Money Musings - Personal Finance Blog

Automaker Bailouts: My View

2008-11-19T09:40:00.000-06:00

On my recent "Citibank Rates" post, reader Stephanie asked:

On a separate note, Michael, what are your thoughts on the possible auto company bailout (or so-called loan)?

If I remember, you're from Michigan, like myself and work for a car dealership? I would be really interested to hear your perspective.

I don't like the idea of a bailout, but I'm worried for my home state!

Stephanie is correct that I do fixed-ops (service/warranty) work for a regional auto group, though I'm not anywhere near Michigan.

Yes, our auto group is heavily GM-weighted. However, of the three carlines I personally handle, only one is GM-branded. (It's a Cadillac store.)

So, Stephanie, since you asked nicely, here's my opinion:

I am sickened and repulsed at what's going on. I'm embarrassed, at a deep personal level, that a company with which I'm affiliated is begging at the taxpayer window. And despite any ramifications for my personal employment, I am singularly against any automaker bailout — just as I've been against every bailout foisted upon the American public so far.

I've debated for hours on whether or not to post on this topic, since it hits so close to home for me. I could probably write about it for hours, too, but I won't.

I will simply say that if I were, in fact, to contact my congressmen (as the multiple emails from GM have advised dealership personnel to do) ... well, those GM suits would be less than pleased at the stance I'd take with my representatives.

In my world, there is NOTHING more pathetic than a broken, mismanaged corporation who sees fit to go begging for Uncle Sam handouts when TSHTF.

After decades of knuckle dragging and in-the-ditch decision-making, it is time for the Big Three to take their medicine. And that means bankruptcy.

(Though I suspect that, in the end, some of that sweet sweet gubmint cash will once again delay Detroit's day of reckoning.)

Hopefully, Stephanie, this answers your question. I'll finish up by seconding a thought from Senator Richard Shelby:

I don't think they have immediate plans to change their model, which is a model of failure. [Source]

Citibank Rates: Up Up and Away

2008-11-17T09:10:00.005-06:00

I began IYM and Money Musings back in April 2002 with two overriding (and decidedly unAmerican) tenets:

1) Get out of debt.
2) Build savings.

Here I am, over six years later, and every week's mail brings me more and more evidence that being debt-free (except for the mortgage!) is the way to go. (Future bailouts and debt jubilees notwithstanding.)

Take, for example, this notice from Citibank, which we received just last week:

NOTICE OF CHANGE IN TERMS AND RIGHT TO OPT OUT

THE CHANGES. We are changing your card agreement. The changes will be effective for all billing periods beginning on or after December 3, 2008. The changes will be effective whether or not you receive a billing statement.

• We are increasing your variable APR for purchases. Your purchase APR will equal ... a minimum APR of 16.99%.

• We are increasing your variable APR for cash advances. Your cash advance APR will equal ... a minimum APR of 21.99%.

• We are increasing the default APR to equal the greater of (1) the U.S. Prime Rate plus up to 23.99% or (2) up to 29.99%.

There's more (ain't there always?) regarding increased surcharges for foreign purchases and so on, but for Joe Sixpack, the explosive stuff is above.

For my part, it's been pretty engaging to watch, on a blow-by-blow basis, the effects of massive economic deleveraging — of which I'd consider such term changes a part. It's not nearly so neat, of course, if you're carrying balances on your plastic. If that's the case, then the benefits you're seeing from $2/gallon gas just got vacuumed up by Citibank.

On a carried balance of $4k, your monthly interest tab just went from $33 to $56.

On a balance of $10k, your monthly interest charges just climbed from $83 to $142.

It should be noted here that Citibank (whose stock now trades in the single digits, at a price last seen in 1996) is instituting the above changes under no small anchor of duress. The federal government is doing what it can to shove rates lower; banks are doing what they can to ensure consumer rates move higher. They're tightening terms and limits on a wide basis so that even "good credit risk" folks like my wife and I (credit scores @ 800-ish; last late payment was early 1990s) get to "pay" for the profligacy of (1) other consumers, (2) the banks themselves.

Personally, I don't care a whit that the minimum rate on my Citi Dividend Mastercard just went to 16.99 percent. With no non-mortgage debt of any kind, I use the card for the cash rewards and pay the thing off every month. In this regard, Citibank provides me little more than a convenience. Raising my rate is a big fat charbroiled Nothingburger.

On the other hand, if credit-card securitization continues to meet auction failure, then all bets are off. From the Marketwatch story above:

Earlier this month, Citigroup said that it lost $1.4 billion in the third quarter from credit card securitizations and that it expects such losses will continue, possibly reaching record levels in 2009.

The result compared to a gain of $169 million from credit card securitizations in the year-earlier period.

Those comments showed that Citi, like other firms, was unable to package up, or securitize, the loans it makes to customers and sell them into the secondary market.
A higher interest rate would make the difficult-to-sell loans more attractive for secondary market buyers, as well as make them more productive should Citi have to keep them on their own balance sheet.

High-FICO, convenience-only card users (like me) who can't imagine (not like me) their plasti-credit lines largely vanishing altogether in the midst of economic turmoil might do well to consider just that eventuality.

Given what's occurred in the last year or so, I for one have learned to shun the words, "Oh, there's no way that can happen."

Free Money

2008-11-13T09:06:00.000-06:00

Get yours here:

U.S. Treasury: Application for Free Money (pdf)

(Note: Offer available for limited time only. Offer limited to banks and bank holding companies.)

Circuit City Takes Eleven

2008-11-11T09:06:00.000-06:00

Two years ago, the article was entitled "Buying Opportunity Seen for Best Buy, Circuit City" [source]. At the time, Circuit City's shares traded at roughly $25/share:

�Over the past few years, shares of Best Buy and Circuit City have tended to trade lower immediately following Wal-Mart�s event and rebounding shortly thereafter,� said UBS analysts in a report. �We recommend using any Wal-Mart-related weakness in the consumer electronics stocks as a particularly attractive buying opportunity.�

...UBS said Wal-Mart�s emergence into the consumer electronics market gave investors the jitters. Analysts urge them not to fret, considering stores such as Best Buy or Circuit City, the largest of their kind in the U.S., specialize in consumer electronics and will therefore always have an edge on Wal-Mart.

UBS said in the report, �We view these concerns as overblown.�

And today we get "Circuit City Files for Bankruptcy," courtesy of AP/Yahoo Finance [source]:

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.

Before being halted, Circuit City's shares traded at (Chapter!) eleven cents.

Buying opportunity, indeed.

Let's Just Give Them ALL The Money

2008-11-10T09:04:00.001-06:00

If you're not in the mood to be squarely pissed off, then you'll want to ignore the following post at Naked Capitalism:

Naked Capitalism: AIG: The Looting Continues

After a while, it becomes fairly easy to see how guillotines became such a popular remedy in the Olden Days.

Those Chrysler Commercials...

2008-11-03T08:15:00.000-06:00

... that guaranteed $2.99/gallon gas sure look dumb now, don't they?

So if you bought a Chrysler back then, you now have:

1) A guarantee to be able to pay $2.99/gallon for gas that, in my area, is going for about $2 per gallon;

2) A hefty four-wheeled liability whose value dropped like a rock the minute you cleared that last dealership speedbump;

3) One of the least-reliable makes on the road; and

4) The prospect of watching later models come out at ever-cheaper prices as U.S. automakers do anything and everything to sell cars into a recessionary environment. (Which will further exacerbate #2 above, mind you.)

Woo hoo. Gotta be feelin' good about that purchase.

(BTW, today, one can fill up here in Norman for $1.99/gallon. Seeing that price just feels ... odd.)

Student Loan Dodgers

2008-10-29T09:07:00.000-05:00

Interesting story at CNN:

CNN: Students Head Overseas to Evade Student Loans

I've occasionally discussed student loans at IYM. I posit that they are NOT the "good debt" that so many gurus espouse them to be. Rather, I suppose I'd call them "not-quite-as-bad debt." And really, I think I'm being generous.

Once student loans clog up your personal balance sheet, you're hooked. File BK, if you like, but those student loans aren't going anywhere. So what have some young'uns done to escape their student-loan responsibilities?

They've run overseas.

Like this Chris guy, who rang up $160k of student-loan debt on his way to a master's degree in music.

I am upset at myself. I could have gone to a cheaper school. But I'm most angry at the fact that for anyone who has debt that's not student loan debt, there's relief. You can get into $150,000 worth of credit card debt and you can declare bankruptcy and you can go on with your life. But with student loans, you're being punished for being a better person.

Punished for being a better person, Chris?

Not hardly.

You're being punished for making shaky decisions. You paid over-inflated rates for schooling which bestowed little future earning value, and you used taxpayer-backed funds to do it. Effect, meet cause.

Glad to see your way of dealing with YOUR crappy decisions, Chris, is to cut and run. Let someone else hold the bag. Paying all those loans back yourself? No. That'd be mean. And unfair.

Enjoy your time overseas, you "better person," you.

ING's Electric Orange $20 Promo

2008-10-28T08:04:00.002-05:00

Just received an email from ING Direct regarding an easy $20 bonus for my Electric Orange checking account...

According to the promo, if I use my Electric Orange debit card to make at least five purchases of $10 or more during the month of November 2008, ING Direct will spiff me $20. Not bad. If you have an EO account, be on the lookout for this:

I don't use my Electric Orange debit card at all — we prefer to put everything on our cash-back credit card, and pay the balance in full each month — but for an easy $20 like this, I'll darn sure use the ING debit card.

If you don't yet have an Electric Orange account but are interested, you can read my Electric Orange review for more info on ING's paperless checking account (with which I'm very pleased, by the way).

401k Tax Break Under Microscope

2008-10-27T09:07:00.000-05:00

Pretend you're a government with an out-of-control spending agenda. Your debt just splashed past the $10 trillion mark; your budget deficit is threatening to enter the trillion-dollar zone in the upcoming year. And there's nary of glimmer of economic hope on the horizon.

What do you do?

Ensure that you can borrow more going forward.

Who do you borrow from?

A nation of involuntary lenders — lenders created by legislation.

What about the interest you'll pay?

No problem. Being able to determine the interest rate yourself means you'll pay low, low rates indefinately!

Investment News: House Considers Ending 401k Tax Breaks

That linked article isn't the first I've heard of this, unfortunately. The idea is to kill off the tax advantages of the 401k and replace it with:

Under Ms. Ghilarducci's plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5% of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3% a year, adjusted for inflation.

The moral of this story? Never underestimate the ability of a government to ensure its ability to grab cash from a captive audience.

"I want to stop the federal subsidy of 401(k)s," Ms. Ghilarducci said in an interview. "401(k)s can continue to exist, but they won't have the benefit of the subsidy of the tax break."

I don't know about you readers, but the fact that congress-folks are even contemplating this makes me want to drive my fist into a wall.

But we shouldn't be surprised, should we?

This country's jaunt toward all-out socialism was already well underway.

Everybody Wants Some

2008-10-23T09:27:00.000-05:00

"Number nine? Number zero-nine? The Bailout Desk is now serving number nine, please."

And so the automakers belly up for a second helping, it seems:

NY Times: A Push for Bailout to Help Car Buyers

When someone first linked me to this story, I thought it was a joke. But it wasn't.

No, really. A bunch of lawmakers do want taxpayer money to be used to "restore liquidity" and help consumers buy new cars. This quote (from the drafted letter to the Treasury) is just precious:

In this current economic environment, it is imperative that the government ensures that liquidity is restored so that the U.S. auto industry is able to function until normalcy is restored to credit markets.

Well, let's see: As of last week, Reuters noted that GMAC had noosed its lending activities such that only consumers with credit scores of 700 or better would be able to finance through them.

Oh, and GMAC wants to see decent down payments, too.

And no refinancing of upside-down chunks of previous cars into new GMAC loans.

Obviously, such egregious and abnormal credit restrictions would indicate utter blasphemy: that GMAC might actually want to issue loans which have some moderate chance of being paid back.

Heavens to Betsy.

An auto-finance arm wanting to ensure its loans are paid back?

Outrage, I tell you.

The government simply must Do Something.

[/sarcasm]

Depression-Era Reading Rundown

2008-10-20T09:02:00.002-05:00

Over the last several months, my reading list has been predominantly decorated with titles related to history and economics. I'd like to spend a few moments discussing a couple of the more notable titles, because I suspect that there are a least of handful of my readers who might be interested in the perspective.

Please note that while the four books I'm discussing are very much Great-Depression-related, this does not mean that I'm expecting another Great Depression — or even a Greater Depression. The simple truth is that I have no idea what's coming, and how much more difficult (if at all) things might get.

Suffice to say that over the last year, I've done my share of research and idea-swapping regarding the current credit crisis. At present, put simply, I have scant faith in CEO bankers and bureaucrats to "do the right thing" for anyone other than themselves. The rest of us simply get to plan as best we can, mostly hoping that The Benevolent Fist of Government™ (a term coined, as best I can tell, by a CR reader) doesn't smash to bits something we actually need. (Like trust in free markets, for instance. And trust in financial institutions, for another.)

Anyhow ... on to the books.

The Great Crash, 1929, by John Kenneth Galbraith
If you're looking for the most highly-acclaimed and well-written macro rundown of the 1929 stock market crash, this is your bullseye. The Great Crash, first published in 1955, is absolutely fascinating, and worthy of multiple re-reads. Galbraith's take on the stock market collapse is, for lack of a better term, stunningly literary.

The values of a society totally preoccupied with making money are not altogether reassuring. During the summer, the Times accepted the [advertising] copy of a dealer in the securities of the National Waterworks Corporation, a company which had been organized to buy into city water companies. The advertisement carried the following acquisitive thought: "Picture this scene today: If by some cataclysm only one small well should remain for the great city of New York — $1.00 a bucket, $100, $1,000, $1,000000, then the man who owned the well would own the wealth of the city." All cataclysmically minded investors were urged to get a long position in water before it was too late.

And I love this snippet:

Mr. Mellon did not know [if prosperity would continue into 1929]. Neither did any of the other public figures who then, as since, made similiar statements. These are not forecasts; it is not supposed that the men who make them are privileged to look farther into the future than the rest. Mr. Mellon was participating in a ritual which, in our society, is thought to be of great value for influencing the course of a business cycle. By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen, the faith in the efficiency of such incantation is very great.

The Great Crash is a page-burning read, and folks ways smarter than me have hailed it as a historical and economics classic. All such compliments are deserved ... and then some.

Rainbow's End: The Crash of 1929, by Maury Klein
Klein's 2001 retelling of the crash is much longer and more detailed than Galbraith's, and not quite as easy a read. Its day-by-day rundowns are almost footnoted into oblivion, which I suppose appeals to the truly over-the-top economics geeks among us. Most other readers, looking for good writing and timeline flow, will probably either put the book down for good or else shrug their way through it.

Rainbow's End begins its story well before 1929 (think early Coolidge years) and ends with a prologue discussing 1930. It's much more of a blow-by-blow historical account, and loaded with contemporary anecdotes, than is The Great Crash.

But to some observers the [1920s Florida real estate] frenzy had revealed, as historian George Soule noted, "that large numbers of people were in a mood in which they believed that money could be made almost miraculously out of the mere growth of the country." That mood or fever had run its course in Florida, at least for a time, but it did not go away. Instead it found another promising venue in which to pan for instant gold. The fact that the collapse had scarcely ruffled the nation's economy reassured those in financial markets who recognized that stocks rather than real estate were fast becoming the best game around. As the Florida rainbow vanished, leaving as always far more losers than winners in its wake, it was no accident that yet another rainbow began taking shape at almost the same time in faraway New York City.

The Forgotten Man: A New History of the Great Depression, by Amity Shlaes
Recently issued in paperback, Shlaes' Forgotten Man focuses largely on government's policy reactions to the Depression as it unfolded, spread, and took its seemingly endless hold. There's a lot of info here on the people behind the story — bureaucrats, politicians, and various other unwilling economists, I mean — and not quite as much on the Forgotten Man himself. I was rather hoping the book would lean the other way, given its title.

Here's a passage where Shlaes discusses how towns and other entities took to issuing their own forms of currency:

Obscure nonprofits and citizens' groups, towns and businesses, were all creating money: the Business Men's Club of Oak Hill, West Virginia, issued coins. The Lane Bryant Store issued money in Indianapolis, non fifty minutes from Willkie's hometown. City and state governments also got into the money business. The state of Washington issued money, as did the Port Authority in New York and the village of Chatham, New York (its money was orange). Sometimes towns paid their workers in scrip; Hawarden, Iowa, was one. A clothing store owner reported that he "even paid a life insurance premium to a Hawarden agent in scrip." In Inwood, a "Mutual Exchange" on upper Broadway created credit tokens for trading among other exchange members. Thus, for example, a farmer near New Hope, Pennsylvania, asked the exchange to send him workmen. They came and were paid for the construction job with 134 bushels of winesap apples. Some of hte apples were then sold for credits, in order to increase the credits' circulation; some were even converted to jelly, promptly labeled "Barter Brand." "Barter apples, the best you ever ate."

The Forgotten Man is an excellent historical account of the Great Depression. It's also a book which dispels some popular high-school history-class myths. (Herbert Hoover was not a frigid and heartless do-nothing, and FDR's New Deal policies usually had a nasty way of creating more problems than they solved.)

Down & Out in the Great Depression: Letters from the Forgotten Man, by Robert S. McElvaine
What personal stories I didn't get from The Forgotten Man, I was pummeled with in Down & Out. The title tells you precisely what this is — a collection of hundreds of letters written by the people who suffered through the Depression. If you're in the mood to have your heart cut out of your chest, slapped to the ground, and then boot-stomped into mush, well, Down & Out is the read for you. You'll not find any Hallmark material in these pages.

A quick sample of the content, misspellings and all:

March 29 — 1935

Dear Mrs. Roosevelt: I am writing you a little letter this morning. Are you glad it spring I am. For so manny poor people can raise some more to eat, you no what I am writing this letter for Mother said Mrs Roosevelt is just a God mother to the world and I thought mabe you had some old clothes you no Mother is a good sewer and all the little girls are getting Easter dresses And I though that you had some you no papa could wear Mr. Roosevelt shirts and cloth I no. My papa like Mr. Roosevelt and Mother said Mr. Roosevelt carry his worries with a smile you no he is always happy. You no we are not living on the relief we live on a little farm. papa did have a job and got laid on 5 yr ago so we save and got two horses and 2 cows and a hog so we can all the food stuff we can ever thing to eat some time we don't have eni thing but we live, But you no it so hard to get cloth. So I though mabe you had some. You no what you though was no good Mother can make over for me I am 11 year old. I wish I could see you I no I would like you both. And shoes Mother wears 6 or 6-1/2. And papa wear 9. we have no car or no phone or radio papa he would like to have a radio but he said there is other thing he need more. papa is worried about his seed oats. And one horse is not very good. But ever one has't to worrie, I am send this letter with the pennie I get to take to Sunday school Mother give me one so it took 3 week. Cause Mother would think I better not ask for things from the first Lady. But Mother said you was an angle for doing so much for the poor. And I though that would be all rite this is some paper my teacher gave for Xmas. My add is

C. V. B. [female]
Rushsyhania, Ohio

Conversely (and more importantly, I'd argue), if you would like to gain a new and tremendous appreciation for the nowhere-near-disaster economic conditions we've enjoyed in the years since World War II, I can think of no other book which achieves it with such brutal efficiency.

Why I Distrust Politicians ...

2008-10-19T15:12:00.001-05:00

... and am a registered Independent voter. This sums it up in a nutshell:

AP News: Mortgage firm arranged stealth campaign

Washington, D.C.: Home of The Best Votes Money Can Buy.

There are no clean hands.

And my apologies to readers for a largely off-topic post. Put simply, this was something I wanted to get off my chest, and Sunday afternoon seemed the best time to do it.

Cracks in Debt Society

2008-10-16T09:44:00.001-05:00

Here's a tidbit from Adam Levitin, writing for the Credit Slips blog:

The US economy is fueled by consumer spending. In order for the economy to grow, consumer spending has to grow, and consumer spending is fueled by debt. Consumers largely spend not out of current assets or current income, but out of future income. Consumers are able to do this because of their assumptions about their current assets — especially their retirement savings. Unfortunately, consumer behavior for the past seven years has been shaped by the unrealistic expectations formed in a bubble. Consumers have saved less because they thought they had a bigger investment cushion. This sets us up for a retrenchment in consumer spending, which is exactly what Treasury does not want to see. In order to keep consumer behavior the same, Treasury needs to reinflate that bubble. But doing so just sets us up for another crash.

My thoughts: Levitin's words are spot-on. That is precisely where we are.

We have a massive (bad) debt problem, and our government's collective answer seems to be "Add more debt!"

Is it really any surprise?

Incredible Shrinking Coupons

2008-10-14T09:28:00.001-05:00

Maybe it's a seasonal thing — I dunno.

My wife, Lisa, does a fair amount of couponing. Lately she's noticed that many coupons are dropping in value. For instance:

And then there's sugar:

And the prime component of my favorite sandwich, the BLT:

Could this be because we're heading into the fall holiday season, where consumers are less likely to price-compare on foodstuffs and just purchase whatever's within easy reach?

George Soros Knows

2008-10-13T09:32:00.000-05:00

Another very watchable edition of Bill Moyers' Journal on PBS this week; this time Moyers sits down with billionaire investor George Soros to get his thoughts on the world's current financial tribulations:

PBS: Interview w/George Soros

Set aside about 25 minutes for this one.

A few of Soros comments which stuck with me:

And, you see, it wasn't only in the housing market. There were all kinds of other financial instruments. So there was not just one bubble. I describe in my book there is the housing bubble. But this housing bubble, when that burst, it was only the detonator that exploded the bigger bubble, the super bubble.

Which is this 25 years of constant credit expansion using greater and greater leverage. The amount of credit in the economy has been growing at, I don't know, I don't know the exact figure, but maybe at least twice as fast as the economy itself. I think it's more like three.

And now, suddenly, you have a contraction of credit. And it's a sudden thing. And it's a period of great wealth destruction.

And this one:

You see, for the last 25 years — the world economy — the motor of the world economy was consumption by the American consumer who has been spending more than he has been saving, all right? More than he's been producing. So that motor is now switched off. It's finished. It's run out of — can't continue. You need a new motor.

And finally, this little exchange:

BILL MOYERS: But this is disturbing, George. If everything we're doing keeps accelerating the downward negative feedback and isn't working, are you suggesting, can one insinuate from what you say that we're heading for 1930?

GEORGE SOROS: Hopefully not. But we are heading for undoubtedly very difficult times. This is the end of an era. And this is a fact.

BILL MOYERS: End of an era?

GEORGE SOROS: At the end of an era.

BILL MOYERS: Capitalism as we have known it?

GEORGE SOROS: No. No, no, no. Hopefully, capitalism will survive. But the sort of period where America could actually, for instance, run ever increasing current account deficits. We could consume, at the end, six and a half percent more than we are producing. That has come to an end.

What Matters, Exactly?

2008-10-09T08:44:00.000-05:00

Is it just me, or does this Chase commercial make all you responsible-with-money types want to hurl a blender at your TV?

"Text Chase for your credit-card balance," the narrator instructs us, "and decide what to spend in seconds."

Yeah.

Sounds like a great plan — if you want to practice HUGE FAIL. Like this guy:

One More 'How We Got Here'

2008-10-07T08:56:00.000-05:00

An excellent piece showed up on 60 Minutes tonight — one I wish all my readers, family members, and friends and coworkers would watch. You can find it here:

60 Minutes: Wall Street's Shadow Market

Set aside about twelve minutes for this one. And get ready: Folks still talk lots about "subprime," and rightfully so. But "credit default swaps" are the real elephant in the room...

10 Years of SPY Dollar-Cost Averaging

2008-10-06T08:04:00.001-05:00

For those who enjoy seeing historical market wisdom blown all to heck, I present to you the following chart:

What's that show? Well, if you had made monthly investments of $1,000 into an S&P 500 exchange-traded fund (SPY, in this case) beginning in October of 1998, your 10 years of investment discipline would now be rewarded by ... oh, a loss of $5,188. This includes dividends being reinvested, but does not include any transaction fees. So, in the real world, actual losses would be worse. (All this assumes my spreadsheet math is correct, of course. I make no guarantees!)

As of early October 2008, your investment's cost basis would be $132,121. Its value in the marketplace, however, would be only $126,933. That's a loss of $5,188, or 3.93 percent.

Making this particularly painful would be the fact that as recently as October of 2007, your account showed an unrealized gain of over $34,400.

Ouch.

Never fear, though. Dave Ramsey assures us that "good growth-stock mutual funds" will return, on average, ten or twelve percent per year. (Never mind the fact that the majority of mutual funds actually lag the performance of the S&P 500 over any given period of time.)

Stuff like this is precisely why financial gurus' relentless devotion to mutual-funds as sources of "double-digit annual returns" drives me nuts.

Total Disbelief

2008-10-02T08:02:00.001-05:00

For anyone out there who thinks the taxpayer isn't going to be financially disembowelled by the current Mother of All Bailouts (until the next, bigger one comes along), I'd suggest you take a gander at this:

Fool.com: Inside a Toxic MBS Pool

I contend that Paulson & Pals will be forced to pay NOT fire-sale prices for mortgage-backed securities like the disastrous one shown above, but rather, they'll be paying premium prices in order to recapitalize the banks (both domestic and foreign).

I will be shocked and awed if the American taxpayer, over time, does not lose hundreds of billions of dollars in this venture.

(Yeah, I'm an admitted cynic.)

And Pigs Will Fly

2008-09-25T08:55:00.000-05:00

I have deliberately restrained myself from commenting too much on the historic happenings taking place now in Washington, and, by hands-out extension, NYC.

Suffice to say that in my opinion, the U.S. taxpayer is going to take a beating in this. And I'm furious — not surprised, but furious — that we're in this position at all.

One of the things which sets me off: The current spin from supposed "experts" who state that this bailout will actually be profitable for the taxpayer. Barry Ritholtz explains it far better than I:

Big Picture: Latest Bailout Plan Spin: It's a Money-Maker!

The spin reminds me of the classic retail stock jockey. The guy has buried his clients in a series of bad trades, bad judgment, poor risk management -- all motivated by his self-interested, commission-generating trades. The only way out of the money losing mess, pitches the broker, is a big, Hail Mary trade.

Hail Mary, indeed. Let's all buy the "worst of the worst" mortgage securities in existence (we will), pay above-market prices for them (we will), borrow and/or print scads of money to do it (we will), and hope that the housing market recovers and loss rates don't worsen and values magically stabilize and then rise at a rate greater than inflation (they won't).

After listening to a fair amount of local talk radio (OKC-based) the last couple of days, I'm staggered by the amount of misconception that's out there regarding the (latest) bailout. Given what's happened, I suppose I shouldn't be surprised. Some choice snippets I recollect:

"It's just a loan. We're gonna get all our money back anyways."

"Why are we doing anything? Even if Wall Street collapses, eighty-five percent of the folks around here won't notice a thing."

"They're making a big deal out of mostly nothing, is what I think. What happens to Wall Street makes no difference to me."

"If Buffett is buying, then that's good enough for me."

Folks who think they're going to be somehow immune to all this are nuts. Folks who think that Buffett and Gross aren't "talking their book" are naïve.

Yeah, keep believing it: The U.S. taxpayer is gonna make money on this government-run Hail Mary.

Right.

And pigs will fly.

A Look Around

2008-09-22T08:36:00.000-05:00

Readers will forgive me, I hope, for not clogging up teh Interwebz with so much as a single post last week. It's just that each time I sat down to scribble something, that "something" always seemed to be just so much pocket lint in comparison to what was going on in the financial world around me.

I have this distinct feeling that we're watching a pivotal point in world history unfold before our eyes. And I'm not at all confident in my abilities to lay out something that rises to that level.

However, I'll start here:

Lots of bloggers (and blog commenters) around me seem to have taken this opportunity to espouse the path of "Get greedy when others are fearful" insofar as stocks and investing are concerned. "Now's the time to buy," they write. "Everyone's running scared! Bargains abound!"

Well, lots of folks ARE running scared. No denying that. But as for buying stocks hand-over-fist, well, I can't go there. I just can't.

For my part — and I've felt this way for a year, at least — I suspect that we're staring down the barrel of a pretty high-velocity poopstorm. Not one to be taken (or "bought") lightly. One regulatory or legislative misstep here or there, one really bad decision from Someone Who Matters, and that's all it'll take: Down Goes Frazier. (I'd also be the first to admit that "doing nothing" would be a monumental mistake as well.)

So have I gone all Chicken Little? Perhaps.

But I figure that my trepidation is largely a function of my watching people interact on a daily basis. Everyone — and I mean everyone — seems to want something for nothing. Or, at least, "something big" for "something negligible." And they feel they deserve it.

And for the last twenty-odd years, they've gotten it.

Most of Wall Street is guilty of this. ("Risk? Hardly. Our mathematical black-box models eliminated that.")

Generations X (mine) and Y are guilty of this. ("I deserve a mid-five-digit salary right out of college!")

Lots of Joe and Jane Sixpacks are guilty of this. ("Gimme lots of services. Lots. Oh, and a big ol' tax break.")

Underwater, nothing-down homebuyers are guilty of this. ("No, really! I'm entitled to a mid-six-digit profit on my home!")

And yes ... I, too, am guilty of this. (Sure enjoyed those zero-percent transfer offers. Easy money.)

And now the piper wants to be paid.

So the question begs: Who's going to pay?

In one way or another, we all are.

If a country is this reliant on an infinite expansion of debt and credit, and if any sizeable constriction in said credit issuance sends the financial system into convulsions, then how exactly can anyone with even a smidge of common economic sense feel good about our system going forward?

Tell me, please. I'm all ears.

Clicks Away: Your Old 1040s

2008-09-09T08:52:00.001-05:00

I'm told by this month's Kiplinger's Personal Finance magazine that the IRS plans to provide taxpayers with online access to their previous years' tax returns ... soon.

For a guy like me who's kept copies of every tax return he's ever filed, the fact that the new IRS online service will allow us to view and print our tax-account information for up to three previous years is no biggie. But for some folks, it might be helpful. Until, of course, the IRS site is hacked by some 11-year-old grocery-bagging ne'er-do-well from Duluth.

Here's a decent snag from the article:

By year-end, the new "my IRS" accounts could be accessible through a supersecure portal of the agency's web site, www.irs.gov. At first, you'll likely be able to view and print return data and other account information going back three years. As the system develops, you may be able to file for an extension, request a change of address, or do other tasks online.

Well, goodie. Though I would've thought that most people would already have fairly-quick access to something as important as one's previous tax returns.

Ah, but there I go again — assuming Joe and Jane Sixpack actually have a shred of organization in their lives.

990 Days

2008-09-08T09:07:00.002-05:00

Back in early 2006, when my wife and I refinanced our then-showroom-fresh Honda Accord, I wrote:

The balance in the right column shows my current balance on the loan. My accelerated payment schedule will, if I can stick to it, have it paid off within three years.

[From I Know a Bank That Sucks, Part 3]

At that time, one of the ho-hum paperwork tasks I had to accomplish was to write a letter to the credit union's board of directors. They were hesitant to fund our loan, as a large portion of my income was bonus-based. From a credit union's point-of-view (a smallish, local one, anyway), that's an understandable tripping point. Bonuses are a lot like campaign-trail promises: They can disappear real quick.

Still, I remember thinking to myself back then that the credit union was mostly wasting time by pondering whether I'd be good for the loan. Rather, they'd be more on target by wondering just how long that 5-year, 3.95% auto loan would be cash-flowing for them. The credit union's risk was never about having to repo the car. Instead, their only real "risk" was early payoff.

Now, 990 days after we initially purchased the Accord, the credit union is gonna have to find someone else to whom they can loan that money. Our car loan is paid off.

And once again (see "So Long, Sallie Mae" for more on our first trip to this decidedly unAmerican status) we are debt-free except for our mortgage.

That Last Payment's a Lulu

We've had the cash available for full payoff for a while, actually. But as I noted in "Why Not Pay it Off?" the thought of completely draining my savings is one of those things that keeps me up at night. So we waited until a bit more savings padding was present.

Then, this past Friday, I transferred the final $5.6k chunk into the auto-loan account. Within moments, the loan account disappeared from my Account Summary screen completely. The '06 Accord is now well and truly ours, from grille to kid-seat to trunk.

For those folks who, like me, have a sick interest in dollar figures and stats, I will divulge that over those 990 days of auto-loan bondage, we paid $741.71 in interest. That's pretty close to seventy-five cents per day.

"Had you carried the loan to its original 5-year term," my spreadsheet whispers, "you'd have paid over $1,861 in interest. By paying the loan off in 2 years, 8 months, and 16 days, you saved just a paperclip over $1,119."

Obviously, the true cost of buying new cars is stout. But we now have an '06 Accord with 23k miles on it, and while it's not dent-free, it is lien-free. Which, I would say, is better.

I'm of the belief that written goals are pretty much a necessity. In this case, regarding the car loan, our goal was to have it paid off in three years. We beat that mark, with four months to spare. Hooray for us.

So Baby Step Two is zapped. Up next: Fill up that Emergency Fund.

One Calamity Away

2008-09-03T09:07:00.000-05:00

If you can do so, set aside about 18 minutes to watch the August 22 segment of PBS' Bill Moyers' Journal:

PBS / Bill Moyers' Journal: "One Calamity Away"

"So America's middle class, our 'fearful families' as some people call them, is taking it on the chin," Moyers tells viewers in his monologue. "The history-making nominations aside, all the rhetoric from all the speakers at next week's Democratic Convention will be so much hot air above the Rockies unless the party comes to grip with how people are living and hurting today."

Worth a looksie.

Gone in Sixty Minutes: $100

2008-09-02T09:16:00.001-05:00

When I was a kid, a hundred dollars was a whole lot of money. Heck — my very first paycheck was only sixty-something bucks. I remember going out to the garage to show it to my dad, and telling him how surprised I was for the paycheck to be THAT MUCH.

My, how times keep changing. This, the tab from our last Sunday afternoon of August, 2008:

A hundred bucks — gone in sixty minutes.

Good thing inflation is only five percent or so, while the most popular online savings account pays a mere three percent.

That, kids, is what's called a losing battle.

But you still gotta fight it.