New Haggard accuser: 'He really thought he was invincible' - CNN.com: "Grant Haas told CNN he began receiving text messages from Haggard in January 2006 that were 'out of the ordinary' -- questions about what sexual positions he enjoyed, what drugs he used. He said the approaches culminated in a hotel-room encounter in July of that year, when he said Haggard offered him pills and masturbated in a bed they shared."
It doesn't matter what gender Person A or Person B is; if a person in a position of power and authority over another person - adult over child, teacher over student, preacher over flock - uses that power and authority to manipulate or intimidate someone to engage in sexual relations of any nature, that person is a huge scumbag. Period.
Yet male victims vastly under-report incidents because we as a society throw 5 million kinds of bullshit onto the male sexual identity, and unreported scumbags typically go on to victimize someone else. So to every male victim willing to come forward and speak publicly about it, I say kudos. Speaking out and going public is a brave act and it will - not just hopefully, it absolutely will - help other men, and that will help other boys and girls and women and animals and the general mental health of our society. Eventually, we will reduce the stigma to a point that little boys will say something the first time someone does something bad - a key point, because abusers often test a victim first by doing small inappropriate things before they do big sexually inappropriate things. And to the fellows coming forward today, I think you stand on the shoulders of a group of men who finally broke the code of silence in the Catholic church and took a big stand against molester priests.
I know it's hard for bystanders to hear these tales, and I know it is tempting to avoid the messenger along with the perpetrator. It's easy to joke, to pretend it doesn't affect us, to hide behind gender stereotypes and lewd jokes about sexual orientation or "scoring." It's hard to admit that boys and girls and men and women cannot always protect themselves from predators, and it is disgusting to realize just how many predators there are out there. Just thinking about it makes me sick. But I realized something when I listened to those now-grown former Catholic alter boys on NPR however many years ago - every time I ignore it and hope it goes away, every time I turn away or turn off the TV or radio or click off to a less bothersome story, I am letting it go on. The only right answer to any victim of abuse is "that's terrible and it never should have happened to you." If we want a safe place for our children, our neighbors, our spouses, nieces, nephews, and friends, we've got to man up and tolerate the discomfort of hearing these stories and gulp down the bile and say "thank you. Thank you for being brave enough to speak up, so this doesn't happen to someone else." And then we have to stay there, not run away, and admit that we are powerless to fix it, that we are clueless about how to help it, but that we care enough - for the victim AND for our society - to stay and try to offer, if not comfort, then at least fellowship and acceptance.
Thursday, January 29, 2009
Friday, January 23, 2009
Take your blood-pressure meds, Bobby, it's another Victims of the Housing Crisis story
"He called his lender last fall hoping for a hardship consideration and asking for a two-month postponement of his mortgage payments. He wanted to have them added to the end of his mortgage. Mobley says his credit rating was excellent, and he was merely trying to free up some cash for the holidays." (Now, perhaps this fellow is too proud to admit he needs the money, so he minimizes his situation by calling it "cash for the holidays," but, please, people, children read these stories and learn by example. Freeing up cash for the holidays is NOT a good reason to ask your lender to incur the expense of processing a loan modification.)
CNNMoney.com has a story about how Tough it is to get a mortgage loan modification. They have the hard-luck cases, like the fellow paralyzed in an accident who can't get a mortgage workout (the article didn't say whether the friend helping out had power of attorney or any other legal status to represent the homeowner - could the problem be a lack of authority for a mere friend to negotiate a loan workout?). They have the real estate agent, who just wants to keep her house of 15 years (okay, not to be cynical, but did they really have half-million-dollar homes in Las Vegas 15 years ago, that would only be worth $350k today?) They have the pitiful retiree, his equity locked in a rental property with an ARM that reset so that the payment is higher than his rental income (I know, it happens, but a retiree who can't afford the potential payment increase should get a fixed-rate loan or sell the house before it's a problem).
Then they have this guy:
That's okay, Grandma, I know your supposedly-safe conservative retirement portfolio of bank stocks is worthless now, but at least you have the comfort of knowing that you're living on cat food for a good cause. We wouldn't want poor Kenny to go without cash for the holidays, and we surely wouldn't want poor Ronny to be "shackled to a bad investment for years".
CNNMoney.com has a story about how Tough it is to get a mortgage loan modification. They have the hard-luck cases, like the fellow paralyzed in an accident who can't get a mortgage workout (the article didn't say whether the friend helping out had power of attorney or any other legal status to represent the homeowner - could the problem be a lack of authority for a mere friend to negotiate a loan workout?). They have the real estate agent, who just wants to keep her house of 15 years (okay, not to be cynical, but did they really have half-million-dollar homes in Las Vegas 15 years ago, that would only be worth $350k today?) They have the pitiful retiree, his equity locked in a rental property with an ARM that reset so that the payment is higher than his rental income (I know, it happens, but a retiree who can't afford the potential payment increase should get a fixed-rate loan or sell the house before it's a problem).
Then they have this guy:
But when it came to obtaining a mortgage workout, he wasn't getting anywhere -- even after months of trying. He finally wrote a letter to the president of his lender to try to resolve the issue.
...
After that, however, and after he was asked to send in all his paperwork for the fifth time, he didn't hear from them again for six months. Then, recently, he finally got a call back with a loan workout offer.The lender offered an extremely low rate, 2.8%, which sounded great.
The problem was the value of his property has dropped from $840,000 to about $620,000 and the lender would do nothing to reduce the mortgage balance. Nash believed he would be upside-down on his mortgage, owing more than the house was worth, for years.
...
He looked around town and decided he could walk away from his house and rent another comparable place for half of what he would be paying his bank just for the mortgage payment.He loves his house but he's choosing to give it up rather than shackle himself to a bad investment for years.
That's okay, Grandma, I know your supposedly-safe conservative retirement portfolio of bank stocks is worthless now, but at least you have the comfort of knowing that you're living on cat food for a good cause. We wouldn't want poor Kenny to go without cash for the holidays, and we surely wouldn't want poor Ronny to be "shackled to a bad investment for years".
Thursday, January 15, 2009
It's a Bird... It's a Plane... Oh, Crap!
Warm, dry happy thoughts going out to the folks who survived the frigid waters of the Hudson River plane landing.
Wednesday, January 14, 2009
Funding retirement's peaks and valleys
As I project our required retirement income, it's not enough to say "we'll need $X a year." Costs will probably rise, and we'll want and need different income levels at different times in our retirement. Early on, we'll probably want to travel. Much later, there's a good chance that we'll need household help and, eventually, specialized medical care. Very early on - whether due to early retirement, job loss with little chance of finding an equivalent job before retirement, or other reasons - we might not have any social security income at all.
Traditional retirement advice says we should save enough so we can comfortably live off of 4-5% of our savings. So for every $10,000/year we want to spend in retirement, we need to save between $200,000 and $250,000. Yowza. But, if we can save enough, we should be able to withdraw 4-5% a year without reducing the principal; or we can give ourselves a raise to keep pace with inflation, and it will whittle our savings down very slowly; or, in the event of catastrophic medical expenses or other major expenses, we'll have a cushion.
I look at our retirement funding in phases. Phase 1, no social security, we live on savings. Phase 2, social security kicks in and, hopefully, we won't have to tap the 401k yet. Phase 3, The 401k gives us a little more money to weather inflation - or to live it up a bit while we still can. Phase 4, perhaps we have medical expenses, or we have difficulty doing our own housekeeping and home maintenance - for whatever reason, expenses rise.
To fund phase 1, our primary plan is to keep working until we can afford to live on savings without jeopardizing our retirement savings for the later years. For phase 2, again, the goal is to save enough/retire late enough to provide adequate funding. Also, careful budgeting - both to accurately predict our income needs and to avoid unnecessary waste - will help. As we enter phase 3, we can breathe a bit easier - since we plan to live without the 401k money for several years, the 401k should just be emergency/fun/inflation money. If we're just taking the minimum withdrawals from the 401k, it should last well into phase 4, when household help and possibly medical expenses increase our costs.
Housing plays an important role in our retirement plan. If we plan well and buy well, our home will be paid-off by phase 4, when we our expenses rise fastest. Now, some folks say that a paid-off house is just trapped equity, but that's certainly not true in retirement. The more income you need to support your lifestyle, the higher your tax bracket. In retirement, higher income means giving up a big chunk of social security benefits to taxes. So a penny saved is 1.33 pennies earned, or more. Plus, a paid-off house will give us an emergency backstop - we can borrow against the house if we need cash (though only as a last resort).
Investment property plays a part in our plan, too. Experts say an average couple needs to save $300,000 just for medical expenses in retirement. My goal is to acquire rental properties with a combined total of $300,000 in mortgages - with a very strong likelihood of appreciating at market rate over 30 years. As the tenants pay the mortgage down, we'll be building up $300k in equity for our twilight years, and the properties' values should (roughly) keep pace with inflation. Ideally, we'll acquire these properties by the time we're 45 - or else buy properties that can cash-flow with 15-year mortgages. Ideally, rents will increase faster than expenses, so the rental properties will provide some income during retirement, but the primary goal is simply to have properties with an inflation-adjusted, after-sales-expenses net value greater than $300k.
That's our plan in a nutshell. We may not hit every goal, but the closer we get, the better our odds of enjoying a retirement free from major financial stress.
Traditional retirement advice says we should save enough so we can comfortably live off of 4-5% of our savings. So for every $10,000/year we want to spend in retirement, we need to save between $200,000 and $250,000. Yowza. But, if we can save enough, we should be able to withdraw 4-5% a year without reducing the principal; or we can give ourselves a raise to keep pace with inflation, and it will whittle our savings down very slowly; or, in the event of catastrophic medical expenses or other major expenses, we'll have a cushion.
I look at our retirement funding in phases. Phase 1, no social security, we live on savings. Phase 2, social security kicks in and, hopefully, we won't have to tap the 401k yet. Phase 3, The 401k gives us a little more money to weather inflation - or to live it up a bit while we still can. Phase 4, perhaps we have medical expenses, or we have difficulty doing our own housekeeping and home maintenance - for whatever reason, expenses rise.
To fund phase 1, our primary plan is to keep working until we can afford to live on savings without jeopardizing our retirement savings for the later years. For phase 2, again, the goal is to save enough/retire late enough to provide adequate funding. Also, careful budgeting - both to accurately predict our income needs and to avoid unnecessary waste - will help. As we enter phase 3, we can breathe a bit easier - since we plan to live without the 401k money for several years, the 401k should just be emergency/fun/inflation money. If we're just taking the minimum withdrawals from the 401k, it should last well into phase 4, when household help and possibly medical expenses increase our costs.
Housing plays an important role in our retirement plan. If we plan well and buy well, our home will be paid-off by phase 4, when we our expenses rise fastest. Now, some folks say that a paid-off house is just trapped equity, but that's certainly not true in retirement. The more income you need to support your lifestyle, the higher your tax bracket. In retirement, higher income means giving up a big chunk of social security benefits to taxes. So a penny saved is 1.33 pennies earned, or more. Plus, a paid-off house will give us an emergency backstop - we can borrow against the house if we need cash (though only as a last resort).
Investment property plays a part in our plan, too. Experts say an average couple needs to save $300,000 just for medical expenses in retirement. My goal is to acquire rental properties with a combined total of $300,000 in mortgages - with a very strong likelihood of appreciating at market rate over 30 years. As the tenants pay the mortgage down, we'll be building up $300k in equity for our twilight years, and the properties' values should (roughly) keep pace with inflation. Ideally, we'll acquire these properties by the time we're 45 - or else buy properties that can cash-flow with 15-year mortgages. Ideally, rents will increase faster than expenses, so the rental properties will provide some income during retirement, but the primary goal is simply to have properties with an inflation-adjusted, after-sales-expenses net value greater than $300k.
That's our plan in a nutshell. We may not hit every goal, but the closer we get, the better our odds of enjoying a retirement free from major financial stress.
Wednesday, January 07, 2009
Why am I so hard on real estate agents?
Example 1:
7524 LINDEN AVE, Citrus Heights, CA 95610
List Price: $134,500
55 days on market, 1 photo (front exterior)
Description: "Escrow fell! Your buyers gain!!!! Fannie mae owned. This home is a fixer and is located close to freeway, and shopping. A great investment opportunity!"
Yes, Mr. or Ms. Realtor(TM), let me just play phone tag with my agent who will play phone tag with you to arrange a showing, schlep three or four people across town, and waste an afternoon discovering that, no, it isn't actually a fixer, it's a tear-down. Because that is so much more efficient than YOU actually wasting YOUR time writing up a description of the property and/or taking a couple more photos. For your measly $2,000 cut of a measly $8,000 commission, yes, I can understand that you don't want to actually work more than an hour. My gosh, if you put in a few hours taking pictures and writing a complete and accurate description, you would only earn the hourly rate of a neurosurgeon, and no one wants you to lower yourself to the hourly wage of the riff-raff doctors.
Example 2:
7606 GRANITE AVE, Orangevale, CA 95662
Appears to actually be 7546 Granite Ave, which one can ascertain now that there are actual photos of the house in MLS.
List Price: $310,000
114 days on market as of today
1 Picture - of the chain across the end of the drive - when the house came on the market. First, the agent tried cutting the price, twice. Later - just a couple of weeks ago, after sitting on the market for about 100 days, the agent actually posted photos of the house.
7524 LINDEN AVE, Citrus Heights, CA 95610
List Price: $134,500
55 days on market, 1 photo (front exterior)
Description: "Escrow fell! Your buyers gain!!!! Fannie mae owned. This home is a fixer and is located close to freeway, and shopping. A great investment opportunity!"
Yes, Mr. or Ms. Realtor(TM), let me just play phone tag with my agent who will play phone tag with you to arrange a showing, schlep three or four people across town, and waste an afternoon discovering that, no, it isn't actually a fixer, it's a tear-down. Because that is so much more efficient than YOU actually wasting YOUR time writing up a description of the property and/or taking a couple more photos. For your measly $2,000 cut of a measly $8,000 commission, yes, I can understand that you don't want to actually work more than an hour. My gosh, if you put in a few hours taking pictures and writing a complete and accurate description, you would only earn the hourly rate of a neurosurgeon, and no one wants you to lower yourself to the hourly wage of the riff-raff doctors.
Example 2:
7606 GRANITE AVE, Orangevale, CA 95662
Appears to actually be 7546 Granite Ave, which one can ascertain now that there are actual photos of the house in MLS.
List Price: $310,000
114 days on market as of today
1 Picture - of the chain across the end of the drive - when the house came on the market. First, the agent tried cutting the price, twice. Later - just a couple of weeks ago, after sitting on the market for about 100 days, the agent actually posted photos of the house.
I am unique - but you already knew that, didn't you?
I took the 43 Things Personality Quiz and found out I'm a Self-Improving Organized Money Manager  |
I thought I would come out a "Newness-seeking Self-improving Tree Hugger," I didn't. But what was much more interesting than the label they assigned me, was this little blurb:
"0% of the 45891 people who have taken this quiz are like you."
Well, I still think I'm one in a million, but at least I know for sure that I'm one in 45,891.
Sunday, January 04, 2009
Budget is Not a Four-Letter Word, especially when buying a house
Around 2004, our house hunt was going poorly. We were looking for a moderate, middle-class house with a larger garage - or room to add a larger garage. We found a candidate in our price range, just a few blocks from our current home. As we toured the house, we noticed cracks in the walls - the entire center of the house was sinking. That was pretty typical of what we were finding in our price range. So we raised our price range. Then we raised it again. Eventually, we had raised our price range so high that there was not a house in the county that seemed worth the money - but there WAS a house just a couple hundred thousand more that we really liked.
How do you decide how much to spend on a house? We weren't comfortable having a real estate agent make such a big decision for us. I asked our banker what we would qualify for - she ran the application and asked how much we wanted. We didn't know, and she said she had to enter something, so I pulled a ridiculously large number out of the sky, thinking the computer would reject it and spit out the actual maximum. We qualified for the ridiculously high mortgage on a 30-year fixed rate loan. Well, great, but what do we need with such an expensive house?
Eventually, we decided to write up a budget, showing how much we were already spending on everything. We used that budget to write up a projected budget, showing how much we could spend on everything if we bought a more expensive house. In order to make the numbers work, we had to cut back on lattes and hobbies. Okay. We also had to trim our grocery budget - no problem. We had to reduce our savings rate substantially. Ouch. We had to give up 401k contributions. No way.
Voila. We now had a way to decide how much house we could comfortably afford. We put the savings and retirement contributions back into the budget. debated how many vacations and lattes we would need to feel like we weren't slaves to the house, and adjusted the mortgage figure down to accommodate what we felt was a reasonable budget for us. We saw some tempting houses, but then we looked at the budget and decided that having adequate retirement savings was far more important than having a dream house. Besides, most of the potential dream homes needed a lot of remodeling to be dreamy.
The real estate industrial complex marketers encourage a lot of emotional decision-making in the home buying process. It's easy to get caught up in the hype. But our projected budget brought us back to earth, and helped us avoid buying more house than we could comfortably afford. Unfortunately, in the midst of the housing bubble, that meant not buying any house at all. That was good for our budget, but bad for morale. Now, however, we are reaping the benefits, as Sacramento County makes the news for its high foreclosure rate, we are not one of the statistics. Several homes we considered buying in the bubble, are back on the market at $100k less - some as much as $300k less than they cost at the peak.
I would like to take a moment to thank our budget for keeping us out of trouble. I would encourage any would-be home buyer to draw up an estimated budget - including any increased utilities, insurance, and/or maintenance costs. We figured out our moving costs - including any new furniture, drapes, or remodeling we'd want for the new house. Little expenses add up - a new lawnmower, towels that match the new bathroom, blinds for the gorgeous half-circle window in the living room and extension wands for vacuuming cobwebs off the high ceiling can quickly add up to $1,000 or more. If your budget in the new house requires big changes from your current budget, you might give it a dry run - see if you can really live, happily, with cutbacks in dining out, fewer vacations, less lattes. A mortgage can be a 30-year commitment - it's important to feel comfortable that you can live with it for 30 years.
How do you decide how much to spend on a house? We weren't comfortable having a real estate agent make such a big decision for us. I asked our banker what we would qualify for - she ran the application and asked how much we wanted. We didn't know, and she said she had to enter something, so I pulled a ridiculously large number out of the sky, thinking the computer would reject it and spit out the actual maximum. We qualified for the ridiculously high mortgage on a 30-year fixed rate loan. Well, great, but what do we need with such an expensive house?
Eventually, we decided to write up a budget, showing how much we were already spending on everything. We used that budget to write up a projected budget, showing how much we could spend on everything if we bought a more expensive house. In order to make the numbers work, we had to cut back on lattes and hobbies. Okay. We also had to trim our grocery budget - no problem. We had to reduce our savings rate substantially. Ouch. We had to give up 401k contributions. No way.
Voila. We now had a way to decide how much house we could comfortably afford. We put the savings and retirement contributions back into the budget. debated how many vacations and lattes we would need to feel like we weren't slaves to the house, and adjusted the mortgage figure down to accommodate what we felt was a reasonable budget for us. We saw some tempting houses, but then we looked at the budget and decided that having adequate retirement savings was far more important than having a dream house. Besides, most of the potential dream homes needed a lot of remodeling to be dreamy.
The real estate industrial complex marketers encourage a lot of emotional decision-making in the home buying process. It's easy to get caught up in the hype. But our projected budget brought us back to earth, and helped us avoid buying more house than we could comfortably afford. Unfortunately, in the midst of the housing bubble, that meant not buying any house at all. That was good for our budget, but bad for morale. Now, however, we are reaping the benefits, as Sacramento County makes the news for its high foreclosure rate, we are not one of the statistics. Several homes we considered buying in the bubble, are back on the market at $100k less - some as much as $300k less than they cost at the peak.
I would like to take a moment to thank our budget for keeping us out of trouble. I would encourage any would-be home buyer to draw up an estimated budget - including any increased utilities, insurance, and/or maintenance costs. We figured out our moving costs - including any new furniture, drapes, or remodeling we'd want for the new house. Little expenses add up - a new lawnmower, towels that match the new bathroom, blinds for the gorgeous half-circle window in the living room and extension wands for vacuuming cobwebs off the high ceiling can quickly add up to $1,000 or more. If your budget in the new house requires big changes from your current budget, you might give it a dry run - see if you can really live, happily, with cutbacks in dining out, fewer vacations, less lattes. A mortgage can be a 30-year commitment - it's important to feel comfortable that you can live with it for 30 years.
Thursday, January 01, 2009
Market meltdown: Where did all the money go?
On the age-old question, where did the money go... Here is one idea:
Market meltdown: Where did all the money go?: "Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, has a different explanation.
He says that from the market's bottom in 2003 until its peak in 2007, the market value of all publicly traded stocks worldwide grew from about $20 trillion to $45 trillion.
During this period, only about $1.5 trillion in cash went into the market. Debt accounted for some of the remaining increase in market capitalization, but most of it existed only on paper."
Market meltdown: Where did all the money go?: "Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, has a different explanation.
He says that from the market's bottom in 2003 until its peak in 2007, the market value of all publicly traded stocks worldwide grew from about $20 trillion to $45 trillion.
During this period, only about $1.5 trillion in cash went into the market. Debt accounted for some of the remaining increase in market capitalization, but most of it existed only on paper."
Wednesday, December 31, 2008
Robbing banks is illegal?
"'As it stands now, they've turned [banks] into virtual cash machines,' New York
Police Commissioner Raymond Kelly said."
Golly, who's he talking about? Real estate agents? Mortgage brokers? Cash-back-at-close, zero-doc, no down borrowers? Naw, plain old bank robbers.
"In fact, bank robbers have simply handed tellers a note in a vast majority of
hold-ups in New York."
So, remember kids, its better to rob a bank with a mortgage (note) than with a hand-scrawled note. If you rob a bank with a real estate license, that's okay. If you rob a bank with a hood over your head, that's illegal. If you rob a bank by promising (via a "promissory note") to pay back money you have no intention or capability of repaying, you get a bailout. If you rob a bank by authorizing garbage loans that have slim chances of repayment, you get a fat bonus check and stock options. Confusing, ain't it?
Quotes are from: Is recession behind spike in bank robberies? - CNN.com
Happy New Year!
Friday, December 26, 2008
Health Care Flex Spending Account: Use it or lose it
If you have a balance remaining in a use-it-or-lose-it flex spending account, there is less than one week left in 2008. With over-the-counter drugs and first aid supplies now flex-spending eligible, there's no need to "lose it." Depending on how much you have left, you can clean out your medicine cabinet (replacing old, expired cold medicines and the like), pick up a first aid kit, even get a home defibrillator. Personally, I have been browsing drugstore.com's FSA store, seeing what is FSA eligible and gathering up receipts for things we bought earlier without realizing they were eligible. I've whittled our balance down to $26, which I'll use to restock the first aid kit before Dec. 1.
We've made a point of submitting receipts before year-end, allowing sufficient time for the administrator to process them and hopefully notify us of any non-approved claims while there's still time for us to use up our funds.
Hope you're all enjoying the holidays in good health and good cheer.
We've made a point of submitting receipts before year-end, allowing sufficient time for the administrator to process them and hopefully notify us of any non-approved claims while there's still time for us to use up our funds.
Hope you're all enjoying the holidays in good health and good cheer.
Saturday, December 20, 2008
My Property IQ is 68: Zip Realty's new feature
Zip Realty has rolled out a new feature called Property IQ. This feature allows zip users to enter their best guess about what a property will ultimately sell for. In the absence of any other guesses, the list price is used as the "Community" prediction. Thus, if I guesstimate that an overpriced property will sell for less than asking - and there is not a community of other users agreeing with my guesstimate - then the algorithm deems me a nit wit. Even if I just entered the price that the agent told me the house actually went into contract for. The only "accurate" guess right now is the asking price.
The goal here seems to be to encourage, persuade, and peer-pressure buyers into the practice of thinking that homes will sell close to asking price, even when asking price is a pie-in-the-sky pipe dream. In our competitive society, we are well socialized to strive for high performance - high score, high net worth, low lap times, high status, rich networks. Games have power - pro racers play video games of unfamiliar tracks to gain familiarity, and even small-craft pilots have been known to fly three states over to pick up a good flight simulator. In striving for a win, an A, a certificate, an Attaboy, we learn over multiple attempts to perform to the grading scale rather than strive for real knowledge. Here, the grading scale is set-up out of the box to gently nudge users towards asking-price-is-the-real-value, despite launching the game in the midst of the worst real estate crisis since the Great Depression. Considering how many properties in Sacramento MSA are languishing on the market for a year and longer, the asking price is rarely ever the real value. But answering anything other than asking price, right now, is gently reprimanded through the insulting "Your Property IQ is 0!"
Yes, that's right, my property IQ was zero, because I guessed well-below-asking on a seriously overpriced property. But I was able to salvage my Property IQ by guessing well-above-asking on another property. So now I have a system - if a house sells, I bet at or above asking; otherwise, I only enter a Guess where the guess is well below asking price. I hate lazy programming and lazy algorithms as much as I hate the pervasive manipulation and bull$#!7 of the real estate industrial complex.
The goal here seems to be to encourage, persuade, and peer-pressure buyers into the practice of thinking that homes will sell close to asking price, even when asking price is a pie-in-the-sky pipe dream. In our competitive society, we are well socialized to strive for high performance - high score, high net worth, low lap times, high status, rich networks. Games have power - pro racers play video games of unfamiliar tracks to gain familiarity, and even small-craft pilots have been known to fly three states over to pick up a good flight simulator. In striving for a win, an A, a certificate, an Attaboy, we learn over multiple attempts to perform to the grading scale rather than strive for real knowledge. Here, the grading scale is set-up out of the box to gently nudge users towards asking-price-is-the-real-value, despite launching the game in the midst of the worst real estate crisis since the Great Depression. Considering how many properties in Sacramento MSA are languishing on the market for a year and longer, the asking price is rarely ever the real value. But answering anything other than asking price, right now, is gently reprimanded through the insulting "Your Property IQ is 0!"
Yes, that's right, my property IQ was zero, because I guessed well-below-asking on a seriously overpriced property. But I was able to salvage my Property IQ by guessing well-above-asking on another property. So now I have a system - if a house sells, I bet at or above asking; otherwise, I only enter a Guess where the guess is well below asking price. I hate lazy programming and lazy algorithms as much as I hate the pervasive manipulation and bull$#!7 of the real estate industrial complex.
Tuesday, December 09, 2008
The End of Wall Street's Boom - What REALLY Happened?
The End of Wall Street's Boom - National Business News - Portfolio.com: "The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong."
This is a lengthy article, but quite an interesting read. If you don't know Michael Lewis, he wrote Liar's Poker, about his experience working on Wall Street in the 1980s. Liar's Poker is also the game the fellows at Long Term Capital Management played - the founder of LTCM worked at Salomon Bros. in the 1980s, too. Lewis also wrote a book about baseball, and one about the dot-com era before it became the dot-bomb era, and he writes an amusing column for Slate called Dad Again.
The article reaches some very interesting conclusions, which I won't spoil here. But one of them seems to be the same one I keep coming back to - Wall Street is run by idiots. Traders don't know anything about economics, and economists regularly admit that they're terrible traders.
I suspect that the art/science of economics is something of a crystal ball on Wall Street - yet, like all mystical sciences, the economic tarot can tell you what will happen, but not when. Trading is all about the when. If you get out too early, you'll never make enough gains to retire; if you get in too early, you'll drive yourself to an early stress-related death and won't get to retire, anyway (hey, maybe that's a good retirement plan - cheaper than the $200k they recommend you put away for retirement health costs alone!). Traders use the technicals (charts and pure market data) to try to get ahead of a curve - but charts, alone, don't warn you when an enormous wrecking ball like the housing implosion is heading your way. Which is why my broker laughed at me when I said I didn't want to touch anything housing related - not even funds holding Fannie/Freddie bonds. My theory is that good traders are neither traders nor economists - they are sufficiently detached to take the signals of both disciplines with a boulder-sized grain of salt. Throw in a healthy dose of market historian and psychologist, and you might actually have a trader who can turn the odds in his own favor.
Short of that (plus a lot of luck), Mr. John Q. Public is facing some looonnnggg odds. The SEC lets banks and brokerages hold off-balance sheet risks that an average investor doesn't know about until it sinks his share price. Even the on-balance-sheet holdings are sometimes sliced and diced and innovated to a point that finance professionals can't understand what they really are, let alone what they're worth, or how quickly they can sink the company. Index funds came about specifically because fund managers aren't superior traders - managed funds and index funds have roughly equal odds of outperforming various benchmarks. The market moves on rumors that can create the sorts of problems that were rumored to be a risk. And when Mr. John Q. Public throws his hands in the air, says the heck with it, and plows his money into the age-old safe haven - banks and big, stable Blue Chips, he finds out later that the banks aren't safe and the Blue Chips are dallying in risk loans. Even Money Market funds were "breaking the buck" and losing principal value, because the professional financiers invested in bonds that - despite being triple-A rated short-term bonds - went poof. Oh, yeah, that's because the ratings agencies are either inept, corrupt, or both. But what choice does a fellow have - Social Security is bankrupt, pensions are a privilege only the government-employee class can count on, and his 401k has to make up the difference. Good luck, Mr. Public. You'll need it.
This is a lengthy article, but quite an interesting read. If you don't know Michael Lewis, he wrote Liar's Poker, about his experience working on Wall Street in the 1980s. Liar's Poker is also the game the fellows at Long Term Capital Management played - the founder of LTCM worked at Salomon Bros. in the 1980s, too. Lewis also wrote a book about baseball, and one about the dot-com era before it became the dot-bomb era, and he writes an amusing column for Slate called Dad Again.
The article reaches some very interesting conclusions, which I won't spoil here. But one of them seems to be the same one I keep coming back to - Wall Street is run by idiots. Traders don't know anything about economics, and economists regularly admit that they're terrible traders.
I suspect that the art/science of economics is something of a crystal ball on Wall Street - yet, like all mystical sciences, the economic tarot can tell you what will happen, but not when. Trading is all about the when. If you get out too early, you'll never make enough gains to retire; if you get in too early, you'll drive yourself to an early stress-related death and won't get to retire, anyway (hey, maybe that's a good retirement plan - cheaper than the $200k they recommend you put away for retirement health costs alone!). Traders use the technicals (charts and pure market data) to try to get ahead of a curve - but charts, alone, don't warn you when an enormous wrecking ball like the housing implosion is heading your way. Which is why my broker laughed at me when I said I didn't want to touch anything housing related - not even funds holding Fannie/Freddie bonds. My theory is that good traders are neither traders nor economists - they are sufficiently detached to take the signals of both disciplines with a boulder-sized grain of salt. Throw in a healthy dose of market historian and psychologist, and you might actually have a trader who can turn the odds in his own favor.
Short of that (plus a lot of luck), Mr. John Q. Public is facing some looonnnggg odds. The SEC lets banks and brokerages hold off-balance sheet risks that an average investor doesn't know about until it sinks his share price. Even the on-balance-sheet holdings are sometimes sliced and diced and innovated to a point that finance professionals can't understand what they really are, let alone what they're worth, or how quickly they can sink the company. Index funds came about specifically because fund managers aren't superior traders - managed funds and index funds have roughly equal odds of outperforming various benchmarks. The market moves on rumors that can create the sorts of problems that were rumored to be a risk. And when Mr. John Q. Public throws his hands in the air, says the heck with it, and plows his money into the age-old safe haven - banks and big, stable Blue Chips, he finds out later that the banks aren't safe and the Blue Chips are dallying in risk loans. Even Money Market funds were "breaking the buck" and losing principal value, because the professional financiers invested in bonds that - despite being triple-A rated short-term bonds - went poof. Oh, yeah, that's because the ratings agencies are either inept, corrupt, or both. But what choice does a fellow have - Social Security is bankrupt, pensions are a privilege only the government-employee class can count on, and his 401k has to make up the difference. Good luck, Mr. Public. You'll need it.
Tuesday, December 02, 2008
Where's the Money?
jaycee commented on an earlier post:
"I am trying to understand what is going on and I found your post really interesting. But I still have a question: we are not making bets with Martians, so surely the money is staying in the system? If I make a bet with a sucker who says: Sorry, I don't have the means to pay you, it will not make me bankrupt, just a bit peeved."
It's an excellent question, and one I've been trying to figure out. I don't have an authoritative answer to jaycee's question, but I humbly offer an educated guess....
The net losses are primarily in defaults. Suppose I'm a hedge fund trader, leveraged at 10-to-1, when I make a bad bet. I either have to eat the losses out of other gains/equity, or I'll default on the margin loan. The brokerage has to eat the defaults, and they can only eat so much. Banks are losing in mortgage defaults, and we're seeing increasing bankruptcy filings. Those are net dollars lost. As much as possible, the banks and brokerages dump the losses on shareholders.
Generally, a consumer invests the dollars that he or she perceives are "excess", above their basic needs. An investment dollar typically flows from investment to investment to investment; a consumption dollar flows from consumer to producer to employee/consumer to producer many times before possibly making its way back to investment markets. We are seeing net outflows from asset investments (stocks, bonds, real estate). Some of that outflow is from consumers just trying to pay the bills - some, for instance, flows to oil-producing nations, and much of that outflow won't come back. It's still in the system, but it's in the global system, essentially unavailable for domestic use. Other asset withdrawals are going to domestic producers, but as people lose their jobs, face income stagnation and cost inflation, fewer dollars are perceived as "excess" dollars to be saved/invested. Although that money is still in the system, it's a long way away from the investment assets whose valuations were based on how many dollars were invested.
Then there's the issue of the "velocity" of money. Middle class money is the best for stimulating economies, because middle class earners typically spend, spend, and spend some more, often spending a disproportionate amount on services. Services are almost entirely wages, which provides a second producer/consumer with money to spend - largely, on services, which provides a 3rd producer/consumer with money to spend. And so on. The exact same dollar changes hands many, many times - and each time, it counts as taxable income, it counts as GDP, it counts as someone employed, and it counts as another employee/consumer feeling a little more confident about the economy. I think of middle class money as slutty money - it gets around - well, that's velocity - the more a dollar gets around, the greater "velocity" it has. Poor folk don't have much money and rich folk keep a larger portion of their money than middle class folks do (that's why they're rich, and why an awful lot of rich folk got rich saving and investing off mere middle class income).
So if we go back to that Citibank transaction - if I buy a share for $45, the seller has the $45; it's still in the system. But I started with $45 of spendable money, $45 worth of earnings, $45 worth of wealth effect, $45 worth of net worth. If the share price drops to $7, well, there goes my spendable asset, my net worth, my wealth effect. There's a very, very good chance that my "velocity" of spending will decrease by the $38 the share dropped in value. If I was investing for a down payment on a house, that's $38 less house I can buy. If I was investing for a wedding, there goes the open bar. If I was investing for peace of mind and the satisfaction of securing my future - zoiks. Chances are, I'll pull $90 of spending velocity out of my budget to make up for the loss, and it still may not replace the lost peace of mind.
That's my best guess - we aren't suffering a mere shifting of assets, but a genuine implosion in some assets. Other assets are lost on the wrong side of the tracks, while others are dragging themselves sickly across the floor crying piteously, "help me, I'm hung over."
"I am trying to understand what is going on and I found your post really interesting. But I still have a question: we are not making bets with Martians, so surely the money is staying in the system? If I make a bet with a sucker who says: Sorry, I don't have the means to pay you, it will not make me bankrupt, just a bit peeved."
It's an excellent question, and one I've been trying to figure out. I don't have an authoritative answer to jaycee's question, but I humbly offer an educated guess....
Winners and Losers, The Money's still there
For most trades, there's a winner for every loser, so the money is still in the system somewhere. If I buy Citibank at $45, the seller gets $45. When Citibank drops to $6, the $45 I gave the seller still exists. Ditto for a house - if I buy a house for $200k and it drops to $100k, the money still exists in the seller's bank account. Unless the money never existed - with fractional reserve banking, banks can lend more money than they have - basically "printing" vapor dollars. If the bank lends me money to buy a house or a stock, and I don't pay them back, the bank has to eat the loss. They lose real dollars.
Defaults suck the Vapor Dollars Out of Grandma's savings
The net losses are primarily in defaults. Suppose I'm a hedge fund trader, leveraged at 10-to-1, when I make a bad bet. I either have to eat the losses out of other gains/equity, or I'll default on the margin loan. The brokerage has to eat the defaults, and they can only eat so much. Banks are losing in mortgage defaults, and we're seeing increasing bankruptcy filings. Those are net dollars lost. As much as possible, the banks and brokerages dump the losses on shareholders.
Paper Losses Become Real Losses
Houses, stocks, and even business inventories are showing paper losses. To the extent that people have to pull cash, they are converting paper losses into real losses. That's why there's so much griping about 401k withdrawal requirements this year. Businesses have to sell inventories, even at a loss (due to tax rules, cash flow, inventory staleness/freshness, and cost of commercial real estate for storing inventory). Those losses take money out of the system permanently.
The risk is that leverage let us inflate asset values quite rapidly - doubling home values, for instance. As credit dries up and net losses on defaults accumulate, it creates a leveraged pop - that's why the government has pumped some $7 Trillion in liquidity into a $13 Trillion economy this year, and yet we're still in a recession.
Not Lost, Just Wandered Off
There's also the issue of money still in the system, but removed from investment assets. This is a little out there, but it does impact valuations. The money available to invest is not static. Every day, each consumer/investor decides whether to save/invest current income, or whether to withdraw/spend invested income.
Generally, a consumer invests the dollars that he or she perceives are "excess", above their basic needs. An investment dollar typically flows from investment to investment to investment; a consumption dollar flows from consumer to producer to employee/consumer to producer many times before possibly making its way back to investment markets. We are seeing net outflows from asset investments (stocks, bonds, real estate). Some of that outflow is from consumers just trying to pay the bills - some, for instance, flows to oil-producing nations, and much of that outflow won't come back. It's still in the system, but it's in the global system, essentially unavailable for domestic use. Other asset withdrawals are going to domestic producers, but as people lose their jobs, face income stagnation and cost inflation, fewer dollars are perceived as "excess" dollars to be saved/invested. Although that money is still in the system, it's a long way away from the investment assets whose valuations were based on how many dollars were invested.
Fast Money: Whoosh! It's Gone
Then there's the issue of the "velocity" of money. Middle class money is the best for stimulating economies, because middle class earners typically spend, spend, and spend some more, often spending a disproportionate amount on services. Services are almost entirely wages, which provides a second producer/consumer with money to spend - largely, on services, which provides a 3rd producer/consumer with money to spend. And so on. The exact same dollar changes hands many, many times - and each time, it counts as taxable income, it counts as GDP, it counts as someone employed, and it counts as another employee/consumer feeling a little more confident about the economy. I think of middle class money as slutty money - it gets around - well, that's velocity - the more a dollar gets around, the greater "velocity" it has. Poor folk don't have much money and rich folk keep a larger portion of their money than middle class folks do (that's why they're rich, and why an awful lot of rich folk got rich saving and investing off mere middle class income).
So if we go back to that Citibank transaction - if I buy a share for $45, the seller has the $45; it's still in the system. But I started with $45 of spendable money, $45 worth of earnings, $45 worth of wealth effect, $45 worth of net worth. If the share price drops to $7, well, there goes my spendable asset, my net worth, my wealth effect. There's a very, very good chance that my "velocity" of spending will decrease by the $38 the share dropped in value. If I was investing for a down payment on a house, that's $38 less house I can buy. If I was investing for a wedding, there goes the open bar. If I was investing for peace of mind and the satisfaction of securing my future - zoiks. Chances are, I'll pull $90 of spending velocity out of my budget to make up for the loss, and it still may not replace the lost peace of mind.
That's my best guess - we aren't suffering a mere shifting of assets, but a genuine implosion in some assets. Other assets are lost on the wrong side of the tracks, while others are dragging themselves sickly across the floor crying piteously, "help me, I'm hung over."
Monday, December 01, 2008
EcoWorld - Guest Commentary » Blog Archive » Sundown for California
EcoWorld - Guest Commentary » Blog Archive » Sundown for California: "The educational system, closely aligned with the Democrats in the legislature, accelerated its secular decline. Once full of highly skilled workers, California has become increasingly less so. For example, California ranks second in the percentage of its 65-year-olds holding an associate degree or higher and fifth in those with a bachelor’s degree. But when you look at the 25-to-34 age group, those rankings fade to 30th and 24th."
Rather lengthy, but interesting reading. I'm not sure why it's on EcoWorld, as the article isn't really about ecology at all.
Rather lengthy, but interesting reading. I'm not sure why it's on EcoWorld, as the article isn't really about ecology at all.
Sunday, November 30, 2008
Universal Default: Credit's Grim Reaper
Years ago, I was in the middle of a major project when AT&T Cingular shut off my cell phone. They had changed my account number when I upgraded service, never mentioning the change in account number OR the credit balance building up under the old account number as the new account became delinquent. Eventually, we straightened it out. They got the credit balance transferred to the new account, and AT&T Cingular even "generously" agreed to waive the $25 re-connect fee and all of the late fees.
For that project I mentioned, I charged many thousands of dollars of equipment to my personal credit card. I had worked with my particular client long enough to know, without a doubt, that they would pay on time once the project was complete.
Around the same time, Chase, the company that owned my credit card, notified me that I was in Universal Default and my interest rate would now be 29%. I called to ask why, and they said I had made a late payment to someone. They would not tell me who was reporting the late payment. They would not reconsider their decision, and no one at the company would tell me, specifically, why I was in Universal Default. Now, many years later, I realize that the AT&T Cingular snafu was right around the same time - but, back then, I didn't know what Chase was talking about. So I had no choice but to pay the usurious interest rate until I could pay off the account. If Chase had simply raised my interest rate (absent the declaration of Universal Default), I could refuse to accept the higher rate, close my account, and pay the balance at the prior interest rate. In Universal Default, I had no such right of refusal. My interest rate climbed 19% immediately, retroactively (on balances charged at the lower rate), and with no recourse.
Meanwhile, Universal Default can be invoked by other creditors (that's why it's Universal - if one company says you're in default, any other company with Universal Default can apply Universal Default terms to your account). So my backup line of credit was pulled. I ended up selling my second car to get through the pinch, and, of course, I cancelled my Chase account. I will never do business with them again. Ever.
I was very, very fortunate that my Universal Default nightmare only lasted a few months before I was able to tell Chase to shove my full and final payment up their, um, closed accounts file. In the meantime, I got an ugly glimpse of Universal Default. I learned one of the unanticipated risks of carrying a balance on credit cards, and I changed how I manage money.
If you carry a balance on your credit cards, it might benefit you to become positively paranoid about avoiding Universal Default. Make sure that every bill is paid on time. Check your credit limit online in between billing periods. And pay off that balance as quick as you can, because banks are looking for new sources of revenue right now.
I should have fought back.
In retrospect, I accepted Chase's actions far too easily. I should have combed through the original contract terms to find out what rights I had to protest Universal Default. I should have gotten a copy of my credit report, so I could fight the Universal Default designation with hard evidence. I should have contacted the local legal clinic for advice and a strongly worded letter. But, at the time, I had no clue how I could prove that I hadn't missed payments on anything. (Running a new business, I didn't have a lot of money to hire a lawyer).
If I had gone into Universal Default because of an unknown credit line reduction, I would fight it with every resource available to me. It's one thing to invoke Universal Default for an action the consumer should have known about (a late payment); it's quite a different and dirty and sleazy and most-likely-illegal thing to invoke Universal Default for an action the bank took, which the consumer wouldn't have known about until after exceeding a lowered credit limit.
If I went into Universal Default for exceeding a lowered credit line before receiving notice that the credit line was lowered, I would become the squeakiest wheel the bank ever heard. I would make a complaint with http://www.consumer-action.org/ and http://www.consumersunion.org/. I would be willing to testify to Congress and/or tell my story to the media. And you bet your buttons I would contact every one of my elected representatives, state and federal, asking for help. Now that we taxpayers are direct investors in the credit card companies, our government reps are sort of like the banks' unofficial, unwanted Board of Inept Directors. I think that's a bad thing, but if some good can come of that bad thing, then I'd use it. Banks want continuing help from the government, so they are probably a little more responsive to Congresspeoples' inquiries right now - and it wouldn't hurt for our reps to better understand how these banks really do business.
Interesting reading: http://www.consumer-action.org/news/articles/2008_credit_card_survey/ Note that these are survey responses by banks. I can tell you right now that some of the answers - from my own card issuer(s) and those I've read junk mail from recently - are flat-out wrong. Citibank's response to "Would you ever reduce my credit limit?" was No. But it's interesting what the banks will admit (like charging a late fee if the due date is a weekend or holiday when they are closed).
For that project I mentioned, I charged many thousands of dollars of equipment to my personal credit card. I had worked with my particular client long enough to know, without a doubt, that they would pay on time once the project was complete.
Around the same time, Chase, the company that owned my credit card, notified me that I was in Universal Default and my interest rate would now be 29%. I called to ask why, and they said I had made a late payment to someone. They would not tell me who was reporting the late payment. They would not reconsider their decision, and no one at the company would tell me, specifically, why I was in Universal Default. Now, many years later, I realize that the AT&T Cingular snafu was right around the same time - but, back then, I didn't know what Chase was talking about. So I had no choice but to pay the usurious interest rate until I could pay off the account. If Chase had simply raised my interest rate (absent the declaration of Universal Default), I could refuse to accept the higher rate, close my account, and pay the balance at the prior interest rate. In Universal Default, I had no such right of refusal. My interest rate climbed 19% immediately, retroactively (on balances charged at the lower rate), and with no recourse.
Meanwhile, Universal Default can be invoked by other creditors (that's why it's Universal - if one company says you're in default, any other company with Universal Default can apply Universal Default terms to your account). So my backup line of credit was pulled. I ended up selling my second car to get through the pinch, and, of course, I cancelled my Chase account. I will never do business with them again. Ever.
I was very, very fortunate that my Universal Default nightmare only lasted a few months before I was able to tell Chase to shove my full and final payment up their, um, closed accounts file. In the meantime, I got an ugly glimpse of Universal Default. I learned one of the unanticipated risks of carrying a balance on credit cards, and I changed how I manage money.
If you carry a balance on your credit cards, it might benefit you to become positively paranoid about avoiding Universal Default. Make sure that every bill is paid on time. Check your credit limit online in between billing periods. And pay off that balance as quick as you can, because banks are looking for new sources of revenue right now.
I should have fought back.
In retrospect, I accepted Chase's actions far too easily. I should have combed through the original contract terms to find out what rights I had to protest Universal Default. I should have gotten a copy of my credit report, so I could fight the Universal Default designation with hard evidence. I should have contacted the local legal clinic for advice and a strongly worded letter. But, at the time, I had no clue how I could prove that I hadn't missed payments on anything. (Running a new business, I didn't have a lot of money to hire a lawyer).
If I had gone into Universal Default because of an unknown credit line reduction, I would fight it with every resource available to me. It's one thing to invoke Universal Default for an action the consumer should have known about (a late payment); it's quite a different and dirty and sleazy and most-likely-illegal thing to invoke Universal Default for an action the bank took, which the consumer wouldn't have known about until after exceeding a lowered credit limit.
If I went into Universal Default for exceeding a lowered credit line before receiving notice that the credit line was lowered, I would become the squeakiest wheel the bank ever heard. I would make a complaint with http://www.consumer-action.org/ and http://www.consumersunion.org/. I would be willing to testify to Congress and/or tell my story to the media. And you bet your buttons I would contact every one of my elected representatives, state and federal, asking for help. Now that we taxpayers are direct investors in the credit card companies, our government reps are sort of like the banks' unofficial, unwanted Board of Inept Directors. I think that's a bad thing, but if some good can come of that bad thing, then I'd use it. Banks want continuing help from the government, so they are probably a little more responsive to Congresspeoples' inquiries right now - and it wouldn't hurt for our reps to better understand how these banks really do business.
Interesting reading: http://www.consumer-action.org/news/articles/2008_credit_card_survey/ Note that these are survey responses by banks. I can tell you right now that some of the answers - from my own card issuer(s) and those I've read junk mail from recently - are flat-out wrong. Citibank's response to "Would you ever reduce my credit limit?" was No. But it's interesting what the banks will admit (like charging a late fee if the due date is a weekend or holiday when they are closed).
Friday, November 28, 2008
Reduced credit limits; Big Deal
After Citibank lowered my credit limit, I got to thinking. Citibank claims they mailed (the undated) notification on November 5th, but I received it on Nov. 26th, the day before Thanksgiving. Citibank e-mails me balance transfer offers, but they didn't e-mail me about changing my account terms. If I were a different consumer, this could have been disastrous. I had 3 weeks to unknowingly exceed my new, lower credit limit - racking up over-the-limit fees and falling into Universal Default. Most of my mail arrives within 3 days - why Citibank's notice took 21 days is sheer mystery. But that 21 day delay in notification effectively made the credit limit reduction retroactive - I found out about it on Nov. 26th, but it took effect 3 weeks before I knew anything about it.
Consider a consumer carrying a moderate $2,000 balance out of a $6,000 credit limit. If Citibank lowered his limit to $4,000 on November 5th and he bought 4 plane tickets on November 10th for a Thanksgiving trip, he could easily max out his card long before coming home to notification of the credit line decrease. Buying $2,000 plane tickets at 10% interest - suddenly becomes a major offense. By exceeding the new and unknown lower credit limit, he gets hit with $30 fees every month he's over his new credit line, and 29% interest rates eating up $100 a month before he can pay the balance down.
For some consumers, especially ones carrying a lot more than a $2,000 balance, going into Universal Default can push them over the edge, from struggling-but-making-it to "f- it, why bother paying my credit card when I cannot possibly get ahead of it at 30% interest?" A credit card holder who didn't buy a McMansion, who is trying to do the right thing, trying to pay down debt and build up savings and work up to a better spot in life, reads every day about homebuyers and bankers and brokers and insurance companies getting bailed out. No bailout for the credit card debtor, but she keeps making her payments, trying to whittle it down, and then WHOMP! Out of nowhere, the bank changes the rules and she's suddenly over her head without doing a damned thing to fall into the abyss. Why should she keep making payments anymore? Her share of the financial bailout - counting all the cash the Fed is pumping into liquidity along with the direct bailouts of financial institutions - is over $20k++ and suddenly the bank needs to cheat her out of an extra $100 a month by telling her extra slowly that her credit line has been cut right before the holidays.
Maybe our imaginary consumers shouldn't carry a balance at all. It would be good for our economy, in the long run, if people consumed a little less than they produce. We should all carry a balance - in our savings accounts. But we don't, and the path from here to that economic utopia will be painful for everyone. And if the banks' greed and stupidity pushes people into Universal Default and that causes some of them to go into genuine, not-making-payments default, well, gosh darn it, those bastards will be back for more bailout money next year. I don't object to lowering credit limits, and I only object to tightening credit in the sense that "hey, that's not why the government is giving you bailout money!" I object to the sleazy way the banks are doing this, trying to wrest a couple more nickels out of people through downright unethical behavior.
The government is trying to loosen credit and persuade consumers to go out and stimulate the economy. The banks receiving bailout money are doing the exact opposite - they're restricting credit availability to everyone, even great credit risks, and then they're whomping innocent consumers with changes that can push them over the edge. Are the credit card companies trying to push default rates up, to justify yet another round of bailout payments? What other justification could they possibly have for virtually retroactive account changes?
Consider a consumer carrying a moderate $2,000 balance out of a $6,000 credit limit. If Citibank lowered his limit to $4,000 on November 5th and he bought 4 plane tickets on November 10th for a Thanksgiving trip, he could easily max out his card long before coming home to notification of the credit line decrease. Buying $2,000 plane tickets at 10% interest - suddenly becomes a major offense. By exceeding the new and unknown lower credit limit, he gets hit with $30 fees every month he's over his new credit line, and 29% interest rates eating up $100 a month before he can pay the balance down.
For some consumers, especially ones carrying a lot more than a $2,000 balance, going into Universal Default can push them over the edge, from struggling-but-making-it to "f- it, why bother paying my credit card when I cannot possibly get ahead of it at 30% interest?" A credit card holder who didn't buy a McMansion, who is trying to do the right thing, trying to pay down debt and build up savings and work up to a better spot in life, reads every day about homebuyers and bankers and brokers and insurance companies getting bailed out. No bailout for the credit card debtor, but she keeps making her payments, trying to whittle it down, and then WHOMP! Out of nowhere, the bank changes the rules and she's suddenly over her head without doing a damned thing to fall into the abyss. Why should she keep making payments anymore? Her share of the financial bailout - counting all the cash the Fed is pumping into liquidity along with the direct bailouts of financial institutions - is over $20k++ and suddenly the bank needs to cheat her out of an extra $100 a month by telling her extra slowly that her credit line has been cut right before the holidays.
Maybe our imaginary consumers shouldn't carry a balance at all. It would be good for our economy, in the long run, if people consumed a little less than they produce. We should all carry a balance - in our savings accounts. But we don't, and the path from here to that economic utopia will be painful for everyone. And if the banks' greed and stupidity pushes people into Universal Default and that causes some of them to go into genuine, not-making-payments default, well, gosh darn it, those bastards will be back for more bailout money next year. I don't object to lowering credit limits, and I only object to tightening credit in the sense that "hey, that's not why the government is giving you bailout money!" I object to the sleazy way the banks are doing this, trying to wrest a couple more nickels out of people through downright unethical behavior.
The government is trying to loosen credit and persuade consumers to go out and stimulate the economy. The banks receiving bailout money are doing the exact opposite - they're restricting credit availability to everyone, even great credit risks, and then they're whomping innocent consumers with changes that can push them over the edge. Are the credit card companies trying to push default rates up, to justify yet another round of bailout payments? What other justification could they possibly have for virtually retroactive account changes?
Will this reduce my credit score?
A couple of things that go into our credit scores include how much of our credit lines we have ever used. The credit report details our current balance, high balance, and credit limit. If a consumer runs their credit card up to the limit and then goes over the limit, it looks - to the facile programming logic of a credit-scoring computer - like that person is financially irresponsible. It's not good to exceed your credit limit. But if your credit limit gets lowered to less than your highest balance, it can look like you have been irresponsible in keeping track of your spending.
When Citibank cut my credit limit, it may have reduced my credit score. I don't remember if I've ever used the full credit line. But, in any event, the proportion of my high balance to my new credit limit will be less favorable. Closing my oldest charge account won't help, either - FICO takes into account the age of accounts, with older accounts showing a longer history of responsible payment. Since I don't have other revolving debt, the proportional hit will be bigger.
If this lowers my credit score - especially since I still live in Sacramento metro, one of the areas hardest hit by the housing downturn - my other credit cards could potentially reduce my credit limits or close my account. No big deal; if all of my credit cards were terminated, I could still use my rewards ATM/visa card, but it wouldn't give me the consumer protections that credit cards provide.
When Citibank cut my credit limit, it may have reduced my credit score. I don't remember if I've ever used the full credit line. But, in any event, the proportion of my high balance to my new credit limit will be less favorable. Closing my oldest charge account won't help, either - FICO takes into account the age of accounts, with older accounts showing a longer history of responsible payment. Since I don't have other revolving debt, the proportional hit will be bigger.
If this lowers my credit score - especially since I still live in Sacramento metro, one of the areas hardest hit by the housing downturn - my other credit cards could potentially reduce my credit limits or close my account. No big deal; if all of my credit cards were terminated, I could still use my rewards ATM/visa card, but it wouldn't give me the consumer protections that credit cards provide.
Citibank: The Grinch Who Stole my Credit Limit
I'm in a real-estate-meltdown zip code. I've read about credit card companies terminating and reducing credit lines for folks in declining industries, folks who charge at rent-to-own stores, and even folks in the wrong zip code. But I continue to receive credit card solicitations. I thought my over-800 credit score made me immune to credit cutbacks. I was wrong.
Wednesday's mail contained a note from Citibank (and another pre-approved Gold card from American Express). I almost shredded Wednesday's letter, unread, since it looked just like all the balance transfer offers they send me every couple of months. I've been a Citibank customer for more than 15 years, and I've never missed a payment. I don't carry any debt outside of a small mortgage, but I do use my rewards cards for everything from purchases to monthly utility bills. I get hundreds of dollars in rewards checks this way.
My Citibank card doesn't offer rewards, and the interest rate is several points higher than my other cards (except AmEx). So I rarely use it. They do offer have a Virtual account number tool that lets me create one-time-use virtual credit cards for online transactions, so I do use my Citibank card a couple times a month. For a while there, they gave me a rebate on hardware store purchases, and I used the card a LOT more until the offer expired.
Now Citibank has cut my credit line - because I don't use their card enough. I know I'm not a super-profitable customer, since I don't carry a balance at 10%. But then, too, they'll never have to write off a penny on me. A couple percent in (ATM) transaction fees makes my bank plenty happy - wouldn't Citibank benefit from transaction fees on low-risk transactions, too?
If you ran a credit card company, wouldn't you try to keep long-term, never-missed-a-payment, no-debt customers happy? If they weren't using my card anywhere near as much as they used other cards, I would try to make my card more valuable to them. But Citibank decided to punish me for not charging a lot to their card nor carrying a balance with them. So I closed my account.
Perhaps I overreacted, since the reduction was minimal. They still left me with enough credit to buy a small car, but 1) I'm tired of the junk mail asking me to transfer my (non-existent) loans to my Citibank card, every flipping month; 2) I'm still a little burned on my Citibank stock losses (brilliant recommendation from Morgan Stanley, eh?); and 3) that's just bad business and I don't like to do business with companies that don't get it. So that's one less stack of unsolicited balance transfer checks to shred every month. Yippee!
Wednesday's mail contained a note from Citibank (and another pre-approved Gold card from American Express). I almost shredded Wednesday's letter, unread, since it looked just like all the balance transfer offers they send me every couple of months. I've been a Citibank customer for more than 15 years, and I've never missed a payment. I don't carry any debt outside of a small mortgage, but I do use my rewards cards for everything from purchases to monthly utility bills. I get hundreds of dollars in rewards checks this way.
My Citibank card doesn't offer rewards, and the interest rate is several points higher than my other cards (except AmEx). So I rarely use it. They do offer have a Virtual account number tool that lets me create one-time-use virtual credit cards for online transactions, so I do use my Citibank card a couple times a month. For a while there, they gave me a rebate on hardware store purchases, and I used the card a LOT more until the offer expired.
Now Citibank has cut my credit line - because I don't use their card enough. I know I'm not a super-profitable customer, since I don't carry a balance at 10%. But then, too, they'll never have to write off a penny on me. A couple percent in (ATM) transaction fees makes my bank plenty happy - wouldn't Citibank benefit from transaction fees on low-risk transactions, too?
If you ran a credit card company, wouldn't you try to keep long-term, never-missed-a-payment, no-debt customers happy? If they weren't using my card anywhere near as much as they used other cards, I would try to make my card more valuable to them. But Citibank decided to punish me for not charging a lot to their card nor carrying a balance with them. So I closed my account.
Perhaps I overreacted, since the reduction was minimal. They still left me with enough credit to buy a small car, but 1) I'm tired of the junk mail asking me to transfer my (non-existent) loans to my Citibank card, every flipping month; 2) I'm still a little burned on my Citibank stock losses (brilliant recommendation from Morgan Stanley, eh?); and 3) that's just bad business and I don't like to do business with companies that don't get it. So that's one less stack of unsolicited balance transfer checks to shred every month. Yippee!
Thursday, November 27, 2008
Friday, November 14, 2008
Treasury Draws Fire for Shift in Rescue - WSJ.com
Treasury Draws Fire for Shift in Rescue - WSJ.com: "Another problem: If the government purchased securities from banks, they [the banks] would likely have to record further losses on the markdown price, which many could ill afford."
You have gotta be kidding. I know I'm just a podunk hicktown Sacramento county nobody, but this was obvious from day one. The brain trust leading us throught the greatest financial crisis of our generation didn't realize that you can 1) buy securities from the banks at a price that is fair to the taxpayer; 2) buy securities from banks at a price that shores up their net assets (pick one). In the midst of a financial crisis, it might be nice and generous to pay banks the highest justifiable price for the securities, but, if the securities were really worth that price, the banks could sell them for that price on the open market.
You have gotta be kidding. I know I'm just a podunk hicktown Sacramento county nobody, but this was obvious from day one. The brain trust leading us throught the greatest financial crisis of our generation didn't realize that you can 1) buy securities from the banks at a price that is fair to the taxpayer; 2) buy securities from banks at a price that shores up their net assets (pick one). In the midst of a financial crisis, it might be nice and generous to pay banks the highest justifiable price for the securities, but, if the securities were really worth that price, the banks could sell them for that price on the open market.
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