Image courtesy of merz_akademie at Flickr.com

I was playing a version of the newlywed game the other night with my wife and some friends when a question was asked of my wife in regards to what career I’d most likely end up in given a choice of only four: a policeman, firefighter, EMT or a politician. I knew right away which one I’d choose if I had no other options, but I regretted that it was so from the very beginning. My wife, knowing me very well, was able to guess it without hesitation. I’d choose to be a politician if I had only those four fields to choose from. Her reasoning for this was, as she said, “because Joseph is a sissy.” (God bless her.)

I loathe politics. As I already mentioned I regretted immediately that out of those four professions I’d eventually choose to be the politician. In all fairness the reason I’d choose a politician over a policeman, firefighter or EMT has to do with my distaste for blood, guns, extreme heat and dangerous situations. Or, as my wife so eloquently put it: because I’m a sissy. So be it.

Let me tell you why I hate politics. Politicians are (generally speaking, of course) the kids who never learned how to get along in grade school. They are the kids who manipulated others around them to get their way. They can be completely self-serving, egotistic and just plain stupid. Before I go too much further, I’d better stop. Let me show you what recently got to me. We’ll kick things off with a quote… from a politician, of course.

“Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”

That quote is straight from the lips of the White House Chief of Staff Rahm Emanuel, as quoted in November 2008. Obviously he’s referring to the current economic crisis that our nation is facing. Unfortunately Washington politicians (specifically the Democrats) have taken his advice to heart, and used the recently passed stimulus package as their bridge to opportunity.

Before you go any further read A 40-Year Wish List at the Wall Street Journal. That article is the inspiration for this post, and filled with information on all of the small (and not so small) Democratic proposals that were slipped into this so-called stimulus package. Of particular interest:

• $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in forty years.
• $2 billion for child care subsidies
• Only about 5% of the spending in the bill will go toward fixing bridges and other highway-related projects

Unfortunately this stimulus package is probably filled with fluff that won’t actually go toward stimulating anything. Of course there are billions of dollars that will go toward helping the poor or the unemployed (COBRA benefits, food stamps, etc), but overall this package is poorly constructed and not likely to go toward stimulus like it’s been touted. What it really is? A spending package, with a smidgen of stimulus.

That, my friends, is why I don’t like politics… or politicians. Let’s hope I’m never actually forced to choose a career in public service.

I’d really like to know what is going on in Washington. What runs through the minds of our so-called congressmen and congresswomen? Why is it that we’ll pony up $700 billion dollars with just the snap of a finger to help battle a crazy mortgage related mess but we’re too damn poor (or are we just too good?) to come to the aid of the “big three” (Ford, GM, Chrysler) with a measly $25 billion dollar loan?

Washington D.C. and Detroit have lost their minds

And on that note what the hell has been going through the minds of every executive at these three automakers over the past several decades? Why is it that they are on the brink of bankruptcy and constantly losing market share when most of their foreign competitors are raking in the American Consumers’ dollar?

Unfortunately the question about the executives at the “big three” is a fully loaded question. It’s also likely to get some passionate responses. On that note if you want to voice your opinion on the “big three” then leave your comments at the new personal finance discussion forums here at Debit versus Credit.

$700bn? Sure. $25bn? Nah.

Let’s travel back to Washington D.C. Today Paul Kanjorski, D-Pa. said he wasn’t so sure that they should be supporting a loan package to the U.S. Automakers. Check out what he had to say about this:

I am not yet convinced that we must act so rashly. The American public demands that we get this right.

He’s right about one thing. We do demand that they get this right. I’d like to know however if ANYONE out there actually believes they did get this right. I don’t want to be hypocritical and say that thing should have turned around by now when in fact I’ve been preaching that it will take time. I still believe that. It will take time. However if we go back before the $700bn bailout was even conceived, back to a time when the subprime mortgage fiasco had not even begun to take place then we can see where maybe Washington didn’t get it right.

Where were they when these totally bogus loans were being created, repackaged and sold? I demand answers on why they have done nothing right for as long as I’ve been old enough to have any idea what’s going on in the world. For that matter are they ever going to get it right? Well Washington?

There’s a lot more riding on this than they’re letting on

The fact of the matter is that Detroit shouldn’t be in this mess. If they were half the company that Toyota is then they would have nothing much to worry about. But they’re not. The fact is they need help and we are basically refusing help. Well Washington open your eyes, because there’s a lot more riding on this than some of you might realize. What happens if G.M. goes belly up? Somewhere around 145,000 people will lose their jobs directly, but millions more will be affected. There are around 7,400 G.M. dealerships that will likely close. There are suppliers, shipping companies, marketing firms, etc. It’s a much bigger problem than Washington seems to realize, or maybe they’re just not letting on what they know.

Honestly there’s no way to tell. All I know is that they’ve already put $700bn dollars on the line that no regular citizen will ever see any direct effects from… what’s another $25bn to do save some auto makers from bankruptcy (something that is tangible)?

What do you think?

You may remember the post I published a month ago which was about the government bailout of Fannie Mae and Freddie Mac and what it might mean to us as the American people.  I haven’t made it a habit to revisit old posts often because a large amount of my content is focused more on timeless financial advice.  However while I was reading back through some of my old content today this post caught my eye and I thought it might be fun to revisit it, especially on a day where our government may pass an extraordinarily large bailout package to prop up the U.S. financial system.

Expect To Pay More In Taxes

The first point that I made was in reference to the sheer size of Fannie Mae and Freddie Mac and how taxpayers are likely to be ultimately responsible for any losses taken on by our government with the privatization of these two mortgage giants!  Here’s what I said in early September:

Fannie Mae and Freddie Mac are HUGE companies. They alone service over half of the mortgages in the U.S. They have trillions of dollars worth of liabilities as well. In fact according to the former president of the Federal Reserve Bank of St. Louis, William Poole, they have up to $6 trillion dollars in liabilities (as reported by the Wall Street Journal Online). He believes that it would not be unreasonable to assume that they may end up taking a loss on as much as 5% of their loan portfolio which would provide taxpayers a burden of some $300 billion dollars.

Unfortunately it’s much too soon to make any educated assumptions about how well I did (or rather Mr. Poole did) on this prediction.  I’m going to stand by Mr. Poole and agree with him that Fannie and Freddie are likely to end up taking a loss of at least 5% on their current loan portfolio.  The problems in the housing market haven’t hit rock bottom yet and this will lead to an increased number of foreclosures and, therefore, bad loans.

Mortgage Rates May Finally Drop

The second point I made was in reference to mortgage rates at the time and the likelihood that they were going to drop.  Here’s what I said last month:

The rising level of defaults on mortgages over the past year or two has forced Fannie and Freddie to get more defensive and stop buying up so many mortgages. This has led to an increased risk for mortgage originators, as they might not be able to sell off their risky loans. It has also decreased the amount of cash flowing through the mortgage market and as such has had a strong effect on mortgage rates. Because of the increased risk and the limited capital mortgage lenders have been forced to raise mortgage rates and keep them high. Now that the U.S. has virtually guaranteed the success and liquidity of Fannie and Freddie mortgage originators are likely to have a less difficult time securing cash and selling off their loans. This should lead to a drop in mortgage rates over the next six months or so.

Six months may have been too conservative an estimate.  Mortgage rates actually dropped almost overnight, by about half a percent.  They’re still hovering around six percent (which is what they dropped to after the Fannie and Freddie takeover) and are likely to stay there for a while longer.

Start Investing Now If You Haven’t Already

We’re really starting to get to the meat of this stuff now.  It’s interesting how right after this bailout investors were sure that things were finally starting to get better.  Check out what I had to say then, paying special attention to the bold text:

The markets rebounded on Monday with the Dow Jones Industrial Average ending up almost 300 points (or 2.59%). Investors are excited about the future now that they don’t have to worry about Fannie and Freddie. If the Treasury Department and Paulson are right (and I personally doubt they are) then this bailout should fix everything. After all the housing market is the primary cause of the “recession” that we are currently facing. By shoring up the two largest mortgage companies and providing much-needed capital to the mortgage industry they’re hoping to end this downturn once and for all. Things aren’t quite that black and white however but we’ll come back to that in the next section. In the meantime for the purposes of investing they (the feds) may be right about one thing. By taking over Fannie and Freddie they should increase investor confidence and lower mortgage rates. This should have the effect of a declining bear market if not the return to a bull market.

The heading to this point was the same as the heading above… a recommendation to begin investing.  Considering that it’s nearly impossible to time the markets right, I’m fairly confident that if someone had taken $1,000 dollars and put it into an index fund it would be a great time to start investing.  Sure we’ve had some ups and downs over the past month but overall the markets have been trading mostly sideways since then.  Truthfully in my opinion no time is better than the present to begin investing.  If you haven’t done so yet, then why not start now?

I want to concentrate on the bold point in the quoted paragraph above.  As you can see I predicted that the bailout of Fannie and Freddie would NOT fix the markets like Paulson and the Treasury were predicting.  In fact they were far from right on this point, as if any of us need to be reminded that the government is most likely going to be investing around $700 billion dollars in the financial system over the next several weeks.  I said it here first folks, the Fannie and Freddie takeover would not fix our problems – ready for another one?  Neither will this $700 billion bailout.  It’ll help, there’s no denying that – at least not in the short term.  However it’s not going to fix things overnight, or even over the course of several months.  We still have an underlying problem that is directly related to an OVERSUPPLY of housing in the U.S.  There just aren’t enough potential homeowners to fill all of the houses.

The Financial System Is Nowhere Near A Full Recovery

It’s important to remember that this financial turmoil that our economy is facing was not created overnight and it won’t be fixed overnight either, no matter how hard Bernanke, Paulson and Washington try.

It is true that the primary cause of the economic turmoil that the U.S. is currently facing is due to the uncertainty in the mortgage markets. It’s also true that the decreased cash flowing into these markets due to Fannie and Freddie’s cutbacks was having a negative affect on the entire market. However one would have to be naive to assume that by taking over Fannie and Freddie and providing capital to the mortgage markets that this mess will clean up quickly. The fact is that homeowners are not walking away from their houses because their mortgage lender was unable to sell their mortgage to Fannie – they are walking away because they are upside down on their houses they are unable to afford the payments. Losses will continue to come. The process may be slowed down and stopped sooner than it might have without this bailout (due to the increased affordability of purchasing a home) but unfortunately home values have not reached their lows, as most would-be homeowners are not ready to jump into the market even with today’s home prices!

The fact is that homes are STILL unaffordable in many markets across the U.S. Homeowners are losing money and are bailing ship which is slowly decreasing home prices but we still have quite a ways to go before the buyers start to line up. Bailout out Fannie and Freddie may help some, but as I stated already, the financial system is nowhere near a full recovery.

The point is that we’ve got to be patient and focus on the future and not so much the present.  Things will get better – they always do – but in the meantime it’d be smart of us to take advantage the great investing opportunities that this bear market is providing.  But be smart and don’t rush into anything without some good research.  Good luck out there!

A wise man once said, “with great power comes great responsibility.”  Whether you are into Spider Man or not it’s hard to ignore such a profound statement, especially when the U.S. is facing times of great turmoil and our nations’ leaders are asking for unprecedented levels of power in order to shore up the financial system.

You may not realize it but the fate of our economy is essentially in a small number of hands right now, the most significant being Henry Paulson and Ben Bernanke.  These two men are pushing to pass a bill in Congress that will give the Department of the Treasury the power to form an entity that will be responsible for buying troubled assets from banks and other financial institutions.  By doing so they hope to free these financial institutions from their troubles and allow the banking system to continue to pump money into the struggling economy.  With a price tag of around $700 billion dollars this would be the mother of all government bailouts.

The question is, do we really need such an enormous bailout?  I’m of the opinion that we don’t and I’ll list for you here 5 reasons why we don’t.

1.  The big banks are hurting, but how realistic is it that they ALL fail?

Bank of America, Wells Fargo, Chase.  What do these banks all have in common?  They are some of the largest financial institutions in the United States.  They also all seem to have the cash to survive this credit crunch that we’re in.  If this bailout doesn’t pass we’re likely to lose some more banks.  Maybe not to bankruptcy, but there will be consolidation for sure.  Washington Mutual is in a shaky condition and may not be around in its current form a few years from now.  However to assume that without this bailout all banks are going to fail is completely preposterous.  That’s highly unlikely to happen, at least at this point.

2.  Most regional and local banks and credit unions are still in good condition.

The authorities seem to forget that the BofA’s and the WaMu’s of the world are not the only banks here in the U.S.  There is a huge system of credit unions and regional/local banks that have a huge marketshare of the available money here.  These banks and credit unions are often in much better conditions than their larger and national counterparts.  Sure a lot of the bank failures this year have been with these smaller banks, but it’s important to remember that the ones who took the most risks have failed and been absorbed already.  More is likely on the way, but overall these financial institutions have largely avoided the risky mortgage mess.

3.  Under the right (or wrong) circumstances such a large bailout could devastate the American Dollar.

The dollar has recovered a lot over the past few months.  The price of oil and other commodities is lower now than it was just a few months ago.  However this bailout will put a huge strain on the dollar because the government doesn’t have the cash just sitting around in a vault.  They’ll have to print money and they’ll have to sell debt.  This will put a lot of pressure on the dollar and unless other competing foreign economies collapse (the Euro zone, etc) the dollar will be heading lower.  This means we’ll be facing higher prices and increased inflation, as if it wasn’t bad enough already.

4.  It reeks of socialism.

A bailout of this magnitude reeks of socialism.  We’ll essentially be privatizing the mortgage asset industry and putting it completely under government control.  Now last time I checked we lived in nation that’s against socialism and for democracy and a market economy.  This bailout is exactly what we’ve fought so hard against since the founding of our great nation.

5.  The economy will eventually correct itself, without such drastic intervention.

I believe in the power of a free market.  I think that we’re facing a recession and things might be difficult for the next year or so.  However the economy always corrects itself and things always get better.  It’s a completely natural phenomena to have good years and bad years.  Why don’t we let things sort themselves out as they should?  If Mr. Greenspan would have done that earlier in the century we likely would not be facing this problem today.  Let the economy correct itself so we don’t risk making things worse somewhere down the line.

Henry Paulson and Ben Bernanke are asking for great power.  I am concerned about the level of responsibility being placed upon them.  I don’t think that they are acting in the best long-term interest of our country by promoting this bailout.  Therefore I don’t trust them to have such great power and great responsibility.  My advice is to let things work out naturally, just like they always have a tendancy to do.  What are your thoughts on the matter?  Are you for or against the bailout?

Maybe it’s just me, but these bailouts seem to be happening more and more frequently these days. Six months ago it was Bear Stearns. Just two weeks ago we bailed out Fannie Mae and Freddie Mac. Now, as you’ve undoubtedly heard, the U.S. government has taken it upon itself to bail out American International Group, otherwise known as AIG. What was their reasoning this time around? What does this mean to us as taxpayers? Will the bailouts ever end? These are all questions that you have probably found yourself asking. I’d like to attempt to answer them for you.

Why Did We Bailout An Insurance Company?

To be fair AIG is involved in more than just insurance.  That is, however, their primary business.  Unfortunately they have had large levels of exposure to the credit crisis through an insurance-like product that protects the purchasers of the product from bond defaults.  Essentially they insured investments.  As so many of these investments are going south so is the cash of AIG as they are forced to pay out to their customers.  The problem lies therefore with their current level of capital.  They were unable to raise enough in time and their credit ratings were dropped.  This may have forced them to declare bankruptcy because they did not have enough cash coming in.  The fed stopped this though by offering an $85 billion dollar loan and agreed to taking an 80% stake in the company.  Essentially they just bought AIG.

Will This Affect Our Taxes?

More than likely this will not have an impact on our taxes.  But it may.  There’s something that a lot of American’s don’t know about the Fed and our government.  They have been running a budget deficit for a LONG time.  That much is common knowledge.  But think about it.  Where did they get the $85 billion to loan to AIG?  It wasn’t sitting in a vault somewhere twiddling its thumbs.  That much is for sure.  No.  When the government needs money they print it.  Just out of thin air.  They fire up the money machine and call it cash.  Of course if I tried to do this I’d be arrested for counterfeiting.  They ought to be arrested for causing high inflation.

So rest assured this money did not come from our taxes.  It may not either.  If AIG can pull through this ok the Fed hopes to sell their portion of the company back to the general public, at a gain.  But that doesn’t help the damage that’s already been done.  The fact is that the Fed and the treasury have thrown billions upon billions of dollars into the economy.  Dollars that didn’t exist before.  Is it any wonder why gas costs so much?  It shouldn’t be.

When Will The Bailouts End?

I’ll be perfectly honest with you.  I was surprised when the Fed let Lehman file bankruptcy.  I was pleasantly surprised in fact.  Don’t get me wrong.  I feel terrible that such a large business with so many employees was allowed to fail.  But it has to happen.  We are supposed to have a free market system.  There will be ups and there will be downs.  Right now we’re facing some serious crisis’ on wall street and in the financial system as a whole.  Things will eventually get better, but in the meantime there will be pain and there will be losses.

Right now WaMu looks like it may be the next target for failure.  They’re currently shopping themselves around for a buyer.  Their problem is also a lack of capital.  Cash truly is king.  Like I’ve been telling all of you, make sure you have an emergency fund for when a crisis comes into your personal life.

On that note I don’t think we’ve seen the last of the bailouts.  The Fed and the Treasury department have been too forgiving and too quick to pull the trigger.  These companies more or less deserved what was coming to them.  I hope that these bailouts will not create an attitude of “we can’t fail” in companies.  I hope that our country will be stronger after this crisis.  Unfortunately it’s looking to be quite the opposite.

What are your thoughts?

The United States of America has officially become a nation of bailouts.  With the government takeover of Fannie Mae and Freddie Mac on Sunday, September 7 they have also become the nation’s largest mortgage provider.  They now own (or back) around $5-6 trillion in mortgage loans, which is roughtly half of the existing mortgages in the U.S.  What does this mean for the taxpayer?  For the homeowner?  For the investor?  For the financial markets as a whole?

Expect To Pay More In Taxes

Fannie Mae and Freddie Mac are HUGE companies.  They alone service over half of the mortgages in the U.S.  They have trillions of dollars worth of liabilities as well.  In fact according to the former president of the Federal Reserve Bank of St. Louis, William Poole, they have up to $6 trillion dollars in liabilities (as reported by the Wall Street Journal Online).  He believes that it would not be unreasonable to assume that they may end up taking a loss on as much as 5% of their loan portfolio which would provide taxpayers a burden of some $300 billion dollars.  While this would more than likely just be added to the national debt of almost $10 trillion dollars it would eventually have to be paid off and those who are ultimately responsible for this debt are the taxpayers.  You, me and your neighbor.

Mortgage Rates May Finally Drop

The rising level of defaults on mortgages over the past year or two has forced Fannie and Freddie to get more defensive and stop buying up so many mortgages.  This has led to an increased risk for mortgage originators, as they might not be able to sell off their risky loans.  It has also decreased the amount of cash flowing through the mortgage market and as such has had a strong effect on mortgage rates.  Because of the increased risk and the limited capital mortgage lenders have been forced to raise mortgage rates and keep them high.  Now that the U.S. has virtually guaranteed the success and liquidity of Fannie and Freddie mortgage originators are likely to have a less difficult time securing cash and selling off their loans.  This should lead to a drop in mortgage rates over the next six months or so.

Start Investing Now If You Haven’t Already

The markets rebounded on Monday with the Dow Jones Industrial Average ending up almost 300 points (or 2.59%).  Investors are excited about the future now that they don’t have to worry about Fannie and Freddie.  If the Treasury Department and Paulson are right (and I personally doubt they are) then this bailout should fix everything.  After all the housing market is the primary cause of the “recession” that we are currently facing.  By shoring up the two largest mortgage companies and providing much-needed capital to the mortgage industry they’re hoping to end this downturn once and for all.  Things aren’t quite that black and white however but we’ll come back to that in the next section.  In the meantime for the purposes of investing they (the feds) may be right about one thing.  By taking over Fannie and Freddie they should increase investor confidence and lower mortgage rates.  This should have the effect of a declining bear market if not the return to a bear market.

The Financial System Is Nowhere Near A Full Recovery

It is true that the primary cause of the economic turmoil that the U.S. is currently facing is due to the uncertainty in the mortgage markets.  It’s also true that the decreased cash flowing into these markets due to Fannie and Freddie’s cutbacks was having a negative affect on the entire market.  However one would have to be nieve to assume that by taking over Fannie and Freddie and providing capital to the mortgage markets that this mess will clean up quickly.  The fact is that homeowners are not walking away from their houses because their mortgage lender was unable to sell their mortgage to Fannie – they are walking away because they are upside down on their house by a lot of money and they are unable to afford the payments.  Losses will continue to come.  The process may be slowed down and stopped sooner than it might have without this bailout (due to the increased affordability of purchasing a home) but unfortunately home values have not reached their lows, as most would-be homeowners are not ready to jump into the market even with today’s home prices!

The fact is that homes are STILL unaffordable in many markets across the U.S.  Homeowners are losing money and are bailing ship which is slowly decreasing home prices but there is probably quite a ways to go still before the buyers start to line up.  Bailout out Fannie and Freddie may help some, but as I stated already, the financial system is nowhere near a full recovery.

Technorati Tags: Fannie Mae, Freddie Mac, mortgage news, stock market, investing, taxes

I know a girl who recently had her car repossessed by her financial institution.  She got behind on the payments and because of extenuating circumstances mostly beyond her control she was never able to communicate with her credit union about the delinquent loan in order to keep it from being repossessed.  They took her truck and sent her a notice letting her know she had 10 days to pay the delinquent payment amount plus a repossession fee in order to get her truck back.

The problem?  The notice was sent to an address that she does not reside at.  She never got the notice and when she was able to get hold of her credit union it was 8 days into this 10 day period.  Naturally with this short of notice she had difficulties putting together the cash that was needed in order to try to save her car and by extension – her credit.

By day 10 she had pulled together about 1/4 of the cash that was needed, but nonetheless took it in to a sister credit union to pay towards the loan.  On day 11 she took the remainder of the cash that she needed back to this other credit union hoping that her credit union would make a one-day exception to the 10 day rule.  They didn’t.  They didn’t care that she had the cash, that her credit would be ruined, that she would not have a car and most of all they didn’t seem to care that they would be losing well over $10,000 dollars on the deal.  With an $18,000 payoff on a truck worth only about $6,000 that would go to auction and probably sell for around $4,000 they were putting salt in their wounds by not accepting the cash.

This poor girl, as I hear, went home absolutely devastated.  Of course rules are rules, right?  Sure.  I agree.  Also banks and credit unions aren’t in the business of charity.  They’re in the business of making money.  But when it comes to credit unions they stand behind a philosophy of member service and putting those members’ needs first.  Don’t believe me?  This is on her credit union’s about page.

…These reasons explain how we adopt the “people helping people” philosophy of credit unions. When making decisions, we put members’ needs first. It’s just the way we do business.

You won’t often find me badmouthing a credit union, but I may just do that today.  Here they profess to put members’ needs first and yet they refuse to bend a policy in order to help one of their members.  In fact not only would it be helping their member, but it would help their bottom line as well.  Writing off losses is not fun, no matter the amount.  They were downright rude to this girl and also the credit union representative who was calling them on her behalf.  Not a very good way to run a business, let alone a credit union.  The culprit?  Mountain America Credit Union which is based in Utah.  Check out the site, but don’t sign up to do business with them.  At least if I lived in Utah I wouldn’t.  Not after hearing about this horror story.

I have friends who are completely anti-Obama.  I’m OK with that.  What I’m not ok with is when people make up their minds about things that they heard somewhere without ever bothering to find out themselves if it’s true or not.  A little disclaimer: I’m leaning more towards Obama at this point.  My mind is not made up yet, however, and will not be until probably a week before elections.  I like to keep an open mind about things and I don’t know everything about either of the candidates campaigns yet.  What I do know about them is that from what I’ve read and researched myself I prefer Barack Obama.  He seems to be a better match than John McCain for our country and its’ needs.  Like I said, this could change.  I don’t agree with everything he’s preaching, but I agree with a majority of it.  I think that’s the proper way to choose who to vote for, right?  Who cares if the candidate is male, female, black, white, Cuban, Asian, Mexican or Puerto Rican.  The point is that he or she is trying to do whats best for our country and that you agree with them.

I have two purposes for this post.  First of all I want to get across my point that an uninformed decision is a bad decision.  Period.  Secondly (and relating to the first point) I want everyone to know about an untruth which has been going around about the Obama campaign.  The reason for this?  It’s a pretty important topic and I absolutely can’t stand all of the hate going around.  It all goes back to my first point, of course.  Do your own research before making up your mind.

So What If Your Girlfriend Is An Obama Hater

Here’s a quiz for you.  Let’s say your significant other doesn’t like a certain presidential candidate and they feed you all of this information about him/her.  Do you a) agree with your significant other or b) research it and make up your own mind.  If you answered with “b” then good for you.  If you answered “a” then please reconsider option “b.”  Make sure that before you ever make any decisions that you always research and make up your own mind.  This is one of the primary lessons that I’d like everyone to pick up on here at Debit versus Credit.  This can be applied to every aspect of life, whether politics, finance or even your job.

Let Me Refute A Falsehood About Obama

I keep seeing information go around about how Obama is going to make everyones life miserable by raising taxes.  This is a half-truth.  Taxes will most likely increase under Obama’s leadership, this is true.  However to blatantly spread lies about how even the poorest in the U.S. will have to take on a larger tax burden is completely unaccurate.  I’d like to correct this misconception, so that people might be able to make a clearer decision.  Obama will only be raising taxes for couples making more than $250,000 in taxable income and for single filers making more than $200,000 in taxable income.  Income tax brackets will not change other than for these numbers.  That leaves a huge majority of U.S. citizens right where they currently are with taxes.  In fact they might even pay less taxes because Obama wants to introduce more tax credits for lower and middle class Americans.

Please don’t take my word for it.  Also don’t think I’m trying to convince you that you MUST vote for Obama.  Vote for whoever you feel most strongly for, but only after doing the research.  Good decisions probably shouldn’t come that easy.  Click Here if you would like to read more about what both McCain and Obama plan to do with taxes.

How’s this for a hotly debated topic: Should credit card companies be punished for soliciting to youth and college age students? There’s many an argument out there in favor of punishing these companies for “hard-selling” their product to ignorant youth.  I’d wager that there’s probably just as many arguments saying that these companies have no control over if someone misuses their credit card and gets in over their head in debt.  After all the credit card company only provided the loan – it was the recipient who used more than they could easily repay.  I tend to agree more with the second position.  There’s only so many excuses that one can make for their lack of sound financial responsibility.  I say it’s about time that we stop blaming everyone else for our own mistakes.

Hard Marketing – Hard To Say No?

I’ll not pretend that these credit card issuers don’t try to hard sell their products to students.  Being a student myself I’m aware of the different attempts that marketers will make in trying to promote their credit card.  They tout its features and even offer free gifts just for filling out and signing a credit card application.  While I don’t necessarily agree with these hard marketing tactics I don’t feel that it is the root cause of so many college-age kids getting into too much debt.  It may be hard to say no to these marketing tactics.  I’ve had difficulties in the past saying no.  It seems like such an easy way to get a free t-shirt or maybe a concert ticket.  Not saying no, however, doesn’t automatically cause the applicant to have unmanageable debt.  They do that to themselves.

Financial Illiteracy Rates Must Be Through The Roof

Why is it that financial education is so unimportant to so many people?  It’s hardly taught in formal educational institutions.  It’s sometimes taught by parents, but oftentimes so many parents are illiterate themselves.  It’s not like the information is just completely unavailable though.  With the mainstream appeal and availability of the Internet it’s easy to learn just about anything you could ever want to learn about.  You’ve got sources such as traditional news sites, financial blogs and even education websites.  With so much easy access to information there really isn’t an excuse for students – or anyone else – to be so ignorant.  I strongly believe that personal finance should be taught at educational institutions.  Children should learn at a relatively early age what makes the world go round and how to use it (money) to their advantage – rather than to their disadvantage.

Don’t Blame Anyone But Yourself

It’s obvious that a huge number of college-age youth are disadvantaged on strictly financial terms.  After all why else would a College Freshman sign up for a credit card and be approved for a $2,000 dollar limit, only to have that card maxed out within a year and have no way of repaying it.  It’s ludicrous.  Sure maybe the credit card companies shouldn’t have solicited to someone with such little income.  That’s a completely different issue though.  If you don’t have the means to repay a loan – and credit cards are loans – then why would you borrow?

Ben Bernanke and the Fed decided today to leave their federal funds rate at its current level of 2%.  They’re finally starting to worry about inflation and seem to think that there is much more upside risk (by inflation of course) than downside risk (recession and a slowing economy) at this point.  I’m inclined to agree with good old Bernanke on this one.  Although I’ve been thinking that this was the case over the past several rate cuts that the Federal Reserve has made.

The question that I’m asking at this point however is: is it too little and too late?  I’ll admit that the financial markets have been arduous lately.  I know this more than a lot of people, because I work at a credit union in Phoenix, AZ.  I’ve seen the massive slowdowns and read about the increasing loan delinquencies and writedowns that are taking place.  This with a relatively small (relatively speaking) and very conservative credit union with around $3 billion in assets.  Things must really be difficult for a lot of the larger financial institutions.  It’s obvious they are actually from the constant news of new write-downs.  This so-called recession has even taken from us one of the largest investing companies in the U.S., Bear Stearns.  Things are definitely crazy, but have these huge rate cuts been helping?  Or have they actually been hindering the recovery process?

These Things Take Time

Anyone who’s studied even the most basic of economics knows that market changes don’t happen overnight.  They also don’t happen in a week, or even a month.  Large changes in the financial markets can take months and even years to happen.  Keeping this in mind, one would ask why the Fed cut rates twice to a total of 1.25% percent over a matter of about a week and a half not too long ago?  These things take time, right?  So why so much over such a short amount of time?  I understand their reasoning.  They were hoping to restore confidence to the financial markets… specifically the stock markets.  Something that’s not exactly in their job description.  However I won’t go into that as it’s a completely new topic.  My point in bringing this up is that I’m actually fairly convinced that these large and frequent cuts have done much more harm than good.  All opinions are welcome on the matter, and keep in mind that I am no economist and this is only my opinion.

Have you seen the price of oil lately?  Or the consumer confidence index?  They’re at an all time high and low, respectively speaking.  Obviously there are many factors going into these things, but it’d be foolish to assume or to say that these fed rate cuts have nothing to do with it.  I’m of the opinion that because of the .75% emergency rate cut that the Fed made back in January, followed by the .50% percent cut a week later that consumer confidence was actually hurt.  As a generally uneducated crowd when it comes to finance and the ways of the financial markets we sort of come to expect what’s normal.  What’s normal to us are small and steady rate changes.  .25% here and there up or down are pretty normal in our eyes.  Naturally when we see a much larger change that was initiated by an emergency Fed session we’re going to think something bad is going on.  Self-fulfilling prophesy is a relatively common term that floats around in economics.  In the case of these ridiculously large cuts by Bernanke and company this term might be applied.  As consumers we noticed large emergency cuts and naturally starting to believe that things were much worse than we had previously thought.  Naturally this caused us to become skeptical of the whole situation and we began being more careful with our money.  Self fulfilling prophecy?  I do believe so.

What I’d Like to See

I’d love to see a rate increase in the next few months.  Inflation is going to be a huge problem if the Fed doesn’t do something to try and combat it.  Keeping rates steady will hopefully stop any more increases in the level of inflation, but it’s not going to cut it down.  Not at all.