Debt and Equity

From P.J. O'rourke's book Eat the Rich:

"There are two main kinds of investments: debt and equity. Debt is just lending money. A General Motors corporate bond is a "debt instrument." You lend GM money, and GM promises to pay you back, plus interest. Your savings account is also a debt instrument. You lend the bank money, and the bank promises to let you withdraw it, never mind that the interest is less than you'd get from keeping a sock full of buffalo nickels under your bed. And your checking account is a debt instrument, too. You lend the bank money and they...charge you for it? Plus ATM fees? This is probably why so many pistol-waving people rob banks and why so few pistol-waving people rob General Motors."

Might I also add to this list ridiculous overdraft fees on debit cards, fees on getting your past statements, fees on fee administration, and a fee creation fee (they have to pay someone to come up with all those fees).

There's Reform, and Then There's REFORM!

I've tried to write about this several times, but the whole expanse of it just seems to get away from me. Rather than write a full and reasoned treatise, here are just a few observations.

I think that the whole idea of Health Insurance may be completely wrong. Insurance is for disasters, not for bills. With life insurance, the payout is at least predictable based on the policy your purchase, so the actuaries can figure out the pricing accordingly. Medical bills are notoriously unpredictable, so huge margins must be built in.

• Imagine sending the bill for your brake work or your oil changes to your auto insurance company. That's not what insurance is for. Insurance is for crashes. Repair insurance is available, but we call it an extended warranty. Most financial advisors will tell you it's a bad deal. Insurance is for crashes. For repairs, you plan, save or use your credit card.
  
  
• Health insurance makes the insurance company the customer, not the patient. The money comes from the insurance company, so the medical provider is much more interested in doing things that make the insurance companies happy. This has to skew things.
  
  
• Making the government the insurer really won't help this. It doesn't matter if the government does a good job of it or not. The concept is skewed from the get go.

So it seems to me that Health Care reform -- real reform -- is not about deciding who insures who. It should be about getting rid of insurance altogether and finding other ways to finance medical expenses.

This isn't all my idea. I was kind of thinking about this, but in a very fuzzy and undefined way, and then I read David Goldhill's article in The Atlantic Monthly called How American Health Care Killed My Father. Not sure I see all his solutions, but I think they are much closer to real reform than what is going on now.

Everything You Know is Wrong

Stewart Brand sets out some new ideas to me in this video.



1) Cities are good. The growth of mega-cities and urbanization of our world may be a net positive. What we see as slums and cesspools of human castoffs are actually hugely energetic engines of human social growth and advancement. Sure they are messy, but they are fermenting capitalism and upward mobility from a ground level -- and fermentation always smells a little funky. The migration to urban centers also reduces birthrates, and allows rural areas to recover from the ravages of subsistence farming. These are new perspectives I had not considered. Pay special attention to his video of the train.

2) Nukes are good. Energy by nuke is the new green option - no carbon footprint, and with new technology, very little nuke waste for the energy released. Safe and quiet. I had thought this for some time, especially with the advent of micro reactors and distributed grids. I want one.

3) GMC's are also good. He makes a case here, but it is slight and needs development. He completely ignores the counter arguments, some of the most powerful have more to do with the way the owners of the technology are marketing and licensing the technology, rather than the crops themselves. I am not convinced that GMC's are the unmitigated evil that seems to be the prevailing wisdom, and I remain equally unconvinced that they are an umitigated blessing.

4) What the heck is geo engineering? Is he serious?

Bad Bank

Here is the next installment on economics from the radio program This American Life by NPR. This episode is titled Bad Bank. You may want to take a sedative before listening to this, but by all means, listen. It will clarify much. You can click here to go to the website. Click on the icon for the "Full Episode" to stream it for free. It is about an hour long, so get some tea or coffee, maybe a little snack and plan to settle in for a while.

The most important part comes toward the end where they discuss who is REALLY to blame for this whole fiasco. Their conclusion is consonant with my thinking all along.

The Giant Pool of Money

I don’t listen to This American Life – the very hip, slightly cynical, often ironic radio program on NPR – very often. Mostly because I never know what’s coming next. It might be profanity, references to various sexual practices or values, or just stories that are hard for even adults to swallow. The days the program is on I am commonly listening along with my children, but I can’t always see what’s coming to turn it down. What's more, the program tends to have kind of a nasal, slightly whiny tone. It's as if the timbre of the Ira Glass's voice bleeds over into the very spirit and ethos of the program. The world of TAL is just too defined by the odd, abnormal, bleeding, perverse and twisted. Admittedly, it's often delivered with sardonic humor, or even heartfelt pathos, often at the same time. It's fine in small doses. Even interesting and entertaining. Yet there is something about it that makes me feel kind of slimy when the program is over. It needs washing out with some plain wholesome outdoor activity or some act of simple naive faith. I would love to just have Ira over for an afternoon of splitting wood, stone wall building, or even a long walk in the mountains. Something where whining is not accepted and good hard physical work is a wholesome cure for many ills.

So, after Car Talk and Wait Wait Don’t Tell Me are over, I usually just turn the radio off for most of the afternoon. That's because my kids listen. Then they think. Then they ask questions about stuff they have heard on the radio. On balance this has been very good. It has stimulated some really interesting conversations. But…there are some topics that I’d just as soon wait awhile before having to address them. Among those topics I would include homosexuality, adultery, fornication, divorce, abortion, child abuse, and other forms of domestic violence, to name a few.

Last May, however, they broadcast one of the finest programs I have ever heard. It was called “The Giant Pool of Money. The topic was the national mortgage meltdown. One might argue that this is certainly a topic too spicy and fraught with moral ambiguity to allow small children anywhere near it. I would disagree because while sex is obviously way too hard a topic to discuss with children, uncontrolled avarice, and government toppling corruption are just fine, along with graphic violence (I’m kidding folks!).

I strongly recommend clicking on the link and taking 59 minutes or so to listen to the program. If you click on the icon for “full episode” you can hear the program streamed for free. If you wish to save it you can download it for a small fee.

In a few days, I will be posting a link to TAL’s latest attempt to explain the practical economics of our time with a program on the current Banking Crisis. I have a few thoughts on both of these subjects that I will post shortly. I don’t think my thoughts are anything particularly new or startling. They are just what I have been thinking about as we all watch things progressively unravel around us.

These are, indeed, interesting times.