Friday, December 18, 2009

Merry Christmas

I lied. I had to write another blog before the end of the year, particularly because of what's going on in D.C. with TARP money.

Treasury guru and tax cheat Tim Geithner is proudly puffing his chest proclaiming victory, as bank after bank lines up at the door to pay back TARP funds they received earlier this year. After all, this prevented a meltdown of epoch proportion and saved us all from financial ruin. And banks have stepped to the plate by paying us back, right?

Hold on Timmy. Let's re-visit the whole TARP debacle in the first place.

Those funds were issued to save failing banks and prevent insolvency, so in that respect, yes, the financial system was saved. Additionally, consider the fact that the FDIC is unable to make good on the deposits at Citi, Wells or Bank of America should one of them collapse. In this sense, TARP prevented the treasury from having to loan the FDIC another $500 billion (adding to our debt, of course.)

However, TARP funds were explicitly given to stimulate the economy through one of two methods. Banks were supposed to use the money to LEND - both to businesses and consumers. That ain't happening. The other proposal was to have banks use the funds to write off the debts as bad debts and start from scratch. That isn't happening either. If you have any doubt, just see how many foreclosures are going on nationwide and business closing are occuring.

In short, banks aren't lending anymore today than they were a year ago.

Instead, banks used the funds to prop up their balance sheets, or in some instance (cough...cough... PNC) buy weaker banks at a 0% interest rate.

Now the banks are proudly stepping up to the plate to payback those funds! Yippee skippy! This is good, right?

Maybe not. The reason Citi, Wells and BOA are so happy to payback the TARP funds is because if they don't, they will have their compensation capped. (cue 'crickets chirping in background noise' here....)

Yep. We're passing legislation that caps compensation to firms that accepted TARP or TALF monies. So what is any good CEO and/or board of directors to do? Pay the damn loan back, that's what! Otherwise, bonuses become obsolete and second homes need to be sold, girlfriends need to be dumped and yachts need to be crashed into the rocks.

So Citi and others are paying at back. They're doing it, of course, by issuing more worthless shares of stock that for some reason, investors are purchasing. Can't anyone read a balance sheet anymore and realize that banks are supposed to make money by making loans? Think about it for a minute. If Krispy Kreme stops selling donuts, is their stock worth very much? So why would BOA, Wells, etc. be worth anything if they aren't making quality loans or they haven't written the bad loans off and basically started over?

The irony, of course, is that we still proclaim victory and that the banks are acting admirably. That's crap and everyone knows it. Tax payers gave them free money for a year and now that they are demanding retribution, the banks are more than ready to give something back to the community. Give me a break.

Please do me a personal favor this Christmas. Take a small sum out of your large bank (if they accepted govt. money) and place it in the local bank that actually knows your name and address - one that didn't accept funds from Tim Geithner. You know the one. The bank president probably sits next to you at church or your kids plays soccer with the VP of lending's kid on Saturday. Stick it to the big banks.

Now they want to take the extra $200 billion and create jobs. Here's a novel concept. Give it back to me and my buddies who fronted it in the first place. Best estimates show that about 150 million of us pay taxes annually. Split the $200 billion up and mail us each a check. That way all of us would get a NON-TAXABLE check for about $1300, or $2600 for a married couple. It's our money anyway. Imagine how far $2600 would go for your family. I know ours would enjoy a much merrier Christmas, as we'd... GASP.... SHOP. Stimulating the economy on our own without the help of D.C.

This is bad, folks. Even for a professor who is supposed to be enjoying his month vacation. My blood pressure is almost above normal which isn't good for a guy that's trying to be Jimmy Buffett.

Tuesday, December 1, 2009

Holiday Cheer

Just a brief update from the blog-o-sphere. I will be taking the month of December off to regroup (yeah, like I need THAT!)

In any case, you can always reach me via email or cell phone if you need me.

Happy holidays to everyone.

Christian

Monday, November 23, 2009

Let's See How Far We've Come

I confess. I'm a Matchbox Twenty kinda guy. You know the type - not real macho, but someone who likes a neat little hook, some guitar and inspiring lyrics. Thus the reason for the blog this week.

This past weekend I found myself in Washington, D.C. with the family and some friends. We did the whole sight-seeing thing (on our own since I used to live there and am not intimidated by the traffic, the trains, etc.)

Somewhere between the Lincoln Memorial, The Capitol Building and the Vietnam War Memorial I couldn't help but begin singing the words to "How Far We've Come" by Rob Thomas and the boys. If you aren't familiar with the lyrics, the chorus is pretty simple:

"let's see how far we've come, let's see how far we've come.... " The verses basically talk about wondering if things will get better, blah blah blah.

You get the point.

But standing in the elbow of the Vietnam War Memorial (the 'V' portion) and looking at the Washington Monument, The Capitol and Honest Abe, I really need to ask: Have we come far at all?

The Wall is amazingly simple, elegant and breathtaking. Total silence comforts strangers walking along the worn path as they examine row after row of names - all of whom died fighting the war. Flowers are left near names, a report card from a grandchild rests below the section containing a grandparent who never made it home and countless unopened letters line the walkway. It's humbling.

Somewhere we got lost.

Today we're a nation going backwards with no direction. Worse, I am going to argue that we have no leadership able to find our direction. In short, we are divided and I don't see anyone capable of stepping up to the plate who can motivate, inspire and act in the best interest of the majority any longer. That's called leading.

So I have to answer Matchbox Twenty's question "let's see how far we've come" by the only response I know:

We need to look in the rearview mirror often for guidance, even if we are attempting to lead forward. Otherwise, lessons will be forgotten and mean nothing. We haven't come far at all. In fact, we've drifted slowly backwards into somewhere I don't want to be now...or ever, for that matter.

Tuesday, November 3, 2009

Tax is a dirty word

Well it's official - the state of Pennsylvania LOVES to tax its residents. One type of resident, however, seems to pay more than others. That resident is one who participates in 'sins,' like drinking (Allegheny County has a special drink tax to fund public transportation) smoking (currently about $2.45 per pack in PA) and gambling. MAdditional legislation is being proposed in Pittsburgh to tax gambling profits more so that the city can balance the books.

One sin flies under the radar, however, and it's actually worth examining - pornography.

It certainly makes one stop and ask why, doesn't it? After all, we're more than happy to tax smokers until they are literally blue in the face, and taxing adult beverages hasn't hurt profits or the number of drinks ordered. Doesn't it stand to reason that our society's appetite for pornography would remain consistent even with additional taxes?

Come to think of it, doesn't it make sense that the adult entertainers might actually be required to pay a portion of their hourly rate and claim 'tip' income, similar to my favorite waitress at Susie Q's?

While I'm no proponent of paying taxes, this industry has gotten a free pass too long and instead of burdening industries that are already paying more than their fair share, like bars and restaurants, shouldn't another industry shoulder some responsibility? Particularly when that industry likely serves alcohol and allows smoking?

So why don't our legislators touch this proposal with a ten foot pole (pun intended?) Only Senator Jane Orie, a Republican from McCandless, has attempted to tackle the debate so far, and she is getting no traction whatsoever.

As a free market thinker, it seems to me that our legislators are sending a clear signal that rather than stimulate the economy with tax paying businesses like restaurants, casinos, service companies, etc., they are suggesting it makes better business sense to get into the pornography industry. After all, it's basically a tax free business that has proven to be recession-proof. What kind of message is this? The industry is likely responsible for as many marital conflicts as drinking problems, gambling problems, etc., so if that's the hurdle to be classified a 'sin,' pornography definitely fits the bill.

It's got to be more than that. Perhaps our legislators have friends that run in these circles and contribute to not only their personal campaigns, but their personal entertainment as well. Who knows.

In any case, this is actually one tax I'd support completely, as it would actually legitimize the business, its participants and those who enter the darkened-doors.

Tuesday, October 27, 2009

Oh behave!

Good news coming out of Washington! Apparently there is no inflation and things aren't costing more.

What? Does anyone in Washington purchase their own food, gasoline or healthcare? I forgot - those expenses are covered by lobbyists.

On a serious note, the CPI is down about 1.3% compared to a year ago, meaning that goods or services that cost you $10 a year ago now cost about $9.87. So what's the real story?

Behavior finance and economics suggests that most consumers feel pain more vividly than they feel joy. Basically, we like to avoid losing money more than we like making the same amount of money, even though 'old school' economics teaches us that consumers seek to maximize their pleasure, or 'utility.'

Former Wimbledon champion and tennis great Ivan Lendl perhaps said it best when he was quoted saying "I hate losing more than I like winning." Remember, this is coming from a guy who used to win all the time.

We drive around searching for gas that is $2.72 per gallon instead of $2.75, but won't cross the street for cheaper gas that's $2.08 instead of $2.11. Why? It's a better bargain in the second scenario, after all.

The applications for the economy are far-reaching. We see gas prices going up, but forget that they are down 30% from a year ago. That doesn't offset the 29% increase in prices of fuel over the past six months. We have short term memory, and the figures seem to support behavioral theory. Consider the following (yes, I'm keeping the math simple because it's early and my brain isn't working too well yet)

Assume that gas a year ago cost $3.00 per gallon. A 30% drop in fuel would mean that gas costs $2.10. WOW! That's signficiant. Oops. Now gas goes up 29%, resulting in a new cost of $2.71. Yikes! That hurts, even though it's still less than the original starting point of $3.00.

The same calculations can be applied to the stock market. Assume your retirement plan had $50,000 a year ago and the market lost 25%. You'd be down to $37,500. It takes a 35% gain this year to get back to square one. Sadly, this is what's been going on with investments the past two years, creating opposition to something called the wealth-effect. In short, if consumers feel wealthy (good returns on their 401k, appreciating values on their homes, lower unemployment figures, etc.) they are more likely to spend. There hasn't been much good news or even 'paper returns' to allow consumers to feel wealthy - even a nice return in the market the past six months.

To further support this 'behavioral stuff,' as my wife calls it, consider an even-money bet. Let's say I flip a coin and we bet $1. If it comes up heads, I win $1 from you. If it comes up tails, you win $1 from me. Easy enough? We know that most people would take the bet. What if I won two straight times? Three times in a row? How about four or five?

What if I make the bet $10 per flip, or even $50? At what point do you jump off and act out of 'fear' rather than rationality? We allow the dollar amount to skew our ability to judge. Don't worry, I'm guilty of this too. Studies have shown that when the bet goes to $100 per flip, most folks would demand payment of $160 if they win. I'm not about to take the other side of that bet anytime soon, by the way.

See what I mean? We're easily tricked by math and to be frank, it stinks. I fall for it all the time and I study this junk!

So sit back, relax and take consolation in the fact that you are paying less for things today than you were a year ago while you're driving around looking for the cheapest gas station around.

Thursday, October 15, 2009

Lining the litterbox with Time

I promised my doctor that I would keep my blood pressure in check, yet Time Magazine continues to get those numbers well above the 120 over 80 requirement.

In the most recent edition, Time suggests it's time to eliminate the 401(k) plan and instead, re-institute pension funds from corporations. The writer is Stephen Gandel, who apparently is not certain what direction to go. Please let me explain.

While Time is entitled to their opinion and Mr. Gandel entitled to his own, it seems to me that once your opinion is formulated and you've spent, oh, I don't know, twenty years or so writing about financial issues, you should have a pretty clear idea of where you stand.

Apparently Mr. Gandel has difficulty in that arena.

You see, he writes in the most recent article that the 401(k) has been a debacle, serving no one and simply creating fatter paychecks for executives. He attempts to site a simulation run by T. Rowe Price as an example of searching for an optimum portfolio, but doesn't give any clear indication of the results other than a fancy "most of the time the market goes up slightly. But some years - KAPOW - stocks and bonds do spectacularly poorly." Big word there, Mr. Gandel.

Especially coming from a guy that only three years ago suggested that 401(k) contributions were the smartest thing an individual consumer could make. That's right. Our beloved Gandel wrote that it would be wise to "contribute as much to your 401(k) that the employer will match." In short, he summarized a 401(k) contribution as a smart thing to do in an interview with http://www.first30days.com/

If you'd like to read his jibberish or need proof, please click here:

http://www.first30days.com/smart-investing/articles/stephen-gandel-on-smart-investing.html

Please also note that he thinks sometimes we need to "trick people into investing." Lucky for us he's writing for Time, eh?

No, Mr. Gandel. The answer is the same as it's always been. Small, regular contributions to a self-directed retirement account, with most of the contributions going toward stocks and growth while one is young, and then gently moving toward bonds and money markets as one gets closer to retirement is the best bet. Always. Prove otherwise if you don't agree.

A simple rule of thumb to follow is put your age into bonds (as a perecentage.) For example, I am 40 in December (ouch) and should have 40% of my retirement contribution going toward bonds funds and others 'safe' investments. No more than 10% of my portfolio should have my company's stock in it, by the way.

I ask each of you to call Time (their email is down) and ask them to begin behaving like a real magazine rather than allowing some journalistic hack like Stephen Gandel change his spots "Time and Time" again. Pun intended.

Saturday, September 26, 2009

Answer truthfully.

Who can you name first, the Federal Reserve Chairman or Brad Pitt's wife?

That's what I thought. And while you're at it, why don't you take some time to explain to me the inner-working of the Federal Reserve system, like the number of branches it has, who the board of governors are and the primary role of the Federal Reserve. Psst. By the way, it is NOT the job of the Federal Reserve to insure your money at the bank. That's the FDIC, who we will mention later.

Not many Americans get beyond answering Angelina Jolie, by the way. Which is deliberate in design in my opinion.

After all, if you ran an organization that was created by Congress but wasn't responsible for opening its' books for audit, would you be in a hurry to make the organization well-known? That's exactly what are friends at the Federal Reserve are suggesting, by the way, when they appeared earlier this week in front of the House Financial Services Committee. The committee is suggesting the Federal Reserve open the books for an audit conducted by the GAO (General Accounting Office.) After all, it is our money and we would like to see exactly how it's being spent from time to time. And yes, I agree with Barney Frank on this one. Representative Frank is proposing this legislation.

The prevailing mentality seems to question what the Fed is hiding and why they don't want to open the books up for review by the very body that created their existence. Our friends at the Fed maintain the position that theirs "is a politically neutral position" and any dabbling in the books would have an adverse impact on the economy.

Psst. Excuse me, Mr. Bernake? Take a look around. The economy already is in shambles and by the way, I pay your salary and am your boss. Remember that Obama guy who re-appointed you? Yeah, well Joe Taxpayer voted him in and it's his job to make sure you're doing things right.

My thoughts? It's deeper than that. And at the risk of getting too technical, I'm going to tie-in previously mentioned FDIC (Federal Deposit Insurance Corporation) and our friend Shiela Bair. You're going to be hearing a lot from Sheila in the coming months, so I'd get used to hearing her name. She runs the FDIC, which is an insurance company in place that allows us to feel safe and secure knowing our money will be paid back to us if our bank should fail. The banks fund the insurance policy through their membership, and the organization was created in response to the great depression rush on the banks. Naturally the thought process was to avoid another run on banks when depositors felt unsure about their bank's stability.

Guess what, folks? They are running out of money at the FDIC. Sheila and her group had a balance of just over $45 billion in June of 2008 according to Fortune Magazine. As of close of business June of this year, the balance clung to about $10 billion. Gulp.

And with more banks set to fail (to date the FDIC has allowed 94 banks to fail this year and 25 last year) the FDIC is getting precariously close to the edge of needing it's own bailout. By the way, the FDIC has a list of over 400 troubled banks that could go under at any minute.

Shazam! Flash back to our friend Ben and his merry men at the Federal Reserve Board. The Fed has extended an open line of credit for up to $100 billion to the FDIC in case of emergency (think of it like a Visa card for you and a credit line of $1 million.) Additionally, new legislation passed this year allows the FDIC to hit that line for up to $500 billion in an extreme emergency. This is the same Fed that gave bailout funds, er, I mean TARP funds to banks like PNC so that they could buyout ailing banks at a 5% rate. Banks like National City, who otherwise would have already imploded and further hit the FDIC wallet, further reducing that $10 billion balance. Odds are good there's another bank of significance on the brink (Cough Cough... Citi....)

So back to our beginning question and resulting debate: Why is the Federal Reserve really afraid of opening up its' books and allowing the General Accounting Office to take a peek under the hood? Could it really be to avoid political bias, or could it be more a reason of fear. Fear that there is no oil in the engine, the battery is dead, the brake lines have been cut, the transmission is leaking and oh yeah, by the way, it's out of windshield wiper fluid too. I propose the latter.

One final note to ponder, and then I'll let you go this fine morning. The Federal Reserve raises funds through auctions of Treasury Bills and notes, also known as DEBT. You issue debt when you don't have enough money to meet short-term expenses. Joe Taxpayer is footing the bill for this.

Let the banks implode. Get rid of the Federal Reserve and let the FDIC figure it's own way out of this one. Enough of the fiscal parenting for lousy monetary policies. Let's get back to basics and provide budgets that are real and attainable and a government that is there to merely implement the will of the people.

I can't believe I actually agree with Barney Frank!

Saturday, September 19, 2009

Banking on our uncertainty

In an story that caught about a ten second blurb this week on Friday morning, the Federal Reserve is working on a plan to not only monitor pay compensation but also one that will allow the Fed to adjust or change the pay practices at Wall Street financial firms. Not just firms that accepted bailout funds, but any financial firm that the Fed deems necessary based upon the firm's excessive risk-taking practices. Also note that the language does not simply limit the pay for executives at the firm. It has the right to limit the pay to anyone that works at the firm according to a Wall Street Journal report.

Excuse me, comrade?

Where does one begin in an attempt to shoot holes in this idea?

Perhaps the easiest target is the Federal Reserve itself. You know the group, right? The same group that sets interest rates in order to manipulate the economy, avoiding recessions, inflation, speculative practices, steering the U.S. to continued economic prosperity and ensure that banks continue to lend to businesses and indivuals that deserve a loan. How's that working so far, Mr. Bernake?

Maybe it's better to look at the Fed based upon the past. The same history that gave former Treasury Secretary Hank Paulson a blank check to bailout Wall Street firms (of which I was critical, I might add.) The same history that kept interest rates artificially low for too long in order to allow the gluttonous behavior to continue. The same history that took budget surpluses at the end of the 1990's to a whopping $11 trillion debt. Again I ask, how's that working?

Consider the impact of keeping overnight rates at 0% (not a typo) since December of last year and no sign that they are going up anytime soon, and then asking a banker to not take some risk with 'free' money. Oh yeah, while you're at, throw in the fact that the Fed is asking banks to make loans to get the economy rolling.

Oh, maybe I'm being too harsh.

Surely there's some good, right?

Ah yes, the same Federal Reserve that has partnered with ACORN since 1977 to enforce bank compliance with the Community Reinvestment Act. In mortgage land, CRA loans (as they are called) are also known as 'subprime' mortgage loans to folks that generally would not qualify for a home based upon credit or ability to repay. How's that working?

To be fair, I hate the banks. Ask any of my students, and they will tell you the adjectives I use to describe most bankers are "lazy, fat and boring. And lazy. Did I mention lazy?"

But to be true to my roots, I also believe in capitalism, entrepreneurial spirit and the corporate structure. If a publicly traded bank like, oh I dunno, Bank of America, wants to make loans it thinks will perform and reward shareholders, shouldn't they be allowed to do that? After all, it's their job to maximize shareholder wealth - not anyone else's wealth. SHAREHOLDER wealth. If the shareholders think the CEO and board are doing a lousy job by taking too much risk with too little potential return, they can (and often will) fire the CEO and replace the board.

Similarly, if the U.S. government wants to get into the banking business, they have two ready-made platforms to execute that plan while remaining outside the circle of overseeing pay for private firms. Maybe the names Fannie Mae and Freddie Mac ring a bell in your head. If the Fed wants to be in banking, turn Fannie and her brother Freddie into large national banks that are required to adhere to strict compensation, risk and corporate management guidelines. Make them play by the same liquidity rules as the other banks and let all of the banks duke it out. Guess who will win, comrades? Yep. You, me and cousin Vinny due to increased competition and a level playing field.

What's next? Will the Fed determine it's their job to monitor and adjust the pay for professional athletes? Does Big Ben really deserve $110 million to throw a football? After all, he's taking a LOT of risk going out there against 330 pound men eager to rip him to shreds. Maybe they will think that doctors should only earn "X" per year regardless of their specialty, or that accountants cannot earn more than "Y." The system is already in place around the country in the form of government pay scales and in many instances labor-contracts, which primarily exist between governments and their employees, the exceptions being large unions like the auto-workers, mine workers, steel workers, etc.

Farfetched? We already have a minimum wage. Doesn't it stand to reason there could be a maximum wage? And while we are accustom to having a minimum wage to assist those with few valuable skills and protect workers from abuse, how does it feel knowing the shoe could be on the other foot, limiting your skills and placing a maximum value on what you have to offer? It's not as crazy as it sounds, folks. And it's happening and a rapid pace.

I'm not in the predicting business, but here's one for ya.

There are going to be three very large national banks in the next three to five years that are entirely government run. Their names are Bank of American, Chase and Citigroup. They will be merged and monitored by Fannie Mae and Freddie Mac, who will report directly to the Federal Reserve Board. The Federal Reserve Board is going to become a fourth branch of government.

Hold onto your wallet and get out your voter card to make sure it's still either Republican, Democrat, Independent and not Socialist or Communist.

Saturday, September 12, 2009

Takin' care of business

Have you hit the skids yet? After all, the kids are back at school, school buses are clogging up the highways and nights are getting longer. Sometimes just for kicks my wife and I will hang out on the porch when it gets dark early and pretend that it's still summer. It's not, of course, but pretending is fun.

Pretending is not fun, however, when a business is at risk of making game-changing mistakes.

A business owner recently called me and asked for my evaluation of their current cashflows so I rolled up my sleeves and dug into some antiquated spreadsheets about customers, an unaudited profit and loss statement and an unaudited balance sheet. If those three things sound sorta, you know, casual, it's because they are. In short, it's like keeping your checkbook balance on a paper napkin or a grocery receipt.

Regardless, I did my best and came to the conclusion that only about 30% of the business promised to him by his customers actually resulted in a sale, yet the staff had to go through about 80% of the promised business. They were spending a ton of time working on potential sales that would never transpire, as history showed that the customer-base failed to deliver most of the time. Of course, there were a few notable exceptions, which I pointed out in my moderately formal report back to the client. The staff was frustrated because they felt like they were working too hard and too long. And they were correct. Unfortunately the company was not profiting from their efforts.

Upon delivering the report, I followed-up with a phone call and a lengthy discussion in order to point out some significant cost saving measures. The culmination of the call came when I suggested something radical - eliminating over half of his customers and focusing on the remaining customers that could deliver promised sales on a fairly regular basis. A final suggestion was to perhaps remove one or more of the positions that served the customers since there would be far fewer potential sales to screen in order to get to an actual sale.

To say I was pleased with my findings, both quantitative and qualitative, would be an understatement.

"Christian, I see your point but I'm thinking of adding staff so that we can hit the break-even point," was his response.

(Crickets chirping here, please.)

"Chris, are you there?"

It's as if my hard data and suggestions weren't even heard or acknowledged, and in fact, I was living in opposite world. I had suggested firing clients and staff, focusing on the core business and streamlining things - not taking on additional payroll, headaches and a bigger nut to crack.

Pretending is not a good option if you are a business owner. In fact, it's not a good option for anyone (unless you are a girl pretending to be a fairy princess or a kid that wants to throw the winning touchdown pass in the Super Bowl.)

But we all pretend, don't we? We pretend that a relationship that has been horrible for twenty years is going to change, or that a job we hate will change once the economy turns around or perhaps a child/loved one that has been a hell-raiser will finally come around.

In relationships we call this 'vested,' or in poker we call it 'pot-committed.' In short it means that emotionally it's too hard to remove ourselves and it seems the only logical thing to to is see it through the (already known)outcome.

As a business owner, it's imperative to never become enamored with an idea that stops working or your 'baby.' Focus on the bottom line and once it goes to red, get out immediately.

GM, Chrysler, National Record Mart, Asbestos, Polaroid One Shots, typewriters and carbon copies were all great ideas too. Now they are all either firmly planted along the landing strip of business progress or approaching quickly. Sometimes (most times) technology impedes our ability to keep doing the same thing and make the same profits. The runway is covered with failed landing attempts.

Recognize when the business changes and prepare to make drastic changes to meet the challenge, or prepare to close shop. Those are the only alternatives in business, and in life, actually.

I have a friend that says "if I have to kiss a frog, I kiss the frog and move on."

I urge each of you to find the frogs remaining in your life, kiss them goodbye and move on. Only princesses get to kiss frogs and have them turn into a Prince.

Monday, September 7, 2009

Labor of love

Happy Labor Day folks. The deliberate writing and delivery of this blog indicates that while I appreciate the day off, I probably don't need it right now. After all, the kids have been in school exactly one week, I've been working exactly three weeks and football season hasn't even started so there's no reason to need a Monday off right now. But I digress.

At the risk of becoming one of those nasty, right-winged, hatred filled, venomous fear-mongers, however, I think a few minutes should be spent on just how much it costs to run a business before we simply kick back enjoy a cold beer and some potato chips this afternoon sticking it to 'the man.'

First and foremost, please remember that 'the man' is risking everything so that others can have a job; one that supports a family, pays a mortgage, puts new wheels on the minivan, braces on little Suzie and maybe even creates memories from Disney World or the beach each summer. According the the Small Business Administration, 80% of the businesses in the U.S. are classified as small businesses as well, so we're not talking Enron, MCI, AIG (fill in the blank of your favorite dirtball CEO here.) We're talking middle class America - machine shops, pizza shops, lawn care, funeral homes and small industrial companies.

Now on to the financial facts.

In the U.S. we have a progressive tax, which is accountant-speak for "the more you make the more you pay." We also have something called a marginal tax rate, which is any amount above a certain limit but not as high as the next bracket. For corporations this total tax rate can be as low as 15% on the first $50,000 of taxable income to as high as 39% on income of $100,000. This is tax corporations pay at the federal level.

Naturally states want their take, too. The national average state income tax is about 6.5%, but we don't like to be average here in Pennsylvania. As a result, corporations in the Keystone State pay 9.9% corporate income tax. To be fair, a portion of the federal income tax can be eliminated when a company pays the state taxes, but according to the Tax Foundation, in 2008 Pennsylvania corporations paid a combined effective tax rate of nearly 42%, second only to Iowa. This is 3.5% more than a company in Japan, by the way, and a full 4% less than a company located in Germany and 6% more than a company in Canada (aren't they supposed to be taxed higher than us?)

Okay. So you're not good with percentages. I am, though. These figures show that if you have a company in Pennsylvania that has $100,000 in taxable income the CEO takes home (drumroll please).... a whopping $58,000!

The really great thing is that the corporate owners, also known as shareholders, get to pay taxes on their dividends too! This is called double-taxation if you're keeping score at home.

So let's go back to 'the man' and see how he's feeling right now. By the way, he (or she, to be fair) is probably only taking part of the day off since there is work to be done, payroll to process, paperwork to file or orders to be filled. Is it worth the risk to own a business, putting your personal livelihood, your kids future, your spouse's trust, on the line so that others can argue over personal days, vacation time, call in when it snows, etc.? I don't know.

According to CNN employers lost about $900 million in lost revenue during March Madness as a result of employees trolling the Internet to catch up on scores, fill in brackets, etc. Lost revenue is even higher for fantasy football.

It's enough to make me tired and need a day off. Hey, wait. That's what Labor Day is for!

Tuesday, September 1, 2009

Lions, Tigers and Bears...and Black Swans?

I recently finished reading a book titled "Fooled by Randomness" by Professor Nassim Taleb. Taleb teaches Risk Engineering at NYU and is a former trader. He's a smart guy by any measure.

Taleb has spent most of his adult-life analyzing risk, learning to avoid risk and learning to profit from extraordinary circumstances. In finance they call these events "Black Swans;" the rare combination of a set of extraordinary events unfolding in the perfect order to create massive destruction to financial markets, models and financial plans, even by the most astute investor. For my friends in Western Pennsylvania, think of "Albino deer" or "Pittsburgh Pirates winning a pennant" and you'll understand how rare these occurences happen.

In short, Taleb also has been able to provide some evidence that we humans do a lousy job learning from the past, although we're more than capable of looking backwards after an event and criticizing the participants. If you have any doubt, simply listen to any call in sports show that takes calls from Monday morning quarterbacks analyzing what went wrong. They seldom offer a "how to make it better" solution, though.

Looking around and reading a recent letter addressed to President Obama from Taleb, I think it's time to recognize the Black Swan that might be in the room, cleverly disguised as indebtedness. In his letter, Taleb correctly points out that debt leaves little, if any, room for mistakes even in the best circumstances. Quoting the Roman proverb, "happy is he who owes nothing," I believe that the recent actions taken by all of our legislators have done nothing to stop the Black Swan from having offspring.

When you consider the fact that so much of our world is interdependent upon a million other fragments of society, the ability to identify potential hazards and trickle effects becomes nearly impossible to measure. (Measuring is what I like to do, by the way.) But how can one measure the impact of adding $9 trillion to the ever-expanding debt, which will exceed $20 trillion in ten years or less. How can adding debt to an already precarious position benefit anyone in the long run?

Taleb also correctly points out that many of the 'experts' are the same folks that created models that got us into the current (and most of the past) messes we are in today. Relying upon them to help solve the problem is merely a result of their own arrogance. Guess what arrogance leads to - more black swan events. Arrogance blinds us to our own predisposed prejudices, biases and flaws. Arrogance leads to group-think and herd mentality. Arrogance will lead us off of a cliff.

Cash for clunkers rewarded folks who bought vehicles that got lousy gas mileage. The bank bailouts rewarded Wall Street greed. Mortgage bailouts rewarded folks that bought too much house and speculated that prices would always go up. Auto bailouts rewarded lousy business models. Imagine rewarding your kids with a new car after they crashed the old one because they were drunk driving, or continuing to give your kids an allowance after they spent their savings on pot. You would never do that, would you? So why are we rewarding arrogant, risky behavior now? Because the 'experts' told us too, that's why.

In essence, we are rewarding poor judgement time and again and funding it from the tax payers who continue to play by the rules. Rewarding poor behavior is never a good option, but financing it with long term debt is an even worse solution.

FYI, following simply supply and demand mentality, please recognize that the cash for clunkers is going to hurt the poor. It always hurts the poor, despite our elected officials best intent. If we remove clunkers from the car lots, the supply of used cars will go down. The only folks that cashed in on the program were folks who could afford to buy a new vehicle, right? Of course. The clunkers have to be scrapped, but the number of people demanding them (college students, workers making minimum wage, single parents, etc.) hasn't gone down. Voila! More demand than supplies equals higher prices. Nice.

Urge your congress person to STOP funding risky behavior with your money. Oh, and leave a comment or two if you don't mind. Writing this stuff keeps me up at night.

Saturday, August 22, 2009

For the health of it

Ah it's that time of year again. Get the kids on the yellow bus, sit in traffic and think about stuff that bugs you.

Right now, one thing is bugging me (at least more than anything else) - healthcare reform.

Yes, it's controversial and yes, it's annoying but the reality is something is going to happen this year regarding healthcare and insurance whether you like it or not. Apparently to have an opinion differing from those in elected positions makes one 'Un-American' or an extremist.

However, I am going to propose something different with this blog today. I am going to suggest that people can actually have a civil conversation and debate about creative ways to help solve this problem. Here are the rules:

1. No berating an opposing view.
2. Your argument must be supported by facts
3. Please refrain from salty language (that's only allowed by me, the host. It's the only priviledge I get to enjoy.)
4. Have fun and no solution is off limits. (That's called brain storming - something politicians in DC are incapable of doing because it involves having a brain to storm with.)

So here's my idea (yes, my bullet-proof vest is zipped up and I have my big boy pants on.)

Require surgeons to post their performance, or track record, showing how many operations they've performed, the number of medical related issues that resulted from these operations and the years of experience their staff has. Basically a surgeon would be required to give a three year history on patients after the surgery. (Think of it like the label on the back of a breakfast cereal, only something that's easily written on an 8.5 x 11 piece of paper.)

Next, after reading the 'prospectus,' allow the patient the chance to either pay A) a price that includes the ability to sue the the doctor for malpractice or B) a price that does not allow the patient to sue for pain and suffering, but only lost wages.

In the auto industry they call this 'tort' or 'no tort.'

Now before you go berzerk on me, consider the following:

According to statistics from Stanford University, in 2005 about 20 million people underwent surgery with anesthesia. 12,000 of those patients died from a surgery that was unnecessary (i.e - plastic surgery, elective surgery, etc.) 106,000 died from medication errors associated with the surgery, 20,000 from hospital errors and 80,000 from infections resulting from the surgery (National Ledger, 8/21/2009.)

Let me do the math for you. That means that .1% of all surgeries resulted in death due to hospital errors during surgery. Other patients that died were a result of surgery that was not elective and required immediacy, such as heart attacks, cancer treatment, horrific accidents, etc. Let's call these things 'unpreventable' and outside of a hospitals ability to 'fix.'

Consider some of these facts, also from the National Ledger and confirmed from other sources such as National Institute on Health.

A study conducted by the AMA revealed that despite spending $3000 more per person on healthcare here in the US compared to Great Britain, twice as many American have diabetes and we also have a higher rate of heart attacks, strokes, lung disease and cancer than our friends across the pond.

What gives?

We're overmedicated folks. A forty-year study conducted by Dartmouth confirmed that as certain areas of the country spent more on healthcare, those folks died a faster pace than areas that spent less on health care. Is less really more?

The World Health Organization in 2008 found that the US has the worst track record compared to other industrialized nations when it came to preventable deaths due to treatable conditions such as bacterial infections and and complications from surgeries (both of which occur in hospitals, I might add.)

Next, cap the number/type of prescriptions one doctor can write. Do we really need auto-refills from an answering machine at the local pharmacy? Shouldn't SOMEONE monitor how the prescriptions are working PRIOR to reordering?

From personal experience, I literally stopped taking medication because I felt better and have eliminated my acid reflux problem. I still have 97 pills left from a 100 pill order, but the auto dialer at the pharmacy called to remind me that my prescription can be refilled and to place my order soon.

I am not an automobile needing an oil change.

Instead, through preventive maintenance NOT induced by drugs (you know, running, eating better and going to bed at a reasonable time) I helped my body heal. Old fashioned approach, but something that works quite well; not just for me but for all of us. We're not unique, folks, despite what people tell us.

So there it is.

We spend twice as much as Britain for care that is worse, so the solution before you and the rest of America is to do what? Spend more money?

Money is not the answer. In fact, money is what got us into this mess. Money for the drug companies, money for the lawyers, money for victims.

No. Remove the monetary element and begin letting people choose.

I anticipate many comments, discussions and ideas. That's what this is all about.

Monday, August 3, 2009

Improving Education

If you don't mind I'm going to pull away from healthcare reform and the stock market this week and discuss something that is near and dear to my heart - education. As a proud member of the Mars Area School Board I am a huge proponent of educating our young adults; not just so that they can get a better job and create a higher standard of living, but also so they can appreciate the gifts our world and our neighbors have to offer. Call it "education for the sake of education," I guess.

With that said, much has been said about finding ways to improve our educational system. One such proposal involves merit pay for teachers. On the surface this appears to be a great idea, and I'd challenge anyone to oppose methods for improving student performance.

However, when you look behind the numbers, it's very important to discover what the carrot tied to the stick is before implementing policies that reward teachers for improvements by their students. Additionally, it's important to evaluate administrators and their effectiveness.

Current proposals for merit pay seem to focus on improving test scores, which seems like a very real indicator of whether teaching methods are working and students are improving. After all, improved exit exams are clearly a sign that teachers are doing a better job teaching the things we deem to be important, right?

Not so fast.

Many economists have begun to analyze merit pay based upon improved scores and are discovering that teaching effectiveness actually decreases when financial incentive is tied to standardized tests such as the ones being proposed by congress. In fact, while scores certainly improve, student performance in areas goes down.

How can this be?

In order to analyze this, one needs to look behind the numbers and look at motivators. What motivates someone to teach?

First and foremost, it's pretty safe to assume that one enters the teaching profession to impact others first and make money second. In fact, the same holds true for police officers, social workers, nurses and healthcare workers and other community related type of professions. Motivators for this group would be things that impact the world socially first. Economists call these "social motivators (we're not much for creativity when it comes to naming things. Sorry.)
As a result, improving big societal topics like reducing childhood obesity, reducing violent crimes, reducing illiteracy, etc. are things that these groups would find quite endearing and they'd be happy to be a part of the solution. The evaluation process is cumbersome, time-consuming and difficult to measure; particularly over a short period.

However, when the "carrot" becomes something easily measurable, such as improved test scores, increased attendance or reduced drop out rates, the workers can and do modify their behavior so that they achieve the desired results.

Think about it for a minute. If you were given the opportunity to earn a 10% bonus based upon your product (children) improving their test scores, would you modify your teaching plans to include everything on the test? Absolutely. However, you might be overlooking true learning that occurs day to day; what everyone, including our President, is calling 'teachable moments.' Should we sacrifice teachable moments for the sake of a 1%, 2% or 5% improvement in test scores?

Study after study is beginning to reveal that merit pay for teachers might not be a fundamentally sound idea for this very reason. Imagine a police officer that worked on commission, earning $10 for every speeding ticket he or she generated. How about a firefighter that earned a commission on every fire they put out? (Would this lead to an increase in fires as well?) Maybe a doctor should earn commission on the number of surgeries he or she performs (aren't we going down this road already? How's that working out?)

Additionally, studies are showing that the amount of money spent per pupil does not actually equate to improved student scores. This flies in the face of everything we're being told by legislators, yet we continue to believe that spending more money per pupil is the only solution. After all, money fixes everything here in the US. In fact, we spend more per pupil in the US than any other country in the Western Hemisphere. The return our investment is less than stellar if measured in economic terms.

Perhaps an overhaul of our education system is needed. Let's start with reptition. How can we expect students to learn and retain anything when they only need to go 1/2 of a year?

No. There needs to be merit based performance incentives, but the carrot needs to be something other than test scores. It needs to directly tied to things that the instructor can control, such as his or her daily attendance, improving communications with parents or guardians (both positive and negative communications) and representing the employer (in this case the school district) in a favorable light through community involvement, fundraisers, etc. - things that occur outside of normal school hours so that they can continue to do what they do best, which is teach.

Perhaps congress and the current administration could dangle a carrot tied to going year-round or districts that offer longer school days. Imagine how much your personal performance at work would improve if you were required to work 45 hours per week. Currently students in Pennsylvania high schools have to have 5.5 hours per day, five days per week, of instruction time. That's 27.5 hours per week, 180 days per year. If you want to stretch this over the entire year, it would be the equivalent of working a part-time job 13 hours per week, or a day and a half per week, all year. You can't learn anything of substance in this timeframe.

And we want to tie teachers down with more standardized tests? It's counter-intuitive, but it tugs at our emotional reasoning.

This is called Behavioral Economics, by the way.

I know that my ideas are not popular right now, and most likely, society is going to put merit pay in place based upon test scores. Additionally, I don't see any politician suggesting full-time, 8 hours per day for students aged 12 and older. Don't look for it anytime soon, either.

Let me be one of many others to verbally come out and say this is a bad idea and will ultimately lead us to a decrease in efficiency as a society. If you have any doubts, look at the runway of failed education reforms like No Child Left Behind, Standardized Exit exams, etc.

We're not solving the bigger problems which is teaching students to embrace learning for learning's sake. That's too hard.

Sunday, July 26, 2009

Stock Market Update

So are you feeling any richer today than, say, last Sunday?

You should be, at least if you have an IRA, 401k, 529 college savings account or any other investments in the stock market.

The market did suprisingly well last week, with the Dow closing above 9000. Led by strong earnings reports, the new question is "can the market keep chugging?"

There is a lot on the agenda this week, so investors need to take note.

First up, a deluge of earnings is scheduled to continue with Dow, Exxon, Chevron, Disney and Verizon leading the charge. If reports are good look for a strong finish to July.

However, August has been a traditionally slow period, as investors and bankers take vacations for the month. It might create opportunities for short-sellers looking to capitalize upon a very dicey economic recovery in both the United States and abroad. Combined with a White House that is fiercely arguing its points on healthcare reform, traders are apprehensive to call this a recovery - at least not yet.

There are far too many questions left unaswered at this point, and if anything, the economy will continue to weigh down a true recovery for the next 60-90 days. Unemployment will likely go above 10% when the government reports next and experts aren't sure where it will top out. Housing starts are not showing tremendous signs of recovery and consumer confidence barely exists. Throw in Microsoft and Amazon missing estimated earnings and it's clear not much has changed.

However, several conversations with purchasing managers this past week indicate a small uptick in orders occurred in metals and fluids, indicating that there is something going on out there. Perhaps it is stimulus dollars making their way into the economy or commitments that finally developed over many months ago. Regardless, it seems to me that next year at this time the economy will be heading back into full gear.

Feel free to leave a comment or two and please visit our sponsors!

Sunday, July 19, 2009

Health care reform

Let me be the first to admit that I seldom, if ever, need my employer-sponsored healthcare package. I'm probably one of the lucky ones. I'm also not a doctor (and I've never played one on TV) so I don't know the total story when it comes to billing, paying, services, wait times in emergency rooms, elective surgeries, etc.

With that said, however, I understand business, finance and people...in that order.

So it's no surprise that business people despise the new healthcare reform package offered up by the government. And to be fair, who can blame them? The current tax system already imposes 15-35% income tax on businesses, and individual states throw more on top. Mix in 7.5% taxes into the social security fund, 1.65% into unemployment on the first $7,000 earned by each employee and most businesses can fairly say they pay upwards of 45% to the government. That's a lot of money, particularly on small business owners, which make up 80% of all employers in the US according to the Small Business Administration. If you owned a business that made $100,000 per year before taxes, how would you feel if you only took home $55,000 -$60,000 per year and were being asked to pay more?

Not sure about you, but I'd hire fewer people and actually consider firing a few, too. That doesn't sit too well ever, but especially now given our current 9.5% (reported) unemployment.

On the finance side, the system stinks worse than the Pittsburgh Pirate's front office (maybe) and there's no end in sight. How can an insurance company charge one fee, accept another from the healthcare provider and not be held to better standards? While I fully support price discrimination, as most economists would (if you don't know what price discrimination is, think "Ladies night" or "kids eat free" or the way the airlines price tickets and you'll understand the concept) health insurance price discrimination makes no sense whatsoever from a financial point of view. The pricing scheme is so convoluted that I actually do know why things cost so differently from one provider to the next - they don't know how to price their product or service.

People. Now this is a different story entirely.

Shame on us. We know better, yet we continue to try and get something for nothing or ask for more support so that we don't need to modify our behavior that lead to the problem! Rather than asking Uncle Sam to come up with a solution, maybe it makes more sense to modify our diets, exercise more, smoke less and eat more veggies so that we don't need to go to the doctor's office as often. If we go less, the demand for the product goes down and providers would need to find a better method to attract our business, such as, oh I don't know.... LOWER COSTS?

Ah, the "preventive" maintenance argument. That one hurts the most, as it actually involves personal responsibility, but it makes the most sense.

Think about it. If fewer of us needed to go to the doctor's office, emergency room, surgeons, etc. because our bodies were better equipped and healthier, those needing services would have quicker access, less tired healthcare providers and insurance companies that weren't questioning everything?

I'd love to call it innovative, but it's as old as the hills.

So consider my healthcare reform today by reforming your old habits. Take a walk, turn off the television and put down that bag of chips.

Friday, July 10, 2009

Let's try this again

There ain't no cure for the summertime blues - that much is sure.

And the worldwide economy seems to support this theory, plodding along painfully slow like a Pittsburgh Pirate's baseball season.

The question I get most from students and friends is "when will it end?" Sadly, I don't know and I'm not sure anyone knows. Experts are currently feuding over another stimulus package, and I promised my wife and kids that I wouldn't get angry this summer so I won't touch that hot potato. Instead, I want to focus on the good things I see happening, despite unemployment at 9.5% (closer to 13% when you put part-time employment into the mix and assume they'd prefer to be full-time) and a California government writing I.O.U's while a Pennsylvania government can't do the one job they are elected to do - pass a budget.

I want to count the good things today, and there are many.

First and foremost is that there is finally productive conversations taking place at very high levels, unlike the previous six months of political maneuvering. I think that some (not all) of the politicians recognize that times are tough.

Gas prices are about $1.40 less this year than last year and we have already passed the traditional 'high mark' of July 4th. This bodes well to improve consumer sentiment in the coming months.

The stock market is flat, which beats the heck out of investments falling faster than a kid doing a cannonball at the local pool. Folks have finally seen the bleeding on their 401k's, IRA's and college savings accounts stop. In fact, they most likely saw the balances improve last quarter and they should be up about 10% year to date.

The herd is finally getting thinner as companies have begun to realize the impact of their cost cutting measures and the consumer is benefiting from the slimmer margins. I'm not suggesting we're spending more, but I am suggesting that we're at least spending the same and the feeling of doom and gloom is gone. There's light at the end of the tunnel.

Housing is near the bottom in most major markets, but not all. Here in Western PA, while the market is anything but robust, it is steady and homes are selling.

I am not about to call a bottom on a market, or a top for that matter. But I can observe, and right now, it seems to me that the worst is well behind us. And while we might not enjoy 6-8% growth for many years to come, I am going to suggest that a moderate 2-4% growth rate is not always a bad thing and beats the alternative of negative growth.

We're living within our means and that's a good thing. Banks are making loans to people who deserve them and those who pay their bills on time. How can that be bad?

Oh, and the best thing about July is that I go on vacation at the end of the month. I'm refreshed and ready to write, so please look for weekly updates. I also joined the Examiner.com staff as a freelance writer and will be tackling local business issues on a fairly regular basis. Add this site to your favorites please and leave some comments!

Friday, January 30, 2009

Stimulate this

So Congress is set to throw another $900 billion into the crapper on a stimulus package.

I'd like to spend the next few paragraphs explaining how this stimulus, designed to help Americans, is actually going to have a negative impact.

The stimulus, while containing some details, has one really significant piece of data that shows up - any company taking funds from the stimulus and/or tarp will be required to utilize products and services from American companies. This is being done as a way to create jobs.

Here's where I'm going to get in trouble, especially living in the rust belt.

It's going to KILL the economy rather than stimulate the economy. Here's why.

If a company, let's say Caterpillar, decides to take stimulus funds they are now immediately handcuffed to American suppliers, regardless of price. As a result, and through a really miserable few quarters, the American suppliers will not be required to go through competitive bidding to ensure they are a low-cost provider and high quality provider. This will result in higher priced materials going to Caterpillar.

Now Caterpillar, while certainly concerned about consumers, has also suffered in the past few quarters. Do you think that they will actually swallow the added costs associated with dealing with only a few suppliers? Yeah right. That cost will be passed on to the consumer through higher prices. (this is what we economists and finance folks call "Inflation.")

Given our current unemployment levels of about 7.5%, most real folks would have a hard time swallowing higher prices; especially since they, or someone they know, are probably unemployed.

Now, let's bring in the REALLY big issue with this stimulus. How would you feel if America did this and you were, oh, I don't know, China? Remember that little country that is home to nearly a third of the world's population? Oh yeah. By the way. The own a lot of our debt.

The Chinese Government probably wouldn't take too kindly to not being able to bid on American projects. And while I'm sure they'd like to play nicely together, maybe they'd decide that they would stop accepting bids from American companies. This is not a good scenario, but it is highly likely.

Also likely is the fact that they could literally deflate our currency by 25-40% overnight by simply selling the debt we owe them back into the market. This would create "hyper inflation," which is as scary as it sounds. Think "inflation on steroids" and you'll see my point.

Imagine walking into your grocery store today and paying $1 for a loaf of bread. Three days from now that same bread might cost $1.35. Next week it could be $1.60.

Finally, a good rule of thumb with regard to printing money and giving it away (that's what we're doing) is this: $1 trillion of new debt equals about $3000 per person additionally owed to pay back the national debt. We're currently paying over $1 billion per day in interest on this debt. Guess who gets to pay that? My kids. The cost to a family of four is about $126,000

Leave them alone. They are currently on the hook for about $33,000 (each) toward the debt.

Can't we show SOME responsibility and begin taking control of our financial lives? You CANNOT create consumer demand and solve financial issues by creating additional debt. For crying out loud, that's what got us into this mess in the first place!!!

If this makes you as angry as it makes me, check out the Adam Smith Institute blogsite to learn more about taking control of government finances.

And call your congressional representatives. Don't write them. Call them and wait to talk to a live voice. Tell them enough is enough and to stop spending your kids money.

Thursday, January 15, 2009

Chain of Blame

Well it's been some time since I've posted, and please let me apologize in advance for the content below; but I need to vent.

Over the past two months we've witnessed some of the most ridiculous, political grandstanding since...well, the last Senate ethics committee hearing.

What I'm talking about is the continuous volley between Wall Street, Detroit and Washington. And while I'm certainly a novice when it comes to playing games of "cut throat" in racquetball, these guys aren't even on the same court and they're throwing each other softballs to knock out of the park instead of kill shots in the corner!

How DARE anyone who is a member of the Senate or the House of Representatives chastize someone for mismanaging money! The folks responsible for spending $11 trillion more than they have are being critical of a publicly traded company overspending by a billion? Are you kidding me? This is the equivalent of Kojak criticizing George from Seinfeld for his receeding hairline!

And for Detroit to 1.) Criticize Wall Street for not supplying "liquidity and 2.) ask Washington to fund an obviously tired, non-productive, unprofitable business model to "save the American worker" does a total disservice to those of us who actually DO care about creating sustainable businesses that make products we want.

Finally, shame on Wall Street for allowing $50 billion or more to be pilfered from investors courtesy of an unchecked, unpunished maverick, slick talking money manager in Madoff. The rules were in place, but no one really cared to see if they were being followed, and those that suspected something was "too good to be true" were correct.

This is almost like watching the Three Stooges, only it's not funny.

Now, however, there is a fourth, very ugly element that has fully entered the picture - the media. I can't tell you the number of stories I've read in the past six weeks about workers losing their jobs, retirees losing their pensions, newly married couples losing their houses, etc. I'm willing to bet that you know someone that has lost their job as well. It's easy to blame the new "BIG THREE," as I call them (Detroit, Washington and Wall Street.)

I think that I actually have a solution or two if you care to read on.

It's apparent that the American worker really is the one who is paying for this, both through TARP funds to banks that lent money faster than Britney Spears can get married and divorced, as well as through job losses, cutbacks, unfunded pensions/retirements, cutback in benefits, etc. from outdated business models from GM and Chrysler. Incidentally, Ford has stayed out of the muddy mess so far.

The problem is simple; Wall Street and Detroit have NO vested interest in the communities they reside in. Therefore, they don't really care if workers lose jobs or houses. It's about the bottom line, and (gulp) I can't believe a free market capitalist like myself is saying this - it's not always about the bottom line.

Even Adam Smith would agree that the invisible hand has been severed from the entire arm at this point and something needs to be done to make sure the other hand doesn't get cut off. As a result, I am proposing that the first 1% of every dollar of gross profits earned by any company goes directly to the community that has a branch, factory, office of a company receiving TARP money. For instance, if GM has gross sales of $100 million, a total of $1 million would be dispersed to the communities that have GM plants in their town. Additionally, I am suggesting that half a percent goes directly to a fund that would assist workers that lose their job during the next three years in order to help them continue paying their mortgage. That means another $500,000 would be dispersed to those same towns.

The half a percent never gets used and in fact, would be refunded, if a company doesn't use it because they don't lay anyone off. They'd get the funds back in partial payments after three years if they A.) had net profits, not losses B.) paid all TARP funds back and C.) continued to stop laying off workers.

The dispersion would go directly to a LOCAL bank that avoided the mortgage debacle, and the funds would be split based upon the total number of employees as a percentage on payroll or contracted. Since the funds go to a local bank, their ability to lend grows as well due to FDIC reserve requirements, thus spurring local businesses and new ventures.

If you're wondering, in 2007 GM had about $180 million in gross revenue. That would equal about $22 million divvied up among communities; towns that really could use those funds to stay alive right now.

Now before anyone goes crazy on me and calls this idea "socialism," hear me out. I don't like mandating where a company has to put its money from profits, but this is after the fact folks. We've already shelled out $700 billion. It's gone and can't come back.

As a result, I believe that the taxpayer (this includes workers in Detroit and Wall Street) have a right to say "keep some of that money in my hometown."

This also creates an incentive to NOT layoff workers. Imagine the incentive, approximately $4 million per year, to keep an eye on the bottom line.

The way to the bottom line, of course, is by creating products that people want and need. This goes for mortgages, too.

Create something of value to the consumer, not just hedge funds, traders and speculators - but bona fide consumers that want to drive a fuel efficient, sophisticated model car while making payments on a fixed rate mortgage loan in an area of the country that won't be prone to speculative, shoddy, lending practices geared to investors that couldn't find the location of the property own on a map.

Again, I am a free market capitalist and I think that it's time we asked for some direct results from our money. I won't call it my money, but some of it is my money, and damnit, I want to see my money being spent wisely to ensure that by the time my children become tax payers, we aren't in debt up to $25 Trillion. We currently pay $1 billion PER DAY in interest... how do you like them apples?

Call your representative and tell them to put serious constraints on this money.

Runaway inflation is next folks. Too much money is going to hit the system too quickly, and while many economists are preaching about deflation, I am going to suggest the exact opposit. If you need proof, look at gas prices. They are going up even though the cost per barrel is going down. Speculators know that $700 billion is about to hit the proverbial fan. I'd prepare to be out of the firing line.