Capitalism/financial crisis tutorial Part 11

I explained that greed and price increasing are symptoms of lack of true capitalism. I explained that capitalists must remember that there is a difference between true capitalism, driven by "making a good living," and pseudo capitalism, which is "to make a killing in the market." The latter attitude destroys true capitalism, totally and certainly.

The public is guilty of this same mindset. This is where you differ from previous generations up to your grandparents. Here is a case study that most of you should understand today, having found out the hard way with your retirement funds.

There are two basic investment vehicles: stocks and bonds. Stock is a share in the profits of a company. A bond is a vehicle that raises money for governmental, municipal and also corporate purposes, but I want to focus on the governmental and municipal purposes.

How did your grandparents pay for World War II? They funded it by buying bonds. Rich and poor dug deeply into their pockets and bought "war bonds." The way one gets a return on investment is that you buy a bond, say, worth $100 when it "matures," but you only pay say $90 for it. Thus you have a safe profit but often over a long time frame (ten, twenty or thirty years).

True capitalists love bonds. They get return on their money but take virtually no risk with it at all. The United States Treasury is constantly issuing bonds and related instrument, bills, called T-bonds and T-bills. Retirement funds buy a lot of these bonds, also ones issued by states and cities to do things like build bridges, sewage treatment plants, and other municipal projects. So when you invest in a heavily "bond" based fund it is usually called a "Fixed Income" or "safe" fund. Your "return" is modest but virtually secure, so long as the country itself is secure.

Contrast this with the investment in the stock market. The past two generations of "capitalists" have pimped stocks to the ignoring of bonds. Thus, even granny and grandpa have become addicted to looking for a retirement fund where they can, yes, get "make a killing" of a high profit. But high profit means investing in companies that you have no control over, and who have no compunctions to return your investment. Everyone has been hooked into the greed fish line of stocks (also called "equities.")

So when you sign up for an IRA or investment fund, you usually get to choose between bond based funds and stock based funds. People used to pour their money into bond based funds for three reasons: 1) secure and safety of your money 2) modest returns on your money and 3) patriotism and how to invest in your community. But for the past thirty years or so even people who cannot afford to lose their money listened to "money managers" and tempted by their own greed, put their money into equity aka stock funds. People like me who put most of my small but crucial IRA into the bond side were viewed as stupid bores.

Six years ago I relocated to CT and had to set up a new checking and savings account. I decided to transfer my IRA also to that bank. The young money manager, who I met for the first time that day literally yelled at me, trying to force me to put my money in the stock side. My usual rule of thumb is at most fifty fifty but I have a preference for eighty percent bond and twenty percent stock. He actually started to write in what HE wanted on my forms, which was all in stock, or "letting me" put a little in bond. I would not budge and insisted on eighty percent bond "fixed income" and twenty percent in "stocks" (they usually call it something like 'high earning,' in order to make you really feel like a dunce for investing in bonds.)

Well, like most Americans I got my statement in the mail a few days ago. What a surprise. While I lost money in the bond side, I "only" lost four percent of my bond portfolio worth. (I hated losing even that much because not only was that a good amount of money but it also shows you what trouble we are all in, when even the bond side takes a hit). BUT, what a "surprise" (not): on the stock side I lost twelve percent of my stock's portfolio worth, which fortunately is a small amount because I had fought my young punk "money manager" to put only a token amount in stocks. So while the stock market convulses during this financial crisis (and hopefully settles at more reasonable levels than the inflated levels it has been at), bonds retain their safety and value (so long as the country as a whole stays solvent) while stock based retirement "savings" crash and burn.

If this generation were true capitalists you would have invested the bulk of your "savings" types of investments in bonds. Everyone is totally guilty of this and now you are reaping the consequences of "going for the killing."

Here is discussion of how it is also patriotic in addition to wise and safe to buy bonds. How did China end up with so much of American cash? They buy lots of USA treasury bonds, since average Americans don't bother to anymore, and thus Chinese money keeps the American Treasury, and thus country itself, afloat. When you buy a bond you are investing in your own community (city, state or bond issuing authority) AND country (Treasury bonds). Your money "stays in the country." With what money do the Chinese use to buy bonds? The cash they receive for goods manufactured in China that used to be manufactured in the United States. So the looters who have exported jobs to China open up the route for American money to flow overseas. Then that money is used to buy American bonds, which are needed to keep the country going. Now I'm not bashing China, not at all. I think that their economy deserves to be industrialized and to be a world power in their own pursuit of genuine capitalism and prosperity. But they have gained by what so called "capitalists" in the USA have done to loot and sell out their own country, by deporting jobs and addicted the populace to greedy consumerism without fiscal responsibility. Everyone has been swept into the dustbin of just being stooges, while the masters of the universe and looters have manipulated corporations and the marketplace just to make profits for themselves, their cronies and their so called "good causes" (they convince themselves they are modern day Robin Hoods). As a result, the savings and bond valuing mentality of true capitalism has been destroyed in this country, along with the millions of jobs that were crucial to the survival of this country. Nice work, a**holes.