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TAG | Money

I don’t understand how someone could make Mr. Hinchey’s statement, below, with a straight face:

And Rep. Maurice D. Hinchey (D-N.Y.) vowed to force the White House to accept delivery of a new presidential helicopter Obama says he doesn’t need and doesn’t want. The helicopter program, which cost $835 million this year, supports 800 jobs in Hinchey’s district. “I do think there’s a good chance we can save it,” he said.

I guess “save it” means extract money from the federal government that serves no purpose.  Instead of employing 800 people to do something worthless, why not just pay those 800 people money for doing nothing?  That would be more efficient.

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Both John McCain and Barack Obama, like many politicians, are guilty of overusing rhetoric and eschewing substance.  Particularly, there has been a lot of talk by both candidates about helping “main street” rather than “wall street.”  I wanted to write about this, but the latest issue of The Economist did a better job of expressing my feelings than I could have.

Bankers have always earned their crust by committing money for long periods and financing that with short-term deposits and borrowing. Today, that model has warped into self-parody: many of the banks’ assets are unsellable even as they have to return to the market each day to ask for lenders to vote on their survival. No wonder they are hoarding cash.

This is why those politicians who set the interests of Main Street against those of Wall Street are so wrong. Sooner or later the money markets affect every business. Companies face higher interest charges and the fear that they may one day lose access to bank loans altogether. So they, too, hoard cash, cancelling acquisitions and investments, in order to pay down debt. Managers delay new products, leave factories unbuilt, pull the plug on loss-making divisions, and cut costs and jobs. Carmakers and other manufacturers will no longer extend credit (see article) and loans will become elusive and expensive. Consumers will suffer. Unemployment will rise. Even if the credit markets work well, the rich economies will slow as the asset-price bubble pops. If credit is choked off, that slowdown could turn into a deep recession.

Financial markets need governments to set rules for them; and when markets fail, governments are often best placed to get them going again. That’s pragmatism, not socialism. Helping bankers is not an end in itself. If the government could save the credit markets without bailing out the bankers, it should do so. But it cannot. Main Street needs Wall Street; and both need Washington. Politicians—and President George Bush is the most culpable among them (see article)—have failed to explain this.

I feel as if it is common knowledge that the whole idea of a bailout package is to prevent a catastrophic economic event.  If this is the case, why are politicians allowed to get away with this “Main Street v. Wall Street” stuff?  Why are moderators not calling them on this stuff in debates?

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Two Quick Notes on Car Insurance

I see so many commercials from car insurance companies that say: “People who switched to this insurance saved $x on average.”  That is, for the most part, a pretty worthless statement.  Why would anyone switch to a different car insurance provider if it cost more money?  They all essentially provide the same product.  Thus, the statement that people who switched to this insurance saved $x on average says this: people with particular characteristics switch to insurance companies whose insurance algorithm favors those characteristics.  In other words, car insurance customers act rationally.

Additionally, if you are a good driver, you should be dissuaded by an insurance company who offers “accident forgiveness.”  An insurance company is going to have to cover their costs one way or another.  If they don’t increase premiums for someone’s first accident, that just means they are using everyone else’s premiums as a whole to subsidize that person.  So if you are a good driver who doesn’t get in any accidents, this is not a good thing.  It’s not like a company who offers accident forgiveness is less profit hungry.

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