Archive for May, 2008
Thanks to the ever-rising cost of health care and your increasing share of those premiums, you haven’t seen a real raise in your paycheck in years. Yet the cost of groceries, gas, heat, electricity, and everything else you need to get from day to day is going up faster than global temperatures. You’re sick of explanations, theories, and political excuses about why this is happening. What you really need is an extra $100 or two, and fast.
Not to worry, Personal Finance Analyst has heard your call!
Here are some quick ideas (add to the list if you have more!):
Do Some Freelance Moonlighting.
Lots of websites post various kinds of freelance jobs that allow you to pick up extra work at your own pace. You don’t have to be a writer to bid on freelance projects either. Most of the projects posted fall into the category of web programming and/or design and multimedia projects, but there are also lots of writing, clerical, financial, sales, legal, and engineering projects posted as well. The best sites for picking up this kind of work are www.elance.com, www.guru.com, and www.odesk.com, but you can also go to Monster or CareerBuilder and simply type ‘freelance’ into the search window.
Sell Stuff Online.
When I was a kid, I had a best friend whose dad was injured in a fall from a scaffold. She made these weird little crocheted toilet paper holders and sold them door to door and made a ton of money. Probably most of the money she made was due to the fact that she was skinny, big-eyed, and had a sick dad, but the general idea never goes out of style. If you or your beloved makes something crafty that everyone raves about, consider offering it up to the world for cash. A few good sites to do this at are www.zazzle.com, www/etsy.com, and that old standard www.ebay.com.
Sell Your Ideas Online.
‘Crowdsourcing’ is a method of funding start-up businesses over the internet. At Cambrian House you can pitch your idea for other members to critique and then vote for or against. If your idea is a winner, it will be funded by other interested parties who then help you get it off the ground. Some people have actually made quite a bit of money on this site. The internet is aways on the lookout for the next new thing, so if you’re the kind of person who is always thinking ‘what if’ kinds of thoughts, this is the place for you. The site also has a feature that allows you to set up your own online store for material goods.
Be a Personal Chef.
Are you a great cook? You can cook for other people without any special training or licenses in their homes, a couple of days a week, for money. All you really need to get started are some good references and a stack of business cards. Most personal chefs spend a couple of afternoons (or mornings) in the client’s kitchen preparing meals that are then frozen in microwavable portions, but use your imagination and work with your client on what is actually needed. This niche is growing fast, especially in big cities where workers commute long distances and don’t have the time or inclination to make dinner when they get home.
Offer to Plant Other People’s Gardens.
You don’t have to have a degree in horticulture to spend a couple of months every year planting annuals for individuals and businesses. You just have to be willing to actually do it, and be able to get it done in a timely fashion. Every April landscape firms and garden centers get more calls than they can handle for simple annual planting and/or weeding. Print up some cards, post an ad in your local paper, and you will have more work than you can handle, at least for a couple of months. There’s an old saying, “If you can dig a hole, you’ll always have a job.” It’s true.
Become a Freelance CSR.
For awhile, companies were saving money by outsourcing customer service jobs to India and other countries where labor was cheap, but they soon discovered that this honks customers off, a lot. The latest trend is to ‘insource’ these jobs, that is, hire people to work out of their own homes answering the phones in chunks of freelance work. The standard requirements are a PC with a cable or DSL internet connection, a land line phone, and a headset. The companies provide the software and the work. You often won’t get benefits, but you can choose how much or how little you want to work, and you can do it in your own home. Expect to make $8-$15 per hour depending on the skills involved. Some companies to check out include www.alpineaccess.com, www.liveops.com, www.workingsol.com, and www.arise.com.
Become An At-Home Concierge.
Do you have experience in the customer service or travel industry, or do you just love to plan events and set things up? If so, you can do this for other people who are too busy to take care of their own important lives at www.vipdesk.com. You never know who you could end up concierg-ing. I mean, someone has to spray fake sweat on Jennifer Lopez before she starts dancing in her next MTV video. It’s not as if that sweat is just going to appear on its own!
Transcribe Audio to Text.
If you are a fast and accurate typist, you can pick up some decent money transcribing speeches, lectures, TV and radio programs, and interviews into text. Usually you have to type accurately at 75 wpm minimum. A few websites set up to farm out work to you if you can do this include www.productiontranscripts.com, www.moderndayscribe.com, and www.tigerfish.com.
Become and Online Tutor.
You can make up to $10 per hour working five to thirty hours per week helping kids with their homework online. A few sites that will set this up for you are www.tutor.com, www.esylvan. com, www.brainfuse.com, and www.kidspan.com and www.universalclass.com.
That ought to get you started. I can think of quite a few others, which I promise to come back and post. In the meantime, if you have any ideas for picking up extra cash quickly that have worked for you (and are legal) please post them in a comment!
Nobody wants to spend every minute making money, (well, maybe some folks do, actually…) but it’s good to know that if you have to pick up some extra bucks, you can. The cliche that with crisis comes opportunity has a grain of truth in it. You may even find something you like way better than your day job. Wouldn’t that be cool?
Yes, Wall Street has been in a much better mood lately. Stocks have rallied, and amid the doom and gloom some good news has been seized upon and celebrated. Inflation was not as bad in April as expected, though it was in fact pretty bad. The cost of gas is still skyrocketing, but food is pausing ever so slightly to gasp for breath before another steep ascent. Home fuel oil is down a bit, but it is May after all and with diesel at well over $4 a gallon, this cannot last.
More quasi-good news: Mortgage giant Freddie Mac managed to temper its quarterly losses by doing a little accounting magic in order to minimize the effect of huge losses on its bottom line in print. Remarkably, this also cheered Wall Street and sent Freddie Mac stock soaring, even though by all accounts, including its own overly-optimistic ones, Freddie Mac is poised to lose over $7.5 billion due to foreclosures and bad mortgages over the coming two years, and is already in a heap of trouble over its past uses of creative accounting. CEO Richard Syron acknowledges that the lending behemoth needs to raise $5.5 billion in capital ASAP, but sees no real challenge in that and looks forward to future success.
Sure he does.
Toll Brothers, one of the largest homebuilding companies in the US, expects to lose another 30% this year. And foreclosures and personal debts gone bad continue to increase.
Not to be a Killjoy, but a substantial dark cloud is still mushrooming behind the sporadic silver linings Wall Street loves. Yesterday Ben Bernanke, head of the Federal Reserve, said in a speech that while credit markets had stabilized somewhat thanks to emergency measures by the Fed (such as rate cuts and emergency Federal Reserve loans to prevent credit from freezing up completely) the current market situation is still “far from normal.”
Today, Merrill Lynch announced that starting June 1, it will require its financial advisers to rate at least 20% of all stocks as ‘sell’ as opposed to the 12% rated that way now. That is a huge step for an investment bank whose symbol is a raging bull, but remarkably, 20% is still an overly optimistic number. When Merrill investigated the performance of stocks in the MSCI world index and the US Standard & Poor’s index, it found that between the years of 1997 and 2007, somewhere around 37% to 40% of its recommended stocks lost money. Did it advise its own clients of this fact? Well, not exactly. But it decided to do it today.
What Merrill and other investment banks and brokerage houses are now facing is a huge crisis of confidence on the part of consumers. it seems we have ‘trust’ issues with these guys, and for good reason.
Banks and brokerage houses exert lots of pressure on employees to make big money over short periods of time to pump up their quarterly results. The result has been a delusional pool of salespeople who seem to have no grounding in any kind of reality whatsoever. Why? Are they just insanely happy in an over-medicated way due to their own personal failings and personality quirks? Or is it more the case that, by requiring them to push stocks no one should buy or hold stocks any sane person would sell, the policies of the investment houses themselves have created this mess?
As Michael Douglas shouted in the famous movie Wall Street, “Greed is good!”
I think what we are about to see, slowly but surely, are some splashy announcements of self-regulation by major investment banks and brokerage houses, with Merrill leading the pack as of today. Why? Because if they don’t do this, and do it loudly and with expressions of genuine concern (practice it in the mirror guys, you can do it), then sometime after this coming November they know they will be looking at the ‘R’ word.
I’m not talking about ‘recession’. (That ‘r’ word is so last-week’s-news on Wall Street.)
I’m talking about REGULATION.
AAAAARRRRGH! Run for your lives! The Democrats are coming!
Yesterday the leader of the world’s largest bond fund, Mohamed El-Erian of the global firm Pimco, announced that US policy makers “do not have good policy tools to deal with the destabilizing combination of asset price deflation and goods inflation.” In other words, the Fed can’t save us; something Bernanke knows but doesn’t want to say out loud. El-Erian continued, “This comes at a time when regulators are trying to play catch-up with a financial system that has morphed into something that does not fit neatly into existing frameworks and mindsets.”
No real news there, I mean, of course. You’d have to be in a coma not to notice. But then El-Erian dropped the real bomb,
“The longer the delay out of Washington, D.C., in implementing fiscal measures to stabilize the housing sector, the greater the risk that the higher collateral damage on Main Street will induce a politically driven regulatory over-reaction with unpredictable economic outcomes.”
I think this is absolutely on target. And we aren’t exactly seeing Congress move with lightening speed on this. The current bill designed to allow FHA to refinance homeowners facing foreclosure is facing a Bush veto, but more problematic is the fact that even if passed it would require lenders to voluntarily eat 30% of the bad debt on homes about to be foreclosed.
So far, mortgage lenders have been loathe to do this on their own, preferring instead to go through with the foreclosure, then buy the house back for pennies on the dollar themselves, thereby making their books look better. In other words, more smoke and mirrors. It is unclear how the new bill in Congress, even if it were passed (which it looks like it won’t be) could compel them to do something they’ve refused to do all along.
The truth is, regulation is almost certainly the right response. Will we see it? That depends on quite a few nebulous ‘if’s, ands, and buts’ that will likely not play out until after the next Presidential election.
Will Democrats get a better majority in Congress? They will need it to pass financial industry regulatory measures. Will the economy collapse so badly by then that we have much bigger problems than banking regulation? That could happen too. Will huge financial firms regulate themselves to head off the kind of sledge hammer approach El-Erian fears? Hard to say.
Stay tuned. You will almost certainly not be bored.
It all started (as so many unpleasant things do) with an unfortunate comment by George W. Bush. In reference to India’s growing middle class, Bush remarked after a May 2, 2008 news conference in Missouri that, “When you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.”
In other words, formerly third world Indians, now doing much better thanks to the global economy and their own constant hard work and excellent educations, are now buying up lots of decent food and in doing so, practically taking the Godiva chocolates right out of the mouths of rich Beverly Hills matrons and their frightened little Yorkshire terriers. What’s a president to do?
Perhaps George didn’t mean it quite like that. It’s hard to say what President Bush means, so much of the time, that might well be useless to even speculate. The only certainty about it was the swift and bitter reaction from across the globe.
Pradeep Mehta, Secretary General of the Center for International Trade responded tartly that if Americans were to slim down to the size of the average middle class Indian, “many hungry people in sub-Saharan Africa would find food on their plates.” Mehta further suggested that perhaps the money spent on liposuction in the US could be diverted to third world countries to feed famine victims.
Indian academics and politicians cite overconsumption in the US for the global rise in food prices, noting that the average American consumes or throws away 3,777 calories per day while the average Indian only consumes 2440 calories. India has been growing as an industrial and economic power for the past ten years, but the spike in global food prices has only happened since the beginning of 2008.
By far the US and Europe are the largest consumers of corn and wheat, as the following graphic shows:
In addition, speculation in the commodities markets and the production of ethanol, both of which are largely Western developments and very recent ones at that, have played a part in the spike in food prices. Shortages are likely to continue, especially with recent disasters wiping out rice crops and world population rising rapidly. President Bush’s unfortunate remarks come at an equally unfortunate time, when millions are suffering and starving in Asian and African nations, and the US is at its lowest popularity worldwide in recent history, largely thanks to the tactless nature of the current administration.
The US and Canada consume more oil per person than all the other nations of the world combined, and Western trade policies arguably undercut food production in fertile parts of Africa, a point that has long been a sore spot throughout the developing world. For the highest official in the US to then suggest that India, a nation with a long history of abject poverty and suffering, is now responsible for worldwide food shortages just adds insult to injury, and worse, it makes the US look exactly like the pigs many already believe we are.
David C. Mumford, US Ambassador to India, in trying to calm the waters, said, “this is a time for increased cooperation among nations to solve this problem and hostile political commentary is not productive.” So true. So maybe our own president could keep his mouth shut for just a little while in the interest of, oh, I don’t know, not making us all look like insensitive asses.
The developing world is emerging as a competitor in the 21st century for US trade. This tide has the potential to lift all boats. We should be welcoming this trend, and working hard to find a cooperative, useful place in this new world. Especially on a topic so serious as food and the third world, we cannot afford to make ourselves into Ugly Americans, not just for the sake of decorum, but because the very people we are criticizing this way (through our president) are on the way up while we are on the way down.
There’s an old saying about that in the world of 9 to 5 work.
Maybe someone ought to explain it George.
Wouldn’t it be great if we had the technology to make cars right now that don’t run on gasoline, are affordable, and use already existing infrastructure? If we had that kind of technology, we could wean ourselves from our politically and economically dangerous dependence on foreign oil. We could save tons of money and improve the environment. We could stop, or at least slow down, the financial death spiral the entire US seems to have been in since right around November 2007.
Too bad this technology is decades away. It is decades away, right?
It might surprise you to learn that electric vehicles were invented before cars with internal combustion engines back at the turn of the century. Electricity was fairly new and not everyone had easy access to it. So when the internal combustion engine was combined with the new ‘horseless carriage’, the modern car automobile as we know it today was born. Everyone except a few moldy historians forgot all about the electric car.
Last year however, Canada remembered. The result is the new Canadian Zenn Car, which is an acronym for Zero Emission No Noise, an electric subcompact you can buy right now for an affordable price. The three-door hatchback Zenn is built on a standard auto chassis and weighs in at a mere 1,200 pounds. Because it is not carrying around a heavy engine or most of the other internal parts of a gas-powered car it is lightweight and remarkably durable.
You can plug the Zenn into any standard electrical outlet and charge it completely in about four hours at a cost of between 1-3 cents per mile, depending on the cost of electricity in your local area. Compare that to the 12 cents per mile (if gas is at $4 per gallon) you will pay on a highly-efficient gasoline-powered vehicle that gets at least 35 MPG.
But electric vehicles are slow and have a short range, right? The Zenn’s top speed is 25 miles per hour, and it will go 35 miles on a single charge. Obviously, it’s not the car of choice for a long commute. But if you regularly drive 5 to 10 miles to work in city traffic in a gasoline-powered automobile, it won’t take you long at all to save money driving a Zenn instead, even if you recharge it right off the grid every night after you come home.
If you install solar panels or a small wind generator to provide your own electricity, fueling the Zenn is free. If you live in an area of the country where you can also sell your self-generated electricity back to the local power company (not all states allow this, but many are working on it as we speak), you can actually drive your Zenn car for free and make money on any leftover power too.
Right now, the Zenn car has a sticker price of between $12,000 and $15,000, but it is being produced in such small quantities that price isn’t representative of its actual cost were it to be mass produced the way Fords, Toyotas, and Hondas are. Even at $15,000, its price is definitely at the low end for a new vehicle, and because the innards of an electric car have almost no moving parts, it is not costly to maintain like a gasoline powered car, requires no oil or fluids, and very little in the way of routine maintenance.
Want something with a bit more testosterone? If a 2008 Tesla won’t make you happy, nothing will make you happy! With a design guaranteed to make lithe, high-maintenance women fall at your feet, and the capability to go from 0 to 60 in 3.9 seconds, the Tesla has everything a motor addict needs except the noise. The ride is smooth and completely silent, and the mileage is equivalent to about 135 MPG or a penny a mile. Unlike the timid Zenn, the Tesla has a range of 220 miles per charge and recharges in as little as 3.5 hours. You’ll need all those pennies you save on gas: The base sticker price on a new Tesla is currently $109,000 and they are only available by special order.
I know what you’re thinking. You’re thinking, but what if I want something less nerdy than a Canuck-mobile and a tad less pricey than an eco-chic car for movie stars? Well, if you’re one of those people who feels that “they also serve who only sit and wait,” you can sit and wait for Nissan to come out with their electric car line-up, which they promised (just yesterday in fact) to have showroom-ready and available no later than 2010. Nissan announced that the final production vehicle will have a top speed of 75 MPH, a range of about 100 miles, and a recharging time of about 8 hours. Two divisions will build the cars: one will supply electric cars for the Japanese market, and the other (in partnership with Renault) for the European and US market.
If you just can’t wait that long, you can check out what three ordinary guys did to three ordinary vehicles to turn them into cars which cost nothing to run. A recent Sierra Club article tells the stories of Darryl Dickey, Stephen Weitz, and Alex Beamer, three ordinary guys sick of paying high gas prices who took matters into their own hands and converted ordinary vehicles into cars that run on solar and/or wind-power. It wasn’t difficult, it wasn’t expensive, and now each of them own cars that will run for a lifetime for free.
Cars that will run for a lifetime for free? If you are the paranoid type (and who isn’t these days?) you may be smelling a bit of a conspiracy here. What would it profit the oil industry or the auto industry to provide people with such cars?
Filmmaker Chris Paine wondered the same thing after GM confiscated his EV1, an experimental electric vehicle they tested with customer volunteers between 1998 and 2003 to show the state of California that electric vehicles were impractical and customers would reject them. When people fell in love with their EV1s and began to beg GM for the right to purchase them outright (they were tested as part of a lease program), GM recalled all the EV1s and destroyed them.
The result is Chris Paine’s groundbreaking 2004 film Who Killed The Electric Car which chronicles EV1′s popularity, GM’s attempts to hush that popularity up, and the resultant destruction of all remaining EV1s at the very same time various states were clamoring for low-carbon-emission vehicles.
Electric cars won’t please everybody. But why are American carmakers not producing them? They do have the technology. They produced a wildly popular, easy to run and cheap-to-make electric car as recently as 2004 and then pulled it right off the market when they discovered people would buy it. Electric cars have been in existence for almost 100 years now. In fact, the sexiest car available on the market today is an electric car. So why are Chrysler lots still clogged with vans and SUVs that won’t sell, and why is Ford giving up on the US to move overseas and sell cheap, badly-made gasoline powered cars to China?
I’m no conspiracy theorist. But it does make you wonder, does it not?
In the meantime, this blog post should be enough to get you started kicking your own petroleum habit, or at least thinking about it. Now if we could just get our government on board…
Gas prices got you down? You’re not alone. You don’t have to wait for some panderer to repeal the gas tax to save money on fuel though. Lots of great sites now offer to find the cheapest gasoline prices in your specific neighborhood before you even leave your house.
At www.gasbuddy.com you can plug in your zip code and bring up the current prices at all the gas stations in your specific area anywhere in the US or Canada. The US government has also graciously provided a website for people searching for the best gas prices locally at www.fueleconomy.gov. If you like widgets (and who doesn’t!) you can also download gas-related widgets that serve the same purpose at www.lifeclever.com.
Let’s talk a bit more seriously about this for a moment though. A May 7, 2008 New York Times article reported that gasoline prices are expected to peak in June at around $3.73 a gallon. Currently, here in West Michigan, gas prices are running right around $3.89 a gallon for regular unleaded, so the idea of gas prices ‘peaking’ at a price-point 16 cents below what I can find this very minute (with or without widgets) is a bit baffling.
Would the Times lie to us?
Not necessarily. They probably just can’t write as fast as gas prices are rising. More seriously and to the point, the NYT was just passing along what the US Department of Energy has to say about gas prices, which, as we all know, is no longer connected to any kind of reality anyone understands, including them. People are upset about gas prices? No problem! We’ll just send out a news release telling everybody prices are leveling off! (I guess they didn’t get that news release out quite fast enough, but it is the government after all.)
Anybody who has been watching the price of oil lately knows that it seems to be ticking upward to the tune of a dollar a day or so. Goldman Sachs released a report this past Friday stating that $200 a barrel oil is likely just around the corner, and where oil prices go, so go gas prices eventually. Many financial analysts are predicting $7 a gallon gasoline in the not too distant future. With world demand for oil rising at the rate of 1.2 million barrels a day, this is probably a more realistic prediction.
So apart from downloading a cool widget, how are we to cope with this kind of spike in prices?
Actually, you can take some fairly easy steps to reduce consumption and improve your vehicle’s performance, and some of them might even improve your longterm quality of life. Here are few gas-saving tips you can implement right now:
- Don’t Drive. This may seem like a no-brainer, and it’s probably something that is already starting to happen on its own, but seriously, think twice before you hop in the car to shop or do anything. Buy staple items like toilet paper, flour, rice, sugar, and so forth in bulk so you don’t have to make frequent trips to the grocery store, and plan out your errands to get as much done in a single trip as possible. Shop online and have items delivered by UPS or mail.
- Carpool or Take Public Transit to Work. In some major US cities, use of public buses and trains has increased by as much as 30% in 2008 alone. In America’s not-too-distant past, when shopping was centrally located, most people rode the bus to work and to shop: Commuting by car was the rare exception. Centralization seems to be coming back in many areas of the country. If you live in one of them take advantage of that.
- Move Closer In. If you bought a home in a far-away suburb in order to have more house for less money, now might be a good time to unload that beast if you still can, and look for something closer to your job. One of the few places real estate is actually appreciating right now is in the city. In some areas of the country, foreclosed suburban tract homes are already becoming home to squatters and meth labs, and at least one author predicts that in a very short time suburban communities will become the new US slums, and slum communities in the central cities will become hot commodities. It’s all because of gas prices.
- Slow Down. Driving fast burns more gas than driving slow. So does quick start and quick stop driving. Try to maintain a steady speed right around the legal limit, not 10 miles above it, and stay in the right lane. Let people pass you. They may or may not get there first, but you will be the one with money in your pocket.
- Park in the Shade. Gasoline is very volatile and evaporates easily; that is what makes it a good fuel for a combustion engine. It also means that it evaporates while you are not driving. Cars that are kept cool lose less gas to evaporation than cars parked in the sun.
- Walk or Ride a Bike. Think through your routine and ask yourself if you could get where you need to go on foot. Walking not only is good exercise, it makes you feel capable, whereas relying on a car you can’t afford to fuel makes you feel vulnerable. Studies have shown that half an hour a day of regular exercise like walking or bike riding not only prolongs your life and improves your health, it reduces stress and releases endorphins into your blood stream that create feelings of well-being.
- Roll Down Your Windows Under 45 MPH. Open windows create drag that wastes gas if you are driving on the highway, but for city driving your air conditioner uses more gas than you lose by opening the windows.
- Don’t Top Off Your Tank. Not only is this practice dangerous, it wastes gas every time you fill up. Within two minutes of driving off, all the gas you topped off will be evaporated without ever being burned in your car’s engine.
- Get a Cash-Back Debit or Credit Card. Lots of financial institutions offer cards now that give up to 5% back on gas purchases. If you pay off the card each month, you get the savings free. Just make sure you are not liable for annual or hidden fees.
- Maintain Your Vehicle. This is an old one, but still true. Check your tires whenever you fill up and make sure they are properly inflated. Under-inflated tires use up more gas by creating drag. Make sure your air filter is always clean, and keep your engine property tuned and maintained.
- Think Twice Before Replacing Your Car. You may be tempted to trade in your vehicle for a hybrid as soon as possible, but if your vehicle is paid in full, it will take you decades to recoup the cost of financing the new car through your gas savings. A better bet if you own a gas hog is to sell it outright and look for a used subcompact Honda or Toyota with good gas mileage that you can buy with cash. This will save you money immediately, and by the time the used car wears out, hybrids may be more affordable and available.
- Telecommute. Do you have a job that you could do from home? This might be a good time to try that out. If you drive a long way for low pay and working at home isn’t an option, research what options you do have if you change your work. A good resource and a place to start your search even if you are not a woman is available at www.womenforhire.com
Gas prices are making for challenging financial times right now, but as Columnist Paul Krugman points out, higher gas prices don’t have to signal an apocalyptic change in lifestyle. We may well be facing some big changes: a return to centralized city living, the renewal of mass transit, more telecommuting workers, and more walking and bicycling, less running around, fewer malls. But it doesn’t have to be all bad.
It might well have to be different, and soon. So get started now and beat the crowd!
Oh, and don’t forget to download those widgets!
The House has approved a plan that will let the Federal Housing Administration take on as much as $300 billion in new mortgages so that people facing foreclosure can refinance. The measure could help as many as 500,000 struggling homeowners by cutting their payments by as much as half. Bush has threatened to veto the bill, which passed in spite of that threat by a majority vote of 266-134, including 39 votes from Republican representatives who come from states with the most severe housing problems.
In a separate bill, the House also approved a plan to send $15 billion to states to buy and fix up foreclosed property.
In spite of the 39 crossover Republican votes, many of the remaining House Republicans are vehemently opposed to the measures. Included in this second bill are two features Bush wants: one feature would overhaul FHA so that the federal mortgage giants Fannie Mae and Freddie Mac would be much more tightly regulated, and the other would provide first time home-buyer tax credits of up to $7500 that would be paid paid over 15 years. The tax credits (as well as the FHA overhaul) are designed to encourage home ownership in a failing market where credit has become impossibly tight and few homes are being sold.
Several major hurdles face this plan even if the it passes the Senate and Congress then overrides the threatened Bush veto. One is that the individual refinance packages depend on the original lender agreeing to take a loss on the principal owed on the mortgages. While the loss would be a smaller one that the loss the original lender takes in a foreclosure sale, the loss on a refinance would not be backed by reinsurance and would have to be absorbed in total by the original lender. So far, in other independent attempts to assist homeowners facing foreclosure, lending institutions have been notoriously loathe to cooperate, preferring to take the larger loss. As the housing crisis worsens and banks and mortgage companies continue to post huge losses, this may change.
A much bigger problem is the current condition of Fannie Mae and Freddie Mac. The two companies suffered combined losses of more than $9 billion last year on bad mortgages, and are expected to post even larger year-end losses for 2008. The two federal mortgage giants currently have $83 billion in required capital to back their loans, but the mortgages, other debt, and financial obligations of the two currently surpass $5 trillion. With major financial institutions dumping billions in subprime loans as fast as they can, the number of these loans held by Fannie Mae and Freddie Mac is mushrooming even without the new bill.
Insurance companies backing bank mortgages have been going through the same struggles with capital ever since November of 2007. Earlier this year, before the Bear Stearns failure, Wall Street was holding its breath hour by hour to see if any of them would fail or even look like they might fail. If that were to happen, the banking system in the US would have frozen up like inner city plumbing in January, and the country would have had a financial crisis on its hands that made the Great Depression look like the Not Really All That Bad Depression.
What we are witnessing here is essentially a game of musical chairs in which lenders, individual homeowners, and federal and state governments scramble to not be the one left holding the debt as fewer and fewer options for escape remain. A benefit of the house refinance plan is that it would spread the bad debt around a bit while keeping people in their homes: the bank would get stuck with some but not all of it, the government would take over the risky borrowers and write them new more conventional affordable loans, and the borrowers would get to keep their homes, preventing (in theory) any more freefall in housing prices by stabilizing neighborhoods.
On the downside–and it is a really steep slippery downside–in a worst case scenario Fannie Mae and Freddie Mac could go the way of Bear Stearns if the program isn’t managed well and if they don’t raise more capital to back all these risky loans. What does ‘tight regulation mean’? Fannie Mae was the target of a major accounting scandal and the smoke from that has not even cleared yet. Former Fannie Mae Chief Executive Franklin D. Raines and two others have been fined $31.4 million for their roles in cooking the books to (appear to) reach earnings targets between 1998 and 2004 and then pocketing millions of dollars in bonuses for (not really) doing so.
Republicans and some moderate Democrats will make a lot of noise about the slippery slope and moral hazard of rescuing people from their own bad decisions and how this is wrong and how those of us who have made good decisions shouldn’t have to bail them out. The problem is that the situation has gone so far past this issue that it now threatens to sink us all no matter what we do or don’t do.
For one thing, banks, lending institutions, and brokers were often criminally irresponsible in promoting and writing these bad loans during the peak of the housing bubble. Yes, people should make good decisions and not take out horrible loans they can’t pay back. The flip side however is that lenders shouldn’t make horrible loans to people who can’t pay them back. Lenders have a fiduciary responsibility to all their customers to make sound underwriting decisions, and that responsibility has of late flown out the window as pressure on CEOs to make ever-greater profit off of the same tired products grows exponentially year by year.
That is a nice way of saying that during the housing bubble we witnessed an era of unbridled greed which even had realtors shaking their heads at the sheer audacity of it. Laws were broken, money changed hands under tables, people were lied to, widows were bilked: It was ugly. When the bubble burst, all the players started scrambling to find a good safe rock to crawl under, and that is still going on today. What’s more, these irresponsible lending practices mutated into irresponsible highly-leveraged investment practices, many with incomprehensible initials–for example, SIVs—which are actually a form of CDO, which is… oh nevermind. The point is, Wall Street went on a Jedi-mind-trick binge in which they chopped up and repackaged bad debt and then speculated on it in a way that 1) made it impossible to trace who actually owned it, and 2) created money out of thin air.
I’m no economist, but even I know what happens when you create money out of thin air.
Meanwhile, back at the ranch, Bush and Congress were busy sniping at each other and accomplishing little, something they are still pretty good at. So there is plenty of blame to go around. The question now is not whether the American tax payer will get stuck with this mess–of course we will. The question is, how much of it will we get stuck with, and when, and how. A workable plan that sticks us with some of it and at the same time keeps people in their homes so prices can stabilize and equity can actually start to increase seems to me a good start. Will Congress be able to sell it to the financial industry in a way that keeps Fannie Mae and Freddie Mac afloat? Stay tuned.
The checks are in the mail! Oh yes? How nice. Soon we will all get some of our own money back in the form of a tax rebate from Uncle Sam. We are told that this rebate is designed to stimulate the sagging US economy. (Now there’s an alarming visual!)
Here are a few eensy problems with this ‘gift’ you may or may not be aware of:
- We had to borrow the money from China to get the check in the mail.
- If you filed your taxes with a third party tax preparer it may be delayed.
- If you are on social security and get your check direct deposited, you won’t get your tax rebate that way unless you filled out an additional form in which you provided your routing and account numbers, even though the government already has them. You’ll be mailed a check.
- If your total tax liability was less than $600 you won’t get $600 back, your rebate will be reduced.
- By the time we all get these rebates all of it will be going directly into our gas tanks.
You can find a table showing when you can expect your rebate check at the IRS website www.irs.gov. You can also use their online calculator to figure out exactly how much you will get. Most people will receive $600. Most married couples will receive $1200. Married couples with dependent children will receive an additional $300 per child.
If you owe money to the IRS, they will keep your rebate, apply it to what you owe, and send you a letter about what they did and why they did it in lieu of a check. You probably already knew that. If you live on your social security check and did not file a 2007 tax return because you have no other income, you will get nothing. You have to file a 2007 tax return, even if you had no income in 2007, to get the rebate. If you live on social security and have not done this, you will not receive a rebate.
The whole mess makes me really cranky.
You may be thinking right about now, “What kind of curmudgeon could possibly be against free money from the IRS?” This kind of curmudgeon, that’s what kind. Sure, I will take the money. I’m not going to send it back. But the cost of this stunt is astronomical and the impact on the country’s financial problems is sure to be minimal or even negative.
Putting $300-$600 in every taxpayer’s pocket in this economy is like leaving a quarter tip in a restaurant and telling the waitress, “Now go out and get yourself something nice with that, honey.” Remember all the great stuff you bought with the last tax rebate from the Bush administration?
As usual, no one is calling Pam asking for her opinion on how to solve the current economic mess. I totally understand why not. But if they were calling me, here are a few of the requests I would make:
Help people at the bottom who are losing their homes due to the subprime mortgage crisis. Our judgmental attitude toward homeowners impacted by this mess is hurting the entire economy. Why repossess homes that can’t be sold at any price because a) loans are hard to get and b) few people have the money to buy right now? What good are vacant overvalued properties to anyone? Look at the mess Cleveland is in right now with empty foreclosed properties destroying whole neighborhoods, eroding the tax base, and driving home prices down ever lower month to month. Bernanke’s ‘ain’t-gonna-happen’ solution involves requiring banks to rework the mortgages on foreclosed properties by reducing the principal until it is in line with real values is the right one here. It ain’t gonna happen, but it is the right solution.
Jobs, we need good jobs. Oh, and we also need good jobs. Good jobs would help too. And another thing that would help is good jobs. Yes, we only lost 20,000 jobs in April instead of the anticipated 80,000. Hello? No matter how delirious Wall Street may be about that news, this is not cause for celebration for the little people down here who actually rely on these lost jobs for our livelihood.
Will somebody please slap together a sound energy policy? Because right now, we don’t have one. We needed an aggressive, proactive renewable energy policy about, oh, thirty years ago, and now that we are watching oil prices leap off the charts and food prices leap right behind behind them, what do we get? A call to repeal the gas tax for three months and make the oil companies pay it. That will not do much for our falling-down bridges, pot-holed highways, and crumbling infrastructure, but it will save us from having to actually think and make intelligent changes to the way we live. Oh, and after driving up demand and hence, prices, it will save the average driver almost nothing.
No doubt some people will go out and buy new TVs or washing machines with their tax rebates, but my sense is that an awful lot of people will pay last month’s mortgage payment, catch up on the overdue utility bills, buy staples in bulk at Costco, pay down unsecured debt, or put the money in savings. It isn’t wrong or bad to blow tax rebate money on a flat screen TV. Each one of us getting those rebates has earned that money, so we can certainly use it as we please. What bothers me is that this money is being offered in place of responsible government fiscal policy. “Go out and spend,” is not fiscal policy. We can’t be the spenders of the free world unless we have good jobs providing real services or products and a government with an eye on the future and our real energy needs.
It’s obvious that we don’t have anything even close to that right now. That being the case, these checks, welcome as they are, are not designed to stimulate anything, not really. The checks are just a lame attempt to stave off the next major financial crisis until this administration has left Washington for good, and can watch the fall of the American financial empire from one of their many vacation homes.
Seriously, it never was their problem, was it?
At this writing, the Dow Jones Industrial Average is up 177 points. The dollar is up overseas on news that tech stocks such as Apple, Research In Motion, and IBM are doing well, and Wall Street is thrilled about that, at least for today. Tomorrow, who knows? Lately the Dow jumps anytime any moderately happy news appears, no matter how fleeting or ephemeral. Check back in an hour and it could be DoomsDow again.
Meanwhile, the cost of gas and food rose faster in April than in any other month so far this year, lay-offs are at their highest level in five years, GM sales are down 22% in a single month, and Federal Reserve Chairman Ben Bernanke has hinted that the rash of emergency Fed-to-the-Rescue rate cuts may be coming to an end. Good thing too, because yesterday’s quarter point cut took the rate banks charge each other on daily loans to only 2%. Right now there isn’t a lot of rate left to cut.
Hope does spring eternal though. Wall Street is still looking for the silver lining in that F5 tornado that started forming over the American financial landscape around November of last year. Ordinary people, on the other hand, are getting scared. America is developing a sort of split personality in 2008: One America buys precious metals and puts money on commodities trading and watches for the rainbow. The other America reads up on Victory Gardening, hoards rice, bikes to work, and reads up on the Apocalypse. A personal finance blogger couldn’t ask for a stranger or more exciting time to be writing about money.
The most troubling part of this split is that neither group seems to really know what is going to happen next. If ever there was a time to bone up one’s financial skills and knowledge about how money and the economy works, this is it, and yet even financial gurus hedge and stammer. As a nation, we survived the Great Depression, the tech stock bubble, the credit union crisis, a raft of major corporate accounting scandals, but now, at this weird juncture, even the experts are looking over their shoulders. We all seem to be dogged by the feeling that something is gaining on us. It’s uncomfortable, but it’s also a time ripe with the potential for positive change.
My own hope is that these scary times will inspire people in both Americas to talk to one another and reach out for information, ideas, and practical advice about money, politics, and the economy, and that this dialog will help all of us through whatever it is that comes our way. Perhaps those clouds will indeed disperse and we’ll all look back and laugh at how panicked the country was over nothing. More likely though, tough times will continue to hammer at us for quite a few years. Most people avoid dealing with money, preferring to just let it deal with itself. It’s possible to take that attitude in good times, even though it’s not advisable. But to take that approach in hard times is suicidal. When money is scarce, people have to think about it.
That is not all bad.
The fact is that the more you learn about your money and how it works, and how other people use, take, exploit, invest, or increase your money, the better off you are. Personal Finance Analyst provides a wealth of information on just about any money topic you can imagine, and I hope people read, and talk and argue about all of these topics. I’m looking for spirited conversation and radical ideas and rants and queries. Whether I’m driving a Mercedes or a Pee Herman bicycle, that’s the America I love and was raised to love.
I’m really excited to be here. I hope you are too. If you’re not, by all means, let’s talk.
Oh, and welcome!
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