Is Capitalism Broken?

Yes, of course if you overpay by 50% on a used car it is a poor financial decision.

And of course there are low-volume or specialty market vehicles that are outliers.


I also call the sky blue. But today, because it is overcast, it is grey. And for a few minutes at sunset it appears pink in some areas. But I'll go with the 80/20 rule and call it 'blue' anyway. I'm sure I could find someone to argue with me about it if I try.

 

I'm saying your examples (paying 50% too much for a car, and reselling a used car for more than you paid for it) are the exceptions, not the rule.

 

Are you saying that these brokers were forced to sell these products to those kinds of people? That they were forced to claim they were virtually risk-free?

I don't get your problem with regulation here. Maybe you could explain the mortgage derivative regulatory environment in the U.S.

 

But I thought you were talking about overregulation rather than lax regulation or institutions that perhaps circumvent regulation.

You seem to be saying that what happened with these securities was a result of unrelated regulations. Is that what you're saying?

 

Sorry, I consider most of your premises to be pure make believe.

As a general rule, people don't pay 50% over market value for used cars unless they are complete idiots. That probably covers about .5% of used car purchases.

Cars don't depreciate the same the first 3 years as they do years 4-6. It is INCREDIBLY more front loaded than that.

One popular car research site I found gave these numbers for the average $25k family car (% of total original value deducted, not net value).

Year one - 24% to 28%
Year two - 10-12%
Year three - 10-12%
Year four - 8-10%
Year five - 7-8%
Year six - ~6%

So in the real world, in an average case, the first three years are 44-52% depreciation. Years 4-6 are 21-24% depreciation.



And most manufacturers now offer 5+ year warranties, even when ownership is transferred. So the idea that the guy driving it in years 4-6 is going to be hit with incredibly higher maintenance bills is disconnected from reality. Sure he may have to replace the tires and brakes for the first time, but the idea that it will realistically be far above and beyond that isn't normally the case. And you can pay for a LOT of repairs with that extra 25% of depreciation you didn't have to pay.

 

The problem is, people split the difference for whatever is convenient and profitable for them.

But, but, but
Capitalism is the ONLY solution...pure unfettered capitalism...until they get something out of the government...or a break...or a payment...
or, or, or...

Oh....Then it is NEEDED for business.

Isn't this "Socialism"?
Subsidies? Massive payment to companies that are making record profits?
Fannie Mae & Freddie Mac...allowing the banks and loan brokers to write down 30 year mortgages.
USPS...mail forever, even when we pay for the pensions and it's lack of profit?
Loop holes? Different rates on taxes...
FDIC and bail-outs
Infrastructure support...planes, trains and automobiles...and so much more.

I can keep going for a LONG time.
I find that businesses support and can rationalize anything...as long as it lines their pockets and increases their power.

We actually need to stop trying to label things. Stop philosophizing.
Do what works. Do what's necessary.

Yes, capitalism leveraged correctly and fairly seems to be the best method so far...for harnessing the nation but offering the most freedom.
But just because something is NOT corporate, doesn't mean it is the antithesis or poison to capitalism either.
Be honest, be real, be fair.

It doesn't have to be black & white.
Don't take the lazy way thinking about it.

 

I agree with much of what rogue49 is saying, if not necessarily in the way he says it.

Capitalism is only viable insofar as it is adequately managed and regulated. Laissez-faire or the free market is considered by some the ideal, but it is by no means achievable, nor desired by the wider public. The closer an economy approaches laissez-faire, the most unsteady it becomes, the more fragile. It's the inverse of communism. Both systems are untenable and unsustainable. On the one hand, communism is susceptible to government corruption and totalitarianism. On the other hand, laissez-faire is susceptible to corporate corruption and plutocracy. Both suffocate democratic ideals and wish to place a yoke on the public. Both ultimately benefit the few in power, the few who can truly leverage the system to their advantage.

In that way, laissez-faire is no better than communism.

This is not to say that capitalism isn't good, nor does this say socialism is bad. Both have their uses, and both have their benefits. Used together, they reinforce the other's weak points. Capital belongs widely in the hands of the people, so pure socialism is undesirable. The people wish to maintain democratic power and access to resources deemed essential or otherwise deserved by human right or common decency, so pure capitalism is undesirable.

This is about striking a balance. America is a bit off balance, and contrary to what Aceventura perhaps is suggesting, the problem isn't too much regulation. It's mismanaged regulation. There's a difference. Some areas aren't regulated nearly enough, while other areas are regulated inappropriately or in a way that's obsolete.

Mixed economies are what work. To suggest otherwise is to ignore the lessons of the past.

 

I tend to have Scandinavia in mind when I think about these things, in addition to certain aspects of Canada and, say, Germany. Many would argue that these are much better places to live than America.

With the U.S. in particular, the problem is that the financial sector is grossly under-regulated and mismanaged. It makes for a toxic mix that allows institutions and individuals alike to circumvent rules as a way to conduct themselves unethically.

Canada, on the other hand, has a balance between industry self-regulation and government rules. It makes for a sound financial system with relatively few economically devastating consequences.

If I had a nickel for every bank failure in Canada since the Roaring Twenties, I'd have ten cents. If I had a nickel for every bank failure in the U.S. since 2008, I'd have twenty bucks and change.

 

You seem to take an idealistic view. The reality is that personal finance and investing has become a complex subject. People today need to make many more financial decisions than people did thirty years ago.

In a perfect world, everybody would do what's necessary to know everything they need to know about how everything works. Do you know such a person? Do you know of a single solution provider that can ensure this knowledge to their clients?

Regulation—whether instituted by government or by the industry itself—is there to ensure ethical practices and to mitigate unnecessary risk. You seem to be arguing against regulation, arguing it makes people lazy. I think you're oversimplifying the issue. What are you saying? Remove regulation and people will smarten up? Everything will be fine? Regulations are just training wheels for the unsophisticated?

Why do you think regulations are instituted in the first place?

 

For the last 10 years I've run two of the largest automotive websites in existence during that time, both with 10s of millions of posts, tens of thousands of active users, and thousands to tens of thousands of daily visitors. Both recognized by "Big Boards" as top 100 websites as measured by volume and activity. During that time I've been to numerous industry events, I've owned, sponsored, and raced at events myself, and my business involves servicing two of the largest automotive companies in the world on 8-figure a year B2B accounts. My opinion is a very informed one.

You can play with semantics and made up anecdotal numbers all you like, but most of your examples are incredible outliers of reality. A $7000 used car that someone willingly pays $15,000 for? A Porsche that sells for more a year later than it did new? Those are both just ridiculously rare in the real world, especially in reference to an article that is supposed to talk about a typical American and a typical new car.

And some of your numbers are just completely made up and so disconnected from reality that I only bring them up to show how far away from the real world the arguments are. You claim CarMax makes $3000 profit per car? Seriously?!?! The cool thing about publicly traded companies is that those numbers are easy to access for anyone if they want to fact check. CarMax sold exactly 724,726 cars last year. Their gross margin was $466 per car. Even if you want to add in the profit they make from their finance arm, that still only adds $90.21 per vehicle to their profit. And all of that is based on gross. Subtract out all the expenses and overhead and that "$3000" number is likely off by a factor of 10, if not greater.

I'm remembering now why I don't argue economics or politics on the internet.

 

If you can't tell that times have changed since the '80s, it's probably because many important decisions are already behind you. (Don't feel bad about unintentionally dating yourself. )

There are many books that have since replaced that one in importance, or are better in part because they're more up-to-date. (The most recent edition of Benjamin Graham's Intelligent Investor comes to mind.) Another challenge, however, is the glut of books that are now published today. Part of the challenge of those learning about finance is separating the wheat from the chaff. There is a lot of information overload, and a lot of bad information. The fact remains though: there is a lot to know about today, and much has changed in the average person's situation since the '80s, and even the '90s.

Wow. This is incredibly naive.

This is incorrect. Regulation is both reactive and proactive, depending on the environment, situations, laws, practices, products, and the market itself. You don't seem to fully understand what regulation is.

You don't have to say anything. I know what you're saying; I simply think it's wrong or otherwise misguided.