A few months back, President Obama made a major gaffe, in which he attempted to explain business leaders benefitted from the help of others and government infrastructure, saying that they didn’t build that. Republicans twisted this to mean that he believed business owners didn’t build their companies due to reliance on the government. At the GOP convention, “You didn’t build that!” became their rallying cry against Obama.

For Democrats, it’s almost a pity that yesterday’s Mother Jones story didn’t come out a few weeks sooner. If it had, they would have been provided a similar rallying cry of “53 percent for Obama!” based on his remarks at a private fundraiser in my hometown of Boca Raton.

Romney’s mistake was twofold: he oversimplified the facts and he stated them very bluntly. The latter might have been fine if someone hadn’t been secretly recording the speech and he was merely among friends. Let’s parse precisely what he said, bit by bit:

There are 47 percent of the people who will vote for the president no matter what.

So far so good, this is almost trivially true.

All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what.

Where to begin here? For starters, this isn’t as absurd as it sounds. According to the Census Bureau, 49 percent of Americans live in a household that receives a government entitlement, such as Medicare/Medicaid, food stamps, disability, Social Security, or housing assistance. So Romney’s number is actually a bit low here.

However, he surely oversimplifies matters. Just because someone receives a government entitlement doesn’t mean they are a lost cause for the GOP ticket. There are some people who may lean right, despite say, being on disability for some legitimate physical ailment. There may be some elderly Americans who love their Social Security and Medicare, but believe that free markets are better for the nation than more government control and could also side with Romney.

Similarly, there are wealthy people who believe that it’s the government’s job to take care of the poor. As a result, they side with Democrats. See: Upper West Side.

But his point is also very, very poorly stated. While some that 47/49 percent may very well believe “they are victims,” not all of them do. And by saying it in the way he does, Romney sounds like a jerk – which is an important point that I’ll come back to.

Romney goes on:

And I mean the president starts off with 48, 49, he starts off with a huge number. These are people who pay no income tax. Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn’t connect. So he’ll be out there talking about tax cuts for the rich.

As before, Romney is mostly right here. Indeed, 47 percent of Americans pay no income tax. That is a fact. And considering that Romney and Obama both want to keep their tax rates nonexistent, they probably won’t be swayed by Romney on taxes if they’re only concerned about themselves.

But he’s oversimplifying here – that isn’t necessarily the case. Some of those people might buy into the Republican logic that lower taxes on wealthier individuals will help to create more jobs. Not all, but some. At the very least, some might hunger for an alternative to Obama, who hasn’t exactly built a robust recovery.

And like before, this is all very badly stated. Some of these people who pay no income tax are working very hard, but are in low wage jobs. Others might have worked hard throughout their lives, but now receive Social Security and benefit from credits for elderly Americans.

Now let me veer off into a quick tangent here. Some people criticize Mitt Romney for calling out people who don’t pay their fair share of taxes, noting that he only paid a 14 percent effective tax rate in 2010 (the only full return he has provided). For starters, 80 percent of Americans pay an effective rate below 15 percent, so this isn’t quite as bad as it looks. Still, Romney made $21.6 million that year. Shouldn’t he pay more than 14 percent? Maybe, but bear in mind that he did pay $3 million in taxes in 2010, which is quite a lot by any standard. He also gave about $3 million to charities. Maybe he should pay more, but I have a tough time chastising a guy who gave a combined $6 million in a year to benefit the “greater good.”

Okay, back to his recent flub. So we’ve parsed the speech, and none of it was wildly incorrect. His two sins were oversimplifying and not sugar coating his rhetoric. The first problem is fairly common with political rhetoric, particularly when a candidate isn’t giving a formal speech. Both parties do it. It’s annoying, but it happens. While it’s fine to call him out on it, it’s also a little disingenuous since it’s so terribly common.

However, the latter issue here he can be partially blamed for. True, he thought he was among friends and did not realize his remarks would soon be talked about throughout the world. So he didn’t feel the need to soften them into politically correct phrases. With that said, it’s 2012. Most smartphones are video cameras or have recording apps. And as the Duchess of Cambridge found out recently, when you’re a public figure, even your most private moments might be secretly intruded on. So Romney should have been more prudent. Either he needed to be perfectly accurate or have spoken more carefully.

I think the relevance of this episode is not any revelation that Romney thinks 47 percent of Americans are losers as some may claim, however. Instead, it highlighted two grave problems.

First, Romney’s biggest flaw as a candidate is his seeming lack of likability/humanity. People just can’t relate to him. At the RNC, he should have made some inroads here. On the final night, the GOP featured some truly moving speakers that explained Romney’s benevolence and character. His speech was also easily the best he’d ever given and seemed very heartfelt. Unfortunately, both were overshadowed by Clint Eastwood talking to an empty chair. And this latest gaffe only moves Romney further away from the sort of empathetic leader that many voters hunger for – something that Obama portrays fairly well (though not as well as, say, Bill Clinton or Ronald Reagan, who were true masters). As I mentioned earlier, Romney sounds like a giant jerk. And that’s precisely what he needs to avoid doing to win.

Second, it shows with utter clarity that he speaks according to his audience. Here, he thought he was talking to a bunch of wealthy Republican donors off-the-record, so he fed them the sort of rhetoric that they wanted to hear. This is a problem I have long had with Romney – I don’t really know what he believes. I suspect I’m not alone in my discomfort here. He’s flip-flopped so much, changed stances so many times that it’s pretty tough to imagine what a Romney presidency would actually look like. After this week, however, that doesn’t appear to be something we’ll have to worry about.

Twitter was blowing up today about CFA exam scores coming out. The CFA Institute has a three-part test that people can take to receive a Chartered Financial Analyst designation. They must be taken over the course of a couple of years. They’re long and grueling. You have to endure Law Bar-style studying to pass. My personal view is that it’s pretty useless, and seems like sort of a scam.

For starters, it is ridiculously expensive to take the CFA. Registration and materials cost between $1,000 and $1,500, depending on how early you sign up. That includes your initial registration, where each test itself costs at least $600 – and remember there are three parts. So if you pass each section on your first go, you’ll end up spending between $2,500 and $3,500, at best. Oh, and you also have to pay annual dues to keep your designation.

How does that compare to other exams? The SAT – you know, the one that your entire future rides on when you’re in high school – costs just $50 to take. The NY Bar exam costs just $250.

How can the CFA exam get away with costing 10x as much as the bar? I have absolutely no clue. I took a look at the CFA Institute’s financials, and its operating expenses weren’t much higher than its registration costs. Its revenues were $211.5 million in 2011. Its expenses were $210.9 million. A nice chunk (~$40 million) was used to expand globally. Another $30 million or so was spent on marketing.

Then, it’s got $85 million in test expenses. About 164,000 people took some stage of the test last year. That averages out to a cost of $517 per person. But lord knows that paper and proctors aren’t that expensive – so I’m guessing there must be some executives somewhere that are doing very, very well.

You might think that this is one of those situations where a test is very expensive and candidates essentially buy a certification as a result. Well, you’d be wrong. The test has a bizarrely high fail rate. This year, just 38% of applicants passed Level 1. And that’s not unusual. Here’s a chart showing the pass rate for the first test section over time:

So you can see that either the test has gotten harder or those taking it have gotten dumber. I suspect a combination of the two. So now consider that cost again. From these stats, it’s pretty safe to say that most people don’t glide through all three tests without failing at least once. And these are almost all finance professionals.

This is a brilliant business model, isn’t it? Make a test really hard. That boosts its prestige, while increasing your revenues.

But if you’ve ever taken the test, then you know it doesn’t really prove very much. It doesn’t make you a better financial analyst. All it does is forces you to memorize a bunch of different stuff related to finance, accounting, and “ethics” so that you can answer questions very quickly.

In fact, I took Part I many years ago. (I think 2004, when the pass rate was 34% for part 1, the lowest ever.) I’m a pretty good test-taker, and very good with numbers. And I’m much smarter than the average person in finance. Yet I only studied for one week, and consequently failed – barley. But my finance experience was almost wholly irrelevant to the test, which focuses mostly on investment analysis. I was a few percentage points off a passing score in total (and passed a few sections). The problem was that I hadn’t memorized the equations well enough to answer the questions as quickly as necessary.

Is it my fault I failed? Absolutely – I only studied for a week. Most people require months of intense studying to have a shot.

With that said, I found the CFA content pretty useless. What’s the point of plowing a bunch of equations into short- to medium-term memory? If you’re a professional analyst, it’s more important that you understand markets and finance concepts. The ability to regurgitate some random equation isn’t going to get you very far.

The test is also very broad. You don’t need to know fancy derivatives equations if you specialize in equity research on health insurance companies or issue municipal bonds.

So what’s the value of the CFA? I’m not sure. For some reason, companies like it. I guess they like to have employees who have shown that they’re very good at memorization and studying. If you ask me, that focuses on exactly the wrong sorts of skills for finance. These people should be better at critical thinking and possess a creative streak. The CFA tests neither of those talents.

So if you’re taking the CFA for your resume, then it could serve you well in securing future employment at a firm misguided enough to believe it matters. But if you’re taking it for some reason other than to obtain a fancy designation that impresses silly people, then you’re wasting your money and a whole lot of time.

And I’m late to the party on this one, but I really need to say something about Obama channeling Elizabeth Warren in his now infamous “you didn’t build that” rant. Here’s the heart of the speech:

There are a lot of wealthy, successful Americans who agree with me — because they want to give something back. They know they didn’t — look, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something — there are a whole bunch of hardworking people out there. (Applause.)

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

As many have pointed out, this is sort of an obvious truism. No man is an island, etc. We all know that. But the president hopes to show that this means that business owners aren’t the sacred class of people that the government should worship as holy. In essence, he is using this reasoning to argue that they should be taxed at even higher rates.

Let’s set aside the question of tax levels for the moment, because it’s mostly a matter of economic faith. Taxing the rich more isn’t going to solve the deficit problem, it will just provide the government a little more revenue – unless you believe that higher tax rates will very significantly affect the incentive to innovate. In that case, you think tax receipts will fall. Nobody knows where the sweet spot is for sure.

But what about the idea that an entrepreneur needed those teachers or possibly other government workers in order to get where they are today? As mentioned, this is sort of trivially true – but so what? Those teachers did not show them how to do calculus or write an essay out of the kindness of their heart: they were performing a service for pay. And that pay came from the tax receipts (assuming public school) provided by their parents and others.

Other than family and close friends, those responsible for helping successful business owners get where they are today did not do so for charity – they got paid. And that pay represents what they’re “owed” in an economic sense. Really, they aren’t any more special to that business than its UPS deliveryman, who also performs a service for a fee. Certainly, that business couldn’t function without its deliveries either. So does that business owner owe the UPS guy more money? Of course, not. He is already paid for the service he provides based on market rates.

And those teachers or other government workers were paid too. Indeed, they were probably paid at above market rates, given the existence of teacher unions and generally inflated government pay. That is what they were owed, and they get it.

So the idea that business owners owe something additional to these sorts of people who helped them along the way is nonsense. These people are not equity holders in the company because they performed some service – any more than the UPS guy should be considered an equity holder. If you believe that all people should be equity holders in all businesses due to the interconnected relationship of our economy, then that’s your opinion. But that’s not capitalism – it’s socialism, pretty much by definition.

The reality of the situation is that politics had nothing – nothing – to do with what occurred today. You don’t need to analyze this idiot’s political affiliations. When someone decides to do something crazy, his politics are irrelevant: the act was insane. There’s no logic in trying to gun down a member of Congress, even if you don’t like what he or she stands for. Any attempt to do so is not the result of divisive politics or violent rhetoric. It’s a chemical imbalance or some other brain problem that results in a psychotic episode.

What makes it even more absurd that this act could have been merely political is who was targeted. Rep Giffords is a moderate by any definition. This wasn’t Nancy Pelosi or Barney Frank. She is a Blue Dog Democrat, which means she’s relatively conservative in her fiscal views. She opposed the DC gun ban. She supports strong immigration measures. But she also isn’t particularly conservative. She is pro-choice. She voted for the Obama stimulus in 2009. Unless this gunman has a particular aversion to moderates, then it couldn’t have been political. This further shows that he isn’t a fringe political wacko — he’s just a wacko.

From today for the next few weeks or months, people on TV will debate this guy’s political motivation. They’ll criticize violent political rhetoric. But they’re wasting their time. None of that actually mattered here. This person developed a psychotic obsession that he exercised through violence. This isn’t that different from your usual serial killer in that they are both mentally deranged.

So as the talking heads on TV drone on about how this episode might have been prevented, they’ll develop lots of grand theories and assertions of how to make things better. But they’ll all be empty and worthless. The sad truth is that this couldn’t been prevented by more enlightened political discourse, because there will always be psychotic people with the will and means to commit violent acts. This isn’t a result of violent rhetoric or political extremism; it’s a result of psychoses.

There have been lunatics killing people since the beginning of time, and there’s no way to ensure that they won’t in the future. While some psychologist, friend, or relative might have discovered this man’s problems earlier to prevent the problem, no political pundit or new commentator could have helped.

I didn’t go to Harvard, I went to Cornell. And I also happened to be interviewing at a time when finance was a complete disaster — just after 9/11. During one of my final round interviews (for Citigroup) I remember being downtown in November and you could still smell a stench, quite a few blocks away from ground zero. So I wasn’t in a situation where anyone who could use a calculator got a job, like it was a few years earlier and a few years later. Some bulge brackets weren’t even interviewing. Things were so bad that several were just taking their summer analysts for full time or fewer.

I was also stupidly selective, so I didn’t get the offer I wanted. Instead, I ended up getting a job in consulting in structured finance for a few years. But everything happens for a reason. It turned out to be a rich experience that shaped my future more than I could know. It led to an associate position in investment banking.

Since I wasn’t as heavily recruited as Klein’s subject, what led me to banking? A lack of better options. I was coming out of school with a fair number of loans. I felt like my expensive education should get me a decent paying job. I didn’t want to be a lawyer, doctor, engineer, or college professor — so what was left? Finance. I had never taken a finance class until my junior year in college. I added an economics major in my senior year to look more attractive in finance interviews.

So how exactly did I decide to pursue finance? I always had a knack for math and am a hard worker. That basically spells success in finance. And it worked. I did quite well. But I was never passionate about the work. Ever since college, I had dreamed about writing. But that always seemed like a pipe dream. I always heard the whole “no one wants to be a starving writer” line.

Yet, I grew bored with finance. The day to day didn’t challenge or interest me. But as Klein mentions, money is a trap. He calls this the “golden handcuffs” problem. The banker says:

There’s this notion of the accidental banker, people who get caught up in that world and get more and more pay and find it harder to justify leaving. But the cultural effect of all of this — and even with regulatory reform, we need to think about that — is that a lot of people decide to sacrifice much more time than they normally would because the money is so good, and then they believe they deserve extremely high pay because they’re giving up so much time. It’s not malicious. But there are a lot of unhappy people who end up in that situation.

That’s exactly right. Once you start living in a certain way, it’s very, very difficult to imagine making a lot less money. I loved eating at the best restaurants, drinking the best wine, buying expensive things. Who doesn’t? I remember the incredible realization walking home from the subway one evening that I no longer had to budget — I didn’t have to worry about money. It was great. Except I didn’t like my job. So I had to eventually make a conscious decision that I’d rather be happy than rich. I feel I chose wisely. It turns out you can write for a living and not starve; you just have to live a little more modestly.

Klein also asks the banker whether banking pay is justified. That’s a fair question. Amusingly enough, when I was in banking I believed I was underpaid — because from banking standards, I was. I worked at a bank known for being at the bottom of the pay scale. I wasn’t promoted on the schedule promised. So even though I was probably in the top few percent of Americans in terms of compensation, I was bitter. I should have been making two or three times what I was. Naturally, even at that “inadequate” pay, I was making several times what I make now as a journalist.

But that was just the relative pay. In general, bankers are certainly overpaid. In general, they aren’t as smart as people think; it isn’t rocket science. In fact, I think the people I work with now are far more intelligent than those I worked with in finance. The service they provide is important, but no more important than that many other professions provide. I feel like having thousands of people reading my writing each day has far more impact on the world than a banking deal. I used to quip, “I’m changing the world, one large institutional investor at a time.” Bankers do work hard — no doubt about it. But so does a guy with two minimum wage jobs. Even though my hours are slightly less now, my days are far, far busier and more challenging. I think I ultimately work harder, though I feel my quality of life is much higher.

I’m not sure why bankers make so much money, but that’s just how the market works. And that’s fine. It’s only money; they can have it. You don’t need to look far to find filthy rich people who are miserable and dirt poor people who are happy. They can have their summers in the Hamptons, expensive French restaurants and Upper East Side penthouses. I’m perfectly happy with my quaint one-bedroom, a burger from Ray’s and the occasional trip home to South Florida. Because I leave for work after a decent night’s sleep with the sun up looking forward to my day, and I return with the sun still shining having felt like I did something I enjoyed that might have somehow made at least a small difference in the world. And that probably explains why I never fit into the banker mold.

In particular, it’s hard not to waste at work. During an average weekday I’m very, very busy. The life of a professional blogger/editor leaves little time to relax. Either I’m paying attention to something going on in the news, reading what someone else wrote or writing something myself. In the constant struggle to produce, produce, produce, I rarely have time for breaks. I eat lunch every day at my desk and 40% of the time, I don’t leave my floor the entire day.

So I feel forced to use disposable cups and plates for my beverages and food. That means my daily loose leaf green tea includes wasting a Styrofoam cup and paper filter, my water wastes a plastic cup, and my sandwich wastes a paper plate. Awful, I know.

The alternative would be to bring a mug, tea infuser, plastic cup, ceramic plate, and sponge to leave at work. And then I would have to wash it each morning, which would easily take five to ten minutes out of my day. I don’t even allow that to walk to get lunch twice per week. How can I justify wasting that time to wash cups and plates when I could be working instead?

This attitude contrasts greatly with my feelings in my prior life. Back when I worked in finance, I washed all my stuff, and didn’t use disposable items. That’s because I savored the opportunity to get away from my desk to break up my boredom. Now that I actually enjoy what I do, and am much busier, that’s all changed.

I know that it might seem a little insane to care about 5 to 10 minutes. That’s not that much time, right? Yet, if I got home 5 to 10 minutes later each day, I know that would annoy me. So I’m bothered. I want to do the right thing and not waste containers, but I also don’t want to waste time. But now that I’ve thought through this in blog format, I’m starting to think it might not be so bad to deal with the washing. I’m just torn.

The SEC Goldman lawsuit is pretty big news. I already wrote a post on it today at Atlantic Business, and will post another tomorrow.

I have a few additional thoughts. First, this is likely an isolated situation. Even if the case succeeds, I wouldn’t expect there to be a big flood of cases involving investment banks getting prosecuted that sold CDOs or subprime MBS that went bad. In this particular situation, according to the SEC complaint, the bonds were created precisely to provide John Paulson’s hedge fund with a short. This kind of behavior only started towards the end of the housing boom. Most of the toxic securities sold during the bubble were created in good faith — even the banks thought they would hold up. That’s why they bought so much of the garbage.

I see this as a lose-lose situation for Goldman. If they lose the case, well that will be very bad. Then, Goldman will have been shown to have misled investors in a court of law. No matter the fine, it will result in a huge blemish on the firm’s name. Investors will suddenly be very skeptical about trusting the firm going forward.

If Goldman wins the case, however, it’s unclear that things will be much better. This will be a very public, high-profile trial. Goldman can’t simply try to slip by on some technicality. For investors to have confidence in the firm, it will have to completely dismantle the SEC’s case. It will have to provide some incredibly surprising information that makes the complaint look like pure gibberish. If it turns out that Goldman acted essentially as shady as the SEC complaint says, even if not technically fraud according to the court, investors will lose trust in the bank.

Frankly, I’ve never understood investors who buy complicated securities from bankers smarter than they are. If you don’t fully understand what you’re buying, then what are you doing putting your money on a hope and a prayer that some crafty bankers aren’t trying to mislead you? At the end of the day, a lot of trading is a zero sum game — and the house generally wins. That house is Wall Street, so unless you’re an investor with an unusual amount of genius, then you will probably lose.

I know a fairly significant number of people who oppose national healthcare, and none of them are right-wing nut jobs. Most of these people lean right politically, but they’re hardly going to try to wound you with their bibles or shotguns if you bring it up. They’re happy to have a calm rational debate about it. They just don’t believe it’s ultimately best for the government to control healthcare.

At this point, it looks like national healthcare is on a slow march to its grave. But if Congress and the Obama administration really believe that America wants national healthcare, I have a suggestion: let’s vote on it. Have Congress draft a plan. Give Americans a month or two to read, understand and discuss the plan. Then make a national referendum vote for it. That will eliminate special interest lobbyists that are whispering into the ears of our politicians and let the people really voice what they believe. If Congress and Obama are right, and Americans really do want national healthcare, then it will pass, and they will have their victory. If they’re wrong, then it shouldn’t pass anyway, and the debate will be over.

There are so many important political and economic discussions out there right now that Washington needs to be having, but the healthcare debate seems to be sucking up all of its time, energy and money. Why not let the people decide so we can just move on?

As I said a while back, from January through May, I was on a stint in a non-permanent capacity working as a reporter in Forbes’ Washington DC Bureau. Today I started working for The Atlantic. Permanently, full-time, etc. I am a new blogger/editor for their Business Channel. That means that I will be writing a lot, all the time. Think of it as what I used to do here, focused on business and economics, on steroids, except that I’m getting paid for it.

That also means that I am officially moving to the DC area. I’m still subletting in Arlington, trying to decide (opinions welcome) if it’s worth paying approximately 4% in higher taxes to live in DC, or if I should stay a little further out in the trendy northern Virginia suburbs. (I say that without a hint of sarcasm. NoVA rules.) I leave behind New York City. Good riddens. Been there, done that, got the I HEART NY T-shirt. May it rest in its rats’ feces peace.

Does that mean synchrodan.com will cease existence? Of course not. The Atlantic is not particularly interested in my ramblings on topics like the paparazzi, Gari or peeing. So I hope to still blog on other non-business/finance/economics topics through this site. In the event that I do other cool stuff like TV or radio, I’ll be sure to post about that here too.

Anyway, if you’re interested in my Atlantic work, check it out here:

http://business.theatlantic.com/

Or more specifically, here:

http://business.theatlantic.com/author/daniel_indiviglio/

Friday, March 29, 2009

Is The U.S. Treasury Smart or Generous?

U.S. Debt $668,621 Per Household

Organic Milk: It Does A Farmer Bad

Thursday, March 28, 2009

Should The Fed Be The Systemic Risk Regulator?

Prime Borrowers Ask: “What Bottom?”

Suffering States Not Feeling Stimulated

Inflation: Because Here Looks A Lot Like There

Is OPEC a Cartel?

Wednesday, March 27, 2009

Sure, A National Sales Tax

Is Sotomayor Wrong on Affirmative Action’s Effect on Business?

A National Sales Tax?

Hiding Experience Means Hindering Growth

Bonus Bitterness Backfires

Tuesday, March 26, 2009

Banks To Get Huge Windfall From. . . Mortgages?

Washington’s Short-Sighted Action May Haunt Unions

Not Confident About Consumer Confidence

5 Reasons Business Should Cheer Obama’s Pick of Sotomayor

Contracts: Credit Cards, Mortgages and Chrysler

Monday, March 25, 2009

Why Paulson Didn’t Understand Mortgage Securities