Wednesday, April 16, 2008

Ordinary People

Another fantastic example of "lead by example" comes from this column in Newsweek, by Rabbi Marc Gellman:
All over this country ordinary people are simply deciding that they don't have to be rich to do good. These low-key philanthropists, some moved by their faith, others moved by an equally powerful secular compassion, are changing the moral landscape of America in ways that the movers and shakers and talking heads who fill the airwaves cannot yet comprehend.

My goal is to be this kind of ordinary.

...small things with great love...

Saturday, April 12, 2008

Geese and Swans

Maeve Binchy is one of my favorite authors. Her books aren't deep or philosophical or challenging. They're human and uncontrived, so they feel true and real. Reading her books makes me feel like I'm sitting down for a cup of tea with my mom and one of her friends, and they're telling the life stories of people that they've known for years. (Except that all of the people in her books live in Ireland.) So if you're looking for an enjoyable book to read, I would suggest The Cooper Beech, and if you like it, move on to The Evening Class, Scarlet Feather, Quentins, and Tara Road.

Here's what she has to say about her childhood:
And even though I was fat and hopeless at games, which are very unacceptable things for a schoolgirl, I was happy and confident. That was quite simply because I had a mother and a father at home who thought I was wonderful. They thought all their geese were swans. It was a gift greater than beauty or riches, the feeling that you were as fine as anyone else.

"They thought all their geese were swans."

How great is that?

Fauxnancial Vocabulary

I know I said that I was going to stop talking about personal finance and the economy, but this article was just too good not to share. Here are new vocabulary words for our new economy:

  • Narcicession - An economic phenomenon characterized by consumers who believe that basic economic principles apply to other people, in other countries, and other eras, but not to them.

  • Denialation - A period following a narcicession, when consumers fail to understand why their net worth and standard of living are falling.

  • Fauxnancier - An investing genius who knows way more about making money than you or I do, except he doesn't, actually.

  • Can'titative analyst - A mathematical whiz who can't explain where several billion dollars suddenly disappeared to.

  • Masters of the Puniverse - Investment bankers who used to be worth hundreds of millions of dollars and now must get by on a few million.

  • Magicware - Sophisticated software that analyzes complex investment vehicles and makes risk disappear.

  • Auditarium - Soundproof room at banks where auditors are quarantined.

  • Benopoly - An economy in which only the Federal Reserve holds risky securities.

  • Econogloss - Presidential pronouncements that paint the economy as stable. Must be reapplied frequently.

  • Mortgage breaker - A lending institution that peddles mortgages designed to self-destruct.

  • Homeblower - A consumer who thinks that financing a house with a mortgage requiring 60 percent of his monthly take-home pay will work out, somehow.

Friday, April 11, 2008

More Lanes, More Parking

They're planning to add a 3rd exit lane to the Fields Ertel exit.

The solution is not more lanes. The solution is optimizing traffic lights.

Cincinnati tends to use traffic lights like airlocks. Light A turns red, and traffic backs up all the way to Light B and beyond. Light B turns red, and Light A turns green, releasing the traffic in the airlock. It stays green for awhile even though the airlock is empty. When Light B turns green, and the traffic behind it starts moving, Light A turns red again.

Examples of airlocks can be found all around Fields Ertel and Mason Montgomery area. The whole area is just one gigantic, grid-locked parking lot. There's simply nowhere for cars coming off of I-71 to go when they reach the end of the exit ramp. Adding more parking on the exit ramp isn't going to solve the problem.

The interchange of Reed Hartman and I-275 is another perfect example of an airlock system. When I lived up on Fields Ertel, I used to take Reed Hartman to get to work everyday. And every morning, I would wait through 8-10 light cycles to cross over I-275. (I had plenty of time to count them, as I sat there for 20 minutes drinking my coffee.) They attempted to "fix" that interchange by doubling the number of lanes, at a cost that would probably boggle my mind if I knew what it was. Reed Hartman now has EIGHT lanes, but traffic still doesn't flow across I-275-- There are just twice as many cars parked in the airlock now.

Traffic planners in this city seem convinced that the purpose of traffic lights is to stop traffic, but really, the purpose should be to optimize the flow of traffic. When I was working on my thesis up in Cleveland, I had to drive across town to Metro Hospital every day. I could drive on Carnegie Avenue all the way from I-90 to Cedar Hill (a distance of over 3 miles through a densely urban area) at nearly 50 mph without stopping for a single light. The lights had been optimized to move traffic out of downtown as quickly as possible during the 4:30 - 6pm rush hour, and I can tell you from first-hand experience that it's simply amazing to see what happens when lights are used to keep traffic flowing.

Thousands of cars sit idling at lights all over Cincinnati right now. Starting and stopping burns much more fuel than keeping cars moving. Think of how much gasoline usage and auto emissions could be reduced if traffic planners just eliminated airlocks and optimized lights to keep traffic flowing.

Wednesday, April 09, 2008

Education Prognostication

I believe that home-schooling will continue to gain momentum in the next five to ten years. My prediction is that home-schooling families will form co-operative groups where one parent teaches Math and Science, another parent teaches English and Social Studies, and yet another parent teaches Art and Music, for example.

And we'll look at them and wonder why it costs $13,000 for each child in public schools, when families can do it for less than $500 per year.

Financial Literacy

OK, one more rant on personal finance and then I'll stop. Maybe.

Newsweek published an article called Clues for the Clueless about trying to improve financial literacy in America. The article opens with this question:
It is, or at least it should be, a simple question. You have $200 in an investment that's earning 10% a year. Assuming you let the money grow, how much would you have at the end of two years?

Here's how American adults answered that question:

  • 18% said $242.

  • 34% said $240.

  • 48% had no clue.

Extrapolating from those results:

  • Fewer than 1 in 5 adults grasp the basic principles of compound interest. In terms of financial "literacy" we can assume that this group can at least read street signs and newspaper articles.

  • 1 in 3 understand how to calculate simple interest, but they don't understand that there's a difference between simple and compound interest. This group has learned the alphabet, and maybe they can work their way through Dr. Seuss books.

  • Roughly half of all American adults don't understand simple OR compound interest. They don't understand sales tax, let alone credit cards and mortgages. Financially, they're completely illiterate.

And we wonder why our country is having economic problems? Who would ever suspect that big companies might try to take advantage of an ignorant group of consumers like this? Big companies always act in the best interests of their customers. Because that's their job, right?

Oh, wait, I forgot... The primary responsibility of big companies is actually to return huge profits to their investors. And investors really don't care what happens to customers, as long as people keep buying what the company is selling. It reminds me of the line from Casablanca: "I'm shocked, shocked to find that gambling is going on in here!" "Here are your winnings, sir." "Oh, thank you very much."

The problem with the system is that regulators assumed that banks would want to protect themselves and act in their own long-term self-interest. But corporations generally set up employee metrics that reward short-term behaviors, and people generally figure out ways to achieve their metrics. (i.e. People do what you pay them to do. That's the double-edged sword of metrics.) In this case, individuals within the banks recognized that they could best advance their careers by creating complicated, high-risk mortgages and bundling them as securities, and they also realized that they would be promoted and out-of-sight by the time the long-term effects came back home to roost.

SIDEBAR: Speaking of "creative" financing... We have an acquaintance who has recently gotten into the consumer finance industry. He mostly works with people who are on the verge of bankruptcy due to credit card debt and/or "unconventional" mortgages. Recently, he was telling us about a potential client who had a less-than-interest-only mortgage. Here's how it worked:
The guy bought a house for $280,000 with essentially no down-payment. He pays the bank something like $2,000 per month, which is actually less than the interest being accrued on the loan. At the end of 30 years, he has to make a "balloon payment" to the bank of $320,000.

Does it make any sense to deliberately create a situation where someone is perpetually upside-down on a 30-year mortgage? (Yes, the house will probably be worth much more than $320,000 at the end of 30 years, but he's still going to be in serious trouble if he tries to sell the house after only 5 years.) How is it even a mortgage? It looks suspiciously like a love child begotten when Luxury Rental Property went out slumming and had a one-night stand with Payday Loans.

So anyway, back to the Newsweek article...
Financial pros have fretted for decades over our ignorance about money. It's not that Americans' financial knowledge has declined, but that the need for it has increased. Until 30 years ago, people shopped mostly with cash, relied on company pensions for retirement and bought houses using fixed-rate mortgages. Today's world of credit cards, 401(k)s and exotic mortgages require more-sophisticated consumers, but there are few mechanisms to aid this transformation. Some high schools offer courses that teach students how to balance a checkbook or follow the stock market, but only 18 states require personal-finance instruction, and some principals resist adding the topic to schedules already crowded with really useful classes, like trigonometry.

I'm an engineer, so yeah, I actually do think that trigonometry is useful. I also think that American high schools need to be pushing more math, not just making substitutions, if we hope to compete with the rest of the developing world. But in the grand scheme of things, I do believe that a class in personal finance is more important than trigonometry or pre-calculus for the vast majority of high school students, especially for students who hate math and don't plan on pursuing any sort of higher education. I've said it before, and I'll say it again, "If you don't understand math, people will cheat you and take advantage of you. And you won't even know that they're doing it. You'll just know that you're always broke, and you always will be."

Here's the next frustrating bit from the article...
Class and culture also play a role in financial-phobia. When Laureen Hudson, a 39-year-old technical editor, ponders why so many of her friends are clueless about money, she recalls how her crowd of left-leaning humanities and science majors held particular disdain for business students, who always had their noses in The Wall Street Journal. "It's considered noble to ignore money, and it's considered grubby or lesser to concern yourself with finance," she says.

I believe there's a special place in hell for people who choose willful ignorance. (In this case, it's called bankruptcy court.)

I've finished my rant, so I'm going to conclude with this brilliant gestalt from indexed:

As the saying goes, "A picture is worth 1,000 words." Or, in this case, a graph...