My Daughter the Philanthropist

I have a coffee mug on the window sill in my closet where I throw loose change at the end of the day.  It was just about full, so my wife emptied it into a larger jar.  No big deal, right?

Well once my four year-old daughter discovered my coffee mug was empty, she started acting faster than Congress with a bailout check.  Olivia ran into the living room, where I was watching football and muttered something about change and a coffee cup.  I had no idea what was going on.  She ran up to her room where I heard some banging around, her incessant rambling, and the sound of loose change pouring in to the floor.  Then she ran past me and into my closet.

This process repeated itself about 4 or 5 times until she finally came downstairs with her whole piggy bank.  That’s when I realized what was going on.  I walked to my closet to find her sitting in the floor, shaking out her piggy bank, and filling up my coffee cup.  Moved by her generosity, I told her that she didn’t have to give me her money.

Her reply was, “No daddy.  I have enough money and you don’t have any.  You can have some of mine.”

I almost told her to stop emptying her piggy bank and keep her money for herself, but didn’t.  Here was a simple, honest act of generosity.  Who am I to stifle that?  I thanked her for giving me her money and let her know how nice it was for her to give me something without me even asking for it.

Usually parenting involves taking the time to teach valuable lessons to our children.  Sometimes they are the teachers.

 

A Taxing Time

 

Tax day is almost upon us.  Most of you have probably already filed (and gotten a refund, based on the market’s performance last year).  I got my best refund ever this year (thanks largely to an 8 lb, 3 oz deduction), but I am not optimistic about the future.

 

With all the bailouts, stimulus plans, and funding of pork barrel projects, you and I will be picking up the tab for many years to come.  Whether or not you agree with the way Washington has been writing checks, you have to acknowledge the fact that our actions today will have significant financial implications for years to come.

 

I’m not here to point fingers at any particular politician, party, or belief.  I think we should instead consider why the government feels so compelled to “fix” the economy.

 

It really comes down to the average American’s sense of entitlement.  One of the most famous lines from our country’s Declaration of Independence states that we are endowed by our Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.

 

That’s the pursuit of happiness, not the guarantee of happiness. 

 

First of all, if we are to pursue happiness, then the onus is on us (get it?) to discover what will provide happiness.  If you’ve read much on this blog before, you know my position on this matter.  Money will not provide happiness.  Yet when people are not happy, our typical response is to throw money at the problem.  When that money runs out and the problem still exists, we throw more money at it (ever heard of AIG).

 

Our government is really good at collecting taxes and organizing a military.  That’s about it.  It cannot be all things to all people, nor should it be.  We should not be turning to the government to bail out businesses, provide universal healthcare, regulate financial services, or guarantee the liquidity of our investments.  Yet over and over again, when we face tough times, we expect the government to reach into its hat and pull out another rabbit.

 

Another problem that I don’t think we are considering is the issue of control.  The more money the government puts into an entity, the more control it gains over it.  Look at GM.  After giving the car maker tons of cash, the administration forced the resignation of GM’s CEO.  What about the AIG bonus fiasco?  After the ridiculous bonuses were paid, the government decided to heavily tax those bonuses.  I’m not defending GM’s former CEO or AIG, but doesn’t this seem to be going a bit far?

 

Now the government is saying that it will back the warranties on new GM cars and trucks.  What?  So does this mean that Ford owners will subsidize the cost of quality for GM vehicles with their taxes?

 

The more involved the government gets, the more complicated these scenarios become.  As individuals, we need to take personal accountability for our pursuit of happiness and keep in mind that if we turn to bailouts for happiness, we lose liberty.

 

Happiness Through Giving

If you read my book, you know that one of the messages I try to convey is that it is not what we have that makes us happy, but what we can give.  Here is an article from the Associated Press that shows some scientific evidence to support this belief:

 

Article from the AP:

Science, Bible Agree: Giving Is Better

WASHINGTON – The Bible counsels misers that it’s better to give than to receive. Science agrees. People who made gifts to others or to charities reported they were happier than folks who didn’t share, according to a report in Friday’s issue of the journal Science.

While previous studies have shown that having more money can increase happiness, the researchers at the University of British Columbia and Harvard University wondered if the way people spent their money made any difference.

Turns out, it does.

Lead researcher Elizabeth W. Dunn, an assistant professor of psychology at the University of British Columbia, said she wasn’t surprised that doing something for others made people happy.

But she was struck by how big the effect was and that how people spent money was more important than how much money they had.

“This work suggests that even making small alterations in how we spend money on a daily basis can make a difference in happiness,” Dunn said in a telephone interview.

“That doesn’t mean go get a high paying job so you can spend tons of money on others. The message is, given what you have, how can you make little alterations to do something for others,” she said.

And, she added, “there’s nothing special about money,” giving can involve time or special skills to help other people.

The report didn’t surprise Sue Citro, senior digital membership manager for the Nature Conservancy:

“We do hear from our members and our supporters that they do get a real feeling of satisfaction from knowing their giving is doing good,” she said.

Andrea Koslow, director of advertising at the American Red Cross, said: “The act of helping has its own profound effect.”

“People need a humanitarian outlet … feeling that they make a difference … that’s very motivating,” Koslow said.

The good feeling associated with giving is why workplace charity opportunities can engage employees and lift morale, added Kristine Templin, director of corporate partnerships at the American Red Cross.

The researchers started by asking a sample of 632 Americans, 55 percent of whom were women, to rate their happiness on a scale of 1 to 5, the higher the number the happier.

Then they asked the participants to report their annual income and estimate how much they spent on paying bills, buying gifts for themselves, buying gifts for others and giving to charity.

The first two were considered personal spending and averaged $1,714-a-month, the second two were termed “prosocial” spending and averaged $146-a-month.

“Personal spending was unrelated to happiness,” said the researchers. “But higher prosocial spending was associated with significantly greater happiness,” they found.

Not content with that, they then studied 16 employees of a company in Boston, asking about their happiness one month before and six to eight weeks after each received a profit-sharing bonus from their employer.

In the second interview they also asked about personal and prosocial spending and once again those who spent more on others were happier.

“The manner in which they spent that bonus was a more important predictor of their happiness than the amount of the bonus itself,” the researchers found.

Finally, 46 Canadian students were asked to rate their happiness and then each was given a random envelope containing money, ranging from $5 to $20. Some were instructed to spend it on themselves, others were told to buy a gift for someone else.

At 5 p.m. that day, they were called together again and asked to rate their happiness.

The amount of money had no impact on happiness, but those assigned to buy something for another person reported greater happiness than those told to get something for themselves, the researchers said.

A separate study published in 2006 in the journal Proceedings of the National Academy of Sciences found that the same parts of the brain that produce the good feeling when a person receives a reward also respond when they give to someone else.

Indeed, researchers led by Jordan Grafman at the National Institutes of Health found the reward areas were more active when giving a gift than when receiving one.

Associated Press Writer Natasha Metzler contributed to this report.

Science: http://www.sciencemag.org

A service of the Associated Press (AP)

 

The Great Decession

 

Ok, “decession” is not a word.  It doesn’t even make sense, but since “repression” was already taken, it is the term I’m giving to what we are going through now.  The Chicken Littles are running around saying that we’re heading into another Great Depression.  Well, we’re not there… yet.  However, what we are in is worse than what we have called a recession in the past.

 

By definition, a recession occurs when the gross domestic product (the value of all of the goods and services we produce) shrinks for two consecutive quarters.  We’ve been there since December 2007.  By definition, a depression… uh, there is no agreed upon definition for a depression.  I think economists shy away from it because it scares the daylights out of us.

 

Let’s compare/contrast where we are now to where we were around 1929:

 

Unemployment

The Great Depression – 25%

Now – 8.2%

 

True, the population of the US is much greater now than it was in the 1930’s – 8.2% of our current population of 300 million people is 24.6 million, which is pretty close to 25% of our 1929 population of 12o million people (30 million).  However, there are other factors to consider.  First of all, one out twelve people experiencing unemployment is a lot different from one out of four.  Nonetheless if you are one of the 8.2% without a job, it is of little consolation that we are only at one third of the unemployment rate we endured during the Great Depression.  Another big difference now is the diversity of work available.  Back in the 30’s we basically had agriculture, mining, and some industry.  Now, you have a plethora of opportunities even in the worst job market since 1983.

 

Charity

The Great Depression – Millions of homeless, starving people resorted to begging and relying on the charity of others for their next meal.

 

Now – Numerous CEOs making millions of dollars have resorted to begging and relying on the American taxpayer for their next “mil”.

 

The Stock Market

The Great Depression – From October 1929 to 1932, stocks lost about 80% of their value.

 

Now – Though stocks are taking a beating, the Dow would have to go down to about 2,800 to be at 20% of its October 2007 high of 14,000.

 

Money Supply

The Great Depression – From 1929 to 1933 it is reported that 10,763 of 24,970 commercialized banks failed and the money supply fell 30.9%.

 

Now – Because of what happened in the 1930s, we have a wiser Federal Reserve (believe it or not) that would likely take more drastic measures to prevent the money supply from falling so sharply.  Yes, this would lead to inflation, but it could stave off the drought of credit lines.

 

Policy

The Great Depression – Policymakers sought to increase prices (and thereby, wages) by decreasing production.  The thought was that if we had a reduced supply, prices would go up and wages would follow.  Of course the problem with this strategy is that if production is decreased, fewer workers would be needed and fewer people would be able to afford the now higher-priced commodities.

 

Now – I think we all know that creating jobs is the way out of this mess.  A lot of talented people are getting laid off and are left wondering what to do next.  I think America needs an entrepreneurial boom.  We need to stop giving taxpayer dollars to huge companies that are hemorrhaging money and start offering more assistance to small businesses and people who taking the initiative to begin their own economic recovery.

 

Living Conditions

The Great Depression – People lived in cardboard boxes known as “Hoovervilles” and used newspapers to try to keep warm.

 

Now – We complain about not being able to sell our 2,500 square foot homes while watching American Idol in high definition.  I’m not trying to marginalize our current condition.  I know a lot of people are truly struggling to figure out their finances and face losing their homes, but even in our toughest economic times, we have it pretty good.  If you don’t believe me, consider this:  50% of the world (that’s over 3 billion people) live on $2.50 or less per day, 80% of the world lives on less than $10 day, and according to UNICEF, in 2005 up to 30,000 children died every day due to poverty.  You’re probably thinking, but that’s in lesser developed countries.  Exactly.  That’s my point – we have it pretty good.

 

I didn’t plan on putting up another posting about the economy, but it’s hard not to talk about it these days.  I know that some of you are struggling.  I recently found out that one of the plants where I used to work will be shutting down and some of the readers of this blog are now trying to figure out what’s next.  Sometimes we gain perspective from the decisions we make.  Sometimes perspective is forced upon us.  Whatever your situation, it is essential to remain optimistic.  I know… easier said than done.  I’ve learned that optimism does not come from believing that you will get what you want.  It comes from appreciating that you have what you need.

 

Don’t Sweat the Funyuns

It’s another bad day on Wall Street. As of the time of this posting, the Dow is down about 237 points to 6,826. Today’s bad news is that AIG (you know, the company we bailed out so that employees could go on a luxury retreat) posted a $61.7 billion loss for the 4th quarter of 2008. Now they’re getting another $30 billion of federal aid our tax dollars. Expect more bad news for the next few months – we’re not out of this yet.

Despite the losses that we have all suffered, we should keep things in perspective. I know that what used to be my “portfolio” now more closely resembles a Post-It note and people are panicking about their losses, but give some thought to what we have gained in our lives. In our peculiar thought process, we humans tend to focus more on the pain loss than the joy of gain.

If I were to ask how much your 401(k) lost last year, most of you could probably give a pretty accurate dollar amount or percentage. Now if I were to ask how much your investments increased in the year prior to the financial crisis, you likely have no idea. That’s just how we tend to think.

Here is another example to consider. Imagine you are walking down a sidewalk and find a $5 bill. You feel pretty good for a minute or two, but soon forget about it. As you’re walking down the sidewalk, you come across a vending machine and have a sudden craving for some Funyuns. You put in a crisp one dollar bill and punch “G-4”. The dispenser screw begins to turn and then the unthinkable happens… the machine stops and your Funyuns remain precariously perched on their rack. In your anger and disappointment, you shake the machine but to no avail. Your anticipation for those deep fried onion flavored corn snacks turns to utter defeat when you realize that the bag will not drop.

Even though that bag of Funyuns probably only cost 50 cents, the disappointment you feel for that loss is greater than the joy you received from finding 10 times that amount on the sidewalk. There are $5 bills to be found all over the place. It would probably do us all some good if we started being thankful for them and stopped obsessing over our teetering Funyuns.

 

Last Minute Gift Ideas

 

The Christmas season is upon us. If you didn’t know that, let me also inform you that we recently had an election, the economy stinks, and the world is not flat. Now that we are officially in a recession (duh!) and many breadwinners are trying to figure out how to win bread, a lot of you are particularly stressed this year. Maybe you have lost a job, had your hours cut, or are just fearful about what the future holds – regardless of the reason, there has been no better time to reconsider your gift-giving practices.

The economic doom and gloom does give rise to some great bargains out there. The way bank stocks are falling, I’m thinking about buying my wife a bank branch as a stocking stuffer – hey, it’s cheaper than an i-Phone. Seriously, our family decided to cut back on the gift-giving this year. We are going to take some of the money that we would have spent on superfluous “stuff” and anonymously give it to a family that is struggling. I’m not telling you this to boast, but to hopefully motivate you to do something similar.

Another alternative is to get creative with the gifts that you are giving. Instead of spending money, consider spending time on your gift recipients. What do you do well? Whether you are a physical workhorse, a nurturing caregiver, or the creative type, there is probably a service you can render or something that you can make that will brighten someone else’s Christmas this year. Who knows, maybe combining your talents and abilities in a way that is a service to others will help you understand what will offer you true success in life.

 

Stay the Course

With the economy in the tank and the Dow dropping like eyelids at a 30-hour Matlock marathon, we have heard the same advice repeated endlessly – stay the course.  Almost any financial expert will tell you that if you give up on your stocks now, you will lock in your losses and waste the investment that you may have taken years to grow.  “Don’t panic,” they tell us.  It may take some time, but the market will recover – it always does.  Experts agree that the best thing to do now is to continue investing.  If we will consistently invest during times of economic uncertainty we will be thankful later.

 

If only we were as loyal to our personal relationships as we are to our mutual funds.  What happens when relationships take a nosedive of the same magnitude as our current economic crisis? We usually end up selling and locking in our losses.  We stop contributing; thinking that further investment into a failing relationship is a waste of time.

 

Whether your current relationship struggle is with a family member, friend, neighbor, or co-worker, I urge you to stay the course.  If you continue investing during times of relational uncertainty, you will be thankful later.

 

AIG – Another Insane Glutton

You have no doubt heard about the latest poster child for corporate greed, AIG.  After receiving $85 BILLION dollars from the Federal Reserve, some of the top salespeople for the company went to a luxury resort that the company paid for (with taxpayer money) to the tune of $440,000!  As if this were not enough, shortly after news of this incomprehensible action, it was recently announced that the Fed will be loaning AIG another $37.8 BILLION!  Why do they need more money?  Because the $85 billion they just got is already gone.  Oh yeah, and they will be taking another little trip to the Ritz-Carlton in northern California.

 

Are you kidding me?

 

This is precisely why I was against the massive government bailout.  If this does not exemplify greed gone wild, I don’t know what does.  Throwing money to companies that have shown a complete lack of fiscal responsibility with the expectation of them using it wisely and generating a return for the taxpayers is like throwing sides of beef into a pit of ravenous wolves with the expectation that they will grill us some T-bones.

 

That’s all I’m going to say about this (for now).  I don’t want to become one of those angry bloggers.  This is my last post for this week.  I’ll be at the Catalyst conference for the rest of the week and will be avoiding news as much as possible.

 

How’s Your 401(k) Doing?

The purpose of this blog is not to be political or focused on the economy, but there is not a whole lot else to talk about these days.  I mean it’s not like O.J. Simpson is still in the news… oh, never mind.  I will try to be brief and discuss what is going on as it relates to the topics related to this blog.

 

We all know about the credit crunch that came as a result of billions of dollars of bad mortgages.  A few years back, my dog qualified for a $300,000 loan on her dog house.  Who was to blame?  Was it the lender, the government for the lack of regulation, or man’s best friend?  I don’t think pointing fingers (or paws) will do any good now.  A common topic in the presidential/vice-presidential debates was that we needed a bailout and additional regulation/oversight of lending.  Maybe some reform is due in this area, but do we really need another government agency (funded by taxpayer dollars) to tell borrowers/lenders to use common sense?

 

People have been buying houses and paying mortgages for generations.  Are we all of the sudden so devoid of common sense that we need Uncle Sam to hold our hands and slap our wrists when it comes to home buying?  Do we need a new government entity to show us that if we add up our income and subtract our expenses and don’t have enough money left to make the payments then it is a bad idea?  I know some people got hit with adjustable rates and creative loans, but if that was enough to cause a foreclosure, then their budget was already too tight to buy the house.

 

So the thought was that if we did not pass a bailout to inject capital into the system, there would be a credit freeze and a market meltdown would ensue.  Well the bailout passed to the tune of a $700,000,000,000 injection.  Yep, that’s a lot of zeros when you write it out numerically.  In addition to this, the Federal Reserve announced Monday morning that it would pump in an additional $300 billion to banks and that amount could climb to $900 billion by the end of the year.  As of early Monday afternoon following this bailout, the Dow was down about 550… 620… 800 points to the lowest point it has been in about five years despite all the money being pumped in.

 

Some people were naïve enough to think that if the bailout passed, the economy would immediately recover and everything would be fine.  With all the press that the credit crunch and sub-prime mortgages have been getting, many have overlooked the possibility that we are heading into or already in a global recession.  With all of the additional cash being pumped in by the Federal Reserve, we can now expect inflation as well.  Recession + Inflation = Severe Aggravation.  Get out your leisure suit and El Camino because it looks like we’re headed back to the 1970’s. 

 

Where do you think the money comes from that will pay for that huge bailout?  Taxpayers will shoulder the load and we’ll probably look to borrow from other countries, further unbalancing our federal budget.  But wait, the taxpayer is seeing their net worth dwindle in recession and expenses climb as a result of inflation.  Not only that, but many of the global markets are getting hammered even worse than the US market.  The dollar is actually gaining on the Euro and is at a 14-month high.  So, there doesn’t seem to be a whole lot of capital overseas eager to be loaned to the US.  Guess what we just did…  we took thousands of bad loans from banks that loaned to people who could not afford to repay them and turned them into one massive bad loan that nobody can repay.

 

I don’t want this to sound like it’s all doom and gloom.  Money never was going to make you happy anyway.  This could be the opportunity of a lifetime for many.  Our greed, addiction to credit, and eagerness to spend non-existent money in an effort fill an insatiable and longing void is on its way to bankrupting the world (yeah, I’m being a little dramatic).  But is that so bad?  Sometimes you have to experience loss to understand gain; you have to experience exhaustion to understand rest; you have to experience death to understand life.

 

We’re not going to be here on earth forever, folks.  You can continue chasing success and building up your own little empire only to see its worth diminished in a few days of bad market activity or you can discover your mission, do what you were meant to do and “…store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal.”

 

It’s Easy to Bail Out… When You’ve Got a Golden Parachute

Washington Mutual’s bankruptcy last Friday was the largest bank failure in U.S. history.  Amid the financial crisis that has been going on for some time now, huge bank failures are no surprise.  Corporate greed is nothing new either, but this example just underscores how ridiculous things are getting.

 

As lawmakers debated the details of bailout plan – a plan in which you and I as taxpayers will be the owners of bad mortgages that originated so that overpaid executives could get huge bonuses – WaMu was dumped to JP Morgan Chase.  We should probably feel bad for the person at the helm of WaMu when the ship went down, right?

 

Think again.  WaMu’s CEO, Alan H. Fishman, was given close to $20 million in the deal.  That’s not all.  He was only CEO of the company for 17 days… and it failed.  That’s over a million dollars a day for bankrupting a company!   Granted, the company was already going down when he took over, but this is insane.

 

Maybe this is our secret plan to protect our borders.  If we can mess up the economy enough, charge over $4 for a gallon for gas (if you can find a station that has gas), dump bad debt on the public, and raise taxes to bail out companies who made poor decisions while their CEOs get $20 million golden parachutes, nobody will want to come to the land opportunity any longer.  We can supply our own “tired, poor, and huddled masses.”  Oh that’s right, those people slipping through the borders aren’t paying taxes. 

 

I don’t mean to sound like I am bashing the United States.  I think this is still the greatest country in the world, but when we pool money of the citizens to bail out corporations, we are turning away from the principles of capitalism.  Yeah, I know that the bailout is supposed to protect the economy, but where does it end?  The problem here is greed and the love of money (the root of all evil, remember?) and our solution is to throw more money at it???  Look, I don’t have a solution and I guess some action is better than nothing, but a socialistic response sets a precedence that I’m not sure we fully understand yet.