But wouldn't it be a lot of fun to spend $1.5 billion of someone else's money irresponsibly? I'd just have to pretend I was a hedge fund manager or the CEO of a large investment bank.
Greg RansomJanuary 21, 2009 at 10:25 am
The old Bill Clinton two step.
EcoDudeJanuary 21, 2009 at 10:29 am
I believe the difference is that a hedge fund manager can be prosecuted and imprisoned if convicted but a government economic advisor cannot.
SuperheaterJanuary 21, 2009 at 10:55 am
But wouldn't it be a lot of fun to spend $1.5 billion of someone else's money irresponsibly? I'd just have to pretend I was a hedge fund manager or the CEO of a large investment bank.
Yeah and people don't give their money to hedge fund managers at the point of an IRS levy AND bear a chance of reward. Goof.
Noob GoldbergJanuary 21, 2009 at 10:57 am
EcoDude: I believe the difference is that a hedge fund manager can be prosecuted and imprisoned if convicted but a government economic advisor cannot.
No argument about the lack of culpability for economic advisors, but unless you're completely incompetent as a manager you'd never face criminal charges as a Wall Street CEO. Transaction costs are too high and transparency is too low. I'll become a believer in that argument when I see Henry Paulson on the stand defending his actions at Goldman Sachs over the past few years. Hell, we can't even get Bernie Madoff in prison while he's awaiting trail for a self-admitted pyramid scheme; what luck are we going to have prosecuting the more vanilla incompetents?
The only glimmer of hope I see is that it's likely this episode may teach an entire generation or two to not trust the sharks on Wall Street and instead return to the old style of actually cutting back on expenditures to save for retirement utilizing safe bonds and savings accounts. At this moment, I'm not hopeful but we'll see what the loss of another few thousand points on the DOW over the next five years or so will bring. Maybe by 2014 we'll see this transition occuring.
Noob GoldbergJanuary 21, 2009 at 11:00 am
Superheater:Yeah and people don't give their money to hedge fund managers at the point of an IRS levy AND bear a chance of reward. Goof.
Which rock were you under during the month of September?
muirgeoJanuary 21, 2009 at 11:41 am
No irresponsible is what got us to this point. An 8 year period that saw the Dow go from 10,500 to 8,000 while the debt doubled and then some.
It is highly responsible to attempt to work our way out of this massive mess under the guidance of a consensus opinion of experts in economics and finance.
MnMJanuary 21, 2009 at 11:49 am
"the guidance of a consensus opinion of experts in economics and finance."
Posted by: muirgeo | Jan 21, 2009 11:41:16 AM
…what consensus?
muirgeoJanuary 21, 2009 at 11:53 am
And another thing… Wall Street was given the task of allocating trillions of dollars of other peoples money and minimizing their risks. They failed miserably… they failed far more then any government program EVER. They took a trillion dollars of assets and turned it into 40 trillion dollars of debt.
They took more out of your wallet and mine then the last 5 or even 10 years of federal taxes.
For every $1.5 billion dollars the government spends it has in the past and hopefully will again have a multiplier effect of as much as 1.73 X per year for each dollar spent. The libertarian economic philosophy has already gone down in flames and that's clear to everyone but libertarians still clinging to their failed philosophy. Obama's task will be to make this clear even to the most stubborn of hold outs. I relish the coming years debates as the stock market eventually returns to 10,000 and then 15,000 or more 8 years later.
MnMJanuary 21, 2009 at 12:37 pm
…muirgeo, your understanding of Wall Street is scant.
muirgeoJanuary 21, 2009 at 12:51 pm
…what consensus?
Posted by: MnM
This is just childish on your part. Austan Goolsbee, David Cutler, Jeffrey, Liebman, Jason Furman, Chritiana Romer, Timothy Geither, Lawrence Summers, Melody Barnes….
These people aren't qualified??? Which is claiming the right approach is to do nothing???
MnMJanuary 21, 2009 at 1:29 pm
Apparently you have problems with the meaning of words.
con·sen·sus (kən-sěn'səs)
n.
1. An opinion or position reached by a group as a whole: "Among political women .
Not all economists are in agreement. Larry White, Don Boudreaux and Russ Roberts are but a few that dissent. Are they not qualified?
You accuse me of childishness but display little maturity yourself. Why is that?
MnMJanuary 21, 2009 at 1:46 pm
Oops. I should have deleted the fifth line above. Sorry.
MorganJanuary 21, 2009 at 3:57 pm
Hmm. If $1.00 of spending by government produces $1.73 in economic activity within a year, whereas tax refunds only produce a multiple of 1.05, what tax rate maximizes after tax income for "the people"?
Assumption: government spends everything it collects in taxes – no more, no less.
After 5 years, personal after tax income is maximized by a tax rate of almost exactly 50%.
After 12 years, it's maximized at about 79%.
After 30 years, 91.5%
Of course, by paying 91.5% in taxes, you've foregone some consumption in the first few years, but you'll be glad you did. By year 30 the economy will have increased in size by 3 million times.
Go stimulus!
John DeweyJanuary 21, 2009 at 4:16 pm
noob goldberg: "to save for retirement utilizing safe bonds and savings accounts"
The DJIA was at $892 when I started to save for retirement, noob. If I had followed your current advice for the past 25 years, I'd have a third of the savings I have right now.
Yes, bonds should be part of every investors portfolio. But an all-bond strategy would reduce greatly one's standard of living in retirement. That was true in 1982 and it's still true today.
The libertarian economic philosophy has already gone down in flames and that's clear to everyone but libertarians still clinging to their failed philosophy.
This is a complete fabrication from the progressive/left/liberal community.
The Republicans went Keynesian long ago.
The most libertarian reforms actually
occurred under Democrats Carter and Clinton.
It's a shame you are unable to comprehend even the most careful explanations of libertarianism, but anyone who ascribes libertarian tendencies to any of the past GOP administrations (including most especially, GW Bush) is exhibiting a most serious intellectual deficiency.
"We're all Keynesians now.: RM Nixon
noob goldbergJanuary 21, 2009 at 8:05 pm
John Dewey: The DJIA was at $892 when I started to save for retirement, noob. If I had followed your current advice for the past 25 years, I'd have a third of the savings I have right now.
Yes, bonds should be part of every investors portfolio. But an all-bond strategy would reduce greatly one's standard of living in retirement. That was true in 1982 and it's still true today.
You're absolutely right, John, and I should have clarified my post. I suppose I'm (probably arrogantly) putting myself in the shoes of friends, relatives, and colleagues who have indicated to me that they view the stock market as sort of a magic ticket to a happy retirement. Take out a retirement savings loan, invest it into the market, and big-bang-boom, freedom 55.
I was simply indicating a need to return to basics: learn to effectively manage personal finances, take a portion of the surplus and accumulate it in a savings account, diversify that account into T-bills, or other guaranteed investments, and once you get used to that minuscule return, move portions of that into riskier asset classes with greater rates of return. Of course, appropriate balance between stocks, bonds, real estate, and other asset classes is the key.
I guess what I'm saying is that if you start out initially investing in the stock market during a boom, and making your allocations assuming a very large rate of return, you'll be very panicky when that bubble inevitably pops. However, if you've made your retirement plans (or investment plans) with a much more conservative expected rate of return utilizing a balanced portfolio, anything received over and above that during the boom years is a bonus; you'll still be okay if you have to undergo a few periodic market downturns.
Am I making any sense? Work left my brain a bit mushy this evening
BabinichJanuary 21, 2009 at 9:27 pm
muirgeo on Jan 21, 2009@11:41:16 AM
"It is highly responsible to attempt to work our way out of this massive mess under the guidance of a consensus opinion of experts in economics and finance."
The ones who helped get us in this mess, of course.
brotioJanuary 22, 2009 at 3:18 am
Mierduck has spent the last three months telling us that he's opposed to bailouts. Now we know conclusively that he was only opposed to bailouts because a Republican was President.
New President. More money going to the same people as before, but this time it's good. The One will make it so. All Hail King Obama! Long Live the King!
John DeweyJanuary 22, 2009 at 10:46 am
noob goldberg: " once you get used to that minuscule return, move portions of that into riskier asset classes with greater rates of return. … if you start out initially investing in the stock market during a boom, and making your allocations assuming a very large rate of return, you'll be very panicky when that bubble inevitably pops"
I agree that many less experienced investors were fooled by the high equity returns of the 90's and by the high returns of the past 5 years. But I would not advise a young person to place his first retirement investment in bonds.
My personal advice to younger folks would be to:
- start saving early in life;
- invest a high % in equities in one's 20's, 30's, and 40's;
- dollar cost average one's equity purchases (ignore booms and contractions and invest a constant or a continuously growing amount);
- diversify equity investment broadly (I've always used S&P 500 index fund);
- increase bond investments gradually after age 50, so that one's portfolio is about 50% in bonds by retirement age;
- maintain an safe emergency fund separate from retirement savings throughout one's lifetime.
I don't buy into that simple formula that one's bond investment share should equal one's age (i.e., at age 65 have 65% of one's portfolio in bonds). One half of a 65 year couple will likely live 25 more years. To me, accepting much lower returns for over two decades seems unnecessarily conservative.
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{ 21 comments }
But wouldn't it be a lot of fun to spend $1.5 billion of someone else's money irresponsibly? I'd just have to pretend I was a hedge fund manager or the CEO of a large investment bank.
The old Bill Clinton two step.
I believe the difference is that a hedge fund manager can be prosecuted and imprisoned if convicted but a government economic advisor cannot.
But wouldn't it be a lot of fun to spend $1.5 billion of someone else's money irresponsibly? I'd just have to pretend I was a hedge fund manager or the CEO of a large investment bank.
Yeah and people don't give their money to hedge fund managers at the point of an IRS levy AND bear a chance of reward. Goof.
EcoDude: I believe the difference is that a hedge fund manager can be prosecuted and imprisoned if convicted but a government economic advisor cannot.
No argument about the lack of culpability for economic advisors, but unless you're completely incompetent as a manager you'd never face criminal charges as a Wall Street CEO. Transaction costs are too high and transparency is too low. I'll become a believer in that argument when I see Henry Paulson on the stand defending his actions at Goldman Sachs over the past few years. Hell, we can't even get Bernie Madoff in prison while he's awaiting trail for a self-admitted pyramid scheme; what luck are we going to have prosecuting the more vanilla incompetents?
The only glimmer of hope I see is that it's likely this episode may teach an entire generation or two to not trust the sharks on Wall Street and instead return to the old style of actually cutting back on expenditures to save for retirement utilizing safe bonds and savings accounts. At this moment, I'm not hopeful but we'll see what the loss of another few thousand points on the DOW over the next five years or so will bring. Maybe by 2014 we'll see this transition occuring.
Superheater: Yeah and people don't give their money to hedge fund managers at the point of an IRS levy AND bear a chance of reward. Goof.
Which rock were you under during the month of September?
No irresponsible is what got us to this point. An 8 year period that saw the Dow go from 10,500 to 8,000 while the debt doubled and then some.
It is highly responsible to attempt to work our way out of this massive mess under the guidance of a consensus opinion of experts in economics and finance.
"the guidance of a consensus opinion of experts in economics and finance."
Posted by: muirgeo | Jan 21, 2009 11:41:16 AM
…what consensus?
And another thing… Wall Street was given the task of allocating trillions of dollars of other peoples money and minimizing their risks. They failed miserably… they failed far more then any government program EVER. They took a trillion dollars of assets and turned it into 40 trillion dollars of debt.
They took more out of your wallet and mine then the last 5 or even 10 years of federal taxes.
For every $1.5 billion dollars the government spends it has in the past and hopefully will again have a multiplier effect of as much as 1.73 X per year for each dollar spent. The libertarian economic philosophy has already gone down in flames and that's clear to everyone but libertarians still clinging to their failed philosophy. Obama's task will be to make this clear even to the most stubborn of hold outs. I relish the coming years debates as the stock market eventually returns to 10,000 and then 15,000 or more 8 years later.
…muirgeo, your understanding of Wall Street is scant.
…what consensus?
Posted by: MnM
This is just childish on your part. Austan Goolsbee, David Cutler, Jeffrey, Liebman, Jason Furman, Chritiana Romer, Timothy Geither, Lawrence Summers, Melody Barnes….
These people aren't qualified??? Which is claiming the right approach is to do nothing???
Apparently you have problems with the meaning of words.
con·sen·sus (kən-sěn'səs)
n.
1. An opinion or position reached by a group as a whole: "Among political women .
Not all economists are in agreement. Larry White, Don Boudreaux and Russ Roberts are but a few that dissent. Are they not qualified?
You accuse me of childishness but display little maturity yourself. Why is that?
Oops. I should have deleted the fifth line above. Sorry.
Hmm. If $1.00 of spending by government produces $1.73 in economic activity within a year, whereas tax refunds only produce a multiple of 1.05, what tax rate maximizes after tax income for "the people"?
Assumption: government spends everything it collects in taxes – no more, no less.
After 5 years, personal after tax income is maximized by a tax rate of almost exactly 50%.
After 12 years, it's maximized at about 79%.
After 30 years, 91.5%
Of course, by paying 91.5% in taxes, you've foregone some consumption in the first few years, but you'll be glad you did. By year 30 the economy will have increased in size by 3 million times.
Go stimulus!
noob goldberg: "to save for retirement utilizing safe bonds and savings accounts"
The DJIA was at $892 when I started to save for retirement, noob. If I had followed your current advice for the past 25 years, I'd have a third of the savings I have right now.
Yes, bonds should be part of every investors portfolio. But an all-bond strategy would reduce greatly one's standard of living in retirement. That was true in 1982 and it's still true today.
The libertarian economic philosophy has already gone down in flames and that's clear to everyone but libertarians still clinging to their failed philosophy.
This is a complete fabrication from the progressive/left/liberal community.
The Republicans went Keynesian long ago.
The most libertarian reforms actually
occurred under Democrats Carter and Clinton.
It's a shame you are unable to comprehend even the most careful explanations of libertarianism, but anyone who ascribes libertarian tendencies to any of the past GOP administrations (including most especially, GW Bush) is exhibiting a most serious intellectual deficiency.
"We're all Keynesians now.: RM Nixon
John Dewey: The DJIA was at $892 when I started to save for retirement, noob. If I had followed your current advice for the past 25 years, I'd have a third of the savings I have right now.
Yes, bonds should be part of every investors portfolio. But an all-bond strategy would reduce greatly one's standard of living in retirement. That was true in 1982 and it's still true today.
You're absolutely right, John, and I should have clarified my post. I suppose I'm (probably arrogantly) putting myself in the shoes of friends, relatives, and colleagues who have indicated to me that they view the stock market as sort of a magic ticket to a happy retirement. Take out a retirement savings loan, invest it into the market, and big-bang-boom, freedom 55.
I was simply indicating a need to return to basics: learn to effectively manage personal finances, take a portion of the surplus and accumulate it in a savings account, diversify that account into T-bills, or other guaranteed investments, and once you get used to that minuscule return, move portions of that into riskier asset classes with greater rates of return. Of course, appropriate balance between stocks, bonds, real estate, and other asset classes is the key.
I guess what I'm saying is that if you start out initially investing in the stock market during a boom, and making your allocations assuming a very large rate of return, you'll be very panicky when that bubble inevitably pops. However, if you've made your retirement plans (or investment plans) with a much more conservative expected rate of return utilizing a balanced portfolio, anything received over and above that during the boom years is a bonus; you'll still be okay if you have to undergo a few periodic market downturns.
Am I making any sense? Work left my brain a bit mushy this evening
muirgeo on Jan 21, 2009@11:41:16 AM
"It is highly responsible to attempt to work our way out of this massive mess under the guidance of a consensus opinion of experts in economics and finance."
What experts?
What experts?
The ones who helped get us in this mess, of course.
Mierduck has spent the last three months telling us that he's opposed to bailouts. Now we know conclusively that he was only opposed to bailouts because a Republican was President.
New President. More money going to the same people as before, but this time it's good. The One will make it so. All Hail King Obama! Long Live the King!
noob goldberg: " once you get used to that minuscule return, move portions of that into riskier asset classes with greater rates of return. … if you start out initially investing in the stock market during a boom, and making your allocations assuming a very large rate of return, you'll be very panicky when that bubble inevitably pops"
I agree that many less experienced investors were fooled by the high equity returns of the 90's and by the high returns of the past 5 years. But I would not advise a young person to place his first retirement investment in bonds.
My personal advice to younger folks would be to:
- start saving early in life;
- invest a high % in equities in one's 20's, 30's, and 40's;
- dollar cost average one's equity purchases (ignore booms and contractions and invest a constant or a continuously growing amount);
- diversify equity investment broadly (I've always used S&P 500 index fund);
- increase bond investments gradually after age 50, so that one's portfolio is about 50% in bonds by retirement age;
- maintain an safe emergency fund separate from retirement savings throughout one's lifetime.
I don't buy into that simple formula that one's bond investment share should equal one's age (i.e., at age 65 have 65% of one's portfolio in bonds). One half of a 65 year couple will likely live 25 more years. To me, accepting much lower returns for over two decades seems unnecessarily conservative.