansion, I don't see how she could rent it out for enough to make up the difference. I feel no pity for the borrower, and I especially feel no sympathy for the lender who will probably end up taking a big loss on the transaction.
As an aside, I always found it somewhat funny that lenders will charge bad credit risks HIGHER rates of interest on loans. These people already have a questionable ability to make payments, so it would seem silly to make them pay more than the average person, thus decreasing their chances of meeting their obligations even more. Now I understand that the reason has to do with the fact that lenders need to be compensated for taking on a credit risk, but it still seems a little funny to me.
Friday, April 20, 2007
The Idiocy of a Subprime Mortgage Bailout
As you know based upon some of my past posts, I have a disdain for politics in general. The whole reaction to the subprime mortgage situation provides me with another example why I HATE politicians so much.
For those of you who aren't familiar with what the subprime situation is, I will endevor to summarize what it is. Basically, the number of mortgage loan defaults (i.e. "I can't pay my mortgage bill") is increasing, especially in the area of "subprime" loans. A subprime loan is a mortgage loan given to a person who is a high credit risk. This person might have some questionable items on his or her credit report, or they might be asking for a loan that might be too large for their given income. Some lenders will steer clear of such people; however, there is a group of lenders who are willing to look past these blemishes and still give a person a mortgage loan. Usually, they will lend the money by charging a higher interest rate, or they might have an adjustable rate which starts out low but then adjusts based upon the market conditions.
Now these subprime lenders are finding that the number of people who are defaulting on these loans are on the rise, and so our politicians are sounding the alarm bells. There is one proposal in particular that is being put forth by Senator Charles Schumer of New York (a democrat - what a shock!) which would provide government assistance to people who are in danger of defauling on their mortgage loans. There are still some details to work out, but it seems as if this proposal could cost taxpayers anywhere from $120 million to $17.6 billion. That is a lot of money by anyone's accounting.
The question in my mind is this: should the good taxpayers of this country be spending money helping out people who are defaulting on their loans? I believe that the answer is a firm NO!
First of all, the people who took out these loans should be held accountable for their decisions. It's not like anybody forced them to take out these loans. Having taken out a mortgage myself, I know that there is tons of documents, disclosures, and so forth that you have to read and sign in order to complete the transaction. If somebody did not read and understand these disclosures, then shame on them. If somebody took out a loan that was beyond their means, shame on them again. Why should they get a gift from the government to help them avoid foreclosure when responsible citizens like me do the right thing and take out a loan that we are able to pay comfortably every month? I know it sounds harsh, but if the government provides these people with subsidies for being irresponsible, then all it does is encourage people to be reckless with their money. After all, if they screw up, they will know that Big Brother will be there to bail them out.
You might say that our goverment is just being "paternalistic", meaning that the government needs to protect its citizens because the government somehow "knows better". I absolutely hate that assertion. The word "paternalistic" is derived from the Latin work for "father". Now if you are a parent, are you doing your child a favor by constantly bailing your child out of trouble, without letting him or her face the consequences of his actions? Of course not! A good parent is often called upon to dispense "tough love", because this is often the best way for a child to learn some important life lesson.
The problem with the "paternalistic government" philosophy is that it is bad parenting, plain and simple. Why should we tolerate that philosophy in our government when we wouldn't tolerate it in our own lives.
Along those same lines, subprime lenders should be held accountable for their actions as well. Lenders often loan money to credit risks in an attempt to make money for themselves. They can charge higher fees and interest rates to such borrowers, and so there is an obvious risk-reward tradeoff. They are hoping that enough borrowers will pay back these loans to offset the ones that default. In most cases, lenders make money in aggregate. However, there are times when lenders get too aggressive in their underwriting, and they end up taking on too many bad credit risks. If the government bails them out, then the lenders aren't learning any positive lessons either. Lenders will keep on making bad loans because they know that the government is going to step in and make sure that these loans won't default. If lenders were forced to take a loss because they made too many bad loans, then they might be so short-sighted and greedy with their lending practices.
Despite all this, I have no doubt that our government will probably pass some sort of bailout bill, because it makes for good press on the evening news. That is just another reason why I hate politics so much.
For those of you who aren't familiar with what the subprime situation is, I will endevor to summarize what it is. Basically, the number of mortgage loan defaults (i.e. "I can't pay my mortgage bill") is increasing, especially in the area of "subprime" loans. A subprime loan is a mortgage loan given to a person who is a high credit risk. This person might have some questionable items on his or her credit report, or they might be asking for a loan that might be too large for their given income. Some lenders will steer clear of such people; however, there is a group of lenders who are willing to look past these blemishes and still give a person a mortgage loan. Usually, they will lend the money by charging a higher interest rate, or they might have an adjustable rate which starts out low but then adjusts based upon the market conditions.
Now these subprime lenders are finding that the number of people who are defaulting on these loans are on the rise, and so our politicians are sounding the alarm bells. There is one proposal in particular that is being put forth by Senator Charles Schumer of New York (a democrat - what a shock!) which would provide government assistance to people who are in danger of defauling on their mortgage loans. There are still some details to work out, but it seems as if this proposal could cost taxpayers anywhere from $120 million to $17.6 billion. That is a lot of money by anyone's accounting.
The question in my mind is this: should the good taxpayers of this country be spending money helping out people who are defaulting on their loans? I believe that the answer is a firm NO!
First of all, the people who took out these loans should be held accountable for their decisions. It's not like anybody forced them to take out these loans. Having taken out a mortgage myself, I know that there is tons of documents, disclosures, and so forth that you have to read and sign in order to complete the transaction. If somebody did not read and understand these disclosures, then shame on them. If somebody took out a loan that was beyond their means, shame on them again. Why should they get a gift from the government to help them avoid foreclosure when responsible citizens like me do the right thing and take out a loan that we are able to pay comfortably every month? I know it sounds harsh, but if the government provides these people with subsidies for being irresponsible, then all it does is encourage people to be reckless with their money. After all, if they screw up, they will know that Big Brother will be there to bail them out.
You might say that our goverment is just being "paternalistic", meaning that the government needs to protect its citizens because the government somehow "knows better". I absolutely hate that assertion. The word "paternalistic" is derived from the Latin work for "father". Now if you are a parent, are you doing your child a favor by constantly bailing your child out of trouble, without letting him or her face the consequences of his actions? Of course not! A good parent is often called upon to dispense "tough love", because this is often the best way for a child to learn some important life lesson.
The problem with the "paternalistic government" philosophy is that it is bad parenting, plain and simple. Why should we tolerate that philosophy in our government when we wouldn't tolerate it in our own lives.
Along those same lines, subprime lenders should be held accountable for their actions as well. Lenders often loan money to credit risks in an attempt to make money for themselves. They can charge higher fees and interest rates to such borrowers, and so there is an obvious risk-reward tradeoff. They are hoping that enough borrowers will pay back these loans to offset the ones that default. In most cases, lenders make money in aggregate. However, there are times when lenders get too aggressive in their underwriting, and they end up taking on too many bad credit risks. If the government bails them out, then the lenders aren't learning any positive lessons either. Lenders will keep on making bad loans because they know that the government is going to step in and make sure that these loans won't default. If lenders were forced to take a loss because they made too many bad loans, then they might be so short-sighted and greedy with their lending practices.
Despite all this, I have no doubt that our government will probably pass some sort of bailout bill, because it makes for good press on the evening news. That is just another reason why I hate politics so much.
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