Saturday, September 20, 2008

Two Types of Portfolios; Two Types of Portfolio Managers

Democratic nations which take stakes in enterprise and profit when times are good and lose when times are not, do in fact exist: these nations are collectively known as Western Europe. One of many differences between these nations and the United States is that said nations reached such a point through revolution, consensus, contemplation, and the evolution of political theory into what is commonly referred to as Socialism. These nations have bounded the upper spectrum of financial success so as to enable a lower bound other than destitution. There are fewer billionaires to be found and there are fewer in need.

The American political landscape has fought against the 'evils' of Socialism for more than 60 years. A careful myth was constructed along the lines that the 'market is always right' and that 'markets are self-correcting' while mindfully ignoring the winners and losers when the market 'self-corrects' to be 'right.' This myth was designed to lead to obvious and unchanging conclusions, however wrong they may be, such as, "If the market is self-correcting, then the less we do to interfere with it, the faster it will 'correct.'" As a result, we have collectively come to the point of national mockery for the idea that the "government" can or should take stakes in enterprise. 'Everyone' knows that only those crazy students, and long-haired lefties really 'believe' that the 'government' can do a 'better job' than enterprise. What, of course, that job is, is rarely if ever illuminated.

Here, a dichotomy of national investment strategies is made: Progressive v. Reactionary Portfolio Management.

The reason for this lacking of elucidation is due to the fact that this argument assumes the purpose of all enterprise is profit. Socialism does not accept this tenet to be true. The purpose of some enterprise is profit, and the purpose of other enterprise is deemed to be so much more significant than profit that it is worthwhile for everyone to invest in, even if its pursuit sometimes generates a loss. Examples of these super-significant enterprises include health care, education, transportation, utilities, and others.

As a very intentional result of American national antipathy towards 'Socialism,' we have decided to deny this distinction. If the market does not reward an enterprise with profit (irrespective of subsidies and other corporate welfare), said enterprise is clearly not worthy of investment. In fact, we have heard often that citizens' well-being is not best served by national investment; as such an investment would be "socialist." We are led to believe that this 'argument' is the paragon of logic (the non-circular variety), as it is often stated by 'serious people.'

Without contemplation, planning, or significant evolution in political theory, the US now finds itself without sizable or controlling stakes in telecoms, railroads, aerospace, or other nationally critical and often profitable industries. Instead, the US now finds itself with the worst of the worst. The worst performing companies, the riskiest "assets," and the most untrustworthy 'collateral' fill out our nationally owned portfolio--in a word, reactionary portfolio management.

A progressive portfolio would look forward to the needs and investments most likely to provide a path towards the greatest good for the greatest number. Such a portfolio is likely to include investments in research, education, health care, housing, and mass transit. Individuals making portfolio decisions such as the above will want to protect their investments with oversight and regulation so as to minimize the threats to their portfolio. They are likely to make attempts at reducing ignorance, increasing efficiency, and promoting science and technology, as doing so is likely to lessen the future maintenance and upkeep costs of their portfolio.

A reactionary portfolio looks backwards, asking where the hottest flame in need of extinguishing is. Such a portfolio is likely to be saddled with poor quality investments made by others and deemed to be so toxic that the only organization with enough resources to absorb their toxicity is the one with the power to print money. Examples include the S&L scandal's remains, the backstop provided to the Bear deal, and now the AIG 'investment.' Such a portfolio is likely to be so fearful of any more 'investing' that they have trouble articulating what a better future will look like, but hope and 'pray' that it will include their involvement and 'investment' less. They are likely to fight to minimize their role, make it more distasteful and cumbersome for them to be involved in any such future 'investment', condemn those who seek more progressive involvement as naive, and complain persistently about their continued involvement within their own system ("Government is not the solution to our problem; Government is the problem").

The difference between the performance of these two distinct portfolios is staggering from the perspectives of governance and quality of life.

Saturday's Inflammatory Links

  1. Hoovervilles
  2. Potential Unintended Consequences of the Ban on Short Sales
  1. Maybe Deregulating Everything Isn't the Best Idea
  2. MIT Student Who Frightened the Pants Off of the Boston Police With Her Sweatshirt Finally Interviews
Religion / Ethics/ Dumbditude
  1. People Is Dumb (and Protected by Angels)
  2. Stop Complaining About IRB, It's There For A Reason
  1. Scissor Cuts Paper, Paper Covers Neuroaesthetics, Neuroaesthetics Smashes Philosophy (or maybe not)
  2. Your Face is a Nanoflower