Author: Mr. Cheap

Categories
Book Review

Book Review: Stop Working too: You Still Can!

I was surprised recently when the Canadian Capitalist posted a “first impressions” review of Derek Foster’s new book, “Stop Working too:  You Still Can!”  I was surprised because I’ve reviewed two of Derek’s previous books (Lazy Investor and Money for Nothing – which includes an interview) and have mentioned him favourably a number of times on the blog.  In spite of this, I wasn’t on his e-mail announcement or press release for the new book (and, worse, wasn’t offered a free review copy).  If you’re reading this Derek:  You hurt me.  You hurt me real bad.

Never one to let a simple obstacle like not getting a free copy force me to pay for a book, I camped out for a few hours at Chapters and read the new book there.  The table of contents isn’t posted on-line anywhere, and I don’t have a copy to refer to, but in spite of this I think I can give a decent overview.

The Canadian Capitalist hit the nail on the head with each of his first impressions from flipping through the book.  This book is focused on the fundamentals of personal finance, and does a good job conveying some of the basic principles.  Derek comes out entirely against debt, which I don’t agree with, but he’s in good company (Squawkfox and Dave Ramsey).  He presents some basic ideas for paying off your mortgage more quickly (such as negotiating for a better rate, switching to bi-weekly payments, adding small extra payments whenever possible, etc).  He comes out in favour of TFSA and gives an overview of this (fairly) recent new vehicle for retirement.

I was shocked when banks started trying to sell principal-protected notes, PPNs (and at a very expensive price).  Derek spends a chapter explaining how to roll your own, which has been covered elsewhere a number of times, but is useful for anyone who feels drawn to this investment vehicle.  He presents three possible 10-year scenarios (the entire stock market goes bankrupt, the stock market stays the same value and it goes up) and illustrates how an investor 100% in equities would fare compared to someone investing in PPN.  I somewhat felt that he should have gone to greater lengths to convey that the first two scenarios are VERY, VERY improbably.  As he lays it out, someone who isn’t reading carefully might infer that the three scenarios are equally likely and make a very poor investing decisions (get married to the “benefit” of PPNs).

Towards the end Derek presents an “advanced idea” of using an RRSP to move income to the next year when your going to drop to a lower income bracket (such as when you retire).  I talked to Mike about doing the exact same thing when I went back I went back to school (so it was kinda cool to read about an investment strategy I’d come up with on my own before), however I didn’t feel this was worth inclusion in what was already a pretty short book (this would be useful to a small number of people VERY infrequently during their life).

Derek defended selling his portfolio and continuing to promote his earlier “buy and hold forever” books.  I’ve never been as offended by this as other bloggers / readers were, but I didn’t think his justification would sway many of his critics.  As the Canadian Capitalist mentions, he also acknowledges the risk of option trading, which is a good thing (although he still recommends it as a strategy a little more broadly than perhaps he should).

I think Derek may have rushed this book to the printers a bit, as there were a number of glaring typos (send me an early review copy next time Derek and I’ll even proof read it for you!).

Overall, I think this is an interesting, introductory personal finance book targeting Canadians.  In many ways this book does a better job than any of his previous books for providing a broad perspective on Derek’s view of Canadian personal finance and his recommendations for everyday (would be) investors.

“Stop Working Too: You Still Can” can be purchased from Derek Foster’s website (http://stopworking.ca) or from most major book chains.

Categories
Opinion

Threats as a Negotiation Strategy

I grew up with an older brother and part of that experience was learning how to deal with disagreements. One thing that I think we both discovered fairly early on is that threats are rarely a good way to get what you want. I’m amazed at how often people try to use them within an ongoing relationship and am perplexed that they haven’t clued in to how ineffective they are.

To start, I’d like to clarify what I mean by a threat (people have commented that it’s odd when I give definitions at the beginning of a post, but commenters regularly misunderstand what I was getting at, sometimes believing I’ve asserted the exact opposite of what I intended, so it’s worthwhile to take the time to be clear). A threat CAN be physical violence (“do this or I’ll hurt you”), but it can also be removing something good (“do this or no desert for you”), changing the relationship (“do this or I’ll break up with you”) or emotional (“do this or I’ll be angry with you”).  Heck, you can even threaten SELF-HARM (“Pay my rent or I’m going to be living on the street”) and use the fact that someone cares about you against them (I personally find this particularly odious).

I think in each case, it sometimes works to get you what you want, but it comes at a cost of damaging the underlying relationship. This can be fine in some situations, such as a one-off transaction with a street vendor while on vacation (“give me a better price or I’m walking away”), but usually the long term hurt isn’t worth any (potential) short term gain.

I love the board game “Risk” (and putting modesty aside I’m fairly good at it). Typically in Risk it’s important to avoid two-front wars, and if you can get the other players to leave you alone while you hammer on one of them (ideally with help from at least one other player), you’re half-way to winning.  Sometimes when I’d hammered away at someone and left them in tatters, I’d tell them I’d let them live if they promised not to attack me (a threat) or to join me in attacking someone else.  This would let me focus on a bigger threat, instead of committing resources to wiping them out completely.  They’d either refuse, and I’d have to wipe them out, or they’d agree and betray me at the earliest possible opportunity (Risk cards allow a weak player to explode later in the game).

The realization I eventually had was, it was a bigger cost to their ego to feel like they’d given in to my bullying them than it was worth for them to stay in the game.  They’d rather reject my demand (and suffer the consequences) than feel like they’d “given in”.  What’s bizarre is even when they stakes are much higher than a board game, people still have the same reaction.  For a world leader to get on the TV and proclaim “We do NOT negotiate with terrorists” makes them look strong and powerful, when in fact, they may be doing a disservice to those they represent.

I contacted some property owners who had units which had been available for rent for an extended period locally (over 4 months).  The owners were eager to talk about selling, but quickly made it clear that they expected me to jump through hoops to buy from them.  They were clearly at a disadvantage in the negotiation (since we both knew their property was sitting empty costing them money each month), but they were so desperate to strengthen their position that I wasn’t able to reach an agreement with any of them (one wouldn’t even let me make an offer – he demand the offer exceed “market rate” but couldn’t tell me what he thought market rate was or how he would calculate it).

Within an employment context, threats to fire or quit are EXTREMELY harmful.  I’ve basically taken the position that I don’t mention quitting until I’m 100% sure I’m leaving.  I’ll try to talk about problems, but I never would mention quitting until I was certain I would leave.  At a number of workplaces they tried to convince me to stay, but at that point I would be a lame duck.  They’re going to remember I was ready to leave, and that will affect any future promotions or assignments.  One retired man I talked to once told me that in all his years of working, he’d found when someone threatened to quit and were convinced by management to stay, they’d usually be fired within 6 months.  Management convinced them to stay so they’d have more time to transition them out of the role they were in, not because they wanted to keep the employee.  Similarly with threats to fire someone, how many times will they need to hear that before they decide it’s better to get another job before it happens?

There’s a clear moral reason against threats (it’s not a particularly honourable way to negotiate), but on top of that they aren’t effective at getting what you want.  On top of that, it makes it harder to negotiate with the person in the future.  If there’s ever a good time to use a threat in a negotiation, it’s very rare (perhaps in life or dead survival situations or one-off interactions like the street vendor mentioned above).

Reacting to threats is also a funny situation.  It’s always tempting (and so very satisfying) to say your own variation of “I don’t negotiate with terrorists” and shut down talks after someone has threatened you.  I think this is less than optimal as well, because you lose any options that might have come out of negotiations with that person.  Giving in to threats is very dangerous (you’ve validated to the other person that threats are a good way to get what they want from you, and they’ll be more likely to threaten in the future).  Setting aside your ego and continuing the interaction can still possibly lead to agreement.  I gave up on the for sale by owners after they’d threatened me, but I should have kept the lines of communication open and told them that I want to buy their property if they decide to sell in the future.

Categories
Announcements

Overnight Shipping of Meals

Often a big part of home is the food you eat.  I’ve read that people from Thailand often don’t do well when they move to another country, in part because food is such an important part of Thai life and they really miss it.  Pad Thai is one of my favourite meals, so I can understand that you’d miss Thai food if you grew up on it (I miss it if I haven’t had it in a while, and I was well into my 20’s the first time I tried it).  It’s almost a cliché that many first year university students will be homesick, missing something that their mother would regularly make.

Years ago a friend of mine was really missing a dish that her mother made.  She mentioned this on the phone one time, and her mother said she was going to make a tray of it and send it overnight through FedEx.  Of course, the parcel got delayed and arrived 7 days later (and was inedible and pretty nasty once it was opened).

The basic idea for this wacky business idea is to provide worldwide express shipping for food (prepared dishes).  The target customer will be someone who wants to get a special meal to a loved one (this isn’t for standard catering) and is willing to pay a large premium to get the dish there.

When the food is shipped, the sender will have to provide details on what it is, and agree to a method of packaging (with options for keeping it at specific conditions, such as below freezing or vacuum sealed, during the trip).  There could be an optional add-on where the food would be delivered at a precise location at a precise time and would have some final preparation (such as heating) performed en route.  The sender and receiver would have to take full responsibility for spoiled food (since nothing would prevent someone from sending something that was already spoiled), but every reasonable precaution would be taken to prevent this from happening.

FedEx does do specialty shipping, but since this includes things like hazardous materials I suspect it’s VERY expensive.  This seems to imply that they have the facilities to do this, and perhaps a company could be set up re-selling their services (after getting a big discount based on the volume your business will do as a whole).  Dealing with the customers would be one of the biggest challenges (every shipment will be quite unique), which might be a reason why FedEx doesn’t get into this line of shipping (and someone specializing in it might be able to make it work).  Purolator also ships food, but they don’t offer a service guarantee, which is part of the value proposition of this business.

Obviously this isn’t something you’d use regularly (only the very wealthy would send their kids every Sunday dinner through this service), but this would be for the odd time when it’s worth paying more than a decent restaurant meal to have a taste of home.

Categories
Business Ideas

Just Because You Like To Do It, Doesn’t Make It A Good Business Idea

There are all sorts of good reasons to want to start a business. Often it’s also possible to start a business doing something that the owner personally enjoys: people who like creating artistic works might become graphic designers, those who enjoy writing might become ProBloggers, authors or copywriters, while those who like talking to people might start some business involving sales or consulting.

While it’s great to start a business doing something the owner loves, this in and of itself doesn’t make a business viable! There has to be a demand for what a business is producing or the endeavor will be for naught. As Thoreau writes (perhaps with racist overtones) in Walden:

Not long since, a strolling Indian went to sell baskets at the house of a well-known lawyer in my neighborhood. “Do you wish to buy any baskets?” he asked. “No, we do not want any,” was the reply. “What!” exclaimed the Indian as he went out the gate, “do you mean to starve us?” Having seen his industrious white neighbors so well off–that the lawyer had only to weave arguments, and, by some magic, wealth and standing followed–he had said to himself: I will go into business; I will weave baskets; it is a thing which I can do. Thinking that when he had made the baskets he would have done his part, and then it would be the white man’s to buy them. He had not discovered that it was necessary for him to make it worth the other’s while to buy them, or at least make him think that it was so, or to make something else which it would be worth his while to buy.

Unfortunately 150 years later people are still making this mistake: “I’ve done my part producing a good or service, now you should do your part and buy it”.

A friend told me about recently going to a craft show and feeling badly when she overheard one of the older women complaining that she’d only made 2 sales that day. My mother really enjoys crafts: she knits, weaves, sews and does all that stuff. Whenever she’s considered selling what she makes, once she factors in her time she knows she couldn’t sell it for anything close to what it cost her to make it. Instead she gives what she makes as gifts and hopes the recipients appreciate all the effort that went into them. The women at this craft fair probably enjoy crafting like my mother does, but they aren’t factoring in their time. After they’ve spent hours making the products, they then spend hours manning their booth to sell it (sometimes paying rent on the booth), and of course they lose money.

Two of my friends recently got married, and she’s planning an on-line crafty business which I predict will suffer the same fate. She may make some things, people may say they’re nice and buy them from her, but she’s never going to be able to make profitable use of her time. I’m *TOTALLY* ok with couples where one makes the money and the other pursues some endeavor that isn’t for monetary reasons (like an artist or writer), but it’s nice if the couple is at least honest with themselves that it’s a personal fulfillment activity, not an income generating activity.

One friend talked about starting a kitten farm, and I teased her that the first step will be developing a market for kitten meat (“The Kinder Alternative to Lamb!™ ” – yes, Mr. Cheap is evil). She wisely ignored my nonsense, but admitted that no one was going to pay her to raise kittens: she’d just be a crazy cat lady – not a business. This did prompt her to refine the idea as a cat rescue (as a non-profit) or a cat kennel. She even had the idea that MIGHT work of a cat spa where there would be cat-specific activities like hunting.

The solution to avoiding this mistake when brainstorming business ideas is fairly simple. Once an owner has thought of something he’d enjoy doing, he needs to honestly put himself in a customer’s shoes and ask “would I want to buy this at a price based on what it costs to produce?”  Friends and family will be blindly encouraging (a point made quite well by the Onion article: Ridiculous Small-Business Plan Encouraged By Friends), so he HAS to be honest with himself.  If he can’t do this (and keeps falling in love with an idea such that he INSISTS people will pay for it because he loves it so much) he’ll have a lot of wasted time, money and effort in his future.

If he is honest with himself and admits no one would buy what he wants to produce, he should keep it a hobby and do something else to earn money.

Categories
Real Estate

The Problem With Property Management

“Almost all neglect the properties they manage and take kickbacks from suppliers and subcontractors who overcharge the property manager’s client in order to pay the kickbacks.” – John T. Reed

People selling real estate advice almost always advocate using property management companies.  John T. Reed suggests they do this to overcome the objection “I don’t want to get up in the middle of the night to fix a clogged toilet.”  “Don’t want to get up in the middle of the night?  Me either!  Buy my $3,999 program and I’ll teach you how to have the best property managers begging to work for you!!!  Let THEM get up in the middle of the night.”

While it may sound great in principle, the reality can be a little less cut-and-dry.  You’re usually going to pay 5-10% of the gross rent, plus expenses to hire a property management company.  Sometimes they’ll charge extra for filling a vacant unit (for the extra work of advertising, showing and setting up the new tenant).  This is all quite reasonable, and if this was the end of the story I’d agree it’s a good way to go.

To get one case out of the way, sometimes real estate agents will offer to be property managers for the owner (or to place tenants for him).  They’ll charge a nominal fee, and will typically do a really crappy job (they won’t do their due diligence screening tenants and whatnot).  Their job is selling houses (not managing rental properties), so when they’re acting as a manager for the owner, they’re doing it to generate good will so the next time he buys or sells he’ll use them (the same reason they give you a pumpkin).  If things work out, they look like a champ for helping, if things blow up, they can just put the blame on the awful tenants (and maybe help the owner sell the place if he’s burnt out).

Genuine property management firms (where that’s what they do exclusively) are an intensively entrepreneurial enterprise.  You can be sure whoever started and runs the company loves business, and they’ll be dealing with all the typical challenges of running a business (advertising, employees, customers [owners!], etc).  As an entrepreneur, they’ll be constantly looking to maximize profit and minimize costs:  for themselves.  Property owners will assume that the property management firm will be doing this on their behalf, and in the case of a small number of HIGHLY ethical companies (that will naturally tend to go out of business, we’ll get to that later), they may be right.  The majority will sell out the owners in large or small ways.  You may think they’re your weasel, but they’re their own weasel.

Greed is one obvious motivation.  If a plumbing company offers the management company $20 every time they’re called to be the “sole supplier” for the company’s clients (or some other similar arrangement), do you think the company will refuse?  They should.  The $20 just gets added onto the cost of the job (and billed to the property owner).  If they could afford to pay a $20 kickback, they can afford to lower their price by $20.  The manager gets the kickback at the expense of the owner.

The same thing can happen in less obvious ways when a friend or relative of the manager is a plumber, and gets the business out of loyalty.  Would the owners want the job to go to the company that does the best job for the best price, or to someone the manager feels loyal to?

Apathy can kick in where greed leaves off.  If you’re not paying a bill, it becomes VERY easy to not work too hard to get the price reduced.  When I’ve had to rent a car for a business trip, I get whatever model is authorized from the first place I call.  When I’m renting for myself, I drive an economy model, use my credit card to cover the insurance, and will track down any deals or the lowest possible price in town.  If I can get a lower price to save myself some cash, I do so.  If I can save cash for a larger organization that will neither notice or appreciate it, I don’t bother.  Which case do you think the PM will be in when the owner is footing the bill?

Property management companies will argue against rent increases.  A higher rent means more money for the owner (and a tiny raise for them), but it also increases the amount of work they do (tenants will be more likely to move out after a rent increase, and may be less inclined to complain if they know they’re getting below-market rent).

If someone ethical is running a property management company, acting as a fiduciary for the owner, often customers won’t even realize or appreciate this.  They certainly don’t seem to realize how often they’re getting ripped off by property management companies, or you’d hear far more owners grumbling about them (economists call this information asymmetry).  The ethical manager will therefore be earning less money (no kickbacks) for more work (hunting for the best deals) and won’t even be getting loyalty from his customers.  How is he going to compete in this situation?  There will be constant pressure to slack off (both from an ethical and a work-ethic perspective) or give up and move into a more honourable field of work.  My reasoning here is (unabashedly) related to the lemon principle (alternative Wikipedia info).

John T. Reed’s advice is “competent real estate investors manage their properties themselves or have in-house salaried employees to do it.” I second this sentiment.

Categories
Investing

Blending Investment and Labour Income

One and a half years ago I did a post about Labour vs. Investment Income and Mike did a post about Do You Really Earn Your Investment Income? The point of both of our posts was that there is an expected investment return (ROI) that an investor can’t really take credit for.  If you match the average market return, have you proven your skill as an investor, or have you just been in the pool when the water level went up for everyone?  In my post I focused more on whether you want to improving your ROI or on just increasing your income, depending on how much you have to invest.

Beyond these considerations, I also think there are a number of investments that blend labour and investment. Flipping real estate is a prime example. You can’t buy the run down property without some cash to invest, but then you get the (sometimes) crazy returns because you work 80 hour work weeks fixing the place up. Someone without many marketable skills might be best served starting their own company that they run (such as a convenience store or a franchise).  This, in a sense, lets them “buy” a better exchange rate on their labour then they might be able to get from a job by putting capital in with their labour.

In situations like this, it becomes very easy to fool ourselves about how well (or badly) we’re doing.  As Mike points out in his post, if someone was day-trading full time, they have to be making MORE money than they would get from an index-fund and a full time job to really justify it (which I think would be highly unlikely).  The day trader who looks at his account and is proud of the money he’s made is ignoring the opportunity cost of his lost salary.

Flippers are notorious for this.  Even when you get them to be honest about their actual costs (often they like to omit transactions costs from their profit statement), you’ll NEVER get them to even account for the amount of time they put into repairs.  Get them to include this and the time they spent setting up that deal, investigating deals that didn’t work out, marketing the repaired property, meetings with partners and completing the purchase and sale transactions and you’ve got a proper picture of their real investment INCLUDING their time (which will let them accurately calculate their profit).

Even people who buy-and-hold real estate long term are guilty of this.  If you aren’t hiring a property management company (and I’d personally be very cautious before you do this), you have to account for doing this work yourself.  The best way to do this is to pretend to “pay” yourself what a PM company would charge, and add this to your cost.  John T. Reed estimates that self-managed real estate takes 3.6-4.6 hours / unit / month to manage (remember although some months you don’t do anything, you’ll have the times where Murphy strikes and you keep having to go back to a unit to do one thing after another).  An index fund or GIC takes FAR less time and this has to be factored in if you want to honestly compare the investments.

One approach to honestly compare such investments is, as already mentioned, determine what others would charge for this and add it to your costs.  For real estate this would be what a property management firm or contract would charge, while for a self-run business it would be what you’d pay a clerk at your convinience store or a manager at your Subway® franchise.  If you’re unhappy working for such a low wage, then you’d be best served to hire someone to do that work for you, and get a job earning the higher wage you think you can make.  Don’t fool yourself into lumping the franchise profits into your salary and think of yourself as the highest paid convenience store clerk in the world.

Similarly, once you have an honest appraisal of the ROI from your venture, if it no longer looks lucrative with your time factored in, dump it and put your money where the ROI (based on your time and money) *IS* reasonable.

Categories
Personal Finance

It’s OK Not To Be Saving For Retirement In Your 20s and 30s

I always enjoy features in MoneySense or the Globe and Mail where they profile a family, highlight their current money issues, then consult with a panel of financial planners for suggestions on what the family should do moving forward.  Some time ago in MoneySense, they talked to a couple who worked, lived a frugal lifestyle, were paying down their mortgage on an accelerated schedule and fully funding their children’s RESPs, but at the end of the day had nothing left for retirement savings.  They asked what they were doing wrong.

Most of us remember at some point seeing the chart or hearing the idea that if you saved $200 / month from your 25th birthday until you retired, you’d have more than someone who saved $400 / month from their 35th birthday until they retired.  That’s the magic of compounding!  Many of us see this type of thing and it motivates us that start saving early and often.  HOWEVER, there’s another side to the issue.

It’s probably MUCH easier for the typical 35 year old to save $400 / month than it is for a typical 25 year old to save $200.  As you get older, usually your earning power goes up, and at a certain point your expenses go down (once your mortgage is gone and the kids have left home).  Even though you have less time for compounding to do its thing, you have the capacity to save more.

This was the response from the experts to the couple mentioned at the beginning of this post.  They were already taking care of a number of big expenses, and the experts said they needed to put retirements savings on hold.  With a paid off mortgage, and significant savings for the children’s education in place, at a later date they’ll be capable of directing far more of their income at retirement.

The other comment, which I also felt was worthwhile, is the experts warned that they shouldn’t live an impoverished life NOW to avoid living an impoverished retirement.  As Buffett might say “it’s like saving up sex for your old age“.

I was talking to a friend in a roughly analogous position recently.  She’s a mind-30s professional and opened an office in the last couple of years.  She’s paying all the bills and funding her modest lifestyle, but doesn’t have a lot left for retirement savings or investing.  When she was worrying about this, I told her that she should be patting herself on the back for having a successful business (that’s far beyond ramen profitable).  Her financial focus right now is growing her business, which is what it should be.  It will naturally compound and begin growing organically (word of mouth and all the marketing she has in place), at which point she can start directing more money toward retirement (and keep increasing this as her business grows).

This all certainly isn’t to say that saving (and especially retirement saving) is unimportant.  If someone says they aren’t at a stage in life to be saving for retirement then buys a plasma television or an expensive furniture set, I’m not going to be able to get behind their decision.  Instead, I’m saying that if you’re saving for your kid’s education, paying down your mortgage or investing in a business, you ARE preparing for retirement (just not using an RRSP).

Don’t beat yourself up.

Categories
Personal Finance

Consumer Protection

I’ve travelled in developing countries such as Thailand, and one of the interesting things is that they won’t protect you from yourself.  You might be climbing up a mountain and where in the West there’d be a massive fence to prevent anyone from falling over the edge, in a developing country there’s a single chain around the outside.  Perhaps the message is “if you’re dumb enough to fall off a mountain, we’re not going to kill ourselves trying to prevent it”.  Another example is the ability to come into close contact with wild animals.  At a Thai zoo they were letting visitors bottle feed a tiger cub (which was VERY cool, but I suspect even a baby tiger could do some damage if it got its claws or teeth into you).  They also have elephant shows that involve things such as having the elephant step on an audience member.  Having a 10,000 lbs animal standing on you isn’t very bright, but if the audience member is willing to volunteer, the people running the show are happy to let it happen.

We all have our bone-head moments, and it’s no good if it leads to serious injury or death.  I remember one time at a camp fire I decided it was a good idea to move one of the rocks around the fire, reached out to grab it and gave myself a good burn.  The people with me were sympathetic but (rightfully) told me it was a pretty dumb thing to do.  And you know that elephant thing?  Yup, I did that too (it put one of its feet right on my chest, knocked the wind out of me).

Beyond physical danger, there’s also numerous people looking to take advantage of consumers by selling shoddy products (or outright fraud).  All levels of government try to protect their citizens from this but, as with many government endevors, they do a painfully bad job of it.  I’m certainly not blaming the victims, but I sometimes suspect there’s an unintended consequence happening where such attempts end up leading to MORE harm to consumers.

Because people living in a western country are protected so much, they start counting on it.  Some people ask, after seeing a commercial for the “$49.99 Path to Instant Wealth!”, if it isn’t true, how can they be advertising it?  Wouldn’t the TV station or someone in government quickly shut them down???  Others may not be so upfront about their feelings, but in their heart-of-hearts they can’t believe a scam artist would be advertising in the Globe & Mail’s classifieds or on network television.

I’m planning at some point to do a post on the anatomy of an infomercial, but basically there’s a group of people who’ve made an art of quickly gearing up some bogus product, advertising the heck out of it, then shutting down the company and draining all the cash as the regulators come knocking.  They re-brand themselves, and start pitching something similar, rinse and repeat.  The laws to prevent this type of thing (and people enforcing them) just can’t keep up.

As an aside, you sometime get a similar justification on the other end FROM the scam artist.  Apparently a number of people involved in running “Nigerian advance fee scam” truly believe that Western government reimburse citizens for money they’ve lost to the scam artists.  This is how they morally justify what they’re doing (“they’ll get all the money back from their government, so it’s ok if I steal from them”).

Once people become more trusting, because they’re used to this protection, it becomes easier for them to harm themselves, which leads to greater protection, and people making worse choices in a vicious spiral (every time you make it idiot proof, they invent a better idiot).

“Well Mr. Cheap,” you may ask, “do you want us to go back to a wild-wild west marketplace where scammers operate with impunity and there’s little protection for consumers?”  Yes, I suspect in many ways this would be better (or at least should be taken into account when considering expanding consumer protection).  We’d all get burned early and often, and learn that you have to factor the merchant’s trustworthiness into any transaction.  People such as Ellen Roseman would become even more important, as they’d propagate information about who is behaving well and who is behaving badly.  I think the door-to-door energy marketers are scum, but I also think they’ve made Ontario consumers far more cautious about doing business with strangers who come knocking at the door (which is good).  The obvious counter-argument would be that the barriers to commerce of having to evaluate the trustworthiness of everyone we want to do business with (and the varying ability of each of us to do so), would lose us more than any gains that would be made by encouraging more cautious consumers.  I don’t believe this, but I don’t have anything but a gut feeling for doubting it (and would be delighted if someone could provide compelling evidence that this is the case).