A terrific multimedia timeline graphic on the rise of unemployment across the country from 2007-2009.
"The worst is yet to come" writes Nouriel Roubini, one economist who saw the trouble coming and about whom Fortune magazine said
In 2005, Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage.
Unemployed Americans should hunker dow for more job losses.
This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.
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Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.
Ben Bernake is more circumspect
In remarks to the Economic Club of New York, Bernanke predicted the economy should continue to grow next year, but he warned of "important headwinds," including a weak job market and tight credit for small businesses and households.
Those forces "likely will prevent the expansion from being as robust as we would hope," he said.
So what's an average person to do?
Megan McArdle who blogs on economics for the Atlantic has had her own share of economic travails. Newly engaged, she was surprised to find herself converted by financial guru David Ramsey whose message is simple Lead Us Not Into Debt.
Nonetheless, Ramsey has made a convert out of a secular journalist with one of the pricey M.B.A.s he likes to poke fun at. I have never felt as serenely in control of my finances as I have during these months of knowing that every single dollar is where it is supposed to be: either in the bank, or on a well-chaperoned date with our envelope organizer. The process has been surprisingly painless but, even more surprisingly, pleasant.
No doubt a lot of people fantasized about this, but in Germany a group of wealthy pensioners actually did it.
Zimmer frame gang 'tortures advisor' who lost $4 million of their savings.
The pensioners, nicknamed the "Geritol Gang" by German police after an arthritis drug, face up to 15 years in jail if found guilty of subjecting German-American James Amburn to the alleged four-day ordeal.
Two of them are said to have hit him with a Zimmer frame outside his home ..before he was bound with duct tape, bundled into the boot of an Audi A8 and driven 300 mileso a home on the shores of a popular holiday lake in Bavaria.
During his alleged confinement in an unheated cellar, Mr Amburn, 56, claims he was burned with cigarettes, beaten, had two ribs broken, was hit with a chair leg and chained up "like an animal".
Now here's a credit disclosure I like modeled after the standard format of nutrition label that we are all know.
Hats off to the graphic designers.
David Gibson, Carla Hall and Sylvia Harris are graphic designers and directors of Design for Democracy, a nonprofit group that promotes accessible and transparent civic communications.
Suze Orman is Having a Moment in the Sunday New York Times Magazine
The career of any financial adviser thrives on worry, and Orman, already the best-known financial adviser in the country, has hit the worry motherlode. In January, “Suze Orman’s 2009 Action Plan,” a guide to the economic crisis, made the best-seller list. Around the same time, Oprah Winfrey began giving the book away free in digital form on her Web site. (After Winfrey announced the offer, the book was downloaded more than two million times in one week.) Overall viewership on “The Suze Orman Show” is up 22 percent from this time last year, and the urgency of the calls has increased, too. Instead of asking about what kind of mortgage makes the most sense, her viewers are calling with questions of survival like, If I have to default on one of my various lines of debt, which one should I abandon first?
With the change in the economic climate, Orman’s role in the culture has shifted from pop finance guru to something more like a trusted national adviser.
What’s most striking about Orman’s frenetic, outsize celebrity is how starkly it contrasts with the sober simplicity of her message. Track your spending. Stay out of debt. Take care of your car. Look into a Roth I.R.A. Though she is larger than life and wealthy, her primary message is not about larger-than-life ambition or a sky-high entrepreneurial spirit. Orman’s advice rarely sounds like “Go West, young man.” It sounds more like, “Everyone should have a liquid eight-month emergency fund.”
I tip my hat to Edmund Andrews who did what none of us can imagine - expose his personal financial delusions - to write all about My Personal Credit Crisis.
If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.
But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.
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I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?
UPDATE;
Neo takes a much tougher view.
Andrews remains mystified as to how this could have happened to him. I can help him out on that: greed and denial. No one forced him to do any of this, and he of all people ought to have known better. But his story is an excellent example of how far many people in this country have come from any idea of personal responsibility.
Reality bites and hard.
In the comments, Beth said...
I read this with disbelief. This guy, after child support, was bringing home less than $3k a month, and his fiancee at the time had no job at all, and it made sense to borrow HALF A MILLION BUCKS???? He keeps saying how easy it was to borrow it, but until months after the bills actually start coming in, he never thought about how hard it would be to pay back. That's the kind of thinking I've seen in friends with manic depression, in a manic phase.
Jeffrey Goldberg in The Atlantic on Why I Fired My Broker
For most of our our adult lives, my wife and I have behaved in the way responsible cogs of capitalism are supposed to behave—we invested in a carefully calibrated mix of equities and bonds; we bought and held; we didn’t overextend on real estate; we put the maximum in our 401(k) accounts; we gave to charity; and we saved, but we also spent: mainly on gasoline, food, and magazines. In retrospect, we didn’t have the proper appreciation for risk, but who did? We were children of the bull market.
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Well, goodbye to all that. I took a random walk down Wall Street and got hit by a bus.
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IT TURNS OUT that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart. Or so say the extremely smart—and wealthy—people I asked to help me figure a way out of my paralysis. One of these people was Robert Soros, the deputy chairman of the fund started by his father, George. I went to see him at his office, where he spent two hours performing an autopsy on my assumptions.
“You think a brokerage should be a place you go to pay commissions for fair and unbiased advice, right?” he asked.
“Yes,” I said.
“It’s not. It never has been.” He then cited another saying of Buffett’s: “‘Wall Street is a place where whatever can be sold will be sold.’ You are the consumer of their dreck. What they can sell to you, they will sell to you.”
“But they told us—”
“They lied.”
He went on: “You should be disheartened and disappointed. But don’t kid yourself. You’re a naive capitalist. They were never your advisers. Do not for a moment think that a brokerage firm is your friend.”ß
Who Will Guard Your Nest Egg
Brokers are not legally bound to put your best interests first.
Independent registered financial advisors are.
Vetting a Potential Financial Advisor
From the Wall Street Journal comes Seven Questions to Ask When Picking a Financial Advisor
The first step is to realize that you're ultimately responsible for your family's money -- you're the chief executive of your own investment company. Your financial adviser, mutual-fund manager, wealth manager and anyone else who handles your investments should report directly to you. Even if you don't understand the ins and outs of investing as well as they do, you're responsible for ensuring that they handle your money properly.
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Once you recognize that you're in charge, you can approach your advisers like a boss -- not just a client. That means putting them through a tough vetting process to make sure they're competent, trustworthy and looking after your best interests.
1. What's in the advisor's background?
2. What do the advisor's clients say?
3. How does the advisor get paid?
4. Where are the advisor's checks and balances?
5. What's the advisor's track record?
6. Can the advisor put it in writing?
7. What do other pros think?
Read the whole piece for Shelly Banjo's discussion.
There's a power struggle in Washington that will shape how investors get the advice they need.
On one side are stockbrokers and other securities salespeople who work for Wall Street firms, banks and insurance companies. On the other are financial planners or investment advisers who often work for themselves or smaller firms.
Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself and inspects firms every one or two years. Under Finra's rules, brokers must recommend only investments that are "suitable" for clients.
Advisers are regulated by the states or the Securities and Exchange Commission, which examines firms every six to 10 years on average. Advisers act out of "fiduciary duty," or the obligation to put their clients' interests first.
Most investors don't understand this key distinction. A report by Rand Corp. last year found that 63% of investors think brokers are legally required to act in the best interest of the client; 70% believe that brokers must disclose any conflicts of interest. Advisers always have those duties, but brokers often don't.
Now the battle is over whether Finra should adopt a fiduciary standard that puts the clients' interests first.
YES. YES. YES.
A recent study seems to show that the brain switches off rationality when given 'expert advice.'
Financial advice can make us take leave of our senses, according to research that shows how the brain sets aside rationality when it gets the benefit of supposedly expert opinion.
When a bank manager or investment adviser recommends a financial decision, the brain tends to abdicate responsibility and defer to their authority with little independent thought, a study has suggested.
Such expert advice suppresses activity in a neural circuit that is critical to sound decision-making and value judgments, scientists in the US have found.
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“This study indicates that the brain relinquishes responsibility when a trusted authority provides expertise,” said Gregory Berns, Professor of Neuroeconomics and Psychiatry at Emory University in Atlanta, who led the research. “The problem is that it can work to a person’s detriment if the trusted source turns out to be incompetent or corrupt.”
The findings from Emory University hint at what personal finance journalists have known for years: that there are two automatic responses to anything money-related – boredom and fear.
Most people cannot wait to unburden themselves of their mind-numbing, terrifying money worries so that they can get on with more pleasant decisions, like what to have for dinner.
I understand this response completely which is why I urge people to find a financial advisor they trust, one who is regulated, qualified and experienced who will act as more as a decision partner with you. You can never turn over the final responsibility.
But a growing chorus of economists and housing experts say that this mind-set, too, needs fundamental reform. Owning a home is not right for everyone, they say: In some ways it's overrated, and it can even have harmful effects for individuals and society. It is now glaringly clear that buying a home is a financial risk, not the surefire investment it is often perceived to be. Widespread homeownership may also have a negative impact on the economy, because, among other reasons, displaced workers can't easily relocate to new jobs. And some of the alleged rewards of homeownership, such as greater self-esteem, health, and civic engagement, have been called into question by research. The government, critics argue, should focus on ensuring high-quality, affordable housing rather than promoting homeownership for its own sake.
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According to this view, renting offers many advantages, and should be considered a viable long-term option for people of all ages and socioeconomic levels. Renters enjoy flexibility and freedom from the responsibilities of maintenance. Given the often overlooked costs and risks of homeownership, renting is in many cases a wise financial choice. And the experience of a place like Switzerland - a well-functioning country with only about a 35 percent homeownership rate - suggests that rental housing per se does not unmoor society.
The emotional tug of owning a home can't be discounted. But in recent years, as jobs have become less stable, environmental concerns have risen, and the costs of owning a house have become apparent, the case for renting has become more compelling. According to Eric Belsky, "People are saying, 'Hey, it's OK to rent.' " Instead of starting with a presumption in favor of homeownership, he asks, "Why don't we help people make informed choices?"
It is time for the president to state the obvious: This recession is not caused by excessive executive compensation in government-controlled companies. The economy has been sinking because of a lack of credit, stemming from a general lack of confidence, stemming from the lack of a plan to detoxify the major lending institutions, mainly the banks, which, to paraphrase Willie Sutton, is where the money used to be.
As usual Charles Krauthammer bores to the heart of the matter, this time in Bonfire of the Trivialities
Mark Steyn on The Brokest Generation
Our kids are the ultimate credit market, and the rest of us are all pre-approved!
the future of all our children is that they’ll be paying off the past of all their grandparents.
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This is the biggest generational transfer of wealth in the history of the world. If you’re an 18-year old middle-class hopeychanger, look at the way your parents and grandparents live: It’s not going to be like that for you. You’re going to have a smaller house, and a smaller car — if not a basement flat and a bus ticket. You didn’t get us into this catastrophe. But you’re going to be stuck with the tab, just like the Germans got stuck with paying reparations for the catastrophe of the First World War. True, the Germans were actually in the war, whereas in the current crisis you guys were just goofing around at school, dozing through Diversity Studies and hoping to ace Anger Management class. But tough. That’s the way it goes.
If you're thinking of buying some identity protection, be sure to read Cardholders Buy Peace of Mind if not Security in the Wall St Journal.
As the number of data breaches rises, there's a growing cottage industry of companies selling protection to consumers. The companies can help monitor and prevent outright identity theft for those who lack the time and technical know-how to keep a constant eye on their credit reports or monitor the Internet to make sure their personal information, such as their Social Security number, hasn't been stolen. But they won't stop a more common crime: preventing a thief from using your credit-card number to make fraudulent purchases.
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The number of reported data breaches of all kinds in the U.S. climbed to 656 last year from 446 in 2007, according to the Identity Theft Resource Center, a nonprofit organization based in San Diego that helps identity-theft victims. These breaches affected some 36 million records -- including Social Security numbers, credit-card accounts and other personal data.
Overall, more than 250 million records containing personal information have been lost or stolen since 2005, according to the Privacy Rights Clearinghouse -- and that's driving more consumers to companies that say they can prevent theft.
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The services, which usually cost less than $100 a year, typically place an alert on a customer's credit report, which requires the person to approve over the phone any attempts to access the file or open a new account. In the event that a fraud takes place, they say they help customers fill out the right forms, and help them reach out to credit bureaus, banks and other institutions.
Statistically speaking, the risk to any individual from data breaches is small. Fewer than 1% of breach victims ever suffer credit-card fraud or identity theft, according to Javelin Strategy & Research, a research company focused on the payment industry.
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But Amy Rosen prefers having someone else looking out for her. The marketing professional from Chicago signed up for a service from TrustedID last year after twice having cellphone accounts opened in her name in 2004 and 2007. While the service hasn't yet stopped any new fraud attempts, it has given her peace of mind. "This is the one thing that makes me feel like I'm protected and that someone else is looking out for me," says Ms. Rosen.
First there was Tom Friedman in This is Not a Test. This is Not a Test
Our country has congestive heart failure. Our heart, our banking system that pumps blood to our industrial muscles, is clogged and functioning far below capacity. Nothing else remotely compares in importance to the urgent need to heal our banks.
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Right now, there is too much uncertainty; no one knows what will be the new rules governing investments in our biggest financial institutions.
Then Richard Fernandez, after noting that the London Telegraph said that President Obama was too exhausted to give British PM Gordon Brown a proper welcome writes
Maybe part of the reason the White House is frazzling itself into the ground is that they’re trying to remake everything. Everything has now become part of the delta. Everything is changing. Now they are facing the revenge of the second derivative: the rate of the rate of change. They are trying to restructure the government so it is run with Czars instead of cabinet secretaries; “engaging” hostile nations with little or no preconditions and getting blown off; changing the basis of the economy to conform to their untried vision of the future; creating the single greatest expansion of government since FDR; redesigning health care; holding consultations on everything and planning to save the world from Climate Change. They’re busy because crisis creates an “opportunity” for their own vague revolution.
The cumulative consequence of these actions is a vast increase in the amount of risk the entire system has to endure because variables are being added faster than they are being solved. The margins are gone — removed by design. The margins are in the way. But while things might hold together for so long as the road ahead is smooth, what happens if things hit a bump? What happens in the Obama administration, too preoccupied to “even fake an interest in foreign policy meets a sudden challenge?
Andrew Grove says Mr. President, Time to Rein in the Chaos
I find myself wringing my hands, not over the goals President Obama has set but over the ineffectual ways the administration has pursued them. I have no qualifications to judge how well the Obama team manages the political dynamics, but as a business executive with 40 years' experience, much of it managing change, and a part-time academic dedicated to studying why so few corporations succeed in navigating change, I feel compelled to comment not on the what of the Obama team's efforts but on the how.
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We have gone through months of chaos experimenting with ways to introduce stability in our financial system. The goals were to allow the financial institutions to do their jobs and to develop confidence in them. I believe by now, the people are eager for the administration to rein in chaos. But this is not happening.
Until the administration does this, we should not embark on attempting to fix another major part of the economy. Our health-care system may well be ripe for a major overhaul, as are our energy and environmental policies. Widespread recognition that all of these reforms are overdue contributed to Barack Obama's victory in November. But if the chaos that resulted from initiating such an overhaul were piled on top of the unresolved status of the financial system, society and government would become exhausted. Instead, the administration must adopt a discipline; not initiating a second wave of chaos before we have a chance to rein in the first.
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The answers to the questions "What is wrong?" "What are we going to do?" "How are we going to do it?" and "What should we expect?" should be drummed home relentlessly. This needs to be an ongoing process, where clarity, consistency and repetition are key. It is hard work and requires a laser-like focus on the solution.
One wonders what purpose there is in perpetuating the crisis in the financial system.
Mark Tapscott asks Does Obama's strategy require the perpetual crisis his economic policy produces?
White House chief of staff Rahm Emanuel gave the game away back in November with his observation that:
"You never want a serious crisis to go to waste. What I mean by that is it's an opportunity to do things that you think you could not do before. This is an opportunity…And this crisis provides the opportunity for us, as I would say, the opportunity to do things that you could not do before."
Initially, Emanuel’s disturbing words were dismissable as just his own, but the president himself and most recently Secretary of State Hillary Clinton have since repeated variations on the theme. So it is clearly the Obama strategy to use the current economic crisis as justification for his radical agenda.
Call it policy-making by perpetual crisis.
World Bank says collapse has arrived
THE World Bank has broken a taboo, becoming the first official organisation to predict the global economy will shrink during 2009, to collapse for the first time in more than 60 years.
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The new World Bank assessment, prepared for next week's meeting of finance ministers and treasurers from the world's 20 largest economies, was not specific about the extent of the collapse other than to say that global economic activity would shrink "for the first time since World War II, with growth at least 5 percentage points below potential".
Global industrial production would be down 15 per cent by the middle of this year, with world trade on track to record its largest decline in 80 years.
An astonishing 53% of Americans believe the US will enter a depression like the 1930s says new Rasmussen poll.
So it is all the more discouraging that the White House has yet to nominate anyone to fill the top positions at the Treasury Department aside from Secretary Tim Geitner.
In an astonishing breach of diplomacy, the head of the civil service in the U.K, Sir Gus O'Donnell, complained that he can't get anybody on the phone at Treasury to talk about preparations for next month's G20 summit to deal with the global economic crisis. O'Donnell said it was "unbelievably difficult" to hold discussions ahead of the meeting of world leaders in London.
The CEO of Blackstone private equity company says 45% of world's wealth destroyed.
Friends, this is not a test. Economically, this is the big one. This is August 1914. This is the morning after Pearl Harbor. This is 9/12. Yet, in too many ways, we seem to be playing politics as usual.
Ed Morrissey details the 18 top positions unfilled and underscores the failure of the White House to nominate people to fill those jobs.
Why has Obama neglected Treasury?
The White House has responsibility for appointing these 18 positions. Those appointments get handled by the Senate Finance Commitee, which after receiving the formal nominations, has to do background checks and other information gathering to prepare committee members for their hearings. It takes some time to get a nomination from the White House to a confirmation vote, but the clock doesn’t start — it can’t start — until Obama makes each nomination.
The US economy has fallen off a cliff said Warren Buffet in an interview on CNBC.
“If you’re in a war, and we really are in an economic war, there’s a obligation to the majority to behave in ways to not go around inflaming the minority. If on Dec. 8, or maybe it was Dec. 7, when Roosevelt convened Congress to vote on the war. He didn’t say, ‘I’m throwing in about ten of my pet projects,’
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“Job one is to win the economic war. Job two is to win the economic war and Job 3,” Buffett said. “And you can’t expect people to unite behind you if you’re trying to jam a whole bunch of things down their throats. So I would absolutely say, for the interim until we get this one solved, I would not be pushing a lot of things that, that you know are contentious.”
Learning that US Treasury Secretary Tim Geithner is practically alone on the job, working night and day to cope with the worst economic downturn in decades is worrisome and not just to me.
Jack Welch, former GE CEO said
This guy is locked in another world. And he’s throwing all these initiatives into this game in the middle of a crisis. Focus on the crisis! Focus on the economy!
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it’s the economy, Mika. It’s the economy. It’s getting the banks going. It’s a clear message to everybody: all hands on deck. We have a crisis: let’s deal with this. Not one day, carbon tax. One day, take the kids out of the Washington schools. I mean it’s, it’s crazy!
Until a plan comes out in sufficient detail to deal with the problem in the banks, stock investors will continue to see declines in the value of their portfolios.
I don't think there's a more entertaining - or illuminating - writer on financial topics than Michael Lewis.
Here he is on Wall Street on the Tundra in Vanity Fair.
Iceland's coalition government collapsed in January, fallout from the financial collapse
Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.
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Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. There are, of course, a few jobs in Iceland that any refined, educated person might like to do. Certifying the nonexistence of elves, for instance. (“This will take at least six months—it can be very tricky.”) But not nearly so many as the place needs, given its talent for turning cod into Ph.D.’s. At the dawn of the 21st century, Icelanders were still waiting for some task more suited to their filigreed minds to turn up inside their economy so they might do it.
Enter investment banking.
Hey, bet you don't what a Gaussian copula function is.
It's a Recipe for Disaster and the Formula that Killed Wall Street
Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.
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Investors exploited it as a quick -and fatally flawed- way to assess risk.
David Li incidentally is a star mathematician who grew up in rural China in the 1960s. Ah, the irony.
No one knew all of this better than David X. Li: "Very few people understand the essence of the model," he told The Wall Street Journal way back in fall 2005.
"Li can't be blamed," says Gilkes of CreditSights. After all, he just invented the model. Instead, we should blame the bankers who misinterpreted it. And even then, the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.
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Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."
Rainbow's End in California. Photo by amateur photographer Jason Erdkamp.
No pot of gold found.
Is it possible that Federal obligations exceed world GDP?
The $65.5 trillion total federal obligations under GAAP accounting not only now exceed four times the U.S. gross domestic product, or GDP, the $65.5 trillion deficit exceeds total world GDP.
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"Social Security and Medicare must be shown as liabilities on the federal balance sheet in the year they accrue according to GAAP accounting," Williams argues. "To do otherwise is irresponsible, nothing more than an attempt to hide the painful truth from the American public. The public has a right to know just how bad off the federal government budget deficit situation really is, especially since the situation is rapidly spinning out of control.
"The federal government is bankrupt," Williams told WND. "In a post-Enron world, if the federal government were a corporation such as General Motors, the president and senior Treasury officers would be in federal penitentiary."
via Instapundit who said "I don’t think it is. I certainly hope not."
Me too.
Rep Kanjorski: $550 Billion Disappeared in "Electronic Run on the Banks"
It was about September 15th [sic]. … On Thursday at about 11 o’clock in the morning the Federal Reserve noticed a tremendous drawdown of, uh, money market accounts in the United States to the tune of $550-billion was being drawn out in in a matter of an hour or two.
The Treasury opened up its window to help, and pumped in $105-billion into the system, and quickly realized it could not stem the tide. We were having an electronic run on the banks. They decided to close down the operation, to close down the money accounts. … If they had not done that, in their estimation, by 2 PM that afternoon $5.5-trillion would have been withdrawn and would have collapsed the U.S. economy and within 24 hours the world economy would have collapsed.
We talked at that time about what would have happened. It would have been the end of our economic and our political system as we know it.
So that's what former Treasury Secretary Paulson and Fed Chairman Bernake told the Congress behind closed doors, scaring the bejezzus out of them and shocking them into supporting the first $700 billion to bail out the banks.
More at Capitalism Gone Wild
Now, I can understand, much as I don't like it, bailing out the banks because without a functioning financial system, the economy breaks down.
What I don't understand is the pressure to pass the stimulus bill, in truth a spending bill. This recession is nowhere near as bad as the recession in 1981-1982 or 1973-1975 as this graph from JMF shows
Viking pundit via Maggie's Farm says
Including debt service, the cost of the Generational Theft Act is estimated at $1.175 trillion, all of which will be borrowed to be paid by America's children.
Think of it this way: we're going to borrow and spend almost one Russia, or one India. We could buy South Korea or Mexico. We could have our own continent by purchasing Australia and all their handsome actors and actresses. We could have Belgium, Sweden, and still have some pocket change left over for Greece. We could have five Hong Kongs.
Personally, I'd much rather buy Australia.
Harvard economist Robert Barro, says in the Atlantic
This is probably the worst bill that has been put forward since the 1930s. I don't know what to say. I mean it's wasting a tremendous amount of money. It has some simplistic theory that I don't think will work, so I don't think the expenditure stuff is going to have the intended effect. I don't think it will expand the economy. And the tax cutting isn't really geared toward incentives. It's not really geared to lowering tax rates; it's more along the lines of throwing money at people. On both sides I think it's garbage. So in terms of balance between the two it doesn't really matter that much.
Megan McArdle on a recent study that finds job loss and medical condition NOT the major cause of personal bankruptcy.
Rather, it's over-consumption, spending on houses and cars, that people can't afford that drives people to file for bankruptcy.
This paper utilizes the population of personal bankruptcy filings in the state of Delaware during 2003 and finds that household expenditures on durable consumptions, such as houses and automobiles, contribute significantly to personal bankruptcy. Adverse medical conditions also lead to personal bankruptcy filings, but other adverse events such as divorce and unemployment have marginal effects. Over-consumption makes households financially over-stretched and more susceptible to adverse events, which reconcile the strategic filing and adverse event explanations.
So why spend the money? After reading what the nonpartisan Congressional Budget Office said about the stimulus package,
CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.
the more I think it's a bad idea.
International Business Daily wrote
The agency projected the Senate bill would produce between 1.4 percent and 4.1 percent higher growth in 2009 than if there was no action. For 2010, the plan would boost growth by 1.2 percent to 3.6 percent.
CBO did project the bill would create jobs, though by 2011 the effects would be minuscule.
"The American Republic will endure, until politicians realize they can bribe the people with their own money" is on point even if often misattributed to Alexis de Tocqueville
UPDATE: An amazing graphic in the Washington Post on Taking Apart the $819 billion Stimulus Package
"The financial system created a fog so thick that even its captains could not navigate it."
In Our Epistemological Depression, Jerry Muller argues that major recessions are characterized by something novel.
This crisis was not created by something that gets reflected in the financial system, but a crisis caused within the financial system itself.
The most important bubble of the last decade or so was not of the housing sector, but of the financial sector, a bubble reflected by the 20 percent of S & P 500 profits that were made in the financial sector.
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a large role was played by the failure of the private and corporate actors to understand what they were doing. Most heads of ailing or deceased financial institutions did not comprehend the degree of risk and exposure entailed by the dealings of their underlings—and many investors, including municipalities and pension funds, bought financial instruments without understanding the risks involved.
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Diversification and complexity, which are both supposed to reduce risk, turned out to have unintended and unanticipated negative consequences. The purported virtues mutated into vices.
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Without financial institutions that people have faith in, a fiscal stimulus is unlikely to have much of a multiplier effect.
The emergence of what Max Weber described as the Protestant ethic represented an important point in the evolution of capitalism because it combined a reverence for hard work with an emphasis on thrift and forthrightness in one’s dealings with others. Where those virtues were most ardently practiced markets advanced and societies prospered. And, as Wesley foresaw, what slowly followed was a rise in materialism and a reverence of wealth for its own sake.
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To survive all of this it seems capitalism needs a new dose of restraint. But absent a vast religious revival in the West, which seems unlikely, where will a renewal of the virtues of the work ethic come from? That question becomes ever more difficult to consider because as religious practice fades and our institutions reject traditional values, so too does the memory of the role that these elements played in the rise of capitalism.
Can Free Markets Survive in a Secularized World by Steven Malanga
Have you wondered why the SEC didn't take action against Bernie Maldoff despite warnings from Harry Markopulous, an independent financial fraud investigator and past president of the Boston Security Analyst Society who wrote the SEC to say that Madoff was running the world's largest hedge fund back in 2000?
Arnaud de Borchgrave reveals a family connection I've not seen reported anywhere else in Ignorance is not bliss.
Another is the interesting relationship between Mr. Madoff's niece Shana, a rules-compliance officer at her uncle's business, and her now husband, Eric Swanson, an attorney and former SEC compliance officer. Mr. Swanson was also tasked with reviewing Madoff's business in 1999 and again in 2004. He married Shana in 2006. A co-founder and former head of the Nasdaq stock exchange, Mr. Madoff was widely regarded as beyond reproach. He also bragged about his ties to the SEC.
I don't know about you, but I'm getting awfully nervous about all these bailouts and stimulus plans.
Cary Doctorow at Boing Boing says the Bailout costs more than the Marshall Plan, the Louisiana Purchase, the moonshot, S&L bailout, Korean War, New Deal, Vietnam war and NASA's lifetime budget COMBINED.
There seems to be no shame I just wonder how Merrill Lynch paid out $15 billion in bonuses after it took $10 billion from TARP. John Carney calls it Wall Street's Sick Psychology of Entitlement.
Even the sharpest critics of the bailout never imagined that it would be used to make wealthy idiots even wealthier.
It seems to have embarrassed Bank of America sufficiently that they have shown the door to former Merrill Lynch CEO John Thain.
Mr. Thain resigned from Bank of America on Thursday following news that Merrill Lynch had rushed out its year-end bonuses, paying them just before Bank of America completed its acquisition of Merrill Lynch and sought $20 billion in additional government bailout money.
Nick Gillespie says
taxpayers now guarantee some $8 trillion in inscrutable loans to a financial sector that collapsed from inscrutable loans.
Political interference seen in bank bailout decisions
"It's totally arbitrary," says South Carolina Gov. Mark Sanford. "If you've got the right lobbyist and the right representative connected to Washington or the right ties to Washington, you get the golden tap on the shoulder," says Gov. Sanford, a Republican.
Instapundit hit a bullseye when he wrote
This is not so much a stimulus, as a massive transfer of wealth from the politically unconnected to the politically connected.
It's a good thing that the majority of boomers plan on working in retirement, because more and more will have no other choice,
I want some TARP, they're giving money away for free
After reading Atlas Shrugged: From Fiction to Fact in 52 years by the senior economics editor of the Wall St Journal, the book seems prescient.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
A few weeks ago I started a post entitled "What are we afraid of". I didn't publish it because it was all too depressing, so instead I just focused on just how big is a trillion. But I want to include some quotes by the Anchoress
I wonder if we are finally moving past the adolescent angst, and the numbness, and ... simply waking up to the fact that a bunch of loud, exploitative so-called “friends” crashed the house, called it a party, drank all the liquor, cracked Mom’s prize crystal egg and then decided to have a tug-of-war donnybrook on the front lawn before toilet papering the trees, puking and passing out. The press? Some “friends.” Congress? Some “statesmen.”
Hungover, we’re stumbling around, and realizing that if we do not start demanding adult behavior, adult leadership, less spin and a little honesty, not only from our leadership and our “elites” but from each other, we’re not going to be around to demand much of anything, of anyone.
She in turn quotes Peggy Noonan
In terms of public support, Mr. Obama shouldn't get too abstract. He should be thinking hardhats. People want to make their country stronger—literally, concretely, because the things they fear (terrorism, global collapse) are so huge and amorphous. Lately I think the biggest thing Americans fear, deep down—the thing they'd say if you could put the whole nation on the couch and say, "Just free associate, tell me what you fear?"—is, "I am afraid we will run out of food. And none of us have gardens, and we haven't taught our children how to grow things. Everything is bought in a store. What if the store closes? What if the choke points through which the great trucks travel from farmland to city get cut off? I have two months of canned goods. I'm afraid."
But it was this anecdote that Peggy Noonan told in 2005 that really got me.
Do people fear the wheels are coming off the trolley? Is this fear widespread? A few weeks ago I was reading Christopher Lawford's lovely, candid and affectionate remembrance of growing up in a particular time and place with a particular family, the Kennedys, circa roughly 1950-2000. It's called "Symptoms of Withdrawal." At the end he quotes his Uncle Teddy. Christopher, Ted Kennedy and a few family members had gathered one night and were having a drink in Mr. Lawford's mother's apartment in Manhattan. Teddy was expansive. If he hadn't gone into politics he would have been an opera singer, he told them, and visited small Italian villages and had pasta every day for lunch. "Singing at la Scala in front of three thousand people throwing flowers at you. Then going out for dinner and having more pasta." Everyone was laughing. Then, writes Mr. Lawford, Teddy "took a long, slow gulp of his vodka and tonic, thought for a moment, and changed tack. 'I'm glad I'm not going to be around when you guys are my age.' I asked him why, and he said, 'Because when you guys are my age, the whole thing is going to fall apart.' "
Mr. Lawford continued, "The statement hung there, suspended in the realm of 'maybe we shouldn't go there.' Nobody wanted to touch it. After a few moments of heavy silence, my uncle moved on."
Lawford thought his uncle might be referring to their family--that it might "fall apart." But reading, one gets the strong impression Teddy Kennedy was not talking about his family but about . . . the whole ball of wax, the impossible nature of everything, the realities so daunting it seems the very system is off the tracks.
And--forgive me--I thought: If even Teddy knows . ..
Atlas shrugged.
I don't know whether it's not as bad as we think or even worse.
Some people see the Good News from a Bad Year
The last 12 months may prove not to be the most fondly recalled in recent American history, but things aren't all that bad. Most social indicators are still moving in the right direction. In general, our standard of living continues to improve. Advances in technology are helping us beat the diseases most likely to kill us; giving us more leisure time; making us more comfortable; giving us more convenience; and with the Internet, putting much of the world—quite literally—at our fingertips.
It unnerves me that no one really knows what to do about the financial mess we're in.
Michael Lewis sees The End of the Financial World as We Know It
AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.
This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?
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What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it. It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him. Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.
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Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing: 2008 was a historically bad year for the stock market, and we’ll be in recession for some time to come. Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.”
Could it be that our elites have become more impressionable and so too easily snookered?
more removed from everyday problems, more trusting of what they hear, and more likely to adopt unthinking viewpoints based on brand or emotion.
Bernard Madoff proves the point. Here he is, in the most numbers-dominated part of our economy, and no one questioned his numbers. He sold himself to people on the basis of brand, and he got access to more marks by using the smart, rich and famous to introduce him to more of the smart, rich and famous.
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Elites are on information- and time-management overload, and the result is that they have been making big decisions with less information, not more. They throw their hands up in the face of adversity and complexity, relying upon the judgment of others instead of forming their own.
The entire financial crisis was started by small microtrends overlooked by some of the best and brightest minds at institution after institution.
Maybe we're all easily snookered. After all, isn't social security the largest Ponzi scheme of all?
The problem is that generations of U.S. workers have been misled to believe that Social Security's annual surpluses accumulate in a trust fund that will be used to meet future costs. But like Madoff's investment fund, these assets are largely smoke and mirrors.
All surplus Social Security taxes that the Treasury collects are spent immediately, used to pay for government programs or interest on the national debt. In exchange, the Treasury gives Social Security nonmarketable special-issue government securities: IOUs. That's what accumulates in the trust fund.
These promissory notes are backed by nothing of tangible value, other than the political promise that Washington will come up with a way to redeem them when they're needed.
That day of reckoning is coming soon. Social Security actuaries have estimated that benefit payments will exceed revenues starting in 2016, less than a decade from now.
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Just as the schemes of Charles Ponzi and Bernard Madoff collapsed, Social Security will become unsustainable when payroll taxes no longer cover program benefits. Then, benefits will have to be cut or more money will have to be pumped into the system through increased payroll taxes, higher income taxes or increased borrowing.
I just want to know when our elected officials will begin to deal with the serious entitlement crisis that can no longer be put off. After all, there's no one to bail out America.
The Smart Cookies on How to Make More Dough in 2009
A bit of background: The Smart Cookies were born in 2006, when, instead of starting a book club, five thirty-somethings from Vancouver, British Columbia formed a finance group. In order to participate, each member had to take a hard, honest look at her finances, spending habits and money goals. They vowed to be frank with one another about their finances and areas of improvement. So far, the Smart Cookies have paid down debt, switched careers and saved money in creative ways. They recently brought their message to the masses with a book, “The Smart Cookies’ Guide to Making More Dough” (Random House).
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Sandra: New Year’s resolutions are tough to keep because we generally make promises to ourselves that are too hard to keep. This year don’t resolve to cut back but instead find yourself $100 dollars worth of hidden money each month. Scan through your cell phone bill and your credit card bill. I bet you’ll find almost $100 in charges you can negotiate on. Finding money you already have - now that is something easy to stick to.
Sound like the book will be worthwhile reading.
In The Madoff Inheritance, Daniel Henninger of the Wall St. Journal says
A big lesson of the past year is that we all should be talking more about money. One reason we don't talk about money is we are afraid of what we might learn.
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Though living in an era of fantastic money tales, it is remarkable how little serious literature is written about money in business or money in politics. In fiction or drama characters can be made to say truths real people would never tell a journalist.
That's what he found in The Vosey Inheritance, a 1914 British play adapted by David Mamet that played off Broadway last year.
One answer emerges from the Voysey drama when Edward tells wealthy family friend George Booth and Vicar Colpus that he plans to admit the fraud and face justice (Mr. Voysey having conveniently died). They try to talk him out of it. They want Edward to continue the scheme. For them, at least, the scheme seems to work. They want to believe it can still work. Edward demurs, and they are outraged that he will not continue business as usual.
From the New York Times review of The Vosey Inheritance
Edward Voysey ( Michael Stuhlbarg), who has just inherited the reins of the firm and breaks the bad news, is the only member of the family moved to shame at the discovery that the just-deceased paterfamilias had been bilking clients to support his brood in style. Edward is determined to call in the law, come clean, and face the consequences.
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The wonderful Fritz Weaver plays Voysey père, whose casual admission, in the first scene, that he has been monkeying with the business sets Edward on his voyage of disillusionment. (The business is a firm of solicitors, which translates, practically speaking, to personal bankers or brokers.)
Coolly explaining to his perturbed son the practice of borrowing from one client’s account to pay dividends due to another, he sighs, “Oh, why is it so hard for a man to see clearly beyond the letter of the law!”
It is not so hard, if such double vision serves a man’s personal interest. After their father’s sudden death and the revelation of his free-form accounting, Edward’s brothers profess perfunctory shock and dismay. But they also begin bringing him around to the idea that little good will come from airing dirty laundry that had, after all, been kept from public view for 30 years with little injury to any of the parties involved.
Robert Chew on How I Got Screwed by Bernie Madoff
I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.
But of course the call did come, as it always does with such things. It was not an ordinary Ponzi scheme we were all part of; it was the biggest in the history of the world, valued at some $50 billion. Lucky us. Small investors, institutions, hedge funds, global banks, pension funds — all fell victim to usual suspects: a smooth huckster and greed.
You never want to hear the words that come with such a phone call. "We are all wiped out."
Money is based on trust says Niall Ferguson Confidence in the free market and capitalist institutions is based on trust.
What is money after all but a promise to pay?
Without a foundation in society based on religion or religiously-based ethics, there's no reason to believe that such promises will be kept.
We're in such a mess because Congressmen and bankers abused our trust to satisfy their political agendas or their greed.
Investors' Business Daily takes note of the Pope's remarks to say
What he really said was not clairvoyant, but self-evident: Economic freedom demands ethics.
Of course, we are not without fault as Ed Morrissey writes in Has America learned a lesson about consumption?
the period between the last recession and now has been marked by the unique phenomenon of assets-based consumption. We need a return to income-based consumption, and the transition is going to sting:
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The entire precipice was built on sand, and it’s now turning into quicksand. For some, the lesson will come too late. For the rest of us, it’s a lesson we need to learn for good. Many of us have heard the advice our parents and grandparents learned in hard economic times: Don’t spend beyond your means. Many in the previous couple of generations had a well-deserved skepticism about credit, and they’ve been proven right yet again.
Niall Ferguson was prescient when he started his book to explain the current economic crisis in the span of 4000 years of financial history. (Hat tip to Cat at Brits at their Best.) He saw the liquidity crisis coming.
"The Ascent of Money: A Financial History of the World" (Niall Ferguson)
Here is Ferguson, Tisch Professor of History at Harvard, speaking with Harry Kriesler at the University of California, Berkely on his new book.
It's wonderful to be able to hear and learn so much on the internet. The good news is that U.S. has a better chance of riding out the crisis than other countries because people around the world believe that the correct response is to put their cash into dollars
What does a noted historian have to say about the financial mess we're in?
Paul Johnson writes in Forbes
The financial crisis, detonated by greed and recklessness on Wall Street and in the City of London, is for the West a deep, self-inflicted wound. The beneficiary won’t be Russia, which, with its fragile, energy-based economy, is likely to suffer more than we shall; it will be India and China. They will move into any power vacuum left by the collapse of Western self-confidence.
If we seriously wish to repair the damage, we need to accept that this is fundamentally a moral crisis, not a financial one. It is the product of the self-indulgence and complacency born of our ultraliberal societies, which have substituted such pseudo-religions as political correctness and saving the planet for genuine distinctions between right and wrong and the cultivation of real virtues. India and China are progress-loving yet morally old-fashioned societies. They cannot afford liberalism. …
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We are traveling along the high road to incompetence and poverty, led by a farcical coalition of fashionably liberal academics on the make, assorted eco-crackpots and media wiseacres. This strain of liberalism is highly infectious. The Indians and Chinese have yet to be infected. They’re still healthy, hard at work and going places, full speed ahead.
Alice Rivlin thinks it's a teachable moment for the much bigger problems down the road
--the much larger economic storm now unfolding could convince Washington -- as it is pressed to take bold and sometimes unpopular action related to the credit crisis -- to wrap in some forward-looking solutions to rising costs associated with Medicare, Social Security and Medicaid -- costs that will make the taxpayers' Wall Street rescue effort, which could amount to more than $1 trillion, seem petty by comparison. A General Accounting Office study concluded that in less than 20 years, the cost of Social Security and Medicare will exceed all government revenues.
The broader problem quite simply is this: America is already dangerously deep in debt, and will soon see an explosion in costs to provide Social Security, Medicare and other entitlements it has promised to tens of millions of retiring and soon-to-retire baby boomers. While federal spending is now roughly 20% of the American gross national product, which has been relatively constant in the last half-century, that ratio could rise as high as 42% by 2050 if current federal policies on entitlement spending and taxes remain unchanged, according to Bixby. That would be the same rate as when the U.S. was waging World War II. The impact would fall hardest on today's young people.
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"There's nobody to bail out America," said Walker, "so the sooner we get started, the better."
Joe White in the Wall St Journal calls it the Boomer Bust
Baby Boomers have pumped up the global economy with their profligate ways for nearly two decades. It's been a great party. Now the music's over.
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But what Baby Boomers of all persuasions have done, without dispute and to an unprecedented degree, is spend money instead of saving it. During the 1990s, Baby Boomers accounted for about half of all consumer spending in the U.S., according to a recent McKinsey Global Institute study.
"This is like winter coming," adds Harry S. Dent, an author and consultant who says the U.S. is headed for a slump that will last until 2020. It will take that long for the financial wreckage from this boom-bust cycle to be cleared away, he says, and for the 79.4 million strong "Millennial Generation" -- most of whom are still in high school or college -- to enter adulthood and start buying homes, cars and gadgets of their own. "It happens once every 80 years," Mr. Dent says of this sort of demographics-driven economic cycle. "It's going to be difficult."
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Olivia Mitchell, a professor at the Wharton business school and a former member of a bipartisan commission established by President Bush to study possible reforms of the Social Security system, says the market crash should be a wake-up call for Boomers to "understand risk better," starting with the risk that they may live way past 64.
"The Baby Boomers are going to have to work longer and eat less," Ms. Mitchell says. "And go back to what my mother was doing -- saving string
Ben Stein You Don't Always Know When the Sky Will Fall
closer to home, a talented makeup artist who works with me almost daily in my TV appearances asked what happened to people in a recession. (She is young.) I said that fear and insomnia happened to most people but that a few million would actually lose their jobs and millions more would lose income.
“What do they do?” she asked, looking worried.
“They find other work or live off their savings,” I said. “They certainly cut back on their spending.”
“What if they don’t have any savings?” she asked. “I don’t have any savings,” she said. “No one I know except you has any savings.” She looked extremely worried.
This is perhaps the main lesson of this whole experience. It is basic but still unlearned: human beings must have savings. This is not just a good idea. It’s the difference between life and death, terror and calm. So start saving right now, and don’t stop until you die.
ACORN. First they intimidated banks, then they went after Congress with a combination of bullying, smooth talking lobbyists and campaign contributions to change the regulations at Fannie Mae and Freddie Mac,
Stanley Kurtz outlines how ACORN planted the seeds of disaster.
Swarts, a strong supporter of ACORN, has no qualms about stating that its members think of themselves as “militants unafraid to confront the powers that be.” “This identity as a uniquely militant organization,” says Swarts, “is reinforced by contentious action.” ACORN protesters will break into private offices, show up at a banker’s home to intimidate his family, or pour protesters into bank lobbies to scare away customers, all in an effort to force a lowering of credit standards for poor and minority customers. According to Swarts, long-term ACORN organizers “tend to see the organization as a solitary vanguard of principled leftists...the only truly radical community organization.”
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This sweeping debasement of credit standards was touted by Fannie Mae’s chairman, chief executive officer, and now prominent Obama adviser James A. Johnson. This is also the period when Fannie Mae ramped up its pilot programs and local partnerships with ACORN, all of which became precedents and models for the pattern of risky subprime mortgages at the root of today’s crisis. During these years, Obama’s Chicago ACORN ally, Madeline Talbott, was at the forefront of participation in those pilot programs, and her activities were consistently supported by Obama through both foundation funding and personal leadership training for her top organizers.
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Up to now, conventional wisdom on the financial meltdown has relegated ACORN and the CRA to bit parts. The real problem, we’ve been told, lay with Fannie Mae and Freddie Mac. In fact, however, ACORN is at the base of the whole mess. ACORN used CRA and Democratic sympathizers to entangle Fannie and Freddie and the entire financial system in a disastrous disregard of the most basic financial standards. And Barack Obama cut his teeth as an organizer and politician backing up ACORN’s economic madness every step of the way.
Pope says world financial system 'built on sand
''He who builds only on visible and tangible things like success, career and money builds the house of his life on sand''.
We are now seeing, in the collapse of major banks, that money vanishes, it is nothing. All these things that appear to be real are in fact secondary. Only God's words are a solid reality''.
The Anchoress notes in The Pope, the Word & the World that a greater battle is being played out just as the Pope began a week-long televised reading of all 73 books of the bible. You can see the live stream here.
The Word being breathed into the air, unabridged, and the Holy Spirit rides on the breath. This is very cool.
And then today, the whole world financial picture runs precarious, and Benedict steps up and says, essentially, “it is better to take refuge in the Lord, than to trust in princes…” (Psalm 118;9)
Prayer may be all we can do right now
I'm beginning to understand 'credit default swaps' , what Warren Buffett called 'financial weapons of mass destruction' after reading The Monster That Ate Wall Street.
What could possibly go wrong with freeing up all that money in capital reserves to cover loans outstanding when you could buy insurance to protect against that risk?
Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say. Like rogue nukes, they've proliferated around the world and now lie hiding, waiting to blow up the balance sheets of countless other financial institutions.
The one thing you can control right now is how much you spend.
Brent Arends in the Wall St Journal says Stash Your Cash.
Cut everything.
Drop your cable package and TiVo. Say goodbye to Applebee's and Starbucks. Cancel the ski trip.
Slash every single penny you possibly can from your household budgets and start building up cash.
Yes, I'm serious. The shocking collapse of the rescue package on Capitol Hill threatens a disaster on Main Street. Unless this gets reversed almost immediately, it could turn a slowdown into a slump, and a slump into a depression.
It's hardly possible to make any sensible recommendations about investments or other financial matters until we get a better sense of what will happen next.
Ordinarily in a panic like this I'd be urging people to invest. My usual approach is that the worse people are panicking, the more aggressively you should buy. And that might still be the right thing to do.
But the political and financial situations right now are chaotic.
So you need to get an iron grip at least on one thing you can actually control: Your own personal budget.
Even saving $10 a day by making your own sandwiches and taking your own Super Grande Latte to work is a small victory.
This is now a financial war: You versus the economy. And most Americans are badly prepared. They have far too little cash on hand to cope with a major downturn.
If you like me have spent the past few days trying to figure out what in the name of all that is holy has been going on in Washington and on Wall Street that threatens our lives as we know it, let me point to two articles that helped me.
First Ben Stein. Everything you wanted to know about the credit crisis but were afraid to ask
...First, the alert reader will notice that Ben Stein said many times that the amount of money at risk in the subprime meltdown was just not enough to sink an economy of this size. And I was right...to a point. The amount of subprime that defaulted was at most - after recovery in liquidation - about $250 billion. A huge sum but not enough to torpedo the US economy.
The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.
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These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.
Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability - which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.
This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft - but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars - but it was manipulated into being two million.
This is the whirlpool sucking down finance.
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As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out - and maybe the new RTC is and maybe it isn't - we are in real peril. This should never have happened. Now that it did happen, should the taxpayer pay to make the billionaire speculators whole on their bets? What the heck is to be done?
Second, Steve Pearlstein, Gut Check
You're angry. I'm angry. House Republicans are angry. We're all angry at having to put up huge amounts of cash to rescue a financial system because a lot of very rich people rolled the dice with other people's money and lost.
Now let me tell you something very simple and very important: You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can't do both at the same time.
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First, stop fixating on Wall Street executives -- there will be time to deal with them later.
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Second, we need to act quickly. The financial situation is now downright scary. Don't look at the stock market -- that's not where the problem is. The problem is in the credit markets, which are quickly freezing.
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People are so nervous, and there is so much distrust, that all it would take is one more hit to trigger the modern-day equivalent of a nationwide bank run. Financial institutions would fail, part of your savings would be wiped out, jobs would be lost and a lot of economic activity would grind to a halt. Such a debacle would cost us a lot more than $700 billion.
Third, the latest proposal hammered out between the Treasury and Democratic leaders won't cost anywhere near $700 billion unless we get a 1930s-like Depression, in which case we'll have much bigger problems to worry about.
Days of wine and Porsches over
Personal fortunes amassed through decades of work are being vaporized.
Lehman boss Dick Fuld had a $1-billion stake in his firm just 18 months ago, took home a $34-million paycheque, and enjoyed a sterling reputation.
This week, his holdings are worth $1.3-million, he's unemployed and his name is mud.
The potential liabilities of Fannie Mae and Freddie Mac total about $5 trillion. Putting that in perspective (as the Wall Street Journal did pre-bailout), until a week ago, the entire United States national debt equaled $9.5 trillion. We’ve now increased it by more than 50 percent.
Andrew McCarthy says Book 'Em
Well the political class, which created the disaster that is Fan and Fred and seems desperate to preserve them,
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As Democrats continue to champion these “quasi-government” entitles, the Bush administration quietly announced on Friday (as all eyes were on Lehman) that though the government is now running the mortgage giants — and thus all of us are officially on the hook for their liabilities — it sees no need to incorporate their balance sheets and the business operations in the federal budget.
Does that sound familiar? It should. When managers who don’t happen to run the United States government decide to park their losses and liabilities off the books, we call that corporate fraud. When they did it at Enron (in a scam involving a pittance of what we’re talking about here), the execs went to jail for a long time. Even their accounting firm was prosecuted, causing countless employees who had nothing to do with the scheme to be put out of work.
I don't trust public-private partnerships because they seem to benefit only the politically well-connected who take out enormous fees for putting deals together and some enormous salaries and bonuses.
I don't understand why we can't go after them for abuse of trust in the same manner we went after the executives of Enron .
When I read about Jamie Gorelick, Mistress of Disaster I get so mad at "the political class", I could, as my mother would say, just spit. This is a damning piece.
It’s not often that one person plays key roles in two — count ‘em, two — trillion-dollar disasters. Welcome, my friends, to the world of well-connected Democrat Jamie Gorelick.
Investors' Business Daily says it was the obsession with multiculturalism by those in the Clinton administration who dictated new rules and regulations that led to this mess.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
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Apparently one Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.
Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.
Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.
Clearly if the executives in charge were overstating earnings and shifting losses so they could earn big bonuses as alleged, a criminal investigation should begin immediately. Book Em is right.
Just Barking Mad sums it all up
Let’s be clear. The risky financial instruments that are now the major source of such pain and misery were pushed hardest by a former Clintonista trying not only further a Liberal social engineering plan but to enrich her own self in the process. America…what a country!
In the Wall St Journal, a leak from an upcoming IRS study on who pays how much in taxes.
My contacts at the Treasury Department tell me that for the first time in decades, and perhaps ever, the richest 1% of tax filers will have paid more than 40% of the income tax burden. The top 50% will account for 97% of all federal income taxes, while the bottom 50% will have paid just 3%.
What do car insurance, job, housing, utilities, cell phones, school loans, elective medical procedures and marriage have in common?
They all cost more if you have a bad credit rating.
They don't lay about watching TV.
People who make less than $20,000 a year, for example, told Kahneman and his colleagues that they spend more than a third of their time in passive leisure -- watching television, for example. Those making more than $100,000 spent less than one-fifth of their time in this way -- putting their legs up and relaxing. Rich people spent much more time commuting and engaging in activities that were required as opposed to optional. The richest people spent nearly twice as much time as the poorest people in leisure activities that were active, structured and often stressful -- shopping, child care and exercise.
How Rich People Spend Their Time
8 Reasons You Should Not Expect an Inheritance
...with each passing year, the pressures on the nest eggs of those older people will only grow. The truly rich will be fine, as they usually are. But a lot of other people, even retirees with net worths well into the seven figures, could end up spending every dime before they die.
You would do well to pass on A Primer for Young People Starting Their First Job to those who have never before encountered taxes, health plans and 401(k) plans they had to pay for.
When you think about it, it makes sense. Who needs illegal documents? People who want documentation to get jobs, credit and driver's licenses and appear as if they are in the country legally.
Steven Malanga, senior editor of City Journal writes in Illegal in More Ways Than One
As everyone knows, America is experiencing an epidemic of identity theft. In the last five years alone, complaints to the Federal Trade Commission from U.S. residents who have had their identity stolen have skyrocketed 60 percent, to 258,427 in 2007—one-third of all consumer fraud complaints that the commission receives. What’s less well understood, however, is how illegal immigration is helping to fuel this rash of crime. Seeking access to jobs, credit, and driver’s licenses, many undocumented aliens are using the personal data of real Americans on forged documents. The immigrants’ identity theft has become so pervasive that the need to combat it is “a disturbing front in the war against illegal immigration,” according to U.S. Immigration and Customs Enforcement.
The FTC’s latest statistics help show why. The top five states in terms of reported identity theft in 2007 all have large immigrant populations—the border states of Arizona, California, and Texas, as well as Florida and Nevada.
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Government statistics probably grossly underestimate the size of the problem. Many local police departments don’t track identity theft accurately, and the FTC only reports complaints that it receives. By combining data on complaints with FTC consumer surveys—which show that far more people have had their identity stolen than report it—Identity Theft 911 estimates that in Arizona alone, some 1.57 million people, or a quarter of the state’s population, have been victims over the last six years. About one-fifth are children—whose Social Security numbers are especially valuable targets, since the kids usually aren’t employed, making discovery of the fraud less likely. “We just don’t know how they’re getting all this information on minors,” says Maryann McKessy, bureau chief for fraud and identity-theft enforcement in the Maricopa County attorney general’s office.
One disturbing theory: health-care employees with access to children’s files are working for organized gangs that trade in illegal documents and are willing to pay richly for the data. “We have a major problem with workers in medical offices stealing patients’ identities, selling them and making a direct profit,” Sergeant James Bracke of the Phoenix Police Department told authors of the Arizona report.
Are 20 and 30 somethings in a financial mess?
Emma Johnson writes "Is it because we're dumb, arrogant or simply uneducated?"
[S]tats indicate our generation's financial literacy is abysmal, with personal finances to match. Only 52% of high school seniors passed a recent national financial literacy test, meaning adults entering the work force do not know enough about basic budgeting, interest rates or taxes to make sound decisions for their own lives.
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Bob Manning, author of "Credit Card Nation" and professor of consumer financial services at Rochester Institute of Technology, says these problems are compounded by powerful cultural forces...,
"This generation feels that somehow or another they're going to figure out some technological advancement that's going to get them out of their financial troubles and outsmart the market," says Manning,
* The median credit-card debt of low- and middle-income people aged 18 to 34 is $8,200.
* The average college debt for recent grads is more than $20,000 and rising.
* People between the ages of 25 and 34 make up 22.7% of all U.S. bankruptcies (but just 14% of the population at large), according to a recent report.
Because it is not instinctual, financial literacy is a life skill that must be taught and developed with each generation.
When the Wall St. Journal says it's time to Load Up the Pantry for a good return on your cash, pay attention.
Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.
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Do the math. If you keep your standby cash in a money-market fund you'll be lucky to get a 2.5% interest rate.
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Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.
And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.
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You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.
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The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.
Stainless steel wallets are in your future. Either that or aluminum foil.
Radio-frequency IDs or RFIDs are tags that include both an integrated circuit for storing and processing information and an antenna for receiving and transmitting a signal. They are tiny little objects you can apply to any product, animal or person. They are most often used in inventory tracking and management.
You probably are already familiar with the transponders many have on their windshields allowing them to speed through toll booths without stopping even as the information is captured and the charge for the toll will appear on your credit card statement.
Since 2006 RFID tags have been included in all new passports issued by the United States government. After a demonstration that showed that passports could be read with special equipment from 33 feet away, various barriers and encryption methods have been incorporated. The Wikipedia entry explains more than I ever could.
Boing Boing video shows how anyone can swipe your credit card information and other personal data that is on any card employing RFID by using a reader that cost on $8 on Ebay, just by getting "close to your ass."
The biggest threat to having your identity stolen remains the theft of many thousands of credit card numbers from websites. Hacker Pablos Holman told TechRadar
“I don’t expect this to be a major threat for a while. People are stealing credit card numbers from websites and that’s still pretty easy,” he says, before adding, somewhat more ominously “with a bigger antenna hooked up to this I can go into Starbucks and get the name of everyone in there.
That's why I say stainless steel wallets are in your future. Keep an eye out for them.
In their later years, more and more people are finding purpose and happiness in what they can give away.
With the help of a grant from the Gates foundation, Michael Schervish who runs the Center on Wealth and Philanthropy at Boston College is studying the very wealthy to see what motivates them to give away money.
Once they feel financially secure, the very rich turn to philanthropy.
Philanthropy, he explained, draws people into the kind of direct caring relationships they experience in family life — and extends that caring outward. “This is my basic definition of philanthropy — it’s paying attention and responding to the needs of others precisely because that person is in need,” he said. Anyone can do that, rich or poor. But when the very wealthy do it, according to Schervish, it creates not just ripples but powerful tides.
From instapundit Glenn Reynolds and his instawife, Dr. Helen Smith comes a wonderful podcast on capturing your child's passion and allow them to make money by being entrepreneurial.
The Glenn and Helen Show: Troy Dunn on Raising Kids to be Rich.
Troy Dunn's book is
"Young Bucks: How to Raise a Future Millionaire" (Troy Dunn)
If you're wondering just what's going on in the markets and how the subprime mess is affecting you, I urge you to watch this.
Hat tip Maggie's Farm
If you have a net worth of $1.4 million, you're in the top 5% of Americans.
But if you ask a rich person, they will $5 million, ask a richer person and they will say $25 million, ask the richest people and they will say $100 million.
A Rich Person's Definition of Rich. Hint: It's always more than they have. About twice what they have.
Even the rich pretend to be middle-class.
If you or your aging parents are considering a reverse mortgage, you'll be happy to learn that the choices are expanding.
Reports the Wall St Journal
Now, nearly a dozen large banks and mortgage lenders have launched reverse-mortgage products with lower fees and larger payouts. One lender has reduced the minimum age requirement to 60; others are making loans on second homes and vacation rentals. "Jumbo" reverse mortgages -- for houses valued at as much as $10 million -- are becoming more common.
With a reverse mortgage, instead of the borrower making payments to the lender, the lender makes a payment or payments to the borrower. The borrower keeps control of the house and doesn't have to pay back the money as long as he or she lives there. When the homeowner dies or moves out, the loan is typically paid off by selling the house, and any money left over goes to the homeowner or the homeowner's estate.
A recent study finds that family businesses are increasingly led by women and expect robust growth, yet many will likely face financial problems because they have not prepared for managerial and ownership succession, nor have they prepared an personal estate plan.
Family businesses, increasingly led by women, need succession and financial planning.
Robert Samuelson writes on the supremacy of culture in overcoming poverty in The Global Poverty Trap.
Comes now Gregory Clark, an economist who interestingly takes the side of culture. In an important new book, " A Farewell to Alms: A Brief Economic History of the World," Clark suggests that much of the world's remaining poverty is semi-permanent. Modern technology and management are widely available, but many societies can't take advantage because their values and social organization are antagonistic. Prescribing economically sensible policies (open markets, secure property rights, sound money) can't overcome this bedrock resistance.
Capitalism is a prodigious generator of wealth so long as the culture supports it. Without that cultural support for patience, hard work, innovation and education and tolerance for change and inequality as well as a modicum of trust, societies cannot overcome their poverty even with globalization.
A good culture can make a country rich.
The greatest source of a country's wealth is intangible concludes the World Bank.
Ronald Bailey dove deeply into the World Bank's publication entitled Where is the Wealth of Nations? Measuring Capital for the 21st Century to deliver The Secrets of Intangible Wealth in the Wall St. Journal.
We are all familiar with natural capital those nonrenewable resources such as oil and gas, farmlands and forests. Produced capital is what we have made or built - infrastructure, machinery and equipment, buildings and other structures.
But once the value of all these are added up, the economists found something big was still missing: the vast majority of world's wealth!
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The rest is the result of "intangible" factors -- such as the trust among people in a society, an efficient judicial system, clear property rights and effective government.
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In fact, the World Bank finds, "Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries."
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Once one takes into account all of the world's natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type. The bottom line: "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity."
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In the U.S., according to the World Bank study, natural capital is $15,000 per person, produced capital is $80,000 and intangible capital is $418,000. And thus, considering common measure used to compare countries, its annual purchasing power parity GDP per capita is $43,800. By contrast, oil-rich Mexico's total natural capital per person is $8,500 ($6,000 due to oil), produced capital is $19,000 and intangible capita is $34,500 -- a total of $62,000 per person. Yet its GDP per capita is $10,700. When a Mexican, or for that matter, a South Asian or African, walks across our border, they gain immediate access to intangible capital worth $418,000 per person. Who wouldn't walk across the border in such circumstances?
Methinks again how often people assume wealth consists only of their material assets when the far greater portion of our lives is intangible.
You already know that you should check your credit score at least once a year so that you can correct mistakes.
What you probably didn't know is that your medical records could contain errors that should be corrected. Incorrect medical information can lead to ineffective or harmful treatment and affect your insurability
The Wall Street Journal, Patient Records Need Reviews (subscribers only)
Errors in medical records aren't uncommon. "They happen all the time," says Joy Pritts, research associate professor at Georgetown University's Health Policy Institute.
Mistakes can arise from a mistyped diagnosis code or transcription error to an inaccurate diagnosis or a diagnosis that is out-of-date, say because a patient has gotten his or her cholesterol under control. And, if you have a common name, other peoples' records can end up in your file, says Ms. Pritts. Part of the problem is that the U.S. health-care system relies mainly on paper records, which make it harder to coordinate care and spot errors.
Many hospitals use electronic health records, but until the U.S. develops a comprehensive, consolidated system, the burden falls to individuals to keep tabs on their health histories.
We trust people who are just like us more than we trust companies, institutions or the government. So, it was only a matter of time before social networking took on a financial cast with websites that let people compare saving strategies or trade financial advice.
I haven't checked any of these sites yet, but I wanted to pass on this story about Sharing the Wealth so that you can explore them if you want.
The woman behind one NetWorth profile said she started blogging about her finances because she felt alone.
"Being able to read and see the details of how others were managing (or not) their money was something I found very interesting and powerful," BostonGal, who insists on remaining anonymous because she posts so much detailed financial information online, wrote in an e-mail. "For me, it was finally answering questions such as, 'How can people afford to buy that?' or 'Am I the only one who struggles to save?' "
Todd Zywicki analyzes the two-income trap hypothesis.
Comparing a typical family with one wage earner in 1973 with a typical family with two wage earners in the 2000s, he finds that the second wage earner pushes the family into a higher marginal tax bracket.
[Since 1973] taxes increase in the example by $13,086. By contrast, annual mortgage obligations increased by only $3690 and automobile obligations by $2860 and health insurance $620. Those increases are not trivial, but they are swamped by the increase in tax obligations. To put this in perspective, the increase in tax obligations is over three times as large as the increase in the mortgage (the supposed driver of the 'two income trap') and about double the increase in the combined obligations of mortgage and automobile payments
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Overall, the typical family in the 2000s pays substantially more in taxes than in their mortgage, automobile expenses, and health insurance costs combined. And the growth in the tax obligation between the two periods is substantially greater the growth in mortgage, automobile expenses, and health insurance costs combined."
via Instapundit
Because IRS researchers estimate about $290 billion in taxes goes unpaid and because no one wants more IRS agents on the street, the IRS is "deputizing" tax preparers to police their clients reports the Wall St Journal.
The law is intended to make preparers more cautious about signing tax returns that include questionable or aggressive tax items without disclosing the details to the Internal Revenue Service on a special form. Stiff penalties may be imposed not only on income-tax preparers, but also on those who prepare estate- and gift-tax returns, employment and excise-tax returns, and returns of tax-exempt organizations.
I find this very disturbing, another example of a fraying social contract among citizens.
Around 1 in 6 Americans Do Not Pay Their Taxes.
This is evading taxes, not paying your fair share, not carrying your load. And every single one of those evaders will have an excuse as to why the law does not apply to them.
It's simple. Pay no more than what you owe. Even be aggressive in taking tax deductions,
but pay your taxes.
Damon Darlin gives More Advice Graduates Don't Want to Hear in the New York Times.
1. Save 10% of your income before anything else
2. Learn to cook
3. Never borrow money to pay for a depreciating asset
4, Cut out the lattes. Make your own coffee.
5. Find your mate, marry and stay married.
6. Never pay a real estate agent a 6% commission
7. Buy used things
8. Enroll in a 401(k) at work
9 Resist the lunacy of buying premium products
10 Postpone buying hi-tech products
If you can't used to living on less, you won't need so much for retirement. If you're a new graduate, and can save $50/week, he says, "You're nearly set for life."
The power of compound interest is magnified the earlier you start saving If 22-year-old Jack puts $2000 away each year in an IRA for six years and, after six years, never makes another contribution, he'll have as much money for retirement as Jill who saved nothing for the first six then saves $2000 each year for the next 34.
Important advice that bears repeating, You Don't Have to Be Einstein to Get Rich.
Intelligence is not the most important factor. "Staying married, not getting divorced and thinking about savings" is. So says Ohio State economics professor Jay Zagorsky after studying 7500 middle-aged Americans.
"Intelligence is not a factor for explaining wealth. Those with low intelligence should not believe they are handicapped, and those with high intelligence should not believe they have an advantage."
Why do people say, "if you're so smart, why aren't you rich?"
Because being smart doesn't mean you will be financially well off.
Smarter people are no better off
Here's one example, The Perils of Being Suddenly Rich or sudden wealth syndrome.
Since just about anyone can find out all sorts of detailed information about you, consider that the best defense is a good offense.
Why You Should Spy on Yourself in the Wall Street Journal tells you how find out beforehand what a prospective employer, college admissions officer or others might reveal about you.
In a 2004 study by U.S. Public Interest Group found that 79% of consumer-credit reports contained at least one mistake.
1. Get your free annual credit report
The first step in running a background check on yourself: Order your credit report. These are from major credit-reporting agencies Equifax, TransUnion and Experian and can be obtained from www.annualcreditreport.com or 1-877-322-8228.
Check for unauthorized credit-card accounts and loans, bad addresses and unfamiliar names that could be evidence of identity theft. Notify the agencies and creditors if anything seems amiss.
The good news: Background reports prepared by agencies like these are regulated by the federal Fair Credit Reporting Act. As a result, you're supposed to be notified of the reason if a negative report results in a missed opportunity, giving you a chance to correct mistakes.
2. Do a pre-employment self check
While Choicetrust will give you a free annual report, expect to pay about $25 for a national criminal file check or $50 for a search that included employment or education verification that will include information from public records and some courts.
At Choicetrust you can also review credentials of health care professionals, verify nursing home credentials and check for lawsuits, liens and judgments against those you are thinking to employ.
Lexis-Nexus will also give you a free copy of information contained in a background screening report if you call 877-913-6245.
3. Do a Stolen ID search
StolenIDSearch.com, a new free service from TrustedID, lets you find out whether your Social Security or credit-card numbers are among some 2.3 million compromised pieces of identification in its database, which it obtains from organizations that compile lists of numbers recovered in fraud investigations.
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4. Clean up unflattering online postings
Among the toughest problems to fix can be unflattering online postings. Even just a few years ago, no one would have worried about it. But the fact is, they can linger in cyberspace forever. ReputationDefender.com is designed to scour the Web for unflattering material about you, then will try to either have it removed or make it show up less prominently in search results.
So you think winning the lottery will solve your problems.
Jack Whittaker did and he won $315 million on Christmas Day 2002.
...as Whittaker celebrated his good fortune, he had no way of knowing that he was embarking on a journey that would lead to tragedy and the loss of everything he held dear.
Powerball Winner Says He's Cursed
Whittaker now says that he regrets winning the lottery.
"Since I won the lottery, I think there is no control for greed," he said. "I think if you have something, there's always someone else that wants it. I wish I'd torn that ticket up."
Whittaker had the very best of intentions: He truly wanted to share his good fortune and help people.
I like going to T.J. Maxx for gifts and clothes but I almost never go the Marshalls, maybe because there are no stores nearby.
But the news that at least 45.7 million credit and debit card numbers were stolen by hackers who accessed the computer systems maybe even the encryption code, at corporate headquarters makes me a little nervous.
I may be a victim of the biggest credit card heist in history. I probably am.
Breach of data at TJX is called the biggest ever.
Post-Nuptial Agreements on the Rise as couples work to avoid fights in the future over finances.
While some people use a post-nup because they think their marriage is on the rocks, it's not unusual to write one to update a prenup.
Indeed, one factor in the rising use of post-nups is that more couples are using prenups and post-nups, especially in a second marriage.
Post-nups also get written after a major life event such as receiving a large inheritance, taking a business public, or even winning the lottery. Some of the strangest uses of the agreements include limiting the future number of children and, in the event of a divorce, deciding pet visitation and divvying up cemetery plots.
While a post-nup "suggests a lack of trust in one another," said Debbie Cox, a wealth advisor with JPMorgan Private Bank in Dallas, "it's really about prudent management of assets."
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Similarly, couples with "blended" families could use post-nups to ensure that the children from a previous marriage receive assets —such as a beloved family vacation home —in the event of a death or a divorce.
Cox said that while couples may not be thinking about a post-nup, a financial advisor should raise the issue to prepare for "a low-probability but high-impact event."
Ferro said that by setting forth expectations and obligations, the agreements actually can reduce everyday stress.
Of course you should save, but learning to live below your means may be just as important.
The nation's largest banks take in between $30 billion and $50 billion a year, about 44% of all their revenues.
A quest for 'more info' on bank fees.
That's an awful lot of $3 unexplained monthly fees.
Which might explain why banks approve new cards on torn-up credit card applications. Cockeyed has photos and more.
Since I don't have a shredder, I tear them up and wait until I can mix them up with garbage - coffee grounds and old Chinese take out works well - before I throw them out,
The top 1% of American earners paid 35% of all taxes paid to the IRS, according to the IRS's annual study of income tax data.
The Top 1% Pay 35%
Here's a way to think of the distribution of current income-tax payments: Imagine a banquet attended by 100 random Americans. If the bill for the meal is distributed like the income tax, the richest person in the room is required to pay one-third of the tab -- or more than all 50 attendees with a below-average income. The three richest people are charged as much as the other 97. And the 30 or so lowest-income people in the room -- those with a family income of $30,000 or less -- pay nothing and eat for free.
This is by any definition a "progressive" tax system. Make that highly progressive. It's true that lower-income workers are also dunned with payroll taxes, but that still doesn't do much to alter the fact that the current tax code really does soak the rich.
Life's been getting better for everyone, including the poor, writes economics professor David Henderson in TCS.
....citing data from the aforementioned Cox and Alm and from Kirk Johnson showing that the average poor family in 2001 did as well as or better than the average family in 1971 in ownership of motor vehicles, air conditioners, color TVs, refrigerators, VCRs, personal computers, and cell phones. Of course, the last three didn't exist in 1971, but that's part of the point. When poor families can afford what even middle-income families couldn't imagine having 30 years earlier, aren't things working out pretty well?
When medicine and the law ceased to be professions and became businesses, we shouldn't be surprised when many lawyers and doctors as well as would-be teachers leave it all behind to go to Wall St.
Ben Stein on how to have a lifetime of perfect summer days and how not ruin your life.
Even if he could retire, Stein likes going around the country and speaking on retirement readiness to the 75% of baby boomers who are financially ill-prepared for retirement.
In sum, Stein says,
* Don't have irrational expectations.
* Plan, Invest and Save
oh and have a good financial adviser.
Seems as if the gobbledygook banks use is used deliberately to hide sleazy practices.
• Like penalty rates when you're late on some other bill.
• Soaring late fees that have risen more than 160% since 1995.
• "Double cycle" billing to calculate interest rates.
What's seems far more unfair - in fact downright sleazy - is imposing onerous rates and fees on consumers and failing to tell them about it in plain language.
If you're one of those people who are beginning to think of Christmas shopping - it's hard not to with all those catalogs flooding mailboxes - here are some handy shopping tips via Lifehacker and the consumerist.
1. If shopping online, before you click buy, check to see if there are any promotion codes that might save you money. Search for the product and merchant name under couponcabin.com or fatwallet.com.
2. If you've already thrown out a catalog but want to order something from it, search Google Catalog, a comprehensive database of hundreds of catalogs.
3. If your favorite store is having a blowout sale starting Friday, go shopping at 6 pm the day before and avoid the crowds. I've been doing this for years and it's great.
When posting an online resume, be sure to clear it of all personal information. Never ever post your social security number. Be sure you are dealing with legitimate companies and recruiters before giving up any of your personal info.
Just assume that Identity Thieves are Reading Your Online Resumes.
When you post a resume, clear it of personal information. Cyberthieves have been able to gain access to resume databases and troll for Social Security numbers and other personal information, such as where you live and your contact information, says Pam Dixon, executive director of the World Privacy Forum, a public interest research group in San Diego.
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Think twice before revealing personal information by email or phone. Con artists "phishing" for information through fake interviews may ask for, say, information such as your Social Security number or a scan of your driver's license or passport, says Ms. Dixon, and claim it will expedite the application process.
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You can start by searching on the company's name on the Better Business Bureau's Web site. Another helpful Web site is Lookstoogoodtobetrue.com, maintained by a joint federal law-enforcement and industry task force.
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If the company that contacts you appears to be a well-known employer, don't think you're in the clear. Criminals are copying company Web sites and tweaking the contact information or links, says Ms. Dixon of the World Privacy Forum. Although a Web site may look credible, do an Internet search of the company to make sure the URL of the official Web site matches the address the employer refers you to. If there's a mismatch, find the phone number of the company's corporate headquarters on the official Web site to verify that the hiring manager who contacted you is an employee.
Since we're speaking of the importance of safeguarding your personal information, here's an ultimate guide to identity theft .
Would you believe that 3 million of H&R's customers don't have bank accounts?
How much they must spend in check-cashing fees. H&R Block sees the need and the opportunity.
From Free Money Finance H&R Block is offering bank accounts
Overall, though, I'd say this is a net win for consumers/taxpayers. It helps people who don't have bank accounts get one, it speeds the time between filing and the refund being received, it saves people money in reduced ATM fees (which can be a killer, by the way), and, for those who HAVE to have a refund in two hours versus two weeks, it will save them money as well.
You can't beat Free Money Finance for money-saving tips, with especially great ones from their readers.
They continue to offer the best of financial advice.
1. Spend less than you earn
2. Invest what you save.
3. Use the miracle of compounding interest.
Nearly half of women fear life as a bag lady
A "startling" 90 percent of women say they feel financially insecure, according to a survey of almost 1,925 women released yesterday by Allianz, a Minnesota-based life insurance company.
Almost half are troubled by a "tremendous fear of becoming a bag lady" -- 46 percent of women overall, and 48 percent of those with an annual income of more than $100,000. An additional 57 percent are sorry they had not learned more about money matters in school.
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"Money fears of women are complicated. They fear failure, or making mistakes. They fear they are expendable. Their fear of being poor, however, has topped the list for two decades," said Judith Briles, a Denver financial adviser and author of 23 books on money management.
It seems an ingrained girl thing, though.
"Bag lady syndrome is a fear many women share that their financial security could disappear in a heartbeat, leaving them homeless, penniless and destitute," MSN money columnist Jay McDonald wrote in January. "Lily Tomlin, Gloria Steinem, Shirley MacLaine and Katie Couric all admit to having a bag lady in their anxiety closet."
Why anyone who becomes suddenly wealthy needs advice or counseling, maybe both.
Juan Rodriguez wishes he hadn't been so lucky.
Juan Rodriguez wanted nothing more than to be one of the guys in rural South Texas where he was raised, and he was until six years ago, when he had the misfortune to acquire almost $9 million from the state lottery.
Today, he's lost his anonymity, his buddies, whatever girlfriends he once had, and most of his family, whom he no longer trusts. He rarely ventures outside the trailer here where he lives alone.
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The rule of thumb we use is sudden wealth will ruin people in three to five years," said Thompson, president of Sage Financial Design, a Connecticut-based company whose clients include instant millionaires.
"At the end of five years, the money's going to be gone or the human being is going to be gone. They either lose their money or themselves or both."
Felix Dennis, a publishing tycoon, is filthy rich. What with about $400m -$900m in net worth, five homes, three estates, private jets and so on, he's written a book saying If You Want to be Rich, First Stop Being So Frightened.
Making money was, and still is, fun, but at one time it wreaked chaos upon my private life. It consumed my waking hours. It led me into a lifestyle of narcotics, high-class whores, drink and consolatory debauchery. As a philosopher might have put it, all the usual dreary afflictions of the seeker after wealth.
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After a lifetime of making money and observing better men and women than me fall by the wayside, I am convinced that fear of failing in the eyes of the world is the single biggest impediment to amassing wealth. Trust me on this.
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Becoming rich does not guarantee happiness. In fact, it is almost certain to impose the opposite condition — if not from the stresses and strains of protecting it, then from the guilt that inevitably accompanies its arrival.
If I had my time again, I would dedicate myself to making just enough to live comfortably (say £30m or £40m) as quickly as I could, hopefully by the time I was 35. I would then cash out immediately and retire to write poetry and plant trees.
The best way to teach your children about money is to tell family stories that illustrate the money lessons you think are most important.
Jonathan Clements in the Wall St Journal says telling stories really worked in his family. Every one of his siblings is incredibly careful about money because they heard the stories of the maternal grandfather who inherited millions of dollars and how he spent it all, spending his last days working as a part-time gardener to pay the bills.
We all have parents or grandparents who lived through the Depression and they can tell us a few stories and they probably have.
Clements has some pointers.
Choose your stories carefully and embellish them a bit.
Set a good example
Frequent short stories beat long discussions
The Best Way to Teach Kids About Money (subscribers only)
If you have an expensive home ($1 million or more) and pay a fortune in homeowner's insurance($3500-$20,000), be sure to take advantage of the "concierge service" some insurers are offering this summer to deal with natural disasters like wildfires, hurricanes and earthquakes.
Insurers Cater to High-End Homeowners. (Wall St Journal, subscriber firewall).
They will work out a customized disaster plan and send out risk managers to your home to give you advice. Some even offer pre-screened specialists to give you priority and discounts in clean-up and restoration.
The rest of us can us Amazon's virtual Emergency Preparedness store which gathers together everything you need to prepare before and recover after.
Prepare for the worst. Hope for the best
$24 billion in assets lies unclaimed says the National Association of Unclaimed Property Administrators .
Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, travelerís checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes.
If a financial institution hasn't had contact with an owner of an account for a year or more, they turn it over to the states who may or may not contact you.
In Missouri, there's $400 million in unclaimed assets in Wealth waiting for the taking.
Last year over 1.3 million claims were paid to owners totaling about $1.2 billion.
You can conduct free searches of state and federal databases. NAUPA tells you how.
From How Experts Differ from Novices
1. Experts notice features and meaningful patterns of information that are not noticed by novices.
2. Experts have acquired a great deal of content knowledge that is organized in ways that reflect a deep understanding of their subject matter.
3. Experts' knowledge cannot be reduced to sets of isolated facts or propositions but, instead, reflects contexts of applicability: that is, the knowledge is "conditionalized" on a set of circumstances.
4. Experts are able to flexibly retrieve important aspects of their knowledge with little attentional effort.
5. Though experts know their disciplines thoroughly, this does not guarantee that they are able to teach others.
6. Experts have varying levels of flexibility in their approach to new situations.
Complex areas where mistakes can be devastating like investing, legal advice or medical knowledge are better dealt with by the experts of your choice. Since you're the expert on your own life and what you like, want you wang and what you are willing to risk, consider your relationship with them a collaboration of experts AND novices.
Financial Infidelity is like, you know, shopping behind your spouse's back.
Can a bit of secret spending add spice to a marriage?
Surveys show that up to half of all couples admit that they commit 'financial infidelity' by lying about purchases they've made writes Jeffrey Zaslow in the Wall St Journal.
How do you and your spouse handle discretionary spending?
If couples haven't set a limit in advance, there's apparently a whole cottage industry of consultants out there ready to help couples negotiate their own "open to buy" amounts.
For most of us, money is a difficult subject to talk about. It's too personal and tied up with all sorts of emotional baggage.
Still, sometimes we must; for example, before getting married.
even among the most compatible couples, the prewedding vow of personal-finance silence eventually leads to frustration, fights and power struggles.
The Wall St Journal has nine questions partners should ask each other before they take their vows.
1. What are your financial assets and liabilities
2. How do you use debt?
3. What is your money history?
4. Do we need a prenup?
5. What are your financial aspirations?
6. What are your career expectations?
7. How do you propose we divide financial duties?
8. Will we operate from one checkbook or three?
9. Do you have a basic understanding of money?
"Money is a life skill, like swimming," says Ms. Schwab Pomerantz. "Both of you need to know how to swim, because life is full of stormy seas."
The Financial Planning Association and the National Endowment for Financial Education have teamed up to create an online life-stages financial planning tool.
Life Events & Financial Decisions is definitely a site to bookmark if only for as a checklist for the Business of Life™.
Everyone knows that major life events - a wedding, a new baby, a divorce, a new house or loss of a job - affect your financial life.
When your life changes, it's time to review your insurance coverage. It's the only way to know if you are over insured or under-insured. Your insurance should cover the major financial risks for your life RIGHT NOW, not the way your life was two years ago.
Some 32 million U.S. households own insurance policies that aren't right for them according to a recent survey. About one third of survey respondents admitted to having outdated policies.
Here are some examples of the findings.
• One in three haven't updated their homeowners policies to cover significant remodeling such as a new room, porch or deck.
• Nearly half of those people with a valuable collection - wine, art, antiques - don't have special insurance coverage.
• 40% of those families who have a young driver move away from home haven't updated their auto insurance even though they would save money.
• 84% of drivers who frequently car pool to a job, school, or activities with children haven't changed their liability coverage to reflect the increased risk of additional passengers.
• One third of the families with new babies haven't updated their life insurance.
• 70% of those who rent don't have renters insurance.
The survey was conducted by ICR for Trusted Choice, a network of insurance and financial services firms that provide customized insurance products.
Just last night I was talking to an engineer who couldn't understand the complexity of retirement and savings plans and wondered why the government just didn't make it easier to save.
He's not the only one. The Wall St. Journal reports today that the President, his tax-reform commission, some Congressmen and a "bevy of economists and tax experts think so too. A New Approach to Savings Plans (subscription only) reports that support is growing for boiling all the various plans into three simpler ones.
A Save at Work account to replace 401(k)s and other employer-sponsored retirement plans that would allow workers to set aside $14,000 in pre-tax wages for retirement.
A Save for Retirement account to replace IRAs and deferred compensation accounts allowing taxpayers to set aside an additional $10,000 after taxes annually.
A Save for Family account would replace college saving, health care and flexible-spending accounts and allow a taxpayer to put aside an additional $10,000 after taxes annually.
Makes sense to me.
With 92% of heirs switching their advisors soon after getting their inheritance, private bankers are pulling out the stops in the battle for assets.
In the Brat Patrol, Barrons reports how private bankers are wooing the next generation.
banks, brokerage houses and boutiques catering to the wealthy appear to be brimming with ideas on how young people can handle money responsibly and gracefully. They're doling out parenting advice, running financial boot camps for clients' children and moderating family disputes. In part, the bankers are responding to clients' anxieties; many wealthy parents fear their kids will become idle layabouts or spoiled brats.
It's the Carnival of Personal Finance over at Blueprint for financial prosperity. Lots of links to posts, one of which may be just what you need to make or save money.
Both Marshall Loeb and the Wall St Journal today warn against counting on an inheritance, especially when you are planning your retirement.
The elderly are living longer and better. Those assisted living communities and nursing homes can eat up what you thought you had coming.
An AARP study in 2001 showed that 5 in 6 boomers reported that they had not received an inheritance and the same proportion said they did not expect to get one.
About 64% of those who receive bequests of $100,000 or more are already well off says the Journal.
So save your money boomers. You're likely to be on your own financially.
Marshall Loeb says in Till cash do us part.
Some loving couples would rather share a toothbrush than a bank book. But if you plan to be with your mate for the long-term, sharing your basic financial information is as important as sharing your health history.
At least once a year, you and your mate should talk about what you owe, what you're spending on and what are your future financial goals.
An easy way to have this conversation is to start by making or updating lists of what you own and owe, separately or in common.
You should know the names, email addresses and phone and fax numbers of the financial professionals in your mate's life. They include any stockbroker, accountant, banker, attorney, insurance agent and financial planner.
Then there are the lists of your assets. They include all real estate, bank and brokerage accounts, cars and boats, precious jewelry, works of art and insurance policies.
Keep your lists in the same secure place where you store your wills, property deeds and your marriage license, if you have one.
Burst pipes, electrical surges, appliance leaks, kitchen fires, sewerage back-ups.
One in three homeowners experience damages each year at an average cost of $2500 not including costs covered by insurance , but only 35% of homeowners budget for them. Yahoo story.
Since most disasters are unexpected, this can cause a financial pinch.
They are also inconvenient say 95% of those surveyed, even traumatic (74%) and it can take more than a week before lives get back to normal.
ServiceMaster Clean commissioned the story and they have tips for preventing, preparing for and recovering from these household disasters here.
Discount for 100 year old driver No accidents in over 80 years of driving.
Well that's one way to save on car insurance.
In a recent survey of affluent customers, USB scored the best in customer rankings of the 9 leading financial service firms.
The nine firms profiled in the report are Bank of America, Charles Schwab, Fidelity, Merrill Lynch, Morgan Stanley, Smith Barney, UBS Financial Services, Washington Mutual, and Wells Fargo.
UBS scored tops as a full service provider, a personal service provider, results-oriented provider and low-cost provider.
Well, the Swiss have been doing this for a far longer time.
A couple of interesting money links
The Five Mistakes Married Women Make according to Free Money Finance
1. Mistake: Handing Over the Purse Strings -- Solution: Pay Attention to the Household Finances
2. Mistake: Losing Your (Financial) Identity -- Solution: Maintain Some Individual Accounts
3. Mistake: Walking Away From Your Career -- Solution: Keep Your Skills Fresh
4. Mistake: Not Saving for Retirement -- Solution: Penny-Pinch Now for Your Future
5. Mistake: Asking for the House During a Divorce -- Solution: Get Financial Guidance
You Need Two Financial Plans says Smart Money
1. Plan A is for becoming rich -the offense
2. Plan B is to keep you from becoming poor - the defense
If Americans aren't saving enough for retirement, why aren't corporations requiring automatic enrollment in their 401(k)s ?
Fidelity is going to require automatic enrollment beginning in January reports the Boston Globe.
Beginning Jan. 1, all Fidelity employees will automatically be enrolled in the company's 401(k) retirement plan, a move designed to prod the small percentage of the company's 32,500 employees who haven't yet started a nest egg at work.
''If you force that on people, make it part of what they do every pay period, it will become part of a very successful" retirement system, Fidelity chief operating officer Robert Reynolds said in a speech yesterday morning before the Greater Boston Chamber of Commerce
Those who can suppress their emotions turn out to be the best stock market traders according to research from Stanford, Carnegie Mellon and University of Iowa.
The headline from The London Times. Wanted: psychopaths to play the stock market
Market traders may feel slighted, but this study comes from the growing field of neuroeconomics, which investigates the mental processes that drive financial decision-making.
The experts found that emotions can make investors play it too safe. They claim the emotionally impaired are more willing to gamble for high stakes.
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The key was the fear that stopped those with “normal” brains from taking even the most sensible of risks.
Each year over 15,000 savings bonds and 25,000 payments return to the U.S. Department of the Treasury as undeliverable. Some $13 billion worth of savings bonds have stopped earning interest, but haven't been cashed.
Now Treasury Hunt from the Department of the Treasury helps you locate bonds that a deceased loved one may have had or bonds you may have that are no longer earning interest simply by entering a social security number.
To access the newly expanded database Go to the main US Treasury page or directly to the Treasury hunt page
This is what can happen if you don't take responsibility for reading your own banking and investment statements.
From, A 'devasted' Leonard Cohen by Katherine Macklem
it's a true tale, with the bizarre twist of a Tibetan Buddhist suing a Zen Buddhist, Cohen. For the 70-year-old poet, singer and songwriter, it's a nasty, rapidly escalating legal battle that on the one hand accuses him of conspiracy and extortion, and on the other has him accusing both his highly trusted personal manager and long-time financial adviser -- the Tibetan Buddhist -- of gross mismanagement of his financial affairs. The case exposes not only private details of Cohen's finances, but also a dramatic tale of betrayal.
The conflict, which Cohen and others have tried to keep out of public view, has left him virtually broke -- he's had to take out a mortgage on his house to pay legal costs -- and facing a multi-million-dollar tax bill.
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Still, when he discovered last fall that his retirement funds, which he had thought amounted to more than $5 million (all figures U.S.), had been reduced to $150,000, he wasn't so sanguine. "I was devastated," Cohen says. "You know, God gave me a strong inner core, so I wasn't shattered. But I was deeply concerned."
Last week, I attended a seminar to learn about hedge funds. I learned a lot, but what I was most interested in was the company that put it on.
(Full disclosure note - Much to my surprise, I won a $200 bottle of Chateau Margaux in the raffle among attendees which I've put away for a special occasion.)
I first learned about SEI investments in May and was quite intrigued by its holistic approach that I think will prove very appealing to aging boomers. At this educational seminar with no hard sell, I was surprised to learn how long the employees had been with the company and how much they loved their jobs - always a good sign and one of my rules of thumb. I later learned on the web that SEI has been named four times to Fortune's List of the 100 Best Companies to work for.
SEI has launched SEI Wealth Network, a new financial advisor business model, that enables advisors to help their clients realize their true life goals, enriching their lives and the lives of others.
It's not about just trying to sell you products but helping people deal with the messiness and complexities of their lives. The SEI Wealth Network has a broad set of experts to help solve issues their clients face - from elder care, to caring for a special needs child, to career and life redirection.
While SEI is targeting financial advisors who deal with high net worth individuals and families, what they've uncovered as the new wealth code for advisors is quite interesting.
Old Wealth Code
1. True wealth is being rich.
2. Money is its own reward.
3. Be an expert in your financial field.
4. Deliver great products.
5. Offer great service.
6. Give me a great deal.
Success Measure: ROI
(Return on Investment - Market Driven)
New Wealth Code
1. True wealth is well-being.
2. Money helps to realize a rewarding life.
3. Become the expert on my life goals.
4. Align my wealth with my life changes.
5. Help me solve my life problems.
6. Create value with me.
Success Measure: ROL
(Return on Life - Goal Driven)
I believe that all of us want the very best of our professional advisors. We want them to be our advocates, always on our side. We count on them to be experts in their profession and to know how to deliver consistently strong investment returns. But what we really want at important times is the best advice to deal with our personal challenges in life. That's what SEI is looking to do. I wish them the best of success.
From Marshall Loeb at Marketwatch, a new book, called 3 Dimensional Wealth should be very good in getting people to view their wealth in a far broader context. Your Wealth in 3-D.
The authors, Monroe Diefendorf and Robert Sterling Madden don't see wealth as a simple collection of assets. They say wealth is composed of who you are (personal wealth), what you have (financial wealth) and how you can make a difference (social wealth).
I'm glad to see the financial industry beginning to look at wealth at large and in full.
Have you ever wondered what other investment clubs are selecting for stocks?
Since women predominant in investment clubs, it's quite interesting to see that they select companies based on the products they use and the retail stores where they shop. No high flying tech stocks here.
Top-Held Stocks by Investment Clubs, ranked by % of Clubs Holding as of August 1, 2005.
1. Home Depot Inc. (HD) — 40.3%
2. Pfizer Inc. (PFE) — 40.0%
3. General Electric Co. (GE) — 35.3%
4. Harley-Davidson Inc. (HDI) — 21.6%
5. Cisco Systems Inc. (CSCO) — 21.4%
6. Microsoft Corp. (MSFT) — 20.0%
7. Intel Corp. (INTC) — 18.7%
8. Johnson & Johnson Inc. (JNJ) — 18.6%
9. Bed Bath & Beyond Inc. (BBBY) — 17.2%
10. Walgreen Co. (WAG) — 16.7%
But if you look at the total amount invested by clubs, the list is different.
Top-Held Stocks by Investment Clubs, ranked by Total $ Invested*
1. Home Depot Inc. (HD)
2. General Electric Co. (GE)
3. Bed Bath & Beyond Inc. (BBBY)
4. Pfizer Inc. (PFE)
5. Johnson & Johnson Inc. (JNJ)
6. Walgreens Co. (WAG)
7. Cisco Systems Inc. (CSCO)
8. Amgen Inc. (AMGN)
9. Harley Davidson (HDI)
10. Lowe’s Companies (LOW)
ICLUBCentral, the market leader in investment club software and web services, released these lists of the most widely-held stocks held by investment clubs as of August 1, 2005
People aren't cashing in the frequent flyer miles - 2004 saw a drop of 2.1% in the number of FF tickets.
Because airlines must report the approximate cash value of future reward tickets to the SEC as a liability, they want people to cash in their miles for FF tickets and many have revised their policies to make it easier to do so.
If you want a good primer on your various frequent flyer programs or want to compare the policies of various airlines, do get a copy of today's - August 9 -Wall St. Journal
The Cranky Consumer in Checking When Air Miles Expire has a great chart with threshold and expiration policies nicely laid out,
How just packing a lunch four days a week can add up.
Frank saves $20/week, $1000/year with peanut butter and jam sandwiches and fruit. Healthier too
Brown Bag Your Way to Half a Million via Lifehacker
Is your home a hummer, Robert Samuelson asks.
Since 1970 the size of the average home has increased 55 percent (to 2,330 square feet), while the size of the average family has decreased 13 percent. Especially among the upper crust, homes have more space and fewer people. We now have rooms specialized by appliances (home computers, entertainment systems and exercise equipment) and -- who knows? -- may soon reserve them for pets. The long-term consequences of this housing extravaganza are unclear, but they may include the overuse of energy and, ironically, a drain on homeowners' wealth.
Me, I've always preferred cozy cottages and American bungalows.
1. Don't leave your rental agreement in the glove compartment of your rented car.
2. Password protect laptops AND palm pilots AND memory sticks.
3. Keep your ATM and credit card receipts. Don't throw them away with your personal data on them.
4. Use your hotel safe. Your personal information may be just as valuable as your jewelry.
5. Keep your contact numbers for your credit cards packed with your clothes and not in your wallet. You may want to put it in the hotel safe in a sealed envelope.
6. Pack an extra credit card just in case your wallet is stolen.
All the above useful tips are from Andrea Coombes at Marketwatch.
If you're interested in blogs about money and finance, BusinessWeek has a round-up of the best in Blogging for Dollars via Instapundit who never ceases in his search for carnivals and round-ups like the Carnival of Personal Finance.
More than 27% of all workers hold at least half of their 401(k) balance in company stock. Some 7% have their entire account in company stock.
Generally financial planners say no more than 15% of your overall stock should be in your employer's stock. The debacle of Enron, with hundreds of thousands losing their entire retirement savings is the lesson in point.
Given the recent rash of lawsuits against Merck & Co, Krispy Kreme, General Motors, AIG, EDS and others alleging that company executives breached their fiduciary duty by NOT getting workers out of company stock, things are changing
More and more companies are hiring outside consultants to oversee the handling of company stock in employee retirement plans.
For employees it's an extra layer of protection. For independent fiduciaries like State Street and US Trust , it's a rich new source of business.
Retirement Plans Get New Safeguards, Wall St Journal (subscription only)
There's considerable upheaval in the insurance industry over long term care insurance.
Since 2000, half of the top carriers, those companies with annual sales of more than $10 million have stopped selling long term care insurance according to this report on Marketwatch. Among them are CNA, Aegon, Fortis and TIAA-CREF
Mistaken assumptions about how to price the product have led a slew of companies to exit the market in recent years, while many of the companies that remain continue to raise premiums on older policies, sometimes by as much as 30%, industry analysts said.
"Insurers have not hit on the right business model yet in order to help people deal" with long-term-care needs, said Martin McBirney, a consultant with 15 years' experience as a pricing actuary, lobbyist and product developer, and operator of LTC Solutions, in Sandpoint, Idaho.
"There is a need out there and the insurance companies have not yet hit on quite the right formula for meeting it," he said.
Be careful before you commit to a policy. You need the best advice by someone who really understands the industry.
Those that are wealthier than you or me have already cut back on their real-estate investments according to a recent Cap Gemini and Merrill Lynch report and reported in the Wall St. Journal.(subscription only). Real estate holdings now amount to 13% of their portfolios, down from 17% in 2003.
If you think the real estate market is over-heated, maybe even a bubble about to burst, may be it's time to think about furnishings.
While people like me think of Restoration Hardware , Crate & Barrel, or Pottery Barn, the rich are different. They think about French antiques.
French antiques cost about half what they did in 2000 and the Wall St Journal reports that pieces from the 17th and 18th century have fallen to the lowest levels in years. Liberte, Egalite, Frugalite (subscription only).
With Citibank's announcement Monday that 3.9 million of its customers may have had their personal data stolen, the overall total of such stolen or lost data has now reached SIX MILLION in the past SIX months according to the Washington Post.
The spate of breaches has included federal agencies, universities, banks and other financial institutions, data brokers and data-storage companies.
If you or a relative of yours is considering selling their life insurance policy to a "life settlement" company to get money out, please think again.
According to a new Deloitte study, seniors who sold their life insurance policies received just 20 cents on the dollar instead of what Deloitte calculated to be the intrinsic value of the policy, 64 cents on the dollar.
Read Robert Powell on MarketWatch, Seniors get fleeced when selling life insurance or go to Life Settlements Education to read the studies
Most millionaires work for themselves, doing what they love, living below their means.
Paul Farrell's who writes at Marketwatch gives 10 tips to the millionaire mindset.
1. Don't obsess over money. Millionaires spend an average of six minutes a day on personal finance. They have better things to do
2. Accentuate the positive. Attitude rules.
3. Think differently. Don't fit in. Go your own way
4. Quit doing what you hate.
5. Do what you love.
6. Find the real you.
7. Invest in "You, Inc.".
8. Live with passion
9. Live in the moment
10. Make a difference
Sounds like they understand the Business of Life.
If you wonder why so many people, especially doctors, lose so much money with their investments, it could be that they were students of Max Bazerman who has quite a lucrative sideline selling $20 bills.
Psychologist Max Bazerman says that during the past ten years he has earned more than $17,000 by auctioning $20 bills to his MBA students at Northwestern University. In the course of almost two hundred of his actions, the top two bids never totaled less than $39, and in one instance totaled $407.
HT Ming the mechanic via growabrain
Saving you time and money.
Foldedspace has summarized about a dozen books on personal finance, distilling all their themes into one easy to read post.
Keeping your house clean in only 19 minutes a day, from Real Simple
If you're a customer at Bank of America or Wachovia, you may be hearing from them soon.
Seems as if bank employees sold account information of some 676,000 to data thieves in Hackensack, New Jersey.
While the thieves have been arrested and charged, this biggest security breach in the banking industry has grown bigger and may reach 1,000,000 accounts.
All the more reason, you should be one of the first to buy an RSA SecurID consumer token as soon as they reach the market.
Someone is trying to steal your identity through Phishing scams
Phishing, if you don't know the word, is the scam that deceives users into revealing personal information that can then be used to steal your identity.
33 million times a week according to Symantec.
Here are a few tips to protect yourself from Computer Security News
1. Don’t click on links offered in email text, which can often be redirected to illegitimate websites. Instead, type the domain name directly into your browser.
2. Be suspicious of any website address that doesn’t end in “.com”.
3. Check that the website is secure. A secure website begins with “https” rather than “http”. Look for a “lock” symbol at the bottom corner of the web page and click on any “SSL Certificates” to make sure they are valid.
4. Keep your browser and Windows operating system updated. Microsoft and other software providers frequently release security patches that close holes in your computer system. These holes could be exploited by Phishers if left un-patched.
5. If you get an email or pop-up message that asks for personal or financial information, do not reply or click on the links. Legitimate companies do not ask for this information via email.
6. Review credit card and bank statements as soon as you receive them. Notify your bank immediately if you notice any unauthorized charges or suspect you are the victim of identity theft.
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Seems as if women make fewer investing mistakes while men are TOO EMOTIONAL and so make more investing mistakes according to a recent survey by Merrill Lynch.
Hannah Grove, chief marketing officer at Merrill Lynch Investment Managers says this about women investors - Women have the potential to be better investors. They learn from their mistakes, they are less likely to repeat mistakes, they're very realistic about their weaknesses and they have good habits
MetLife, one of the nation's largest insurers is rolling out a new program this week to provide free help in resolving cases of identity theft for all its policy holders of homeowner insurance reports Security Awareness for Ma, Pa and the Corporate Clueless.
If you haven't left an information map as to where the money is, your family might give away your secret nest eggs and not even know it.
From Money Magazine. You are a financial grown-up when you realize:
HT: The Budgeting Babe
There seems to be a strong link between a company's workplace culture and its financial performance. Stocks of the the public companies on Fortune's 100 Best Companies to Work For" list beat the market by over 300%.
Great workplaces have significant competitive advantages as a result of the high trust relationships between employees and management,” says Amy Lyman, Ph.D., President and Co-founder of Great Place to Work Institute, the firm that selects companies for the Fortune list. “Trust can contribute to higher levels of cooperation, greater commitment, lower employee turnover, decreased use of sick time and improved customer support.”
Here's an anecdote from Dervala that makes my case about Happiest Workers.
Leo had majored in Romance Language Literature at the University of New Mexico but when his young family came to California years ago he decided to apply himself to an honest trade.
“People think that because I know all these languages, and poems, and books, I should have been something more than a mechanic. But if I worked in my academic field, I’d be fighting to make twenty or thirty thousand a year. And guess what? Last year I took home over two hundred grand from this little shop.”
As I backed my car off the hoist he was belting out a Puccini aria.
My muffler man does good work, and is easily the happiest person I’ve met so far in California.
Terri Cullen in her Fiscally Fit column for the Wall Street Journal takes a peek at the personal finance blogs that are poking up on the Web and so are thousands of others. Blogs Expose Personal Finance: The Good, the Bad and the Ugly.
While you might not want to take advice from any of these bloggers, you can take encouragement in realizing that most everyone struggles with their money matters. Here are the personal finance bloggers she mentions:
I will teach you to be rich. personal finance basics for students and recent college grads.
My personal finance journey by someone who's looking to retire at age 40 with at least a million dollars.
My Money Blog. Jonathan stumbles along the path to financial freedom.
The Budgeting Babe. dedicated to all the young, working women who what to spend like Carrie in a Jimmy Choo store but have a budget closer to Rosanne.
Neville's Financial Blog. tracking the road to financial success from the age of 22
Savvy Saver. It's not how much you make, but how much you keep.
What impresses me about these blogs is that they are all by young people, maybe showing that financial education is convincing them to start planning early.
If your broker or financial advisor recommends that you put your IRA in a variable annuity.
Don't do it. Or at least get a second opinion. And read what Jeff Voudrie, President of the Legacy Planning Group has to say about it.
If you're one of those people who research and trade stocks online, you might be interested to know you can go to one place to read postings from all the financial message board communities.
So now searching for rumors, ideas, opinions, stock research, insider trading information and company financials can be quicker and faster. It's call ReadAway, an all-in-one financial message boards search. Readaway at Board Central
Some interesting posts over at the Carnival of the Capitalists.
Take a look at Anita Campbell's Small Business Trends e.g. Religion and Entrepreneurism
Owning your own small business is not about worshipping the almighty dollar. It's about being self-sufficient: taking charge of your destiny, earning a living, and providing a living for others.
much like the fishermen who followed Jesus and the monks who support themselves selling jams, fruitcake or ,like Lasermonks, ink cartridges for printers.
Matt Fisher at Financial Planning 101 tells you how sales incentives offered at brokerage houses often result in a conflict of interest. Brokers and financial advisors are encouraged to sell their in-house mutual funds with their less than average performance because they get a commission. What's in the customer's best interests gets lost.
If you have a cash sweep account at one of the major brokerage houses, you just might want to check your interest rate. Seems as if some brokerage firms are steering clients to accounts that deliver sub-par rates (less than money market fund rate) according to the Wall St Journal today (subscription only) - some $350 billion in fact.
The NYSE has issued a warning to those firms to improve their disclosure practices or face new rules and possible enforcement actions.
"As we became more familiar with the practices, we became more concerned that customer interests may not be properly accounted for here," says Grace Vogel, executive vice president of member-firm regulation at the NYSE
Last August Bernard Condon wrote about "The Coming Pension Crisis" in Forbes to say that 13 companies in the S&P 500 owe its workers more in pension payments than the companies would be worth in liquidation.
They are:
If six months later the picture hasn't changed, how do these companies continue to attract investors?
Tired of the idiots at work? Here's a safe place to vent. I work with fools allows you to share anonymously work-related stories. It could become a Page Six for the Dilbert crowd.
I work for a major financial institution once known for using bleeding-edge strategic technology to make dramatic profits in the market. About 3 years ago management decided that technology was not strategic, technology was a commodity, yada, yada, yada. Anyone who felt differently was pushed out the door. Management arranged to outsource the entire global technology organization to another major corporation known more for their commercials professing their ability to provide technology services on demand, than for their ability to actually deliver said services, for a savings in excess of $2.5 billion. Of course our CEO received a $10 million bonus for this fantastic feat of magic. Three years later, after both companies experience exorbitant and unplanned technology-related costs for substandard technical services, the same management announces that technology is strategic (duh!) and should be developed and retained in-house. Furthermore, management has budgeted $5 billion to insource the jobs (not the people) over the next 3 years. Our CEO is receiving another $10 million bonus this year for bringing the technology jobs back in house; the architects of the original disastrous outsourcing, are now orchestrating the new operational model involving insourcing.Who's the CEO and what company could this be?
You know how easy it is to lose stuff. I 'm still looking for a pair of eyeglasses I lost a week ago. I don't even want to think about the cell phone, PDA, wallet, backpack, camera and laptop that I carry around with me. Fortunately, Stuffbak has.
Stuffbac is a comprehensive system for identifying and returning lost property. You buy a package of labels, attach them to the devices you might lose, activate the labels through their website and then rest easy. If you then lose something, the label allows anyone to drop off the item at the nearest UPS store or have Airborne Express pick it up directly.
All you pay is the shipping charges and any extra reward you want to give. Stuffbak gives the finder 20 free stuffbak labels.
Sounds like a cool tool. Nice testimonials on the Stuffbak site.
Jonathan Drucker has Seven steps to financial fitness for 2005. They are:
Read what he says about each one.
As Will Rogers said, "The time to save is now. When a dog gets a bond, he doesn't go out and make a down payment on a bigger bone. He buries the one he's got. "
The wife of the lottery winner who took home the richest undivided jackpot in U.S. history says she regrets his purchase of the $314.9 million ticket that has thrust her family into the public spotlight. CNN quotes his wife Jewel Whittaker as saying
I wish all of this never would have happened," "I wish I would have torn the ticket up."
The report from The Charleston Gazette.
Oh, how I wished I learned this lesson when I was very young. Former janitor leaves millions to school
When Genesio Morlacci left $2.3 million to a small college here, many people were astonished at the wealth amassed by a man who operated a dry-cleaning shop and later worked as a part-time janitor in retirement.
Morlacci died last month at age 102. The University of Great Falls has announced that his endowment will generate roughly $100,000 a year for scholarships at the Roman Catholic school, a quiet campus with about 800 students.
"He worked very hard for this, 18- and 20-hour days, and during each of those working hours he was doing something good for a student he will never meet," university president Eugene McAllister said.
Morlacci, a widower, did not have any children. He gave the college nearly all he saved through work, investments and old-fashioned thrift -
In the Wall St Journal recently, Kathy Chu wrote how asset growth spurs adviser demand as more people join the ranks of millionaires and their finances get more complicated. There are about 7.7 million people world wide who have more than one million dollars in financial assets, up about 7.5% since 2002 according to Merrill Lynch. (It's about 2.5 million in the US)
Even at a wealth level of $5 million in investable assets, individuals may have three or more advisers, including financial planners, accountants, insurance agents, attorneys or professionals affiliated with financial institutions, according to HNW.
The demand for a formal relationship manager -- to oversee various financial professionals -- is growing. It's enough that Northern Trust, a Chicago wealth-advisory company, started a new title two years ago called chief wealth adviser
Well, I'm here to say that you don't have to have $5 million to have a financial planner, an insurance agent, an attorney and maybe an accountant. Normal middle-class people have several bank accounts and investment accounts, retirement accounts, numerous insurance policies, a lawyer or two and a tax preparer. They need a way to keep track of their assets and their advisors. That is the need we mean to fill with EstateVaults™.
In Analyst Blogs versus Investment Bank Research, Francis Good writes about independent industry sector advice that is truly independent from the inherent conflicts of interest existing at investment banks. It's blogs.
James Enck, a telecoms analyst at Daiwa Securities writes at eurotelcoblogwho reads 45 blogs with regularity picks his 3 favorites.
I select these three [Andy (http://andyabramson.blogs.com/voipwatch/), Om (www.gigaom.com), and Martin (www.telepocalypse.net)] because they, to my mind, demonstrate the highly individual qualities of blogs which collectively deliver what brokers' research typically lacks. All three have very sensitive BS meters, and are not afraid to court controversy. All three possess wide expertise and that rare quality of 360-degree, joined-up thinking, which allows them to consider the broader implications of what Company A is saying/doing, rather than the all-too-typical broker treatment: "Company A announced X. This is line with our expectations. STRONG BUY." The former quality is what good fund managers increasingly seek out, the latter is something they find oppressive (because their in-boxes are full of it) and irrelevant.
Blogs are live online, interactive and independent. They reflect a much wider view of the world and, in the aggregate, pose real competition to the analysis provided by investment banks and stock brokers. .
Michelle Miller at Wonderbranding has posted a fascinating entry on Emory University's study of real time MRI's during social interaction among women in Getting to Know You - Part 11.
Even more interesting, it was the perception of bonding with other humans, not the money, these women responded to.
When participants played the same game against a computer, the reward behavior regions were significantly less responsive.This has enormous implications for the financial services industry who have yet to understand how to make their female customers a community of friends.
Financial advisory firms often feature customers in their ads, usually to show how close the financial advisor is to his clients and how he helps his clients achieve their dreams. In the single most disastrous ad I've ever seen, Middleoffice, a Swiss financial advisory firm is now featuring Yasser Arafat in banner advertising on Al Jazerra, the Arab TV station. The estimates of Arafat's personal wealth ranges from $1.2 billion to $10 billion. The main source of Arafat's wealth is believed to be the approximately $6 billion contributed by the United States, Japan and European countries as well as financial aid to the Palestinian Authority from 1993-2000. The evidence is based on financial documents confiscated from the PLO chairman's headquarters in Ramallah.
Hat tip to Harry's Place where Gene pointed out that he has made the difficult decision not to send them his life savings.
I don't know about you, but I don't want my investments with any company that does business with terrorist countries like Iran, Saddam Hussein's Iraq, Syria, North Korea and Sudan. Funny thing is I never thought about it until I learned about DivestTerror.org.
What we did not realize -- until now -- was that each and every one of us actually can play a pivotal role in winning the War on Terror. How? By demanding that our public and private pensions plans, college endowments, individual retirement account managers, 401(k) plans, and other investment vehicles exploit the leverage represented by investments in publicly traded companies that operate in terrorist-sponsoring states. In a unified front, we should all be saying "This is my money and it will not go to support terror." DivestTerror.org is a nationwide campaign aimed at some 400 public companies worldwide that are providing revenues, technology and moral cover to governments that sponsor terrorism.The primary objective of this campaign is to force governments to choose between their sponsorship of terrorism and critical partnerships with publicly traded firms.
The site lists a dirty dozen of companies doing business with terrorist states. They are
Alcatel SA, BNP Paribas, ENI SPA, Hyundai, Lundin Petroleum, Oil & Natural Gas Corp, Siemens AG, Statoil ASA, Stolt Nielsen, Technip Coflexip, Total SA and UBS AG.
The facts supporting the listing of the Dirty Dozen are derived from publicly available sources. This is what divestterror.org writes about UBS.
UBS AG
The Swiss Bank, UBS AG, has ties to the financial sector of Iran and Libya and was fined for its ties to Saddam's Iraq prior to the war. While the cumulative value of its business activities in these countries is relatively modest, the company recently faced public scandal and substantial U.S. government fines after investigations of the company’s undisclosed ties to Iran uncovered significant transfers of U.S. dollar bank notes directly to Iran.
In May 2004, UBS AG was fined $100 million by the U.S. Federal Reserve for violating a contract that stipulated that UBS would not, as part of its work program, transfer dollar notes to U.S.-sanctioned countries. Until the termination of its contract in October 2003, UBS was a part of the Federal Reserve's "Extended Custodial Inventory Program" that is designed to facilitate the introduction and circulation of new U.S. dollar banknotes. U.S. investigations discovered that UBS employees had filed false reports to the Federal Reserve that covered up illegal dollar transfers with Iran, Libya and other sanctioned countries, including Cuba and the former Yugoslavia, that totaled some $5 billion.1
Additional ties to Iran have included UBS's announced intention to confirm letters of credit for Swiss exports to Iran dealing with a number of Iran's most important banks, including Bank Mellat, Bank Melli Iran, Bank Saderat, Bank Sepah and Bank Tejarat.2
UBS AG
The Swiss Bank, UBS AG, has ties to the financial sector of Iran and Libya and was fined for its ties to Saddam's Iraq prior to the war. While the cumulative value of its business activities in these countries is relatively modest, the company recently faced public scandal and substantial U.S. government fines after investigations of the company’s undisclosed ties to Iran uncovered significant transfers of U.S. dollar bank notes directly to Iran.
In May 2004, UBS AG was fined $100 million by the U.S. Federal Reserve for violating a contract that stipulated that UBS would not, as part of its work program, transfer dollar notes to U.S.-sanctioned countries. Until the termination of its contract in October 2003, UBS was a part of the Federal Reserve's "Extended Custodial Inventory Program" that is designed to facilitate the introduction and circulation of new U.S. dollar banknotes. U.S. investigations discovered that UBS employees had filed false reports to the Federal Reserve that covered up illegal dollar transfers with Iran, Libya and other sanctioned countries, including Cuba and the former Yugoslavia, that totaled some $5 billion.1
Additional ties to Iran have included UBS's announced intention to confirm letters of credit for Swiss exports to Iran dealing with a number of Iran's most important banks, including Bank Mellat, Bank Melli Iran, Bank Saderat, Bank Sepah and Bank Tejarat.2
A subsidiary of the company, UBS (USA) was fined $14,750 by the U.S. Treasury Department's Office of Foreign Assets Control to settle charges that UBS violated U.S. sanctions on Iraq. Its ties to Iraq allegedly included illegal funds transfers that took place in 2001.3
UBS' activities place it on the "Dirty Dozen" list for the following reasons:
• Hard Currency: UBS illegally provided U.S. banknotes to sanctioned terrorist-sponsoring countries. The U.S. government's punitive actions against UBS underscore the point that,without hard currency, it would be difficult for these governments to continue their sponsorship of terrorism and costly weapons of mass destruction programs. Indeed, the purpose of sanctions is to deny the type of cash to these countries that UBS provided.
• The Role of Finance: Banks play a vital role in the economies of terrorist-sponsoring states by underwriting projects that create substantial revenues for the government. Without the financial life-support provided by leading banks such as UBS, the governments of Iran, Libya and other terrorist-sponsoring states would find it more difficult to ignore diplomatic efforts to discourage their sponsorship of terrorist groups.
• Moral and Political Cover: When leading global companies such as UBS do business with terrorist-sponsoring states, it sends a clear message to these governments: Sponsoring terrorism is not a concern as long as there are corporate profits to be made. This message undermines U.S. sanctions and international diplomatic efforts.
1. Associated Press Online, 5/10/04; and PR Newswire, 5/10/04.
2. Company Press Release, 5/31/01.
3. U.S. Treasury Department Office of Foreign Assets Control Website, 2003.
Remember when the only choice you had to make when it came to toothpaste was regular or mint? Today, there are well over 200, enough to confound anyone at the drugstore. Colgate alone has 49 varieties and Crest has 21 varieties in twenty four different flavors.
This is good news, even a godsend writes Laura Koss-Feder in "Coming to the Rescue" in TIME
Approximately 25% of the nation's 40,000 bona fide financial advisers are devoting their practices to assisting certain kinds of clients: seniors, individuals going through divorce, small-business owners, those with disabled family members and high-net-worth corporate executives. Some advisers specialize in serving clientele in certain occupations, such as medicine and teaching. Others work with those who have newly acquired wealth, like lottery winners.
Planners with specific expertise can be a godsend. For example, Dee Reeves, a hair-salon owner whose son Sean, 32, has Down syndrome, found the right professional advice with financial planner Mary Anne Ehlert 11 years ago. Eighty percent of Ehlert's business — which includes the services of staff social workers — is devoted to helping families with disabled children, spouses and parents navigate both their finances and the social-service system. Ehlert is trying to create a special designation for other financial advisers across the country who want to work with similar clients. Ehlert's 16-person firm, based in Vernon Hills, Ill., charges an average fee of $2,500 to $3,000 a year.
Divorce planning is one of the fastest-growing specialties. The Institute for Divorce Financial Analysts in Southfield, Mich., certifies specialists, who have to pass exams on how to handle monetary issues related to divorce, according to its president, Fadi Baradihi. The institute's membership of 1,500 is growing about 20% annually.
If you don't need specialized advice, a regular financial planner is just fine. But if you need specialized advice, by all means, search out specialized planners in your area. "With tax laws and regulations becoming more complex every year, specialists can really help you. They also can serve as an advocate in your corner," says Linda Sherry, a consumer advocate at Consumer Action, a San Francisco — based nonprofit organization.
I've written earlier about the special needs of parents of special needs children. A team approach consisting of a financial planner, an estate planning attorney and a social worker or advocate seems to work the best
Beginning June 27, 2004, major Wall Street firms must provide clients with stock recommendations by outsiders, that is a second and independent source of research apart from their own analysts. Last year's $1.4 billion settlement with the SEC and state regulators forced this change to resolve charges of conflict of interest by investment banks touting stocks to buy in which they had a financial interest.
Just how this independent research will work out for the average investor remains to be seen. I believe it will a long time before trust can be restored. People burned will turn towards independent financial planners and analysts before they put their trust in the large Wall St firms.
What's interesting is that some firms, like Fidelity, that were not "slapped by regulators seem to view such reports as a competitive threat" according to BusinessWeek. In a short article entitled Fidelity Flaunts Its Bona Fides that's not yet online, reporter Mara Der Havanesian writes that Fidelity will soon add research from seven new independent firms "to get up to par with its admonished rivals."
The news article reprinted below in its entirety is not from The Onion, but from Reuters' Oddly Enough
LONDON (Reuters) - June 18, 2004 A major investment bank is advising clients to have sex, get more sleep and stop equating happiness with money -- turning the industry image of hard-nosed dealmakers on its head.
German-owned Dresdner Kleinwort Wasserstein offers the advice in a note to clients by its strategist James Montier.
"I thought it was time that I reminded people there was more to life than watching screens every day," he told Reuters.
The note recommends clients have sex, ideally with someone they love, reflect on the good things in life, give their bodies enough sleep and exercise regularly.
But they shouldn't get too carried away.
"I still need a little bit of money just to keep me happy," said Montier.
Parents of a disabled or special needs child realize their financial planning is more complicated than most. How to insure their child's quality of life after they die becomes a burning issue.
BusinessWeek in Disabled -- But Financially Secure reports on strategies to getting costs covered and on choosing the right financial planner as well as sites for getting online financial help.
Merrill Lynch is apparently the only major brokerage firm with a Special Needs Financial Services Group with over $1.5 billion in client assets and 700 trained financial advisors. Chris Sullivan, a deaf analyst who sparked the creation of the separate group, recommends a team approach with a financial advisor, an estate planning attorney and a social service representative or disability advocate so that all three areas can be addressed together.
So where can you get independent insights into the financial services industry? You might want to checkout the daily weblog of Tom Brown's Bankstocks Here's a sample from QuickTakes:
Dig deep into the fine print that accompanied Charles Schwab's recent letter to customers about "upgrading" their service and introducing new fees, and you'll discover alarming news for the tens of thousands of recipients who enjoy lifetime fee waivers for retirement accounts held by the San Francisco brokerage.
On the second page of a closely spaced, legalistic "terms of service," it says that "accounts with pre-existing permanent fee waivers" -- in most cases, individual retirement accounts worth at least $10,000 that were opened between 1992 and 2000 -- will lose their fee waivers if the account holder is in Schwab's new Independent Investing Signature service.
Not the kind of thing that endears one to ones customers! My guess: the consultants who came up with the Schwab Personal Choice schtickthe product set that the company is more or less betting its future onfailed to think through those little annoyances known as details and "execution." To Schwabs credit, its apparently trying to find a customer-friendly way to solve this unanticipated problem. It would have been a lot more helpful, though, for the product maestros to have foreseen the issue in the first place.
One blogger Jeff Cornwall estimates its a $5 billion industry for the preparation of individual tax returns alone. If you add corporate tax work, compliance and audits. Why would this industry want easier, simpler taxes?
Having worked in government, I appreciate how "vagueness" in laws is often deliberate.
