My wife has only given me financial advice twice in my life.  She was totally right both times.  Now, she doesn’t have a financial bone in her body.  She was raised in a household where she never lacked anything, with non-materialistic parents where the father earned a lot as a nuclear physicist.  She was a princess,never having to worry, and married a prince, me, where she never had to worry.

As an aside, the father recently died, and he was quite a guy, but humble.  If you ever get therapy in a hospital that requires a cyclotron or any delivery device that allows positrons or any anti-particle to be used in surgery, my father-in-law was the brains behind it.  He was an amazing man, and though my wife is astounding, one benefit of marrying her was getting to know her father, who was an amazing man.  (Did I tell you he was amazing? )

Anyway, the first time my wife gave me investment advice was when I worked for the St. Paul.  My boss invited me to his officein early 2000, and handed me an envelope.  He said, “This is your bonus, invest it wisely.”  At that point in time, St. Paul was in the tank, and no one liked it much at all.  I took the wad, and put it all on The Saint Paul.  (My wife was amazed at the size of the bonus, but the bonus was given for keeping the company safe, not for making a ton.)

Eventually, it leaked out that I had invested so much in the parent company.  Members of my investment team told me I was a dope, and that the St. Paul was a lousy company to invest in. One told me, “No that’s not value investing, value investing requires a catalyst, and there is no catalyst here.”  (Note: catalysts do not always appear, and they can be expensive.)

Me, a value investor thought that buying a company at 55% of liquidation value, and a single digit multiple of forward earnings would do fine.  After one month, several P&C insurance CEOs announced that they were seeing pricing power, and the stock of the St. Paul rose 30%.  I could not sell, because I was constructively an insider, though I had no insider information.

After another 3 months, the cycle was in full swing, and the St. Paul’s common stock was up 80% from where I bought it.  At that point, my wife came to me and said, “You’ve been talking a lot about the St. Paul over the last few weeks, how important is it to our family?”  I told her, “It is half of our net worth.”  She said, echoing things she had heard me say previously, “Shouldn’t you take something off the table?”  I told her that I would.  I liquidated the whole position at my first opportunity, given my restrictions.  My gain was 95%, over six months.

As it was, after I did this, that many people at the St. Paul came to me saying, “You sly dog, you are a genius, but now we are doing it too; we are in this with you.”  I told them, “Aack, no.  Don’t do this.  You are buying  the top.”  And, wrong again, the price rose for a few more months, only to fall dramatically.

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A few years later, my wife said to me, “You keep talking about Wright Manufacturing, and how well it is doing, but how much do we own of the company?  I said, “You see our house?”

She said, “Of course.”

I said “Well, our holdings are worth a little more than our house.”

Beyond her ordinary ability, she asked, “Okay, David, but would you invest in this company to the degree that you have if it were publicly traded?”

I told her “No.”

She then asked, “then why don’t you take something off the table?”

I was cut to the heart, and I told her I would do so.  I sold half of my shares to the second largest shareholder.He told me that he would meet me at my office at Hovde.  After he got there he was amazed at me and said, “Wait, you are a smart guy, what am I missing here?”  I told him that I needed the money for the college educations of my children, so I needed more liquidity.

That mollified him, and allowed me to sell before the price cratered in 2008-9, as the company nearly failed.

But that’s another story, one where I bought amid distress, but not enough….

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I love my wife.  We just celebrated our silver (25th) anniversary.  She is wonderful in so many ways that I cannot describe here, and her children (and mine), biological and adopted would agree.

Though a princess, she absorbed enough of my ideas to counsel me at two particularly important turning points for the good of our home.  With the St. Paul, I probably would have done the right thing but with Wright Manufacturing, probably not.

So I praise her here for absorbing my wisdom, and applying it to me, when I could not do so myself.

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To bright people in finance I would say pay attention to those near you who don’t have your acumen, if they have been around you long enough.  They may give you cues that you could not ordinarily get, and it might just save your hide.

For me, this gives me an opportunity to praise the second most important person in my life, my wife, who typically has no impact on financial decisions, but at a few critical points did very well for me and the family.  She learned from me.

As for the one most important, that would be Jesus Christ, who many imagine they are honoring at this time of year, even though he never asked that his nativity be celebrated.  Just saying.

This book is unusual.  Let me give you my quick view: this is a book written by an Orthodox Jew regarding an unscrupulous Jew who used his abilities to communicate to swindle others in a Ponzi scheme.  This is a surmise, because of all the ill-will toward Jews created after the scandal broke, the author tries to differentiate between one who is nominally/ethnically a Jew, and one who takes the ethical principles of Rabbinic Judaism seriously.

As such, this is really two books.  One on the author’s congregation, friends, and extended family, and the good things that they have done as Orthodox Jews, and a book on how the author concluded earlier than anyone else that Scott Rothstein was a fraud, and probably running a Ponzi scheme.  (Alternatives were money-laundering, drug transport, etc.)

I appreciate the logic that the author brings to the table in the book.  I myself have uncovered a variety of investment scams from life settlements, collateralized stock loans, Nigerian schemes, and penny stock promoters.  The author zeroed in on the lack of data to verify the cash flows, and the unlikelihood of so many cases being handled by one man, Scott Rothstein.

As an aside, always be wary when you meet someone that wants a lot of information, but is averse to sharing information.  Divide-and-control is an excellent way to gain power in an organization.  Fight it by connecting with others.

Once the author came to a firm conclusion that Scott Rothstein was dishonest, he faced the question of where to take the information.  Because Rothstein had used some of his clients’ money to buy favor with state and local officials, he decided to go to the FBI as the most competent interested federal organization.  After less than two months after talking to the FBI, the Scott Rothstein’s organization collapsed from a lack of cash flow, partly due to the efforts of the author to convince potential investors not to invest.

And now Scott Rothstein and more than a dozen of his associates are doing time in jail, because of a $1.4 billion Ponzi.  Not the hugest, but give the author credit, he kept it from becoming bigger.

One final note: the title of the book is delicious, because the author and the felon were miles away in distance, but worlds apart in what they valued.

Quibbles

There are a few misspellings, but nothing major.

I understand why he brings up the good deeds of Orthodox Jews, but to have it occupy so many pages of a book dealing with financial fraud will leave some cold.

Also, I disagree with the way Rabbinic Orthodox Judaism interprets the Law (Torah).  We are not to create a hedge around the Law, as the author states.  We cannot be holier than God.  To add to God’s Law is to take away from God’s Law and substitute Man’s Law in its place.  Far better to understand the Law the way Y’Shua Ha’Mushiach (commonly called Jesus) did, and understand that it applies to our hearts and actions, as best expressed by the Larger Catechism Questions 91-153.

Who would benefit from this book:

Most people would benefit from this book — it will make you aware of financial fraud on two levels: the way that the finances of a fraud don’t make sense, and the outward aspects of the life of one committing fraud.  If you end up more suspicious of those offering opportunities that are too good to be true, that will be worth more to you than the price of the book 100 times over.

If you want to, you can buy it here: Miles Away… Worlds Apart.

Full disclosure: I asked the author for this book, and he sent it to me.  I read and review ~80% of the books sent to me, but I never promise a review, or a  favorable review.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Longtime readers know that I am an Evangelical Christian, and worse yet, a Calvinist (or, Reformed).  I am even one of the leaders in my congregation, and I serve my denomination.  But if religion turns you off, or you hate Christianity for some reason, stop reading now, because this is an abnormal post at this blog — I try to limit posts like this to once or twice a year, so if you don’t like this sort of thing, hit the backspace key.  That said, you might learn a little about how some Christians think.

My goal here is to explain Harold Camping as I see him.  I probably would not write this, except that I have two bits of secondhand personal data about him, and there is little intelligent commentary in the general news media about him.

In 1988 I was a member of Covenant Reformed Church of Sacramento.  Excellent church, I recommend it to all near Sacramento.  Now, Calvinism is sparse across the US, but it is even more sparse in the West of the US.  Calvinism does not appeal to individualists.  So, if there is some sort of fracas in the Reformed churches in central California, well, word tends to get around.

I met a person who was in the last church that Harold Camping belonged to, which was in the Christian Reformed Church at that time, and he told me that Camping had been a Sunday School teacher for the adults at the church, and that the pastor eventually cut him off because what he was teaching was not Biblical.  And after that, Camping left, never to darken the doorsteps of the established church again, though for quite some time, he encouraged his hearers to go to Reformed churches.

After that, a minister from Georgia came to our congregation.  He had come to Sacramento in 1988, to minister to a group of followers of Camping in Sacramento (Camping had not at that time told his followers to leave the churches).  He told them during his candidating that he was not a follower of Camping, and he would not follow Camping’s interpretations of Scripture.  They called him anyway, and he came, with a wife and three children.  After he arrived, after a few months, they fired him.  What gored him was how the members would dismember his sermons saying, “What would Camping say about XYZ?”  Camping was their gold standard.

He went to visit Camping at a conference, and tried to ask him questions during a time of free questions, and Camping just ignored him.  No matter what he tried, Camping ignored him, so he told me.  To the degree that Camping gave answers, it was akin to a politician who does not answer a question, but answers a related question that he would like to answer.

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Harold Camping is a Evangelical Christian, in some sense of the term.  But he has a bevy of personal doctrines that differ widely from Evangelical Christian doctrines.  Most notable is that figurative and numerological interpretations of Scripture are valid.  Most Evangelicals believe that the Bible should be interpreted like any other document.

• Understand the literary genre being used.
• Interpret books, then chapters, then paragraphs, then phrases.  Don’t ask, “What does this phrase mean?” until you understand the book, chapter and paragraph, in that order.
• Look for the plain meaning of the text, unless there are reasons from the genre to do otherwise.

Those who look for figurative and numerological meanings everywhere, like Camping, are trying to escape the plain meaning.  The plain meaning is powerful enough, so why would Camping build up a following telling nonsense stories?

Evangelicals who are not Calvinists have a hard time understanding the Old Testament, and Camping makes their life easy by flattening it into “easy-to-understand” narrative that resembles salvation in a simple sense.  For many, a simple interpretation is better than a correct one.

But beyond that his idea that the Church age has been over since over since 1994 is just sour grapes over his prior prediction of 1994 failing.  Like Ellen White in 1844, he makes something up to say he was really right, but you just didn’t see it.

But his his idea that the Church age is finished stems from his past rejection by pastors of the church.  His teachings are aberrant in many ways, not the least of which is that one can name the date of the return of Christ.  All those who have tried to suggest a date for Christ’s return in their lifetime have erred.  Many have had sins they were trying to hide.

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Camping has a big media platform.  I don’t.  If I could have drowned him out, I would have done it.  He disgraces Christianity by his commentary, and by encourages those who dislike Christianity to jeer when May 22nd arrives.

But when there is no Rapture on May 21st, will Camping repent?  In 1996, two fellows who upset South Korea on similar terms repented on national television.  If Camping does not repent, it will do great harm to the cause of his Savior that he claims to represent.

Luther was once asked if he were planning to plant  a tree the next day, and he then learned that Jesus was returning tomorrow, what would he do?  He said that he would plant that tree to the glory of God.

And so it goes… Luther is very common-sense, as is Calvin.  Harold Camping is not common-sense — you must rely on his unique interpretations of the Scriptures, which he uniquely developed.

God does not work through “lone wolves.”  In the Bible, he revealed through 44+ men, over 2000 years, who agreed. Any religion that relies on one writer is false.  I leave it to you to fill in the blanks there.

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But after all of the media furor, I have to say there are few among Evangelical Christians who believe what Camping says.  That group is very small; the only reason it gets the press that it does is that Camping has his fleet of radio stations.

Thus, aside from damage to the church and individual believers who have believed Camping (a small number), I see little effect from all the furor.  In June,  few will remember this.

My main reason for blogging is not to develop a business, make political points, or earn money off of book reviews, advertising, or anything else, but to give something back.  I have a gift of sorts, which means that I should do some “pro bono” work for the good of all.

My work is an expression of me, with all of my idiosyncracies, biases, contrarian views, and as my wife would say, “Merk Quirks.”  I love my wife.  We just celebrated our 24th anniversary.  She doesn’t understand much about money and finance, but she supports me in all that I do — as I support her in our efforts in homeschooling our children.  She works as hard as I do; we both work 12-16 hours/day, 6 days per week, and we love it.

What I write here is an expression of who I am, and how I interpret the world.  My experience has shown me that so far I do better than most at anticipating future problems.  That said, I usually can’t get timing or severity right.  But if I make things easier for people to understand, I consider that a victory.

I am healthy, but I don’t know how long I will live.  True for most of us.  While I have the chance, I try to write articles that will have longer validity than most.  I view my role as not telling you what to do, but trying to teach you how to think, so that you will do better.  I don’t want to die without recording what I think are my best thoughts.  I think I have done most of that, but there is more to do before I am done.

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With that, I want to comment briefly on Thanksgiving.  To me, it is more than family around a meal, though I cooked an excellent spread for my family and in-laws.

The next time I visit my in-laws house, I need to get the title of a book that I read there, which purports that the Pilgrims worked exceptionally hard to pay off their debts to the merchant adventurers who funded them.  The Pilgrims were idealists who risked life and limb for religious liberty.  I have no Pilgrim blood in me, but my kids have ~10% of their ancestry there through their Mom.

How hard did the Pilgrims work?  Consider this piece from my friend Caroline Baum, which she publishes annually, with small changes each year.  The Pilgrims, who suffered huge losses in their first year, would not have survived as a colony if they had not privatized agriculture.  Once they did that, they had plenty to eat and to trade for other goods.

Caroline comments, “Their good fortune had little to do with God.”  I would disagree. The Bible commends personal property rights and diligent labor through the eighth commandment.  Obedience to what God commanded brought blessing.

But to take another angle on this, the Pilgrims had quite a debt to pay off, and their agents in London did not negotiate well for them.  It took them ~20 years to pay off the merchant adventurers, who earned a return of ~40%/year off of the idealists who could not do the math, but who did love God.

Considering how well the merchant adventurers did, I would still say the Pilgrims were the victors.  They flourished in their faith, and having more wealth would not have brought them much in the new world.

Bradford, on the other hand, was not as pleased by the end of his life.  In a pattern that would repeat in US history, by the end of his life, Plymouth was almost deserted, because the descendants of the settlers had moved further west, seeking earthly prosperity.  Did they put the ideals of the original Pilgrims first?  No.

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In my own life, I could have earned a lot more money had I sacrificed my family and church.  There are tradeoffs in this life, and often the better things get sacrificed for monetary goals.  But to what end?

As for me, I am grateful for my family, my congregation, my church, my nation, and all the blessings that come from God to support them.  May God bless you, my readers, richly as well.

This is a post about economics, but it will probably sound more political than most.  Part of being mature is learning to live within boundaries.  No, not everything is possible.  Immature people like Bush II, Obama, JFK, and FDR tell us that we can have our cake and eat it too.  It is not an uncommon positions for assume, particularly when they can use a particularly large cohort of workers as a tool to sap revenue from, while not retaining the funds for retirement benefits.

That said, I can look at the past and be a critic.  That’s easy, there have been real jerks that have milked our society, and retained a good name, though they robbed the future to pay the past.  It is criminal what municipal politicians have done, hiding behind high assumed investment assumptions, supported by brain-dead consultants who assumed markets are magic, and always provide high returns.

But there are enough targets in the present.  The evil party, the Democrats, ignore the long run effects of their deficits, and ignore the entitlements crisis that will engulf the nation.  The stupid party, the Republicans, rolled over for the idiocies of Bush II, and ignored the long term effects of debts and entitlements.

But there is a new force of anger, the t-party.  And that is about all they have, is anger.  They want their taxes reduced, but don’t want large entitlement programs reduced, or defense.  They represent small-minded libertarianism.  I am an economic libertarian, but I recognize that my views mean real pain for many in the short run, though I think those policies will be best for all in the long run.

There was a real loss in our nation when we abandoned the idea that national budgets needed to be balanced.  It brings out the worst in politicians when they think money is free, and they can engage in the basest demagoguery with no cost.  As it is today, we would probably be better off electing our politicians via random selection.

I have no sympathy for the t-party.  If you only have economic interests, and aren’t willing to take stands on broader ethical questions, you do not deserve to be our rulers.  Government is ethical as a rule, and the most important questions are what behaviors we encourage and discourage in our society.

I have a further concerns.  Leaders should not be merely facile rhetoricians, but should be genuinely mature.  I cringe listening to the t-party endorsed politicians, because they aren’t mature enough to rule.  If you can’t control what you say, and how you say it, you don’t have enough control over yourself to be one who promotes order in society.

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I wrote the above three weeks ago and sat on it.  After writing it, I said to myself, “This is not one of your better works, are you going to say that?”  After review, I am saying this with full conviction.  Most t-party candidates are not ready for prime time.

Take Sarah Palin as an example. Sarah Palin is a bad joke.  If she is such a good Evangelical Christian woman, why is she not at home taking care of her young children, particularly the one with Down Syndrome.  Or, why was she occupied with Alaska politics at a time when she should have been there for her daughter Bristol, who was about to make some very bad decisions.

Feminism has no place in Christianity.  Men are to lead, not women.  Go home, Sarah.  Homeschool your children, if you can. I would not say this to a woman outside the Church, but since you claim to be one of the disciples of Christ, I say it to you.

I say this as a leader in the Church, ordained by the elders of my presbytery, in a Bible-believing church.  There is no good that comes from neglecting your own home to address the problems of the nation.  Sarah Palin is no Deborah.  Deborah was wise, and Sarah Palin is not.

I fear God more than I care about the political direction of this country.  As the Apostle Paul said, “Shall we do evil, that good may come?”  Paul spoke rhetorically, saying that we should do what is right, regardless of the results.  There is no good that comes from trying to save society, when our own house is not in order.

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I could talk about the other t-party candidates and their idiocies.  Time would fail me.  I am in favor of a brainy libertarianism and Biblical morality, rather than a brain-dead libertarianism, and appeals to general morality.

The most pressing and immediate economic problem is this: we are facing a funding crisis for all of the promises made by governments and corporations regarding retiree employee benefits.  Every day I see more articles about the pain municipalities are going through over funding pensions, with occasional pension strengthening from corporations.

The sins of past governments, making promises that could not easily be fulfilled, or, at least fairly funded in the short run, are coming home to roost.  Funding issues for all levels of government are rising.  It doesn’t matter if you have met the budget this year, however you have done it.  Next year will be worse, because the assets will not throw off enough income to satisfy the liabilities over the intermediate-term, across the whole nation.

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We go to the polls in the US today, but no one dares talk about the funding crisis.  They talk of tax cuts or protecting benefits, while at the same time the economic decay continues, where debt grows, and ability to repay it declines.

It is a sad state of affairs, and indeed, I despair over it.  I love my nation, though I do not support its wars or its economic foolishness.  Unlike what Reagan said, America is not the last best hope of man on Earth, rather it is the God-man Jesus Christ, to whom we must all eventually answer.

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If I have a fault economically, it is that I look to the long-term.  For me, it is Heaven, though on Earth it is what will happen to my great-grandchildren and beyond.  Our policies are slanted to the present, and will force those who are younger to pay far more than they ought to pay, because they will be carrying the profligacy of the Baby Boomers.

No party is seriously looking at the future funding crisis.  There are little hints among the municipalities that are the worst running into problems now.  Those problems will only grow, and spread.  The problems in the unfunded Federal plans will be a plague in their time.

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This is an unusual post for me, prompted partly by the elections, because I don’t think anyone from an economic standpoint is addressing the real problems that we are facing.  Mere politics prevails for now, with fine-sounding but empty words telling the electorate that they will be restored to prosperity.

There are bigger forces in play here.  Consider my old piece, Rethinking Comparable Worth; as it stands, less skilled labor in the US should see wage declines as the rest of the world becomes more competitive.  Unskilled labor is not scarce. Skilled labor is somewhat scarce. Good ideas are scarce.  Real capital is scarce, but financial capital is not scarce.  Commodities vary in scarcity.

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I see this as a time for the US to “grow up,” and see that there are no easy solutions, but that it will take shared sacrifice to preserve our nation.  Taxes will have to rise while benefits are cut.  Keynesians will scream, but the average person in the US will see it as fair, because they know that everything must be paid for; there is no free lunch.

Dear David,

Quick question in case you find yourself with time to spare on your blog (ha!! ) :
You have a large family. What do you teach your children?  How do you prepare them using the economic back drop? What are the hopes, the fears that a parent has for their youngsters ?

It is the real-life application that so often is skipped over in financial blogs.  Maybe that’s as it should be – not every reader might find it of interest.  But isn’t that where the rubber meets the road?

So, I’ll send this off and maybe one of these days, the question ties in with something you were going to write.

Thanks a lot for your insights.

Regards,

A.S.

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As the snow starts to fall, and Baltimore is in the eye of the storm (18-24 inches of snow predicted), I think it is a good time to sit back and think about the bigger things of life.  I’ll be spending all day tomorrow with my family.  Now, that’s normally true.  I work from home, and my wife and I homeschool.  We have two graduates, one drop-out (a sad tale, and what made me start working from home to protect my family until we told him he had to leave), an eleventh grader, ninth grader, two sixth graders, and a second grader.  Five of the eight are adopted, and are African-American to varying degrees.  All of them have very different ability levels, and different levels of being willing to work hard.  The one that left was bright, but lazy, and that was part of his undoing.

I’m not a natural parent, but I have learned to control my temper better as the years have gone by.  I never realized how much I like things quiet until I had a lot of kids.   My wife and I work as a team.  She does most of the teaching, and I do most of the discipline, but each of us does both.  My wife is bright, but I can still do Algebra 2 through Calculus.  I pick up the slack there.

My kids do get some economic training from me in a variety of ways:

1) Informally at dinner, I explain what is going on in the world.  The eleventh grader gets a lot of it, while the college students can’t be bothered.  The ninth grader and sixth graders get a decent amount of it.  But it is precious when one of the kids comes and says “Dad, can you explain to me what happened during the Great Depression?”  That said, it was even more precious when I tried to explain what I did as a corporate bond manager to my kids seven years ago (100 phone call per day), and the then eight-year-old said, “It’s like ordering pizza all day, right?”

2) There is the “Bank of Dad.”  This is not original to me, but I tell the children that they can deposit their money with me, and I will pay them 5% interest (annual equivalent yield).  Oh, and to get started, they must amass $100.  That is psychologically important, because it is a barrier to getting into an exclusive club.  The rate has been 5% for the last 10 years — the rate is subsidized to encourage children to save.

My children are not all natural savers.  Half are and half aren’t.  The ability to earn interest makes them all more inclined to save.  What we try to put forth to those that are not natural savers is to spend less than all that they earn, and save the rest.  If all Americans did that our economy would be much better off.

3) Work hard.  That applies to schoolwork and chores.  Basic chores get no pay but there is an allowance if those normal chores are done.    Then there are other tasks that are available for pay, and those have varied over the years:

• Cutting the yard.
• Yard work.
• Analyzing documents, and shredding the useless ones.
• Sorting financial documents.
• Shredding documents.
• Checking derivative confirms.
• Entering ABS cashflows for delivery to Bloomberg.
• Entering industry rank data into spreadsheets.
• Washing/waxing the cars.
• Fixing the cheap Ikea furniture around the home.
• Killing crickets and other vermin in the home.
• Teaching math, or other subjects to younger children.
• And more… if their schooling is done, neighbors often employ them for tasks, because the children are very reliable.

4) I spend time regularly explaining to my children what careers are in demand, and which are not.  I also explain the basic ideas of how companies make money, or not.  Then they follow what is happening in my career, with the media appearances, talks and other things that go on with me.  In any case, I try to explain to them to be practical, which is not generally taught in the schools.  Yes, do what you love, but don’t be dumb… no one will pay for useless bits of knowledge, and there are few teachers needed in such areas.

5) I do drop in on the homeschooling to provide greater background on history, economics, theology, and science.  I see my wife smile as I give greater depth to topics as I motivate them.

6) We have dinner together every night, and the discussion helps the children grasp on to what is going on in the world, as does subscribing to The Economist, and The Wall Street Journal.  I have subscribed to both for the last 20+ years.

7) Hopes and fears?  Ugh.  My third child made my life a mess.  I loved him so, but he gained a bunch of evil friends and turned against us.  But that is just one child.  My goal is not to create clones of me, but to create people who can be productive in the world, and faithful to Jesus Christ.

I have fears that the future won’t be as good for my children as it was for me, but I also know that my children are better prepared than most.  I can’t control the external macroeconomy; even my predictions are only a vague help.  My goal is to turn out children that are better prepared than most, and willing to work.  Beyond that, I pray to Jesus, but that is the best that anyone can do.

In the end I know that my efforts are valuable but not determinative.  I can’t make anything happen.  I can only teach my children, and trust in God for the rest.

I do a reflective piece every 100 posts, because I like to take a step back, and share my heart with those who read me.  It is fun for me writing this blog, even more than when I wrote for RealMoney.  Why better than RealMoney?  For what I liked to write, I did not feel that I fit well there.  One RealMoney editor told me, “You’re our most profitable columnist.”  Surprised, I asked how that could be.  The answer was simple.  I wrote lots of comments (no pay), and the articles I wrote were both high quality, and long lasting.  The half life of an average article at RealMoney is a day, if that.  My articles were perhaps a month or more.  And, as Cody (Willard) said (something like this) to me over dinner several years ago, “Many of your comments are better than the articles on the site.  I print them out and take them home so that I can think them over.”  I love Cody — a good friend.

Today’s piece is on Thanksgiving.  We all have  lot to be thankful for, but sometimes it is helpful to be prompted and consider all of the ways that we are blessed.

• Your health could be worse.  A wide number of accidents/infections could have harmed you and did not.  I can count on two hands the close scrapes that could have killed me.
• The food could be worse.  I don’t think that I have mentioned it before, but my hobby is cooking.  I am amazed at what supermarkets in the US offer today versus when I was a child.  The diversity is amazing, as are the places in the world that they come from.  It doesn’t hurt to have a large Asian market nearby.  (I am ready for my cooking event tomorrow — there will be 25 people here.)
• The health of your children could be worse.  Two of my eight children nearly died while they were young.  Health for children across the world has improved dramatically over the last century.
• Your economic situation could be worse.  Yes, there are problems, particularly today, but there have been markedly worse times and places to be alive in human history.  There are still dreadfully poor people in the world, but the lot of those worst off is still improving on average, though not everywhere.
• Your national politics could be worse.  Compare the freedom of today against other eras.  In most places, the level of freedom is higher now than in most of history.  We complain about politics being nasty in the US, but hey, a close look at history would tell you that it has almost always been nasty.  And, when it has not been nasty, some of the worst results have occurred.  We do best with divided government in the US.
• There could be more wars.  There are relatively few wars today, and what wars are going are relatively low intensity.

You name it — things could be worse, and across human history, things have been worse.  In most of the world. we would not want to go back to “Golden Eras” of the past.  They would be a step down (or more) from what we have today.

Against Complaining

The opposite of Thanksgiving is complaining.  I want to discourage complaining in a few areas.  First, if you are thankful, avoid complaining about government officials.  Complain about policies, fine.  It is proper to be principled; it is wrong to be acidic to those who hold an office, even if they hold a wrong opinion.  Basic respect must be maintained even with 180-degree disagreement.  The office means more than the person holding it that you disagree with.

There are many who are angry over the losses they have felt, and want restitution should it be available.  But with most things in life, most small-to-moderate losses aren’t recoverable.

There are those that are irascible, and complain no matter what.  They live to complain.  Time to repent, and gain a new perspective.  Yes, things aren’t what they ought to be.  When are they ever that way?  Grow up, and embrace what is good amid imperfection.

Avoid envy.  Yes, there are those who have it better than you, and they don’t deserve it.  Be happy for them; yes, they don’t deserve it, but neither do you.  There are people in developing countries as deserving as you that don’t have 10% of  what you do, and should they hate you?

No, they shouldn’t, and neither should you hate those who have done well in bad times.  Let the courts try those who have committed fraud.  There will always be those who get away, yet God will try them in the end, and find them wanting.

But truly, you don’t deserve what you have, and yet you have it.  It is time to be grateful.  We all have more than we deserve in a fallen world.

Toward God

Not that it is the most basic book of the Bible, but when we talk about thanksgiving, the book of Job is significant.  Read it if you get a chance.  It is the story of a wealthy, generous man who is put to the test.  Would he trust God if all of his riches were stripped away?  His two conclusions are that he needs a mediator, one who can go between God and man, and that no, his personal actions are nothing to God.  All that said, he trusted God, and God heard his prayers.  What more could one of us ask than to have God hear us?   (There is more that I could write about this, but it is beyond the scope of this blog.  All that said, what would a mediator be like, one that could relate to both God and man?  Who in history is like that?)

Gratitude

We have a lot to be grateful for, whoever we are, and whatever we are.  Grab hold of this, and be grateful to God on this day of Thanksgiving.  Your life will be richer when you give thanks to God for what you have, regardless of what others may have.

With this, I thank all of my readers around the world for reading me.  I don’t deserve your attention, and yet I appreciate it.  May the Lord Jesus Christ bless you amid the troubles that will afflict in 2010.

David

PS — you knew I was a Bible-believing Presbyterian Elder, didn’t you?  You didn’t?!  Well, aside from from my eight kids, and homeschooling, that is what I am.  Call me a Fundamentalist if you must, you will be partly right and partly wrong.  But my fundamental alliance is to Jesus Christ, who is still alive, and lives in his Church across the world.  Jesus is my Savior.

I had to take a decent amount of time off this evening to get our harp restringed.  Beautiful instrument, but it requires a lot of maintenance.  While talking with the fellow who travels the East Coast restringing and retensioning/regulating harps, I made the comment, “Capitalism isn’t about greed, it is about service.”  He stopped for a moment, and said (something like), “More people need to hear that.”

Well, I’ll say it now, while Capitalism is at low ebb.  Capitalism at its best is run by idealists who have great ideas about how to make the world a better place by offering more and better choices to individuals.  They love their work, and are passionate about what they do.  They are lifelong learners, trying to better themselves and what they offer others.

The value proposition is simple: Capitalism offers more than you previously could have done with your resources.  For those willing to make the effort and run their own businesses, the principle can shine.  Serve others well.  There is no shame in service, as the Protestant Reformation taught, rather, it is the normal life for all people — we must do our duty in all of life, whether because of non-negotiable ties (Family, Church, State), or negotiable ties (Business Agreements).

Capitalism maximizes choice for those that study hard and work hard.  By meeting the needs of others, there is a reward.  The more people you help, and the greater the help offered, the better you can do.

Capitalism derives its moral legitimacy from service.  The idea that greed makes Capitalism legitimate should be discarded.  Greed is evil; it places personal well-being ahead of ethics.  Service places other people in front of our own interests, and promotes harmony.

I’ve been in the financial world for 22 years — I’ve seen real service.  I’ve seen greed.  I’ve seen managements that motivate to excellence, and those that cheat the customer (and employees — the two phenomena are correlated).  I have also succeeded in serving customers, and sadly, failed them (less often, thankfully).

It does not change my conclusion: Capitalism has moral legitimacy because it causes businessmen to deliver high-quality service to customers, not because it is the best way of channeling the energy of greedy men.

For those with access to The Economist, I would advise reading Malthus, the false prophet.  In one sense, Malthus was a guy who ran afoul of the idea that you shouldn’t make predictions about the long term, or, assume that people can’t make changes to solve problems.

This is one reason that I rarely go in for “total disaster” scenarios.  Disaster, yes.  Big problems, sure.  But total collapse-type scenarios rarely happen because people act individually, corporately, and through their governments (which want to stay in power).  There are rare cases of failure — for a recent one, think of the fall of the Soviet Union after the failure of Chernobyl.  And, that was a relatively benign failure in aggregate.

To give another example, the Y2K problem was real, but the hysteria over it drove companies, politicians and bureaucrats to solve the problems, and the problems were largely solved with a year to spare.

The current worry is that high energy and food prices will get worse as our world continues to grow, and that poverty will increase as some can’t buy necessities.  Metal prices will rise as well as there will be more need for construction materials.  Who knows?  Perhaps timber and cement will come into short supply as well.

High prices will help solve these problems.  We have many bright businessmen that want to make money off this, who will drive scientists and applied technologists to find ways of meeting the needs at lower costs.  In the 1970s, once the drive to become less energy-intensive  got going, it was hard to stop.  The R&D kept going for a while even after energy prices started falling, leading demand to fall further.  Also, sustained high prices will lead old technologies like wind and solar to become economic.  I sort of predicted this on RealMoney two years ago:

		David Merkel
		Peak Oil, Socialistic Governments, and Crisis
		5/9/2006 3:31 PM EDT

Now, I’m not an expert on energy like Chris Edmonds, so don’t take what I write here too seriously. I write this because of some things I read by some doom-and-gloomers on energy over the weekend. I thought the stuff was nonsense, so I’m not even publishing a link to the articles.

In general, I tend to agree more with the “peak oil” theory than disagree with it, mainly because there haven’t been a lot of new big oil finds, and depletion of old fields continues. “Peak oil” means that global output of oil will not increase beyond a certain level, which either has been reached, or will be reached in the next five years.

Beyond that, the behavior of socialistic governments like Venezuela and Bolivia tend to reduce oil output because they don’t manage the oil and gas deposits as well as those that they replaced. Beyond that, they reduce the incentive to search for new deposits, because the profit motive is reduced, if not eliminated.

So, I’m not optimistic about supply issues in energy, and I haven’t mentioned instability in other oil and gas producing nations. That said, I don’t believe that we are headed for a crisis, as some doom-and-gloomers forecast. If/when oil gets over $100/barrel and stays there, a combination of coal, nuclear, solar and wind will be used to generate electricity, and electric cars will become more common. Coal will be gasified as well. Ethanol will be a marginal contributor to the mix, because it takes a lot of energy to produce.

So, life will change some, and energy will become more expensive, but it won’t be the end of the world by any means. And, the scenario I posit above is a bearish one; things could end up better than that over the next two decades.

Position: none mentioned

Now, I’m not in the camp that says that the prices of food, energy and raw materials are coming down soon.  Changing the behavior of a culture takes time; changing technologies takes time.  The progress will likely come, though, and the process of meeting human needs as our world develops will persist, leading to better overall lives on our planet.

-==-=–==-=-=-=-=-=-=-=-=-=-

PS — It will be interesting to see how our world copes with zero population growth.  One of the dirty secrets of economics is that economies tend to do better with younger overall populations that are growing.  I can see governments, even China’s, adopting tax schemes that favor having large families.  I can also see governments becoming a lot more lenient about immigration for people under the age of 30, and families with children.

Now, this is utter heresy, because at present fertility projections our global population should top out at 9 billion around 2050.  My guess is that many governments will panic between 2020 and 2030, and promote fertility and immigration of the young.  Now, whether you can convince young women who have shed the idea that having and raising children is a large part of what life is about to change their minds is another matter… my guess is that the schemes will amount to little.  But who can tell?  Obviously, I haven’t fully learned from Malthus’ error: I’m on the other side of the debate, but still, I made long term guesses of what might happen.

PPS — Malthus was a minister, but unlike many ministers, he lacked confidence in the providence of God.  As an odd historical aside, that lack of confidence had a surprising effect — much later, another young man considering the ministry read the writings of Malthus, and doubted the goodness of God.  That man was Charles Darwin.  History is more complex than we could make up in a fictional work.

I want to go back to an article that I wrote early in the history of this blog, when nobody read me except a few RealMoney diehard fans — Regulating Systemic Risk From Hedge Funds.  It was a critique of the “Agreement Among PWG And U.S. Agency Principals On Principles And Guidelines Regarding Private Pools Of Capital.”  Yes, the “shadowy” President’s Working Group on Financial Markets.  Some will call it the “Plunge Protection Team.”  Well, if they are that, they are certainly not playing up to their billing.  As an aside, I tend not to believe in conspiracy theories, because most bad plans of our government don’t require them.  As Chuck Colson pointed out regarding the Nixon Administration and Watergate leaks — he felt that information tightness in the Nixon White House was so effective, that if a conspiracy could work, it would have worked there.  (Since it didn’t work, and the information leaked out, it had a surprising effect on Colson’s life, as he concluded that the disciples of Jesus (Y’Shua) could not have conspired to steal the dead body, hide it, and fake a resurrection.  But that’s another story.)   Suffice it to say that I don’t think the government intervenes in the major financial markets of our country — there would be too many accounting entries to hide, and someone would have a real incentive to leak the information, or write a book about it.

Going back to my article, I tried to point out the difficulty of gathering data and analyzing it.  It was also somewhat prescient as I said, “Let me put it another way: if the government wants to reduce systemic risk, let them create risk-based capital regulations for investment banks, and let them increase the capital requirements on loans to hedge funds and investment banks. Or, let the Fed change the margin requirements on stocks. These are simple things that are within their power to do now. In my opinion, they won’t do them; they are friends with too many people who benefit from the current setup. If they won’t use their existing powers, why would they ask for new ones?

We will have to wait for the next blowup for the Federal Government to get serious about systemic risk. They might not do it even then. Upshot: be aware of the companies that you own, and their exposure to systemic risk. You are your own best defender against systemic risk.”

There is another reason why they would not act then, as I had pointed out at RealMoney over the years.  Bureaucrats are resistant to offering changes where if thy would get harmed if the changes led to a market panic.  Once the market panic starts, they can move with greater freedom, because no one will be able to tell whether changes imposed during the panic intensified the panic or not.

So, color me skeptical on efforts to monitor and control systemic risk.  It would be very hard to do effectively, and there are too many powerful interests against it.  Also, it would be difficult to get the gross exposure data necessary for inhibiting crisis, because many financial instruments would have to be split in two or more pieces.

As to the articles I have read on Treasury Secretary Paulson’s plan, they divide into credulous (one, two), mixed, and skeptical/hostile (one, two).  Let me simply observe that any plan for the control of systemic risk has to overcome:

• Political opposition
• Lack of effective data
• Lack of an effective model
• Lack of willingness to implement the conclusions generated by the staff/modeling
• Inter- and Intra-agency disagreements
• Data and action lags

If it is already difficult for the Fed to implement contracyclical monetary policy, just imagine how difficult it will be for them to deal with a problem that is far more tricky because of its multivariate nature.  Imagine them trying to analyze the effects from currencies, commodities, operating businesses, credit, ABS, RMBS, CMBS, equity-related businesses, counterparty risk, etc.  This is not trivial, and Paulson I suspect knows it all too well, which has led him to make a modest proposal that will likely not be effective, but will likely run out the shot clock for the Bush administration, leaving the issue for the next President to deal with.

The Fed is not by nature an activist institution, and it would have to become far more activist in order to effectively regulate the bulk of all financial institutions in the US.  I don’t see it happening.

As an aside, I am ambivalent about Federal regulation of insurance, and this RealMoney article of mine still expresses my views adequately.  Still, it would make sense to hand over oversight of financially sensitive insurers, such as the financial guarantee insurers and the mortgage insurers to the Feds, together with whoever oversees the ratings agencies.  An integrated solution is preferable.  (I still like my proposed name for the new regulator, “Federal Insurance Bureau” [FIB... well, it can't be the FBI].

As for some of the fog that a regulator of investment banks would exist in, consider these two articles on hedge fund distress.  What affects the hedge funds, affects the investment banks.  They are symbiotic.

As a joke, given that it is the first of April, if we do get a regulator for overall financial solvency and systemic risk, I believe it should be called the Federal Office for Oversight of Leverage [FOOL].  After all, I think it is taking on a fool’s bargain.