mflorman's weblog
Posted by mflorman on 01/31/09Last updated 01/31/09
About four months ago, I received a call from a friend in London. He works excruciating hours in finance, and I don't hear from him very often. Interestingly, that day he did not call to chat. He called with a dark message and a warning: “The world came to an end today,” he said. “Get your head out of the sand, because in six weeks you’ll be hit too.”
What he was talking about, of course, is the current financial crisis (which does constitute the end of the world for bankers like him). What he meant by “you’ll be hit too” was that my business, which derived its revenue from private student loans, was -- well let’s just say it wasn’t the best business to be in anymore. This banker friend of mine is one of the most rational people I know, and is respected as one of the best minds in the world at analyzing the interplay of markets and making sound investment decisions. This I know for sure: people with a lot more money than I have pay him a lot more money than I make to give them the advice he gave me for free.
So, did I listen? Of course not. My partners and I are entrepreneurs, all permanently infected with BlindOptimismitis. I figured it could never get that bad, and that as a banker dealing in distressed assets he was simply prone to gloom-and-doom predictions. The government and the marketplace simply could not allow his predictions to come true. In short: I had faith that he was wrong. He had to be wrong!
After I got off the phone, I talked with my partners and together we convinced ourselves that my friend (an expert whose intelligence I respect without end) had no idea what he was talking about. And rather than adjust our business model, we decided to continue along the path of aggressive investment and growth. And, you know what? My friend was wrong. Our company did not get ‘hit’ in six weeks, as he had predicted. We were closed in three.
Three weeks after my friend's call, we got a call from our lender who explained to us the new credit metric for accessing our student loans. It seemed dauntingly unbeatable, yet we were determined to create an adjustment plan to keep our business viable. We didn't want to close. We felt miserable about the prospect of laying off our team and giving up on the business we had worked so hard to build. But as the hours rolled along, we simply could not beat the math. Even our (typically reliable) BlindOptimismitis could not change the simple, cold, mathematical truth that our business was no longer profitable. We got that call Friday afternoon, ran the numbers all day Saturday, drank all day Sunday, and locked the doors Monday morning. (A quick aside: I'm glad we closed when we did. If we hadn't, I might right now be focused on pulling myself out of debt instead of working on the next big thing -- which, I assure you, will be bigger, badder, and far more profitable than our school ever could have hoped to be!)
Even now, I cannot help but kick myself for not listening to my friend the day he called. I recognized that his warning was based on sound logic and indisputable data, yet I put hope above math and suffered the consequences. Fortunately, I will never make that mistake again. Math based on true data is neither pessimistic nor optimistic; it doesn't have feelings and it cannot be wished away. Math is just math. Those who hope for an outcome that is mathematically impossible will certainly fail.
Someone please inform our "leaders."
Categories: Current Events, Economy Tags: finance, business, Entrepreneurship, Math
Showing comments 1—10 of 10
Posted 01/31/09
 Fu Manchu Belleville, MI | I guess the same could be said of all Obama supporters, they're putting hope above logic. |
Posted 01/31/09
 sunshine Washington, NH | It's interesting to note that we acquire 12 or more years of education and yet we believe the "experts" when they tell us what we want to hear...even when it defies logic. Somehow we think that they know more than we do about things that should be considered fundamental knowledge. We're all guilty of it at one time or another.
These "experts" are no more than soothsayers.
Good post, mflorman. It takes guts. |
Posted 01/31/09
 bert zamichow Holland, OH | What a perfect parable. I have a feeling our "leaders" will get a few cold hard lessons in math over the coming years. Thanks for sharing and good luck with your next venture |
Posted 01/31/09
 jfhobbs Spring Creek, NV | Great story, thank you. Not so great for you and your partners, I hope you rebound. Funny how for many that mentailty still exists, claiming it cannot get that bad. Just a few days ago I saw a so called economic expert on I believe MSNBC Money. This expert said do not worry, by spring the inflation will be out of the market! All this without even shedding light on the runnaway inflation on currency. Seems to me this about as possible as defying the laws of physics. How do we dumb oursleves to the point where we do not understand the effects currency have on the rest of the economic structure? |
Posted 02/01/09
 charleydan Littleton, CO | Friends are price less. They tell the truth no matter the circumstances.
Politicians like many financial advisers are salesmen and turn the facts to promote their product and ideology. You need neither in your corner.
These same pundits prefer expedience of profit over truth seeking that goes the distance. They laugh it all off when the roof comes crashing in. Claiming who could have known?
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Posted 02/01/09
 mflorman New Orleans, LA | Thank you all for your comments. Quick question: have any of you come across a rational explanation for why the Obama "stimulus" plan will work in the long run? Even if you disagree with it entirely, I'd love to see an article or video that goes beyond the headline or 30-second sound bite. |
Posted 02/01/09
 TEEJEFF VERONA, NJ |
Positive impact on business noted herein:
http://news.yahoo.com/s/ap/20090106/ap_on_go_pr_wh/stimulus_tax_cuts
Mostly downside of plan noted herein:
http://www.moneymorning.com/2009/01/28/us-treasury-bubble/
I honestly don't see how much of the plan stimulates anyone except the power-hungry Collectivists. |
Posted 02/02/09
 mflorman New Orleans, LA | Thanks, TEEJEFF |
Posted 04/22/09
 jfhobbs Spring Creek, NV | I can see how Obama's plan will make the problem worse, along with all of the other inflationary spending. I don't see any good though, I wish I did but I don't. |
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Posted by mflorman on 01/22/09Last updated 01/22/09
One of the most fundamental tasks of any government within a free-enterprise system is to protect its citizens' property – to ensure that trade occurs by mutual consent and not as the result of force, intimidation, or threat of the loss of life or liberty (e.g., at gunpoint). This is why we have property rights, and intellectual property rights, and a police force.
The purpose of taxation is to provide the government with the financing it needs to carry out its stated tasks. On principle, I am not opposed to taxes. However, I am opposed to them when the government
- over-interprets, oversteps, or arbitrarily (i.e., without legal backing) decides what its stated tasks are, or
- obtains adequate financing yet does not accomplish its stated tasks.
I can rant and rave all day about point 1, about small government, strict interpretation of laws, and all those good ol’ conservative rallying cries (just ask my poor dog, who has to listen to it all day). But point 2, I think, is even more important, for it crosses party lines, ideological lines, and any other lines I may have failed to mention.
No matter what we may personally believe about welfare, social security, unemployment, or any other government entitlement programs, nothing can obscure the fact that they are not working, that they are (or are going) bankrupt, and that it is the government that has dropped the ball.
America is going bankrupt. The dollar is being destroyed by foreign debt and inflation. And printing and spending more money we don’t have is just going to make things worse. These are truths. This is reality, and no amount of faith in the American spirit can bail us out. We simply have to stop. spending. so. much. money. We can no longer afford to waste billions of dollars on wrong directions, poor executions and short-term "solutions.” My 2008 income tax will be wasted in just this way, which I cannot support. Therefore, in protest, I do not want to pay.
Unfortunately, the power of law is on their side. As I understand it, if I do not pay my taxes, the government has every right to throw my hairy bum in jail. But let everyone know, let me be perfectly clear: fear of prison is the only reason I will be paying my taxes this year.
I no longer consent to the government’s wasting my hard-earned money on ineffective bureaucracy, investment in failing companies, and policies (domestic and foreign) that weaken the spending power of the dollars I have managed to save. As a capitalist, I find it morally repugnant to continue to give value and receive nothing, or, as is actually the case, receive a negative in return. And yet I will do so, but – again – only because the gun of a government-imposed prison sentence is pointed squarely at my head.
So, Federal Government, you can steal my property this year, for I am not yet willing to give up my life or liberty to fight your injustice. But that day is coming. And until then, know still that I do not stand united behind your plans that deny reality and defy that most basic principle of a free society – the protection of the individual and his property. Do not ever misinterpret my participation in your taxation as any sort of support, for it is nothing more than fearful tribute. But when you are ready to listen, when you are ready to see the truth and move ever closer towards the America that our Founders envisioned, well, then I will gladly, and willingly, participate in any way I can.
Categories: Finance, Current Events Tags: Income tax
Showing comments 1—10 of 11 [More]
Posted 01/22/09
 Daniel Gerke clinton, MO | Very well stated, I couldn't add a thing. |
Posted 01/22/09
 Andrew Sica Woodbury, CT | IP laws are slippery to say the least. Jeffrey Tucker on Mises.org wrote a great piece on a new book about IP law that I agree with completely - check it out... |
Posted 01/22/09
 Felegund Jonesville, KY | Your statement is sound. Nicely done.
It is a pity, though, for a goodly part of me feels that as long as the government has the threat of imprisonment against those it steals from, and we bow to that threat, we are as good as controlled. |
Posted 01/22/09
 mflorman New Orleans, LA | Felegund, I agree. In a way we are already imprisoned, and we surely are already controlled. Unfortunately, I am perhaps lacking as a patriot in that I am as of yet unwilling to go to prison for my beliefs. I don't see how such martyrdom would accomplish anything at this point. That said, I am open to a sound argument...
If I were an elected official, it would be important to me to have the willful consent of the governed in whatever policies I undertook. With all this talk of unity and putting aside old arguments, I just want to be very clear that I do not consent and that I regard current tax policy as theft. I will not be silent and let that silence be misunderstood as support for policies I know are destroying the country I love so much. If the government is going to steal from me, at the very least I want them to know that that is what they are doing, and, to be honest, I also want them to feel bad about it.
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Posted 01/22/09
 sunshine Washington, NH | Really good post. I've been thinking about protesting in this way also, but decided not to.
If it's any consolation, the money they are keeping is worthless anyway. They're making sure of that. :-) (Sorry, don't mean to trivialize your services, but we need to keep a sense of humor at the same time) |
Posted 01/22/09
 Felegund Jonesville, KY | You're exactly right, of course. I wasn't trying to say that it was still a bad thing that we would consent to pay taxes. I'd do the same thing, if any of my income was documented where the IRS could find it (thank God for farm labor- everything is under the table).
I was just lamenting that such power ever came to exist, and that we have to obey it in order to keep fighting it. Still, when we finally manage to draw enough national attention that the media comes after us, we'll have enough to take care of without the charges of tax evasion. Sensationalism tends to counteract revolution. |
Posted 01/23/09
 sunshine Washington, NH | I agree with the statements regarding enslavement. As long as we comply, we are enslaved to that with which we comply. Except...
I became an independent voter last October. Before that I had the traditional Republican ideals, but was too blind to see that the Republican party did not share them. I was truly enslaved then, as I had no choice but to obey like a zombie. All the while I had hoped that the Republicans would change the world for the better. When I finally saw the truth, I became angry. As time goes on, I see that the unveiling of the truth has actually made me freer. I can see my slavery, but I am still free to decide whether to obey or take the whipping. I am free to think for myself. I think that's what the fathers meant when they said that the truths are self-evident. Everyone has the ability to see the truth if they want to. We are much freer than those who will not see. |
Posted 01/23/09
 celticreeler Rolla, MO |
What a good post. Many very important ideas in it, as well as in the comments.
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Posted 01/23/09
 mflorman New Orleans, LA | Great point, Sunshine. I have undergone a similar mental transition -- my willingness to see the truth has made me feel more free, more happy, and more empowered than ever before. It has also made me really, really, really pissed off :)
In this time of moral and metaphysical relativism, it is important that we who actually have beliefs 1)let others know we have them, which in turn might empower them to think and commit to something, and 2)explain why we hold the beliefs we hold.
I, for one, have finally accepted that reality exists, that I am alive and conscious, and that I alone am responsible for my own life and happiness. Most of my beliefs (political and otherwise) follow from these (self-evident?) truths. |
Posted 01/28/09
 Jenn s Fredericksburg, VA | Your major points sound very Galt-ish :) |
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