The Financial Riddler -- 1/30/23

Financial Knowledge is Financial Empowerment

Here’s the latest Financial Riddler, where the less you know, the more you learn. Please share with yo nephew Godfrey, grandfather Rufus, proctologist Suzy, Dr. What the Hell?, emerging students, and know-it-all mother-in-law. This will spread one of the world’s best-kept secrets — Economics can be fun.

1. In 1908, Argentina’s per capita GDP was 80 percent of the U.S. level. Where is it today?

   a. 94 percent

   b. 71 percent

   c. 42 percent

   d. 28 percent

   e. 14 percent

And the Answer Is …

It’s 14 percent. Argentina has had terrible governance coupled with terrible policies. Together, they’ve transformed the country from highly developed to “emerging.” A trip to Buenos Aires is a trip back in time. Beautiful buildings from a century back with not much sign of progress since. Venezuela has achieved the same disaster, albeit much more expeditiously.

3. Which state/empire/government ran the highest recorded inflation rate ever?

   a. Ancient Rome

   b. Weimar Germany

   c. Zimbabwe

   d. Hungary

   d. Romania

   e. China

And the Answer Is …

It’s Hungary, whose prices, at the peak, rose 207 percent each day or 4.19×10¹⁶ percent per year!

4. If Social Security overpays you due to its mistake and the overpayment lasts longer than 3 years, will they bill you for the overpayment?

   a. Yes

   b) No

And the Answer Is …

Absolutely. They could overpay you for 3 months or 30 years and they will still claw back every penny. With Social Security, their mistakes are your mistake. The only exception is if you are impoverished. In such cases, they may forgive some or a portion of the overpayment. You can be six years old, disabled, widowed, ninety-years old, … It doesn’t matter. They will claw you back for $200 or $200,000. It doesn’t matter.

Here’s an example. A couple I know just received a Social Security bill demanding over $36,000 clawing back spousal benefits the system mistakenly paid the wife over three years. Social Security staff made two huge mistakes in the case — mistakes anyone with a modicum of training would never have committed. “Pay up in 30 days or we won’t pay you a penny of your retirement benefit until the unpaid retirement benefits equal what you owe. Yes, our mistake, sorry, but you now owe us. You have 30 days. Have a nice day.” This, in effect, is the letter they received.

There are 70 million Americans — roughly one in five of us — collecting Social Security benefits. Any of we collectors can receive a clawback letter at any time. These letters provide very little information and appealing can take years, during which you hear nothing back. The appeals almost never win.

If you haven’t yet collected, please do yourself an enormous favor. Please run my company’s $39 Maximize My Social Security tool. Check that the tool produces the same amount Social Security says it’s going to pay you. The tool will also tell you if you are about to be underpaid. Also, in almost all cases, you can use our software to check if the benefit you are now receiving is correct.

Social Security’s computer system should never have processed the overpayment — but it did, for three years running! What does this tell you? It tells you that lots of calculations are being made by hand or being keyed into their system with no human, let alone software code double-checking. That’s why if you are receiving a check every month, you need to check the check.

4. Precisely what crime did FTX head Bankman-Fried commit?

   a. Overly reassured investors their investments were sound

   b. Used deposited funds to lend money to a company he owned along with a quasi girlfriend

   c. Invested deposited funds in ways that violated a written agreement

   d. Used invested funds to buy crypto currencies

And the Answer Is …

You tell me. He’s facing 115 years in jail for doing what, it seems, every banker does. They take in deposits and invest them. Whether that’s buying coins or buying loans (even loans from quasi gfs) or buying coins or buying an apartment, these are all, arguably, perfectly legitimate investments. Assuring investors that you think their risky investments will do just fine is routine as well. Maybe Bankman-Fried invested funds of depositors in violation of a written agreement that the funds would only be invested upon the depositors’ direction based on written permission? That would certainly constitute fraud. But I have yet to read that that’s the issue or how Bankman-Fried’s actions/statements differ from, for example, those of Dick Fuld in the months, weeks, and days leading up to Lehman’s bankruptcy. So, those of you who know, please leave comments that educate the rest of us.

5. What fraction of students who start college fail to finish their degrees?

And the Answer Is …

The answer is 40 percent. This is why my advice re borrowing for college is DON’T. Who in their right mind borrows at very high interest rates, which can’t be reduced via refinancing, to make an investment that has a 40 percent ex-ante chance of repaying nada, nichts, rien, …, NOTHING! Plus, student loans basically can’t be discharged through bankruptcy. And parents, don’t think you are helping your kids by taking out Parent Loans on their behalf. The interest rate is even higher and, unless you intend to reduce your spending over the rest of your days by the amount you borrow, you are, in effect, sticking your kid with the repayment — either explicitly or by leaving them less when you pass or by forcing them to kick in more money if you outlive your money.