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Broke: The New American Dream
A new documentary Directed by Michael Covel has been released that takes a hard look at the decisions we as a country make about money. Broke: The New American Dream is a study in Behavioral Finance -- how and why people do the things they do with their money -- or avoid it all together. The result is a shocking expose on the belief systems behind how Americans handle their money and what drives our decisions from the regulator, the money manager, the guru, and the end-user...the American public.
This is not a partisan film. This is a film about personal responsibility, and he blames everyone for the financial meltdown -- including me and you. Greed, ego, and arrogance overcame everyone from the most sophisticated financier to the most rural participant...especially in real estate. Greed took over the buyer, the mortgage broker, the seller, the agents, and Wall Street. To Covel, all are responsible: if you're broke, it's because you have a lot to do with it.
When I first viewed the DVD, I thought Covel was being confrontational and controversial to have such inflammatory remarks. You can sit and blame everyone -- it will feel good -- but is that going to help you retire? Financial literacy is more about knowing how to handle risk than quoting Suze Orman or knowing how to "dollar-cost average" -- which only pays off in rising markets. It's about managing risk and that starts with diversification -- a technique to minimize risk -- but not an "investment edge" to make money.
You think the government has your back? Guess again. Covel quotes statistics that show that 40% of those who make $35,000 and less feel that playing the lottery was the best way to amass $500,000 for retirement. Lotteries are marketed heavily to the poor -- people who can least afford them. Wanda Sykes comedy routine about saving for retirement is both hilarious and sad. Problem is, state lotteries are a game of negative expectation.
That means over the long run you'll never win. As professional poker player Chris "Jesus" Ferguson states in the film, "Your odds of winning the lottery aren't that much better if you buy a lottery ticket than if you didn't. They're very close to the same (zero). I don't try to play too fancy...I just keep my dollar." Ferguson, who is one of many professional poker players quoted in the movie, created games for California lotteries before pro poker, so he would know. Some of the other players who appear are Evelyn Ng, Antonio Esfandiari, Howard Lederer, and his sister Annie Duke.
But someone always "wins" you say? That's true, the government.
Playing investigative journalist, Covel gets a Virginia gaming commission member to say off camera, "We don't even want people to marry the words investment and lottery -- we try to discourage that." And 2 weeks later, Covel found a Cramer look-alike in a VA Lottey ad!
Congressman Chris Van Hollen (D-MD) explains, "You can try to get rid of the lottery, but you have to replace it with tax income." So you have the poor thinking the lottery is an investment and at the same time the lawmakers knowing that it is a voluntary tax.
Something is rotten in the state of Denmark.
Online poker, a game of skill, is banned. Lotteries are not. As Congressman Barney Frank (D-MA) insists in the film, "In areas where we need to act together to protect our quality of life and the environment...in transportation and public safety...we abstain. But in those areas where individuals ought to be able to make their own choices, we intervene." Regardless of your political leaning, you're going to have a tough time blaming the "other side" for financial calamity because Covel has covered his bases, which supports his argument that the problem is you.
Michael Mauboussin says, "Warren Buffett has more in common with a professional poker player than he does with investor." And Legg Mason's Bill Miller chimes in, "They ought to teach poker in business school. In poker, you can make all the right moves and still lose." Buffett is more lucky than talented. As a professional trader interviewed for this movie, I can attest that self-awareness and emotional intelligence have as much to do with risk management as the rules themselves. Learning to lose deliberate, small amounts of capital, are a staple of winning the money game -- something that is echoed again and again in the movie -- whether you're a trader or investor.
Maybe you believe that everybody on Wall Street are barren robbers...that the stock market is legalized gambling...that all mortgage brokers and real estate agents are unethical. Covel argues that does not give you a hall pass to leave your money unattended. You are responsible for the results you get even if you've hired a financial advisor -- a provocative statement, but one that I believe is true. It's your money -- no one is going to care about it more than you.
In the end, Covel argues you cannot legislate behavior. Like water, capitalists will always seek a new level. Congress and the Regulators will always be a day late and a bailout short in filling loopholes. Religion doesn't anchor anyone any better: Religious beliefs cannot legislate morality: Madoff committed a white-collar crime against people of his own religion.
Covel believes that you have to contend with the fact that Social Security is in dire straits. We are paying into a system that might not pay out benefits. He challenges you by asking "What are you doing to about it?" If you're doing what the folks he interviewed are doing, you need a lot of help. As Barry Ritholtz said, "If in 20 years you're eating cat food, don't look at me." In other words, it's your money. Own it. Do something about it. The solutions lies with financial literacy: know how to take small, consistent losses.
Admittedly, our educational system does play a role in conditioning our way of thinking. Human beings are not built to manage risk. We want to know "why" things happen. We want to understand things. And smart people don't like being wrong. Their self-esteem is heavily invested in being smart. A great example of this is illustrated from an interview Covel had with a Georgetown student: "I bought Blackstone on the IPO (at $35) and I'm staying in because I don't want to be wrong. I'd rather lose the 3,500 bucks and be wrong. I am waiting for it to come back."
Blackstone is about $11 now. Sometimes they don't come back.
Follow Michael Martin on Twitter: www.twitter.com/martin_kronicle
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Mbaty, the world you want sounds wonderful but a world without want, a world without man's desire to strive for the stars, make his mark on the world, contribute something and put his name on it...such a world is a cruel, unjust and immoral world. Think about what that would mean. How many atrocities in the world have resulted in the name of brotherly love. It is because it is dishonest. It is a lie. You may think you want us to all hold hands because you are a good person but dig deeper into the emotion that has caused you to make such a statement...its envy.
Money is freedom, money if viewed correctly, can buy happiness, money is the product of man's mind. Money, love, happiness, friendship are all currencies by which we exchange on thing of value for another. We need money and we always will. You should start getting used to the fact that the Utopia you so desperately crave will never exist and as long as you keep on trying to make man into something he is not you will continue to destroy the world.
I want to succeed and want everyone else to have the opportunity to succeed. You want money to be given to one group at the expense of the other. Who is the greedier?
We are responsible. We are responsible for setting up and perpetuating a system in which without money you starve. You can't live without money, and if you do you are labelled a mooch or a "freeloader." And if you have enough money you can basically do anything, build anything, destroy anything, buy off any politician, lobby for the most absurd and obscene legislation or make sure that certain legislations don't make it. We have made money a thing unto itself, divorced from any real resources that we all share and backed only by other money/debt. Money is supposed to be a convenient way to exchange value. Unfortunately, we've been living with certain myths, such as, "there isn't enough," and "humans must compete to get what they need." We've got to replace those with "there's enough for everyone," and "we share resources that contribute to the well-being of all of us." Do you think an earthquake cares how much you paid for your condo? Do you think a hurricane cares whether you've paid off that overdraft fee? In the end, we are all in this together. Let's not wait for calamity to find compassion for our neighbors. The new American dream is freedom from want, freedom from debt, and the ability to thrive in generosity and cooperation with each other.
Some of your points make sense....
"buy off any politician, lobby for the most absurd and obscene legislation or make sure that certain legislations don't make it." - this is socialism
"We have made money a thing unto itself, divorced from any real resources that we all share and backed only by other money/debt."
"Money is supposed to be a convenient way to exchange value."
All very correct statements. What are you saying exactly, overall?
"buy off any politician, lobby for the most absurd and obscene legislation or make sure that certain legislations don't make it." -That is fascism, not socialism.
When the corporations own the government, it is fascism. When governments own the corporations, it is socialism.
Wait, a documentary by a man named Michael, who happens to be smart, free market oriented, fact-based, logical, truthful and...ok Im not going to say it for fear of committed blasphemy. Let's just say, if 'Broke' and 'Farenheight 9/11' were in a marathon together, 'Broke' wouldn't lose.
Michael Covel, congrats on the movie. It is fantastic and one that takes an honest look at the root cause of the financial crisis; ourselves! After all, it is we who trust authority figures, we feel insecure, we spend on our credit cards and most importantly we choose our government or choose to be apathetic about our government.
Mike Martin, another great article! Your insights are so refreshing and lucid, in a world full of chaos and confusion. Your topics are always very important and need to be discussed, but are too often ignored.
The world needs more Michaels like you guys!
As a former minister I often remarked that when we had made all values subservient to the value of greed and making money that eventually we would all end up broke. I look at the Reagan era as the era in which Americans, as a whole, made a fateful step towards honoring 'greed' as the ultimate value. Making money at all costs, being wealthy at all costs, became the supreme value by which we measured the worth of human life. The rich were more valuable because they were rich. Greed was no longer one of the 7 deadly sins but was 'good.' Love was subservient to marrying wealth. Family was subservient to who you were affilitated with and who were affiliated with should be rich and powerful. Decency, honor, politeness, fidelity, parenting, and trustworthiness could all be thrown to the roadside in the interest of being wealthy.
The scripture says that we cannot live by bread alone. Yet our most popular religious leaders worshipped wealth and power. Now we see a country spiraling downward. Our bank accounts are empty, our 401Ks have been looted, we can't provide health care to one another, our jobs are gone, and we are are deeply in debt to such and extent that we can't even put programs in place to help one another. We have chased the golden calf and the god has turned out to be as phony as the one Moses smashed at the foot of Mt. Sinai years ago.
You are right we are all responsible for this mess. So are the Pension Fund, Hedge Fund and Institutional Asset Managers who created demand for subprime high-yield securities based on mortgages for uncreditworthy people in the first place. If they hadn't fallen for the sales pitches from Wall Street, there never would have been 'no doc' et al loans written in the first place. If Judge Carter in the Lehman/First Alliance case had really slammed Lehman with penalties and damages like the Jury said, the I-banks wouldn't have been so eager to push money into that racket either.
People need information, in this case complicated insider information, and education in order to be responsible like you say. Right now, who in the media presented the real facts about this real estate market bubble all these years? How many newspapers make all their classified advertising revenue from Real Estate brokers (and Car Dealers). What did CNBC say?
We have an FCC giving Licenses and a Congress that's paid to be working in our best interests, all of whom have plenty of access to insider information, the inner workings of Wall Street, and the campaign finance contributions of industry lobbyists for years and years. You do the personal responsibility math here!
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