Leave Capitol Hill to Congress and Detroit to Detroit

by Brian Johnson on August 20, 2009

ChryslerOne of the ways that Chrysler and GM have set about to recover is by taking the opportunity afforded to them by their bankruptcies to shrink the number of car dealerships to a managable level.  Before the bankruptcy, this reduction in dealerships could only have been managed on a dealer-by-dealer basis through painstaking renegotiations of contracts and would have proven a very expensive undertaking.  In response, the House of Representatives passed a bill that would make it illegal for these bailed out giants to sever those ties.  Should the bill become law, the auto companies will be forced to re-up contracts which they can no longer afford to maintain.  Essentially, Congress is telling the automotive industry how to conduct its business with an eye to keeping voters happy and without acknowledging the very real threat of this legislation: that it could force Chrysler and GM  into bankruptcy again.

Like others, I believe that the people responsible for running America’s automotive industry are also responsible for their companies’ bankruptcies.  Furthermore, I am not overly confident that they can do what it takes to turn the industry around now. However, I have no doubt than they know more about their particular business than Congress does. 

An Innovative Healthcare Plan

by Odysseas Papadimitriou on August 17, 2009

medicalI’ve been criticizing the Obama administration’s healthcare plan recently without really offering an alternative solution.  Rather than continuing to point out the faults within the plan currently being offered up, I’d like to lay out my vision of what a comprehensive, national healthcare plan should look like.  This is a plan that I think will work, particularly because it is driven by the fundamentals that shape any successful free market economy.

The healthcare system I am proposing is designed to fix the elements of our current system that don’t work, and leave the elements that do work with relative effectiveness as they are.  One rarely hears complaints about the quality of U.S. healthcare; rather the complaints are centered around coverage and cost.  And so, I feel that if a healthcare system is to work, it should strive to maintain the level of quality we currently enjoy, while at the same time driving down costs and increasing coverage. 

From Newspaper to Blog

by Brian Johnson on August 13, 2009

newspapersThe end of an industry is always the beginning of its replacement. When the typewriter went out, it was replaced by the personal computer which could do everything the typewriter could do, and more.  The replacement is supposed to improve on the original. 

We are now losing the industry of print journalism to its replacements: the online newspaper, the talk show, the entertainment news industry, and the blogs.  Whereas, print journalism held itself to a high standard of objectivity, investigation, and fact checking, the vast majority of internet writers self-publish their opinion (and sometimes their solicited opinion).  Their views are not expert, nor are they generally supported by interviews with experts.  Instead, what passes for news is either the author’s views unmediated by an editorial staff or even a publishing company, or a biased entertainment news industry whose main concerns are spectacle and the money that spectacle brings. The collapse of print journalism has started a race to the bottom for news reportage.

Get Up, Stand Up for your Consumer Rights

by Lynn B. Johnson on August 11, 2009

stand-upEver had a retail experience that made you grind your teeth? The worst part isn’t necessarily the money lost in a bad deal, but the overwhelming feeling of powerlessness that goes along with it. There are, however, many ways to regain the upper hand. Here are a few options.

The Better Business Bureau: The national BBB has an online presence where you can submit consumer complaints. You enter your Zip code onto the home page and they route you to your local BBB. The site is easy to use and yes, it garners results. I had a bad experience with a cellular carrier and submitted a complaint through the Web site. Then I forgot about it. Within two weeks, though, I received phone calls from the office of the president of my cellular phone provider. When they didn’t reach me at home, they called my cell phone (I’d provided both numbers on my BBB complaint). They handled my complaint expediently and I feel much better about the process.

‘Debit or Credit’ When it Comes to Fraud?

by Odysseas Papadimitriou on August 6, 2009

Debit or CreditLast year, for the first time, spending on VISA debit cards surpassed spending on VISA credit cards – not just by the total number of transactions, but also by the total number of dollars spent.   With the ubiquity of debit card use and given that there are certain misconceptions about fraud coverage on both debit and credit cards , we, at Wallet Blog, thought consumers should be offered a comparison centered around the level of protection and convenience both types of accounts provide to consumers who have been exposed to fraud.

According to the FTC, consumer liability for fraudulent debit and credit card charges is limited to $50.  VISA and MasterCard, who control 100 percent of the U.S. debit card market, as well as most of the major credit card networks, have gone beyond what the law requires, and mandated that all of their card issuers adhere to a zero percent liability rate for their customers, and that they grant immediate refunds on disputed charges.

Buy Treasury Inflation-Protected Securities (TIPS)

by Brian Johnson on August 4, 2009

wb_chartGiven the recent economic upheavals, as well as the unprecedented manner by which the government is handling these dilemmas, a lot of people are worried about what inflation will do to our savings and investments.  One option that investors have to safeguard against inflation is to put money into Treasure Inflation-Protected Securities or TIPS.

Basically, the principal investment for TIPS is adjusted by the Consumer Price Index (measures inflation) + A Fixed Yield that is unique for each TIPS (recently it has been around 2%).  This means that your investment primarily rises or falls along with inflation.   To use a simplified example, if you put in $100 in a TIPS that has a 2% ‘Fixed Yield’ and the nation goes through 5% of inflation in a year, then the value of the TIPS will raise from $100 to $105 over that year (as a result of the 5% inflation)+ 2% of $105 to a total value of  $107.1. 

'Cash for Clunkers' Gets $2B Vote from House

by Lynn B. Johnson on August 1, 2009

gas-guzzlerThe U.S. House of Representatives voted 316-109 Friday to augment the Car Allowance Rebate System (CARS) program by $2 billion. The additional funding will be transfered from energy stimulus funds.

Fears that the “Cash-for-Clunkers” program would die within days of its initial approval spurred the House to call a vote, an action that came within hours of Transportation Secretary Ray LaHood’s report that the program would soon run out of funding.

Cash for 'Cash for Clunkers'

by Lynn B. Johnson on July 31, 2009

gas-guzzlerAs I prognosticated before the bill was even signed into law, many carmakers have jumped onto the Cash-for-Clunkers bandwagon and are offering additional incentives.  It definitely pays to do a bit of research at your local dealerships to see if you can qualify for additional trade-in cash or special financing. (But do it quick, because unless Congress extends the program, it could be over as soon as this weekend, according to White House press secretary Robert Gibbs). In the meanwhile, read on for a rundown of  offers from major auto companies.

Under the Car Allowance Rebate System (CARS) program, the lease period for new vehicles must be at least five years. As such, Toyota has created special five-year leases specifically for the CARS program. Sixty-month leases are in place for the Camry, Corolla, RAV4, Tacoma, and Yaris models. To find the special offers available near you, visit Buy A Toyota and type your Zip code into the “Special Offers” box in the lower left-hand corner.

Experts Agree that Current Healthcare Plan Does Nothing to Lower Costs

by Odysseas Papadimitriou on July 30, 2009

High CostsThe pending health care plan being debated currently in Congress lacks, according to  the director of the Congressional Budget Office, Douglas Elmendorf “the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

Elmensdorf is not alone.  The previous Secretary of Health and Human Services (Mike Leavitt) and the head of a Medicare advisory commission (Glenn Hackbarth) have both said that the plan does nothing to stop the escalation of health care costs which, once under the jurisdiction of the government, will cause a massive budget deficit which will, eventually, be passed on to the tax payers.

Spend $2, Get $25 Worth of Food

by Lynn B. Johnson on July 29, 2009

restaurants-couponHave you visited the Web site Restaurant.com? It lets you search for participating restaurants by Zip code or region, offers descriptions and menus of the restaurants you’re interested in, and then you can purchase gift certificates online and print them from your computer for immediate use.

The gift certificates can be purchased in different denominations, at a steep discount. Right now, they’re offering $10 gift certificates for $4, and $25 gift certificates for $10 apiece. This is a pretty good deal, but it’s about to get sweeter: I’ve found a secret promotional code that lets you buy a $25 gift certificate for TWO DOLLARS. And there doesn’t seem to be a limit to the number of certificates you purchase!

New & Innovative Credit Card Debt Center from CardHub.com

by Alexandra McDougald on July 27, 2009

credit-card-debtAccording to the Federal Reserve, the credit card charge-off rate for the first quarter of 2009 jumped over 80% to a record 7.51% – meaning that the balance on roughly 1 out of every 13 credit cards is in default.  Additionally, in May, the number of bankruptcy filings reached 6,020 a day, which represents a 33% increase from a year earlier.  To address the concerns of the multitude of consumers facing these challenges, CardHub.com, the leading and most robust online credit card marketplace, today announced the addition of a Credit Card Debt Center to its site.  Launched in July 2008, Card Hub continues to revolutionize the consumer selection process for products and services in the personal finance space.

The Credit Card Debt Center includes two key features: Debt Help that provides consumers with customized debt management advice and Debt Education that offers an in depth understanding of the pros and cons of various debt solution options.  Highlights of these features include:

No More Economic Bubbles - Let's Focus on Fundamentals

by Odysseas Papadimitriou on July 23, 2009

economic-bubbleOur country’s economy has been operating from bubble to bubble.  From 1996 until 2000, we were in a tech bubble.  Our faith in the financial potential of the dot com industry was boundless, though it ultimately proved ill placed.  From 2000 until 2006, we were in a housing bubble which, when it burst, laid the foundations for the current recession.  During these periods, the country placed its economic hopes on new, seemingly plentiful, frontiers that promised new means by which to make money.  Older values were made to seem, by comparison, out of touch and out of date.  As a result, we, as a nation, allowed ourselves to slip further and further away from the fundamentals necessary for a healthy economy.

Now, we stand on a precipice.  We could create another of these economic bubbles to put our financial hopes into – an option as illusory as ever – or we could find some way to return to the fundamentals that have, historically, made our nation’s economy strong.  Over the last decade, we allowed our exports to slip and made our economy deeply reliant on imports from the rest of the world.  We have let the trade deficit grow too wide without finding new products or new technologies to export, and as a result have found ourselves without a significant industry to insure future success in the global economy.

California Tells Government to Fix its Budget...America Should Follow that Lead

by Brian Johnson on July 23, 2009

cut-wasteful-spendingHere’s what happened recently in California.  First, some basics:  in order for taxes to be increased in California the citizens of the state have to vote.  Without support, the government cannot simply raise taxes.

Recently, five propositions came up for raising taxes in California to help cover the costs of that state’s ridiculous budget problems.  All five were shot down with something close to a two-to-one margin.  The state government wanted more money, and the people refused to give it to them.  Their answer?  Cut spending, balance the budget, and trim waste.  For Californians, the reasoning was obvious:  why should they foot the bill for a government that refuses to spend within its means?

Social Security Parties on Tax Payers Dime

by Brian Johnson on July 22, 2009

social-security-partyThe Social Security Administration (SSA), in an effort to deal with the stress of their jobs, held a conference a couple of weeks ago in Phoenix Arizona during which 700 SSA directors relaxed to the bill of $700,000 worth of tax payers’ money.  They had dance troops.  They stayed at a nice hotel.  They even had an excursion to a local casino.

Three things:

Lenders Need to Become Proactive Instead of Reactive

by Odysseas Papadimitriou on July 21, 2009

home-foreclosureAccording to realtytrac.com, 300,000 homes went into foreclosure last month.  Bloomberg reports that the U.S. delinquency rate rose to 9.4% and foreclosures rose to 1.37%.  According to Moody’s Investor Service, 42 percent of outstanding 2006-vintage subprime loans are at least 60 days delinquent, in foreclosure, or held for sale.  As we all know, the housing crisis and rising unemployment rates have served to make it difficult for many Americans to pay their mortgages on time, and the result is that many of the nation’s home owners are in dire straights.  The problem is bad, and banks need to change the way they modify mortgages if they hope to provide adequate assistance.  They are now concentrating on fixing disasters as they arise rather than preventing them in the first place.

With so many people in financial trouble, mortgage lenders like Bank of America, Wells Fargo, Wachovia, Chase, and Citigroup are finding themselves too understaffed to deal with these excessive defaults.  Given that a bank only has so many resources to extend to their borrowers, the dilemma becomes who to work with first.  Basically, the bank has to perform a kind of triage, like in a hospital, to determine which of their clients demands immediate attention, and which clients can wait.  The lender faces different kinds of repayment problems.  Specifically, they have people who cannot repay and who are defaulting right now, and people who have done everything in their power to repay (tapped into savings, changed their lifestyle, etc.) but who cannot sustain their payments any longer; they have not defaulted yet but soon they will.  According to a survey by ProPublica, it seems that most major lenders have been focusing on borrowers who are most delinquent at the expense of borrowers that are current but will quickly become delinquent unless they get help.

Is My FarmShare a Good Deal?

by Lynn B. Johnson on July 19, 2009

VegetablesSpoiler: yes! Yes! YES! Longer Answer: Yes indeed.

I purchased a farm share in early May (and wrote about it on Wallet Blog on May 11th). My main motivation was twofold: helping local farmers while encouraging my family to eat better. For $15.38 a week, I would receive one small box of mostly local vegetables, which I’d pick up at the Tuesday afternoon farmers’ market in my city.

AIG Acts as Conduit. Taxpayers Get Nothing.

by Odysseas Papadimitriou on July 17, 2009

AIG BankruptMy point, in the past, has been that if America had allowed AIG to go into prepackaged bankruptcy, as we are doing with Chrysler and GM, we would have been in a better position to deal with the money AIG owes through Credit Default Swaps (CDS) because we could have negotiated payback for those positioned to collect on AIG’s obligations.  AIG owed money, we bailed them out to save the economy, and the result is that AIG paid off a lot of its obligations, and we, as taxpayers, now own billions of dollars of nearly worthless AIG stock. 

For the ones that are still not convinced, let us look at Goldman Sachs and its position concerning AIG.  AIG  paid out $13 billion bailout money to cover its CDS obligations to Goldman Sachs.  Actually, taxpayers paid Goldman Sachs, AIG just acted as a conduit.  The $13 billion was incredibly good for Goldman Sachs whose stock has since risen, but not nearly as good for AIG whose stock is perpetually on the verge of tanking.  However, the major problem here is that taxpayers paid AIG to pay off Goldman Sachs.  The result is that taxpayers own AIG stock (on the verge of collapse), and own no stock in Goldman Sachs (which is on the road to recovery).  Moreover, because CDSs are still unregulated, Goldman Sachs stands to make about $30 billion if AIG does, eventually, go bankrupt because of the CDSs they’ve taken out on that eventuality.  It is possible that other companies have similar CDSs bought against AIG, but since, remarkably, there still is no system of market regulation set up for CDSs, we can’t know for sure.

FTC to Regulate Blog Endorsements

by Brian Johnson on July 14, 2009

ftc-blogsThe Federal Trade Commission (FTC) has recently begun plans to regulate blogger endorsements on the internet, a forum where one can find opinions and endorsements in abundance.  In particular, the FTC wants to regulate bloggers who offer endorsements of products but who do not reveal that they are receiving compensation for their opinions.  Basically, bloggers who get paid to review a product (or to flat out endorse it) will have to say so up front.

It’s clear that the FTC is attempting to institute rules that will regulate the practices of the mostly untamed blogosphere (the internet environment made up of casual and professional bloggers) and it is being met with mixed reactions.  Some bloggers scoff at the idea that if they mention a product they have used and liked that they will suddenly come under a federal investigation.  Other bloggers (like Wallet Blog), however, see the FTC’s plan as a reasonable and necessary step towards introducing accountability in what has, thus far, proven a fairly frivolous media. 

Medical Travel as a Money-Saving Healthcare Option

by Lynn B. Johnson on July 13, 2009

medical-travelWant to save 40 to 80 percent of the cost of a domestic Total Knee Replacement, heart procedure, plastic surgery, or another, typically high-cost medical procedure?  You might look into medical travel, which can save you up to 80 percent of the typical costs for an equivalent procedure in the United States.

“If the procedure you’re considering costs more than $6,000 in the United States, it might be worthwhile and money-saving for you to evaluate a medical travel option,” said Patrick Marsek, Managing Director of MedRetreat and co-author of “The Complete Idiot’s Guide to Medical Tourism.”

Secured Credit Cards Will Become The New Student Credit Cards

by Odysseas Papadimitriou on July 10, 2009

secured-credit-cardsBecause of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the process of getting a credit card is going to drastically change for people under 21 years of age.  Starting on February of 2010, people under 21 will not be allowed to get a credit card without a co-signer or proof that they can repay their credit card debt.  At Wallet Blog we have already made it clear that this part of the credit card law is completely unfair and ridiculous as it singles out people under 21 years of age for special treatment, even though they are legally adults.  

No matter what politicians decide, credit history is going to continue being a critical factor in determining loan amounts and loan interest rates (as it should be).  However, since it is now harder for people under 21 to get credit cards, they will have less time to build up their credit history and will be at a disadvantage for anything that requires a credit check (like getting a loan or even renting an apartment).

Abolishing the American Rule Needs To Be Part Of Healthcare Reform

by Odysseas Papadimitriou on July 9, 2009

American RuleAs the nation’s lawmakers make decisions about healthcare reform, we ought to keep in mind the danger of fixing a system without understanding how it  became broken in the first place.  Among nations with comparable average lifespans, Americans pay more for healthcare than does anyone else in the world.   The system is grossly overpriced, because it has structural problems which need to be acknowledged before they can be fixed.  One such problem is the American Rule in lawsuits.

The American Rule  requires that, even if someone wins a lawsuit, they remain responsible for their legal fees.  This means that if someone brings a lawsuit against you, though you may have done nothing wrong, you still have to pay for your defense.  In general, the American Rule encourages a kind of legalized bullying since the system does not provide incentive to avoid starting a lawsuit, and actually encourages frivolous legal action.

Allow Patients not Government to Reign in Healthcare Costs

by Odysseas Papadimitriou on July 7, 2009

Healthcare CostsThere has been a lot of talk about healthcare in the news recently, especially in regards to its reform.  For the most part, these discussions center around coverage: who pays for it, who will get it and what that means for those who do?  What seems to be missing from the discussion is an acknowledgment that a system that doesn’t hold the recipient at least partially responsible for the financial burden of their medical expenses is likely to fail. 

The problem with America’s current system is evident with one look at its global performance.  Though life expectancy is about the same in France, Sweden, the United Kingdom and the United States, the price of healthcare (as a percentage of Gross Domestic Products) varies greatly.   According to the World Health Organization’s 2009 report, the U.S. pays over 15%, whereas France pays 11.2%, Sweden 9.2% and the United Kingdom 8.2%.  We are paying more for what is essentially the same level of healthcare because our system encourages inflated costs.

Cash for Clunkers - Eligibility Criteria

by Alexandra McDougald on July 6, 2009

gas-guzzlerIn late June President Obama signed into law the “Car Allowance Rebate System” or (CARS) or as it’s also known: “Cash for Clunkers.” This is a program that encourages people to trade in their cars for more efficient models.  It also helps to stimulate the economy (similar to the first time home buyer tax credit) at a time when car sales are lagging. The program runs from July 1st through November 1st 2009. Cars traded in during that time could be eligible for a credit of either $3,500 or $4,500 depending on the car and the increase in mileage the new vehicle provides.

Today, I received an email from the California Society of CPAs that provides a lot of valuable information in regards to the steps consumers can take to participate in the new program:

Amazon Easy Sell: Convenient? Yes. Money-making? Not really.

by Lynn B. Johnson on July 3, 2009

Amazon LogoIf you’re eager to get rid of some of your unwanted items/wedding gifts/whatever, Amazon is one of many companies that will allow you to hold an online tag sale. One way to do this is to sell directly on Amazon.com, but another option, particularly if your items are books, videos, music, or video games, is to use Amazon’s Easy Sell with Fulfillment by Amazon. The programs are quite different from one another.

When you sell directly on Amazon.com, you will be notified when an item has sold, but you have to mail it yourself.  The company gives you a $3.99 shipping credit and takes a small fee. This is the option to choose if you’re really looking to make money, though it takes more time because you need to pack and ship the item yourself, which can be a pain if you are selling a large amount of items.

Companies That are Too Big To Fail Should Not Exist

by Odysseas Papadimitriou on July 1, 2009

too-big-to-failThis recession has been characterized by the presence of companies that are so vast and influential that their failure actually endangers the American economy.  The names of these companies, GM, Chrysler, AIG, Citibank, Bank of America, and so on, are all too familiar to us from their prominent place in news stories about economic disaster.  In order to prevent systemic economic collapse, America has resorted to bailouts and political bankruptcy,  essentially changing the “rules of the game” in order not to have these failing companies take our economy down with them.  What is clear is that the benefits reaped by the economy in allowing the existence of these financial giants is nothing as compared to the damage caused by their collapse.  Companies that are too big to fail should simply not be allowed to exist.

We should remember that capitalism is based on free market principles in which companies compete with each other.  If one fails, other and presumably better companies take its place.  Thus, the market evolves so as to better meet consumer demands.  Companies fail in a free market economy because they are unable to compete with stronger business models.  Moreover, they should be allowed to fail in these circumstances so that better business models can take their market share.

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