Tag along as JW and his family diligently work their way out of debt. And yes, JW, some of Dave's callers have gotten me pretty motivated, too. (Even brought me to tears once or twice. Ahem.)
I haven't spent much time talking about gas prices on this blog, mostly because I'm fairly tired of hearing about them 24/7. But Tuesday I came across an article on which I'd like to comment:
Wayne Hochwarter of the Florida State University's College of Business surveyed more than 800 full-time employees this spring when gas prices hovered at about $3.50 per gallon and found employees are simply unable to detach themselves from the stress caused by escalating gas prices.
The people surveyed work in a wide range of occupations, primarily in the southeastern United States, and drive personal vehicles to work with an average commute of 15 miles each way.
"People concerned with the effects of gas prices were significantly less attentive on the job, less excited about going to work, less passionate and conscientious and more tense," Hochwarter says in a statement. "These people also reported more 'blues' on the job."
A few more stats from the article:
[Due to rising fuel costs] 52 percent [of respondents] have reconsidered taking vacations.
— 45 percent have had to cut back on debt-reduction payments, such as credit card payments.
— Nearly 30 percent considered the consequences of going without basics, including food, clothing and medicine.
— 45 percent report the escalating gas prices have "caused them to fall behind financially."
What this article seems to tell us — aside from the fact that this country has too many researchers — is that lots of households apparently have a tough time coping when any one expense increases $125 per month. Not a surprise, of course, but a telling point nonetheless. The paycheck-to-paycheck crowd is alive and well. Or alive and suffering, as the case may be.
Where'd I get that $125 number?
Easy. I was just playin' with Excel:
Using the survey's 30-mile-per-commute-per-day average, and factoring for some other assumptions (2 drivers per household; 17mpg average from vehicles; and so on) I estimated that having gas prices at $3.50 per gallon (where they are in my town) costs our Average Survey Family roughly $125 per month more than does $2 per gallon gas.
If you'd like to see the (very basic) spreadsheet I used, and perhaps play with the numbers a bit, you can get it here:
I enjoyed changing the variables (like commute distance and mpg) and watching the effect these changes had on monthly fuel costs. Makes me glad my household owns two four-cylinder, decent-mileage vehicles (Nissan truck and Honda Accord). However, it also makes me wish I had my '95 Accord back. That little scooter had a five-speed standard transmission, and got FANTASTIC mileage (upper 20s to lower 30s mpg) all around.
Bothered By Higher Fuel Prices?
Am I bothered by higher fuel prices? At this point, not so much. Certainly it doesn't interfere with my workday — except for that part about having to listen to coworkers b*#&h and moan about $80/tank fill-ups.
Now, I don't like spending $40 or $45 to fill up our tanks, but the increased fuel cost hasn't destroyed my budget. In fact, at the end of the month, I don't notice it too much at all. My commute is less than 20 miles per day, and my wife's (stay-at-home mom) driving is largely "to-school-and-back" or "to-store-and-back." We're terribly lucky in this regard.
If you're a paycheck-to-paycheck family, however, whose monthly cash flow is already redlining, then current fuel prices could be a zinger. Throw higher food costs on top of that, and yes, you're talking significant stress.
As a general rule, only the very smartest people can make truly catastrophic mistakes.
— Charles R. Morris, The Trillion Dollar Meltdown
Well well well ... look at the fine mess we've created.
I picked up Charles R. Morris' 2008 book The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash a few weeks ago not because I think our entire financial system is on the brink of implosion (though I wouldn't automatically discount anything at this point). Rather, I simply wanted to learn more about our current economic situation.
Let's face it: As good a book as Naked Economics is, when circuses like Bear Stearns and You Walk Away splatter the headlines, well, standard macroeconomics can take a curious soul only so far.
How'd We Get Here?
Morris spends the first five chapters (106 pages or so) of Trillion Dollar Meltdown enlightening readers with a brief retelling of the last thirty-five years of American economics and finance. From Nixon to GWB, Morris revisits the missteps and miracles concocted by politicians, investment bankers, economists, and other zoo animals over the last generation or so.
Here's my attempt to sum it up in three words:
Credit. Quants. Deregulation.
Peering Over the Edge
It's in Chapter 4, "A Wall of Money," that things start getting good. Join me, won't you, for a quick jaunt through the three- and four-letter jungle of financial Scrabble:
The floodgates were opened. So long as you did the gritty, credit-by-credit documentation work with the rating agencies, you could securitize anything. Companies started selling asset-backed securities (ABS) to finance equipment, transportation fleets, or anything else investors could value. GE was an early and creative ABS issuer. Investment banks created collateralized bond obligations (CBOs), while commercial banks experimented with collateralized loan obligations (CLOs). (CDOs, or collateralized debt obligations, became the generic name for all types of securitized assets, including mortgages.) In almost all cases, a trust, or special-purpose entity (SPE), technically independent of the parent, would be created to purchase the assets. The purchase would be financed by selling securitized paper, usually with a tranched structure to broaden investor appeal. For banks, selling assets and liabilities off their balance sheets reduces strain on regulatory capital; for companies, it lowers apparent debt.
Then it got more complicated.
Of course it did! Can't have all those Harvard MBAs sitting around all day playing Yahtzee, can we?
About the same time as the securitized, or structured, finance industry was evolving at a breakneck pace, some brilliant financial engineers introduced new families of credit derivatives, the most important of which is the credit default swap.
Oh goodie. This new toy has the "D" word in it!
To take a simple case: Suppose US Bank decides it is underexposed to credits in southeast Asia. The old way to fix that was to buy some Asian bank branches or partner with a local bank. A credit default swap short-circuits the process. For a fee, US Bank will guarantee against any losses on a loan portfolio held by Asia Bank and will receive the interest and fees on those loans. Asia Bank will continue to service those loans, so its local customers will see no change, but Asia Bank, in Street jargon, will have purchased insurance for its risk portfolio, freeing up regulatory capital for business expansion. Credit default swaps became one of the fastest-growing new financial instruments ever. The notional value of credit default swaps — that is, the size of portfolios covered by credit default agreements — grew from $1 trillion in 2001 to $45 trillion by mid-2007.
So pretty soon everyone was credit-default-swapping with everyone else. You have parties, counter-parties, and counter-counter-parties. And no one involved, of course, thinks his firm will be The One Left Holding The Bag. You could always sell the shaky stuff to the next guy in line, right?
Aw, what the heck. It's not like there'll ever be any "shaky stuff" anyway.
In the boom years of 2005 and 2006, probably 80 percent of the securities in CDOs were mortgage-backeds, possibly 70 percent of those were below top-grade, and at least half were subprime or second-lien home equity lines — and these were the same years the industry was pumping out some of the most egregiously irresponsible loans in history. By assuming a permanent new era of very low defaults, it was possible to build families of bonds such that 80 percent of the issued bonds had triple-A and double-A ratings, even though 70 percent of the supporting assets were subprime.
Nope. No shakiness there.
To complicate matters, CDO managers often freely mix instrument types, so any bond might be backed by a grab bag of subordinated claims on a mélange of risky assets. Leverage is compounded further with "CDO2s," or CDOs of CDOs. You collect the risky tranches of a number of CDOs, which can sometimes be the hardest to place, and use them to support a new CDO, with a range of high-to-low risk-rated tranches. Highly rated bonds magically materialize out of a witches' soup of very smoky stuff. There is even a smattering of "CDO3s" out there, or CDOs built from the leftover tranches of CDO2s.
All of which Mr. Morris sums up succinctly:
Very big, very complex, very opaque structures built on extremely rickety foundations are a recipe for collapse.
And off to the races, we are.
Summary
I found The Trillion Dollar Meltdown to be a fun read — well, as "fun" as reading about your country's systemic financial collapse can be. I came to it, though, looking more for information — looking to pull together a better understanding of just where the weaknesses are in our credit- and debt-centric system.
The book's delivery is a bit jerky in places; its progression, just a tad disjointed. This suggests to me that TDM was rushed into publication. Given recent events, that wouldn't be a surprise, would it?
At 169 pages, the book is a fast read. But then we're back to that "rushed" thing again. Often I felt as if I were being pushed through it too quickly — as if there were more that Morris could divulge and clarify regarding certain topics, but which a fast-track-to-press caused to be omitted.
Too bad.
For what it's worth: I came in expecting a fair amount of fear-mongering from TDM. I suppose it's there to some degree. But folks who steadfastly believe that there's JUST NO WAY our financial system COULD EVER collapse, or that there's JUST NO WAY we could see another Great Depression (or a Greater Depression), will come to the book with that view locked-in. So every word of TDM will seem to them like fear-mongering dribble.
Just so you know, I'm not in that camp. While I appreciate all the safety valves in place with our system, I also totally respect the ability of greedy bankers, brokers, and politicians (and oh yeah — dumb-as-broken-rocks consumers) to really muck things up beyond all repair.
Who's to say what could happen? We Americans sure seem to let a lot of our "very smartest" run amuck in the financial sandbox...
A couple of years ago I first mentioned that my state of Oklahoma was considering implementing financial education into the public-school curriculum.
Last year, our governor signed into law the Passport to Financial Literacy Act (related PDF), which I'm quite happy to see. Topics to be covered include:
Understanding interest, credit card debt, and online commerce;
Rights and responsibilities of renting or buying a home;
Savings and investing;
Planning for retirement;
Bankruptcy;
Banking and financial services;
Balancing a checkbook;
Understanding loans and borrowing money, including predatory lending and payday loans;
Understanding insurance;
Identity fraud and theft;
Charitable giving;
Understanding the financial impact and consequences of gambling;
Earning an income;
Understanding state and federal taxes.
'Tis a nice start, in my opinion. Now we'll see how seriously the school systems take it. As the parent of a pre-K daughter in our public schools, I'm sure I'll get to find out ... in about eight years. (Per the Act, personal-finance curriculum begins in the 7th grade.)
Those of you with an interest in history — and in particular, the Great Depression — may be interested in viewing these Powerpoint slides compiled at the Oklahoma Council on Economic Education's website:
If you're like me, you'll find that the 48 slides of Hooverville families do wonders for renewing your appreciation of our current economic landscape ... recession or no. And there are a few more related slideshows on this OCEE Teacher Resource page.
(NOTE: Microsoft makes available a free Powerpoint viewer for folks who don't have Powerpoint or the Office suite.)
There's not much redeeming value to this post, but goshdarnit, this message-board quote made me laugh. Someone asked what happens if you borrow money via Prosper (related posts), and then at some point, you can't make payments. The tongue-in-cheek response:
If you don't pay they send you an e-mail. If you don't pay after that they send you a stern e-mail. After that comes a very, very stern e-mail. As a last resort they send an email with an attached picture of a sad puppy.
Which, I'm told, is not all that different from what happens when you stop making your mortgage payment in some parts of the country these days.
Apparently ABC's World News Tonight is undertaking a series called "America's Kitchen Table" or some such thing. As best I can tell, the idea (can you guess it?) is to show us how Actual Real Americans (read: financial skills = questionable) are making it from day to day.
A recent episode cast ABC's spotlight on the Cramers, of Palmyra, PA.
"If Lisa Cramer had her choice, she would be a full-time stay-at-home mom to daughters Kate and Lindsey," ABC tells us. "Her husband Michael, a manager at an auto glass store, would be the breadwinner. But for now, the only way this Palmyra, Pa., family can make ends meet is for Lisa to work three part-time jobs."
For once I'm going to withhold much commentary on the Cramers' situation, and just let the video speak for itself.
One thing we know: The Cramers don't do the Baby Steps.
You'll want to check out the comments, too. As I write this, apparently Ms. Cramer has responded (04-16-08 @ 8:22am) to all those folks posting "negative feed back" and such. (I've saved her purported comment here, in case it gets yanked; more on this below.)
I find it interesting that yesterday morning, when my wife and I first saw this video, there was a comment posted by someone who seemed to indicate that he/she knew the Cramers, and that ABC had conveniently left out a lot of details regarding the story — details that were fairly unflattering to both ABC and the Cramers. That comment, however, was greatly edited sometime during the day, removing the vast bulk of the derogatory info. Then, last night, it was eliminated entirely.
Oh, how I wish I'd have screenshotted it.
Who "edited for content" that comment? The original poster? ABC editors? I dunno. Was it even true? Don't know about that, either. I just find it very, very interesting that a comment like that — specific, detailed, and unflattering as it was — somehow disappeared.
And the best part is: Most of the damage, you can't even see!
— Local Chrysler dealership radio ad
Yes. That's what OKC listeners are told by a local car dealership's current radio advertisement. The dealer just received a "huge" shipment of storm- and hail-damaged vehicles. Insurance has already paid hefty claims on the cars, so Dealer XYZ is passing the savings on to You, The Customer.
Gotta wonder what ad agency came up with that line.
Now that my taxes have been done and filed for a couple of weeks, I've taken the lead from a Fatwallet thread and calculated my household's (very simple) effective tax rate for 2007. It looked like so:
Ours is a three-person (one child; single income) household, by the way.
I'm not including use tax in there, or property taxes. Social Security taxes paid at my Day Job are not included. Self-employment taxes on my website income are included.
Any readers feel like sharing their effective tax rates?
Set aside some time for this video lecture; it's almost an hour long.
FWIW, I haven't yet had time to watch much of the video, so I can't offer an opinion on it. Just figured I'd post it for those of you who are, like me, sick enough to be interested in such things.
Now that we American consumers are all frothy and anxious to get our hands on this summer's Special Tax Unwinding and Preplanned Income reDistribution (STUPID) tax rebates, it's time for every business niche under the sun to urge us to SPEND OUR NEWFOUND CASH WITH THEM.
Ah yes ... vacations. Exactly what we liquidity-challenged (read: debt-burdened) folks need to get ourselves back on track. It's not what Suze Orman suggested, of course. But what does she know, anyway?
Not nearly as much as the tourism folks, apparently.
"But we have seen some behavior that even when they are pinched, vacations are a right of life," [economist and director of the Tourism Institute at the University of Tennessee] Morse said. "People will borrow money to take a vacation; it is that important to them."
But what about polls suggesting that folks will put their chunks of STUPID money toward debt and savings?
The research suggests that consumers will say "one thing before they get the money in their hand but after they get it, they actually spend more than they got in the rebate," he [Morse] said.
Morse cites a November study by three economists from the Federal Reserve Bank, the University of Nevada-Reno and the University of Pennsylvania's Wharton School examining consumer habits from a similar though smaller rebate in 2001. The researchers tracked activity of 75,000 credit card accounts.
The study found that many consumers used the rebates to pay down credit card debt, just as pre-rebate surveys suggested they would do. But three to nine months later, they used their newly freed-up credit to buy even more. On average, they spent 40 percent more than the original amount of their rebate.
"If consumers use the 2008 tax rebate in a similar fashion as the 2001 rebate study suggests, consumers will spend more of the (2008) rebate than originally planned, generating opportunities for boosting 2008 travel demand," Morse's report says.
"We are sure hoping that he is right," said Leon Downey, chairman of the Southeast Tourism Society and executive director of tourism in the Smokies tourism community of Pigeon Forge.
Morse's report created a buzz last week at a Southeast Tourism Society meeting in Asheville, N.C. Hotel and travel destination professionals from 12 states — from Little Rock, Ark., to St. Augustine, Fla. — left with plans to order up ad campaigns and design getaway packages aimed at the rebate audience.
Here's that Fed study, for those of you who are sick enough (as I am) to actually be interested in this stuff:
I'd say I have no words ... but we all know that would be a lie. So here goes.
"We're still both in shock that it could go from something so good to so bad so quick," said Kent, 59. "New Century in 60 days went from top of the heap to out of business."
Yeah? Well, you should've watched The Smartest Guys in the Room. That whole Enron thing? It's all about smart people who got greedy. Then they figured they could never fail. And then they got stupid.
You could've learned something.
The two didn't say exactly how much money they made at their last jobs but Kent admitted they each had six-figure incomes.
Today, they're trying to get by on his unemployment benefits of about $450 a week, which covers only about an eighth of the basic payments they owe every month.
Darn those payments, anyway. You mean they don't stop when the income does?
Their home equity line, mortgage, health and life insurance premiums alone cost about $10,000 a month. Still, they are trying to hang onto what they call their dream home with a view of the Pacific Ocean where they live with Mysti's 11-year old son.
Income of $1,800. Expenses of $10k plus.
That, friends, is some nasty math. So what's their roadmap from here?
"We've used up most of our reserves, cashed in her 401K," said Kent. "We're going Mach 1 into a wall. When we run into it, then we've got to decide what to do next."
Sounds like a hell of a plan to me. Let me know how that works out.
Despite their financial problems, the Copes have worked hard to protect their credit rating, staying current on bills. And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example.
My gosh! What subhuman straits have we reduced these people to? Have we no decency?
Since he lost his job, Kent has gotten a real estate license and is trying to start a business selling the rapidly increasing inventory of foreclosed homes...
As a stock-trading mentor of mine used to say, "Lessons are repeated until they are learned." Apparently Mr. Cope didn't pay attention the first time, when Mysti lost her New Century job in May.
Or the second time, when he was sliced from First NLC Financial.
Or the third time, which is RIGHT FREAKIN' NOW. We're told that he watched as:
...former colleagues found jobs with other lenders, only to get laid off again when those firms closed up. Kent said some of the sales people he knows who still have jobs are actually the worst off.
"They may be employed by a company for months and months, but they can't close a deal," he said. "They've got the borrowers, but unless that thing is pure gold, it isn't made. It's a commission business. They're to the point frankly where they would rather get laid-off so they can go collect unemployment than be employed and make no money."
And still Our Hero wants to sell houses.
Take your seats again, please, Mr. and Mrs. Cope. Class is in session.
"You can't run into someone who isn't impacted by what's going on," said Kent. "It's very expensive to live in Orange County, and you pay a lot for your home and you can't get what it's worth now."
That's because YOU, Kent, don't get to determine what it's worth. What you PAID for the place has NO bearing on "what it's worth." One of those weird "market" things. Try reading Why Smart People Make Big Money Mistakes if you're fuzzy on this.
And yes, you can pick it up from your local library. It's a jaunt that'll be worth more than the cost of the gas for your Suburban.
Well ... maybe.
You know what I wonder? I wonder just when it is that a wonderful view of the Pacific Ocean becomes not quite so wonderful at all.
One of the things I've tried to convey in all the writing I've done at It's Your Money is that sometimes, all it takes is one bad decision to bring the roof down.
As we see in the CNN article, when that "one bad decision" has to do with your mortgage, you're pretty much doomed. Signing on to a dubious mortgage and assuming that things will "work themselves out" as a matter of course gets folks into a world of hurt.
In the article above, Ms. Guerrero (the focus of the story) found herself in that exact neighborhood — 101 World of Hurt Way, if you will. As a single mom with two kids, a $70k annual income, and a modest mortgage, she would probably have been okay ... if.
But that "if" didn't happen.
Here's the "if" that did: Change "modest mortgage" to a $2,500-per-month, interest-only variety, and throw in a job loss. Now you've got fireworks.
What we aren't told is whether or not Ms. Guerrero took on that mortgage while she was still married. A second income to help make those payments would be ... well, vital. Obviously.
Still, here is my humble opinion: With or without a second income, that mortgage should've never even been an option.
It's easy to say in hindsight, but Ms. Guerrero — married or not at the time — was insane to take on an obligation like that. And the bank, as best I can tell, was insane for writing the note.
Good thing real estate only goes up. (The premise this whole mess was built on, of course.)
Ahem.
Daryl Brock, the executive director of Second Harvest Food Bank in California's San Bernardino and Riverside counties, said his organization supplies food to more than 400 charities in metro Los Angeles, from homeless shelters to soup kitchens to an array of food banks. While the majority of people they help are working poor families, he said they have seen some major changes.
In the last 12 to 18 months, Brock said, the agencies he supplies have begun seeing more middle-class families coming to their doors.
"Our agencies have said there is an increasing number of people coming to them for help," Brock told CNN by phone. "Their impression was that these were not people they normally would have seen before. They seemed to be better dressed. They seemed to have better cars and yet they seemed to be in crisis mode."
Courtesy, I'm sure, of can't-miss real-estate purchases and the ever-popular Home ATM.
What makes Ms. Guerrero's mortgage particularly gruesome is that Ms. Guerrero was herself a loan processor. Talk about drinking the Kool-Aid.
A former loan processor, Guerrero knows all about that [subprime meltdown], although so far she has been able keep her house.
She used her tax refund to help pay many of her bills for the first two months, but now that money's gone.
She says she's now in a middle-class "no-man's-land."
"It just happened so fast. It happened in a matter of — what — two months," she said.
Yep. That's what happens when you have a $2,500 mortgage payment and your job — which itself was dependent upon a real-estate bubble continuing to inflate — goes bye-bye.
She's eager to get back to work and to hold onto her home until the market turns.
Ah, Californians. Ever the optimists. I wonder what happens if the market hasn't turned before her I/O loan recasts?
I'm certain that none of this — bubble going pop, job loss, and so on — was even a consideration on the day Ms. Guerrero closed on her home. But it should have been.
Rather than "Expect the best, but plan for the worst," what I see here was "Plan for the best because nothing bad ever happens with California real estate."
One more case of Life doling out a mighty harsh backhand.
So a customer came in today. For the sake of ridiculousness — you'll see why shortly — we'll call her "Ms. Moneybags."
We were changing the oil on her 2005 Cadillac DeVille. The normal price for this service would be $29.95. Ms. Moneybags, though, wasn't feeling that. She took it upon herself to hit up the service manager: Did we have any coupons she could use? Thirty dollars was high. Too high for an oil change.
"Oh, I think we can find something for you," Service Manager said. "I have a $19.95 coupon about to go out in the mail. I'll let you have your service at that price."
"Oh, thank you so much!" Ms. Moneybags said. She headed for our waiting room.
Fast-forward about thirty minutes. Her car's service was almost done. Ms. Moneybags was now speaking with her service advisor about purchasing a new vehicle — she just wanted his input on things. You know — a view from the service side of it. What cars don't suck? What cars won't leave her stranded on the side of the highway?
You know ... small details like that.
So he suggested a certain car, or perhaps another. She inquired as to the price on the first car.
"Oh, I don't know," our Advisor said. "I'm not in sales, obviously. But you're probably looking at about twenty-three thousand. Maybe twenty-four."
Ms. Moneybags eyes went wide. "Wow!" she said. "That's all? I wonder if — I mean, I wish I knew what the payment would be on that."
At this point, of course, Service Advisor (probably sensing an exit ramp to the conversation) deferred to me.
"Let's ask Michael," he said. "He can probably give us an idea on that."
Of course. Certainly I could. I may be The Warranty Guy, but everyone I work with also knows me as The Money Guy.
So Service Advisor pointed the way. Ms. Moneybags ambled over to my desk.
"Suppose I buy a car for twenty-three thousand," she said. "I put down ten thousand. What will my payments be?"
"I'll need a bit more info than that," I said. "What interest rate do you think you'll be paying? For how long do you want to finance the car?"
"I'm sure I don't know," she huffed. "Just put in some numbers. Can't you do that? Just put in some numbers and see what the payment is?"
"I can, but I have no idea what interest rate you can get. Here — I'll just plug in a rate of six percent. I'll set the term at three years."
"No, I want five years. Do five years."
"Ummm ... okay." I found a suitable spreadsheet and began typing. "Five years it is."
Within moments Excel had churned out fresh-whipped, number-crunched goodness. "Financing thirteen thousand, at an interest rate of 6 percent, for 5 years ... your payment would be around $252 per month. Ballpark."
"WOW!" she said again. "That's all? That's great!"
I shrugged. Conscience, I guess, got the best of me. Remember: I'm not in sales.
"Care to know how much you'll be paying in interest?" I asked.
"No, no," she said. "It's not important."
And off she went.
I blinked. And sat there. And sat there some more.
She was serious.
Again I say: SHE WAS SERIOUS.
THE INTEREST WAS NOT IMPORTANT.
See that? It would be almost $2,100.
Welcome to the Brave New American Car Buyer. Same as the Old American Car Buyer.
My wonderful state of Oklahoma requires that residents pay use tax. For those unfamiliar, use tax is my (and quite possibly your) state's way of collecting sales tax on items that were (1) sold outside of Oklahoma, (2) used inside of Oklahoma, and (3) went without sales tax of any kind being collected at the point of sale.
Consider online shopping. It's rampant today, right? I mean, I purchase more than my fair share of books from Amazon.com, who are based in Washington state. Not once has Amazon charged me sales tax. What a windfall for me.
Enter use tax. Oklahoma isn't about to let sneaky residents like me get away sales-tax-free on such purchases — the laws, at least, dictate that use tax kicks in to make sure my wallet opens up just as far as it would had I purchased the books inside Oklahoma.
I am quite sure that a vast majority of e-buying Oklahomans are ignorant (or, perhaps, "ignore it") of our state's use tax laws. The tax commission doesn't publicize the law (or lawbreakers, for that matter). So if you just casually checkmark that little box on Line 21 of Oklahoma's Tax Form 511...
... then I suppose you can just skip on down the road, eyes bright and purse plump, confident in your pretense that you're too small a fish for Mr. Tax Man's net to snag.
Call Me Crazy
My household, however, dutifully pays its use tax each April 15. We've paid it every year since the mid-1990s, when I first began doing our taxes myself. The absolute last thing I need is Mr. Tax Man sweepin' down the plain to land at my door.
I learned early on that my comrade Quicken could be of great assistance in this regard. What a pain it would be to collect all use-tax related receipts during the year, and then have to tally them up at tax time. Bah.
No, there are better ways. And a handful of them are delineated in my latest tutorial:
For too many executives, the easy riches to be made were hugely tempting, and the moral (and sometimes legal) niceties easily ignored. All too often, the people who ran the companies that were the darlings of the bull market saw nothing wrong with taking a seat at the casino, selling high, and cashing out their chips. To put it another way, they got greedy.
— Mark Gimein, “You Bought, They Sold,” Fortune magazine (09-02-2002)
Let’s be honest: It’s difficult to watch the 2005 documentary movie Enron: The Smartest Guys in the Room (IMDB / Wikipedia) without forfeiting huge chunks of trust in corporate America and Wall Street. But I found it even harder to watch the show and NOT find staggering similarities to what’s going on right now with the Mortgage Mess and our body-blown financial system.
Directed by Alex Gibney, The Smartest Guys in the Room is based upon a 2003 book of the same name (coauthored by Fortune writers Bethany McLean and Peter Elkind). As documentaries go, I thoroughly enjoyed The Smartest Guys in the Room. In fact, though I was watching at 2am and was gosh-darn tired, I simply could not shut down the video until the ending credits took liftoff.
Quick Recap
At one point, Enron was the seventh-largest corporation in America; its market value tagged the $70 billion mark. Wall Street — and investors of all types — were, of course, enamored. Until ... they weren’t.
“It had taken Enron about sixteen years to go from about ten billion in assets to sixty-five billion in assets,” says John Olson, a stock analyst who took a skeptical view of Enron well before it was trendy (or even wise, on a job-security basis) to do so. “It took them twenty-four days to go bankrupt.”
In a dervish of greed, arrogance, and accounting shenanigans, Enron's multi-faceted energy-trading business became a big force in the 1990s business world. It didn't last, of course. Names like Ken Lay, Jeffrey Skilling, and Andrew Fastow became infamous as the truth seeped out, while thousands of investors and hundreds of Enron employees watched their investments and retirements crater to nothing.
(Curious souls might wish to read my article regarding a videotaped session of CNBC in early 2000. In it, the ridiculous spoutings of stock analysts focused mostly on tech stocks ... but Enron squeezed in there, too.)
The Movie Itself
Enron: The Smartest Guys in the Room was, in my opinion, exceptionally well-done. Lots of footage — both video and audio — from inside Enron (company meetings; trader-to-trader audio conversations) make for a very stinging exposé.
I was particularly mesmerized by the recorded headset-talk from Enron's trading floor; verbal exchanges between traders during the California "rolling blackout" crisis (during which Enron was booking scary-big profits, all at Californians' expense) volcanoed my blood pressure. On their own, these intimate glimpses of Enron's corporate culture make the movie worth watching.
If you have any interest at all in Wall Street goings-on, or in corporate America in general, then I highly recommend watching The Smartest Guys in the Room.
Several credit-card companies have now decided that when it comes to helping out folks who are working through debt problems with credit counselors, well ... all bets are off. Here's the BusinessWeek story:
Until recently issuers often agreed to ratchet down interest rates permanently, to as low as 0%, for those working with credit counselors. That has been a critical concession, says the industry, since it makes monthly payments more affordable and helps ensure the principal is getting paid down. But now some credit-card companies are balking. Discover Financial Services, (DFS) counselors contend, won't cut rates below 17.9% for clients, while Capital One Financial (COF) is holding firm at 15.9%. At least 5 of the 13 largest issuers are offering smaller breaks on rates than they did five years ago, according to a study by the Consumer Federation of America.
So there's a couple of companies to avoid, or balance-transfer away from, if at all possible. But I think the overriding moral of the story is this: "When banks get squeezed, you lose."
Hat-tip for pointing out the article goes to Elizabeth Warren and her post at:
On an additional note, I find it interesting that Steve Rhode, president of Myvesta.org and sometime radio host, in commenting on Warren's article above, says that:
The reality is that creditors call the shots when you get into debt, they change the terms with little notice and then control access to what solutions you have access to if you should fall on hard times.
I'd say that upwards of 70%-80% of DMPs [debt management plans] do not lead to full payments and satisfaction of debt. Many people just pack it in along the way and go bankrupt and other just wander off.
Wow. A failure rate of seventy percent or more? That's downright nasty.
One thing's certain: If you're a consumer who's carrying wheelbarrows of debt, the pressures of repayment can mount quickly. And if you turn to them, debt-management plans may not be able to offer the amount of help that they once could.
Where I work, it's that time of year again. Over the next few days we'll be having our annual health insurance meetings.
I suspect most readers know the drill at these things: Gather the employees in cramped quarters. Make them listen to hour-long spiels from insurance reps. Tell them how much health and dental insurance premiums will be doing up this year. Pass out packets full of glossy brochures and small-print forms to fill out.
Such a party.
It's at these meetings that we employees get to determine how much we want to set aside in our Flexible Spending Accounts (FSAs) over the next twelve months. I use the FSA to save up pretax dollars for expected medical expenses; if child-care expenses were an issue for us (they're not, as my beloved Battleaxe is a Stay-at-Home Battleaxe), I'd darn sure use it for that, too.
Planning Your FSA Contributions
If you're a Quicken user like I am, then knowing how much to contribute to your FSA each year is a cinch. Here, for example, is my Quicken spending report for the "Medical" category for 2007:
I put $1,150 into my FSA, but by the time the year was over, we'd spent another $800+ in medical expenses. There wasn't much out-of-the-ordinary in there; a few prescription costs increased, and our daughter (now in school) certainly made her share of doctor visits.
So this report is Quicken telling me, quite clearly, that for 2008, my FSA paycheck deductions need to increase. Will I bump it all the way to $2k? Probably not. But I'll be sure to get a lot closer.
FSA funding: Yet another reason for me to love the heck out of Quicken.
A significant number of my personal acquaintances purchased homes (newer, larger) within the last several years. Inevitably, they were also convinced that financing via an 80/20 first/second mortgage setup was the way to go. Doing so is "financially smart," because it allows them to avoid paying private mortgage insurance.
It's an idea that works ... until it doesn't. Consider this Baltimore resident's story, for instance:
He needs to refi out of his nasty ARM first mortgage — he's lucky, in that he does have decent equity in his home — but his second-mortgage holder won't agree to a re-subordination.
Go figure: No sooner does Suze Orman admonish us Americans against spending our upcoming tax rebates than does Bloomberg plop out a survey which suggests that many folks were listening to her:
As we know, Americans have "planned" to do lots of well-intentioned things before — like saving money — but it just never seems to work out. They're always interrupted by unforeseen emergencies, like Christmas. Or 10%-Off sales at Best Buy. Or Toyota's twice-per-year Annual Sales Event.
What Bloomberg's survey tells us is that:
Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.
Sixty percent of folks say they'll either use it to pay off debt, or save it outright?
Hmmmm. I'll take the under.
A majority — 57 percent — said Bush hasn't taken sufficient steps to aid the housing industry and help holders of subprime mortgages, a growing number of whom face foreclosure because of rising monthly payments. Among households with annual incomes below $40,000, almost seven in 10 said the president hasn't done enough.
Now that's more like it: Let's be sure to complain about how much more hand-holding the government should be doing for us. And, just for good measure, let's do the complaining in a survey that asks how we plan to spend the $168 billion that Uncle Sam is about to dole out.
