If I had $249,999 in a bank savings account, I'd spread it evenly over three banks to stay under the FDIC limit of $100,000.
Barack Obama and John McCain, on the other hand, think that the FDIC should raise it's coverage to $250,000 so that those of us who have $249,999 in our savings accounts do not have to be inconvenienced by taking action to preserve our own wealth.
There are certainly bigger issues, in these times of financial doom, but I disagree. I think this is one of those times when people should be inconvenienced. Inconvenience forces people to think things throug ha little. It's also going to be hard for the FDIC to live up to its existing obligations in the next few months without piling more obligations on top of them. Right now, on this small issue, I think we need to stand pat.
People who are nervous should spread their risk over several banks.
And Congress should get over its bottomless wallet, feel-good bullshit.
If, when the crisis passes, we want to raise the level of insurance, then we should do that, and we can raise the insurance premium banks pay at the same time.
Right now, when no one knows what's going to happen next, I'm in favor of requiring people to be attentive to their own best interests. It seems to me that's preferable to asking our debt-crippled government to take on any more obligations it may not be able to fulfill.
I want to explain something about the wine business. In the movie Bottle Shock,
there's a moment when an English wine buyer touring the Napa Valley in
the 1970s offers to pay a winemaker for a tasting. The winemaker is
befuddled as to why anyone would offer to pay for a tasting. It's a
funny little moment, since at the time California wineries were
grateful for anyone who was willing to taste their wine. There's a nice
little montage where the wine buyer goes from winery to winery, leaving
a few dollars behind to pay for the tasting, and the grape farmers and
winemakers marvel at how ignorant he must be.
Since then, wine
tasting has become a huge business. There are wineries that exist
almost entirely as tasting rooms and gift shops.
One of the
interesting marketing phenomena of the wine
business is the advent of tasting-room-only wines. That is, wines that
are exclusively for sale in the tasting rooms. Almost every winery has
them, and they're a
brilliant little bit of flim-flam.
Consider retail wine: Let's pretend there's a bottle that sells for $10. The winery
gets maybe $4 of that. (I'm making these numbers up.) The winery could,
theoretically, sell the same wine for $8 in its tasting room -- a 20%
discount -- and still make more money than it did on distributor sales
because there aren't middlemen getting a piece of the action. In the
early days, wineries sold just like that, which pissed off the
distributors who were being undercut.
Pissing off your distribution isn't smart in any business, but it may
be particularly stupid in the wine business, in which there are dozens
of regional distributors who are more or less used to being treated as
demigods. So, to protect those relationships, wineries make it a policy
to keep prices i ntheir tasting rooms at or slightly above retail.
sucks for the winery since, once consumers figured out they could buy
the same wines back home for less, consumers stopped buying wine in the
tasting rooms. After all, why would you bother to schlep heavy wine
through airports when you could buy the same stuff back home, probably
At some point, some crafty marketer figured out that the thing to do
was create special wines for sale at the winery alone. So wineries
started making smaller production wines of somewhat higher quality. By
little more effort into tending a particular vineyard block, letting
grapes hang a little longer and extracting a little additional color
out of the skins, they could produce a "reserve" wine with the kind of
fresh, bold, New World fruit that turns critics' heads. That, in turn,
would boost the status of the winery within the wine business, making
their retail offerings more attractive to people out in the
hinterlands. It would also provide unique product for the tasting
rooms, creating an imperative for visitors to buy ("It's now or
never!") and allowing the wineries to charge whatever they wanted,
without regard for what the bulk buyers like Liquor Barn charge on
their discount shelves.
Everyplace you go, the hosts point out "this is only available in the tasting
room" and it is, inevitably, at a $70 price point. Give or take a few
bucks, that seems to be the magic number in Napa tasting rooms. Big,
fruity-fresh recent vintage...one day only...$70.
Let me tell you this: It works. I'm ashamed to say how well it works.
I'm not even a big, fruity-fresh Napa cab guy (though I am, in my own
way, fruity fresh) and I bought like I was on some kind of special
edition of Supermarket Sweep. And everyone around me was doing exactly
the same thing, buying bottles and gift packs and cases of wine at two
or three times their at-home upper price limit because it was special.
Some of us did. This downturn was not a surprise. It was also no surprise that the MSM enabled Wall Street by not reporting on the coming bad times. It is in everyone's interest, after all, to keep the economy moving smoothly even as it is driving over the cliff. I hate to admit that I took my financial advice from Atrios at Eschaton but when he blogged about the enormous volume of derivative mortgage backed securities in late October 2007, I freaked. If these derivatives were 10 to 18 times the size of the actual mortgage market, even a 3% write down rate on mortgages would have disastrous effects on the value of those derivatives. I know I don't know squat about these complicated instruments but I do know what happens when you multiply a negative number times 10 or more. By November 3rd I had moved all of our retirement savings into a simple interest bearing account. Three weeks ago we went back into the market in a fund that guarantees 7%; more if the market exceeds that. Our fees are a bit higher and it is a low risk fund (read lower likely ROI) but we are as safe as we can expect to be in this uncertain world. I thank Atrios for saving me the 30% of my retirement that I didn't lose riding the market down to where it is now. And to those who blame this on efforts to get minorities into home ownership, even WSJ couldn't find a way to pin it on poor people. Yes, mortgage defaults are the original problem but without the insane proliferation of derivatives this would be a market correction, not government nationalization of the banking industry. Please tell me that at least some of the rest of you saw this coming as well, because the only thing I really know about is wine and if all the finance guys missed it that is very scary and explains a lot about the present predicament.
Today's investing perspective: When everyone heads one way, smart investors head the other.
When the market starts piling on a can't miss good thing, climb off of the pile and run. Run like hell.
I lived through the Dot-Com bubble. I did a start-up and was raising capital when the bubble collapsed. I should have known. While we were planning our business, we made fun of people who were throwing billions of dollars of capital at zero-cash-flow start-ups that made no sense in the real world. One of our favorites was Pets.com, which assumed that people would pay to have 50-pound bags of dog food FedExed across the country. Instead of getting out, we continued with our start-up -- which was, for the record, a lot more sensible than Pets.com. Still, when the bubble burst venture capital dried up and we were out of business before we'd really started.
The housing bubble features the same lesson. When Wachovia jumped in to spend $25 billion for a mortgage broker whose sustainable competitive advantage is so-called "Pick-A-Payment loans," the marketing hook of which is that they don't have to be paid back with any regularity...maybe we should have figured that mortgage backed securities weren't the safe investment everyone was assuming.
According to Politico, McCain's new advertisement featuring footage of last night's debate "actually arrives before the debate is even over." The ad begins with a voice over: "I'm John McCain, and I approved this ad."