Okay, The Gold Investors Win This Round

The basics of investing in commodities revolves around scarcity: the less of something there is to go around, the higher the price, and vice versa.

Over the course of the current... well, what can only be described as a gold rush, really... this hasn't really come up, at least not directly. The price of gold has gone up not so much because people think there's less gold to go around, but because there's less money to go around and gold is at least a stable thing.

Well, now there's less gold to go around. Hugo Chavez, president of Venezuela, intends to nationalize the Venezuelan gold industry, plans announced last week and formalized Tuesday. Not only that, he's making efforts to transfer physical gold reserves to Venezuela; that amounts to an estimated 16,190 gold bars.

That amounts to 211 tons, which is estimated to take about 40 shipments and take a huge amount of effort to physically transport.

The decree is being called almost identical to a law passed in 1965 that nationalized gold mining, and a 1977 law giving the government exclusive rights to extract it. There is no word, however, on whether either of these laws said anything about Venezuela importing gold reserves from overseas, as is now in the works.

According to Chavez's administration, this is being done to get the gold out of countries with unstable economies- namely, European ones. According to local opposition, though, this is being done primarily to shore up a campaign warchest. Chavez faces re-election in 2012. One opposition legislator, Leomagno Flores, said on the floor of parliament, "They are greedy for money for the campaign and want to bring the gold to Venezuela to turn it into cash ... please, this is heresy." Another, Miguel Angel Rodriguez, told Chavez' finance minister, "You will liquidate the gold and sell it because the only thing you know is how to rob, to rob and to rob!"

If Chavez was hoping to keep his own economy stable on the news, it didn't work. Standard & Poor downgraded Venezuela's credit rating on Friday. If you follow credit ratings, it was dropped from BB- to B+. If you don't, it was dropped from the 13th-highest ranking to the 14th, with anything below rank 10 for any of the three major credit agencies being a junk bond. Moody's has them at rank 15; Fitch at rank 14.

Perhaps some gold will assuage their fears.

Stop Reading Chain Letters, Seriously, Come On

So this has been making the rounds on Facebook lately. You may have seen it yourself; I've been hit from several sides by it:

Salary of retired US Presidents ………….$180,000 FOR LIFE
Salary of House/Senate …………………..$174,000 FOR LIFE
Salary of Speaker of the House …………$223,500 FOR LIFE
Salary of Majority/Minority Leaders …… $193,400 FOR LIFE
...Average Salary of a teacher ……………. $40,065
Average Salary of Soldier DEPLOYED IN AFGHANISTAN $38,000
I think we found where the cuts should be made! If you agree… Copy and RE-POST

The sentiment expressed by this... what do we use to describe it? Chain post?... is pretty obvious: if we're going to be making budget cuts, "I think we found where the cuts should be made".

Only one problem: are those facts and figures actually accurate? We need to figure that out before we get out the torches and-- oh, screw it, you lit the torches long ago. Well, it'd be a nice thing to know regardless. We wouldn't want to have our facts wrong and look stupid, would we?

There are two main things we have to cover: first, are these salary figures accurate and where did they come from. Second, we need to settle the 'FOR LIFE' side of the equation. This, it can only be assumed, refers to the pension that those officeholders receive upon leaving their respective bodies. We need to find out if they actually get a pension equal to their active-duty salary; and if not, what the pension actually is.

First, we'll handle the President. A current President's salary, most recently revised in the administration of Bush 43, is $400,000 per year, up from $200,000 previously. He also gets a $50,000 non-taxable stipend. But current Presidents aren't on the list. We want retired Presidents. While $180,000 is a commonly-given answer, their pay- their pension- is actually not a fixed amount. It is indexed to match the salary of current Cabinet members. That salary, along with many others in the highest levels of the executive branch, is part of something called "Executive Schedule". Executive Schedule covers top-ranked Presidential appointees, sorting their salaries into five levels, given Roman numerals I-V. I is highest. Everyone at a given level gets the same salary.

Everyone in the Cabinet sits at Level I. Which means, by extension, retired Presidents also get Level I pay. The salary there, currently, is $199,700. That's actually MORE than the angry chain-post claims by $19,700.

Just for fun:

*Also at Level I are the Director of National Intelligence, Chairman of the Federal Reserve, Commissioner of the Social Security Administration, and the directors of the Office of Management and Budget and the Office of National Drug Control Policy.

*Level II salary is $179,700. Sitting here, among others, are the Joint Chiefs of Staff and deputy secretaries.

*Level III pay is $165,300. Undersecretaries sit here. Yes, that is a different thing from deputy secretaries. Also sitting here, among others, are the Solicitor General, the directors of the FBI, DEA, Peace Corps, Office of Government Ethics, and Bureau of Citizenship and Immigration Services, the administrator of the Centers for Medicare and Medicaid Services, and chairmen for the FCC, FTC, SEC, FDIC, OSHA, Consumer Product Safety Commission, National Endowment for the Arts, National Endowment for the Humanities, and Nuclear Regulatory Commission.

*Level IV gets $155,500. Assistant Secretaries go here- yes, that's another level- along with various Inspector Generals. Also here are the heads of the Bureau of the Census, National Institute of Standards and Technology, Office of Science, Food and Drug Administration, Bureau of Prisons, and Office of Juvenile Justice and Delinquency Prevention.

*Level V gets $145,700. Among the people here are the Archivist of the United States, and heads of the US Fish and Wildlife Service, US Geological Survey, US Bureau of Mines, Bureau of Indian Affairs, Bureau of Land Management, National Park Service, and the Smithsonian's Museum of Natural History.

The other governmental figures, the members of Congress, match the figures shown here, at least, while they're actively in office. That isn't in dispute. However, the pension is not full. Nor is it immediate, or even automatic. In order to get any Congressional pension at all, members of Congress must first earn it by having served a bare minimum of five years in civil federal service. So if you serve two terms in the House and then lose out on a third term, you're out of luck unless you find some other governmental position in which to get that other year.

There are other restrictions as well. In Congress, you are not eligible for a pension until your 50th birthday, and even to get it then, you have to have served for 20 years or be part of nine Congresses. Other than that, generally speaking, you qualify either on your 62nd birthday, or upon having served for 25 years.

Your pension is figured combining your years of service with the average of the three years in which you earned the highest salary, along with factoring in (PDF file) which of two federal retirement plans you have. (They introduced a new system in 1987, the Federal Employees' Retirement System (FERS) and employees who started prior to 1984 were given the option of which plan they preferred, FERS or their current one, the Civil Service Retirement System (CSRS).) However, your pension is not indexed, like former Presidents, and your initial pension amount cannot exceed 80% of your final salary. CSRS sees you max out after your 32nd year. There is no maximum under FERS, but we'll calculate at 32 years there as well for comparative purposes.

Congress currently gets an annual pay raise unless Congress votes it down. This is a different pay structure than the retired President. At no point in time do Congressional salaries and pensions of retired Presidents meet up in the way they do in the chain-post. The poster had to have gotten them from two different sources that were working on two different timeframes.

The older pension plan, CSRS, is figured as such:

High 3-year average X years of service X .025 = Annual pension

The newer plan, FERS, is figured as such:

[High 3-year average X .017 x years of service up to 20] + [High 3-year average X .01 x years of service past 20] = Annual pension

In 2006, the most recent year available, the average CSRS recipient was getting $60,972 annually. 290 people had retired under CSRS The average FERS recipient, of which there were 123, was getting $35,952 annually; this is the average newly-incoming members of Congress should look at. Individual figures are not given.

Let us assume, for theoretical purposes, the 32-year scenario for all, with three-year averages all locked at current levels:

House/Senate: $174,000
Speaker of the House: $223,500
Majority/Minority Leaders: $193,400

This means that, under CSRS, they would each get in annual pension:

House/Senate: $174,000 x 32 x .025 = $139,200 annual pension
Speaker of the House: $223,500 x 32 x .025 = $178,800 annual pension
Majority/Minority Leaders: $193,400 x 32 x .025 = $154,720 annual pension

And under FERS, there is no maximum, but it would take 66 years in Congress- which has never been done- to achieve 80%. After 32 years, it works out to 46% of that same salary:

House/Senate: [$174,000 x .017 x 20 = $59,160] + [$174,000 x .01 x 12 = $20,880] = $80,040 annual pension
Speaker of the House: [$223,500 x .017 x 20 = $75,990] + [$223,500 x .01 x 12 = $26,820] = $102,810 annual pension
Majority/Minority Leaders: [$193,400 x .017 x 20 = $65,756] + [$193,400 x .01 x 12 = $23,208] = $88,964 annual pension

Remember, those are theoretical, perfect, absolute-maximum pensions that someone could get, today, by leaving Congress. Not only is it nowhere close to the claimed amount in the chain-post, even in a perfect scenario, but the newer plan, FERS, which newly-elected members are placed into, gives them LESS money, significantly less, than the plan that the older members get. So the chain-post is way off here.

Next, we have the teachers. Their average is pegged at $40,065, but this number appears dubious. This number is overwhelmingly seen only in repostings. The most relevant things I could find that uses $40,065 as an average are here, the Elk River Public School District in Minnesota, where $40,065 is the median male income; here, Upper Little Caillou Elementary in Chauvin, Louisiana, where $40,065 is the average faculty salary in 2006-07; and here, Blanket High School in Blanket, Texas, where $40,065 is the average base salary for Blanket High's entire district. Frankly, these appear to be nothing more than lucky shots, because there are so many numbers thrown around in so many districts in so many categories that any given dollar amount is bound to match something somewhere. I shifted the average one dollar lower, to $40,064, and came up with schools in Cape Girardeau, Missouri and New Albany, Indiana. One dollar higher, $40,066, matches the average base salary for a district in Amarillo, Texas.

Blind luck.

As it happens, it's pretty hard to get a blanket figure for "teacher" if you're not really paying attention. When you look for it, you'll find they're usually parsed out by state, by experience, or by type of teacher, and while $40,065 never shows up, the numbers work out to where that comes pretty close to an average of some sort. (Although most of the groups show that $40,065 would skew a few thousand dollars low of average.) It may have been that someone took all the salaries in one of the lower-paying groups shown, smashed them together as a mean average with total disregard as to weighting, and used the result in the chain-post. However, it's almost impossible to tell what group they used.

The first Google result for 'average salary' takes us to salary.com, and the most popular search there is for teacher salaries. An average person needing to smash an average together would most likely go here to do it.

Smashing a mean average together from the 10 categories shown produces $43,934.20, a little less than $4,000 short of the given average. So that's not what the originator did, not precisely. But it is close enough to imagine that this was done somewhere or other. Just not at salary.com.

An actual average, however, is available via the National Education Association. (PDF file.) The average for all classroom teachers was estimated, for 2010-11, to be $56,069, up from $55,202 the previous year. The chain-post's number now looks fairly wildly off.

As for a soldier in Afghanistan, $38,000 matches the number given in the fourth Google result for "average annual salary troop afghanistan", something on Yahoo Answers talking about one specific rank in one specific branch- a tech sergeant in the Air Force.

The Army base pay scale is shown here; the equivalent rank is staff sergeant. $38,000 is higher than any of the figures listed; the highest is $34,088 for a staff sergeant serving for over 6 years. (Privates are started at $17,611 for the first four months.) However, that is only base pay.

An average is even more problematic to track down than that for teachers, because of the sheer number of variables and bonuses that get in the way of producing that nice, clean single average. I was never able to get that straightforward average. The three most relevant are hardship pay ($225 a month, or $2,700 a year), combat pay ($150 a month in Afghanistan, meaning $1,800 a year), and family separation allowances ($250 a month, or $3,000 a year). Combined, that's $7,500 tacked onto your base pay right there if you have any dependents, or $4,500 if you don't. There is also food allowance, clothing allowance, hazardous duty pay, and various other factors.

There is one more, fairly major oversight made by the chain-post: when in a combat zone, a soldier's pay becomes tax-exempt. That provides a substantial boost to someone's salary. It's not going to get anyone swimming in champagne, not by a longshot, but it's nothing to sneeze at either.

Suffice to say, on what has been supplied, $38,000 is certainly one possible number, but a more responsible thing to do is give a range, and while it's a rough, broad estimate, an average soldier in Afghanistan could probably expect between $30,000 and $60,000, somewhere between 'pretty bad' to 'actually fairly decent'. Were I to venture a guess of my own, I'd settle on something around $50,000, give or take. But don't take that as gospel.

So where does this all leave us? Let's revisit the chain-post:

Salary of retired US Presidents ………….$180,000 FOR LIFE
Salary of House/Senate …………………..$174,000 FOR LIFE
Salary of Speaker of the House …………$223,500 FOR LIFE
Salary of Majority/Minority Leaders …… $193,400 FOR LIFE
...Average Salary of a teacher ……………. $40,065
Average Salary of Soldier DEPLOYED IN AFGHANISTAN $38,000

And now, let's revise it to reflect the actual numbers we've found.

Salary of retired US Presidents ………….$199,700 (and rising) FOR LIFE
Salary of House/Senate …………………..$174,000, then $35,952 FOR LIFE
Salary of Speaker of the House …………$223,500
Salary of Majority/Minority Leaders …… $193,400
...Average Salary of a teacher ……………. $56,069
Average Salary of Soldier DEPLOYED IN AFGHANISTAN depends on A LOT OF THINGS but is probably between $30,000-60,000, TAX-FREE

The sentiment of the chain-post- that elected officials make much more in comparison to teachers and soldiers- is accurate. However, the exact numbers are almost completely wrong, mostly in a direction that makes the differences more stark than in reality, and the Congressional pension numbers are ridiculously off. And the tax-exempt status of the soldier in Afghanistan gives a big boost to their entire pay structure.

This chain-post is an example of the phrase 'garbage in, garbage out'. It looks to have been put together very lazily, with bad and very possibly outmoded data. Someone probably got angry, had general, predetermined ideas of what the numbers were going to be, threw together the first numbers they could come up with that looked right, and made a post out of it. As such, the numbers only have the most threadbare of resemblances to reality.

To borrow Politifact's rating scale, I rate this chain-post Mostly False.

Countries By Credit Rating

So... the US got downgraded by Standard & Poor.

Where does that leave us in relation to the rest of the world?

If you don't follow credit agency ratings regularly, the names of the ratings are likely to look a bit inflated. Every rating from the three major agencies- S&P, Moody's and Fitch- contain the letters A, B or C, often multiple times. Or at least, every rating that any country with a rating currently has.

For ease of comprehension, here, we're going to throw all those alphabet-block ratings in the garbage. We will rename them by their tier number: the best rating from a given agency will be reassigned the number 1, the second-best rating gets a 2, and so on. I figure that's something much more easily understandable. We'll also note the dividing line between "investment-grade" and "speculative-grade"; aka the junk bond line. For all three, the line happens to divide tiers 10 and 11.

As of today, here are the countries sitting on each rating. Note that not every country has ratings from all three, and some countries have no ratings at all.

In case you're wondering, one country currently matches the United States in all three ratings. That country is New Zealand.

STANDARD AND POOR'S
1- Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey, Hong Kong, Isle of Man, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland, United Kingdom
2- Belgium, New Zealand, South Korea, United States
3- Abu Dhabi, Bermuda, Kuwait, Qatar, Slovenia, Spain
4- China, Japan, Saudi Arabia, Taiwan
5- Chile, Italy, Slovakia
6- Andorra, Czech Republic, Estonia, Israel, Malta, Oman, Ras Al-Khaimah, Trinidad and Tobago
7- Aruba, Botswana, Malaysia, Poland
8- Bahamas, Cyprus, Ireland, South Africa
9- Bahrain, Bulgaria, Kazakhstan, Lithuania, Mexico, Russia
10- Barbados, Brazil, Colombia, Croatia, Hungary, Iceland, India, Montserrat, Morocco, Panama, Peru, Portugal, Tunisia
----JUNK BOND LINE----
11- Azerbaijan, Indonesia, Latvia, Romania, Uruguay
12- Costa Rica, Egypt, Guatemala, Jordan, Macedonia, Montenegro, Philippines, Serbia, Turkey
13- Angola, Bangladesh, Cook Islands, El Salvador, Gabon, Mongolia, Venezuela, Vietnam
14- Albania, Bolivia, Bosnia/Herzegovina, Cambodia, Cape Verde, Dominican Republic, Georgia, Kenya, Mozambique, Nigeria, Papua New Guinea, Paraguay, Senegal, Sri Lanka, Suriname, Uganda, Ukraine, Zambia
15- Argentina, Belarus, Belize, Benin, Burkina Faso, Cameroon, Ghana, Honduras, Lenanon
16- Ecuador, Fiji, Grenada, Jamaica, Pakistan
20- Greece

MOODY'S
1- Australia, Austria, Canada, Denmark, Finland, France, Germany, Isle of Man, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, United Kingdom, United States
2- Belgium, Hong Kong
3- Bermuda, Italy, Japan, Kuwait, Qatar, Slovenia, Spain, United Arab Emirates
4- Cayman Islands, Chile, China, Macao, Saudi Arabia, Taiwan
5- Czech Republic, Estonia, Israel, Malta, Oman, Slovakia, South Korea
6- Botswana, Poland
7- Bahamas, Malaysia, South Africa
8- Bahrain, Cyprus, Lithuania, Mexico, Russia, Thailand, Trinidad and Tobago
9- Brazil, Bulgaria, Kazakhstan, Mauritius
10- Barbados, Colombia, Costa Rica, Croatia, Hungary, Iceland, India, Latvia, Panama, Peru, Romania, Tunisia
----JUNK BOND LINE----
11- Azerbaijan, Guatemala, Indonesia, Ireland, Morocco, Uruguay
12- Armenia, El Salvador, Jordan, Philippines, Portugal, Turkey
13- Angola, Bangladesh, Egypt, Georgia, Montenegro
14- Albania, Bolivia, Dominican Republic, Fiji, Lebanon, Mongolia, Papua New Guinea, Paraguay, Senegal, Sri Lanka, St. Vincent and the Grenadines, Suriname, Vietnam
15- Bosnia/Herzegovina, Cambodia, Honduras, Ukraine, Venezuela
16- Argentina, Belarus, Belize, Jamaica, Moldova, Nicaragua, Pakistan
17- Cuba
18- Ecuador
20- Greece

FITCH
1- Australia, Austria, Bermuda, Canada, Denmark, Finland, France, Germany, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, United Kingdom, United States
2- Belgium, Hong Kong, Spain
3- Abu Dhabi, Kuwait, Slovenia, South Korea
4- Chile, China, Italy, Japan, Saudi Arabia
5- Czech Republic, Estonia, Israel, Malta, Slovakia
6- Malaysia, Poland, Ras Al-Khaimah, San Marino, South Africa
7- Cyprus, Thailand
8- Bahrain, Iceland, Ireland, Lithuania, Mexico
9- Aruba, Brazil, Bulgaria, Croatia, Hungary, Kazakhstan, Latvia, Morocco, Namibia, Peru, Russia, Tunisia
10- Azerbaijan, Colombia, India, Panama, Portugal, Romania
----JUNK BOND LINE----
11- Costa Rica, Egypt, Guatemala, Indonesia, Macedonia, Philippines, Turkey, Uruguay
12- El Salvador, Lesotho, Nigeria
13- Angola, Armenia, Cape Verde, Gabon, Kenya, Serbia, Sri Lanka
14- Bolivia, Georgia, Ghana, Mongolia, Mozambique, Seychelles, Suriname, Venezuela, Vietnam, Zambia
15- Argentina, Benin, Dominican Republic, Lebanon, Rwanda, Uganda, Ukraine
16- Cameroon, Ecuador, Jamaica
17- Greece

How Bad Would Default Be, Really?

The matter of the debt ceiling crisis has left everybody in America scrambling to try and figure out what, exactly, is going to happen. After all, the United States has never defaulted on a debt.

I'm not going to claim I've got an answer either. But I will say that if there are no suitable analogs in the United States, that doesn't mean we have to run around in general chaos going We Have No Idea. In case anyone's forgotten, there are other countries in the world. And the rest of the world has had money problems too.

So what I'm going to do today is provide a sampling of foreign analogs to the American situation.

*The most commonly-referred to situation, when someone does go foreign, is Greece. Their debt per capita is similar, it's recent, it spawns from the same basic global meltdown, they're also tossing around the word 'austerity'. However, the one thing to keep in mind is the manner in which their austerity is being conducted. Namely, the Greek legislature literally has no choice in the matter. They've taken bailout money from the International Monetary Fund. The EU is more or less dictating to Greece what their remedy will be, on pain of possibly being kicked out of the Eurozone, as there has been discussion of doing. The United States has China as its major creditor, and buys a lot of treasury bonds, but a majority of American debt is internal- Medicare, Social Security, etc. Greece has a formal, explicit obligation to follow the rest of the Eurozone's instructions. Surrender of a degree of sovereignty is a condition of membership. The United States, being so fiercely independent, cannot relate. A bailout of the United States would almost certainly come from the IMF, but as that would entail the IMF imposing solutions of its own, taking a degree of control out of the hands of America, such a bailout seems unlikely, even if the IMF and United States have had historically cozy relations.

*There is a second European nation to considering the same Euro crisis, and that's Belgium. Their main characteristic is their partisanship. As the United States has Democrats and Republicans, the Belgians have ethnic Walloons in the south and Flemish in the north to serve a similar purpose. Flanders has a larger population, but the Belgian legislature is split nearly down the middle. Belgium has a multiparty parliamentary system, which if you're one of those people that wants to bust up the Dems and GOP and go to a multiparty system seems just fine. Belgium, however, shows the downside of a parliamentary system. No matter how you slice the population up, once the elections are over, some combination of people has to form a majority in order for the legislature to function and laws debated and passed.

Belgium has gone for over a year now without finding that majority, a world record. As such, the Belgian interim government is crippled and near-powerless to stop the crisis from reaching them unless they find a majority somewhere in their ranks; elections would leave the country completely government-less at a really bad time. And given that they aren't even speaking to each other, that appears an unlikely ask.

Some Flemish are talking of independence, or at least increased autonomy.

It sounds a fair bit like our situation, only turned up to 11. The problem with using this as an analog, though, is that we don't know how their story ends. The whole point here is to figure out what to do in our situation, and to do that, we need to know how the story ended for others in similar situations. We don't know if they get swept up in the Euro crisis, find common ground at the eleventh hour, or what.

So we have to keep looking.

*The largest pre-recession sovereign default was of Argentina in 1999. Their recession lasted until 2002, and while their economy is now growing more stable by the year, some would say they're still trying to get out from under the fallout. The reason for that is that, upon their default, all of their creditors scrambled to be repaid immediately, and first. Likewise, nobody was about to lend them a dollar more.

The tricky thing about Argentina, though, is in how they valued their currency, the peso. While the dollar is used around the world as a reserve currency- a currency everyone else holds in reserve and measures their own currency against- Argentina, pre-default, tied the peso directly to the dollar. Whatever the dollar was worth, Argentina made the peso worth an equal amount. Once the default hit, Argentina floated the peso- that is, stopped tying it to the dollar. The peso's value promptly went down the toilet.

As a side effect, Argentinian TV stations had to rely heavily on reality shows in order to get by, and cancel the more expensive educational programming.

Argentina would have had to gut their budget, just absolutely gut it, in order to pay the money they owed to everybody. What they ultimately did, though, was stand firm for four years- four years where they were shut out of the international financial market- until they got their creditors to agree to a debt restructuring plan where most of their debt payments were reduced and stretched out until 2006, when an uptick in the economy left Argentina more able to pay debts in full. They have come steadily out of their hole since then; the gap between rich and poor has shrunk. About a quarter of the debt's representatives held out, though. As of 2010, 7.4% of the debt remains unrestructured.

The trouble here is in pre-existing standing: while Argentina was shut out of the financial market, the United States to a large degree IS the financial market. The world could go on without
Argentina's participation, but the United States has too many fingers of too large a size in too many pies to just leave alone like that. Argentina itself had, again, directly tied the peso to the American dollar. America is not currently tying the dollar to the Argentine peso, or any other currency. The dollar is in fact a reserve currency- a currency everyone else holds in reserve, just in case something were to happen with their own.

So three analogs, all with a nagging problem that keeps any of them from being 100% perfect. However, all three, along with other defaults we didn't get into such as Russia in 1998 (PDF), Mexico in 1994, Latin America's "La Decada Perdida"- lost decade- in the 1980's, and anything beyond those listed on the timelines here, have a common thread: pain. Lots and lots of pain. Even getting into the situation in the first place causes pain. Anyone that tells you that an American default would not be painful, one way or another, is stupid and/or lying.

The question is simply, how much pain. Are you hitting your hand with a mallet, putting it on a stove, or shoving it into a wood chipper?

Bad Credit? No Credit? No Problem!

Credit is a fickle, fickle mistress. Used the way it's meant to be used, you can break down one gigantic payment into a number of smaller, more manageable payments.

But, as so many people have so harshly learned, there are so many ways credit can come back to bite you. And when it bites, it bites down hard. The Jews in the Old Testament had a novel way of overcoming this. Deuteronomy 15 describes a process where, once every seven years, all debts were cancelled. That simple. The system could, conceivably, be gamed by simply not extending credit as the cancellation day drew near, but this is addressed in Deuteronomy 15:9- "Be careful not to harbor this wicked thought: “The seventh year, the year for canceling debts, is near,” so that you do not show ill will toward the needy among your fellow Israelites and give them nothing. They may then appeal to the LORD against you, and you will be found guilty of sin."

While that essentially was the invention of bankruptcy, we're not quite that lenient these days. Debtors must pay, and creditors must collect.

This story is not about the debtor. Kind of.

W.T. Grant was a dying 25-cent store. (The price point has altered over the years to reflect the times, from Woolworth's beginning the format at the five-and-dime price point, to today's dollar stores.) Poor, uneven design of new stores, and insistence on paying dividends no matter what the balance sheet said, had brought them to the brink by the late 1960's. In an effort to get sales numbers back up, W.T. Grant decided they would set up a generous credit program.

Quite generous.

36-month, $1-per-month repayment plan generous.

In addition, while some companies today advertise that they don't require a credit check, Grant actually meant it. Every single customer was offered credit at the register. Every single one. In fact, if a customer wanted, they could open up multiple credit lines simply by going to multiple stores. The store managers, failing to properly communicate with each other, would not know that the person they were offering credit already had it.

And they had plenty of places to go. Grant had a concurrent plan to open stores in places competitors weren't. Between 1969 and 1973, Grant opened 369 stores in small towns.

Suffice to say that there was a reason the competition wasn't in those places.

Not that the store managers were in much of a position to care where customers got their credit or how many lines they had, just so long as one of those lines was with them. They were under an incentive program for the ages. On one hand, managers were offered a $1 bounty for every customer that was signed up. On the other hand, they had quotas to meet. Managers did not want to miss these quotas. Missing these quotas might mean getting served beans instead of steak at the next promotion dinner. Or getting a pie thrown in their face. Or getting their tie cut off. Or being dressed in a diaper and sent running through a hotel lobby. Or made to push a peanut across the floor with their nose (the last one via Cultural Anthropology: A Problem-Based Approach by Richard H. Robbins).

Of course, the problem about extending credit is making sure people pay the debt back. If they don't pay the debt back, you've essentially given them free stuff. Allow this to happen too often, and you soon run out of merchandise with no money to purchase more. (There are of course the issues with usurious interest rates, but as we've long since established, they do not apply here.) In order to prevent people not paying the debt back, one would do well to not extend credit to people unlikely to repay.

Grant, meanwhile, was offering credit to "every deadbeat who breathed." Even the fact that a large and growing number of accounts showed bad debt was obscured by Grant's accounting system, which would every so often consolidate those multiple accounts from customers into a single account. Every newly-consolidated account was labeled current at the end of the process, even if no component account actually was at the beginning. Two delinquent accounts would be merged into one account in good standing. A customer that was delinquent could also refinance their account and pay a tiny amount of money to make it current again. Remember that the original plans could be for 36 months with $1 minimum payments.

Shockingly, this didn't work.

In 1974, the credit system was scrapped. But by then, the damage was done. They had reached the point where, as it was warned two years earlier, "Grant would run out of money if it paid all of its bills" (as told in the 1975 case Morgan Guaranty Trust Company of New York v. Charles G. Rodman, as Trustee of the Estate of W. T. Grant). The rest of Grant's story consists of various banking maneuvers to keep the company afloat, none of which were able to dig them out of the gigantic hole they'd created for themselves. Eventually, the banks just stopped extending credit.

Something W.T. Grant might have learned from, had they survived the lesson.

Random News Generator- Iceland

You may recall that, a few years ago, Iceland's economy went off a cliff. Granted, so did everybody else's. But Iceland stood out for the severity of their downfall.

The good news for Iceland today is that Standard and Poor's has today removed Iceland from their negative credit watch. This was done on the heels of measures taken to encourage- or force- money to remain in the country; Icelandic citizens are less able to invest overseas than they were at the start of the crisis, and non-Icelandic people are less able to exchange Icelandic krona for some other currency.

The bad news is that even after openly becoming a money vacuum, Iceland's financial state is still fragile. In the eyes of Standard and Poor's, Iceland is very nearly a junk investment, a designation Fitch has already assigned. Their situation remains fragile. A program with the IMF expires this year, and voters last month rejected a repayment plan concerning online bank Icesave, a move that very nearly caused S&P to downgrade Iceland to junk.

When Icesave's parent company, Landsbanki Islands, collapsed in 2008, investors in the United Kingdom and the Netherlands moved to repay depositors for their losses. The referendum was on whether to pay those investors 4 billion Euros, plus interest, as compensation. By a 60-40 margin, voters killed the repayment, sending the matter to the European Free Trade Association.

Fitch's junk rating, they warned, could be in place as long as those restrictions on investing outside of Iceland remain in effect. The Icelandic government has made their own warning that those restrictions could be in place until 2015.

For more on just what in blazes happened in Iceland, a new book is out, Deep Freeze: Iceland's Economic Collapse by Philipp Bagus and David Howden. It's available free on Kindle or iBook.

Houses Made of Diamonds: A Bad Investment

The Mega Millions jackpot has gone unclaimed for long enough that the jackpot has grown to $290 million. This is about the point where everybody and their mother buys a ticket and fantasizes about what they're going to do with $290 million; the linked article, although brief, makes sure you know about some of the larger jackpots claimed in lottery history. Not even former jackpot winners are immune from the lure of a second payday.

Far too often, these same people, after winning these gigantic jackpots, are found years later broke, miserable, and wishing they had never bought the ticket at all.

So where do so many people go astray? My theory is that a lot of the winners simply have no real-world concept of the larger jackpots. One it gets up into $290 million territory, the number... the exact number is irrelevant. The previous jackpot was $242 million, but the $48 million difference does not register. It all reads "$Texas" to some people. If this jackpot goes unclaimed, and it climbs past $300 million, it won't make much difference there either. When it's given to you in one big pile, it looks like All The Money In The World. Which as people who are actually rich for a living will tell you, it is not.

This is if you take the lump sum option, at least. If you were to split that up into 30 parts, as would happen in an annuity, it's still a lot of money, but one is much more easily able to wrap their head around the idea of $10 million as opposed to the idea of $300 million.

The problem is, despite any argument you may hear about which of the two payment options is better- the lump-sum or the annuity- when it actually comes time for the winners to choose, it turns out to be barely a debate at all. Winners almost unanimously pick the lump-sum, shown on the official Powerball website as "cash", save for the smallest of jackpots. Since 2003, Powerball records only three winners as having gone to the annuity, with the three jackpots having sat at $18.7 million, $19.8 million, and $20 million. One additional group opted for 'mixed'- which means at least one person took lump-sum and at least one person took the annuity- and this jackpot was quite large: $208.6 million. The jackpot was, however, split among 100 people, and 99 of these 100 winners chose the lump sum, leaving just over $2 million for the person who opted for the annuity. Every other winner since 2003, every single other person, has taken the lump sum.

And this costs all of these winners roughly half of their jackpot straightaway, even before taxes. What a lot of people don't realize is that the amount advertised is the amount they think you'd get if you took the annuity. The Powerball people have this misconception covered in their FAQ:

When we advertise a prize of $100 million paid over 29 years (30 payments), we actually have less than $50 million in cash. When someone wins the jackpot and wants cash, we give them all of the cash in the jackpot prize pool. If the winner wants the annuity, we invest the $50 million in cash to fund the annuity payments. The winner gets the cash plus the interest earned. When you see an estimated jackpot annuity prize, we are estimating both sales and what the market's prices on certain securities will be. The annuity jackpot amount and the cash jackpot amount that we announce are always estimates until sales are final and, for the annuity jackpot, until we take bids on the purchase of securities.

Federal and State Income tax apply to whatever income you actually receive in a given tax year, whether it is wages or lottery prizes. If you take the cash amount (say $50 million), then you pay income tax on $50 million). If you take the annuity (say $100 million), then you pay income tax on the money you actually receive each year. Just like your wages, a withholding amount is required to be taken out immediately. The lottery will send you a W2-G form and you figure your actual tax at tax time.

Here's the other thing. You only win that jackpot once. As earlier stated, when you first come into such a large amount of money, it's hard to wrap your head around it, and a fair amount of people get blinded by that. Sometimes they get their heads back on straight. Sometimes they don't. But with the annuity, you've got 30 attempts to figure out how to deal with the money, spread over 29 years. Eventually, with practice and a bit of smarts, you can figure out how to handle large amounts of money. That's not a guarantee that you will- some people will never get the hang of it- but you give yourself the best possible chance at success. With the lump-sum, you've only got one shot. Blow all the money in the first annuity payment, you've got 29 more coming. You've hopefully got the stupid spending out of your system. Blow all the money in the lump-sum, and that's the ballgame. You're right back to where you were, and sometimes even worse off than when you started if you can't figure out where your winnings end and your pre-existing net worth begins. And if you're the kind of person to blow hundreds of millions of dollars in one big splurge, odds are you can't. If you want more money, you're just going to have to win the lottery twice.

Good luck with that.

And that bit of smarts is a crucial factor. To see why, you need only look to another source of windfall income: professional sports. You've surely heard about the lack of emphasis in college football and college basketball on actually educating the students and the increased emphasis in finding talent for the NFL and NBA. (Ask yourself: when's the last time you saw a televised game mention a student's major?) There's little to be said about all the college kids that never make the pros. There's no windfall for them, and so there's nothing really to discuss. The players that do make the pros, however, having had such a focus on making the pros, come out of their schooling ill-prepared to handle the giant amounts of money given to them. They were steered towards the next game. They had teachers under pressure to give them good enough grades to make them academically eligible to play. Players at big-name programs are routinely funneled into specific classes regardless of what they actually want to be studying, for the purposes of having large segments of the team in the same place. Often, the students left college early. In some scattered cases in the NBA, including that of Lebron James and Kobe Bryant, they never went to college at all.

What happens when the bright lights go away? Most of them, never having gotten the kind of financial education they needed for this type of lifestyle, and in some cases having what education they did get beaten out of them on the field, quickly go broke. According to a March 2009 article from Sports Illustrated's Pablo S. Torre, 60% of all NBA players, regardless of money earned or time in the league, are broke within five years of their departure. 78% of all NFL players, regardless of money earned or length of time in the league, are broke within two years. Athletes on the financial scrapheap can be easily found regardless of the sport. The article did not show the figures for Major League Baseball, but listed the former players in similar situations as "numerous". The fourth page of the article even comes right out and says:

Salary aside, the closest analogue to a pro athlete is not a white-collar executive. It's a lottery winner—who's often in his early twenties. "With athletes, there's an extraordinary metamorphosis of financial challenge," says agent Leigh Steinberg, who has represented the NFL's No. 1 pick a record eight times. "Coming off college scholarships, they probably haven't even learned the basics of budgeting or keeping receipts." Which then triggers two fatal mistakes: hiring the wrong people as advisers, and trusting them far too much.

"That's the killer," Magic Johnson says. Johnson started out by admitting he knew nothing about business and seeking counsel from the power brokers who sat courtside at the old L.A. Forum, men such as Hollywood agent Michael Ovitz and Sony Pictures CEO Peter Guber. Now, Johnson says, he gets calls from star players "every day"—Alex Rodriguez, Shaquille O'Neal, Dwyane Wade, Plaxico Burress—and cuts them short if they propose relying on friends and family. "It won't even be a conversation," says Johnson. "They hire these people not because of expertise but because they're friends. Well, they'll fail."

And it doesn't just happen in those three leagues. Here you'll find a list of 25 athletes who went broke. Just 25. In addition to the NFL, NBA and MLB, you'll also find representation from the NHL, soccer, track, boxing, tennis, the WNBA, even figure skating, represented by Dorothy Hamill. Michael Vick made the list at #4 prior to his comeback.

There's one key difference between athletes and lottery winners, though. Lottery winners choose when they get to play. High-level athletes, unless mandated otherwise, are usually pressured by the demands of any given sport to focus on it as soon as physically capable. If you wait until you've gotten your college degree to focus on it, it's too late. They're already looking at the kids coming up behind you. As a result, few athletes get the education they need to handle any sort of windfall payout, and most are dumped by the financial wayside.

Quick, how many players or managers in MLB on June 1, 2009 had a college degree of any kind? 26. That's enough to fill one team. Out of thirty.

However, it takes no skill to play a lottery. Drive down to the gas station and hand the cashier a dollar. You don't even have to pick your own numbers if you don't feel like it. And you can play whenever you want. You can get lottery tickets as birthday presents the day you turn legal. You can be 90 years old and in a wheelchair and still have enough physical capability to say "Quick Pick".

What that means is that before you play the lottery, you have all the time you need to go educate yourself on how to handle the money should you win. And even if you don't win, you can still apply the same principles to whatever smaller amounts of money you handle.

If you do win, keep your head on as straight as you can, realize that the money is finite, and really, give some thought to the annuity. Consider letting the lottery people invest that jackpot for you. They handle large amounts of money for a living. They know what they're doing.

And they'd really prefer to not have their winners become cautionary tales.

Dumb Money

Jonathan Spicer of ABC News came up with this piece on Friday regarding something referred to as "dumb money" that for decades has been a consistent moneymaker for a handful of Wall Street firms.

What is dumb money? Most trades that you make. The proper term is 'payment for order flow', and it works like this:

1. You make a transaction via an online broker.
2. The online broker doesn't put your transaction to the stock exchange directly. Instead, they put it through a middleman known as a market maker.
3. The market maker undercuts the stock exchange's price by a minute amount, a tenth of a penny per share, and that's the price you're charged. They then give the online broker a little bit of money for their trouble.

The big profit made by the market makers isn't really in the trades themselves. The real profit is the knowledge they gain from being able to see all of these trades before anyone else. They know where the money's flowing, making them better able to execute trades at more advantageous prices. They are, to put it another way, the smart money.

Why is this bad? A lot of these trades end up skittering over the stock exchange entirely, and when a trade skips over the exchange, that trade does not effect the price of the stock. The SEC currently estimates that a third of all stock trades do not have any effect on stock prices. That's a modern-era record.

Essentially, the more trading that skips over the exchange, the less stock prices have anything to do with what's actually going on in the world, and the more it resembles playing a slot machine that's been tampered with. Miscommunication among market makers, it was found, was a major factor of the 'flash crash' that occurred in May. Trades that a market maker does not deem profitable are routed to the exchange, and somewhere along the way, one automated trade somewhere kicked off a whole slew of sell orders. Not knowing what was going on, the market makers choked, pretty much stopped buying stocks entirely, dumped a whole mess of stocks on the exchange, and just about all that was getting through were the sell orders.

The SEC does not want this happening again, obviously. Something they'd like to do to curb it is called a 'trade-at' rule, in which a market maker could not execute a trade unless it could beat the market price by a full penny, not just a tenth. If it couldn't do that, the trade would have to go to the exchange. It would pretty much kill dumb money and the market makers hate it.

On your end, you personally just need one thing: for the exchange to know your trade happened. No sense having the exchange itself being dumb money.

A Sign Of A Bad Economy

After putting up an $11 million Christmas tree, the Emirates Palace Hotel in Abu Dhabi apologized.

Oh, they're not taking it down or anything. But someone in the UAE apologized for doing something too extravagant.

A Bad Idea, Take 87 Billion And One

I'm posting from the Apple Store at Waikiki, first time I've had enough online time to fire off a blog post all vacation. But I'll be damned if I let this place go a week and a half without an update. I've been keeping a near-daily upkeep since I began the blog in February, and the only reason I haven't gotten anything off since Tuesday is due to lack of having Internet access at all.

But, it's still got to be quick.

So... the dollar coin. You hate it. You've rejected it 87 billion times, and even so, a few sad, sad vending machines out there are still trying to get you to bring them your golden Sacajawea coins.

Perhaps you'd be interested if-- no, no, you won't be interested. But here's an Abe Lincoln dollar coin anyway that will serve to win you many bar bets by asking what coin Abe Lincoln is on, and get you in many bar fights by trying to actually use it as currency.

How Rich Can You Get? (Please Don't Answer That)

Richie Rich is a character that only really pops up in the public consciousness in a good economy. And for good reason. People don't really want to see anything in pop culture about what it's like to flaunt wealth almost beyond human comprehension when they're struggling to put food on the table. G.I. Joe can sympathize; his fortunes are subject to America's views toward the military and was retired for a time in the wake of Vietnam.

I shall demonstrate. Look around your house, take a look at your current budget.

Now please view this.



You have now very likely expressed such a desire to shoot out your computer screen that a gun has appeared in your hand out of thin air just for the purpose.

The original comic came out in 1953, with updates in 1980 and 1996, with a movie in 1994. All pretty good economies at their respective times of release.

Which makes it all the more bewildering that somebody thought 2011 would be a good time for a reboot. Seriously, nobody looked out at the economy, looked at their comic book character described as owning "two of everything money can buy", named Richie Rich, who lives in Richville, considered the possibility that Rich's personality- which is, admitted, that of a very nice person- might be overshadowed by the age-old Richie Rich trope of LOOK AT ME AND ALL THE MONEY I HAVE? Nobody said 'No, really, this is really not a good time to put Insanely Rich Guy Is The Big Damn Hero in front of people'? Nobody? Nobody thought of any way this might be taken badly by anyone?

Sound Financial Advice

There are those who went bankrupt through hospital bills.

There are those who went bankrupt via being unable to pay off their house, or property taxes on same.

There are those who went bankrupt because of cash-advance businesses charging excessive interest rates.

But please, please, PLEASE try not to be one of those who went bankrupt because you couldn't stop buying drinks for guys at the bar. And do not buy so many wigs that you need a financial advisor to tell you to stop.

The Ballad of Honest Dick

It is common knowledge these days- or at least it should be- that anyone in a position of public dependency that handles large amounts of money needs to be placed under some sort of watch. The more money handled, the more stringent the watch should be. Because far too often, people in these positions prove unworthy of trust, and will start to take some of that money for themselves to the maximum extent they are allowed.

Far too often, we forget this fact, and every time we do, we pay dearly for it. Bernie Madoff. Enron. Savings and Loan. James Tate.

Today I tell you about that last one.

James W. Tate was named state treasurer of Kentucky in 1867, after two stints as assistant Secretary of State, and one stint as assistant clerk of the Kentucky House of Representatives. While an elected position, Tate became a fixture in the office, often placing among the biggest winners on the ticket, and putting in two decades of service. Over time, he earned the nickname "Honest Dick" (why a man named James would be called 'Honest Dick' is a question for the ages), with one man, John McAfee, writing in 1886, referring to Tate as a "trusted and honored treasurer" with an "unblemished record for probity and principle."

Famous last words.

Apparently, Tate was regarded as so honest that he had, for 20 years, never been subjected to a serious look at his books. His 1886 opponent, William O. Bradley, found this a little odd, and ran on it in his attempt at unseating Tate. He lost, but he did manage to get the seed planted in Kentucky's collective head. So they asked Tate for a look. Tate replied that he would need some time to get his books in order. Okay, Honest Dick, we can give you a bit of time to do that, but really, we would like to look.

You have surely figured out by now that Tate was not using that extra time to actually get his books in order. During that time, he stopped putting cash into the state's bank account, using checks instead. If he weren't Honest Dick, he'd have been called on this. Or the personal debts he was starting to rack up. On March 14, 1888, one of his clerks DID call him on the fact that he was filling two tobacco sacks with money, about $100,000 worth ($2,357,406 in 2009 money, according to the Consumer Price Index), just like a cartoon bank robber. All that was missing was a dollar sign on the bags. Then Tate hopped a train for Louisville, leaving a note that he would be back in two days.

He never set foot in Kentucky again. From Louisville, he went to Cincinnati, and then vanished, leaving his wife and daughter behind.

By March 20, the state figured something was up, and suspended Tate from his position as state treasurer, the epitome of closing the barn door after the horse has left. They finally, finally, after 22 years, would audit the financial ledger of Kentucky.

Or at least they would have if they could actually make out what in blazes Tate wrote in the darn thing. All they did know was that a whole bunch of money wasn't there anymore. Unpaid loans, advances, personal investments and straight-up theft ultimately relieved the state of Kentucky of $247,128.50. That's 1888 money, remember. According to the Consumer Price Index, in 2009 money, that translates to $5,825,822.76. The treasury vault had personal and state property in it, including beaded bags and purses, one of which was a satchel belonging to a dead child.

The entirety of Kentucky almost had a collective heart attack. Why would Tate steal so much money? He was rich already through land investments! He didn't need the money! (Ah, the naviete of people in 1888.) According to 'Kentucky: Decades of Discord, 1865-1900' by Hambleton Tapp, James C. Klotter and the Kentucky Historical Society, one person wrote "Such a flash of lightning, such a peal of thunder, as was never before seen or heard came out of a clear sky, and rocked the state as nothing had done since the war."

After they got the shock out of their system, the call went up for Tate's head, seeking to try him in absentia. That is exactly what they got; according to 'Political Corruption in America: An Encyclopedia of Scandals, Power and Greed' by Mark Grossman, he was officially brought up on a misappropriation of $197,000 (the official estimate; that's $4,464,090 in 2009 money), along with abandoning his office, doing so without providing for proper administration, and three other charges. He was convicted of four of the charges on March 31, 1888- remember he had fled on the 14th- and the now extremely unfortunately-nicknamed 'Honest Dick' was disqualified from holding state office again. When a new state constitution was written in 1891, three years later, Tate turned out to be singlehandedly responsible for the state banning consecutive terms for state officials, a provision that was only rescinded in 2000, and even then only partially so. A position of overseer was also created.

No recipient of funds, ultimately, was asked to repay, however. Even though just about everyone in Frankfort was under suspicion of having gotten money from Tate at some point, and nobody was trusting anybody by now, it was ultimately determined that Tate acted alone. The governor made a loan of his own to the state until taxes could replenish the coffers.

Not that Tate noticed much of any of this. He had long since gotten away. He had fled to the four corners of the Earth, with varying accounts putting him in places such as Chicago, Arizona Territory, San Francisco, Vancouver, Toronto, Germany, Japan, China and Brazil. It's not really certain what became of him, or even how long he lived after fleeing Kentucky; correspondence to his family ceased in December 1888. There were reports of various Tate sightings in the following years, but in 1897, his daughter had him declared legally dead, and his life insurance was paid off in 1898.

As for William O. Bradley, the guy who first called for a look at Tate's books, he was karmically rewarded by being elected governor of Kentucky in 1895, a term marked by his championing and passage of an anti-lynching law, among other measures protecting the rights of blacks, and elected to one uneventful term in the US Senate from 1909-1914.

He was, in his Senate term, appointed, among other things, chairman of the Senate Committee on Expenditures in the Department of Justice. Just in case.

In Which Pete Rose Takes Up Teaching

I don't need an incentive to learn anything. Self-education is a big selling point of mine. My public schooling experience drove home the message more than a few times that if I wanted a halfway decent education, I'd have to go get it myself. Middle school in particular seemed particularly uninterested in teaching me things, greatly favoring the alternative method of placing me in close proximity with people who wanted to beat me up. (To this day, I still cover one eye when driving past it, so I don't have to look at it. Let's not discuss further.)

Had I left things purely to the schools, I'd be a hell of a lot dumber than I actually am. Besides, learning doesn't stop when school does. It goes on. After you get out of school, you need to start motivating yourself. It's one thing to learn when there's something on the line- when there's a job on the line, when there's a promotion on the line, a grade on the line, a life on the line. It's quite another to learn when there's nothing on the line except for a sense of self improvement.

Which is why this story troubles me. There is a site, Ultrinsic.com, that allows college students to bet money on them achieving a certain grade. Currently, 36 schools are part of the program. This is technically legal, as while online gambling is illegal in the United States, that applies to contests in which you have no control, and you do have control over your grades.

But there's just something seedy about it all. It's betting money on school. The student's own money. It's one thing to create an incentive program for getting good grades; lots of places do that for elementary school students. There's a video rental place in town that offers free rentals for every A on a kid's report card. Plenty of parents offer their kids money for good grades. There are two key differences between those and this:

1. The elementary school student does not have any skin in the game. If he doesn't meet the goal, he doesn't lose anything. The college student does.
2. The elementary school student has a lot fewer financial concerns on his mind than the college student. The elementary school student doesn't have any living costs; the parents provide everything. The college student has some pretty crushing student loans looming right after he gets out.

It may be more of an incentive to hit the books, but more likely, it's simply an incentive to win that bet. If a student put some fairly significant money on a grade, and is skirting the bare edge of it going into a final exam, the pressure of that bet is going to be enormous. At that point, the possibility exists that studying may take a backseat to cheating. Money gets some pretty base reactions out of people. There's going to be somebody, eventually, probably sooner rather than later, that is going to forget about studying and just focus on hitting the goal grade by any means necessary.

Which teaches a lesson school was never meant to teach.

Urgent Nathan's Famous Hot Dog Eating Contest Update

There are contract disputes and holdouts for more money... in a hot-dog eating contest.

God bless America.

Campaign Donation Refunds: Perhaps There Are Also Unicorns

You've decided on who you want to support in the upcoming election. Bob seems like he would be exactly what the country needs. So you decide to donate to his campaign.

Then Bob goes off the reservation on you. He starts saying things you don't like. He starts supporting positions you don't like. You don't want to vote for Bob anymore-- oh my God, but you gave Bob money! You want a refund! Bob, give me my money back!

Ha ha, yeah, don't count on that happening.

Only rarely does a candidate refund money to a donor. If they do, it will almost certainly be for reasons of their own, most likely because they don't want to be associated with whoever the donor is affiliated with. Once you donate, you should pretty much consider the money gone for good.

Why would a candidate not give money back? Well, obviously the possibility exists that the candidate is unscrupulous enough to not care what you think as long as he's got your money. But there are other reasons.

*The candidate really does think it's theirs.

Which it is; you did give it to them.

*The money's already been spent.

This is by far the most likely reason you won't get your money back. You've heard how much it costs to run a campaign these days. You also have likely heard about how candidates end up in debt for some time after a campaign. It's not hard to connect the dots. Campaigns under competition are under immense pressure to use the entire warchest- and beyond- lest they get outspent and, subsequently, lose. The speed at which you spend over a given period of time is called your burn rate, and a burn rate only covers in-house expenses: salaries, taxes, fundraising talks. Any money left over after you're done burning goes towards advertising and voter outreach.

Many campaigns have such a burn rate that they have to take on debt, or inject money out of pocket, in order to conduct any actual campaigning. Since the whole point of a campaign is to, well, campaign, candidates often end up paying it off years after the campaign has ended. Hillary Clinton, for example, is still trying to settle her debt from her 2008 Presidential run. This can take a while, as who wants to donate to a campaign that has already lost? And in Hillary's case, it's doubly difficult, as high-salaried campaign advisor Mark Penn is viewed by Hillary supporters as a key factor in why she lost in the first place. The remaining debt would end up in the hands of Penn's legal firm, Penn Schoen Berland, and that's an extremely unattractive sell.

Not even safe campaigns are entirely safe; these politicians stockpile money in their off years, like a squirrel storing acorns for winter, and anyone willing to hand over some of their warchest to help out a partymate in need will usually end up in an improved position within the party during the next legislative session. Take this link, which shows a series of posts from the 2008 season pretty explicitly linking donations from personal warchests to the Democratic Congressional Campaign Committee, to the prospect of getting to vice-chair said committee.

*The candidate thinks that it pretty much serves you right.

This is the camp I fall into. While you really should be voting regardless of the field- even if it's a lesser-of-two-evils choice- the decision to donate money is yours and yours alone. Who to donate to, how much to give, and when to give it. You've essentially bet money that that particular candidate will be the best for you and the country. If that bet goes sour, that's just too bad. If you came to like the opposition, why did you not choose better when you donated? If they changed their positions since your donation, why did you not wait until later in the campaign? If new information was introduced about them, why did you assume this information, or something like it, would not be introduced?

Which leads to a curious phenomenon. On the rare occasion that you do get the money back, considering all that... perhaps that's a signal that the candidate you just took your money back from is worth your vote after all.