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President Obama today said “If we once again guide the market’s invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last“.

Has he actually read The Wealth of Nations, the classic Adam Smith book that coined the term “invisible hand?”  Does he even know what the term means?

Evidently not, because “invisible hand” is the term economists use to describe the self-regulating nature of markets.  I’d like for President Obama to reconcile that with his call today for increased regulation of financial institutions.

According to Reuters The economy cannot sustain “21st century markets with 20th century regulations,” Obama told reporters after the meeting with lawmakers. And “Strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors and ultimately to keep those financial institutions strong.”

If he’s serious about resolving the financial crisis, Obama will shut up, repeal the current regulations, and allow bad banks to fail.

There’s a lot more in the article, but I don’t have time to get into it all right now.  But I can’t simply disregard statements like Turmoil throughout the banking and financial system caused by the subprime mortgage crisis is at the core of the recession that has spread worldwide. and There is wide agreement among financial market experts — both in the United States and around the world — that the rules governing financial institutions are in dire need of modernization.

These same “financial market experts” are the ones who created the problem – why does anyone think they know how to solve it?

gk

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I listen to the Dave Ramsey show everyday – well, as much of it as I can while driving home from work.  Dave is a smart, common sense guy, and he says a ton of stuff that I agree with wholeheartedly.  You will not go wrong if you follow his advice, and I strongly urge you to listen to him (podcast available on website) and to check out his website at DaveRamsey.com.

Let me put it this way, if more people had listened to Dave and followed his advice, this current financial crisis would not have happened.  The current crisis (I keep saying “current crisis” because the government ALWAYS has some crisis – it’s the way they convince you to go along with stupid ideas that you’d normally spit on) was caused by government policies which encouraged people to borrow too much money.  Period.

Dave has always encouraged (and encouraged is too mild of term!) people to get out of debt.  All debt.  No exceptions.  And he gives great practical advice  on how to do it.  His plan works, and it will also eliminate those fights about money with your spouse.  I know from experience, because my wife and I get along much better since we started following a written budget.

Go to his site, download the podcasts, listen to him live, whatever works for you.  But you need to listen to him and follow his advice.

After having said all of that, there are two things he says with which I disagree.  This is not meant to antagonize anyone, but simply to say that I don’t think Dave is 100% right on his advice.

1. Dave is a Christian, and he encourages people to tithe literally.  10% off the top to your church.  (I’m a benevolent Atheist, who thinks that religion is one of mankind’s greatest vices.  But that’s my opinion, you are free to practice whatever faith you wish.)
2. Buy and hold investing.  (See my previous post Bye-bye to buy and hold for the basics of why I disagree with that philosophy.)

The point of this post is not to point out the area’s with which I disagree with Dave, but to talk about something he posted on his website today.  He posted a link to a report called “The Wisdom of Great Investors” which supports his long term buy and hold advice.  (I assume it’s all about buy and hold from skimming through it.  If it is what it looks like, I’ll post again and tell you why I think they are wrong.)

On a side note, I admire Dave Ramsey for “practicing what he preaches”.  The report is free, and neither he nor the company who allowed him to distribute it are making any money off of giving it away.  Dave said that he doesn’t have any relationship with the company, and I believe him.

In case it’s only on his site for a limited time, you can also read the report here.  The Wisdom of Great Investors.  (Since they’re distributing it free, I assume this is ok.  If Davis Advisors asks, I will remove this link since it is their report.)

But I’m going to read the report later and not simply tell you what I think is wrong in it, but why I think it’s wrong.  After all, if I simply state an opinion, so what?

But if I can explain the reasoning behind my opinion to you, maybe I’ll convince you that I’m right and change your attitude and behavior regarding investing.  And that will lead you to change your attitude and reasoning towards money, which will lead you to change whatever monetary theory (if any) you currently hold, and perhaps I’ll eventually convince enough people that we can change the government back to something approximating what the Founders intended it to be.

I know it’s a long shot, but I have to try.  One step at a time, I hope to get people to think rationally, and not simply instinctively react to what happens.

gk

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