Jobless MBAs Seek Solace in Support Groups | BusinessWeek
With the job market in shambles, MBAs need encouragement wherever they can find it. For tea and sympathy, many are now turning to B-school support groups.
Wednesday, December 23, 2009
Top Business School Stories of 2009
Top Ten Business School Stories of 2009 | BusinessWeek
The global financial crisis hammered the MBA job market, school endowments, and financial aid. Some questioned an MBA's value. Bring on 2010.
The global financial crisis hammered the MBA job market, school endowments, and financial aid. Some questioned an MBA's value. Bring on 2010.
Tuesday, December 22, 2009
The Latest Credit-Card Tricks
With new federal rules looming, card issuers are concocting creative ways to collect fees
By Alexis Leondis
BW Magazine
Sweeping 2009 reforms take aim at the industry's most abusive practices, including abrupt interest rate changes and late-payment fees. But credit-card companies keep coming up with new ways to charge customers.
RATE FLOORS
Under the new rules, companies will find it difficult to jack up fixed-interest rates at will. That's why issuers are moving consumers into variable-rate cards, which are tied to an interest-rate index. But borrowers may not benefit when the index drops since companies are limiting how low card rates can go. In October consumer advocate attorney Lauren Bowne saw the 5.9% promotional rate on her Wells Fargo (WFC) card switched to a variable one with a minimum rate of 19.1%. As of July, 5 of the 12 largest banks that issue cards, including Wells, had floors under rates, says Pew Charitable Trusts, a nonprofit. Wells says floors under variable rates have been standard practice for at least three years.
PICK A RATE
Almost 120 million accounts may be affected by a change that will allow issuers—when setting the variable rate on a card—to pick the highest rate in the past three months from the interest-rate index it tracks. Previously, companies used the rate on the last day of the billing cycle. The result is that borrowers pay an average interest rate that is 0.3 percentage points higher than before. The card industry could generate $720 million a year from this shift, estimates the Center for Responsible Lending, a consumer advocacy group.
LOWER FEE THRESHOLDS
Policymakers took a swipe at late charges by requiring a 21-day grace period for consumers to pay their bills. When cardholders don't make their payments by that deadline, they're likely to get smacked by bigger fees than in the past. Generally the charge goes up with the size of the balance. Five years ago issuers levied the largest fee on balances of $1,000 or higher. Now, it kicks in at around $250. Some 87% of cardholders pay the highest amount, according to the Center for Responsible Lending.
UNLIMITED FEES
Borrowers that move balances from one credit card to another with a low introductory rate may pay more for the privilege. Bank of America (BAC) recently upped its fee to as much as 4% of the balance, from 3%; at JPMorgan Chase (JPM), the charge can be as high as 5%. And while companies used to cap the total amount that customers would pay for abalance transfer—at, say, $50—fewer companies are doing so anymore. Roughly 68% of balance-transfer deals in the second quarter of 2009 had no limits on fees, compared with 44% the previous year, says Mintel Comperemedia, a firm that tracks marketing trends.
INACTIVITY FEES
While consumers try to cut back on spending, they're increasingly penalized for not pulling out their plastic. More issuers are hitting cardholders with fees for not using their cards or closing accounts that have balances. The annual charge can run as high as $36, according to the Center for Responsible Lending. In June, Fifth Third Bancorp (FITB) in Cincinnati added a $19 inactivity fee on most of its cards. "We want to encourage active use and management of the accounts," says Fifth Third spokeswoman Stephanie Honan.
By Alexis Leondis
BW Magazine
Sweeping 2009 reforms take aim at the industry's most abusive practices, including abrupt interest rate changes and late-payment fees. But credit-card companies keep coming up with new ways to charge customers.
RATE FLOORS
Under the new rules, companies will find it difficult to jack up fixed-interest rates at will. That's why issuers are moving consumers into variable-rate cards, which are tied to an interest-rate index. But borrowers may not benefit when the index drops since companies are limiting how low card rates can go. In October consumer advocate attorney Lauren Bowne saw the 5.9% promotional rate on her Wells Fargo (WFC) card switched to a variable one with a minimum rate of 19.1%. As of July, 5 of the 12 largest banks that issue cards, including Wells, had floors under rates, says Pew Charitable Trusts, a nonprofit. Wells says floors under variable rates have been standard practice for at least three years.
PICK A RATE
Almost 120 million accounts may be affected by a change that will allow issuers—when setting the variable rate on a card—to pick the highest rate in the past three months from the interest-rate index it tracks. Previously, companies used the rate on the last day of the billing cycle. The result is that borrowers pay an average interest rate that is 0.3 percentage points higher than before. The card industry could generate $720 million a year from this shift, estimates the Center for Responsible Lending, a consumer advocacy group.
LOWER FEE THRESHOLDS
Policymakers took a swipe at late charges by requiring a 21-day grace period for consumers to pay their bills. When cardholders don't make their payments by that deadline, they're likely to get smacked by bigger fees than in the past. Generally the charge goes up with the size of the balance. Five years ago issuers levied the largest fee on balances of $1,000 or higher. Now, it kicks in at around $250. Some 87% of cardholders pay the highest amount, according to the Center for Responsible Lending.
UNLIMITED FEES
Borrowers that move balances from one credit card to another with a low introductory rate may pay more for the privilege. Bank of America (BAC) recently upped its fee to as much as 4% of the balance, from 3%; at JPMorgan Chase (JPM), the charge can be as high as 5%. And while companies used to cap the total amount that customers would pay for abalance transfer—at, say, $50—fewer companies are doing so anymore. Roughly 68% of balance-transfer deals in the second quarter of 2009 had no limits on fees, compared with 44% the previous year, says Mintel Comperemedia, a firm that tracks marketing trends.
INACTIVITY FEES
While consumers try to cut back on spending, they're increasingly penalized for not pulling out their plastic. More issuers are hitting cardholders with fees for not using their cards or closing accounts that have balances. The annual charge can run as high as $36, according to the Center for Responsible Lending. In June, Fifth Third Bancorp (FITB) in Cincinnati added a $19 inactivity fee on most of its cards. "We want to encourage active use and management of the accounts," says Fifth Third spokeswoman Stephanie Honan.
Sunday, December 20, 2009
Unemployment - A Labor Study
This link is a compilation of different unemployment research I've conducted over the past six weeks. I touch on the Rate of Unemployment, Underemployment Rate, Duration of Unemployment (in weeks), Exit Rate from Unemployment (in months), Beveridge Ratio (% of getting employment), and Inflation*.
Enjoy.
Labor Study
Enjoy.
Labor Study
*More research will be conducted in regards to inflation on a later posting where I will discuss CPI, Stagflation, etc, etc.
Friday, December 18, 2009
Fun with Numbers - The Buy 1, Get 1 Half Off Deal @ Express
Hello shoppers.So let's say you have two pairs of jeans, both at a cost of 69.90 each. Normal price is $139.80 (plus tax) for both.
Now let's say you see Express has their "deal" of Buy 1, Get 1 half off...now one pair of jeans is $34.95 and if you were to purchase two pairs, you'd pay $104.85.
So let's recap:
Normal price, jeans (x2) = 139.80 (plus tax)
"Deal" price, jeans (x2) = 104.85 (plus tax)
-Now the fun with the numbers...
Let's take the original price of two pairs of jeans and divide them by two (139.80/2) which equals $69.90.
(so far so good)
-Now let's take the "deal" price of the two pairs of jeans and divide them by two (104.85/2) which equals $52.43.
(makes sense)
-Now let's find the difference...
69.90-52.43 = $17.47 (difference) - Now to some of you this may look like a good deal (saving $17 per pair of jeans) and perhaps it is. My point to you is to look at the original sale price; seems a little high doesn't it?
$70 is excessive for a pair of jeans, so don't fall into the trap of spending more money ($104) and thinking you're "saving" money. Sure, if you're in the market for two pairs of jeans than maybe this works for you (much like shopping the day after Thanksgiving works out for some people as well) for others though, they're tricked into thinking they're saving money by spending money.
And you can guarantee Express is banking on that.
We covered simple math and I dropped some logic on you. Two for the price of one...
...now THAT is a good deal.
Sunday, December 6, 2009
Food, Inc.
In June 2009, a stirring new documentary called Food, Inc. (link to blog post) is being release in theaters. From the producers of An Inconvenient Truth, this film takes a pointed look beyond the dinner table at how your food is grown, processed and sold. For many, youll never look at dinner the same way again.
Who Killed the Electric Car?
A 2006 documentary film that explores the creation, limited commercialization, and subsequent destruction of the battery electric vehicle in the United States, specifically the General Motors EV1 of the 1990s. The film explores the roles of automobile manufacturers, the oil industry, the US government, the Californian government, batteries, hydrogen vehicles, and consumers in limiting the development and adoption of this technology.
Sunday, November 8, 2009
Unemployment Numbers
The unemployment rate jumped from 9.8 percent in Sepetember to 10.2 in October (which is the highest level since 1983) and a net loss of 190,000 jobs in October. It is seemingly possible that the nation might yet confront the worst joblessness since the Great Depression.
In the six decades since the government began compiling such data, the highest level of unemployment came at the end of 1982, when it hit 10.8 percent. Despite the widespread assumption that the recession has already ended, and even as the economy has resumed growing, the government’s latest snapshot of the labor market released Friday testified to the uncomfortable truth that expansion had yet to translate into jobs.
The unemployment facts:
-1 out of 10 members of the workforcs is unemployed (that's 15.7 million people),
-For every 10 unemployed people, more that three have been unemployed for at least six months,
-Including part time, but want to work full time and discouraged workers (individuals who have given up looking for employment), the jobless rate is 17.5 percent,
-The last time unemployment was this high was in 1983, it took almost 5 years to return to pre-recession levels of unemployment.
In summary, we have unemployment that was worse than expected. Stimuli such as extending unemployment benefits as well as the first-time home buyer tax credit is barely keeping us above water.
On the next blog..."What cures a big recession?"
In the six decades since the government began compiling such data, the highest level of unemployment came at the end of 1982, when it hit 10.8 percent. Despite the widespread assumption that the recession has already ended, and even as the economy has resumed growing, the government’s latest snapshot of the labor market released Friday testified to the uncomfortable truth that expansion had yet to translate into jobs.
The unemployment facts:
-1 out of 10 members of the workforcs is unemployed (that's 15.7 million people),
-For every 10 unemployed people, more that three have been unemployed for at least six months,
-Including part time, but want to work full time and discouraged workers (individuals who have given up looking for employment), the jobless rate is 17.5 percent,
-The last time unemployment was this high was in 1983, it took almost 5 years to return to pre-recession levels of unemployment.
In summary, we have unemployment that was worse than expected. Stimuli such as extending unemployment benefits as well as the first-time home buyer tax credit is barely keeping us above water.
On the next blog..."What cures a big recession?"
Tuesday, October 27, 2009
Copyright Infringement - Understand the consequences of illegally downloading music.
This past July, a Federal Jury ordered Joel Tenenbaum (a Boston University graduate student) who admitted illegally downloading and sharing music online to pay $675,000 to four record labels.
His crime: the illegal download and distribution of...... ...... ......30 songs.
But to understand the fairness or unfairness of Copyright law, you must know how/when/why copyright law was created.
Subsequently the Copyright Clause of the United States Constitution (1787) authorized copyright legislation: "To promote the Progress of Science..., by securing for limited Times to Authors.... the exclusive Right to their... Writings."
The Rights of the Copyright Holder is as follows:
1.)the right to produce the work,
2.)the right to prepare derivative works based on the copyrighted work,
3.)the right to public distribution of copies of that work,
4.)the right to public performance of the work,
5.)the right to public display of the work, and
6.)the right to perform copyrighted sound recordings publicly by means of a digital audio transmission.
Copyrights generally exist for the life of the author plus 70 years.
Copyright Infringement is the violation of any of the six exclusive rights (see above) granted to the copyright owner.
Under the Copyright Act, willful infringement is a criminal offense if done for commercial advantage or financial gain. A second type of criminal offense was added to the Copyright Act following an incident in which a college student posted copyrighted software on a web site for others to download for free (we're talking about Napster here). This is the No Electronic Theft Act which imposes criminal penalties for willful infringement in which a person during any 180-day period reproduces or distributes one or more copies of copyrighted works with a total retail value of more than $1,000. Depending on the number of copies reproduced or distributed, the penalties may range from a fine of $100,000 and imprisonment up to one year to a fine of $250,000 and imprisonment for three years.
The best thing we can do now as consumers is to understand copyright law as well as its repercussions so that we do not end up in similar situations over a couple handfuls of songs.
Besides, you don't want to pay hundreds of thousands of dollars for a handful of songs that you could have purchased for ninety-nine cents, right?
His crime: the illegal download and distribution of...... ...... ......30 songs.
In his closing statement, Charles Nesson (Tenenbaum's Attorney) suggested the damages should be as little as 99 cents per song, roughly the same amount Tenenbaum would have to pay if he legally purchased the music online.
But Tim Reynolds, a lawyer for the recording labels, recounted Tenenbaum’s history of file-sharing from 1999 to 2007, describing him as “a hardcore, habitual, long-term infringer who knew what he was doing was wrong.” Tenenbaum admitted on the witness stand that he had downloaded and shared more than 800 songs.
The recording industry focused on only 30 songs in the case.
And this past June, a federal jury in Minneapolis ruled that Jammie Thomas-Rasset, 32, must pay $1.92 million, or $80,000 on each of 24 songs, after concluding she willfully violated the copyrights on those tunes.But to understand the fairness or unfairness of Copyright law, you must know how/when/why copyright law was created.
Subsequently the Copyright Clause of the United States Constitution (1787) authorized copyright legislation: "To promote the Progress of Science..., by securing for limited Times to Authors.... the exclusive Right to their... Writings."
The Rights of the Copyright Holder is as follows:
1.)the right to produce the work,
2.)the right to prepare derivative works based on the copyrighted work,
3.)the right to public distribution of copies of that work,
4.)the right to public performance of the work,
5.)the right to public display of the work, and
6.)the right to perform copyrighted sound recordings publicly by means of a digital audio transmission.
Copyrights generally exist for the life of the author plus 70 years.
Copyright Infringement is the violation of any of the six exclusive rights (see above) granted to the copyright owner.
Under the Copyright Act, willful infringement is a criminal offense if done for commercial advantage or financial gain. A second type of criminal offense was added to the Copyright Act following an incident in which a college student posted copyrighted software on a web site for others to download for free (we're talking about Napster here). This is the No Electronic Theft Act which imposes criminal penalties for willful infringement in which a person during any 180-day period reproduces or distributes one or more copies of copyrighted works with a total retail value of more than $1,000. Depending on the number of copies reproduced or distributed, the penalties may range from a fine of $100,000 and imprisonment up to one year to a fine of $250,000 and imprisonment for three years.
The best thing we can do now as consumers is to understand copyright law as well as its repercussions so that we do not end up in similar situations over a couple handfuls of songs.
Besides, you don't want to pay hundreds of thousands of dollars for a handful of songs that you could have purchased for ninety-nine cents, right?
Sunday, October 25, 2009
Credit Card Act of 2009
I received some EXCELLENT feedback from my readers about the Credit Card Interest Rate Law so I decided to follow it up with the Credit Card Act of 2009.
This was signed into law by President Barack Obama on May 22nd 2009. However most of the provisions go into effect Feb. 22, 2010, unless otherwise stated. Here's what the Credit Card Act of 2009 means (with caveats) and what to keep an eye on at the bottom of this post.
1. Retroactive rate increases
Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.
If the cardholder does trigger the default rate because of a 60-day delinquency, the bank must restore the lower rate once the cardholder demonstrates six months of consecutive on-time payments. This provision takes effect in August 2009.
In general, rates can't be raised in the first year after issuance, and promotional rates must last at least six months. Exceptions include expiration of a promotional rate, termination or completion of a workout plan, a change in the index rate or a 60-day delinquency.
Caveat: Issuers can raise rates at any time for any reason on new balances with 45 days' advance notice. Cardholders will still need to read correspondence from their creditors.
2. More advance notice of rate hikes
Consumers get 45 days' notice before key contract changes take effect, including rate increases. Under the current Truth in Lending Act, cardholders only receive a 15-day heads up. This change takes effect Aug. 20, 2009.
Caveat: This provision doesn't apply to credit limit changes. If your issuer slashes your limit, notification isn't necessary unless the reduction would trigger a penalty, such as an overlimit fee.
The new rules also don't cap interest rates. The increased rate can still be triple your existing APR.
3. Fee restrictions
Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can't charge more than one overlimit fee per billing cycle.
In general, banks can't charge consumers a fee to pay their credit card debt, a cost some cardholders encounter for payments made by telephone or Internet. They can impose a fee to expedite a payment.
advertisement
Payments received by the due date -- or the next business day, if the bank doesn't accept mailed payments on the due date -- won't trigger a late fee. If the cardholder pays at a local branch, the payment must be credited the same day.
The new law limits fees on "fee-harvester" subprime cards as well. In the first year after issuance, nonpenalty fees cannot take up more than 25 percent of the initial credit limit.
4. Restricts card issuance to students
Consumers under age 21 who can't prove an independent means of income or provide the signature of a co-signer aged 21 or older won't get approved for credit cards. The provision protects young people who lack the means or the knowledge to handle credit cards from miring themselves into debt, but could backfire by pushing students to payday lenders and pawnshops, says Greg McBride, senior financial analyst at Bankrate.com.
According to a recent Sallie Mae study, college students carried an average balance of $3,173 on their credit cards last year, a record high since the first analysis in 1998. A whopping 82 percent revolved a balance each month.
5. Ends double-cycle billing
The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.
6. Fairer payment allocation
A close look at your card agreement will likely reveal a clause that explains that payments will be applied to lower-rate balances first. Not so anymore. The Credit CARD Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate.
7. More time to pay
Card companies must send statements 21 days before a payment is due. Current law requires a mere 14 days' notice. This provision goes into effect Aug. 20, 2009.
8. Gift card protections
The legislation includes protections for gift cardholders. The new law prohibits gift cards from expiring for at least five years. Issuer cannot assess inactivity fees unless the card has gone unused for 12 months.
(courtesy of www.bankrate.com)
Enhanced Consumer Disclosures
* Clear disclosure on how long it would take to pay off a credit card balance if cardholder makes only the minimum payment each month.
* Clear disclosure on the total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
* Late payment deadline and postmark date are required to be clearly shown and disclosed to cardholders.
What to watch out for in the coming months
Because most of these new rules will not take effect for four months, it is important that you remain vigilant between now and then, and consider the affect this legislation might have on you.
Watch for:
-interest rate hikes on your credit cards. Some issuers may try to raise rates while they can.
-an accelerated loss in terms of the value of your rewards points. You may see your 5% gas rewards cut to 3% or 4%. Or your airline miles may not go as far as they could.
-the possibility of being charged an annual fee to participate in rewards programs. “Premium” reward programs have been emerging recently, but you may see more of them in coming months.
-watch your mailbox carefully for “opt in” agreements for the over the limit transactions.Who knows how the credit card companies will try to implement this, but you know that they will want you to opt in.
It’s good practice any time, but be especially careful to read everything you get from your credit cards in the coming months.
This was signed into law by President Barack Obama on May 22nd 2009. However most of the provisions go into effect Feb. 22, 2010, unless otherwise stated. Here's what the Credit Card Act of 2009 means (with caveats) and what to keep an eye on at the bottom of this post.
1. Retroactive rate increases
Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.
If the cardholder does trigger the default rate because of a 60-day delinquency, the bank must restore the lower rate once the cardholder demonstrates six months of consecutive on-time payments. This provision takes effect in August 2009.
In general, rates can't be raised in the first year after issuance, and promotional rates must last at least six months. Exceptions include expiration of a promotional rate, termination or completion of a workout plan, a change in the index rate or a 60-day delinquency.
Caveat: Issuers can raise rates at any time for any reason on new balances with 45 days' advance notice. Cardholders will still need to read correspondence from their creditors.
2. More advance notice of rate hikes
Consumers get 45 days' notice before key contract changes take effect, including rate increases. Under the current Truth in Lending Act, cardholders only receive a 15-day heads up. This change takes effect Aug. 20, 2009.
Caveat: This provision doesn't apply to credit limit changes. If your issuer slashes your limit, notification isn't necessary unless the reduction would trigger a penalty, such as an overlimit fee.
The new rules also don't cap interest rates. The increased rate can still be triple your existing APR.
3. Fee restrictions
Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can't charge more than one overlimit fee per billing cycle.
In general, banks can't charge consumers a fee to pay their credit card debt, a cost some cardholders encounter for payments made by telephone or Internet. They can impose a fee to expedite a payment.
advertisement
Payments received by the due date -- or the next business day, if the bank doesn't accept mailed payments on the due date -- won't trigger a late fee. If the cardholder pays at a local branch, the payment must be credited the same day.
The new law limits fees on "fee-harvester" subprime cards as well. In the first year after issuance, nonpenalty fees cannot take up more than 25 percent of the initial credit limit.
4. Restricts card issuance to students
Consumers under age 21 who can't prove an independent means of income or provide the signature of a co-signer aged 21 or older won't get approved for credit cards. The provision protects young people who lack the means or the knowledge to handle credit cards from miring themselves into debt, but could backfire by pushing students to payday lenders and pawnshops, says Greg McBride, senior financial analyst at Bankrate.com.
According to a recent Sallie Mae study, college students carried an average balance of $3,173 on their credit cards last year, a record high since the first analysis in 1998. A whopping 82 percent revolved a balance each month.
5. Ends double-cycle billing
The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.
6. Fairer payment allocation
A close look at your card agreement will likely reveal a clause that explains that payments will be applied to lower-rate balances first. Not so anymore. The Credit CARD Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate.
7. More time to pay
Card companies must send statements 21 days before a payment is due. Current law requires a mere 14 days' notice. This provision goes into effect Aug. 20, 2009.
8. Gift card protections
The legislation includes protections for gift cardholders. The new law prohibits gift cards from expiring for at least five years. Issuer cannot assess inactivity fees unless the card has gone unused for 12 months.
(courtesy of www.bankrate.com)
Enhanced Consumer Disclosures
* Clear disclosure on how long it would take to pay off a credit card balance if cardholder makes only the minimum payment each month.
* Clear disclosure on the total cost in interest and principal payments if a cardholder makes only the minimum payment each month.
* Late payment deadline and postmark date are required to be clearly shown and disclosed to cardholders.
What to watch out for in the coming months
Because most of these new rules will not take effect for four months, it is important that you remain vigilant between now and then, and consider the affect this legislation might have on you.
Watch for:
-interest rate hikes on your credit cards. Some issuers may try to raise rates while they can.
-an accelerated loss in terms of the value of your rewards points. You may see your 5% gas rewards cut to 3% or 4%. Or your airline miles may not go as far as they could.
-the possibility of being charged an annual fee to participate in rewards programs. “Premium” reward programs have been emerging recently, but you may see more of them in coming months.
-watch your mailbox carefully for “opt in” agreements for the over the limit transactions.Who knows how the credit card companies will try to implement this, but you know that they will want you to opt in.
It’s good practice any time, but be especially careful to read everything you get from your credit cards in the coming months.
Tuesday, October 20, 2009
This American Life: Someone else's money - a podcast that gives a deeper look into the health insurance industry.
Someone else's money
Chicago Public Radio: This American Life - "This week, we bring you a deeper look inside the health insurance industry. The dark side of prescription drug coupons. A story about Pet Health Insurance, which is in its infancy, and how it is changing human behaviors—for example, if you have the pet health insurance, you bring your pet to the vet more often, and the vet makes more money and...well, you can see the parallels. And insurance company jargon, frighteningly decoded."
Health Insurance has been and will continue to be a major topic for all Americans. Please take the time and listen to this podcast. It will be the most informative hour you will have all week.
Monday, October 19, 2009
Control Room - A documentary about Al Jazeera news network
"The pen is mightier than the sword." - Edward Bulwer-Lytton
Saturday, October 17, 2009
Who would want to be an Attorney especially in THIS economy?
Today, the Law School Admission Council (LSAC) held a forum for prospective law school students to gather more information about the law schools of their choice regarding the admissions process, the LSAT, and financing. Their was 180 law schools represented from across the country (trust me, I received about 50 emails this week inviting me to stop by their booth).
I abstained from attending this event.
I started to really think long and hard about my law school decision. The main point being that there seems to be more graduates of law schools then there are jobs.
When I break it down by my area (Chicago) and think about the law schools in Illinois alone...
-Northwestern
-University of Chicago
-Chicago-Kent
-University of Illinois
-Loyola
-DePaul
-John Marshall
-Northern Illinois University
-Southern Illinois University
(which by the way, the Chicago market is the 2nd largest market behind New York for law schools)
AND if you want to get really technical, throw these schools into the mix because of their proximity...
-Notre Dame
-Marquette
-Valpo
-Purdue*
-Wisconsin*
-Michigan*
-Indiana*
(*=a stretch but where do you think they are going to look first for jobs? Maybe a major metropolitan city like a Chicago)
...this reaffirms my concern for employment.
There is a total of 16 law schools that graduates, in theory, could be competing for the same small number of jobs.
Can any of these law schools guarantee a job after graduation? No.
With the U.S. Economy in a recession, how can one justify going to law school, not working for three years, adding a minimum of $100,000 of debt, and then not have a guarantee about a job afterwards? Not to mention that lawyers are not immune to a recession. I spoke with my Powerscore LSAT teacher about this and he said "Now is one of the worst times to be graduating law school." Sure, he's referring to the market in today's time and under today's economic terms. Could the market turn around? Definitely. Will it in three years? That's debatable. If I was in Vegas, I would bet no (especially in the legal field).
I think in three years not only will law school graduates deal with competing against each other for jobs, but also graduates of today that couldn't find steady work and just did random jobs to make ends meet. I also think it would be obtuse to think that partners and individuals with several years of legal experience are immune to this recession. So graduates would have to compete with them as well.
I recently stumbled upon this article in a discussion forum that I think strengthens my reasoning to reconsider law school:
Well unlike med or dental school there is a huge glut of law schools. There are much more people graduating law school than there are available jobs. The simple answer is that the higher tier the law school the more chance and I do say chance you will get a decent job out of law school. Lawyers are a dime a dozen, go medical. Heck, there is a shortage of pharmacists and their median wage is $98,000K well above lawyers. Dentists 180,000K median and there is a shortage, and of course a shortage of MDs.
From US News, Poor careers for 2006 Attorney.
If starting over, 75 percent of lawyers would choose to do something else. A similar percentage would advise their children not to become lawyers. The work is often contentious, and there's pressure to be unethical. And despite the drama portrayed on TV, real lawyers spend much of their time on painstakingly detailed research. In addition, those fat-salaried law jobs go to only the top few percent of an already high-powered lot.
Many people go to law school hoping to do so-called public-interest law. (In fact, much work not officially labeled as such does serve the public interest.) What they don't teach in law school is that the competition for those jobs is intense. I know one graduate of a Top Three law school, for instance, who also edited a law journal. She applied for a low-paying job at the National Abortion Rights Action League and, despite interviewing very well, didn't get the job.
From the Associated Press, MADISON, Wis. (AP) - A lawmaker who persuaded the Assembly to eliminate all state funding for the University of Wisconsin law school says his reasoning is simple: There's too many lawyers in Wisconsin.(Too many lawyers in Wisconsin)
From an ABA study about malpractice claims, More Sole Practitioners:
There appears to be an increasing trend toward sole practitioners, due partly to a lack of jobs for new lawyers, but also due to increasing dissatisfaction among experienced lawyers with traditional firms; leading to some claims which could have been avoided with better mentoring.
New Lawyers:
Most insurers have noticed that many young lawyers cannot find jobs with established firms, and so are starting their own practices without supervision or mentoring. This is likely to cause an increase in malpractice claims, although the claims may be relatively small in size due to the limited nature of a new lawyers
“In a survey conducted back in 1972 by the American Bar Association, seventy percent of Americans not only didn’t have a lawyer, they didn’t know how to find one. That’s right, thirty years ago the vast majority of people didn’t have a clue on how to find a lawyer. Now it’s almost impossible not to see lawyers everywhere you turn."
Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate,
For graduates of elite law schools, prospects have never been better.
Big law firms this year boosted their starting salaries to as high as $160,000. But the majority of law-school graduates are suffering from a supply-and-demand imbalance that's suppressing pay and job growth. The result: Graduates who don't score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.
The law degree that Scott Bullock gained in 2005 from Seton Hall University -- where he says he ranked in the top third of his class -- is a "waste," he says. Some former high-school friends are earning considerably more as plumbers and electricians than the $50,000-a-year Mr. Bullock is making as a personal-injury attorney in Manhattan. To boot, he is paying off $118,000 in law-school debt.
A slack in demand appears to be part of the problem. The legal sector, after more than tripling in inflation-adjusted growth between 1970 and 1987, has grown at an average annual inflation-adjusted rate of 1.2% since 1988, or less than half as fast as the broader economy, according to Commerce Department data.
On the supply end, more lawyers are entering the work force, thanks in part to the accreditation of new law schools and an influx of applicants after the dot-com implosion earlier this decade. In the 2005-06 academic year, 43,883 Juris Doctor degrees were awarded, up from 37,909 for 2001-02, according to the American Bar Association. Universities are starting up more law schools in part for prestige but also because they are money makers. Costs are low compared with other graduate schools and classrooms can be large. Since 1995, the number of ABA-accredited schools increased by 11%, to 196.
According to the Internal Revenue Service, the inflation-adjusted average income of sole practitioners has been flat since the mid-1980s. A recent survey showed that out of nearly 600 lawyers at firms of 10 lawyers or fewer in Indiana, wages for the majority only kept pace with inflation or dropped in real terms over the past five years.
Many students "simply cannot earn enough income after graduation to support the debt they incur," wrote Richard Matasar, Dean of New York Law School, in 2005, concluding that, "We may be reaching the end of a golden era for law schools."
Now, debate is intensifying among law-school academics over the integrity of law schools' marketing campaigns.
David Burcham, Dean of Loyola Law School in Los Angeles, considered second-tier, says the school makes no guarantees to students that they will obtain jobs.
OK, I have to interject right here. Did a dean of a law school basically say you could go through all the nonsense of getting into law school, law school, ethics exam, bar exam and you should not expect some sort of gainful employment after you are through? You might as well go to Las Vegas and put your tuition money on the roulette table and let it ride, you may have better odds of making money than going to his school and getting a decent paying law job. This guy is a jerk.
Yet economic data suggest that prospects have grown bleaker for all but the top students, and now a number of law-school professors are calling for the distribution of more-accurate employment information. Incoming students are "mesmerized by what's happening in big firms, but clueless about what's going on in the bottom half of the profession," says Richard Sander, a law professor at the University of California-Los Angeles who has studied the legal job market.
But in law schools' self-published employment data, "private practice" doesn't necessarily mean jobs that improve long-term career prospects, for that category can include lawyers working under contract without benefits, such as Israel Meth. A 2005 graduate of Brooklyn Law School, he earns about $30 an hour as a contract attorney reviewing legal documents for big firms. He says he uses 60% of his paycheck to pay off student loans -- $100,000 for law school on top of $100,000 for the bachelor's degree he received from Columbia University. "Most people graduating from law school," he says, "are not going to be earning big salaries."
Adding to the burden for young lawyers: Tuition growth at law schools has almost tripled the rate of inflation over the past 20 years, leading to higher debt for students and making starting salaries for most graduates less manageable, especially in expensive cities. Graduates in 2006 of public and private law schools had borrowed an average of $54,509 and $83,181, up 17% and 18.6%, respectively, from the amount borrowed by 2002 graduates, according to the American Bar Association.
But just as common -- and much less publicized -- are experiences such as that of Sue Clark, who this year received her degree from second-tier Chicago-Kent College of Law, one of six law schools in the Chicago area. Despite graduating near the top half of her class, she has been unable to find a job and is doing temp work "essentially as a paralegal," she says. "A lot of people, including myself, feel frustrated about the lack of jobs," she says.
The market is particularly tough in big cities that boast numerous law schools. Mike Altmann, 29, a graduate of New York University who went to Brooklyn Law School, says he accumulated $130,000 in student-loan debt and graduated in 2002 with no meaningful employment opportunities -- one offer was a $33,000 job with no benefits. So Mr. Altmann became a contract attorney, reviewing electronic documents for big firms for around $20 to $30 an hour, and hasn't been able to find higher-paying work since.
Some new lawyers try to hang their own shingle. Matthew Fox Curl graduated in 2004 from second-tier University of Houston in the bottom quarter of his class. After months of job hunting, he took his first job working for a sole practitioner focused on personal injury in the Houston area and made $32,000 in his first year. He quickly found that tort-reform legislation has been "brutal" to Texas plaintiffs' lawyers and last year left the firm to open up his own criminal-defense private practice.
He's making less money than at his last job and has thought about moving back to his parents' house. "I didn't think three years out I'd be uninsured, thinking it's a great day when a crackhead brings me $500."
What the above article did for me is provide me with a new perspective that law schools are producing more graduates than there are jobs available. It's almost, a recession within a recession. And new graduates are finding themselves in unfortunate situations (burdened with debt, unemployment, under-qualified, etc, etc) and are scrounging for any type of work and experience.
And to that I say thanks, but no thanks. I am already dealing with one recession, I don't need another.
I abstained from attending this event.
I started to really think long and hard about my law school decision. The main point being that there seems to be more graduates of law schools then there are jobs.
When I break it down by my area (Chicago) and think about the law schools in Illinois alone...
-Northwestern
-University of Chicago
-Chicago-Kent
-University of Illinois
-Loyola
-DePaul
-John Marshall
-Northern Illinois University
-Southern Illinois University
(which by the way, the Chicago market is the 2nd largest market behind New York for law schools)
AND if you want to get really technical, throw these schools into the mix because of their proximity...
-Notre Dame
-Marquette
-Valpo
-Purdue*
-Wisconsin*
-Michigan*
-Indiana*
(*=a stretch but where do you think they are going to look first for jobs? Maybe a major metropolitan city like a Chicago)
...this reaffirms my concern for employment.
There is a total of 16 law schools that graduates, in theory, could be competing for the same small number of jobs.
Can any of these law schools guarantee a job after graduation? No.
With the U.S. Economy in a recession, how can one justify going to law school, not working for three years, adding a minimum of $100,000 of debt, and then not have a guarantee about a job afterwards? Not to mention that lawyers are not immune to a recession. I spoke with my Powerscore LSAT teacher about this and he said "Now is one of the worst times to be graduating law school." Sure, he's referring to the market in today's time and under today's economic terms. Could the market turn around? Definitely. Will it in three years? That's debatable. If I was in Vegas, I would bet no (especially in the legal field).
I think in three years not only will law school graduates deal with competing against each other for jobs, but also graduates of today that couldn't find steady work and just did random jobs to make ends meet. I also think it would be obtuse to think that partners and individuals with several years of legal experience are immune to this recession. So graduates would have to compete with them as well.
I recently stumbled upon this article in a discussion forum that I think strengthens my reasoning to reconsider law school:
From US News, Poor careers for 2006 Attorney.
If starting over, 75 percent of lawyers would choose to do something else. A similar percentage would advise their children not to become lawyers. The work is often contentious, and there's pressure to be unethical. And despite the drama portrayed on TV, real lawyers spend much of their time on painstakingly detailed research. In addition, those fat-salaried law jobs go to only the top few percent of an already high-powered lot.
Many people go to law school hoping to do so-called public-interest law. (In fact, much work not officially labeled as such does serve the public interest.) What they don't teach in law school is that the competition for those jobs is intense. I know one graduate of a Top Three law school, for instance, who also edited a law journal. She applied for a low-paying job at the National Abortion Rights Action League and, despite interviewing very well, didn't get the job.
From the Associated Press, MADISON, Wis. (AP) - A lawmaker who persuaded the Assembly to eliminate all state funding for the University of Wisconsin law school says his reasoning is simple: There's too many lawyers in Wisconsin.(Too many lawyers in Wisconsin)
From an ABA study about malpractice claims, More Sole Practitioners:
There appears to be an increasing trend toward sole practitioners, due partly to a lack of jobs for new lawyers, but also due to increasing dissatisfaction among experienced lawyers with traditional firms; leading to some claims which could have been avoided with better mentoring.
New Lawyers:
Most insurers have noticed that many young lawyers cannot find jobs with established firms, and so are starting their own practices without supervision or mentoring. This is likely to cause an increase in malpractice claims, although the claims may be relatively small in size due to the limited nature of a new lawyers
“In a survey conducted back in 1972 by the American Bar Association, seventy percent of Americans not only didn’t have a lawyer, they didn’t know how to find one. That’s right, thirty years ago the vast majority of people didn’t have a clue on how to find a lawyer. Now it’s almost impossible not to see lawyers everywhere you turn."
Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate,
For graduates of elite law schools, prospects have never been better.
Big law firms this year boosted their starting salaries to as high as $160,000. But the majority of law-school graduates are suffering from a supply-and-demand imbalance that's suppressing pay and job growth. The result: Graduates who don't score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.
The law degree that Scott Bullock gained in 2005 from Seton Hall University -- where he says he ranked in the top third of his class -- is a "waste," he says. Some former high-school friends are earning considerably more as plumbers and electricians than the $50,000-a-year Mr. Bullock is making as a personal-injury attorney in Manhattan. To boot, he is paying off $118,000 in law-school debt.
A slack in demand appears to be part of the problem. The legal sector, after more than tripling in inflation-adjusted growth between 1970 and 1987, has grown at an average annual inflation-adjusted rate of 1.2% since 1988, or less than half as fast as the broader economy, according to Commerce Department data.
On the supply end, more lawyers are entering the work force, thanks in part to the accreditation of new law schools and an influx of applicants after the dot-com implosion earlier this decade. In the 2005-06 academic year, 43,883 Juris Doctor degrees were awarded, up from 37,909 for 2001-02, according to the American Bar Association. Universities are starting up more law schools in part for prestige but also because they are money makers. Costs are low compared with other graduate schools and classrooms can be large. Since 1995, the number of ABA-accredited schools increased by 11%, to 196.
According to the Internal Revenue Service, the inflation-adjusted average income of sole practitioners has been flat since the mid-1980s. A recent survey showed that out of nearly 600 lawyers at firms of 10 lawyers or fewer in Indiana, wages for the majority only kept pace with inflation or dropped in real terms over the past five years.
Many students "simply cannot earn enough income after graduation to support the debt they incur," wrote Richard Matasar, Dean of New York Law School, in 2005, concluding that, "We may be reaching the end of a golden era for law schools."
Now, debate is intensifying among law-school academics over the integrity of law schools' marketing campaigns.
David Burcham, Dean of Loyola Law School in Los Angeles, considered second-tier, says the school makes no guarantees to students that they will obtain jobs.
OK, I have to interject right here. Did a dean of a law school basically say you could go through all the nonsense of getting into law school, law school, ethics exam, bar exam and you should not expect some sort of gainful employment after you are through? You might as well go to Las Vegas and put your tuition money on the roulette table and let it ride, you may have better odds of making money than going to his school and getting a decent paying law job. This guy is a jerk.
Yet economic data suggest that prospects have grown bleaker for all but the top students, and now a number of law-school professors are calling for the distribution of more-accurate employment information. Incoming students are "mesmerized by what's happening in big firms, but clueless about what's going on in the bottom half of the profession," says Richard Sander, a law professor at the University of California-Los Angeles who has studied the legal job market.
But in law schools' self-published employment data, "private practice" doesn't necessarily mean jobs that improve long-term career prospects, for that category can include lawyers working under contract without benefits, such as Israel Meth. A 2005 graduate of Brooklyn Law School, he earns about $30 an hour as a contract attorney reviewing legal documents for big firms. He says he uses 60% of his paycheck to pay off student loans -- $100,000 for law school on top of $100,000 for the bachelor's degree he received from Columbia University. "Most people graduating from law school," he says, "are not going to be earning big salaries."
Adding to the burden for young lawyers: Tuition growth at law schools has almost tripled the rate of inflation over the past 20 years, leading to higher debt for students and making starting salaries for most graduates less manageable, especially in expensive cities. Graduates in 2006 of public and private law schools had borrowed an average of $54,509 and $83,181, up 17% and 18.6%, respectively, from the amount borrowed by 2002 graduates, according to the American Bar Association.
But just as common -- and much less publicized -- are experiences such as that of Sue Clark, who this year received her degree from second-tier Chicago-Kent College of Law, one of six law schools in the Chicago area. Despite graduating near the top half of her class, she has been unable to find a job and is doing temp work "essentially as a paralegal," she says. "A lot of people, including myself, feel frustrated about the lack of jobs," she says.
The market is particularly tough in big cities that boast numerous law schools. Mike Altmann, 29, a graduate of New York University who went to Brooklyn Law School, says he accumulated $130,000 in student-loan debt and graduated in 2002 with no meaningful employment opportunities -- one offer was a $33,000 job with no benefits. So Mr. Altmann became a contract attorney, reviewing electronic documents for big firms for around $20 to $30 an hour, and hasn't been able to find higher-paying work since.
Some new lawyers try to hang their own shingle. Matthew Fox Curl graduated in 2004 from second-tier University of Houston in the bottom quarter of his class. After months of job hunting, he took his first job working for a sole practitioner focused on personal injury in the Houston area and made $32,000 in his first year. He quickly found that tort-reform legislation has been "brutal" to Texas plaintiffs' lawyers and last year left the firm to open up his own criminal-defense private practice.
He's making less money than at his last job and has thought about moving back to his parents' house. "I didn't think three years out I'd be uninsured, thinking it's a great day when a crackhead brings me $500."
What the above article did for me is provide me with a new perspective that law schools are producing more graduates than there are jobs available. It's almost, a recession within a recession. And new graduates are finding themselves in unfortunate situations (burdened with debt, unemployment, under-qualified, etc, etc) and are scrounging for any type of work and experience.
And to that I say thanks, but no thanks. I am already dealing with one recession, I don't need another.
Thursday, October 8, 2009
Credit Card Interest Rate Laws
Welcome to the first post of a new segment of my blog conveniently titled: "Laws". Since I am pursuing higher education in the form of a Juris Doctor I figured it would be a good idea to get familiar with the Law of the land.
First on my agenda is Credit Card interest rates [ENTER EVIL MUSIC].
They are ridiculous, scary, and somewhat uncontrollable. Yes, uncontrollable. I say that because your credit card company can raise your rate AT ANY TIME regardless of payment history, credit history, your good name or your state's Usury laws.
This is perfectly LEGAL (as much as it pains me to say it).
How? Well that came from the Supreme Court ruling in the 1978 case Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.
In summary, the Supreme Court ruled that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including states with restrictive interest caps.
So for example, I am a cardholder and my state of Illinois has a restrictive cap of 15% but my lender is located in Utah which has a cap of 24.9%...well this means that my lender will probably charge me the 24.9%.
When it comes to credit card interest rates, the law in a lender's home state rules. It doesn't matter what kind of rate cap exists in a customer's state.
This is what is knows as an Usury Law. In the United States, usury laws are state laws that specify the maximum legal interest rate at which loans can be made. Congress has opted not to regulate interest rates on purely private transactions, although it arguably has the power to do so under the interstate commerce clause of Article I of the Constitution.
So keep in mind that each state has its own statute which dictates how much interest can be charged before it is considered usurious or unlawful.
Understand that there is a glimmer of hope and that glimmer is YOU. You are in control of your credit history. Keep it clean by paying on time and paying off the balance every month (although this is one of many techniques to keep your credit clean) and your interest rate will be in your favor.
"If you lend money to any of my people that is poor by you, you shall not be to him as an usurer, neither shall you lay on him usury." - [Exodus 22:25]
First on my agenda is Credit Card interest rates [ENTER EVIL MUSIC].
They are ridiculous, scary, and somewhat uncontrollable. Yes, uncontrollable. I say that because your credit card company can raise your rate AT ANY TIME regardless of payment history, credit history, your good name or your state's Usury laws.
This is perfectly LEGAL (as much as it pains me to say it).
How? Well that came from the Supreme Court ruling in the 1978 case Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.
In summary, the Supreme Court ruled that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including states with restrictive interest caps.
So for example, I am a cardholder and my state of Illinois has a restrictive cap of 15% but my lender is located in Utah which has a cap of 24.9%...well this means that my lender will probably charge me the 24.9%.
When it comes to credit card interest rates, the law in a lender's home state rules. It doesn't matter what kind of rate cap exists in a customer's state.
This is what is knows as an Usury Law. In the United States, usury laws are state laws that specify the maximum legal interest rate at which loans can be made. Congress has opted not to regulate interest rates on purely private transactions, although it arguably has the power to do so under the interstate commerce clause of Article I of the Constitution.
So keep in mind that each state has its own statute which dictates how much interest can be charged before it is considered usurious or unlawful.
Understand that there is a glimmer of hope and that glimmer is YOU. You are in control of your credit history. Keep it clean by paying on time and paying off the balance every month (although this is one of many techniques to keep your credit clean) and your interest rate will be in your favor.
No End in Sight - a documentary
Remember this photo? (note the banner above his head)
Just what was accomplished? Here's a fantastic documentary on the Iraq War titled "No End in Sight". This is a jaw-dropping, insider's tale of wholesale incompetence, recklessness and venality. Based on over 200 hours of footage, the film provides a candid retelling of the events following the fall of Baghdad in 2003 by high ranking officials, Iraqi civilians, American soldiers, and prominent analysts. "No End In Sight" examines the manner in which the principal errors of U.S. policy -- the use of insufficient troop levels, allowing the looting of Baghdad, the purging of professionals from the Iraqi government, and the disbanding of the Iraqi military -- largely created the insurgency and chaos that engulf Iraq today.
Just what was accomplished? Here's a fantastic documentary on the Iraq War titled "No End in Sight". This is a jaw-dropping, insider's tale of wholesale incompetence, recklessness and venality. Based on over 200 hours of footage, the film provides a candid retelling of the events following the fall of Baghdad in 2003 by high ranking officials, Iraqi civilians, American soldiers, and prominent analysts. "No End In Sight" examines the manner in which the principal errors of U.S. policy -- the use of insufficient troop levels, allowing the looting of Baghdad, the purging of professionals from the Iraqi government, and the disbanding of the Iraqi military -- largely created the insurgency and chaos that engulf Iraq today.
Some Pre Olympics GDP and Post Olympics GDP Articles
Interesting article regarding GDP the year after a country hosts the Olympics: Spotlight on China Olympic Games and GDP Growth
In summary, his article points out that GDP decreases substantially the year after the Olympics is held.
Here's an article about the economic impact prior to the Olympics: The Economic Impact of the Olympics
In summary, it shows that there's great robust growth in GDP about three years prior to the Olympics, BUT like the article above, it shows a decline in GDP post Olympics.
More info on hosting the Olympics: Sports Industry: The Economics of the Olympics
In summary, his article points out that GDP decreases substantially the year after the Olympics is held.
Here's an article about the economic impact prior to the Olympics: The Economic Impact of the Olympics
In summary, it shows that there's great robust growth in GDP about three years prior to the Olympics, BUT like the article above, it shows a decline in GDP post Olympics.
More info on hosting the Olympics: Sports Industry: The Economics of the Olympics
Friday, October 2, 2009
Why Chicago (taxpayers) dodged a bullet by not getting the Olympics
One of my favorite movies is The Matrix (the first one). My favorite scene (perhaps of all time) is when Neo faces off with the agent on top of the building and starts dodging bullets left and right. You see the bullets pass him and rotate (and yes, bullets REALLY do rotate) in slow motion.
This morning I found out (much like everyone else) that Chicago did not get the Olympics and I was EXTREMELY happy.
Much like Neo, we dodged a bullet on this one.
Approaching the Olympic decision, there were two categories; those who wanted the Olympics, and those who did not. There was no in between.
Those who wanted the Olympics argued that the Olympics would bring in new infrastructure, money and international appeal (putting Chicago on the world map).
Those who did not want the Olympics argued that our focus and money should be invested elsewhere (public schools, public transportation, police, etc, etc) and also argued that taxpayers will eventually have to pay for these games (even though the Mayor said they wouldn't...and when have politicians ever lied to us?).
Chicago faces many more important issues financially. The Olympics would have taken our focus off of what truly matters in our great city; like education, public transportation and law enforcement.
For example:
-As of March, 2009, the Chicago Public School's (CPS) had a $475 million deficit (which has been called the biggest in history). And that stimulus from the Government is only covering $50 million. This deficit has caused more staff and faculty cuts (i.e. teachers) and even higher property taxes (from home/business owners) to fill that void. These are our children we're talking about here. OUR CHILDREN! What's more important than focusing your time, energy and money in the children of your city? Absolutely NOTHING!
-The Chicago Transit Authority (CTA) is $87 million dollars in the red. That deficit includes sales-tax revenue ($42 million), the Real Estate Transfer Tax ($33 million) and discretionary funding ($12 million). Since I have lived in Chicago, there has been two (2) "Doomsday" experiences when routes/services were cancelled. The CTA continues to struggle with this deficit and must look towards the state for additional money just to keep it on life support.
-The Chicago Police Department hasn't had a contract or wage increase in 5 years. 5 YEARS! This is YOUR POLICE that enforce THE LAW and protect you from CRIME! Think about this: If you're a Chicago Police Officer, it is a requirement for you to live in the city. And if you own a home and pay rising property taxes, you have to deal with NOT receiving a wage increase for 5 YEARS to compensate for these rising taxes. PLUS - I can't even remember when the police academy was open. Can you?
All of these are valuable points that we need to focus on for making Chicago better.
For those of you that do not think that the Olympics would've gone over budget, consider the following:
-Vancouver will be in debt for the next 55 years because they are currently 500-600 million dollars over budget for their 2010 Olympic games.
-The 2012 Olympics in London is 9 BILLION euros OVER budget (that's the equivalent to 13 BILLION DOLLARS). Imagine that...13 BILLION DOLLARS!
If Chicago would've gotten the Olympics, it wouldn't have been "If" Chicago was over budget, it would've been a matter of "How much".
So thank you IOC for doing your homework and calling out Chicago for what it is...a city that is financially in the red and one that struggles to improve its quality of life.
Listen, I am a Chicagoan and I LOVE this city and I will continue to love this city. No longer do we have to be satisfied with the way business is conducted in our city. We need to use this opportunity as motivation to believe in something better for Chicago.
And when we believe something better for our city and invest more efforts to improve our quality of life, we won't have to dodge bullets of budget crises in education, transportation and law enforcement...
...because we'll stop them.
This morning I found out (much like everyone else) that Chicago did not get the Olympics and I was EXTREMELY happy.
Much like Neo, we dodged a bullet on this one.
Approaching the Olympic decision, there were two categories; those who wanted the Olympics, and those who did not. There was no in between.
Those who wanted the Olympics argued that the Olympics would bring in new infrastructure, money and international appeal (putting Chicago on the world map).
Those who did not want the Olympics argued that our focus and money should be invested elsewhere (public schools, public transportation, police, etc, etc) and also argued that taxpayers will eventually have to pay for these games (even though the Mayor said they wouldn't...and when have politicians ever lied to us?).
Chicago faces many more important issues financially. The Olympics would have taken our focus off of what truly matters in our great city; like education, public transportation and law enforcement.
For example:
-As of March, 2009, the Chicago Public School's (CPS) had a $475 million deficit (which has been called the biggest in history). And that stimulus from the Government is only covering $50 million. This deficit has caused more staff and faculty cuts (i.e. teachers) and even higher property taxes (from home/business owners) to fill that void. These are our children we're talking about here. OUR CHILDREN! What's more important than focusing your time, energy and money in the children of your city? Absolutely NOTHING!
-The Chicago Transit Authority (CTA) is $87 million dollars in the red. That deficit includes sales-tax revenue ($42 million), the Real Estate Transfer Tax ($33 million) and discretionary funding ($12 million). Since I have lived in Chicago, there has been two (2) "Doomsday" experiences when routes/services were cancelled. The CTA continues to struggle with this deficit and must look towards the state for additional money just to keep it on life support.
-The Chicago Police Department hasn't had a contract or wage increase in 5 years. 5 YEARS! This is YOUR POLICE that enforce THE LAW and protect you from CRIME! Think about this: If you're a Chicago Police Officer, it is a requirement for you to live in the city. And if you own a home and pay rising property taxes, you have to deal with NOT receiving a wage increase for 5 YEARS to compensate for these rising taxes. PLUS - I can't even remember when the police academy was open. Can you?
All of these are valuable points that we need to focus on for making Chicago better.
For those of you that do not think that the Olympics would've gone over budget, consider the following:
-Vancouver will be in debt for the next 55 years because they are currently 500-600 million dollars over budget for their 2010 Olympic games.
-The 2012 Olympics in London is 9 BILLION euros OVER budget (that's the equivalent to 13 BILLION DOLLARS). Imagine that...13 BILLION DOLLARS!
If Chicago would've gotten the Olympics, it wouldn't have been "If" Chicago was over budget, it would've been a matter of "How much".
So thank you IOC for doing your homework and calling out Chicago for what it is...a city that is financially in the red and one that struggles to improve its quality of life.
Listen, I am a Chicagoan and I LOVE this city and I will continue to love this city. No longer do we have to be satisfied with the way business is conducted in our city. We need to use this opportunity as motivation to believe in something better for Chicago.
And when we believe something better for our city and invest more efforts to improve our quality of life, we won't have to dodge bullets of budget crises in education, transportation and law enforcement...
...because we'll stop them.
Wednesday, September 30, 2009
Street Fight - a political documentary
Cory Booker vs. Sharpe James
When a 32-year-old Rhodes Scholar/Yale Law School grad takes on the four-term mayor of Newark, N.J., he gets an education in the politics of the streets.
"the best American political documentary since 1993's The War Room" - The Washington Post
I watched this documentary last night and what really got under my skin was the black-on-black racism and dirty politics that the Mayor Sharpe James displayed towards the younger Cory Booker.
When a 32-year-old Rhodes Scholar/Yale Law School grad takes on the four-term mayor of Newark, N.J., he gets an education in the politics of the streets.
"the best American political documentary since 1993's The War Room" - The Washington Post
I watched this documentary last night and what really got under my skin was the black-on-black racism and dirty politics that the Mayor Sharpe James displayed towards the younger Cory Booker.
Tuesday, September 29, 2009
Maxed Out - A documentary that unveils the consequences of our collective addiction to debt.
With sobering facts and black humor, this thought-provoking documentary unveils the consequences of our collective addiction to debt -- including its contribution to the vanishing act of a once-robust American middle class. Investigating both Americans' personal debt and the government's growing national debt, the film explores the staggering financial burden we live with every day and sheds light on the contemporary financial industry.
I just watched this documentary and was absolutely taken back by some of these stories and the way in which the government doesn't question the credit card companies (mostly because they are HUGE contributors to political campaigns). Wow.
And out of the smoke, there's a glimmer of hope. New act to prohibit credit card companies on campus
Sunday, September 27, 2009
House of Cards - a definitive report from CNBC about the housing crisis.
(courtesy of www.hulu.com)
CNBC presents the definitive report on the defining story of our time. CNBC correspondent David Faber investigates the origins of the global economic crisis, with first person accounts from home buyers, mortgage brokers, investment bankers and investors – most of whom let greed blind them, leading to the greatest financial collapse since the Great Depression.
House of Cards website (CNBC)
Thursday, September 24, 2009
The 411 on Credit Unions
Recently, I had a conversation with someone discussing the difference between Banks and Credit Unions. It did not surprise me that this person wasn't familiar with Credit Unions. I think most people (or at least most people I know) have their money in Banks. But I do feel as if some people just do not know not only the difference between a Bank and a Credit Union but also the services they provide.
I can speak from some personal experience in dealing with Credit Unions. When I was on the market for a car loan, I shopped around for a low interest rate (of course) and the lowest one was from a Credit Union. I will also say that the service provided to me from the Credit Union was more "personal" than from a Bank. (Every time I go into a Bank, I just do not feel like a)a valued customer and b)that they have my best intentions in mind...this is just me though. I think this is why I do most of my banking online).
Do I go to Credit Unions for everything? No. I still hold a checking/savings account/credit card from a Bank. And of which I cannot complain about the service that they provide for my checking/savings/credit card accounts.
But I would recommend to anyone to not only look at what deals/rates the Bank will offer you but also a Credit Union when looking for additional financing and savings avenues.
It is your money after all.
So here's some additional knowledge for you on the difference between Banks and Credit Unions:
The Difference between Banks and Credit Unions ( a cartoon!)
-Part 1
-Part 2
-Part 3
Additional links:
- Ditch your Bank for a Credit Union
- Banks v. Credit Unions
I can speak from some personal experience in dealing with Credit Unions. When I was on the market for a car loan, I shopped around for a low interest rate (of course) and the lowest one was from a Credit Union. I will also say that the service provided to me from the Credit Union was more "personal" than from a Bank. (Every time I go into a Bank, I just do not feel like a)a valued customer and b)that they have my best intentions in mind...this is just me though. I think this is why I do most of my banking online).
Do I go to Credit Unions for everything? No. I still hold a checking/savings account/credit card from a Bank. And of which I cannot complain about the service that they provide for my checking/savings/credit card accounts.
But I would recommend to anyone to not only look at what deals/rates the Bank will offer you but also a Credit Union when looking for additional financing and savings avenues.
It is your money after all.
So here's some additional knowledge for you on the difference between Banks and Credit Unions:
The Difference between Banks and Credit Unions ( a cartoon!)
-Part 1
-Part 2
-Part 3
Additional links:
- Ditch your Bank for a Credit Union
- Banks v. Credit Unions
Tuesday, September 22, 2009
The BEST Documentary that you're NOT watching...
When the Levees Broke
"When The Levees Broke" is a documentary by Spike Lee that focuses on the agonizingly slow response and recovery of New Orleans during and immediately following Hurricane Katrina. It investigates some of the political goings on back and forth, the struggles/confusion of power, some theories about the levees but most importantly the suffering of these great citizens.
Those of you that know me, know that I absolutely HEART New Orleans. Its great food, music, architecture, art and most importantly, its people, make New Orleans one of the most unique cities in America. After watching the first two acts, I was shocked at how our government acted so irresponsible and basically left New Orleans to fend for itself (for a good majority of the time).
The people of New Orleans deserved better.
Here's an interesting graph, from the New York Times, showing some local statistics (New Orleans Parish) before/after Hurricane Katrina:
"When The Levees Broke" is a documentary by Spike Lee that focuses on the agonizingly slow response and recovery of New Orleans during and immediately following Hurricane Katrina. It investigates some of the political goings on back and forth, the struggles/confusion of power, some theories about the levees but most importantly the suffering of these great citizens.
Those of you that know me, know that I absolutely HEART New Orleans. Its great food, music, architecture, art and most importantly, its people, make New Orleans one of the most unique cities in America. After watching the first two acts, I was shocked at how our government acted so irresponsible and basically left New Orleans to fend for itself (for a good majority of the time).
The people of New Orleans deserved better.
Here's an interesting graph, from the New York Times, showing some local statistics (New Orleans Parish) before/after Hurricane Katrina:
Saturday, September 12, 2009
A brief debriefing on the National Debt
***DISCLAIMER*** I am not peddling on fear in regards to this next topic. Nor will I say if the debt is good/bad, real/unreal, etc/etc (you can decide that for yourself). This blog post is strictly meant for a little education on the subject. That is all.
Recently, I had the opportunity to host a discussion forum with certain friends and other guests to discuss topics (religion, sex, money, economics, education, etc, etc) important to our generation. And during this forum someone asked "Why should I care about the national debt? It doesn't affect me right now, at this moment. I have more pressing issues that cause me more concern."
I don't blame this individual at all for feeling this way. I think many people have a disconnect (myself included) about this very large number.
The current national debt is at approx.
. I personally cannot fathom what this looks like. However, I did stumble upon the following graph of what 1 trillion dollars looks like:
(imagine 11 of these fit-to-scale)
I don't blame this individual for feeling this way. Glancing across the room at the discussion forum, it is my opinion that many Americans feel this way about the national debt.
But why?
My best guess is because people can't see, feel, hear, read how 11 TRILLION DOLLARS affects them. And in the following, I will try to explain.
But first, a history lesson.
On Sept. 18, 1789, the new secretary of the treasury, Alexander Hamilton, entered into negotiations for a temporary loan with the Bank of New York and the Bank of North America—the only two banks in the country at that time. The following February, the deal went through and the government borrowed $19,608.81. It was the start of the American national debt under the new Constitution.
What would Hamilton think of his creation today? He would surely be impressed with its sheer size. But he would, I suspect, not be happy with what borrowed money is being used for.
Let's NOT blame Hamilton for creating the National Debt. Hamilton saw the debt as a powerful means of fighting wars (and in 1791 around $75 million in debt assumed by the colonies fighting the Revolutionary War was transferred to the Federal Government), building infrastructure, and getting through economic bad times.
It is also true that the most significant historical increases to the national debt have been due to war time conflicts. The Civil War was the first period of dramatic debt growth, leveling out until World War I and further increasing by an order of magnitude during our buildup and involvement in World War II. The debt proceeded to match inflation until around 1980 when it began to skyrocket.
For the last 30 years and more, however, the national debt has been increasingly used so that no one in Washington ever has to say "no" to anyone. (Hamilton and The Birth of National Debt)
So how does the National Debt affect us?
For starters, the National Debt is increasing by the second. Take a look for yourself: Debt Clock
At the current time (time of this blog post) the debt per citizen is $38,510. That means that every American citizen (man, woman, child...yes, child) can equate to $38,510 of this debt. How did we get this number?
DEBT PER CITIZEN = CURRENT DEBT/POPULATION
Does that mean you have to pay $38,510? No. But you are paying on the National Debt. Currently, 18 cents of every dollar you pay in taxes (and this includes sales tax, income tax, property tax, etc, etc) goes towards the National Debt.
Some argue that the debt can never be paid off and that the Debt-to-GDP ratio is more significant (a measure of a country's federal debt in relation to its gross domestic product (GDP)). <--- this sounds like my next blog post! Some argue that an increase in the national debt affects not only ours, but our children's (and our children's children) tax level and debt thus leaving less and less money in our and their pockets. Both are valid points that deserve further research. I personally know that if the Government wanted to raise taxes or increase what percentage of your tax money goes towards paying off the national debt (say instead of 18%, the Government increases it to 20% or 25% for every tax dollar you pay) you would take notice. You SHOULD take notice.
So that's a brief synopsis about the National Debt. If you think you can control the budget better, play the following game and maybe YOU are the next Secretary of the Treasury:Budget Hero Game
"A National debt if it is not excessive, will be to us a national blessing." - Alexander Hamilton
Article 1 - "National Debt - So?"
Article 2 - Debt Clock
Article 3 - Bill Us Later (why we don't need to worry about the national debt)
Article 4 - "Who do we owe?"
Article 5 - Where our tax money REALLY goes
Article 6 - Illusions and FAQs about national debt <--- GREAT ARTICLE
Recently, I had the opportunity to host a discussion forum with certain friends and other guests to discuss topics (religion, sex, money, economics, education, etc, etc) important to our generation. And during this forum someone asked "Why should I care about the national debt? It doesn't affect me right now, at this moment. I have more pressing issues that cause me more concern."
I don't blame this individual at all for feeling this way. I think many people have a disconnect (myself included) about this very large number.
The current national debt is at approx.
. I personally cannot fathom what this looks like. However, I did stumble upon the following graph of what 1 trillion dollars looks like:
I don't blame this individual for feeling this way. Glancing across the room at the discussion forum, it is my opinion that many Americans feel this way about the national debt.
But why?
My best guess is because people can't see, feel, hear, read how 11 TRILLION DOLLARS affects them. And in the following, I will try to explain.
But first, a history lesson.
On Sept. 18, 1789, the new secretary of the treasury, Alexander Hamilton, entered into negotiations for a temporary loan with the Bank of New York and the Bank of North America—the only two banks in the country at that time. The following February, the deal went through and the government borrowed $19,608.81. It was the start of the American national debt under the new Constitution.
What would Hamilton think of his creation today? He would surely be impressed with its sheer size. But he would, I suspect, not be happy with what borrowed money is being used for.
Let's NOT blame Hamilton for creating the National Debt. Hamilton saw the debt as a powerful means of fighting wars (and in 1791 around $75 million in debt assumed by the colonies fighting the Revolutionary War was transferred to the Federal Government), building infrastructure, and getting through economic bad times.
It is also true that the most significant historical increases to the national debt have been due to war time conflicts. The Civil War was the first period of dramatic debt growth, leveling out until World War I and further increasing by an order of magnitude during our buildup and involvement in World War II. The debt proceeded to match inflation until around 1980 when it began to skyrocket.
For the last 30 years and more, however, the national debt has been increasingly used so that no one in Washington ever has to say "no" to anyone. (Hamilton and The Birth of National Debt)
So how does the National Debt affect us?
For starters, the National Debt is increasing by the second. Take a look for yourself: Debt Clock
At the current time (time of this blog post) the debt per citizen is $38,510. That means that every American citizen (man, woman, child...yes, child) can equate to $38,510 of this debt. How did we get this number?
DEBT PER CITIZEN = CURRENT DEBT/POPULATION
Does that mean you have to pay $38,510? No. But you are paying on the National Debt. Currently, 18 cents of every dollar you pay in taxes (and this includes sales tax, income tax, property tax, etc, etc) goes towards the National Debt.
Some argue that the debt can never be paid off and that the Debt-to-GDP ratio is more significant (a measure of a country's federal debt in relation to its gross domestic product (GDP)). <--- this sounds like my next blog post! Some argue that an increase in the national debt affects not only ours, but our children's (and our children's children) tax level and debt thus leaving less and less money in our and their pockets. Both are valid points that deserve further research. I personally know that if the Government wanted to raise taxes or increase what percentage of your tax money goes towards paying off the national debt (say instead of 18%, the Government increases it to 20% or 25% for every tax dollar you pay) you would take notice. You SHOULD take notice.
So that's a brief synopsis about the National Debt. If you think you can control the budget better, play the following game and maybe YOU are the next Secretary of the Treasury:
"A National debt if it is not excessive, will be to us a national blessing." - Alexander Hamilton
Article 1 - "National Debt - So?"
Article 2 - Debt Clock
Article 3 - Bill Us Later (why we don't need to worry about the national debt)
Article 4 - "Who do we owe?"
Article 5 - Where our tax money REALLY goes
Article 6 - Illusions and FAQs about national debt <--- GREAT ARTICLE
Thursday, September 3, 2009
The Cost of War...
I found these interesting links on how much the war(s) in Iraq and Afghanistan really cost us.
Both links below can break it down per state, city but the first link provides feedback of the other ways the money could be invested.
1.)Cost of War
I've included the information for the State of Illinois.
- 20,522,595 People with Health Care for One Year OR
The second link is a running counter of the cost of war(s) (Iraq and Afghanistan).
2.)Cost of War (running counter)
Both links below can break it down per state, city but the first link provides feedback of the other ways the money could be invested.
1.)Cost of War
I've included the information for the State of Illinois.
Taxpayers in Illinois will pay $49.1 billion for total Iraq & Afghanistan war spending since 2001. For the same amount of money, the following could have been provided:
- 20,522,595 People with Health Care for One Year OR
- 65,333,548 Homes with Renewable Electricity for One Year OR
- 1,010,890 Public Safety Officers for One year OR
- 856,843 Music and Arts Teachers for One Year OR
- 4,971,589 Scholarships for University Students for One YearOR
- 9,183,037 Students receiving Pell Grants of $5350 OR
- 356,210 Affordable Housing Units OR
- 33,857,487 Children with Health Care for One Year OR
- 7,271,943 Head Start Places for Children for One Year OR
- 755,108 Elementary School Teachers for One Year OR
- 716,692 Port Container Inspectors for One year
The second link is a running counter of the cost of war(s) (Iraq and Afghanistan).
2.)Cost of War (running counter)
Economics from Naymond Brice
"A dollar today, is two tomorrow."- Naymond Brice, "The Wire"
I am always impressed when David Simon and Co. insert economic and financial theory in "The Wire". It's just one of those shows that challenges you intellectually because it makes the audience pay attention to the minor details and when the audience does that, they're rewarded.
Anyway, I digress.
I think Naymond and Dr. Greg Mankiw would have an interesting conversation. It's ironic that there isn't much difference in Economics from a corner boy in the 'hood and Economics from a Harvard Professor.
Here's a link to Dr. Mankiw's in depth look at how much his dollar today will be worth tomorrow under the tax plans of McCain and Obama.
A MUST READ!
My Personal Work Incentives - by Dr. Greg Mankiw
I am always impressed when David Simon and Co. insert economic and financial theory in "The Wire". It's just one of those shows that challenges you intellectually because it makes the audience pay attention to the minor details and when the audience does that, they're rewarded.
Anyway, I digress.
I think Naymond and Dr. Greg Mankiw would have an interesting conversation. It's ironic that there isn't much difference in Economics from a corner boy in the 'hood and Economics from a Harvard Professor.
Here's a link to Dr. Mankiw's in depth look at how much his dollar today will be worth tomorrow under the tax plans of McCain and Obama.
A MUST READ!
My Personal Work Incentives - by Dr. Greg Mankiw
Tuesday, September 1, 2009
Size DOES Matter...
...in baseball ladies, baseball.
A great article about the market size of baseball teams, their total revenue, and players salary.
Here's an excerpt:
”Salaries should be understood in terms of profitability to the owners, not in terms of winning percentage,” says Professor Mertens. Such a concept may be heresy to rotisserie stat heads, but not to economists. Despite the Yankees’ failure to make the playoffs in 2008, the team made money, lots of it. More important to understanding baseball as a hugely profitable mega-business is understanding the importance not just of ARod to baseball, but of the Yankees brand itself. According to Professor Mertens “everyone wins when the Yankees win.”
http://seamheads.com/blog/2008/10/09/baseball-economics-size-matters-true-or-false/
A great article about the market size of baseball teams, their total revenue, and players salary.
Here's an excerpt:
”Salaries should be understood in terms of profitability to the owners, not in terms of winning percentage,” says Professor Mertens. Such a concept may be heresy to rotisserie stat heads, but not to economists. Despite the Yankees’ failure to make the playoffs in 2008, the team made money, lots of it. More important to understanding baseball as a hugely profitable mega-business is understanding the importance not just of ARod to baseball, but of the Yankees brand itself. According to Professor Mertens “everyone wins when the Yankees win.”
http://seamheads.com/blog/2008/10/09/baseball-economics-size-matters-true-or-false/
Monday, August 31, 2009
The Financial Instability Hypothesis -- a hypothesis on how we have gotten here.
One explanation (hypothesis) on how we ended up in this recession:
The Financial Instability Hypothesis was founded by Chicago native Hyman Minsky.
Now that you have a brief history, let's now explain FIH In Layman's terms:
a)in good times, when investment and spending is abundant, over confidence develops
b)as a result, financial institutions and others become more indebted (over leveraged)
-leverage - borrow a lot to finance other activities
c)financial structures then become "fragile"
d)when a "shock" comes (anything that greatly disturbs the economic equilibrium) a financial
crisis ensues disrupting intermediation
-intermediation - borrowing & lending
e)thus consumption & investment (C + I) decreases and sends the economy into a recession
This process becomes cyclical. Why? Although technology improves, overconfidence can still develop because of easier procedures of intermediation.
Standard criticism is that this hypothesis seems irrational. Because why would rational people continue to make the same mistake (overconfidence, providing lending tools for unqualified individuals, etc, etc)?
Good question indeed.
Hyman Minsky - http://en.wikipedia.org/wiki/Hyman_Minsky
Intermediation - http://en.wikipedia.org/wiki/Intermediation
The Financial Instability Hypothesis was founded by Chicago native Hyman Minsky.
"Dr. Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.
This slow movement of the financial system from stability to crisis is something for which Minsky is best known, and the phrase "Minsky moment" refers to this aspect of Minsky's academic work.
Disagreeing with many mainstream economists of the day, he argued that these swings, and the booms and busts that can accompany them, are inevitable in a free market economy, unless government steps in to control them, through regulation, central bank action and other tools; such mechanisms, in fact, came into existence in response to crises such as the Panic of 1907 and the Great Depression. He opposed the deregulation that characterized the 1980s.
"A fundamental characteristic of our economy," Minsky wrote in 1974, "is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles." - WikipediaNow that you have a brief history, let's now explain FIH In Layman's terms:
a)in good times, when investment and spending is abundant, over confidence develops
b)as a result, financial institutions and others become more indebted (over leveraged)
-leverage - borrow a lot to finance other activities
c)financial structures then become "fragile"
d)when a "shock" comes (anything that greatly disturbs the economic equilibrium) a financial
crisis ensues disrupting intermediation
-intermediation - borrowing & lending
e)thus consumption & investment (C + I) decreases and sends the economy into a recession
This process becomes cyclical. Why? Although technology improves, overconfidence can still develop because of easier procedures of intermediation.
Standard criticism is that this hypothesis seems irrational. Because why would rational people continue to make the same mistake (overconfidence, providing lending tools for unqualified individuals, etc, etc)?
Good question indeed.
Hyman Minsky - http://en.wikipedia.org/wiki/Hyman_Minsky
Intermediation - http://en.wikipedia.org/wiki/Intermediation
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