| | Like I said in my prior post -- I think lot of the problems we have today is because people are borrowing for pretty much everything. Hey, even banks are borrowing -- lot of times, you deposit $1,000 in a bank, then based on that money, they are legally able to lend $10,000. Where do they tend to get that borrowing: from the Federal Reserve. Anyways, this phenomenon is called fractional reserve banking.
Anyways, what has happened lately is that lot of people got rich by borrowing money that they didn't have to invest. Lot of this is because the Federal Reserve allows it to happen -- out of the idea that more money is better, especially when we are in a recession. I'm not saying borrowing is a bad thing -- rather let's think through what it would mean if we didn't have borrowing at all -- make borrowing money illegal.
Now, suppose you have a cool business idea that you want to be funded. How would you get the money to start up your business? One way to do that is to save money yourselves from your day job to start with. Then when you have enough, you can start putting the money that you have saved towards starting this business. If it flops, it flops, and you haven't hurt anybody else.
Another way, which can work in combination with your personal saving is to find somebody who has money they don't know what to do with, and ask them if they would be willing to fund the business in return for some of the profit. This isn't lending -- this is part ownership, basically an equity stake. The crucial difference between lending and equity ownership is that equity owners know that if the business goes under while they maintain their stake, they shouldn't expect to get it back. If they want to relinquish their stake -- they need to find somebody else who would buy their stake. The difference between lending and equity is the former is a liability, the latter is a capital.
What about car? Hmm...we can pay per ride on the bus, lease a car (meaning someone else owns it, but you pay monthly to use it), or some car sharing programs like flexcar or zipcar. It is increasingly becoming my opinion that borrowing to buy depreciating assets (that includes car) is an horrible idea. This doesn't mean I'd never do it, but it does mean that when it comes to "investing", you are actually throwing money away the moment you buy a car. The moment you leave that lot, you probably can't sell it for the price you paid for it.
What about house? Well, renting is always an option -- it wasn't until about 50 or so years ago that people got the idea that they have the "right" to be homeowner. Sorry, nobody has the right to be an homeowner -- if you don't make enough money for whatever reason, then, no, maybe you shouldn't own a home. Most people were saving for 25 years just to buy a house in the olden times. During the Great Depression, two families would actually share the same roof (and consider that the houses were smaller back then). In other parts of this world, lot of people don't have nearly as much as the least of us Americans have. There is nothing in the bill of rights that say that we all have to be homeowner. It also wasn't until recently that lot of people have been sold the idea that "oh, owning a home is an investment that will pay off", encouraging them to get loans that they couldn't afford anyways. Another new invention was the no down payment loans, sometimes even with 1% introductory interest rate! Is it any wonder that home prices went up to twice their historical inflation-adjusted value by the end of 2005? BTW, it has only backtraced maybe 25-30%, there is still 25%-40% to go from here.
What's more is: I don't think that healthcare coverage or retirement benefit is a given. If somebody wants to retire bad enough -- let them save, let them invest and find a way to make it possible for them to retire. If someone wants health insurance, let him buy it, or look for a different job until he finds an employer who provides health insurance. Apostle Paul said that if anybody isn't willing to work, let him not eat. Eating -- that is even more of a necessity than a house, a comfortable retirement, or health insurance.
Speaking of health insurance -- I think the cost of the insurance would be best controlled if more of it was paid for out of the pocket. Consumers would demand that the prices come down -- there is nothing more effective at reducing cost than consumers looking for alternatives. If they want to buy insurance, and the insurance company does preliminary physical test, find they have unhealthy lifestyle -- let them fix that, then see their insurance go down. Mind you, even if insurance companies disagree with the consumer about the true definition of "healthy". Keep in mind that some insurance company, if they have done sufficient research, could spring up that realizes "oh, the consumers are right, their health diagnostic doesn't really reduce medical costs over the long run", and therefore undersell other insurance companies using the old system of evaluation, or with a different set of benefits. Then the prior insurance companies will have to rethink their approach. Right now, medical costs are going sky high and lot of people are losing insurance because of one reason: the consumer's true desire in insurance products is not allowed to be measured correctly. What I mean by that is: consumers do want to have those physical exams, they do want to see a doctor when they get sick, and they do want to have the medicine that will cure them (that third point is debatable -- some medicine makes people worse). But, wait a minute -- those services isn't REALLY what consumers want. Let me tell you what consumers really want, and I think you would agree: I think consumers want to be healthy! Nothing else matters -- insured or uninsured, we all want to be healthy, and live comfortably, right?
But the question is how much do they want those services? If it only costs them $10 a visit, lot of them are game. But if they are asked to shell out the true value of $100, lot of them would balk at seeing a doctor, unless they are convinced that it will truly help to keep them healthy. Anyways, bottom line: because the true cost of care is not seen by the consumer, it is a whole lot harder for the market to control healthcare costs. If consumers were paying out of the pocket for more of those cares, and using insurance only for catastrophic coverages -- I'd think that healthcare cost wouldn't have gone totally out of control like it has today. Consumers would have had to do their homework, figure out what service they need and don't need, and the relative prioritization of it in comparison to other things in life. Sadly, I think even consumers are brainwashed by drug companies. When they get sick, the first thing they think of is "what medicine can cure this?"
Just FYI -- I'm not sure I trust my doctor, my dentist, or any of those healthcare service people. I think most of them have been brainwashed by the drug companies and they are basically there to sell drugs. I'm more apt to trusting alternative medicine approaches to different problems. I think that the diagnostic is very good right now (meaning, it is useful to get your cholestrol, blood pressure, heart rate, etc tested). But the treatment is often wrong. Sometimes rational patients have to decide "we're not going to accept your treatment", and look for alternatives. But for that matter, the risk factor of someone with high cholestrol is not as much as lot of medical establishment would have you think, especially if you never had a heart attack. Sadly, both medical establishment, and sometimes even alternative medicine tend to use scare tactics to convince people that they need to follow their recommendation or else.
I think bottom line is: I don't think that the economy should be as dependent on borrowing as it has been thus far. We can make a comfortable living without being in any sort of debt.
-Tim |
| | Posted 10/4/2008 8:08 PM - 10 Views - 0 eProps - 0 comments
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