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More pain please!

Under the guise of saying that we should be saving more, not less, and that this happens in a high interest rate environment, we have some people saying that we should be taking more pain in the current recession.

This appears to be a thorouhly 'retail finance' view of the world - and ignores the role that debt plays in most real investment (i.e. wealth creation, you see saving isn't just putting fourpence into your KiwiSaver account). It also ignores the damage to existing investments that can be made in times of extreme eocnomic stress if policy is kept too tight for too long. Not being an economist, I can't walk you through the technical arguments about what the right policy settings are. In a way, it's nice to know that there are different views about the right responses to the economic situation - but my sentiment is with the orthodox this time, the cut is probably the right response.

So no, not more pain please.

Are terms protected?

This scrap (link) is about the use of the term income protection. I have seen similar problems in New Zealand when advisers have recommended products such as "Essential" disability income or Trauma cover as a form of "income protection".

Before you quickly take the side of those UK-based life companies that feel the term "Income Protection" has a special meaning - consider this as a statement of intent, not a legal description, and let's reflect. All income protection has limitations. We've just got used to seeing it in a certain way.

On balance, I feel that this is really a marketing issue. If we solve it using differentiation in marketing - i.e. emphasising how our product is better - then we are likely to add value to the product, and process with the client. On the other hand we could try and fix this by falling back on the law - and just create more compliance costs.

A great collection...

Of finance article links all from The Economist.

Fixing finance
The world now has a chance to make finance work better. It should tread carefully ... more

Regulating finance
Financial regulation is essential. That does not make it easy ... more

Playing financial chicken
Finance suffers from reverse natural selection ... more

When markets turn
A parable of how modern finance can go wrong ... more

Fallible mathematical models
Mathematical models are a powerful way of predicting financial markets. But they are fallible ... more

Why is finance so unstable?
Why the bubbles keep bubbling up ... more

The collapse of finance
The golden age of finance collapsed under its own contradictions. Edward Carr asks why it went wrong and what to do next ... more

Like the Nazis...

The delight in some sectors of western political thought at an opportunity to compare Jews to Nazis - perhaps to expiate some historical guilt on their part, or perhaps because of some latent anti-semitism has been so shocking over the past few weeks. I was pleased to find the following series of facts which show just how obscene this comparison actually is:

Approve or disapprove of the Israeli military operation, but there is no basis whatsoever for such a comparison.

When Israel entered Gaza in a war of self-defense in 1967, the population was 360,000. After Israel withdrew totally from Gaza in 2005, it was estimated at 1.4 million.

Would that the Jewish population under Nazi rule had quadrupled!

When Israel entered Gaza in 1967, life expectancy for women was 46. When it left Gaza, it was 73.
Shall we even bother to discuss life expectancy for Jews under Nazi occupation?

The Second World War in Europe lasted from September 1, 1939 to May 8, 1945 - 68 months in all. That means an average monthly extermination rate of nearly 90,000 Jews.

Compare that to the total number of victims in Gaza over three weeks - roughly guesstimated at more or less 1,000 - and recall that the majority were armed fighters committed to Israel's destruction, who used civilians, including children, as human shields, mosques as arms depots, and hospitals as sanctuaries.

Looks more like a war than a holocaust.

We hold these truths to be self-evident...

The 'Money Constitution' has caught my eye the other day. Initially I thought it precisely the kind of vague, feel good, waffle that epitomises so much well-meaning but misguided personal finance writing. But it is actually better than that. Much better - Thomas Henske, please forgive my prejudgement: it was swifter than the closure of Guantanamo by the first dude.

By the way, the reasons so much personal finance writing has the consistency of pap and all the attraction of the grit you shake out of your briefcase once a year are two fold. 1) You are in the industry and you don't want to offend too many people - and don't I know about that, and 2) If you were a real firebrand, well, you'd be covering Gaza wouldn't you?

What the money constitution gets, which so many people don't get - except, I have to say, for a clutch of feminists who write titles like "What every woman should know about her husbands money" is that couples that don't talk about their money management are not dealing with a central issue in their relationship. Whatever the reason, the outcome will not be good.

So Henske says youv'e got to have a deal. The one he quotes by example is wimpy. The metaphor of a constitution is much better. Historically constitutions are only written by people that have a big problem to fix. The limitations of power placed on the crown in the UK were all products of crisis. Constitutional arrangements are usually developed that way. In the case of the US, the crisis was British Government. Still a crisis, but mercifully now a problem largely confined to the British people.

I favour constitutions that are more practical. Like the fabulous example set by the US consitution, they are defined not by the preamble (pap like everyone having a right to happiness), but by preservation of equal rights, the limitation of power, and the defence of freedoms.

With that in mind, here are just four suggestions (but somewhat sharper edged for the money constitution:

  1. No party shall bind the other to an individual purchase of more than $500 or a recurring purchase of more than $30 a month without prior agreement.
  2. All financial information is fully disclosed. Income. Expenditure. Possible liabilities. Perks.Everything.
  3. Do a budget and what is agreed, gets done. What is not agreed, doesn't happen.
  4. Each have a budgeted 'free spend' to do with as you wish.

After that you can honour your tribe, serve God, or defend the planet all you like - just remember, this is really about managing a flashpoint for conflict in your relationship.

FNZ - Now Owned by HIG

What Adrian Durham and his colleagues have wrought with FNZ has been quite something. This is a field about which others are rightly much better informed than I, although I had more than a little knowledge of the platform through a substantial project in 2000 and 2001. I hope that the new ownership is good for the business and that it can navigate troubled times handily and emerge as one of those great stories of Kiwi ingenuity being adopted by leaders in the financial world. Link.

Risk on the roads

This piece in the NBR talks about the 90km/h limit for vehicles with trailers and speculates on how this may be causing accidents through frustrated drivers attempting dangerous overtaking manouvers. Link.

They may be right, but then again, I can't recall holiday weekend traffic which often gives one the opportunity to attain 90km/h let alone exceed it.  But the arguments against uneven speed limits appears to have some merit - and fits with what little I know about road safety issues - stop laughing - that predictable driving conditions are central to the system.

But here's the point. I seem to recall some stats nut had produced all sorts of stats about the relationship between speed and fatalities. The guts of the analysis at the time was that the picture is more nuanced than 'speed kills' and 64km/h in residential areas almost never kills, whereas 114km/h in rural areas kills a hell of a lot. If you pick this up on a regular google trawl, drop us a line and comment on the risks please. Although, anyone else is most welcome too.