Bank of America; Point of no Return

Back when Bank of America was trading under $5 a share I was thinking of buying some of the stock which I already own at about $42 a share. My logic was simple.

The government is at the point of no return with the big banks. They have poured billions of dollars into these institutions and are not going to let them fail now. I held off and did not buy. Then I read a Wall Street Journal article about the testimony of the CEO of Bank of America. What I got from the article is that the takeover of Merrill Lynch was forced on Bank of America’s shareholders and the shareholders were to be kept in the dark about the details of the deal. Correct me if I am wrong but as a shareholder, if BofA did fail I feel as though the shareholders have a class action suite against the government.

I am not concerned about starting a class action suite against the U.S. Government, but I think this supports my logic that there is no way the government is going to let BofA fail and is still a buy at its current price of $8 a share. I have not pulled the trigger, but will be watching the stock all week and in all likelihood will but is a market order.

Spend More, Save Less

There is a lot of talk among economist that Americans need to spend more and save less to help get the economy moving again.  There is a reason why they are called economist and not financial planners.  It is true that Americans are saving more than they have in the past, but it may not be what you think.  Including in the savings rate are those who are paying down debt.  So if you put an extra $100 a month toward your credit card bill that is counted as savings.  What economist are saving is true, when everyone starts to “save” at the same time it has a negative impact on the economy, but telling people to spend in this environment is poor financial advice.

Americans are doing the right thing by paying down debt and padding their bank accounts.  It is not the role of the individual to get the economy moving in such a crisis.  Let the government borrow and spend.  They have the power to print money and tax the people.  They will not lose their home or go hungry from borrowing. 

In theory government spending should grow the economy and create jobs.  As individuals get a 3-5 year contract to build a bridge or road they will feel confident in their employment and start spending again.  Their spending will ripple through the economy and put more money in the pockets of merchants who may hire help or spend more themselves.  That is the theory, but before you start spending again the advice from the financial planning community is, pay down debt, build your savings and cut expenses. 

If the government stimulus does turn the economy around, then you will be in a better position and can always start spending again.  

Am I a Socialist

This may be my most controversial Blog yet or ever to come. I just finished the Book by Scott Burns and Laurence J. Kotlikoff, "Spend ‘til The End". Then I watched Michael Moore’s film "Sicko". I am not going to give my opinion of the book or the film, but both got me thinking about the American way of life. 

In short, Spend ‘til The End is an economist’s view of financial planning and suggestions of how to raise and "smooth" your living standard. Sicko is one man's view of the short comings of the United States health care system and a case for national health care. It is one sided and meant to build the case for national health care. 

The book points out how student loans can lower your standard of living for a very long time, possibly into your fifties and sixties. The book touches on planning for health care expenditures and long term care in retirement. Sicko suggests that we will all be better off with a health care system that is free and covers everyone. What if we did not need to worry about the cost of either education or health care? What if both were socialized? 

The more I thought about these questions the more of a case financially I could make that both should be provided as a right of citizenship. Yes taxes would go up, but they would be offset by the current cost of each. Currently I am spending about 6.3% of household income for medical expenses. My employer is spending about 8% of my salary for health care expenses. Would we need to raise corporate taxes and payroll taxes more than that to provide health care for everyone? I am not sure and it is a tough calculation to make. Part of the problem is that currently some of the uninsured are covered with the premiums of the insured. If an uninsured person goes to the emergency room and does not pay the bill, the cost is passed onto the insured. You would also have to factor in those who can not afford there medication and wind up in the hospital because of it. 

This has happened to a family member of mine. The hospital bill was over thirty thousand dollars back in the late nineties. That would have paid for about ten years of medication. This individual now has Medicare part D and has been getting the medication. 

Healthier employees are more productive employees and that would also have to be factored into the cost. Many people would retire earlier if they had health insurance and would be replaced with younger workers that can be paid less. People who do not get their annual check up because of the cost (even some with insurance do not go because of the co-pay) would get their check up and prevent or catch illnesses earlier which would lead to overall lower cost. 

What would happen if a college education was free? Companies and institutions would not have to pay their employees as much to make up the cost of college. If you are a doctor with a half million dollars in student loans, you need to make a certain income just to cover the loan payments. Some individuals may enter a field that pays less, like social work if they did not have to pay for student loans. Or maybe you know you want to do social work and have been accepted to an Ivy League school, but opt to go to a community college because of the cost. Would we have better educated individuals applying for lower paying jobs and possibly making a greater impact to those institutions? Not sure, but there are definitely students choosing their school on price. This is a wise thing to do. 

I know this Blog will be controversial, but I try to think outside the box. As Americans, are we truly happy with the current systems for providing education and health care to our citizens? Is there another way of doing things that would raise the living standard of every American? 

I believe that I am a capitalist, but one that can see the economic benefits of providing both health care and education to everyone. I do not believe that the systems would need to be run by the government and could still remain competitive. 

What do you think?