Want Better Yields? Try a Credit Union

by Lynn B. Johnson on June 30, 2009

High-Yield Checking AccountI recently found a great high-yield savings account. United Federal Credit Union has introduced a 6.01% APY Interest Plus Checking account on balances up to $25,000 for qualifying members. The rate is guaranteed “until at least 2010,” and the account also includes “free ATMs nationwide.”

Unfortunately, I don’t qualify for this credit union. I can’t become a member based on this list, nobody in my family is a member, and I don’t do business in their geographic area on a regular basis.

Unconventional Budget-Slashing Tips

by Lynn B. Johnson on June 27, 2009

Recession Survival GuideCampbell Norwood has written a book that will be of great interest to our Wallet Blog “Deals” readers. Titled Recession $urvival Guide: Low-Cost and No-Cost Strategies to Spend Less, Save More!, her book is full of low- and no-cost opportunities for stretching one’s household budget.

“I wrote the Recession $urvival Guide from the perspective of knowing that there are a lot of families in our area, and around the US, who have never dealt with economic recession. They’re scrambling, embarrassed, and don’t know what to do,” Norwood said. “My goal is that readers will be empowered to make no-cost and low-cost changes.”

Congress Has No Business Regulating Interchange Fees

by Odysseas Papadimitriou on June 26, 2009

swiping-credit-cardDisagreements between merchants and banks concerning interchange fees for credit card purchases have prompted Democratic Senator Dick Durbin to introduce yet another piece of credit card legislation to the U.S. Senate floor.  The new legislation would create a panel of judges to help facilitate a settlement between the merchants and banks.  With four major credit card networks out there (MasterCard, VISA, Discover and American Express), and a wide variety of private label cards issued by large merchants, it’s hard to see why the government is being asked to step-in to settle this dispute. 

We’ve already seen the government step in to help regulate the credit card industry via the Credit CARD Act of 2009.  We support the CARD Act on the position that the legislation was needed to stop the deceptive practices being used in the industry, which prevented consumers from being able to accurately estimate the true costs of obtaining a credit card.  However, this does not mean that government regulation is needed in all aspects of the credit card business. 

FDIC Restricts Interest Rates on Weak Banks

by Lynn B. Johnson on June 25, 2009

FDICThe Federal Deposit Insurance Corp, aka FDIC, has voted to bar shaky banks from hiking up interest rates to attract more customer money. This change is known as Section 29 and will go into effect on  January 1, 2010. Section 29 says that banks that are struggling to stay in business will only be able to offer interest rates with a top limit of 75 basis points above the national rate.  The national rate is an average of all rates paid by reporting banks.

As a result, you will be getting the best interest rates from well-capitalized banks and we should expect around 3 percent of banks to be affected by Section 29. Some higher-yield banks, such as  Ally, the institution formerly known as GMAC Bank, which has been advertising all over the place and boasts of high capitalization, will likely be able to continue offering high interest rates to its depositors.

An Obvious Way to Lower the Cost of Insurance

by Brian Johnson on June 23, 2009

InsuranceAt a time when everyone is looking for a way to make their money stretch further, one solution to curb rising insurance costs is to regulate insurance at the federal, rather than state, level.  Such regulation would require tax payers to pay for one regulatory body (rather than fifty) and would allow the insurance providers themselves to more easily and more cheaply operate at a national level.  Thus the price of insurance  would go down through increased competition.

To better understand this point, we must first acknowledge that for every business, there is inherently a cost associated with operation—whether it be the cost of raw materials, the rent on a storefront, the salary of employees, etc.  For insurance companies, part of their operation cost is related to staying within compliance of state regulation.  As insurance is regulated at a state level, rather than the federal, the various laws that govern the operations of these companies change depending where you are in the country.  It stands to reason then, that the cost of staying in compliance in Georgia, doubles if the company must also stay in compliance in Montana.  A company that offers insurance policies nation-wide must pay an increased overhead so as to simultaneously stay in compliance for all of its customers in all fifty states.  With only one set of regulations, however, any state insurer could make the transition to a regional or national insurer without having to incur additional costs.  Thus a change in regulation would increase the number of providers in the market and would lower the overhead costs for all the insurance companies.  The combination of a lower cost structure and increased competition, would bring in a better price for consumers.

Cash for Clunkers Will Soon Take Effect

by Lynn B. Johnson on June 22, 2009

gas-guzzlerThe Senate’s “Cash for Clunkers” bill passed Thursday, as an addenda to the war-spending bill. It was approved by the House last week. The bill allows for trade-in vouchers of up to $4,500 for owners of gas guzzlers who want to buy or lease a new, more fuel-efficient vehicle.   If signed into law by President Obama, the program is likely to go into effect in August.

Called “Handouts for Hummers” by critics, the program is less green than advocates had hoped, and will not do an extraordinary amount to limit the United States’ dependence on foreign oil. Car owners could get a $3,500 voucher for trading in an under-18 m.p.g car for one that gets at least 22 m.p.g., or $4,500 if the new car gets 10 m.p.g. higher than their existing vehicle. Truck, minivan, and SUV owners will receive a $3,500 voucher for buying a similar new vehicle that gets at least 2 m.p.g. higher; that voucher will increase to $4,500 if the new truck/van/SUV gets at least 5 m.p.g. higher than their existing vehicle.

A Drop in Unemployment Payments is NOT Good News

by Odysseas Papadimitriou on June 19, 2009

UnemploymentWe, at Wallet Blog, are as anxious for good news about the economy as is everyone else.  We’d love to concentrate on giving money management advice for the vast fortunes the nation reaps in boom years, rather than discussing the pros and cons of economic rescue plans and the need to overhaul the financial industry.  However, there’s a fine line between finding a ray of hope in this recession and simply misreading statistics.

A recent Associated Press headline read: Jobless benefit rolls drop sharply to nearly 6.7M.  Good news right?  Less people are receiving unemployment benefits.  That can only mean one thing:  all the people who’ve lost their jobs have found new employment.   How could a drop in unemployment payouts be anything but evidence that the nation is finally on the upswing?  After all, the AP article recounts the various highlights of this statistical evidence and calls them encouraging signs… 

Obama Wrong About the Need for Yet Another Regulatory Agency

by Odysseas Papadimitriou on June 18, 2009

ObamaPresident Obama has come out strongly in favor of overhauling the financial regulatory system by introducing another watchdog agency known as the Consumer Financial Protection Agency.  This agency will be set up to monitor the marketing of mortgages, credit cards and other loan products.  President Obama’s proposal is obviously a response to the dangerous and deceptive practices recently brought to light in these industries.

To be clear, we agree that there were deceptive practices in the lending industry.  The mortgage industry was allowed to operate rife with fraud. Mortgage agents would misrepresent borrowers on applications to get loans for which they otherwise would not have been approved.  The excesses of the credit card industry have been blatant enough to require the federal government to step in and protect consumers.  We acknowledge that the industries have been allowed to ride roughshod over consumer rights without anyone stepping up for the little guy.

ENERGY STAR: Save Energy, Save Money

by Lynn B. Johnson on June 17, 2009

energy-starENERGY STAR is a government program to help encourage energy efficiency while reducing harmful greenhouse gases. Products stamped with the ENERGY STAR logo meet strict energy-efficiency guidelines set by the EPA and the US Department of Energy. But you might not know that when you purchase ENERGY STAR-compliant products, you might also save a bundle of money, in the form of tax credits and deductions, and rebates from the ENERGY STAR partner corporations.

ENERGY STAR offers tax credits to consumers who make qualifying home improvements or purchase electric, hybrid, or other alternatively fueled automobiles. It also offers tax credits for home builders and tax deductions for energy efficient commercial buildings.  

Ken Lewis is Fully Responsible for the Merrill Lynch Acquisition

by Brian Johnson on June 14, 2009

ken-lewisRecently, lawmakers have been questioning Bank of America’s motives for its acquisition of Merrill lynch last September.  Some are calling the merger a shotgun wedding directed by Fed chairman Ben Bernanke.  Investigations are now underway to determine whether the federal government threatened Bank of America Chief Executive Kenneth Lewis into acquiring Merrill Lynch under the duress that if he didn’t, Bank of America management would be removed from their positions.

We would like to suggest two possible scenarios related to this investigation and regarding Lewis’s responsibility in the purchase of Merrill Lynch.  Either Lewis truly believed that the Merill Lynch acquisition was a smart move for Bank of America, or Lewis, having his job threatened, abandoned all responsibility he had to his shareholders in order to maintain his position.  In the first case, we have to question Lewis’s judgment.  If his company is in financial trouble, the worst thing he could do would be to acquire another financial institution that was even worse off. Knowing what he knew about his company’s financial health, it was a ridiculous idea to put Bank of America further in danger of financial collapse by buying a company that was already collapsing.

Credit Cards: Another Greenspan Failure

by Odysseas Papadimitriou on June 11, 2009

Greenspan FailureA lot has already been written citing Alan Greenspan, ex-head of the Federal Reserve, as one of the people most accountable for the country’s current economic problems.  Reportage on the tech bubble, the housing bubble, the systemic risk of unregulated Credit Default Swaps (CDS), and the extremely relaxed underwriting standards to mortgages habitually mention Greenspan’s policies as a primary contributor to these problems.  The fact that the U.S. government has had to step in to fix the credit card industry suggests that regulators under Greenspan were asleep at the wheel.  As head regulator, the Federal Reserve was in a position to regulate the excesses of the credit card industry for years.  Now that disaster has struck, the Federal Reserve finally came up with a new set of rules in December 2008 which would take effect in July 2010, but obviously, their regulation has come too late, as the United States Congress and President have already had to step in and do their jobs for them.

For fifteen years, credit card regulators have had it in their power to prohibit the excesses of the credit card industry.  At any time, they could have put rules in place that would have prevented arbitrary interest hikes or the creation of additional fees without rhyme or reason.  Now, law will force credit card companies to change their practices, but the government wouldn’t have had to take this kind of action if credit card regulators had been doing their job over the last decade and a half.  America is now, in essence, forced to make laws to regulate the credit card industry because our regulators completely failed to do so.

Dow Jones Accurately Priced? Don't Count on That

by Odysseas Papadimitriou on June 10, 2009

dow-jonesAccording to CNNMoney, all of the news surrounding the stock market in the past few months, “has been good news, or at least neutral news,” but nothing bad.  The rationale for all of these happy feelings is that the market has the ability to prognosticate for the worst of times, and did so in March when we saw the Dow dip to around 6,500.  Additionally, it’s believed that 6,500 represented a worst-case scenario that never actually happened, and that therefore we’ve seen the lowest of the low. 

While this perspective fueled the three-month surge, it lacks fundamentals that can be found on page one of Investing for Dummies.  Before we fall for the hype, let’s face the facts.  We are in uncharted economic conditions, and face headwinds that we’ve never seen before and that cannot yet be fully understood. 

13 Ways to Make Your Staycation Sizzle

by Lynn B. Johnson on June 8, 2009

StaycationStaycations are all the rage right now, and it’s no wonder: for a fraction of the cost required to go away this summer, you (and your nearest and dearest) can have a dynamite week at home! Here are my suggestions, under the subheads of On the Cheap, Party Fun, and Splurge a Bit, that will make you feel so happy that once you’re back to work, people will be envious of your new relaxed glow.

ON THE CHEAP

In Public Companies, If You Don't Vote it Still Counts

by Odysseas Papadimitriou on June 4, 2009

Vote does not countThe thing about corporate democracy, as it has been allowed to flourish, is that it isn’t very much like a “real democracy”.  Basically, in a “real democracy” that you and I would recognize, people either vote for or against something.  If there are more votes for yes then yes wins the day, otherwise, no.  What we don’t think about as much is the number of people who don’t really vote yes or no, but who don’t vote at all.  In a “real democracy”, these people don’t really count.

On the other hand, in a corporate democracy when it comes to counting the votes from shareholders in publicly traded companies, those votes that aren’t cast, still count.   Officially, the votes not voted are given over to the brokers.  The brokers in charge of these votes are likely to defer their position to the suggestions made by the board of directors.  Thus, whatever the directors put up to a vote, they can be assured of having it go their way because they are supported by a silent majority.

Who will pay for healthcare reform?

by Brian Johnson on June 3, 2009

TaxesJanine Sahadi did a great job over at CNNMoney.com describing the current ideas being looked into by lawmakers to help the government pay for health care reform. From her synopsis, it looks as though the government is hoping to tax revenues that have, up until now,  gone untaxed. So far, lawmakers have suggested taxing, among other things, employer contributions to health care, Medicare benefits for state and local government employees, and drinks with high fructose content.

We are fundamentally aligned with the belief that everyone ought to get health care regardless of their condition as we see this as a basic human right.  However, we find it a little disturbing that all of the ideas being bandied about by lawmakers involve either raising existing taxes or creating new taxes. We are willing to do our part, of course, but shouldn’t the government be just as willing?

'Cash for Clunkers' Amendment Could Save You $4,500

by Lynn B. Johnson on June 1, 2009

gas-guzzlerOn May 21, the House Energy and Commerce Committee formally adopted a White House / Congress compromise that includes a “Cash for Clunkers” amendment within the American Clean Energy and Security (ACES) Act. The amendment is designed to cut greenhouse-gas emissions while stimulating auto sales.

If ACES becomes law, the program will be authorized for up to one year and provide for approximately one million new car or truck purchases. ’Cash for Clunkers’ would offer vouchers worth $3,500-$4,500 to people who trade in old gas-guzzlers for new cars and trucks. Car buyers would receive a $3,500 cash voucher for trading in any vehicle that earns less than 19 mpg and purchasing one that gets at least 22 mpg. If the new car gets more than 10 mpg better than the old one, the cash voucher would rise to $4,500.

How the "New Credit Cards" Will Look Relative to the Old

by Odysseas Papadimitriou on May 27, 2009

New Credit CardsSince the passage of last week’s credit card legislation, it seems that everyone has an opinion as to how consumers will be affected and how the “new credit cards” will compare to the old.  Previously, I provided my opinion on each of the main components of this new credit card legislation. Now let’s talk specifically about how different consumer segments will be affected.

First let me start by saying that credit card companies are perhaps the most sophisticated entities when it comes to consumer financial products.  They have and use a lot of data when making decisions, and therefore their response to the new legislation will not be uniform across consumer segments.  In addition, it is important to point out that we are going to go through a transition period, during which credit card companies will experiment with different structures.  Once everything has settled, here is my expectation of how the “new credit cards” will compare to the old (i.e. the ones from a year ago):

AIG - Still a Danger after $180+ Billion

by Odysseas Papadimitriou on May 26, 2009

AIG BankruptAt the beginning of its trouble, AIG held $2.7 Trillion dollars worth of exposure on the derivative market.  Now that the United States Government has given the company $180 Billion dollars of bailout money, they still have $1.5 Trillion in exposure.  To make matters worse, AIG’s fourth quarter loss of $61.7 Billion was the worst corporate loss in U.S. history.  

We believe that AIG needs to go into prepackaged bankruptcy for three reasons: 

We are still vulnerable to the CDS Scandal

by Brian Johnson on May 26, 2009

ScandalThe most infamous offshoot of the derivative market, the Credit Default Swap (CDS), is continuing to operate in an unregulated manner.  This despite the various collapses that this $60 Trillion unregulated market has caused, and the resulting government bailouts that have forced all of us to become financially responsible for lumbering economic giants such as AIG – a company which was deemed too big for the government to allow its collapse. 

Surely, given the damage caused by this unregulated market, the first order of business for lawmakers should be, and should have been, to put laws into place which would end derivative trading in its current form.  In short, we would expect that the current recession would inspire lawmakers to make laws that would prevent another recession of this kind in the future…but they haven’t.  They’re now trying, and that’s admirable, but those laws haven’t been passed as of yet. As recently as May 13th, Treasury Secretary Timothy Geithner sent a two-page letter to congressional leaders urging them into action.

Universities have been helping credit card companies, Not students

by Odysseas Papadimitriou on May 22, 2009

University Credit CardAs the name suggests, a university credit card is one in which the college or university has allowed one particular credit card company to offer a card in their name and to advertise on campus.  The deal is exclusive; only one credit card company gets these benefits.  Furthermore, the credit card company gets access to lists of students and alumni to whom they can advertise.  In return for this exclusive relationship, the college receives a fraction of each purchase made with that card.  Thus, if Bank of America has a deal with, say, Brown University, only Bank of America can advertise on campus, Brown University will give out contact information to Bank of America on its current and former students, and in return, Brown University will get some money every time someone uses the Brown University credit card.

If the relationship between universities and credit card companies was structured differently we would not be against school sponsored credit cards, but a school’s first responsibility should be to its students.  More specifically, the university should not encourage its students to accrue unwanted debt, and instead it should educate them and help them reach the best decisions for themselves.

The Final Credit Card Bill & Your Wallet

by Odysseas Papadimitriou on May 21, 2009

Credit Card WalletBoth houses of Congress have now signed off on a bill to amend the Truth in Lending Act, and now it’s off to the President’s desk where the legislation is anticipated to be signed into law.  At Wallet Blog, we have been covering the news on this bill for as it has evolved.  Now that it’s headed to President Obama for approval, we’d like to provide an in-depth analysis on the bill’s major features.  They are as follows:

APR Changes on Your Existing Balances:  Credit card companies won’t be allowed to raise interest rates on your existing credit card balance unless you are more than 60 days behind on your payments to them. If you get an APR hike because you were 60 days late, you will be able to get back your original rate, by making  payments on time for 6 months in a row.

Help for Federal Student Loans, starting July 1

by Brian Johnson on May 20, 2009

Help for College StudentsCollege, the key to a better paying career, is not without its financial burden.  The price of tuition around the country is going up.  Plummeting stocks have hurt university portfolios as well as the portfolios of alumni and professors.  Because of this, American universities are receiving fewer contributions from private sources even as they continue to pay for tenured senior professors who, having lost their nest-egg, are stalling their retirement.  Public universities face these dilemmas as well as a dwindling slice of the state budget that funds them.

Of course, students still need to go to school during these hard times, but the rising price of tuition and the absence of job opportunities for graduates just entering the work force has made the once viable option of student loans less and less attractive as there is little guarantee that a job will be waiting after graduation.  Today’s graduating senior can expect to acquire $22,000 in student loans by the time they graduate and have no guarantee of entering into a career just out of school that will help them to pay off this debt.

'Summerize' and Save Money

by Lynn B. Johnson on May 19, 2009

Save EnergyAs the temperature rises, so do energy bills. Here are some simple tips that will help you limit your energy costs this summer.

DIY Energy Audits: No need to hire an expert for this one. Visit the Department of Energy’s Web site  and do a critical walk-through of the energy demons in your home.

Piggybacking Stalls Much Needed Credit Card Reform

by Brian Johnson on May 16, 2009

PiggybackingRight now, as the country demands tougher restrictions on the credit card industry, and as the House has passed a much needed bill to that effect, the Senate has stalled the bill so as to piggyback amendments onto it.  Now, we understand that that grouping together related laws saves time and allows for the deal making that is part and parcel to cooperation across the aisles.  However, when the laws are totally unrelated, we are at odds to figure out just how this congressional procedure aids anyone.

The success of the credit card reform bill has prompted senators to attach their own pet projects to it.  In one case, the senate is attempting to piggyback an amendment that allows people to carry firearms into national parks – sponsored by Tom Coburn (R-OK).  Thus, this much needed credit card bill is being stalled because of something completely unrelated to it.  Why is the Senate wasting time on irrelevant amendments when we are in the middle of an economic crisis which demands immediate legislative action? 

The New Credit Card Bill & Your Wallet

by Odysseas Papadimitriou on May 15, 2009

LegislationCurrently, a credit card reform bill is making its way through Capital Hill as law makers attempt to stem the tide of consumer complaints against credit card companies.  Having already passed through the House of Representatives (gaining 357 votes for the bill with only 70 votes against it), the popular bill entered the Senate floor nearly assured of success there.

As so often befalls popular bills, unrelated amendments have stalled the proposed bill which reached the floor of the Senate on Wednesday May 13th.  Some of the credit card proposals within the original bill would:

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