Bill Simmons on Sunk Costs

ESPN.com's Bill Simmons gave a fantastic review of the economic concept of a Sunk Cost. Here it is for your economic education:

What is a sunk cost? In financial terms, it's a lost cause -- you're paying for something that has lost its value to you. Let's say I spent $200 on one of those beautiful, 6-foot-high, glass-blown water bongs and named it Barack Obonga. And let's say I smoked a little too much of the special hydro weed they give to cancer patients, decided someone was watching me through my front window, ran outside in my underwear with a baseball bat, and eventually spent the next two hours sitting in a tree waiting for the imaginary guy to come back before my neighbors called the police. And let's say the whole experience made me say, "You know what? I need to quit smoking pot, it's making me a little crazy." Maybe I'd try to sell the bong on Craigslist to no avail, and none of my friends would take it because there's nothing grosser than owning someone else's bong. At that specific point, Barack Obonga would become a sunk cost; that money is out the window. It's gone. I need to accept this fact and move on.

Full article can be found here

DANNY BLOGS!!!

As some of you know, I have a little brother, and his name is Danny. Here is our stock photo.

My little brosky is pre-med at BYU and he's started up a blog. He's resisted starting a blog for a long time, so I can only assume some sweet girl has finally convinced him to give in and join the Blogosphere. Bienvenidos, Hermano. Everyone go check his blog out right now. His first entry is a delightful discussion of cleansing diets and one of my favorite pastimes, colonics.

Blog may be found, HERE.

Yes on Prop 8

I haven't blogged yet about prop 8. Mostly, it's because so many people have already talked about it and have done a much better job than I could ever do. My old buddy Myron gave the best roundup on it, and I strongly encourage everyone to read his explanation of his position on prop 8.

http://myronn.blogspot.com/search?updated-max=2008-10-17T20%3A22%3A00-07%3A00&max-results=2

Long time Simsisms friend, 84rkr posted his thoughts on prop 8 on his blog. 84's stuff is always well written, and may be found here.

Anyone who thinks that judges imposing their own view in substitution of the people's ignores history. Proponents of Judicial Activism often cite Brown v. Bd of Education as an example of the rightness of Judicial Activism. These people also ignore the fact that there was broad support for desegregation, and that the Supreme Court vote in that decision was UNANIMOUS. They also conveniently ignore the fact that most schools weren't desegregated until the NIXON administration. The judicial branch is simply not a transformative institution and cannot push the country in a direction it does not want to go. Take for example the Decision in Roe v. Wade. The court decided to push the country into universally accepting abortion. We have not had a judicial appointment since that decision that hasn't involved whether or not that decision should be overturned. We can't have an election without abortion being a subject. In essence, we've spent the last 30 years trying to undo Roe v. Wade because half the country despises it and will not accept it.

Courts that put their own political agendas in place of the will of the people they serve undermine their own legitimacy. Take for example the two most activist courts in the country, the 9th and the 5th circuit appeals courts. The 9th circuit panel has essentially become a running joke. You remember them as the ones who struck down the pledge of allegiance. The Supreme Court later tossed that case as the litigant didn't even have standing to bring the lawsuit. No one really takes the 9th court seriously on political questions any more, as it's almost a given that they will be overturned.

The 5th circuit, if memory serves, was chastised by the supreme court for not paying attention to the decision that the Supreme court handed down. The supremes effectively had to issue a bench slap to try and get the 5th circuit back in line. The 5th circuit decisions have been quietly named Cert Petitions because it's almost guaranteed that they will have to be reviewed. (Cert Petition is the name of a document that requests a supreme court review).

Now, a court in California is trying to push the state into a Roe situation. California OVERWHELMINGLY voted to explicitly ban homosexual marriages. There is not broad support for the issue, and people do not accept it. When a court substitutes it's own views in place of the will of the overwhelming majority, or endeavors to force a sea change against the will of the people who the court serves, it undermines its own legitimacy.

Prop 8 ammends the California Constitution to recognize only Heterosexual Unions as a marriage. Only an ammendment to the constitution is sufficient to bind the hands of an activist court and force them to abide by the will of the people instead of calling an audible on societal norms. The court's disregard, and frankly, utter contempt, for the express will of the people makes this ammendment necessary to protect this most sacred union given by God as an essential part of his plan for his children. Vote yes on prop 8.

Don't Vote

For some stupid reason, every election season hippies and well meaning old people descend on colleges and malls everywhere trying to convince the ignorant masses to vote. This is stupid. I know TONS of college students and mall goers and the idea of them having ANY say in what happens in the country makes me break out in a cold sweat. I have a degree in political science and I almost have a doctorate, I actually pay attention to politics and world affairs. My vote is informed and based on things like facts. Most college students view class as a way to kill time between bong hits. They are too ignorant and stupid to vote. There, I said it. Stupid people should not vote, and they should not have the same say in the government as I do. There, call me a snob or an elitis if you want, but deep down you know I'm right. You look at the guy in front of you in the voting line and start wondering if they clean the voting machine before each use. Don't front, you know this has happened.

If you think that raising minimum wage is ever a good idea, you shouldn't vote. If you think Saddam Hussein was connected to Al Queda, you shouldn't vote. If you can't pass a breathalizer test the morning of the election, you shouldn't vote. If you have not studied the issues and can't explain why you think your candidate's plan will work, DO NOT VOTE. Stay home. I can't stress this enough, democracy was not meant to be run by the lowest common denominator, and you are bringing us down. Voting is not mandatory, so please, don't feel obligated.

Another great article on why you shouldn't vote, here.

Take a test to see whether you are qualified to vote, here.

In other news, Scott Adams, creator of Dilbert pretty much hit the nail on the head with his description of the recovery plan.

SP running 4 VP on SNL

Perspective

“And behold, the time cometh that he curseth your riches, that they become slippery, that ye cannot hold them; and in the days of your poverty ye cannot retain them.
And in the days of your poverty ye shall cry unto the Lord; and in vain shall ye cry, for your desolation is already come upon you, and your destruction is made sure; and then shall ye weep and howl in that day, saith the Lord of Hosts . . . Behold, we lay a tool here and on the morrow it is gone; and behold, our swords are taken from us in the day we have sought them for battle.
Yea, we have hid up our treasures and they have slipped away from us, because of the curse of the land.
O that we had repented in the day that the word of the Lord came unto us; for behold the land is cursed, and all things are become slippery, and we cannot hold them.

--Helaman 13

Just a quick reminder in this season of financial uncertainty that perhaps the best investment is to lay up treasures in heaven, where things never lose value and the interest rates are highly favorable.

How to make the debate watchable.

Cracked.com offered some suggestions on how to make the debates better. Here's a couple of my faves.

Full article here

The user's guide to the financial crises has been posted at Freakonomics. Link Here

Luigi ZIngales

University of Chicago economist Luigi Zingales offers a plan B for the economic bailout. Given the market today, this might be a moot point, but still an interesting read.

Link here

In other news, here's my suggestion for the McCain campaign ads.

REMEMBER WHAT HAPPENED THE LAST TIME JOHN MCCAIN RAN FOR PRESIDENT AND YOU DIDN'T VOTE FOR HIM?




VOTE MCCAIN

Suze Orman talks credit crunch

The following is an article about Suze Orman's take on the credit crunch. I'm pasting the whole article rather than linking because it originally appeared on the website of a certain well-known talk show host whose name rhyme's with Goprah, and whose website I will not link to or name, purely out of principle.

The American economy has hit a new low. Home values are plummeting, bills are rising and job layoffs have every worker concerned.

Factor in the sudden bankruptcy of 158-year-old investment bank Lehman Brothers, an $85 billion federal bailout of insurance giant American International Group Inc., Bank of America's quick purchase of Merrill Lynch and rumors of future sales and the rejection of a $700 billion government bailout, it's no wonder Americans are worried about their money.

Are you sick to your stomach and scared out of your mind?

Money expert Suze Orman is here to explain what's really going on -- and how you can protect yourself.

"We have built an entire economy on lies and deceit," she says. "It's like building a home or an entire building on a sinkhole. You have a foundation, supposedly. But a little crack, if something goes wrong -- a little earthquake, a tremor -- and it starts to open, everything starts to fall down and ... that is exactly what has happened in the United States of America."

Suze says the current financial downturn started all the way at the top of banks, mortgage companies and brokerage firms.

"There was greed at the top -- serious greed," Suze says. "When you have stocks, you have individual companies that want to make money. And [CEOs] want to make more money because the more money they make, the more their compensation is, the more their stock price goes up."
Don't Miss

These companies made money by selling investments like mortgages to people who couldn't afford them, Suze says.

"Have you all ever wondered, 'Why does Suze Orman say people first, then money, then things?'" she says. "It means if we cared about people more than we cared about money, we would not be having what happened today, because the people who run the corporations, if they had cared about all of you, they wouldn't have created loans that you couldn't afford."

A lack of regulations also contributed to the downfall -- and Suze says there weren't more rules established because they would cut into the bottom line.

"The more money the brokerage firms, the mortgage companies and all those companies made, the better the economy was. Because if they lent you money, you had money now that you could spend," she says. "When the economy looks great, everybody feels like, 'Oh, we're doing good.' The stock market goes up. When the stock market goes up, the price of shares go up. The compensation for the CEOs go up."

As things progressed, Suze says many people fell under Wall Street's spell.

"A lot of you have built your personal financial foundation on deceit and lies. You bought a home that you couldn't afford ... You spent money like it was going out of style and it wasn't your money to spend, because why? They were borrowing it," Suze says. "When you borrow money, you leverage yourself. The United States of America leveraged itself so high that when it started to come down, the whole thing now has fallen down." Oprah.com: 6 deadly sins of home equity

The recent billion-dollar bankruptcies are going to make things more difficult for the average person, Suze says. For example, Suze says securing credit may be nearly impossible.

"The chances of you being able to really get a mortgage, a car loan, even student loans for your children, may be far more difficult than you have any idea," she says. "If you currently have credit cards that you're not using that have open lines of credit on it, probably you will see them close down."

In terms of investments, Suze says people close to retirement may need to reconsider. "Many people now have seen their 401(k) either cut in half [or] down 40 percent," Suze says. "[People] may have to work a lot longer than they planned, may not have enough money to generate income to send their kids to school."

Homeowners will also feel a burden, Suze says. As people lose their jobs, fewer homeowners can afford to pay their mortgages and property taxes.

"The less amount of people that are paying property taxes, the less your state has to pay the firemen, the police department," Suze says. "The more your property taxes go up, the less you can afford your mortgage."

With all of these economic puzzle pieces in play, Suze says she wouldn't be surprised if we switched to a cash economy -- which means buying only what you can afford now.

"Banks aren't going to want to give you money where they're afraid that you might not pay them back," Suze says. "I personally think that's a great thing."

So what can you do to protect yourself? "People, stop living the financial lies that you have been living," Suze says. "If you don't have the money to pay for something, can you just not buy it? Can you wait? Can we start looking at keeping our cars for 10 years rather than getting a new one every three?"

Tammy and Tim are a couple who asked for help cleaning their financial house. Like many Americans, they say they have no health insurance and owe more on their home than what it's worth.

The couple also says they have no life insurance to provide for their two children should tragedy strike. Since Tim was laid off from his job last spring, the couple has been living largely off credit cards -- and owe more than $90,000 across 29 different cards.

Tammy says the bills added up before they knew it. "We are taking every bit of money that we do make and putting it toward our credit card payments. We're very proud people and never have been late in 20 years on our payments," she says. "We tend to take our cash, pay our credit cards and then use our credit cards to pay our mortgage and put gas in our car and feed our kids."

Tim says he and Tammy have no idea what to do once their credit is maxed out. "Right now is where we really need the most help," he says. "We're open for any advice that we can get."

Suze has some tough love for this struggling couple. After looking at Tammy and Tim's finances, Suze says the couple falls $2,000 short each month. With property taxes, utilities and the mortgage payment together, Suze estimates it costs at least $3,000 a month to live in their current home.

Suze's suggestion is a harsh truth for Tammy and Tim. "I love you enough to tell you what you need to do to not only save yourselves, but to save your children so there's enough money then to buy them health insurance, for them to have life insurance," Suze says. "You need to sell your home."

Tim says he's concerned about putting his house for sale in a depressed market.

"If you had just been honest a year ago, two years ago, that you couldn't afford the mortgage payments -- you couldn't afford the lifestyle that you were living -- you would not be in this situation here today," Suze says. "If you get rid of the house, you will start to live an honest life without lies. You'll start to make more money. You'll feel better."

Tim and Tammy want to know what their next step should be. "Let's put the house on the market to sell. Let's see what it should be priced at. Talk to your bank about possibly having to do a short sale and just see what happens from there. That is our first step toward honesty," Suze says.

It won't be easy, but Tammy says they're ready. "Whether we've been naive or not, it's a reality, and now we're finally seeing the light and realizing that it's a change we need to make," she says.

Cash-strapped couples aren't the only ones concerned by the country's economic crisis. Millions of aging Americans who have money in retirement accounts have seen their nest eggs shrink in recent weeks. Suze reveals which people really need to rethink their plans for the future.

If you're 10 to 20 years away from retirement, Suze says there's no reason to panic. "As long as you are invested in good quality mutual funds, diversified across the board, as this all goes down, you're buying more shares," she says. "The more shares you buy, eventually, when it turns around ... the more money you'll make."

The situation is more serious for men and women planning to leave the workforce in the next year. Suze says if you recently lost money in the stock market, there isn't time to recover your losses.

"The harsh reality there is what? You are going to have to work more," she says. "For something to recover -- even at an 8 or 9 percent annual average rate of return -- it could take you 12 years to get back there."

If you need to start dipping into your savings in the next 10 years, Suze says it's best to take your money out of the stock market and invest in CDs and treasury bills or bonds.

"For those people who need the money to be safe and sound, you need it to generate income now. You have to come out [of the stock market] at this point," she says. "It doesn't mean you can't go back in."

Suze says people may also want to start rearranging their funds. "You might put your money in something that gives you a dividend of 4 or 5 percent, so even though it's low, you're getting your income so you can live off of it," she says. "Then if the markets go back up in those areas, you'll make your money back."

Sell Sell Sell

That's it. Market is over. When Cramer is telling you to get out then you know we are in for a crash.

One More

Saturday Night Live got this one spot on. Maybe the world IS ending.

Biden-Palin

Outrage

Remember how this spending bill is supposed to save the economy? Remember how the House rejected it on monday saying it wasn't the answer? Well, the senate has found the answer. Pork. Lots and lots of Pork. What started as a page bill giving the treasury additional authority to buy bad debts has now grown to hundreds of pages in length and contains tax breaks in no way connected with helping the economy. This bill is nothing short of an outrage and it is unconscionable that our lawmakers would use a crisis as an excuse to line the pockets of special interests.

The following excerpt from the new york post gives the details on some of the provisions of the "rescue" bill. Original article here.

The special provisions include tax breaks for:

* Manufacturers of kids' wooden arrows - $6 million.

* Puerto Rican and Virgin Islands rum producers - $192 million.

* Wool research.

* Auto-racing tracks - $128 million.

* Corporations operating in American Samoa - $33 million.

* Small- to medium-budget film and television productions - $10 million.

Another measure inserted into the bill appears to be a bald-faced bid aimed at winning the support of Rep. Don Young (R-Alaska), who voted against the original version when it went down in flames in the House on Monday.

That provision - a $223 million package of tax benefits for fishermen and others whose livelihoods suffered as a result of the 1989 Exxon Valdez oil spill - has been the subject of fervent lobbying by Alaska's congressional delegation.

Some of the pork-barrel measures buried in the financial rescue package had been contained in a bill that previously passed the Senate, but died in the House.

The Congressional Budget Office said the package of breaks - including obvious pork and some more defensible tax-relief measures - will add about $112 billion to budget deficits over the next five years because the bill doesn't contain enough offsetting revenue hikes to keep the budget balanced.

Bailout

A bailout is when a failed president and a failed congress give $700 billion of your money to failed banks. How could this possibly fail?

--Jay Leno


Link to a snappy article on why the bailout is all wrong

Click Here

Apologies

700 Billion Dollars and not a dime will go to save your house.

In honor of all the people who are going to lose their house, the best copy I could find of Ben Gibbard's All Apologies cover.