You're So Money And You Don't Even Know It

$3.3 Trillion

2011-09-10T11:52:00.002-05:00

$3.3 Trillion | New York Times

An excerpt: "Al Qaeda spent roughly half a million dollars to destroy the World Trade Center and cripple the Pentagon. What has been the cost to the United States? In a survey of estimates by The New York Times, the answer is $3.3 trillion, or about $7 million for every dollar Al Qaeda spent planning and executing the attacks. While not all of the costs have been borne by the government — and some are still to come — this total equals one-fifth of the current national debt. All figures are shown in today’s dollars."

Another link that talks about the opportunity cost that America has squandered: The Price Of Lost Chances | New York Times

An excerpt: "Less than a trillion dollars of the $3.3 trillion was for direct responses — including toppling the Taliban. But what if at least some of the remaining $2 trillion plus had been spent on other, longer-range threats to American national security? Rebuilding a broken education system? Finding more imaginative ways to compete with China? Reducing the national debt? Or delivering on promises, by President George W. Bush and Secretary of State Hillary Rodham Clinton alike, for “Marshall plans” to rebuild societies at risk of letting the next Al Qaeda flourish?"

Marketplace Whiteboard: The Difference Between Fiscal And Monetary Policy

2011-09-06T11:25:00.000-05:00

Marketplace.org Senior Editor Paddy Hirsch explains the difference between Fiscal and Monetary Policy.

Warren Buffett: An Economic Indicator?

2011-08-29T11:50:00.003-05:00

Marketplace.org Senior Editor, Paddy Hirsch, explains Warren Buffett as an economic indicator.

Rick Perry Calls Ben Bernanke 'Treasonous'

2011-08-16T15:07:00.005-05:00

Perry stands by 'treasonous' comment on Bernanke | CNN Money

Bernanke 'treasonous'? I don't think so. Bernanke has a PhD in Economics from MIT. Quantitative Easing was done to combat massive shrinking of the economy (aka 'Deflation'). Bernanke wrote about the effects of deflation in the Bernanke Doctrine.

What I do know is 'treasonous' is a pretty strong word to be used by someone [Perry] with a 2.23 GPA, and who earned a bachelor's degree in animal science.

Bernanke: 1, Perry: dumb

UPDATE: Perry's GPA is actually 2.23 (correction made) using the standard weights for grades (A=4, B=3, C=2, etc). You can read an article regarding his transcript at Texas A&M at the Huffington Post. Better yet, just view his transcript here.

Here's some items that stand out:
Phys Ed 102: B - Really, Perry? You couldn't get an 'A' in this class?
Phys Ed 202: B - For realz?
History of the U.S. (105): C
History of the U.S. (106): C

and most importantly...

Principles of Economics (Econ 203): D

WTF!

And he wants to throw insults at Bernanke?!

GTFOH.

US Debt: Why We Don't Compare Household Finances To Government Finances

2011-08-10T02:14:00.003-05:00

I understand the attraction to liken your household finances to government finances. Comparing your income to what you're spending works for households; It's clean, it's neat and it's simple. But comparing Government finances to Household finances is not accurate. The simplicity of our spending (utilities, debt, living expenses) and our income does not apply to the government. Flexo at Consumerism Commentary describes why it’s not at all akin to a family spending more than it earns:

The government can at any time, at its discretion, increase revenue. It’s not popular, but raising taxes is an option. Households cannot similarly decree that their income increase. People can take certain actions to increase their income, like obtaining more education or training, but these often require even more expenditures. Income-earners can get second or third jobs to help make ends meet, and the farther that goes, it will be emotionally, mentally and emotionally straining on a family. Fact of the matter is, most of us work for money. It's a sad face but it's the hard truth; households aren't as flexible on the revenue side as the government.

The government can at any time, at its discretion, devalue its debt. Monetary policy comes into play. The Federal Reserve, working alongside the government, purchases government securities, increasing the money supply for banks and consumers. With more money available in the economy, people (but mostly businesses) can afford to pay more, and prices increase, effectively decreasing the purchasing power of a dollar. This is a great position for people who owe money to be in, because the real value of what they owe decreases.

Households, on the other hand, have no control over the money supply and therefore cannot manipulate the real value of their debt.

Deficit spending helps spur the economy. Throughout the twentieth century, the government was more frequently in a budget deficit than in a budget surplus. The ability for the government to spend freely helped this country become the rich economic powerhouse it is today. With the federal government taking up the slack by investing in the economy during periods in which businesses were gun-shy, the country continued prospering — particularly the middle class. Periods of deficit spending were followed by periods of surplus, but for the most part, deficit spending is linked to this country’s growth.

Is there a risk to printing money? Sure, hyperinflation (very high, rapid monetary inflation) comes to mind. But we are no where near hyperinflation. The U.S. hasn't experienced hyperinflation since the Revolutionary War (when we were 13 colonies) and the Civil War (a divided nation). In fact, we are currently experiencing deflation (more on this in a later post).

The national debt will always be a point of contention but we have to separate the narrative from the facts. My narrative is that I don't believe (based on the bullet points above) that the U.S. Government has a debt problem. I do believe, however, we have inefficiencies in government leadership that leads to ineffective government spending (more government spending to create jobs please, kthanksbai). The fact remains -- we can always print money. And if you continue to compare your household finances to government finances, then ask yourself this:

If you have a machine at your home that can print you money, would you have a debt problem?

Truth bomb go "boom".

Why S.&P.’s Ratings Are Substandard and Porous

2011-08-08T13:55:00.004-05:00

Nate Silver had a FANTASTIC piece on Why S.&P.’s Ratings Are Substandard and Porous (many thanks to my buddy, Brad, for finding this). It's a long article, but if you can work your way through it, he has some excellent content.

Boom.

US Downgraded: Americans Demand Leadership

2011-08-07T16:51:00.000-05:00

America doesn't have a debt problem.

America has a leadership problem. America's leaders have failed to spend productively albeit with cash and/or with debt and then play a dangerous economic game by arguing about it rather than solving the problem.

Failing public schools (at all levels), overcrowded prisons, medicare/medicaid, social security, roads, and inept politicians have hemorrhaged financial resources. This means that the Government Spending equation of GDP isn't as effective as it needs to be:

GDP = Consumer Spending + Investment Spending + Government Spending + (EXports - Imports)

Government spending can be financed by seigniorage, taxes, or government borrowing. It is important to realize that "G spending" happens at all levels: federal, state, and local.

John Maynard Keynes was one of the first economists to advocate government deficit spending as part of the fiscal policy response to an economic contraction. In Keynesian economics, increased government spending is thought to raise aggregate demand and increase consumption, which in turn leads to increased production. Keynesian economists argue that the Great Depression was ended by government spending programs such as the New Deal and military spending during World War II. According to the Keynesian view, a severe recession or depression may never end if the government does not intervene.

Reducing government spending, in general, doesn't solve the problem in the long-run. It just puts a band-aid on a bullet wound. We need effective government spending; the kind that adds value to America: public schools and infrastructure.

America has been hemorrhaging spending for decades without improving the infrastructure. And with low growth and sloooooow job creation, we may not see pre-recession GDP output and unemployment until 2018. Nate Silver wrote:

Not only is the worst not yet over — the situation is still deteriorating. Every quarter that the economy grows at a rate below 3.5 percent, it loses ground relative to the long-term trend. Although the economy grew at a 3.8 annual percent rate from fall 2009 through summer 2010, over the past year growth has averaged just 1.6 percent, putting us farther behind.

What we need, instead, is above-average growth — in fact, quite a lot of it. Even if the economy were to begin growing at a 5 percent annual rate, it would take until 2018 for it to catch up to the long-term trend.

We need leadership. We need to be galvanized about one idea that will make America competitive. Although I don't agree with each of FDR's policies passed in the New Deal, he had some fantastic ideas: Works Progress Administration, Civil Works Administration, Civilian Conservation Corps. The common theme among these programs is that it was effective government spending while putting Americans to work. Where are those ideas today?

Why we no have speed rail? :-(
or wind power? :-(

Epic. Fail.

Understanding the Ratings Agencies
In early of 2010, Paddy Hirsch of Marketplace.org had one of his whitebaord sessions regarding the credit rating agencies. Although it's dated, there's some good content in there regarding the conflict and possible collusion of these agencies:

Why The Downgrade Happened
At first, I didn't understand Standard & Poor's motivation behind the downgrade. But their job is to inform us if we're going to get our money back if we invest in a certain asset like US Treasuries (hence, the ratings). Although there was an error that inflated U.S. deficits by $2 trillion, John Chambers, head of soveirgn ratings for S&P said:

[the error] "doesn't make a material difference -- it doesn't change the fact that your debt-to-GDP ratio will continue to rise over the next decade," he told "AC360."

So the downgrade happened because the S&P thinks that America will not be able to pay its debtors because of the high debt-to-GDP ratio. Because of this, maybe the downgrade needs to happen.

What The Downgrade Really Means
Besides meaning that our leadership is absolutely atrocious in Washington, the downgrade also means a rise in interest rates across the board. The rising of these rates will vary. CNN Money had a good article on how it affects your money -- everything from your cash to bonds to borrowing. Please do check it out.

Failed Leadership
The downgrade does mean something for all of us. It means that America has failed leadership. As a Veteran, I am angered by their lack of basic leadership skills: working as a team, implementing ideas, compromising, making effective decisions, disseminating information, and most importantly, accomplishing the objective. In my opinion, we need leaders that know the following:

basic economics

allocate (cash & debt) spending effectively

leadership

The image of our nation is damaged internally and externally. Retired General Russel L. Honoré said:

It's time to get draconian. But not with the helpless elderly who need their Social Security payments, not with the powerless Army private supporting a family. I mean it's time to load our elected officials on troop planes and send them to Camp Shelby, Mississippi. Put them in tents with no air conditioning, have Army drill sergeants teach them teamwork and physical sacrifice. When they recognize their responsibility to the people of America, they can return to D.C., their upscale restaurants, and military plane trips, as though they were royalty.

I couldn't agree more. We need a better way to assess the strong from the weak in our leadership. To accomplish an objective, you don't wait on the weak. And unfortunately, the weak are in Washington.

You Too Can Understand The Debt-Ceiling Debate!!!

2011-07-28T08:13:00.000-05:00

Marketplace Senior Editor, Paddy Hirsch, (successfully) explains the debt-ceiling debate in less than 4 minutes:

As one commenter explained, here's the rundown:

airport = economy
cloud/storm = debt debate
planes = investors
passengers = consumers
control tower = American government

Salman Khan, founder of the AMAZING khanacademy.org, explains the difference between the deficit, debt, and their effect on the debt-ceiling:

It's Not That Hard To Do The Right Thing

2011-07-14T09:07:00.004-05:00

On Tuesday, I went into the Walgreen's on Clark and Monroe and noticed a dog outside. It was cute. It was tied up to the bike rack, luckily there was some shade. I go into "The 'Greens" and spend my usual 10-15 minutes looking for something but finding absolutely nothing. I leave and I still see the dog tied up. But this time, it looks sad, hungry and hot (at this point the shade was gone).

It was panting heavily.
No food.
No water.

Its owner was nowhere to be found. I get closer to the dog (it was non aggressive). It didn't have any dog tags (identification). I immediately thought, "this dog was left here by its piece-of-sh*t owner because (s)he cant take care of it anymore." I go back inside "The 'Greens" and ask them if they know whose dog it is or if they can announce it over the intercom. I talk to the Streetwise vendor as him and I are looking for police and trying to contemplate where this dog's owner is.

I call animal control - no answer.

I call the Chicago Police Department. After speaking to three different officers, I'm told that an officer is "on their way" though they could not provide an ETA. I had to get back to work -- I had a meeting to facilitate at 1pm. It's now 12:50. At this point it's been about 25 minutes since I first arrived and STILL no sign of the owner.

The police still hadn't arrived.

I'm starting to contemplate taking the dog home (though Payton would kill me).

Finally, the owner shows up.

It's a female (if it would have been a male, I probably would have kicked his ass). and I told her I called animal control and the CPD because the dog had no tags, no food or water and I couldn't tell if it was a stray or not.

"Oh, really? Hahahahahahahahahahaha. That's sooo funny!", she laughs.

I didn't find the humor in any of this. So I told her she may want to stick around to explain to the police as I am flabbergasted how this woman can spend 35 minutes in "The 'Greens" and not have a single bag in her hand. I leave to get back to work (at this point, I'm going to be late for my meeting).

Yesterday (Wednesday) morning, I ran to the McDonald's across the street from Walgreen's and the same Streetwise vendor sees me. We converse about the situation from the previous day and how effed up it was of that girl to leave her dog out there like that.

I go into McDonald's and buy a mocha coffee (love this thing!), two has browns and an orange juice. This wasn't all for me. One of the hash browns and the orange juice was for the Streetwise vendor for his help on Tuesday.

Infinite Loop

2011-07-11T21:59:00.009-05:00

I come home, mentally exhausted from the work day -- 8hrs, 12hrs, it doesn't matter. It's all the same. I come home exhauseted -- ready for the routine: change clothes, feed Payton, start laundry, run, take a shower, cook something unhealthy on the Foreman, read some business topics, stream something on Netflix (still waiting on you, Limitless), ~~waste time~~ surf the web for no reason, play guitar, pay the occasional bill or two, layout my clothes for the next day (iron if need be), go to bed, lay in bed for an hour, not fall asleep for two hours, wake up, hit the snooze, hit the snooze again, Payton's meowing, jump in the shower, get ready, run to catch the L, arrive at work, deal with emails and projects that won't mean anything to anyone a month from now, decide if I should take my talents to South Beach, do work, contemplate the weekend, yearn for danger, come home, and do it all over again.

My life feels like an infinite loop.

Capital One: 43 Cents And The Straw That Broke The Camel's Back

2011-06-21T10:14:00.006-05:00

Earlier in the month I published a piece regarding Capital One charging me a membership fee ($49) and how, after being a loyal customer (7 years) and receiving zero – ZERO – benefits, perks, etc I was contemplating cutting the cord.
I wish I could tell you the story ended there but it doesn’t.

Today, I logged into Mint because I received an email notification saying I was being charged a fee. Curious, I log in and see Capital One was charging me a Late Fee of $15 on a balance of .43 (that’s, cents, mind you)

Yup.

Here’s how this breaks down:

When I was charged the $49, I was also being charged a flat fee for “Payment Protection” of .43. Well, Capital One waived the membership fee, but they failed to waive the .43 (don’t get me started on how this could happen – just know that it did happen). So essentially I had a balance of .43, which no one informed me about when I had the membership fee waived. So unbeknownst to me, I had a balance of .43.

There is a small fraction of ignorance on my part as I should’ve known about this balance. I am usually very cognizant of the balances I owe (especially on the cards I use). This specific account of Capital One (and the .43 balance) slipped through the cracks – mostly because I do not use this card; it sits in my dresser, collecting dust inbetween my widowed socks (socks that no longer have a matching partner) and a TI-83 (don’t ask).

So I called Capital One this morning; furious, I had to call twice to calm myself down. At this point, my concern is my credit score (which I have worked hard to protect and get to a respectable/competitive number). After talking to three people and using expletives I haven’t used since the Military, I finally get a senior account rep:

AR: Sorry Mr. Smith for the inconvenience. But we usually don’t waive the membership fee and we only did that because you had such a long history with us –

ME [interrupting]: Stop. Stop acting like you did me a [expletive] favor. Fact of the matter is, I’ve been a customer of yours for 7 years – 7 YEARS – and ZERO activity has happened on my account (credit limit increase, APR decrease). And not only did you have the AUDACITY of charging me a membership fee like your card is some exclusive credit card, but then you charge me .43 on a balance that YOU waived. And NOW you want to charge me a late fee? You do realize that this doesn’t make sense, correct?

AR: Yes, Mr. Smith and we greatly apologize for the inconvenience. This was an accident (error) on our part -

ME [interrupting, again]: Save your speech for someone else. I’m in no [expletive] mood to hear this [expletive]. I am on the edge ready to jump and I know you can’t do anything about it to keep me as a customer. You cannot increase my limit, nor can you lower my rate, offer benefits and/or some type of reimbursement for this inconvenience. Cancel my account. Better yet, cancel my account and send me paperwork that specifically states that I cancelled this account and it has a zero balance.

AR: Yes, Sir.

ME: Will any of this (late fee, outstanding balance of .43) be on my credit report?

AR: No, Sir.

ME: It better not be. If it is, come hell or high-water, I will find a way to short your company.

I know what you’re thinking: “Will, was that language necessary?”

My answer is: “Absolutely.”

I have been patient with them. They took advantage of the customer. I highly doubt this was an “accident” as the account rep was informing me over the phone. Being charged .43 after a $49 fee is waived doesn’t sound like an accident, it sounds like ignorance. It’s hard for me to believe that someone just “failed” to waive this .43. It just seems too ridiculous to be true.

Afterwards, I felt good, refreshed. My relationship with Capital One is finally over.

When I get home, I’ll open my drawer, move my widowed socks, grab the card, cut it and then put it in my safe.

This should’ve been done a long time ago...

…as my widowed socks didn't enjoy its company either.

The Gold Standard

2011-06-14T09:38:00.009-05:00

I've been giving gold a lot of thought lately. Mostly because I don't own it (I do think it's extremely speculative right now), but yet, I am fascinated by its value (perceived or otherwise). I have reached out to two friends (Shawn, Brad) to help better understand The Gold Standard. Thankfully, NPR's Planet Money has two AWESOME podcasts regarding the topic. To understand the Gold Standard, you need to understand both sides of the ~~argument~~ coin (pun intended).

Part 1

On today's show, we visit the charming curmudgeon and respected finance writer James Grant. He says we should go back on the gold standard.

His basic argument: Under the gold standard, money holds its value. Central banks can't create (or destroy) money at a whim.

Part 2

Franklin Delano Roosevelt ignores the advice of America's big-name economists — and listens instead to a guy who helped take care of the trees on his estate.

Montagu Norman, head of the Bank of England, gets a coded message at a critical moment — and completely misunderstands what it means.

On today's Planet Money: The gold standard and the Great Depression.

Double-Dip Recession

2011-06-09T09:36:00.000-05:00

There's been some talk about a double-dip recession. Paddy Hirsh whiteboards a double-dip recession and equates it to surfing.

Brilliant!

The Hidden Demons of High Achievers

2011-06-05T22:10:00.002-05:00

I've been reassessing my personal and long-term career goals. In doing so, I have realized that I am very impatient and I seem to pile a plethora of projects in addition to my regular workload. The impatience, projects, interests, passion, anxiety it all can lead to an extreme amount of frustration and it can sabotage my career. So when I heard The Hidden Demons of High Achievers from Harvard's Ideacast, I realized that I am a high achiever but I need to realize that I cannot do everything.

Thank God for this podcast because I thought I was going crazy.

When It’s Time To Cut The Credit Card Cord

2011-06-04T08:30:00.001-05:00

I logged into Mint.com today (I love me some Mint) and I saw that one of my credit cards, of which I have a zero balance and have owned for 7, years has decided to charge me a $50 “membership fee”. My credit limit is…$500.

They are charging me 10% for essentially, nothing. They offer me no services, rewards, points, laxatives, hookers, etc…nothing.

Naw, playa.

The sheer audacity of this company, Capital One, to charge me this membership fee is ridiculous on many levels. Mainly because they haven’t treated me like a valued customer; they haven’t increased my rate in 7 years (yes, I have asked). Frankly, a $500 credit limit is a drop in the bucket to the credit cards I carry on a daily basis (AMEX Starwood, Chase Freedom).

I’ve heard not to cancel your oldest credit cards -- it shows more credit history. But I believe alleviating the hassle of holding onto this card, and straight-up insulting nature of Capital One’s membership fee, far outweighs the slight ding on my credit score. It's time to separate fact from fiction. George Mannes wrote

The most important point made by [FICO] spokesman Craig Watts is that it's a myth that if you close a credit-card account, all trace of it disappears from your credit score. In fact, he says, the credit agencies from which FICO draws information used to calculate your score hold on to payment history for years -- the positive stuff for about a decade and the negative stuff usually for seven years.

You've read -- perhaps from well-meaning people on FICO's own message boards -- that you should never close your oldest credit card because your length-of-credit-history measurement will immediately plummet? Again, that's a myth, says Watts. (Dropping it might affect your credit score a decade from now, he grants, but the impact will be small potatoes compared to that of your credit-related behavior in the interim.)

Like all things, there must be a strategy involved and credit cards are no different.

If your credit card rate, balance aren’t in your long-term plans,

Prepare an Exit Strategy – if you do cancel this card, what happens next? Will you still have a respectable line of credit? Are you still able to get credit? Checking your credit score may be a good idea at this point so you can understand your leverage

Contact the credit issuer and see what can be arranged. NOTE-any limit request increase and/or APR decrease will affect your credit score in the short term(because they will judge this by conducting a hard inquiry against your credit score)

Evaluate its usage – How often are you using this card? If not very often you may have to conduct the standard cost-benefit analysis

Cost-Benefit Analysis – Everything has a cost and a benefit. Some benefits range from superb customer service to balance, APR and cash back. Evaluate these and prioritize them -- keep in mind there may be a cost (fees, protection, etc)

Cut the Cord – after all measures mentioned above are exhausted, and the cost outweighs the benefit, it may be time to walk away.

You should be selective about what type of credit cards you receive (try to cut back on the store cards). Your expectations should be met throughout the duration of the relationship and you set these expectations.

No Tags

2011-06-03T11:00:00.000-05:00

After (almost) 6 months, I'm back. I've decided to incorporate more "life" things in this blog instead of finance and economics all day, everyday. I have discovered that these two topics can be uninteresting to people...go figure.

I had an appointment to see an apartment today. I was walking down Taylor Street and I had just crossed Racine as I see a khaki colored blur running on the other side of the street. This blur was going fast; full speed. I look behind it and I saw nothing. This blur was a dog and its owner was nowhere. As I look back at the dog, I see it dart out into the street.

I see the SUV.

I see the dog.

SUV.
Dog.

BAM!

The SUV comes to a halt. A crowd gathered at the intersection. I walk to see the dog hoping for a miracle. It was still alive. Blood coming out of its nose and mouth. Its leg was twitching.

Still breathing.

A man, his wife and son come to see the dog. It's not theirs. The dog was severely hurt.

Suffering.

I tell the man we have to put the dog out of its misery. We couldn't let it suffer. I mentioned His son kept his distance. The man picked up the dog and we carried it to the sidewalk. Blood still coming out of its nose.

Still breathing.

We didn't know what to do.

The driver came -- she's frantic and upset. We look at the dog's collar - no tags. Damn. The stranger and myself are petting the dog, doing what we can. I look at his son, he had his hand over his mouth, with his brow raised, looking sad.

Down the street we see a policeman's SUV. Perhaps they would know what to do.

I look back at the dog... nothing.

No leg twitching. No breathing.

No tags.

Economist Links

2010-12-18T16:35:00.003-06:00

Young and Jobless | The Economist - The ratio of youth to adult unemployment worsens

Democracy in America: Wall Street drinks our milkhake | The Economist

Am I Missing Something Here?

2010-12-08T20:26:00.006-06:00

This whole tax cuts thing has got me up in arms.

Here's how I view the back and forth of Congress about the tax cuts, I was so peeved, I had to reach out to my friend Shawn (who is a political genius) just to make sure I was understanding everything correctly...

The GOP (who control NEITHER the House nor the Senate) stone walled Obama with a Filibuster. Basically they pinned Obama into a corner by arguing, arguing, arguing. Obama wanted to keep the tax cuts for everyone making less than 250K (which is about 95% of the country) but that wasn’t good enough for the GOP so they do what they do best – argue, argue, argue.

And here’s the problem from Obama’s point of view – tax cuts will end, for EVERYONE, by the end of the year. So arguing gets nothing done. The GOP knows this. They also know that “raising” taxes (letting the tax cuts expire) in the middle of a recession, when the American people need more money now more than ever, would be Presidential suicide. So they put Obama in a sensitive situation;

either…

A - Argue until congress breaks for the holidays with no plan in place and let the tax cuts expire for everyone (keep in mind we would be going back to our original tax rates…which in some way is a hike in taxes…but all in all what we should’ve been paying all along) in the MIDDLE OF A RECESSION!!!

B - Concede to the GOP demands and extend the tax cuts for everyone (wealthy and non-wealthy) for two years (they will expire during an election…hmmm the irony).

So it seems Obama was in a Prisoner’s Dilemma. He was damned if he do and damned if he don’t. And now certain members of the Democratic Party dislike how Obama conceded (compromised) with the Republicans. These people are idiots. The Republican plan was simple and brilliant at the same time:

Whine like a baby to get their wishes

Back Obama into a corner until he concedes

Watch from afar as the Democratic Party pick on Obama

Build on this internal strife on the next election

Use taxes and government spending as a cornerstone for the next election period

Overturn congress (and possibly the White House)

Rinse, lather, repeat…

Shawn agreed and added that Republicans clearly had the upper-hand here and Obama could only play this card. But there's an underlying issue here; when are we, as Americans, going to demand more of our politicians? We need a call to action. We need people that can get things DONE. Arguing solves nothing.

It's time we stop the bickering and remember what we are here for and that's to make America a better place, NOT play political strategist and stone wall the President (which in my mind is a political Coup d'etat).

The New York Times had an article about this today, you can read it here.

Antoine Walker and Bad Money Management

2010-11-29T19:06:00.004-06:00

This video will show you how to blow through $110 million dollars.

The Fed and Quantitative Easing: Necessity and Risks

2010-11-24T23:24:00.006-06:00

I noticed that Patty Hirsch's video of Quantitative Easing has 73,000+ views. Brad and I have had some discussions about QE2 (the second round of Quantitative Easing) and I talked to another economist friend of mine (we'll call him Shawn) who was kind enough to write some thoughts about QE. I have posted below...

The Problem:
The U.S. economy is currently sputtering along, hovering at high unemployment (almost 10%), and facing a possible risk of deflation. Core inflation (which excludes volatile food and energy prices) is currently at .06 percent, the lowest ever on record.

The Fed’s Solution:
The Fed will purchase $600 billion worth of U.S. Treasury bonds (2 year/10 year/30 year bonds) over the following months, adjusting the amount after each set of purchases according to the economic response.

Why?
The Fed’s main goal right now is to invigorate the economy, but its intention is hampered by investors who park their capital in U.S. Treasury bonds instead of investing it in riskier assets like stocks.

To incentivize these players to move their money into stocks, the Fed must reduce the appeal of U.S. Treasury bonds.

Their Plan:
Buy billions of dollars worth of U.S. Treasury bonds → Lowers the U.S. Treasury bonds’ interest rates → Creates less demand for these bonds → Greater possibility for investors to move their money into stocks → Greater stimulation of the economy

The Risks:

RISK #1: Inflation
The Fed purchased these bonds by printing 600 billion dollars. Increasing the money supply runs the risk of higher inflation rates. (Why? A fundamental rule of economics is that the greater the supply of a product, the less its value. The same is true with currency. So the more supply of dollars, the less its value, meaning the more dollars it will take to purchase the same amount of goods, i.e. inflation.)

1. If inflation occurs, consumers will have to pay more dollars to purchase the same amount of goods.

2. Lenders become more restrictive in providing credit. Since fixed-rate loans are not adjusted for inflation, the payments a lender receives from the payee in the future will effectively be worth less and less. For example, if a lender provides credit at a 3% annual interest rate in an environment with 5% rate of inflation, the $500 a lender would receive next year would be worth less than $500 in the present, so why lend at all? If credit tightens, the economy may dip back into recession.

3. Inflation may not be uniform across all sectors. If inflation rates have a greater influence on the prices of oil and other imported commodities, it would be a boon for exporters overseas but, in turn, hurt many U.S. businesses.

Reason to take Risk #1: Greater Cushion
The Fed targets a 2% annual rate of inflation. This number, they believe, is one that reflects that the economy is moving forward at a reasonable pace. In the last eight months, however, the rate of inflation was only barely above 1%. This current low rate of inflation mitigates some of the very real risk of higher inflation.

More Reason(s) to take Risk #1: Inflation Good
1. Stimulates economy today - Just the anticipation of higher rates of inflation in the future drives greater demand today. If people believe that a new couch will be 5% higher next year, they will presumptively take out a loan with say 3% interest and choose to purchase the couch now. (Thought to consider: Do most people really think about this when they make their purchases? This reasoning may be sound in theory, but not in reality.)

2. Good for Borrowers - Makes it easier for consumers to pay off existing debt on fixed-rate loans. Higher inflation typically translates into higher wages. Since fixed-rate loans are not adjusted to the rate of inflation, the rate will stay the same as a consumer’s wages increase. (The opposite is the reason for why deflation is a problem – makes it harder for consumers to pay off fixed-rate loans.)

RISK #2: International Consequences
1. Devaluation Wars

China has been artificially deflating its currency in an effort to run trade surpluses. China pegs its currency to the dollar, ensuring that Chinese goods would be cheaper to purchase no matter how strong or weak the dollar becomes. The U.S. has been critical of China’s currency manipulation as the cause for the U.S. soaring trade deficits.

I think it's important to inform you of Currency Pegs. For this, we'll insert another Patty Hirsch video...

Now China hurls the same argument at the Fed. With an additional $600 billion "printed", the dollar is expected to get weaker, allowing some U.S. goods to be more competitive abroad and, in turn, reducing the trade deficit. Good for the U.S., not good for China.

To remain competitive, other monetary institutions may attempt to manipulate their respective currencies toward devaluation as well. So we may see widespread currency devaluations, leading toward greater instability in the currency markets.

2. Loss of Foreign Purchasers of U.S. Debt

China purchases and holds trillions of dollars of U.S. debt. It wants assurances that the dollar does not devalue too significantly, or else its holdings would devalue significantly as well. Since it was unable to dissuade the Fed from its quantitative easing initiative that may lead to the dollar’s devaluation, China and other foreign purchaser may abstain from further purchases of U.S. debt. If this happens, Treasury markets may suffer, leading to higher interest rates and inflation.

Many thanks to Shawn for his input.

Next up, I will attempt to explain Quantitative Easing and the Phillip's Curve.

A Cartoon on Quantitative Easing

2010-11-17T23:01:00.003-06:00

I saw this on CNBC today and it is PURE GENIUS!

*I now await responses from Shawn, Brad and Anil...

The End of the Housing Bust and more Quantitative Easing

2010-11-05T11:46:00.006-05:00

NPR's Planet Money had an excellent podcast about the End of the Housing Bust (say whaaaaa?!).

They have also translated the Fed's announcement of more Quantitative Easing...

The economy still sucks. People are spending a little bit more, but they're stretched thin: One in 10 workers can't find a job, wages are basically flat, home prices are way down and nobody can get a loan. Companies are buying more stuff, for now, but they're not building new factories or offices. Nobody's hiring. Nobody's building. Inflation has gone from low to super low.

The Fed has two main jobs: Keep unemployment low and prices stable. At the moment, as you may have heard, unemployment is really high. And inflation is so low that it's making us nervous. We keep saying that unemployment's going to fall. And it keeps not falling.

So to give the economy a kick in the ass—and to pump up inflation a little bit—we decided to go on a shopping spree. First of all, we're going to keep buying new stuff when our old investments pay off. Second—and this is the big news for today—we're going to create $600 billion out of thin air and use it over the next eight months to buy bonds from the federal government. We hope this will make interest rates go so low that people will borrow and spend more money, and companies will start hiring. By the way, this is an experiment, and we don't really know how it's going to work out. We reserve the right to change our plans at any time.

The Michael Jordan Rookie Card - A Worthy Investment? Or an Illusion?

2010-11-02T20:53:00.000-05:00

I met with some friends last night for dinner and during our conversation, the topic of investments briefly came up. My friend, Jon and I can talk for hours about business, investments, the markets, et al but this particular investment conversation focused around the usual things but then transitioned into something else:

the Fleer 1986-87 Michael Jordan Rookie Card.

Look. At. It.

Jordan rising above the competition, arm stretched, tongue out - it is the rookie card that measures all other rookie cards. I don't think anyone has such a perfect rookie card (ok, maybe Joe Montana has a good one). The irony is that Jordan was already two years into his NBA career yet, the Fleer Michael Jordan RC is the standard.

But from an investor's point of view, I want to know that I'm going to receive a return. Sure, there's sentimental value of buying this card but what I think its worth may not be what another person thinks it's worth.

Therein lays the problem. There's no real way to perform valuation on a Michael Jordan rookie card. It doesn't pay derivatives, it doesn't have returns, you can’t reasonably forecast what the card will be worth in 5,10 or 20 years. I can’t track the price of the card over the past 20 years to even estimate what type of return it would bring. Another problem is; I don't know where to start. This isn't like stocks which I can compare to an index, review financial statements, perform value investing algorithms.

This is something different.

My mind started to think about this (insert Wayne's World Dream sequence here)...

We’ve reached the peak of Jordan's rookie card value - he's already in the hall of fame. He has his championships, endorsements, shoes, brand, etc.
I won’t be able to sell it (I would have to list it on ebay, Craigslist or attend Card Collector Conventions and although all of these markets are relatively easy to enter, the most important factors in markets is buyers and sellers and in tough economic times, the card will NOT sell)
It’s a bubble

To cater my assumptions, I hit-up a local card shop on South Wacker during my work-break (that’s how dedicated I am). This small, 15 foot by 15 foot room was tucked away in Jeweler’s Row. The nice man hovers over his collection case mixed with coins, autographs, magazines and cards. He’s wearing a black sport coat and is wearing a gold rolex (which I noticed immediately). As I talked to the nice man about the Jordan RC, he distinctly tells me three things:

The Jordan RC is overpriced. So much so that he does not even carry one (yes, I asked). And even if he did, he wouldn’t be able to sell it (see; Financial Crisis of 2007-2010).
Jordan’s card peaked a couple years ago and it has nowhere else to go but down.
Because of the lack of demand, the stringent authentication process, the declining value, the flooded market of fakes, the Jordan RC is worth essentially…nothing.

(I was quite surprised by the man’s forthright honesty. I mean, he didn’t have to tell me anything. After all, I bought nothing. He didn’t have to answer my questions but yet he did…this says a lot about a person’s character)

Like all assets, there MUST be buyers and sellers. And when there’s no buyers, your asset sits and depreciates…to nothing. The Jordan rookie card is no different. Even in Chi-City, Jordan can’t outplay the recession.

Do I think Jordan’s RC is worth $1500? After this excursion, absolutely not. But it’s still priced around that range. That leads me to believe that people’s sentimental and emotional attachment of the greatest player of all time could be having an effect on the price.

The lesson in all of this is to leave your emotional and sentimental feelings at the door.

This is money.

Real dollars.

But sometimes it’s hard to walk away. Hell, even MJ thought so.

Insider Trading and 911

2010-10-31T17:37:00.006-05:00

I'm not one for conspiracy theories but there's something to this.

Pre-9/11 Put Options on Companies Hurt by Attack Indicates Foreknowledge | 911 Research.

Financial transactions in the days before the attack suggest that certain individuals used foreknowledge of the attack to reap huge profits.

"You follow drugs, you get drug addicts and drug dealers. But you start to follow the money... and you don't know where the fuck it is going to take you." - Det. Lester Freamon, The Wire

The Great American Bubble Machine

2010-10-24T16:29:00.002-05:00

Rolling Stone columnist, Matt Taibbi explaining how Goldman Sachs is behind every major market bubble since the Great Depression. His original article can be read here.

You can follow Matt on his blog Taibblog.

Part 1

Part 2

Part 3

Part 4

Part 5

Payday Lending

2010-10-21T09:25:00.001-05:00

I'm always shocked at the amount of Payday lending vendors around the City of Chicago. If I drive one block south to Roosevelt or a couple blocks west to Damen, I start to see the infestation of payday lending.

The 411 on Payday Lending:

Payday lending is legal and regulated in 37 states

In 13 states it is either illegal or not feasible, given state law

23,000 lenders

$40 billion industry

Typical borrower takes out between eight and 10 loans each year

“Payday lenders contend that they provide access to credit for underserved communities,” said Leslie Parrish, a senior researcher at the Center for Responsible Lending. “What they are really providing is access to long-term debt traps which too often lead to extra overdraft fees, credit card delinquency, trouble paying bills including medical expenses, even bankruptcy." (Louisiana Weekly)

The Center for Responsible Lending (yes, you should be familiar with them) explains how payday lending works.

In May, the crew at Planet Money made a podcast about payday lending...check it out.

Additional Reading:
Costly Cash: The Great Recession Is Paying Off for Pawnshops and Payday Lenders

Uncle Ben goes shopping

2010-10-19T19:08:00.002-05:00

In September I posted a video about Quantitative Easing from Patty Hirsch at Marketplace.org. This is a good follow up to that video.

"The Federal Reserve is trying to stimulate the economy by buying billions of dollars worth of bonds from banks. Senior Editor Paddy Hirsch explains how that's supposed to work."

Rich Whitney and Election Rigging in Illinois

2010-10-15T09:06:00.004-05:00

We've had the voting/electoral system in this country for hundreds of years. Yet, we cannot get a candidate's name spelled correctly. I do not think this is an egregious error - but election rigging. Politics is a dirty game in Illinois and unfortunately for Rich Whitney (G-Carbondale), when you decisively win a debate about economics against the two favored candidates (Governor Pat Quinn (D-Chicago) and Bill Brady (R-Bloomington), this is what happens:

"(Springfield, IL) -- An Illinois Green Party gubernatorial candidate is unhappy with the Chicago Board of Elections. That's because Rich Whitney's name is misspelled as Rich Whitey on electronic-voting machines. The problem shows up in more than 20 wards, half of them in mostly African-American areas. Officials acknowledged earlier this week that there's not enough time to get the problem corrected by election day.
They added that about 90-percent of votes will be cast on paper ballots, where Whitney's name is spelled correctly." (mystateline.com)

Seriously, how can you explain this?

Financial Illiteracy in America

2010-10-14T09:39:00.008-05:00

We have a problem in America. That problem being that so many Americans do not know the fundamentals of finance (personal or otherwise).

Here's some links regarding Financial Illiteracy.

Drew Brees of the New Orleans Saints wrote this about financial literacy.

Author, John Hope Bryant expressed the problems with financial illiteracy as well as some ideas on how to fight the war on financial literacy Financial Literacy as the New Civil Right: Why It Matters to Business in America

Greater Fools | The New Yorker
America's Financial Illiteracy | Forbes

Even the Government has stepped in by signing into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although it doesn't mention Financial Literacy verbatim, evaluating credit and lending practices, permanently increasing protection of bank deposits, providing more transparency and accountability for investments and related services, addressing risky banking practices, and monitoring systemic risk is a SOLID step in the right direction.

Two Housing Articles You Should Read

2010-10-13T08:57:00.005-05:00

Global House Prices: Unsafe as Houses - An interactive overview of global prices and rents (as a BONUS it allows you to compare house price indicators in 21 markets).

"The interactive tool above enables you to compare nominal and real house prices across 21 markets over time. And to get a sense of whether buying a property is becoming more or less affordable, you can also look at the changing relationships between house prices and rents, and between house prices and incomes." - The Economist

Realistic homeowners debunk the nest egg myth - Homeowners are realising that the proverbial housing ladder is not the route to financial security

Econ News!

2010-10-12T08:56:00.002-05:00

1.)Google eyes online consumer index to track inflation

2.)Three Economists Win Nobel Prize for Search Market Theory

The Recession is Over?

2010-09-29T16:39:00.002-05:00

Last week the National Bureau of Economic Research (NBER) said the recession ended in June 2009.

The NBER can say that the Recession ended over a year ago all they want but in the court of public opinion, the Recession isn't over.

Thankfully, Warren Buffet agreed and had this to say about the Recession.

What does Warren Buffet mean by all this GDP talk?

GDP represents the total dollar value of all goods and services produced over a specific time period. Some people look at GDP as output, others as measuring the size of the economy. It is compared year-to-year or quarter-to-quarter. If some economist somewhere (i.e.-Brad) says GDP is up 7%, it can be interpreted that the economy has grown by 7% over the last year (or past quarter).

What Warren is saying is that our GDP (our output, our income (income approach), our spending (expenditure approach)) needs to get back to pre-recession levels.

We're not there yet.

I like Warren's approach; combining it with unemployment and underemployment can make a strong case that we're still in a recession.

Debate on...

The Giant Pool of Money

2010-09-19T23:18:00.007-05:00

The Giant Pool of Money | NPR

"A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s?"

Student Loans, Gateway Drug To Debt Slavery

2010-09-09T22:45:00.006-05:00

Student Loans, Gateway Drug To Debt Slavery | The Consumerist

"One of the most important lessons students learn in college is how to get into debt and stay there. It's crucial to the success of the Republic. An indebted population is easier to control; needing to pay off crushing debt - a debt that if defaulted on has been stripped of many normal consumer protections and rights - graduates more willingly shuttle into cubicles, becoming the square pegs demanded by the square holes. After a few futile years of floundering idealism, their souls have been successfully jackbooted into powder and they're ready to keep the thumb on the next generation of would-be drones so as to protect their empire of matchsticks. But how did we get here? This chunky infographic examines the origins and (d)evolution of the student loan leviathan"

I have been talking about this for years. The student loan situation is out of control. Tuition costs are higher (even when America experienced one of the worst financial crises in history) and interest rates rose ON A GUARANTEED, RISK-FREE LOAN!!!

In addition, my friend found this GREAT Frontline story...

An Explanation in Video Form

2010-09-07T17:42:00.008-05:00

!!! DISCLAIMER - I posted an article regarding Credit Default Swaps by Paddy Hirsch at Marketplace.org. I received great feedback regarding his explanation(s) and have decided to include his wonderful videos in this post...enjoy!

When I found Paddy Hirsch's video regarding Credit Default Swaps, I thought it was downright amazing. My colleague, Brad, had some solid feedback in his comment.

So I will attempt to tie-in Brad's comment and Paddy Hirsch's video(s)...

"CDOs (collateralized debt obligations) and repos (repurchase agreements) make up what economists call the "Shadow Banking System"...

CDO's

Repurchase Agreements

Shadow Banking

...this system allowed banks to become over-leveraged and overly-interconnected...

Leverage

Banks Interconnected

Thus, when the collateral in the CDOs -- in 2008, these were typically based in real-estate -- began to devalue, nearly every bank and financial institution imploded."

Numerous thoughts come to mind about this whole scenario. But the thought that sticks out the most is Hyman Minsky's Financial Instability Hypothesis which I have written about before (you can read it here).

I hope viewing Paddy Hirsch's videos coupled with Brad's comment (mixed with a shot of Hyman Minsky) explains this scenario well and doesn't leave you, badly, needing a drink.

;-)

How The Risk of a Double Dip Recession is Being Overblown

2010-09-05T15:22:00.002-05:00

How The Risk of a Double Dip Recession is Being Overblown | F Wall Street

An excellent article from F Wall Street commentator (and value investor), Cale Smith. Written at the end of July, he has skepticism about a double-dip recession. Great read.

Quantitative Easing

2010-09-02T22:22:00.003-05:00

Another GREAT explanation from Paddy Hirsch at Marketplace. This time he explains Quantitative Easing.

NPR's Planet Money had a podcast that discussed this type of process recently. Though they don't mention it [quantitative easing] by name, if you listen closely, it's there.

Untangling Credit Default Swaps

2010-08-29T15:40:00.005-05:00

Much thanks to my buddy Shawn for telling me about some excellent youtube videos regarding a confusing topic - credit default swaps (yay...drawings!).

New York Lotto Commercial

2010-06-06T15:36:00.004-05:00

I wrote about the lotto a couple months back (read it here). My friend Priya found this commercial for New York Lotto and I had to post it on the blog.

May Unemployment: The U-shaped Recession

2010-06-04T08:08:00.007-05:00

The new unemployment numbers are out and again, The Census is responsible for 95% of the job growth in May (employers added 431,000 jobs in the month, Census hiring was responsible for 411,000).

If we read between the lines, we see a job growth of 20,000. In the coming months, those 400K Census workers will be out of work and looking for new employment (full-time, part-time or otherwise).

I'm sensing a little bit of U-shaped recession here. Some of you may have sensed/seen it for months. But for some reason, I just visualized the unemployment numbers increasing when those census workers are unemployed again. This high(er) unemployment may stick around with marginal movement here or there until one ~~day~~ year we climb out of it at a steady pace.

Looks like the 'U' in a U-shaped recession stands for unemployment.

Winners take all in Rockonomics

2010-06-03T08:05:00.002-05:00

Winners take all in Rockonomics | BBC

A little dated (circa 2006) but still relevant to the current situation going on in the music industry.

"Music itself is going to become like running water or electricity" - David Bowie

The Economics Of The Music Industry: A Band Has To Work Hard To Get Its Part

2010-06-02T08:33:00.002-05:00

The Economics Of The Music Industry: A Band Has To Work Hard To Get Its Part | TechDirt

A couple weeks ago I hosted my ever popular discussion forum. One of the questions we discussed (ok-my question) was about the ever changing music industry. I've always been curious about the economics (dare I say-Rockonomics?) about the music industry. Partly because I'm a hobbyist guitar player and in a previous career I worked in radio.

What is Leverage?

2010-05-28T17:37:00.004-05:00

Leverage.

We all have heard about it. But what is it?

To some, it's owning a significant amount of information that the other negotiating party involved doesn't have.

To others, it's a more financial based system where individuals and/or companies find borrowed funds for investment purposes.

A simple example of financial leverage:

Say you have $10 that you want to invest in a stock. If you invest that $10 and it goes up 10%, you’ve made $1. However, if you’re able to borrow an additional $90 to purchase that stock, you’d have $100 total to invest. If that stock goes up 10%, you’ve made $10. This is leverage: borrowing money to magnify returns. (Of course, losses are magnified as well.)

A home mortgage is a common example of leverage in practice. In general, a homebuyer has only a small amount of the purchase price. Most of the money for the transaction is borrowed from a bank. House prices tend to increase with time. By using leverage to purchase a house, we’re able to magnify our return on equity.

So how do you calculate leverage?

We use leverage ratios*.

Leverage ratios look at the extent that a company has depended upon borrowing to finance its operations.

Most leverage ratios compare assets or net worth with liabilities. A high leverage ratio may increase a company's exposure to risk and business downturns, but along with this higher risk also comes the potential for higher returns. Some of the major measurements of leverage include:

Debt to equity ratio: Debt / Owners' Equity—indicates the relative mix of the company's investor-supplied capital. A company is generally considered safer if it has a low debt to equity ratio—that is, a higher proportion of owner-supplied capital—though a very low ratio can indicate excessive caution. In general, debt should be between 50 and 80 percent of equity.

Debt ratio: Debt / Total Assets—measures the portion of a company's capital that is provided by borrowing. A debt ratio greater than 1.0 means the company has negative net worth, and is technically bankrupt. This ratio is similar, and can easily be converted to, the debt to equity ratio.

Fixed to worth ratio: Net Fixed Assets / Tangible Net Worth—indicates how much of the owner's equity has been invested in fixed assets, i.e., plant and equipment. It is important to note that only tangible assets are included in the calculation, and that they are valued less depreciation. Creditors usually like to see this ratio very low, but the large-scale leasing of assets can artificially lower it.

Interest coverage: Earnings before Interest and Taxes / Interest Expense—indicates how comfortably the company can handle its interest payments. In general, a higher interest coverage ratio means that the small business is able to take on additional debt. This ratio is closely examined by bankers and other creditors.

How does leverage affect you and me?

Leverage can have varying affects. But an example of how leverage affects us is the situation we're in right now; The Financial Crisis of 2007-2010. A while back, I explained the Hyman Minsky's Financial Instability Hypothesis. In this post I mention how banks became over-leveraged (over-indebted) during good times and were basically unable to pay their investors.

You can also read a great post about the Minsky Moment from the New Yorker.

Other Notes on Leverage:
In macroeconomics, a key measure of leverage is the Debt-to-GDP ratio (A measure of a country's federal debt in relation to its gross domestic product (GDP)).

Now you know about leverage. So take your calculator and add up ALL of your debts(credit cards, student loans), then divide this number by your assets (home, car, investments and the value of that 1967 Les Paul)...

...are you over-leveraged?

*Leverage ratios courtesy of www.referenceforbusiness.com

Why Wall Street Is Recruiting Poker Players

2010-05-26T23:27:00.002-05:00

Why Wall Street Is Recruiting Poker Players | Mint

Sounds like I need to take up Poker...

Inside a Payday Loan Shop

2010-05-24T08:20:00.003-05:00

Inside A Payday Loan Shop | Planet Money

A great podcast/read about Payday Loans, predatory lending from the Planet Money crew.

Gambling with Other People's Money: How Perverted Incentives Created the Financial Crisis

2010-05-21T20:20:00.002-05:00

Russ Roberts host of EconTalk, discusses his paper, "Gambling with Other People's Money: How Perverted Incentives Created the Financial Crisis." Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for imprudent lending. He also discusses U.S. housing policy, particularly the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac and how the government's implicit guarantee of lenders to the GSE's interacted with housing policy to increase housing prices. This in turn, Roberts argues, helped create the subprime market, created mainly by private investors. The episode closes with some of Roberts's doubts about his narrative.

You can find the podcast here.

Chicago has a Problem and the Solution is to gouge its Citizens

2010-05-15T18:38:00.012-05:00

Recently (in the past three days), two of my friends were the victims of questionable ticketing practices by the Chicago Police Department and Chicago Parking Authority.

It is no secret that Chicago is facing a MASSIVE deficit ($525 million dollars) and must find new and creative ways to fill that deficit.

Apparently this means squeezing every last dime out of its citizens.

The Sun-Times wrote a good article about the declining revenues of parking tickets which can be found here.

Even our Aldermen speaking up about this issue...

"Aldermen said their constituents are fighting mad when it comes to parking and tickets. "I agree we are in a bad revenue situation," said Ald. Tom Allen, (38th Ward). "But I'm tired of us beating the daylights out of John Q. Citizen to get 50 bucks out of him because he overstayed his parking."

...

"At every community meeting, people are questioning us about the fact that we are attempting to collect more revenue from the tickets," said Ald. Freddrenna Lyle, (6th Ward)."

It is NOT the fault of the citizens of Chicago (or Illinois for that matter) for a deficit of epic proportions.

But unfortunately, it looks like we have to pay for it.

Additional Reading:
1.) Some 2009 stats on parking tickets
2.) Parking Tickets Up, Revenue Down
3.) The Expired Meter<--a parking ticket blog
4.) Traffic cameras billed as answer to Chicago's budget deficit

Q & A: How can I be Recession Proof?

2010-04-24T15:38:00.004-05:00

A couple weeks ago I reached out to my colleagues and friends and asked them to challenge me by sending questions regarding finance and/or economic issues that they were unsure about (I sis not receive any questions about the Cubs).

Their responses were many and varied:
1.)How can I be recession proof?
2.)What is leverage?
3.)What, if any, are the benefits of using credit?
4.)How does a country get into debt? Who is that debt owed to?
5.)How do people dodge taxes using off-shore bank accounts?
6.)How does money laundering work?
7.)What are the details of the SEC case against Goldman Sachs? Is Paulson just getting away? Are other investment banks soon to follow?
8.)What do I do with my tax return?

I will attempt to answer these questions.

So now I will start with Question 1:

HOW CAN I BE RECESSION PROOF?

Being recession proof can mean many things: not being laid off, balancing your finances correctly (improving credit score, paying bills on time, etc), not being "underwater" in your mortgage, having money in the bank, not being over-leveraged in unsecured debt, etc,etc.

All of these are important and vary by person.

Personally, I like to think of being "Recession Proof" as the following:

The key to being "recession proof" is the ability to absorb economic shocks. To effectively absorb shocks, you must balance your finances effectively.

Balancing finances effectively means saving, preparing, and paying debts on time and in full (which strengthens your credit score...more on this in a later blog).

I have the following accounts:
-Checking
-Savings
-Credit
-"Oh Sh!t"

Let me explain.

My checking account acts as a gateway; money comes in, money goes out. I DO NOT use it as a repository for money. I pay ALL of my expenses with this account. I also use this account for spending. I even pay my savings account with this account. Sometimes after my expenses/savings are taken out, I will have money left over, when that is the case, I dump it into either my savings or my "Oh Sh!t" account (more on this later).

My savings account acts as the repository for what I am saving for. Currently, I am saving for two major purchases: a house, education. Neither of which I can go wrong with (well, maybe the house thing...but that's another blog).

My credit account(s) are the unsecured debt that I owe. Currently, I have zero-ZERO-credit card debt. That doesn't mean I do NOT use my credit cards, oh believe me, I do. This means that whenever I use them, I pay off the balance. This is key to being "recession proof", you CANNOT have a high amount of bad, unsecured debt. Is it realistic not to have any credit card debt? Absolutely not. I will probably have some type of unsecured debt in the future, but managing it effectively (paying off more than the minimum payment, higher interest rates first) would be an effective strategy when that time comes.

And now we move onto the awe inspiring account;

The "Oh Sh!t" account. This account has many names, though I think "Oh Sh!t" suits it well. This account takes care of the unexpected expenses: Doctor/Dentist bill, flat tire, break pads, birth control pills, school books, fees, etc, etc. The reasoning and how much you put into this account can be many and will/should vary person to person (especially depending where they are in life). Personally, I think anywhere from $1000-2000 is effective for your "Oh Sh!t" account. It may not sound like much, but I believe it takes care of the aforementioned items WITHOUT dipping into my savings. REMEMBER-this is NOT a savings account. More like an "Oh sh!t, I wasn't expecting to purchase the Morning After Pill" account. Some people use their credit account(s) for this; I do not have a problem with this and will discuss further.

Which leads me to this, you should NOT be dipping into your savings!

Sure. You have debts. I understand. Payoff the higher interest rates first. While doing this, do NOT forget to pay yourself (put money into savings or into the "Oh Sh!t" account(s)). If by unfortunate circumstance you have to dip into the savings/"Oh Sh!t" account(s), you MUST PAY IT BACK. These are your cushions. These help you absorb shocks.

You owe yourself money before anyone or anything else.

Remember that.

Some of you may disagree with this approach; some of you think "well I manage my credit cards well and I use them as my "Oh Sh!t"/spending account(s)". I understand this logic. Occasionally I am known to use my credit cards as my spending/"Oh Sh!t" account(s). I have no problem implementing such a method. But I will argue against this method if you aren't paying the balance off IN FULL.

Some of you may have 9 months of salary in your savings to cover rent and other living expenses which, according to Suze Orman, we need to have in case we have a job loss. To those of you that have this, you are on the right track. For some, having 9 months of salary is extremely difficult to save for in an unstable job market, increasing student loan debt, life expenses (engagements, weddings, kids, pets, cars, mistresses). The point is, have something. Three or four months is reasonable. Sure, you may not have the financial backing to absorb an unexpected shock, but it wont be as bad if you had nothing saved.

In summary, save. Live within your means (DO NOT order that glass of Johnny Walker Blue Label no matter how tempting it may be). Payoff your balances (higher interest rates first) IN FULL. Prepare for the unexpected (job loss, unexpected expenses) but most importantly, pay yourself first and you too can be "recession proof".

Vinyl's Coming Back in a BIG Way

2010-04-11T14:45:00.003-05:00

Music has been a big part of my life. My Father bought me my first guitar (which I wish I would've picked up when I was 8 instead of 22) and would play me records when I was a kid. Hell, one of my first gifts that I can remember as a kid is a Fisher Price record player that played 45s.

Though I DESPISED being dragged to record stores when I was younger (this usually consisted of me pouting and throwing tantrums), it took me years to finally realize the significance of what he was trying to do: instill culture, rhythm, style, interest. All of these things are VITAL to success. My father wouldn't force his musical tastes on me, he just wanted me to believe in it; who or what band it may be didn't seem to matter to him.

Now it seems as if vinyl is coming back (this article is a GREAT read about the rebirth of vinyl as well as some sales numbers). So much so that there's a "holiday" called National Record Store Day (Saturday April 17th). I have taken a look at the list of artists that will be have released and concocted my own list of "nice to haves". Some of which I hope to get in an effort to start my own collection, others for friends, and maybe a couple to sell on a free market (there's the economics tie in).

So this weekend I will accompany my Father to celebrate National Record Store Day in Chicago. Some of these record stores I have been to many times before and I'm sure this trip will be reminiscent of days passed but with one exception-

I'll leave the tantrums at home.

Greenspan and Sex Panther

2010-04-07T19:54:00.002-05:00

I was perusing the inter web and found this article about our former Chairman of the Fed, Alan Greenspan.

Greenspan is quoted as saying "When you've been in government for 21 years, as I have been, the issue of retrospect and what you should have done is a really futile activity," Greenspan said. "I was right 70% of the time. But I was wrong 30% of the time, and there were an awful lot of mistakes in 21 years," he added.

When I read the above underlined quote, I immediately thought of sex panther:

60% of the time, it works every time.

A Random Thought on MBAs and Prestige Schools

2010-04-07T19:29:00.004-05:00

Many MBA students complain that they will not land a high-paying gig because they do not attend Northwestern or University of Chicago...you know, those prestige schools, my response to that is this; does a square dancing violinist need a stradivarious?

If you have confidence, talent and passion, IT WILL SHOW.

Besides, does a recession care if your degree says Kellogg on it?

Job Growth and the Resilient Recovery

2010-04-04T16:17:00.004-05:00

Ok-this article is everywhere and I dropped the ball and didn't post it a couple days ago.

March jobs report shows growth

(I've included snippets)

Growth should have an asterisk because although the Labor Department said the economy gained 162,000 jobs in the month, 48,000 of these were for the Census; meaning that they are TEMPORARY jobs.

The average time those unemployed have been out of a job now stands at just under eight months, a record-long duration.

Almost 1 million more have become so discouraged that they've stopped looking for work altogether and are no longer counted in the unemployment rate.

But the number of discouraged job seekers fell by just over 200,000 since February, an indication that job seekers are also sensing an improving market and are again looking for work.

There are still 9.1 million people working part-time jobs who want to be working full-time, up more than 250,000 since February.

In other news: it took me like 5 minutes to spell "asterisk" correctly.

The Negative Saving Rate and the Age of Easy Credit

2010-03-28T10:32:00.006-05:00

The Negative Saving Rate and the Age of Easy Credit | Get Rich Slowly

"The personal saving rate in the United States has been declining for years. In the 1970s and early 1980s, it frequently climbed above ten percent. More recently, it has hovered around zero. But the general trend is downward. Americans are not saving."

I.O.U.S.A.

2010-03-27T20:27:00.003-05:00

At the bottom of my blog, I have the National Debt. It is updated at a fast and furious pace. That number represents our liabilities. But what if I told you that that number is only a fraction of the overall debt? What about everything else (medicare, medicaid, etc, etc)?

Let's break down the numbers:
11,000,000,000,000 (Total Liabilities)
7,000,000,000,000 (unfunded promise of Social Security)
26,000,000,000,000 (unfunded promise of Medicare A,B)
8,000,000,000,000 (unfunded promise of Medicare D)
+ 1,000,000,000,000 (unfunded Misc Items)
__________________

53,000,000,000,000 Total

I just recently watched I.O.U.S.A. and have included the cliff notes (30 minute) version. If you watch one video from my blog, make it this one. This film boldly examines the rapidly growing national debt and its consequences for the United States and its citizens.

For more information on the organizations mentioned in the video, please visit the following:
-The Concord Coalition
-The Peter G. Peterson Foundation

10 Places NOT to Use Your Debit Card

2010-03-21T20:57:00.001-05:00

10 Places NOT to Use Your Debit Card | Yahoo

Debit cards have different protections and uses. Sometimes they're not the best choice.

A lesson in free markets: eBay

2010-03-20T13:54:00.009-05:00

I was meandering through Best Buy the other day looking for the box set of The Wire and when I found it, I was taken back by the price.

$154.99 is a lot to pay, for anything.

So I immediately get on my iPhone and open the eBay app, type in "The Wire, box set" and look at the prices. Then it hit me; eBay is the perfect example of a free market. The buyer and seller exchange without much regulation/interference from government (though eBay does have some regulatory rules...but nothing too imposing), no tariffs imposed that favor one seller over another, no quotas on how much can be sold or restrictions on to whom. The seller can raise the price and list it as a "buy it now" option (if it is in high demand), or list it for the lower price and have the potential buyers bid.

Which brings me to my next point...

After the bidding is complete and the item sells for a specified price, that price is exactly what the product was worth to the market.

In this case, the box set of The Wire is not worth $154.99 to the market, it's actually worth $65-80 (this includes straight bidding and most "buy it now" options).

Ebay puts more buying power into the consumer's hands which is not a bad thing.

I paid $70 for my box set of The Wire and that includes free shipping.

More power to the consumer!

Additional Reading:
1.)Greg Perry wrote this about eBay and Free Markets...it's a good read (especially if you don't like Economic jargon).
2.)Adam Smith - the father of free markets.

Exploitation and The Lotto

2010-03-20T13:53:00.008-05:00

One of my favorite songs of all time is "Big Poppa" by Notorious B.I.G. In this song there's a line

"Tremendous cream. Fuck a dollar and a dream."

Up the street from my apartment is a 7-Eleven and every time I walk into this store, there is a line of patrons from the register to the back of the store buying Lotto tickets. Some are picking their own numbers (birthdays, lucky numbers, same numbers, etc,etc), while others are anxiously waiting to get their quick picks.

All of these patrons have the same expressions; anxious, hopeless and tired. They are dreamers who can't wake up and who rely on random numbers to fix their situation.

I recently spoke to the manager of this 7-Eleven about what type of customers come in and purchase Lottery tickets and he told me the following:

"People come in here and spend $40-80 on lottery tickets. It's the same people; the uneducated, African-Americans, the poor, the elderly, the ones on welfare that need their money the most yet they are spending it on lotto tickets."

The criticism about the lottery is that state revenues from lotteries are drawn disproportionately from the more disadvantaged members of society. By disadvantaged I mean those with lower incomes, less formal education, blacks, and the aged.

Although the lottery does contribute, by Law, to the Common School Fund (Illinois students and schoolrooms receive nearly $623 million per year in Lottery revenue), skepticism remains.

“Lotteries are, in essence, a form of regressive taxation that distributes wealth and resources away from those who can least afford to pay...it extracts wealth from communities of color, and most particularly from African Americans.” said Paul Street, vice-president for research and planning at the Chicago Urban League.

But the lottery has created even more games to receive more revenue. During the recession, some state lottery sales have risen providing false hope to the unemployed/underemployed. Illinois has even seen its revenue stream of lottery sales rise during the recession.

Unfortunately this makes sense. When you're poor, broke and out of work it's easier to play the lotto with hopes of winning it big then taking control/ownership of your economic situation and doing something to improve it.

Maybe this is part of the human condition; taking the easy way out and hoping for a better tomorrow.

I'll walk into that 7-Eleven tomorrow and I'll see the same people lined up. They'll have the same expressions on their faces.

For some people, all they have is the dollar and a dream.

But I tend to side with Biggie on this one.

Some Statistics
a)You DO NOT have a greater chance at winning the lottery by playing the same numbers each time. Why? Basic randomness. The lottery is built off of randomness. People try to make a connection or see a pattern when there isn't any. You have the same odds at winning with your same numbers each week as the guy in front of you who has his quick picks.

b)You DO NOT increase your chances of winning by buying more tickets. Why? Because you increase the sample size when you do this when it only takes one ticket/combination to win. Having 50 tickets in your hand (and $50 less in your pocket) actually decreases your odds.

Additional articles:
1.)U.S. studies: poor, minorities most likely to play lottery often
2.)Where do Lottery profits go?
3.)‘Instant’ gratification: Illinois residents still buying lottery tickets

5 New Rules for a Healthy Credit Score

2010-03-17T20:47:00.005-05:00

Thanks to my friend Bobby for sending me this article. I was going to just post a link but instead pasted the entire article (with a JUMP!).
-------------------------------

5 New Rules for a Healthy Credit Score
by Aleksandra Todorova
Tuesday, March 16, 2010

The rules that credit-card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.

For the most part, card holders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old tenets may not always hold up, as credit-card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.

Case in point: Many issuers introduced annual or inactivity fees in the weeks leading to or immediately after the Credit Card Accountability, Responsibility and Disclosure Act went into effect. "Now folks have to decide -- do they want this card badly enough to pay the fee, or do they close it," says Barry Paperno, the consumer operations manager at FICO (FICO). It's a question of more than just losing a credit line. Closing a credit card can have a big impact on one's credit score. That is, unless you do some groundwork in advance.

With the help of some easy -- if often counterintuitive -- steps, you can improve and retain a healthy credit score even in today's fast-changing credit environment. Here are five:

Open More Credit Cards

For years, credit experts warned that opening new credit cards will hurt your credit score -- not to mention enable you to run up huge debts. That's still true: The length of your credit history and new credit make up 15% and 10% of the FICO score, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you're using. Credit utilization makes up 30% of your score. "More cards mean more available credit and more options if an issuer decides they don't like you," says John Ulzheimer, president for educational services at Credit.com. Generally, having four or five credit cards is better than having just one or two, he says.

Expanding your credit-card portfolio isn't something you should do tomorrow -- it's a strategy to be executed over time. If you have just two cards, now is the time to open a third. But wait at least six months or a year until you apply for a fourth.

Max Out (Some of) Your Credit Cards

A quirk of credit score math actually makes it advantageous to max out certain cards. How? It's a matter of what the issuer tells the credit bureaus.

Some types of payment cards don't report credit limits to the credit bureaus. They include all charge cards from American Express (AXP) and may include some high-end credit cards that are marketed as having no preset spending limit, such as Visa (V) Signature and MasterCard (MA) World. (These cards have a credit limit, but card holders can exceed it and must pay off the excess in full on their next bill.)

When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization, or substitute the credit limit value with that of the highest balance on record for the account. The most current FICO scores from TransUnion and Equifax (EFX) bypass charge cards, according to Paperno. So as far as those two bureaus are concerned, your charge card spending will not affect your utilization.

But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: run up a balance that's much higher than usual, and your utilization ratio will improve in the following months, Ulzheimer says, and so will your score. (Just pay off that balance in full the next month to avoid interest charges.) Your score will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan.

To find out if you have cards that don't report a credit limit, check your credit report. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit-card accounts are reported as "revolving," Paperno says.

Don't Ask for a Lower APR

In the old days, consumers were encouraged to call their credit-card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com. "These days, if you call you may trigger an account review." Should that happen -- and if the credit issuer doesn't like what they see -- they may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a back-up card where you could transfer that balance."

Closed a Card? Don't Pay It Off

Under the old rules, interest-rate hikes applied to your existing balance and future purchases. However, since the enactment of the CARD Act, lenders can apply rate increases only to balances going forward. That said, if you closed an account before the CARD Act to opt out of a rate hike, you may not want to rush paying off every last penny of that balance. In a little-known quirk, FICO counts the credit limits of closed accounts towards utilization ratios only as long as there's a balance on that account. "You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off that balance.

Mix Business and Personal

Before the passage of the CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate: use a business credit card for the business, a consumer credit one for their own expenses. Not any more. The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler. On the flip side, that may easily hurt your credit, especially if your business expenses are high. Even if you pay those high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.

The Warning

2010-03-12T21:22:00.002-06:00

FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression, explore...

"For those who haven't seen it, you can view a very excellent PBS documentary called "The Warning" that was broadcast this evening. You can watch it on the web here. It is the story of Brooksly Born (do a Google search if you are not familiar with her) who was the Commodities Futures Trading Commissioner in the Clinton administration. She first warned the public about the dangers of the unregulated OTC derivatives market and was ruthlessly silenced by powerful government officials and a host of congressmen who knew nothing about derivatives. Brooksly Born was far more intelligent and courageous than her opponents. 10 years later, as she predicted, the derivatives market brought down Bear Sterns, Lehman, and AIG and precipitated the ongoing financial crisis. The video is instructive and underscores the continued need for regulation of these as yet unregulated markets."-Felix, Morningstar forum

A Review: Credit Karma

2010-03-09T21:50:00.003-06:00

A friend recently referred me to Credit Karma. Don't worry-I did not hear of them either before this. I thought to myself "Self, great, another credit score company." But he caught my eye when he said

"...wanted to recommend Credit Karma, the website gives you free credit scores. Check it out..."

I admit, I still had some trepidation as I thought to myself "Self, great, another "FREE" credit score company."

But my friend is legit (meaning he's been in banking/finance all of his adult life, holds a Masters in Accounting, CPA, currently pursuing his CFA and he reads good books).

So I check it out. And surprisingly it is FREE!!!

One thing that impressed me with Credit Karma is that the signup was painless and it was relatively easy to use once logged in. Everything was pretty self-explanatory and I received my credit score (along with a nifty graph as soon as my homepage appeared). It kind of reminded me of Mint.

So after I received my credit score I immediately went to myFico and paid for my "actual" credit score and to no surprise, I found a slight variance between the two companies. But in the world of credit scores, a slight variance can cost you many dollars in higher interest rates. Another draw back is that it does not provide credit reports (which is absolutely pivotal to understand your past and present credit history).

I would recommend Credit Karma to anyone who are first-timers when reviewing their own personal credit information. But I would immediately follow that if they want to know ALL of their information, to just go with myFico.

All in all, I rate Credit Karma a 'B'. They showed up for class, did some homework and studied for a couple of tests.

25% of Mortgages are Underwater

2010-02-24T08:21:00.003-06:00

25% of Mortgages are Underwater | CNN Money

When Owning Your Home Doesn't Pay

2010-02-18T23:47:00.002-06:00

When Owning Your Home Doesn't Pay | Yahoo

Much thanks to my friend Bobby for finding this and supporting the blog.

Negative Net Worth

2010-02-18T23:44:00.002-06:00

Negative Net Worth | Life in the Great Midwest

Wow-been awhile since I last posted. That's what happens when you have (more) law school applications, b-school and a job PLUS a good girlfriend that provides me the gravitational pull to keep me grounded...and sane.

Which Debt Should You Payoff First

2010-01-28T13:02:00.002-06:00

Dealing with Debt: Which Debt Should You Payoff Fist | Yahoo

The price of Pringles proves a potent predictor of a fair rate of exchange

2010-01-20T21:39:00.003-06:00

The price of Pringles proves a potent predictor of a fair rate of exchange | Michigan Today

A brilliant piece on how a traveler used the price of Pringles to determine the exchange rate.

Economics and Annoying Smart Guys

2010-01-19T21:14:00.003-06:00

Found this on YouTube and though a year or so old, I thought it was funny and worth putting on my blog.

Podcast: John Maynard Keynes Has A Plan

2010-01-09T13:38:00.003-06:00

Podcast: John Maynard Keynes Has A Plan | NPR: Planet Money

A great podcast from the Planet Money crew interviewing Keynes biographer, Lord Robert Skidelsky. His three-volume biography of Keynes is not only comprehensive (1000+ pages) -- it's also funny, insightful and frankly, a little raunchy.

Skidelsky has a new book about Keynes out, called Keynes: The Return of the Master.

Unemployment Rate Unchanged for December 09

2010-01-08T17:14:00.003-06:00

Unemployment remains unchanged at 10%. Here’s the unemployment rates (per month) for the year:

2009

January ............... 7.7
February .............. 8.2
March ................. 8.6
April ................. 8.9
May ................... 9.4
June .................. 9.5
July .................. 9.4
August ................ 9.7
September ............. 9.8
October ............... 10.2
November .............. 10.0
December .............. 10.0

I have to admit that this is kind of a shock…I was expecting this number to lower a tad to compensate workers landing jobs for the holidays. Which brings me to the UNDERemployment rate

Which increased to 17.4%

Underemployment rate is the unemployment rate + temporary workers (part-time, temp, intern, etc,etc), discouraged workers (people who leave the workforce altogether).

Some other notes from bls...

“Temporary help services added 47,000 jobs in December. Since reaching a low
point in July, temporary help services employment has risen by 166,000.”

“Among the unemployed, the number of long-term unemployed (those jobless for 27
weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in
10 unemployed workers were jobless for 27 weeks or longer.”<--Duration of Unemployment

I'm assuming the increase to 17.4% for the Underemployment Rate is attributed to workers landing more part-time gigs for the holidays and what not. However I say that with trepidation because my concern with this increase is after the holidays (say end of January or so), these temp workers will not have employment. It’ll be interesting to see this underemployment rate the next couple months and more importantly how it affects the unemployment rate and duration of unemployment numbers...

...only time will tell.

Health Spending: The cost of good health

2010-01-01T11:55:00.000-06:00

Jan 1st 2010
From Economist.com
Where health-care spending is heaviest

HEALTH-CARE spending will consume 15.5% of the GDP in North America this year, the largest share of six regions worldwide. Record levels of public debt in America will limit the scope of health-care reforms set for 2010. Meanwhile, global life expectancy will reach 72.5 years, bringing the number of people aged 65 and over to 523m, or 7.6% of the population. This will reduce the amount of tax available to fund health-care systems everywhere, prompting governments and insurers to focus on public health, preventive care and other money-saving measures.

http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=15096205&fsrc=facebook&sa_campaign=facebook

Jobless MBAs Seek Solace in Support Groups

2009-12-23T23:30:00.000-06:00

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.

The Latest Credit-Card Tricks

2009-12-22T09:11:00.001-06:00

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.

Unemployment - A Labor Study

2009-12-20T13:16:00.006-06:00

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

*More research will be conducted in regards to inflation on a later posting where I will discuss CPI, Stagflation, etc, etc.

Fun with Numbers - The Buy 1, Get 1 Half Off Deal @ Express

2009-12-18T17:18:00.007-06:00

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.

Food, Inc.

2009-12-06T11:30:00.000-06:00

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?

2009-12-06T11:20:00.000-06:00

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.

Unemployment Numbers

2009-11-08T16:39:00.000-06:00

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?"

Copyright Infringement - Understand the consequences of illegally downloading music.

2009-10-27T08:20:00.000-05:00

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.

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?

Dodd introduces bill to freeze credit-card rates - MarketWatch

2009-10-27T08:08:00.001-05:00

Dodd introduces bill to freeze credit-card rates - MarketWatch

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Credit Card Act of 2009

2009-10-25T18:55:00.000-05:00

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.
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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 American Life: Someone else's money - a podcast that gives a deeper look into the health insurance industry.

2009-10-20T01:08:00.000-05:00

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.

Control Room - A documentary about Al Jazeera news network

2009-10-19T21:01:00.000-05:00

"The pen is mightier than the sword." - Edward Bulwer-Lytton

Who would want to be an Attorney especially in THIS economy?

2009-10-17T12:45:00.000-05:00

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.

Credit Card Interest Rate Laws

2009-10-08T21:09:00.000-05:00

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]

No End in Sight - a documentary

2009-10-08T15:57:00.000-05:00

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.

Some Pre Olympics GDP and Post Olympics GDP Articles

2009-10-08T00:41:00.000-05:00

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

Why Chicago (taxpayers) dodged a bullet by not getting the Olympics

2009-10-02T13:35:00.000-05:00

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.

Street Fight - a political documentary

2009-09-30T13:25:00.000-05:00

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.

Employers and MBAs: Opportunity in adversity | The Economist

2009-09-30T13:10:00.001-05:00

Employers and MBAs: Opportunity in adversity | The Economist

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Maxed Out - A documentary that unveils the consequences of our collective addiction to debt.

2009-09-29T22:27:00.000-05:00

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

House of Cards - a definitive report from CNBC about the housing crisis.

2009-09-27T15:25:00.000-05:00

(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)

The 411 on Credit Unions

2009-09-24T20:58:00.000-05:00

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

The BEST Documentary that you're NOT watching...

2009-09-22T15:54:00.000-05:00

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:

A brief debriefing on the National Debt

2009-09-12T20:28:00.000-05:00

***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

The Cost of War...

2009-09-03T22:41:00.000-05:00

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.

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

2009-09-03T18:26:00.001-05:00

"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

Size DOES Matter...

2009-09-01T15:39:00.000-05:00

...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/

The Financial Instability Hypothesis -- a hypothesis on how we have gotten here.

2009-08-31T23:37:00.000-05:00

One explanation (hypothesis) on how we ended up in this recession:

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." - Wikipedia

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

Economics from Omar Little

2009-08-31T23:28:00.000-05:00

"Money ain't got no owners ... only spenders."-Omar Little, "The Wire"