The Capitalist Maven

Here’s a great YouTube video montage of C-SPAN clips. Certainly seems to be at odds with what you hear on the news. Republicans actually were calling for more regulation of Fannie and Freddie but their attempts were blocked by key Democrats, including of course Barney Frank…

Be sure to watch all the way to end for a clip where Bill Clinton agrees with the Republican attempts to regulate Fannie and Freddie and criticizes congressional Democrats for blocking the new regulation.

Jon Economy

While I commented previously on how I agreed with the previous Bear Stearns and AIG bailouts, the latest $700 billion bailout is a new breed (2.0) of bailout.  What’s different this time around?  It’s not clear what the government is buying and it seems that this time they won’t be getting a very good deal.

Last night Larry Kudlow of “Kudlow and Company” described the importance of market based pricing for the so called garbage securities.  That if the government steps in and creates a market, the market players will work to fairly value these securities.  Contrary to popular belief, the distressed securities have a value greater than 0 but exactly what that value is is quite difficult to determine.  Introduce a capitalist market for valuing and trading these securities and we can be sure they will be fairly valued.

Government is known for it’s ability to overpay.  Everybody has heard of the $800 hammer.  Our government clearly lacks the ability to value things appropriately, why will it be any different this time?

Jon Economy

Great video from Minyanville dealing with the recent uproar around shorts…

Jon Economy

I’m sure you’ve seen the headlines by now: “Government to spend $1 trillion taxpayer dollars to bailout Wall Street.” Yeah it’s a great attention getter but does not in anyway accurately portray the actions of the Treasury or Fed. Let’s rewrite this headline more accurately. “Government invests $1 trillion in Federal Reserve loans to Wall Street firms suffering temporary liquidity problems”

Let’s put this in terms that even a media person can understand. Suppose you were in a foreign country and you needed money for a taxi to get to the airport and catch your flight home. Unfortunately since it is late in the trip, you have run out of local currency. So you whip out your credit card and get a cash advance. Were you bailed out by the credit card company? Seems like it, until you get the bill, since you just borrowed some money that you’ll have to pay back + interest and fees. You were suffering a temporary liquidity problem and the credit card company “bailed you out.” Did your credit card company do it out of the goodness of it’s heart? No it did it because it was going to make money on the deal, plus it gets to keep you as a happy fee paying customer.

Now back to the government actions. AIG needed some money to cover a cash shortfall. Since it’s unlikely they’ll be able to pay it back soon, nobody wanted to lend to them. Enter the Fed. They’ve got lots of money, since all they do is lend money and not are not accountable to shareholders and quarterly reports, they don’t really care how long it takes to pay back. AIG is really desperate. So Hank Paulson, being the capitalist that he is, senses this and says, “You’ll have to pay us 11% interest and give us 80% control of your otherwise profitable company.” Since AIG is between the proverbial rock(bankruptcy) and a hard place(Hank’s deal), they choose Hank’s deal (grudgingly I imagine).

While this free market capitalist would rather have the government not engaging in buying up private companies, this deal simply seems too good to pass up. Why the media fails to see this, I have no idea.

Jon Economy

Over the weekend on my bachelor party, one of my friends while lamenting some losses at the blackjack tables, commented about how he is saving for his new baby’s college.  He is a lawyer and makes pretty good money, his wife is an engineer and also makes decent money.  He said he is contributing $500 a month to his daughter’s college fund.  He recently discussed with his financial adviser that he probably needs to be contributing $1000 a month, otherwise it is only likely to be enough for state schools.  This is for one child!

Well I looked up it up and found a calculator on MSN Money.  This adviser is correct.  If you intend to save enough to send your new baby to a private college and start today you need to be contributing $1000 a month.  How many people do you know that are putting this much away for their children’s college?  My guess?  Not many.  People complain about spending an extra $50 a month on gas and you think their going to put away $1000 month into college savings?

Something has got to give.  When I went to college there were basically 3 groups.  Those whose parents were poor and got to go for free, those who were “rich” and parents paid the bills, and those stuck in the middle that ended up with gigantic loans.  It seems like the third group will be greatly expanding in coming years as the “rich” no longer have enough saved.

When it comes to college costs its evident that the law of unintended consequences is in full effect.  When government attempts to make college “affordable” for everyone, it just makes it more expensive for everyone.  Basically those who meet the government requirements get to go, but those just outside the income guidelines often get left behind as the costs have gone up so much.  Just like the housing bubble, the supply of easy money for student loans has contributed to a run up in costs.  Perhaps some day if the supply of easy money runs out and enrollment falls, colleges will be forced to tighten their belts.  For our children’s sake we can only hope.

Jon Budget

This past weekend I traveled to Niagara Falls, Ontario for my bachelor party.  A visit to Niagara Falls has become tradition in my group of friends as we get married off.  Five years ago this destination was a premier spot for east coast gambling but lately it’s definitely not as special in that respect.  Lately I think the only thing keeping the place in business as a bachelor party destination is the local strip club, Sundowner.  I’ll leave it up to reader to find out more about Sundowner but suffice it to say it’s good enough to keep us coming back to this increasingly less desirable location.

The weekend got off to a good start, with my flight departing BOS right on time and landing in Buffalo, NY ahead of schedule.  Since my brother and friends were driving up from Pittsburgh and were running late, I was going to head straight to the airport bar.  Unfortunately due to the rain in BUF, they took my carry-on which was gate checked onto the regional jet straight to the baggage claim, meaning that I had to leave the secure area and lose access to the bar.  Doh…

So I got my luggage and proceeded to the bus stop hoping that I could find some information on where I might take the bus to grab a beer and kill some time.  At the bus stop, some friendly Buffalo residents directed me straight across the parking lot.  I’m not sure if I found the bar they were directing me to but I did find one particularly uncrowded “bar” which was more of a sandwich shop.  I grabbed a beer and watched some TV.  I ended up talking to the old guy cleaning the tables.  He had some great info and economic theories on the problems with the local economy.  Particularly why Niagara Falls, NY is not nearly as successful as Niagara Falls, ON.  The Indian Casino in NY has little interest in developing the region, it wants to take money in and keep it there.  In ON, the state run casinos have an interest in developing the community.  Curiously though, the NY casino does provide a better experience for the gambler, nearly all the Canadians we talked to seemed to like the Seneca casino better.  In other words government excels at building the community while free enterprise excels at building business.

After an uneventful border crossing we arrived at the Embassy Suites.  Never having stayed here before, we left the car with the valet which ended up costing $20 a night, later we learned that we could have just parked at the casino across the street for $10 a night.  Additionally it would have been far more convenient to avoid the 15 minute wait for the valet to fetch the car.

We pounded a few beers that we picked up at the duty free shop and headed to the casino.  $25 was the minimum bet at all the tables.  Our small bankrolls did not allow for realistic play at such high limits so one of my friends had a great idea.  Pool our money and then have one person play, effectively playing $6.75 per hand.  Our friend playing got on a pretty good streak and managed to win $200 in the first chute.  We told him to quit and each took our $50 home.  A good first night.

We played golf the next morning, then hit the casino again in the afternoon.  After taking a cab to the older casino, we managed to locate minimums to our liking.  I won another $100 on the Craps table, after a very dramatic run as some eccentric guy in sun glasses hit 5 numbers on the Fire Bet.  I quit and just hung around playing some video poker here and there while the other guys finished up.  We went to the Wild Mushroom across the street for a $19.95 pizza and pitcher special, which honestly is about the best deal you’ll find in Niagara Falls, ON.  Surprisingly though, the place was dead.  The old casino just isn’t as popular with the younger crowd.

After a quick stop back at the hotel, we grabbed a cab to the Sundowner.  Traveling down Lundy’s Lane is an interesting experience.  For a good stretch it’s pretty much a red light district, with clubs and adult stores.  There is a virtually continuous stream of cabs from the strip to this section of Lundy’s.  Seeing all the cabs streaming down makes you realize that despite it’s seedy nature, this is the place really keeps Niagara Falls in business amongst the young male crowd, not the casino.  The Sundowner really is an experience that is unavailable in the states.  We had a great night…

Sunday morning we dragged ourselves out of bed in time for checkout and attempted to find some food.  We ended up at Al Mac’s $6.99 breakfast buffet.  A great deal right?  Well the food was ok, about what you would get at the $6.99 buffet in the US, but then we get the check.  Drinks were $4 each!  We should have known when the waitress said “We don’t serve tap water.”  Oh well, lesson learned.  Hopefully now you won’t fall for this trap either.

I arrived at the airport a good bit early, so I asked them to move to some earlier.  I moved up to the 3:00PM non-stop to Boston, no charge due to my Silver status with US Airways.  I can’t speak enough for the difference that having preferred status makes in air travel, it’s really worth picking an airline and sticking to it to work towards status.  I then proceeded to the US Airways Club Lounge to use my free day pass they sent me 2 weeks earlier.  It was a great experience.  While I don’t fly enough to justify club membership, I can certainly see the value in it to someone who flies more.  Since it didn’t cost me anything, I was quite pleased.

I got back to Boston almost 4 hours early.  All in all, a great trip.

Jon Off topic, Travel

While this is somewhat old news on the deals front, I haven’t yet mentioned it.  Microsoft’s Live Search is offering some pretty good cashback deals for online shopping.  Their merchant list is very good, though they are missing the travel sites (Priceline etc.) which is why I haven’t tried up until this point.  I recently ordered a scanner from Newegg.com and figured now would be a good time to try Live Search since they are offering 3% back vs. Fatwallet’s 1%.

I registered for the cashback program at search.live.com and found my scanner through Live Search.  I clicked on the link and then went to Newegg to complete my purchase.  Sure enough 15 minutes later I have an e-mail from Live Search saying I have earned cashback.  Very Nice!

It remains to be seen how long the cashback levels stay as high as they are.  If they stay high for a while there is no doubt it will become very popular.

Jon Deals