Wednesday, November 19, 2008

Financial myths exposed 

Flipping through the December issue of Esquire (no, I do not read it for the fashion tips, as anybody who has watched TigerHawk TV well knows), I saw at least two paragraphs of such transporting truth that I insist on passing them along:

Myth: Home ownership is an unalloyed good.

It's not. Not just because it's expensive and illiquid, but because it's inappropriate for many kinds of people. And I don't mean just in a class-division way. (Although that's true, too, and Fannie and Freddie never should have been tasked with the social mission to "improve" the lots of poor people by saddling them with loans they couldn't repay.) I mean for economic reasons. Fifty percent is about the maximum number of households that should ever own homes in a society. A modern, efficient workforce needs its members to be mobile and nimble and not tethered to homes they barely own and cannot sell.

Myth: "Deregulation" caused this.

We're so, so, so not deregulated. The institutions that are failing are some of the most heavily regulated in the world. Investment banks are regulated by the SEC, the Federal Trade Commission, state attorneys general, and state banking commissions. But too many regulators are as bad as no regulators--none of them feels responsible since a failure can be blamed on all the others. Hedge funds are a great example. For years, people have been crying about the wild world of hedge funds. But hedge funds have actually held up well during this meltdown. Effective regulations are needed and possible. But any rush to clamp down willy-nilly will result in an even deeper freeze on liquidity and push this crisis deeper and longer.If you're an investment banker or a mortgage broker, yes, these will be prolonged and difficult times. You should consider coaching Little League. But the rest of us? On October 10, I bought GE stock for $18.77 and Altria for $16.58--wildly profitable companies with price-earnings ratios under 10 and yields of about 7 percent. There are great American companies paying out suddenly valuable American dollars as dividends. I just can't cry too hard when the stock market is holding the greatest sale of my lifetime. It's enough to make me want to write a bullish finance column.



By Blogger D.E. Cloutier, at Wed Nov 19, 02:31:00 PM:

"I do not read it for the fashion tips."

That's too bad. Some of my Ivy League friends think the same way. Most of them work for somebody else.

You can find better fashion tips in Forbes magazine from time to time.  

By Blogger TigerHawk, at Wed Nov 19, 03:05:00 PM:

There's no question, DEC, that personal grooming has not contributed to my career.  

By Blogger Gary Rosen, at Thu Nov 20, 02:40:00 AM:

TH, here's a question, sorta off-topic but I think closely related:

How should the money supply be regulated?

This spawns a lot of other questions, some perhaps foolish because of my limited understanding of financial markets but here goes anyway:

Doesn't the Federal Reserve closely control the money supply? Isn't that what "monetarism" is, preached by Friedman and put into practice by Volcker?

Is there a different, purely "free market" way to regulate the money supply? Would it work in practice?

Are the current difficulties related to a failure to properly control the money supply?

I could go on, but that's enough for now.  

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