Friedman on Greed & Capitalism

US nets $320.3M on sale of PNC Financial warrants

The US government is making money on some of their bank bailouts. As taxpayers, we shared the burden of bailing these companies out. Should we also share in the profits? Since the US population is only a little over 300 million, the government could send each of us a dollar. What do you think about this? We shared the downside costs, so should we share the upside profits?

Reputation

If your reputation is spoiled, what does it take to make it whole again? What does it take for people to forget?

Goldman Sachs was accused of fraud. They were accused of representing their clients poorly. Apparently, they proved to the Senate Committee that they did not engage in illegal conduct. Yet, will people still see Goldman Sachs as the “gold standard” of investment banking?

Do people ever forget? How long does it take? Is the relationship different in business than in friendship? If you friend does something wrong, maybe you forgive them in a week. If your bank does something wrong, do you simply switch to another? How do you restore your reputation after wrongdoing (or accused wrongdoing?)

Inflation or Depression?

Today was a bad day for the stock market. The rally downwards was led by Standard & Poors reduction of Greece’s debt rating to junk and Portugal to A – from A +.

Greece is a mess. They have admitted they can’t repay their debt. And the markets are reacting accordingly, sliding down over 200 points.

I think Germany’s role in this scenario is really interesting. They are the superpower in the EU (i.e. they have most of the money). A bailout, if any, would be largely burdened by them. Yet, Germany does not want to bail out Greece. One of the reasons is in order to do so, Germany will have to print money and thus create inflation in their economy. Remember WWII? Rampant inflation resulted in wheelbarrows of money being carted off to the market for a loaf of bread.

Inflation was one of the factors that led to the rise of Hitler. Things got so bad there that the people were willing to listen to anyone who promised a brighter future.

This is Germany’s most recent memory of complete financial destruction: inflation.

What about the United States? Our memory is of the Great Depression. We dread another one in our country, much like Germany dreads inflation.

Yet, is our situation so different from that of Greece? Sure, it is a bit different becuase we are not considered completely insolvent, but we are also in massive debt. How will the government pay this debt back? There are two routes: 1. Raise taxes, or 2. Print money.

If we raise taxes, I believe our country will resemble the “lost years” in Japan (the last 20 years). We will not experience inflation, but we will experience stagnant growth (less than 1%). This will hurt our economy, and likely raise the already high 10% unemployment figure higher.

Our other option is to print money to repay debt. This will result in inflation. Imagine you have a million dollars in your bank account, and tomorrow that 1 million can only buy a bag of potato chips. This is an exaggeration, but you get what I mean: your money begins to devalue, and is worth less than it was yesterday.

So what do we choose? Inflation or depression? Inflation hurts all Americans: everyone’s money will be worth less. On the other hand, higher taxes will mean unemployment for only some of the population, but stagnant growth.

Clearly, both scenarios are bad, but I begrudgingly think that higher taxes will be the less evil of the two (I don’t want higher taxes, I just predict that is what our government will do to pay off debt – tax their way out). Inflation is very hard to control, and builds upon itself. No one saves, becuase goods they plan to buy tomorrow are purchased today in anticipation of their prices rising. When Brazil experienced hyperinflation, stores didn’t even open their doors becuase they couldn’t reprice their goods fast enough – they went up in price simply by sitting on the shelves.

This whole Greece debacle reminded me how we remember past events and seek to avoid similar catastrophe’s in the future. Germany does not want to experience inflation again, and the U.S. doesn’t want another depression. Unfortunately, both are bad, and high levels of debt need to be dealt with eventually, or we all get downgraded to junk.

Who Invented the Remix?

I like where music is heading today. Anybody can make music. And become famous. It’s true.

So many DJ’s today make money simply by taking other people’s songs and blending them together. Girl Talk started doing this years ago, but today, tons of others are doing it. This Spring Weekend Trinity saw two such DJ’s, Treasurefingers and White Panda. In fact, White Panda is two college seniors as Northwestern and UCLA.

I was just thinking about how music has evolved over the years. Technology seems to have a lot to do with where music is going today. You no longer need  a record label (well you might eventually), but instead you can broadcast yourself on YouTube and make music on your MacBook.

Do you think people will get sick of hearing songs mixed together? And what about this…when did the remix even get invented?

Schwarzenegger v. Entertainment Merchants Association, 08-1448

Should minors be allowed to purchase violent video games? A new court case in Cali-for-nia is challenging this, as the state tries to put into place bans on the sale of such games to minors.

First off, I was drawn to this becuase its really ironic that Arnold, the guy who got famous on violence, is heading up this case. Yet, he has every right to. He made the movies, and maybe he doesn’t think youngsters should see them. There are already laws in place to prevent this.

But there shouldn’t be. And there shouldn’t be laws against minors purchasing video games. There is a trend towards having the state resolve all of our problems, instead of dealing with them in the family or community. Parents should be telling kids what games they can and cannot purchase. I never had the money or means to go out and buy a video game, unless my parents condoned it.

Should the state dictate everything that we can’t do? For thousands of years parents told kids what they could and couldn’t do. Now it seems we need to be told.

What about violent books. Growing up I loved Stephen King books. They were as violent as movies, video games and music.Should books be banned as well from minors?

Today in class we saw that the top youtube videos are music videos. And the most common age group on you tube is 7 – 14 year olds. How do we monitor what these minors are watching or doing on the internet when their parents are at work.

It is much more important for parents to enforce rules, rather than the state.

Where will the banning end? What does everyone think about this?

ARM Holdings

ARM Holdings (ARM) is an interesting stock I had been tracking. They are an intellectual property company. Essentially, they hold patents for chips that make phones work.

The basic chip, which is in most phones, enables you to make calls. This ARM Processor is in most phones.

In addition, for each additional thing you want a phone to do, you need another ARM Processor. There is one for bluetooth, one for internet, one for wi-fi, etc. I was very interesting in this company a few months ago. If you look at where cell phones are going, it is clear they are doing more. There were 200 million smartphones sold this year, and that figure is expected to double in the next two years.

This is a great stock becuase as more people buy smart phones (which is the current trend), the more ARM Processors sold, and the more royalties that go to ARM Holdings.

Today I saw Apple is looking to acquire the company. They pay lots of royalties to ARM becuase the iphone does a lot and uses lots of ARM processors. It will be interesting to see how this plays out. And it looks like I will regret not buying this stock.

Obama keeps up pressure for financial overhaul

Obama made a speech today in NYC, expressing the need for new regulation of financial firms.

He said, “A free market was never meant to be a free license to take whatever you can get, however you can get it”

Yet, is this really not what a free market is about? Profiting, or losing, based upon your own merits or mistakes. Obama attempts to villify the free market by saying “however you can get it,” indicating that profits are made by those who have no concern for others. Yet, the free market is only free when there is voluntary exchange and people are not exploited. Profits must be made in a respectful manner.

Many people have this perception that profits are made “however you can get them,” but in actuality, this is rarely the case. Profits are made through voluntary exchange of two or more parties. Profits tell people what to produce. They allocate resources in the economy. And they encourage us to work with each other.

Markets work when people have freedom to make decisions. Taking away choice destroys free market capitalism.

Bailouts simply encourage financial institutions to be riskier. They create a safety net.

What if we were to allow a major financial institution to fail. Would this set an example for the others? The U.S. has been bailing out companies for years (people don’t realize this). In 1974 Continental U.S. Bank was bailed out to the tune of 7 billion. That was a lot of money back then. Instead of planning to save failing institutions, why not see what happens when they fail? Thoughts?

Apple 2Q Net Income Surges 90%

When will Apple stop? Right now, it looks like never. The stock is performing exceptionally well. Those who thought it was too expensive at $240 a share are now kicking themselves – its up $17 dollars a share today on huge iphone sales (9 million to be exact, double last year).

Why is Apple so good at what it does? Everyone out their tries to make an “iphone killer” and no manufacturer even comes close. Apple makes products that people love. Ask anyone who has a MacBook or iphone…its a lifestyle to them. Clearly, the reason they do so well is they make products people absolutely love. If you think the ipad is lovable as well, then I suggest you invest now.

Citi Earns 4.4 Billion

Citigroup announced its quarterly earnings today and beat expectations, earning 4.4 billion. What do you think about such huge profits? Did the bailouts work? Thoughts?