American Pie: On The One Hand, But Then...
...There is a wise old saw that says, “If a proposal seems to be too good to be true, then most likely it is.” Yet another piece of valuable advice is that, “If you want good financial counseling, pick a one-armed counselor, because if you don’t, what you will get is ‘On the one hand this, but on the other hand that.’”...
John Merchant thinks it is unlikely that anyone outside the arcane world of finance can be expected to make sense of convoluted investment proposals, genuine or otherwise.
A theme that has emerged from the real estate debacle here, and the subsequent economic downturn, is that a lot people were given, bad, misleading and even criminally mischievous advice about property and financial investments. Most of those people were ill equipped to properly evaluate what they were told, and suffered as a result.
Given that so many well-educated, intelligent people have fallen victim to Ponsi schemers such as Bernard Madoff, and junk bond traders like Michael Milken and his co-conspirator Ivan Boesky, it seems unlikely that anyone outside the arcane world of finance can be expected make sense of convoluted investment proposals, genuine or otherwise.
There is a wise old saw that says, “If a proposal seems to be too good to be true, then most likely it is.” Yet another piece of valuable advice is that, “If you want good financial counseling, pick a one-armed counselor, because if you don’t, what you will get is ‘On the one hand this, but on the other hand that.’”
When I had my own business, the local Chamber of Commerce would lay on periodic seminars, where senior officers of New York banks were invited to address members on topics such as obtaining venture capital, international trading, economic forecasting and the like.
Whilst I had no alternative but to acknowledge that the speakers were distinguished and successful in their field, I always came away with the feeling that they had said nothing of substance that I could work with. I was left with the sense that in the end I had to make up my own mind about what was good for my company. It almost seemed that they were afraid of being held accountable for any categorical statements they were asked to make.
My wife and I derive a substantial part of our retirement income from a well-respected mutual fund. We have a certain amount of discretion over our investments, in that we can change the degree of risk involved with various segments, but not the individual stocks. Overall, the fund has served us well.
From time to time the administrators send us performance reports and suggestions for alternative investment distributions. Neither of us are slow-witted, but even after deliberate and careful study we generally fail to divine the import of what we are being offered. Me, “What do you make of it?” My wife, “I don’t know, what do you think?” Both of us in concert, “Let’s not bother!”
To give you a taste of what I mean, here’s an excerpt from a pamphlet they sent us just a week ago:
“The Fund seeks to add incremental return over its stated benchmark index, the Russell 2000 index, while also managing the relative risk of the fund versus its benchmark index. The fund uses proprietary quantitative models based on financial and investment theories to evaluate and score a broad universe of stocks in which the fund invests.”
There’s more, but I’ll spare you that. If it wasn’t for the fact that I know and trust our mutual fund administrators, I’d swear we were being scammed. Moreover, I would bet the sentence I just wrote has been uttered by any number of people who fell afoul of those operators who preyed upon their ignorance, and yes, their greed.
The petulant response of the banks and investment institutions to proposals that they should be restrained from making their dubious offerings, is to tighten credit to the point that trade and commerce are grinding to a halt. Companies are not hiring, and are keeping inventories to a minimum because they are denied credit.
My wife and I have just gone through a refinancing of our mortgage to obtain a lower interest rate. This was at the Bank’s invitation, but notwithstanding, it took 100 days to process our application. It was touch and go along the way as to whether our application would be allowed at all, despite the fact that we have a long history of business with this bank and a sterling credit rating.
The official who handled the closing told us how lucky we were. She said she used to process on average six closings a day at the height of the real estate market, and currently was down to that number per month. On one hand I would hope that there never will be a return to the crazy dealings of the last decade, but on the other hand I wouldn’t bet on it.
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