Sunday, 18 November 2012

Just an Economic Parable

This is a parable of sorts.  For those who don't remember the full meaning of a parable....it's a story or verse, about something, which is mostly false or made-up....but it leads you to grasp lessons in life.

Karl was a millionaire of such, and well-to-do.  Every year, his company could deliver ten million dollars to Karl, as the income from his investment and risk-taking.  To be honest, Karl is a pretty hefty risk-taker.

Karl pays a fancy-pants tax accountant to ensure that he pays the least amount of taxes possible.  At the end of his tabulations, Karl typically pays $1.6 million.  That's roughly sixteen percent of what he made.  Now, you'd be upset that a wealthy guy got away with such a deal....but there's some things you should know.

Karl has a charity foundation, and he donates around $700k a year to this foundation.  That counts off money from his taxes.  Karl also has this great deal with the university down the road....where he donates $175k a year between the baseball department and the library fund.  Three times a year, Karl attends a local charity event and donates a $25k check to each charity or foundation.  Almost ten percent of Karl's income goes to charity events.

Well....one day....because of financial incompetence  recession or whatever....the government comes to say that Karl isn't giving his fair share.  No matter how the accountant does the math....Karl has to give twenty-five percent of his income, period.  No matter what the credits are, or the donations that Karl gives.  It makes things fair....as the government guy explains it.

So Karl evaluates his new twist of life.

If it doesn't matter what he does....they have to take that $2.5 million of his....then he really doesn't need to think or worry much about the charity business.

A year or two into this new tax scheme....the charities and educational funds of America (including those stupid university folks) are now talking about this massive loss in income.  Libraries are short on funds....pet shelters are short....little league organizations are low on cash....and various environmental causes are now worried that they can't sustain their magnificent organizations.

Wonder why?  Maybe we need a government committee to meet and discuss why the economic state of charities are suffering as such?

No Debt Limit?

I sat there this weekend and watched this piece of an interview with Treasury Secretary Timothy Geithner  on Bloomberg TV (the other business channel).

At some point....the idea of raising the debt ceiling comes up.....which is a fairly fast approaching mess that will have to also be handled by Congress.  If they don't approve it....the President is screwed, and the whole economic system of America is going to come to a halt.

So Geithner says at some point....the US “absolutely should get rid of the debt ceiling as soon as possible. It would have been time a long time ago to eliminate it. The sooner the better.”

I sat there for a minute.....thinking what if he was right.  The same should be true for your neighbor.  He ought to have an unlimited Master Card and charge $40k a year off that card.  Your buddy at work?  He ought to be able to buy a $750k house, when he only makes $58k a year.  Your Uncle going on a $9k two-week trip to Vegas when he barely makes $32k a year as a mall-guard?

After a while, you come to realize there's limits for a reason.  Sadly, our government has lost its judgement on what it's limits ought to be.

What kind of financial adviser is Timothy Geithner?  Well....not the kind that you ought to allow near your real money.....just your fake federal money.


That Flood Insurance Stuff

Somewhere, hidden in all the Hurricane Sandy updates....you will find this interesting note.  The kindly folks at FEMA who run this flood insurance deal....are deeply in debt.  Course, this is the US federal government, and it shouldn't really matter to you....the common citizen.

After Hurricane Katrina....the FEMA guys were so deep into debt, that they borrowed around $18 billion (BILLON) from the US Treasury, because their fund was so weak.

Naturally, if you were a real insurance company, you'd have some meetings and discuss this.  Well....there's a problem in the way that we manage the insurance fund, from a federal prospective.

You see....we felt so sorry for people who lived by rivers, lakes and coastal areas....that we actually gave out this under-priced policy.  We arranged a subsidy program where you could demonstrate your business or your lifestyle was such....that you only had to pay half of what the flood insurance ought to be.

Nice people that we are....we aren't really the type that ought to run an insurance program.  We are the types that would bankrupt a fund....if we were pretending to be real insurance folks.

So the fund is still in trouble left over from Hurricane Katrina, and will be more deeply in debt after Sandy's cost is figured up.

Not that this is the worst of the news....if you read the Wall Street Journal....you'd find out that the most that a general homeowner can claim under such federal insurance.....is $250k for the house and $100 for the contents.  If you did have a house worth over $380k....well....there's a problem here in that you need to find another $130k for the construction costs.  And you have to figure....folks never did accurately figure out what it'd cost to replace the old house if it did get knocked down.

So by January....when the smoke and surf has cleared....a guy will be standing there on Staten Island with his $500k house being knocked down by the city government because it's not safe to live in.  The FEMA check will arrive for $250k, and if you can document your contents (maybe you were smart enough to keep pictures and receipts....but they are long gone because of the storm)....you might get the other $100k for contents.  Then what?

The rest of us...in two to four years will eventually figure out that the flood insurance fund is mostly bankrupt and we are holding the 'promise' here.  And we aren't going to be happy over that subsidy deal for the 'poor' folks.

Yeah, we've got a bit of sand and grit in our teeth, and we aren't exactly happy.

I'm guessing some Staten Island folks won't be returning....ever.  It was the end of an era.

That 1970s Era

This week, I happened to be flipping channels and had a chance to watch Three's Company (from the 1977 to 1984).  I watched two episodes.  I will admit....it's a catchy comedy....even today.  It still works. Once they brought Don Knotts onto the show....it only got better.

Some shows....like One Day at a Time and the White Shadow....were lousy shows, and you never see them around today.  Hart to Hart?  I probably watched one episode in my entire life.  Knot's Landing was some hour-long soap opera that didn't really say much or do much.

The Daniel Boone Show?  I've probably watch forty episodes of it in my life....there's a total of 165 of them.  The thing that generally amazed me....everything was shot on a stage or lot....nothing in the real woods.  You got to notice things like that.

To this day, I've never watched as single episode of the Mod Squad, or Marcus Welby.

CHIPS?  I've probably seen every single one of the 139 episodes.  To be honest....it was badly scripted and there's a good reason why it never appears on TV today for you to watch.

One of the worst shows from the 1970s....was The Man From Atlantis....which survived for 13 episodes.  It started Patrick Duffy, who went onto Dallas later....luckily for him.  It was trying to fit into the Six-Million-Dollar Man stuff, but you just couldn't fill the 44 minutes of the show with anything worth watching except Patrick Duffy without his shirt on.  I got the impression that was the whole purpose of the show.

It's interesting to go back and realize just how bad TV was during the 1970s....and how we just accepted it.