BTMW -- "GLASS HOUSES" -- (POSTED 9-18-08)

BTMW – “GLASS HOUSES” – POSTED 9/18/08

Carly Fiorina, Wednesday, stated that neither John McCain nor Sarah Palin “[C]ould run a major corporation.” This is the same Carly Fiorina who, as CEO of Hewlitt-Packard, took a very viable, vibrant, major corporation, and through arrogance and hubris, ran that corporation into the ground. Accordingly, two words of advice to Ms. Firoina:

1) People in glass houses…
2) Buy a dictionary, and look up the word “chutzpah”.

[NOTE - You can now see my blog at www.wtkk.biz/blogs/rickshaffer . Thanks to all for your continued listening and reading!

Rick Shaffer]

BTMW -- "

BTMW – “GLASS HOUSES” – POSTED 9/18/08

Carly Fiorina, Wednesday, stated that neither John McCain nor Sarah Palin “[C]ould run a major corporation.” This is the same Carly Fiorina who, as CEO of Hewlitt-Packard, took a very viable, vibrant, major coroporation, and through arrogance and hubris, ran that corporation into the ground. Accordingly, two words of advice to Ms. Firoina:

1) People in glass houses…
2) Buy a dictionary, and look up the word “chutzpah”.

THE CURRENT FINANCIAL "MELTDOWN" -- WHO’SE AT FAULT, WHAT’S THE FIX, WHAT SHOULD YOU DO NOW? – (POSTED 9-17-08)

Given that we’re in the midst of a presidential election, even more fingers will be pointed and more mud will be slung trying to blame who’s at fault. But, the bottom line is, it’s not mainly the Democrats nor mainly the Republicans. Rather, the fault for the current mortgage crises/financial meltdown lies at the feet of both parties.

In 1999, Republicans in Congress pushed a law allowing brokerage companies/“investment banks” or other financial institutions, like Lehman Brothers, Bear Stearns, etc., to expand their presence in the investment industry, without the safeguards – i.e. regulations – that are required of commercial banks. And the then Democratic President – Bill Clinton, signed it. These regulations – thrown by the wayside – were put in place during the Great Depression, to prevent situations just like those that are happening today from happening! As a result, the investment bankers/financial institutions, now freed of most needed safeguards/regulations, got, for the most part, greedy (and were either ignorant of or ignored the colossal risks they were taking). The result – the credit crisis/financial meltdown we’re seeing now.

To make an analogy, think of the financial industry as an airline. Arguably, it’s OK to de-regulate the airline industry, from the standpoint of competition (who offers which and how many routes, who charges lower fares, etc., in the hopes of attracting more customers and making more money). If an airline fails due to bad marketing mistakes/excess risks, people get hurt (workers, investors in the company, etc.) but the public, by in large, isn’t – they just choose another airline. But to de-regulate the airline industry from the standpoint of safety, (allowing them to try and make more money by cutting back on well established safety standards and drastically cut back on FAA safety regulations and oversight, would clearly be ludicrous. If an airline was free to set its own safety standards, than many many more planes would crash, the flying public (not to mention those on the ground) would be in very unsafe, and the airline industry would be in danger of screeching to a halt.

Well, that’s what the deregulation of the investment industry in 1999 has almost led to. It removed the safeguards and regulations controlling investment bankers/financial institutions like Lehman Brothers, Merrill Lynch, AIG Et. Al. and let them, in effect, regulate themselves. The result – greed and ignorance took over in far too many cases, and these financial institutions began loosing altitude, fast, and were in grave danger of falling out of the sky, which very likely would have caused a very large portion of the entire economy to screech to a halt. Which is why the U.S. Treasury and the Federal Reserve have stepped in. Just as jumbo jets can’t be allowed to fall out of the sky, so too can’t jumbo financial institutions be allowed to crash.

What’s all this mean going forward? Well, first, the Feds will continue to bail out those companies –“the jumbo jets” – who are simply to large to fail and crash (such as Bear Stearns, AIG, Fannie Mae, Freddie Mac and other companies whose failure could undermine much of the overall economy. Smaller “planes” – Lehman Brothers, for example – will be allowed to fail, if necessary, since their “crash”, while extremely painful to workers and shareholders of those companies, won’t undermine the entire economy. Unfair? Quite possibly. The correct steps to take, especially given the financial realities facing the economy today? Most definitely.

A few more questions, and answers. Can the present administration “fix” the current problem? No. Certainly, they can take steps (like bailing out Bear Stearns, AIG, Fannie Mae and Freddie Mac) to prevent the economy from collapsing and the situation from getting worse. But, due to the de-regulation alluded to back in 1999, ‘the horse has already left the barn’, and we (the American public) are going to have to ride this recession (yes, folks, we’re in a recession) out, and wait for the economy to recover (best guess – at best, but unlikely, maybe one year; 2-3 years, much more likely). Not to mention, pay the bill (in higher taxes) for all of these Federal bailouts. Luckily, despite the “Chicken Little” predictions of far too many pundits and far far too much of the mainstream media, the U.S. economy is, at its core, strong enough to weather this storm, and recover (although, it will be a difficult ride).

How do we know such re-regulation will work (to prevent this happening again)? Because, the evidence is right in front of us. Large commercial banks, who were not (for the most part) completely de-regulated by the 1999 law, have weathered this financial storm (all things considered) fairly well. Why? Because they weren’t allowed to take the extreme risks investment banks and other financial institutions were allowed to take without having enough funds to back major losses and other safeguards in place. (An example – while Bank of America – like other commercial lenders, has (like virtually everyone else), taken their lumps – because they remained, basically, highly regulated over the last 8-10 years, they’re in strong enough financial health to purchase Merrill Lynch without any backing from the Federal government. (It should be noted, the fact that purchasing Merrill Lynch likely puts Bank of America into the ‘too big to fail’ category cannot be totally discounted as one of their reasons for making the purchase.) In any event, did Bank of America like remaining so highly regulated? Almost certainly not – especially as they watched Bear Stearns, Merrill Lynch, Lehman Brothers and all the other investment banks/financial institutions making money hand over fist up until a year or so ago. But, ultimately, remaining so highly regulated served them well.

Is Treasury Secretary Henry Paulson the right man to maneuver us through this very difficult time (at least until the Bush Administration ends in early ’09)? Well, frankly, the jury is still out. But, so far, he has not been afraid to use the powers at his disposal, and take some difficult and unpopular – albeit necessary – moves (for example, again, bailing out Bear Stearns and, more importantly, Fannie Mae, Freddie Mac, and AIG). Given that Paulson is a former CEO of Goldman Sachs, the hope here is that he acts much like Joe Kennedy Sr. did when he was appointed by President Roosevelt to head the then newly established Securities and Exchange Commission in 1934 (the point being, since, like Kennedy, Paulson worked in (and, without making any accusations – at least against Paulson – knows what liberties and risks the investment industry took to get us in this mess, he also may know better than others what needs to be done to ultimately fix it.)

Can the current Presidential candidates fix the current problems? Again, no. What they can do – whoever is elected – is to go back to the regulations of the financial industry prior to 1999 (and tell the lobbyist from the financial industries who will certainly fight this, where to go) so as to prevent this from happening again.

But, are either of the Presidential candidates even talking about what needs to be done to prevent this from happening again? Frankly, no. While both now agree that re-regulation is a must, neither has put forth any comprehensive plans for the deep re-regulation of the investment/financial industry (i.e. pre- 1999 regulations) needed to prevent this from happening again.

BTW – while, as noted, they’re all pointing fingers, only two of the Presidential/Vice Presidential candidates can really claim innocence in all this, and that basically only by default. In 1999, John McCain voted for the original Senate version of the financial industry deregulation law, but then voted against the final House-Senate compromise bill. Joe Biden voted against the original Senate version of the de-regulation bill, but then voted for the final House-Senate compromise bill. Neither Barack Obama nor Sarah Palin, were in Congress at the time, so we can only conjecture how they would have voted. (A guess – like McCain and Biden, ultimately, probably along party lines.)

Finally, and maybe most importantly, how does this affect you, the middle class consumer/investor? While we may sound like a broken record, our best advice is to do, for the most part, nothing. Your bank savings are FDIC insured (to at least $100,000, and in many cases, more) and your investment portfolio is safe (not against losses, of course, but against liquidation), even if invested, for example, through Lehman Brothers. Should you check your portfolio? Yes, definitely, but once or twice a year, just like you should in all markets, up and down, and compare each investment to its peers (a fund that under performs its peers for two straight years, for example, almost always should be replaced – whatever the overall market is doing.)

But, for monies invested for the long run – a minimum of five, but hopefully 10, 15 or more years, the worst thing you can do is market time (i.e. pull your monies out of the market “until it comes back.” Trust us, it will come back, but by the time you figure out it that it has, you’ll have missed much of the recovery, which is the worst way to manage your long term investments. Think of it this way – no matter how far “down” any of your investments are, until you actually sell them, you haven’t lost anything.

Or, perhaps another analogy will put it in better context: If you buy a home, planning on living in that home for the next 20 years, if the value goes down 2 years after you buy it, are you going to sell it, simply because your “equity” in the home has gone down (for the moment)? Of course not! Same with you long term investment portfolio.

HOW GREEN WASTES GREEN -- (POSTED 9-15-08)

In a recent blog, we noted how it seems like nearly every Tom, Dick and Harry, Inc. has been jumping on the “green”, “eco-friendly” bandwagon.
Now, the fact is that so much of this “eco-friendliness” in the private sector is,

· Merely wallpaper dressing that has virtually no effect on (and certainly won’t solve)
whatever environmental problems we have,
· Is often economically counterproductive, and
· In some cases, is actually environmentally counterproductive.,

is bad enough. One case in point – due to the additional ‘energy’ costs (i.e the amount of energy used) to manufacture and ship the supposedly “eco-friendly” Prius, when taken in total, a Prius is less “eco-friendly” than the supposedly “very eco-unfriendly” Hummer. And, when expected longevity (i.e. the total number of miles an owner can expect to drive the vehicle) is taken into effect, on a dollar cost per mile basis, the Hummer is much less expensive then the Prius.

However, at least this type of politically correct driven eco-friendliness is in the private sector, where consumers have a choice how to spend (and possibly waste) their money. More and more, however, such politically correct eco-friendliness is infecting the public sector, where we (consumers/taxpayers) don’t have a choice.

Two, local, cases in point. Beacon Street is a well-known major thoroughfare that stretches from Tremont Street in Boston all the way out to Route 128 in Wellesley Hills. For years, the portion of Beacon Street that runs between Park Drive, Boston, and Coolidge Corner in Brookline has mainly been a three-lane road (at least, in the westerly direction). And, every number of years, this portion of Beacon Street would be dug up and re-paved, as needed. Fair enough.

However, in the last reincarnation of this process, this portion of Beacon Street was not only repaved, it was also completely reconfigured. And, one of the major portions of this reconfiguration was the addition of a bikes only lane. What’s wrong with a bikes only lane? Well, in addition to the greatly increased cost (as opposed to just repaving the road and leaving the configuration as it was), what was mainly a three lane road was turned into a two lane road. Which (especially at Harvard Street, directly at the center of Coolidge Corner) took what had already been an area of often heavy traffic congestion, and made the problem much worse. The result: larger and longer traffic jams, translating into more vehicles stuck idling in traffic wasting $4.00 per gallon gasoline while spewing greater amounts of pollution into the atmosphere, then before the reconfiguration of the road. A big negative, from an environmental standpoint? Probably not. But certainly, the direct opposite of what the environmentalists supposedly are aiming for. And, despite what some environmentalists would try and argue, it appears extremely doubtful that there will be any ‘offset’ by some sudden increase in the number of people who leave their cars and trucks at home and now choose to ride their bikes up Beacon Street, simply because a bikes only lane is added to an approx. 1-mile stretch of the road (westerly direction only).

[Of course, this raises other questions – such as, what of the bikers who ride in an easterly direction, or those who ride beyond the approx. 1-mile westerly section of the road that has a bike path. They don’t matter… they’re on their own (sort of like a “’bikes only’” lane to nowhere”?) The point is, they – bicycle riders – appeared to be doing just fine on Beacon Street for decades without a bikes only lane. But, because political correctness now calls for at least the appearance of eco-friendliness, we (the taxpayers) had to spend untold thousands of extra dollars so that Brookline could have and (we’re going to take a wild guess here) feel good about the fact that they now have a bikes only lane along a patch of Beacon Street. (BTW: Not to get far a-field – But, if bicycle riders have a lane of their own on the road, shouldn’t they also have to obey the traffic rules of the road? Like, waiting for the green light to go across an intersection? Or does their ‘eco-friendliness’ make them immune?)

The second local case is even better (or, worse, depending how you look at it). As was reported in a Boston Herald story – “Bad spin for City Hall turbine”, on 9/10/08:

The [Mayor Thomas] Menino administration is turning red over efforts to go green as the bungled installation of a wind turbine on City Hall’s roof is running up a bill for taxpayers…

The turbine, the Herald reported, cost $13,000 to install – yet the electricity created by the turbine only creates “…enough electricity to power just 19 light bulbs.”

[Making matters worse, the City, in installing the turbine, apparently ran afoul of competitive bidding wars for projects costing above $10,000 – although, in fairness, it should be mentioned, the violation of the bidding law appeared to be more a mistake, than intentional.]

Trying to put a good face on the boondoggle, Mayor Menino’s Environment and Energy chief James Hunt (another aside – why does a city need an Environment and Energy chief?), stated, as the Herald reported, that:

“[T]he windmill project is definitely worth doing.

The energy saving may be small, but to showcase the potential of renewable energy in the city of Boston is far more significant.”

Frankly, with all due respect to Mr. Hunt, such waste of taxpayer dollars only serves to further showcase how politically correct eco-friendliness, well, wastes taxpayers’ dollars. (Indeed, in the future, if the city of Boston wishes to save electricity equaling 19 light bulbs, we have a very easy, low-cost, low-tech suggestion – find 19 lights in City Hall which really aren’t necessary (we’re willing to bet at least 19 can be found) – and simply, turn them off.)

COLLEGE FINANCING DO'S AND DONT'S -- (POSTED 9/9/08)

As we’ve reported in previous blogs (7-7-08 and 3-23-08), the economic crises has, unfortunately, ‘infected’ the private college lending industry. Moreover, as most of the media (present company excluded!) has failed to report sufficiently (or, in some cases, at all) is the fact that the Federal government has guaranteed that there will be enough Federally backed college loans (at least this academic year) for students and their families who need them. So, the bottom line for most families is the following: check with and apply for private college loans – which often offer better rates than Federally backed loans – but DON’T count on them. Rather, be certain to line up enough Federally backed loans to cover your college expense needs. Two good places to start researching Federally backed college loans are the websites www.finaid.org and www.studentaided.gov . (Additionally, for information on college lending and financial aid in general – including numerous additional relevant links – check the BestMoneyinfo site’s “College Savings and Financial Aid” page. To access, go to the www.969wtkk.com homepage, and click on the “Best Money info” icon.)

Despite (or maybe, even more importantly because of) the pinch in sources for college financial aid (of which, at least 60% remains in the form of loans), it is more imperative than ever that college students and their families adhere to the following dues and don’ts:

First, the things families should do:


-- No matter how much or how little money your family has or makes, apply for financial aid. There are at least two higher education loans – the Stafford loan (www.staffordloan.com) and the PLUS loan (http://www.parentplusloan.com/) that virtually every family is eligible for, no matter what their income level.
-- If possible apply for financial aid early – before the high school senior is accepted into college – and be sure to apply to at least two “dual safe schools” – colleges that they’re likely to get accepted into and that your family can afford.
-- Always include state colleges and universities – both in the state you live and in other states – amongst the schools you apply to. State colleges and universities are almost always more – and in many cases, much more – affordable than private ones. (Moreover, despite a lingering belief that state colleges and universities offer lesser quality education and training than do private colleges and universities, such is not the case. State colleges and universities, by in large, offer just as good education and training as do their private school peers, invariably at a much more affordable price. (Indeed, what a student gets out of college – both from an educational basis and a cost benefit analysis basis (i.e. how much their college education can/will further their career choices and money making possibilities and – is ultimately tied to what and how much the student puts into their college educations, wherever they end up going to school.)

Those are the things that you should do. Now, today, especially given that we are in a period where college financial aid sources are being squeezed, you will find an even larger number of so-called college funding/college financial aid “experts” out there giving poor – and in some cases, potentially disastrous advice – to the increasing number of ‘desperate’ college students and their families. Accordingly, it is more important than ever that college students and their families be fully aware of, and make certain that they avoid the list of things college students and their families are often urged to, but should never do:

--Never make any drastic changes to your retirement plan, and, never take out a larger mortgage (i.e. a loan secured against your home), in the belief that doing so will increase your family’s chances of acquiring more financial aid. These tactics virtually never work, and in the few cases where they do, the cost is not worth the benefit (especially given the fact that, as noted, the majority – if not all – of any financial aid your family qualifies for will likely come in the form of a loan or loans, rather than scholarships or grants).
--With the exception of 529 and Coverdell education plans (plans in which money is automatically invested in the child/student’s name – for more information on 529 and Coverdell plans, see www.Savingforcollege.com), don’t invest college savings in or switch college savings into your child’s name. In most cases, the tax benefit is very small while the damage to your family’s ability to acquire (or acquire greater amounts of) financial aid can be very large.
--Don’t pay anyone to fill out financial aid forms for you, or help you search for financial aid. All of this information is available free of charge from college financial aid departments, federal and state financial aid authorities, and online.
--Last but not least, be certain to save for your retirement first. It may sound harsh, but you have to make sure you’re saving enough for your retirement before you save anything (other than gifts given to or money earned by your children) for your children’s college education. Your goal should be to save 20% of your gross income each year towards retirement (15% if you’re a teacher, fireman or in another profession that guarantees you a pension when you retire) before you start saving for college. Unfortunately, the harsh reality is that the overwhelming majority of middle class families in this country can no longer afford to save enough for retirement and for their children’s college education. Accordingly,
in most cases, families (mainly kids) today will be paying for college via financial aid, most of which will come in the form of repayable education loans. If you’re fortunate enough, have a high enough income (or both) so that you get to the point where you have excess money (over the amount you should first be trying to save for retirement that you can save for your child’s college education, invest it in one of the tax beneficial 529 or Coverdell programs (again, for more information, see www.SavingForCollege.com ).

[NOTE: Much of the above information was gleaned from various portions of Rick Shaffer’s e-book, “Your Bottom Line – Fifty Steps to Firm Financial Footing”. (For more information, access the Best Money info icon via the www.969wtkk.com homepage.)]

WHY PICKING PALIN MAY BE MAVERICK McCAIN’s SHREWDEST RISK-TAKING YET – (POSTED 9-2-08)

Throughout this election season, we’ve heard constant talk from the mass media about the “Red” States and the “Blue” States, ad infinitum. Fact is, the mass media has the colors wrong. As we mentioned on “The Money Show” nearly a year ago, despite that fact that the Presidential candidates hadn’t then yet figured it out, the real color that will most likely decide the election in November is green. And not “Green” as in environmentally green (despite the fact that nearly every Tom, Dick and Harry, Inc. has been jumping on that bandwagon). Rather, the most important color in this election will be the “green” we see on our currency, since, barring (heaven forbid) another 9/11, what will decide this Presidential election is, as the now well known saying goes, “the economy, stupid.”

What’s more, in today’s economic world, one of the (if not the) most important factors related to the economy is the raw material needed to produce energy, specifically fossil fuels – oil and natural gas (and to a somewhat lesser degree, coal). Moreover, despite what the Federal Reserve believes (indeed, it seems they always believe this) the U.S. economy’s biggest threat is not inflation. Rather, what we currently have is a form of fake (or “faux”) inflation, caused by artificially high-energy costs. And these costs are artificially high mainly due to the fact that radical environmentalists now in power (think Nancy Pelosi, for example) won’t allow the U.S. to even come close to fully utilizing its vast stores of fossil fuel resources.

Yet, despite the fact that those in power continue to block our taking full advantage of these energy resources, polls continue to demonstrate that most Americans want to more fully utilize these resources. Here’s where Governor Palin comes in. She too wants to take advantage of these vast energy stores (a large portion of them in here own State of Alaska), and she is very well versed on the topic. Indeed, on the day Senator McCain tapped her as his Vice Presidential running mate, one of the cable news networks ran an interview “Nightline” had conducted with Governor Palin about a year ago (which, unfortunately, was “bumped” by another story and thus never aired on “Nightline”) in which she very specifically, meticulously and eloquently laid out how:

· Alaska had been let into the Union in 1959 (as the 49th State), in large part because of its vast stores of natural resources, as well as,
· Alaska’s promise (in order to be granted Statehood,), that because of these resources, not only wouldn’t Alaska as a State be a drain on the Federal government, but, just the opposite, Alaska as a State would prove to be a major economic boon to the U.S. in general, however,
· Despite its desire to do so, Alaska is not being allowed to fulfill that promise, because of the extreme environmentalist policies of those in power in Washington, despite the fact that,
· The oil and natural gas stores in Alaska that are not being allowed to be tapped are mainly under, apparently, less than 10,000 acres of wilderness land in a State that is comprised of millions of acres of wilderness land, and,
· Despite the fact that the “danger” tapping these energy resources would pose to the environment is nowhere near what the extreme environmentalists portray, since such “dangers” have been greatly lowered over the last couple of decades as a result of advances in drilling methods, as well as other technologies and safeguards.

What, would happen if these Alaskan oil and natural gas stores were allowed to be tapped? First,

· The U.S. would be able to become much much more energy independent for decades, thus greatly lowering the cost of energy (with a resultant major positive effect on the U.S. economy), while, at the same time,
· Giving the U.S. time to develop other, permanent and economically feasible long-term solutions to the problem of energy sources (wind, thermal, and, most likely, some form of hydrogen and/or a combination of the above, or possibly (though less likely) a technology we’ve not yet discovered, while also,
· Permanently changing our foreign policy paradigm (think Saudi Arabia, OPEC, and the middle east in general) to boot.

From the standpoint of the upcoming election, the bottom line is, all of the above factors – which Governor Palin has shown herself to have a very strong and in-depth understanding of – will play very well with the American middle class, no matter what color State they happen to live in. (As an aside, all of this is true not withstanding Governor Palin’s teen-age daughter’s pregnancy, which, the harder the far left wing Democrats try and make a campaign issue, the more that far left wing Democrats will simply prove themselves to be exactly what they really are – extremely foolish world-class hypocrites.)

Now, we here at “The Money Show” disagree with Governor Palin on a whole host of policies, and, as (the polls illustrate) so too do a large portion of the American public. However, in addition to her in-depth knowledge of the energy realities talked about above, in her relatively short time in office, Governor Palin has, it appears, proven to be a pragmatist (one example – while she’s a pro-oil drilling advocate, she nonetheless took on the oil industry and her own State Republican party…and won.) Which demonstrates not only pragmatism, but pro-consumer pragmatism. And, as we’ve noted on "The Money Show" many times before, being a “consumer” is the one and only “special interest group” that all Americans belong to. Which means that, no matter what State (or “state”) you target, Governor Palin’s pro-consumer pragmatism in general, and her energy related knowledge and pro-consumer pragmatism in particular, will appeal (and very possibly, greatly appeal) to voters in both Red States and Blue States, alike.

Does that mean that picking Governor Palin as his running mate wasn’t a risky move by Sen. McCain? No, far from it – it was and is an extremely risky pick. But, if the economy continues to be at the center of this increasingly close election – and most indicators say that the economy will be just that – if John McCain does win the White House in November, picking Governor Palin as his running mate may prove to be the self-proclaimed maverick’s shrewdest risk-taking yet.

MORTGAGE MELTDOWNS NOT NEW – POSTED AUGUST 26, 2008

As we’ve pointed out on numerous occasions here and on “The Money Show”, the root cause of the mortgage meltdown/crisis/fiasco was a combination of 1) mortgage lenders basically throwing their core underwriting standards out the window (thus giving loans to countless homebuyers who could not afford their mortgage payments, and thus, the home they were buying), and 2) the packaging of these loans into all manner of investment products that were bought and sold on Wall Street with far too little regard for the possible risks these investment products held. The interesting – perhaps the better word is, frightening – part of the story is that, this mortgage phenomenon has happened numerous times before in U.S. history.

As Burton Frierson of Reuters points out in his excellent article, “Lenders should heed lessons” (published in the Boston Herald on August 15th):

…[M]uch of today’s problems aren’t new at all.

America actually faced six mortgage meltdowns between 1870 and World War II.

All taught the same lesson: Some loans should never be made.

“Apparently no single person on Wall Street knew about these six earlier blowups,” said Robert Wright, financial historian at New York University…
“If they had, they would have held back (on making reckless loans).”

Wright [added that] today’s mortgage-market woes and all six previous meltdowns “all happened for the same reason. [Mortgage] [o]riginators had incentives to make many mortgages as quickly as possible and not to really care about the borrowers’ long-term ability to pay.”

[While Frierson doesn’t mention this in his article, it seems quite apparent that most of those in the mortgage industry weren’t familiar with philosopher George Santayana’s famous statement: “Those who cannot remember the past, are condemned to repeat it,” which, appropriately enough, was first written by Santayana in a book entitled Reason in Common Sense, something far too many in the mortgage industry have lacked over the last number of years.]

Frierson’s article also illustrates that “securitization” – the packaging and selling of loan products – is also not a new phenomenon. Such mortgage securitization occurred six times between 1870 and 1940. And, like the present mortgage meltdown:

[E]ach [of these previous six] times, the market for mortgage-backed securities grew rapidly for a few years – then suddenly collapsed.

Additionally, Frierson’s article points out that, although not all experts agree, many feel that because of this tendency of lenders not to stick to proper underwriting standards during housing booms, laws need to be put in place that regulate and maintain mortgage underwriting standards, thus avoiding overheated real estate markets which, in virtually all cases, ultimately lead to real estate market busts, such as that which we’re seeing today.

“IF IT SOUNDS TOO GOOD TO BE TRUE…” (POSTED 8/17/08)

Time and again on “The Money Show”, we’ve warned that, when it comes to virtually everything – and certainly, virtually everything having to do with money – the old saying “If it sounds to good to be true, it usually is,” applies. That’s especially true when it comes to the plethora of get rich quick and/or ‘money/tax saving’ schemes that are always floating around (and seem to grow in number during difficult economic times like these).

What’s worse, in addition to the financial harm these schemes can cause, (sometime, a waste of money on the seminar, tape and/or literature fees charged, sometimes, a loss of major investments) some of these schemes can also get you into legally hot (very hot) water.

One recent case in point – as reported in the Boston Herald last month, a federal judge recently sentenced two local “get rich quick” artists to 2 ½ years in jail and 3 years of probation, respectively, as a result of one of these schemes.

The two former Leominster, MA residents – Daniel Anderson and Dwayne Robare – helped run the “Institute for Global Prosperity” (or “IGP”), which ran and sold tax related get rich quick seminars and tapes. The information IGP was ‘teaching’ included tips on how people could avoid paying taxes by using offshore trusts and offshore bank accounts.

Again, as we’ve mentioned many times before, the Internal Revenue Service is especially touchy about people trying to conceal income and avoid paying taxes on it. IGP reportedly sold $45 million worth of its seminars and tapes. Here’s the kicker (or, perhaps, poetic justice) – Anderson and Robare unsuccessfully tried to use the ‘advice’ given in the IGP seminars and tapes to conceal income they made ‘teaching’ this same advice to others on how to avoid paying taxes. Bottom line – Robare ended up pleading guilty to tax evasion and Anderson admitted to the charge of conspiracy to defraud the U.S.

Nine other people have also been convicted of or pleaded guilty to similar charges in connection to IGP.

So, once again, we remind you, when it comes to any ‘get rich quick’, ‘fantastic money saving’ ‘opportunities’ or the like, remember, if it sounds too good to be true, IT VIRTUALLY ALWAYS IS.

HOME FOR THE BRAVE –POSTED (8-10-08)

Tom Gleason said it best: “They put their lives on the line to take care of us. It’s an honor to be able to do something for them.”

OK. Who’s Tom Gleason, and what’s he talking about? Gleason is the Executive Director of MassHousing, the state’s quasi-public/quasi private first time home-buyer’s agency. The “they” he’s referring to are Massachusetts veterans, and the “something” he’s referring to is a new mortgage program recently introduced by MassHousing called “Home for the Brave” (“HFTB”, for short.)

This new program makes no-downpayment mortgages available to Massachusetts:

§ Veterans of the U.S. Armed Services
§ Active-duty military, and
§ Spouses of members of the military killed while on active duty

Moreover, the program is being offered in conjunction with the U.S. Veterans Administration, so that disabled veterans can also get grants to upgrade the home they buy so that it is handicapped accessible

Like all MassHousing loans, Home For the Brave loans are available through approved community banks and other Massachusetts lenders approved by MassHousing. Unlike most MassHousing loans however, borrowers need not be first time homebuyers. Additionally, HFTB loans offer MassHousing’s “MI Plus program”, which covers a borrower’s principal mortgage payments for up to six months if they become unemployed, or in the case of their military deployment.

While the Home For the Brave loans do have income restrictions, these restrictions are fairly lax (135% of the median income in the city/town in which the borrower is purchasing a home, up to $111,240 annually). Additionally, to qualify for an HFTB loan, borrowers must:

· Purchase a primary residence.
· Demonstrate they have good credit.
· Have a total housing debt ratio of less than 38% and a total monthly debt ratio of less than 45%.
· Take and complete a home buyers counseling course if the borrower is seeking a no downpayment loan.
· Borrowers may also purchase 2, 3 and 4 family homes using the Home For the Brave program, but additional restrictions do apply on such loans.

Given how much they do for all of us, it truly is a shame that we, as a society, don’t do more for our veterans. Thankfully, MassHousing’s Home For the Brave mortgage program is, at least, a step in the right direction. So, in conclusion, these two points. First, we at “The Money Show” and WTKK join MassHousing in thanking all veterans their for your service to our country. Second, if you’re a Massachusetts veteran looking to buy a home, be sure to explore the possibility of qualifying for a MassHousing Home For the Brave loan. For more information, check out the “Quick Links” section of MassHousing’s website, at www.MassHousing.com .[In the interest of full disclosure, we should let you know that MassHousing is a sponsor of the BestMoneyinfo website (to access the site, go to www.969WTKK.com homepage and click on the “Best Money Info” icon)].

TIMES ARE TOUGH -- BUT NOWHERE NEAR AS TOUGH AS MANY WOULD HAVE YOU BELIEVE -- (POSTED 8-4-08)

FDR once famously stated, “The only thing we have to fear is fear itself.” Many people interpreted that to mean that there were no problems we need be concerned about. Of course, that’s not what he meant. Rather, what FDR meant was that, while the world is filled with problems we need be very concerned about, if we deal with them calmly and rationally, without fear, than we can deal with and solve them.

Unfortunately, today, Americans aren’t heeding FDR’s words. Rather, Americans, in growing numbers, seem to be afraid of everything, not only those problems we need to be concerned with, but also “problems” that either are easily fixed, or don’t exist at all. This is especially true of the country’s current economic troubles, and the blame for this lies largely at the feet of the mass media.

Yes, the economy is struggling. Yes, many people are having trouble making ends meet. Yes, while we may not currently be in a recession statistically, most would agree we certainly are in a “de facto” one. But, over the past couple of years, rather than trying to rationally report the situation, the mass media has fallen all over itself sensationalizing and blowing its reporting of these problems totally out of proportion and giving these reports virtually no perspective nearly every chance they get.

Fortunately, at least a few observers ‘get it.’ One excellent case in point: a column recently written by Jeff Jacoby and published on the Op-Ed page of the Boston Globe (Tuesday, 7-22-08).

In his column, entitled “Cheer up – these are the good old days”, Jacoby touches on the sensationalizaton of the economy’s problems by the media. Jacoby then goes on to put these problems in their proper perspective. For example, Jacoby writes:

Voices of reason keep trying to point out that conditions are not nearly as bad as they were the last time consumers were this despondent. That was in May, 1980, during the final year of the “misery index” – the sum of the inflation and unemployment rates – hit an excruciating 21.9. Inflation was then at 14.4 percent; unemployment was 7.5 percent. The numbers today are 5 and 5.5 [percent] respectively.

But more importantly, Jacoby goes further, offering the perspective of two other very rational observers – Federal Reserve Bank of Dallas members W. Michael Cox and Richard Alm. In their recent article (entitled “How Are We Doing” and published in the current edition of The American magazine), Jacoby notes that Cox and Alm point out:

The nation’s present troubles [Cox and Alm] argue, … “will turn out to be mere footnotes in a longer-term march of progress.” The US economy, “a $14 trillion behemoth” remains without equal as an engine of growth and prosperity. However impolitic it may be to say so, when you take a long view it is clear that we have never had it so good.

Moreover, as Jacoby further notes, Cox and Alm point to a number of reassuring trends to back up their long-range optimism:

Americans on average work far less than they used to. Annual hours devoted to the job have fallen from 1,903 in 1950 to just 1,531 today. We start working later in life, retire earlier, and live much longer. Even including household labor, [Cox an Alm] write, “only about a quarter of our working hours are consumed with work, down from 45 percent in 1950.”

[Additionally, the] material progress of recent decades has been extraordinary – at all income levels. Forty percent of poor families own their own homes. For many goods (kitchen appliances, color TV’s, air conditioners) ownership rates are higher among poor Americans today than they were among the general population in 1970...

…Short-term troubles notwithstanding, Cox and Alm observe, the “data points add up to steady and continuing progress for average Americans.”

As Jacoby (echoing a point we continuously try to get across on “The Money Show") concludes:

So, no, everything is not [as much of the media would have us believe] spinning out of control. Alarmist headlines notwithstanding, we’re doing all right…

Working at Home "Opportunities": What To Watch Out For! -- (Posted 7-27-08)

If you watch TV or listen to radio, you’ve seen scores of ads for jobs that promise the moon and the stars (financially, that is) by working from the comfort of your home. And, while there are legitimate jobs that allow you to make money from home, you should be extremely careful before answering – and most certainly sending money – in response to one of these ads.

Many of these make money at home ‘offers’ are, at best, a waste of any money you send. One of the most common ‘offers’ is the envelope-stuffing job. One reporter, investigating their legitimacy, purchased 12 such envelope stuffing kits (all claiming potential earnings of $1,500 per week with little effort). Each kit, costing between $20 and $50 apiece, basically directed the purchaser of the kit to recruit others to stuff envelopes for them. Ultimately, the reporter was unable to make any money from any the 12 starter kits purchased.

As noted, there are legitimate jobs that allow you to make money from home. Nevertheless, according to research conducted by Christine Durst, author of "The Rat Race Rebellion," the ratio of apparently worthless ‘offers’ to legitimate opportunities in the home job arena is 42:1.

However, if you are serious and motivated in your desire to find a legitimate work at home business, following are some hints that can at least increase your possibility of success:

--Before you make any payment (either by giving your credit card number or mailing a check) be certain you actually speak to a live person over the phone (rather than just reading a brochure) who answers all the questions you have.
--Be sure to include as part of your questioning, questions about potential problems and difficulties you’ll face with the work at home ‘program’ you’re considering.
--Ask to be referred to people who have worked for (and been successful with) the work at home system you’re thinking of purchasing. And, if you do get such referrals, be certain to contact and talk to these people.
--Ask about refund policies (for any monies you expend). and specifically what steps you’d have to go take to get a refund. (This is especially true if you’re buying a "starter kit" or "information packet" online.)
--Try to see if any specific complaints have been lodged against the company and/or specific home sales product you’re thinking of buying. Start by contacting these two Better Business Bureau sites: http://welcome.bbb.org and www.bbbonline.org
-- Don’t reveal ANY information (other than your credit card or bank account number, if and when you decide to purchase the product/program). Note that you’re better off making payments with a credit card, since they offer you greater protection if the product/program isn’t legit and you decide to seek a refund.
--DO NOT ASSUME a product/program has greater legitimacy because of where its being advertised (i.e. just because the advertisement is on a website you respect, don’t assume this adds any credence to its legitimacy. Rather, as always, do your homework and be very cautious; as the saying goes: caveat emptor).

Following are two sites mentioned on “The Money Show” that are a good place to start your search. HOWEVER, ONCE AGAIN, IT CANNOT BE STRESSED ENOUGH how important it is that you take ALL of the precautions listed above before buying into ANY ‘work-at-home’ business.
--www.womenforhire.com
--www.ftc.gov (then type in “work at home” in the search section. Note – this site includes potential work-at-home opportunities, as well as a number of articles on the potential dangers and pitfalls of such programs)

RETIREMENT QUIZ -- POSTED 7-22-08

If you regularly listen to “The Money Show”– which you should – but, even if you don’t – you probably know that the answer to this basic retirement question: Should I be saving for retirement? is – Yes. However, when it comes to many other basic retirement saving questions, a lot of people are less certain of the answers. So, here’s a quick, True or False, Retirement Quiz (along with the answers) to a number retirement questions you really should know the answer to.

1. True or False: You should only invest in a 401k or 403b plan if your employer matches the amount you invest? The answer: False.

Investing in a 401k, 403b (or any other employer sponsored retirement plan) is one of the best ways to save for retirement. Accordingly, if your employer offers one, save as much as possible in it as you can afford, whether or not your employer matches your contribution. (If your employer does match your contributions, consider the “match” to be ‘icing on the cake’.) Additionally, don’t make the mistake of only contributing an amount equal to the amount your employer matches. Rather, if you can afford it, invest the maximum amount allowed, each year, in your employer sponsored retirement plan.

2. True or False: If you invest the maximum amount allowed in your 401k, 403b or other employer sponsored retirement account, you should not also invest in a Roth IRA?
The answer: False.

Your goal, as we’ve often pointed out, is to – if possible – save 20% of your income (15% if
you’re a teacher, fireman or in another profession that guarantees you a pension when you retire) towards retirement each year. But, in most cases, the maximum amount you can invest in an employer sponsored retirement account each year will be less than 20% of your income. So, if you’re not over the Roth IRA income limit, and you can afford to, by all means, invest in a Roth IRA.

3. Multiple choice: Money invested in which of the following retirement accounts is not tax deductible?
a. 401k
b. 403b
c. SEP IRA

Sorry – trick question: they’re all tax deductible. Money you invest in
a 401k, a 403b and/or a SEP IRA will grow tax deferred, and is taxed when you with the money (at your then tax rate, and, if withdrawn after age 59 ½, without any penalty).

Money invested in a Roth IRA, however, is not tax deductible. But, so
long as you meet all the conditions that money grows tax free and is withdrawn tax-free.

4. True or False. In many cases, investing in a mutual fund that charges a
load is a good idea. The answer: True.

As we’ve pointed out before, all things being equal, if you’re choosing between two funds which both perform well and fit well within your portfolio, than you’re better off choosing the no load fund. But, things aren’t always equal. Your biggest concern is with a fund’s long term net return. And, for various reasons (one, very often occurring – example, is the fact that the only “good” mutual fund choices available to many people in their retirement plan are load funds) sometimes, your best long term net return will be from a load fund (or funds). So, in such cases, investing in the mutual fund (or funds) that charges the load is a good idea.

5. True or False. You should always rollover your regular IRA investments
to Roth IRAs. The answer: False.

In all circumstances, the answer as to whether one should rollover a regular IRA to a Roth IRA will depend on each individual’s situation. However, for most people, doing such a rollover is not a good idea. Why? Basically, two reasons:

– First, the size of the tax bill you’ll have to pay when you do the rollover is usually quite high, and,
– Second, in many cases, all or part of the money needed to pay this tax bill comes from the existing IRA being rolled over. Which means, you’re left with less (very often, a lot less) money growing tax deferred or tax-free towards retirement, which is not a good idea.

LATEST IDENTITY FRAUD/CREDIT THEFT SCAMS YOU SHOULD BEWARE OF (POSTED 7-15-08)

If, like most people, you either have a credit card or some other type of credit account, than you are almost assuredly aware of the ever-increasing problem of identity fraud/credit theft. Unfortunately, even though consumers continue to become more educated about the problem, identity fraud/consumer theft thieves are constantly at work trying to figure out new ways to steal your identity/credit. Following are some of the newest ways the ‘bad guys’ are currently using to cheat us, and the ramifications of their thievery.

The first involves what we’ll call the ‘slight of card’ trick. Here’s how it works. A person goes, let’s say, to a gym, and after working out, notices that it appears his locker has been broken into. However, after inspecting his clothing and, especially, his wallet, nothing seems to be amiss. Three weeks later, however, he receives his credit card statement from, let’s call it, the “XYZ” credit card company, which lists over $10,000 in charges over the past three weeks, none of which he has made. When he calls the “XYZ” credit card company to complain, he is asked if his credit card has been stolen – to which he replies, no. However, to be certain, he checks his wallet, and to his horror, finds that the “XYZ” credit card in his wallet is an expired credit card from the same company. What happened? Thieves had indeed broken into his locker, stolen his “XYZ” card from his wallet and replaced it with an expired “XYZ” card. Since he seldom used his “XYZ” card, he didn’t notice the switch. And the worst part? In cases like this, since the card holder doesn’t notice the theft, and since the illegal charges are usually made by the thieves in numerous small amounts (thus not triggering any alert to the card holder or the credit card company) the fact that the card has been stolen and the charges are illicit is not reported to the credit card company; as a result, credit card companies, in such instances, are holding the credit card holder responsible for the payment of some or all of the illicit charges!

A similar “scam” is used by criminal minded waiters and waitresses (often with the help of another criminal minded employee). In short, the scam is, when the waiter or waitress returns your receipt for you to sign, while the receipt is correct, the card they return to you is a similar looking, but expired card from the same credit card company. (They then either use your real card illicitly, or sell it.)

Bottom line – not only do you have to keep close track that all of your credit cards are where they’re supposed to be, you have to regularly and carefully check your credit cards to be certain you still have your actual, legitimate, card, including, every time your card is returned to you after being used for a legitimate transaction. Moreover, DO NOT KEEP CREDIT CARDS THAT YOU INFREQUENTLY USE in your wallet or purse (or anyplace else where they could be stole.) Instead, keep them at home, preferably in a lock box or other safe place.

The next scam is actually a variation on one that’s been in use for a while. Here, a store employee takes the credit card you hand them to pay for an item (let’s say at a grocery store or clothing store), then, while waiting for the transaction to be “Approved”, they place your credit card down on the store counter (fairly standard procedure). While waiting for the “Approval” ‘receipt’ to be processed, they take out their cell phone and, it appears, begin to dial a phone call (again, not out of the ordinary behavior). However, in fact, they’re NOT dialing a phone call. Rather, they’re using their cell phone’s camera to take a picture of your credit card (which they can then use later to make illicit charges.) This scam, of course, can be much more difficult to catch.

Bottom line – always be aware of what’s going on around you, and more importantly, check your credit card usage constantly – your best bet check your credit card usage online AT LEAST ONCE PER WEEK (more often if you have the time), and if any charge appears incorrect,, CALL THE CREDIT CARD COMPANY IMMEDIATELY! (Additionally, even with credit cards that you use infrequently and, as suggested above, don’t keep with you, check those cards and their usage – or, hopefully with these cards,
non usage – online regularly.

Finally, for more information in general on identity fraud/credit theft and how to protect yourself from becoming a victim – or deal with the problem if you do become a victim – check the BestMoneyinfo “Consumer Credit Info” page; to access, go to the www.969WTKK.com homepage and click on the “Best Money Info” icon.

COLLEGE FINACIAL AID -- CONTINUED... -- POSTED 7-7-08)

We’ve touched on this topic before, but with the credit crunch continuing, it behooves us to touch on it again. First, over the last couple of months, the “media” has continually reported that finding loans and other types of financial aid to pay for college would be much more difficult. Unfortunately, the media (present ‘company’ excluded) has only reported half the story. Yes, it is true that, due to the credit crunch, college financial aid loans from many private lending institutions has dried up. However, financial aid loans for college (and it should be noted, most “financial aid” for college comes in the form of loans) is available and will remain available from Federal government backed sources. In fact, as we noted here in a blog posted on 3-23-08 (“COLLEGE LOAN AVAILABILITY UPDATE”):

[A]nyone who’ll need loans for next year’s academic year should be able to get them, since funds for federally backed college loans will be available to anyone who needs them…[A]s Sara Martinez Tucker, US undersecretary of state made a point of noting when she was in Boston…to speak at Northeastern University, any problems in the private college loan sector haven’t affected any federally backed loan programs (such as Stafford and Parent PLUS loans), and gave assurances that federal funds would be available to those who need them for the upcoming academic year.

Second, in spite of (or, probably more to the point, because of) the continuing credit crunch and the ‘media’s’ reporting on how this has effected college financial aid, more and more so-called experts are advising college students (and, more particularly, their families) to try numerous financial ‘tactics’ – such as refinancing and/or taking a home equity loan on the family home, or transferring money invested in (what are considered her to be good) investment vehicles (such as mutual funds) to (what are considered here to be lousy) investment vehicles (such as annuities) – so as to, supposedly, increase the student’s and their family’s chances of acquiring more and/or better financial aid. The kindest thing that can be said about such ‘advice’ is, don’t listen to it. The more accurate thing to say about this “advice” is that this it is terrible advice.

Advising families to take a (or take a larger) mortgage on their home, or take well-invested money and switch it to lousy investments is horrible advice in and of itself. The fact that in most cases such advice doesn’t work (i.e. in most cases it doesn’t qualify your family for more financial aid, and in the few cases it does, it generally just qualifies your family for more financial aid loans (so, you’re basically being advised to take a loan that you don’ need (a first mortgage or larger first mortgage or a home equity line of credit -- all types of loans -- on your home) so that you can qualify for another type of loan (a college financial aid loan, which, as pointed out, you almost certainly could qualify for anyhow) only serves to make these so-called 'experts’ ‘advice’ that much worse. (Indeed, it would appear that in most cases the only ‘benefit’ of such advice is whatever profit these 'experts' may realize.)

Bottom line: your best 'tactic' is to avoid these so-called experts and do college financial aid research yourself (all of the information needed is available online and through high school college counselors and college financial aid offices. Additionally, be sure to start your research early (the earlier the better, but no later than the prospective college student’s sophomore year in high school.

(For good places to begin researching how to acquire Federally backed college loans in particular and other college financial aid in general, go to www.finaid.org and www.studentaid.ed.gov . Additionally, check out the BestMoneyinfo “College Savings and Financial Aid” page (to access, go to the www.969WTKK.com homepage and click on the Best Money Info icon) for more info on, and numerous links to, other websites with more information on college financial aid in general.)

LOAD VS. NO LOAD MUTUAL FUNDS – POSTED 7-1-08

Here’s a question that crops up frequently on The Money Show:
‘Isn’t it true that I should only invest in no-load mutual funds?’ The answer is an unequivocal, “No!” Why? Let’s take a look.

Types of Load Funds

First, what exactly is a “load”? Generally, there are two types.

A front-end load (often referred to as an “A” share) is an up-front commission, which covers the cost of paying mutual fund salespeople. It’s a one-time fee – but you will be charged each time you purchase additional shares of the fund. Generally, these fees run between 3 and 5.5%. So, for example, if you invested $2,500 in a fund that carried a 5% up front load, the fee would be $125. If you later invested another $2,500, you’d pay another $125 fee.

A back end load (often referred to as a “B” share) serves the same purpose as a front-end load. But, it’s only charged against money withdrawn before a set period of time. Back end loads generally work on a sliding scale, starting as high as 5.5% on money withdrawn from the fund in the first year, decreasing down to 1% on money withdrawn, usually, in the 5th or 6th year, and (usually) disappearing after that. (Additionally, some funds also sell C shares – a form of “back end” load where you’re charged a sales fee – usually 1% per year – for the entire time you own shares in the fund.)

Choosing Between Load and No-Load Funds

OK, than, since load funds do charge a fee, and, no-load funds don’t), why shouldn’t you avoid load funds and only invest in no-load mutual funds? Well, all things being equal, if you’re choosing between two funds which both perform well and fit well within your portfolio, than you are better off choosing the no-load fund. But, the reality is, things aren’t always equal, so only buying no-load funds is not a good policy. The reason?

Your biggest concern when investing in mutual funds is with a fund’s long-term net return. The problem is, for a large portion of people, choosing only no-load funds while also choosing only the best funds ( i.e. those with the best net returns) available to them often isn’t possible. Why’s that?

First, a large portion of many people’s mutual fund investments are through their company’s retirement plans, and many of these plans only offer funds that charge a sales load. Second, in many cases, the best funds (those with the best net returns) available in a particular arena of investing – for example, global or international funds – may all be load funds. So, again, don’t avoid purchasing shares in a mutual fund simply because it charges a load.

Which Type of Load is Preferable?

While we’re at it, one final question. When you do purchase a mutual fund (or funds) that charge a sales load, what type of load should you choose: a front end load (A share), or back end load (B or C shares)? While it may seem counter-intuitive, in the long run, the upfront load – A share – is the better one, financially. Why? Because the total expense ratio on front end loaded (A share) funds (the load, plus 12b1, management, and other fees charged by the fund) is much less than on back end loaded funds (B and C shares). And this is true with back end loaded funds even if you don’t sell your shares in the fund until after the back end load has disappeared.

PRIORITIZING YOUR SAVINGS -- 6-23-08

Every consumer knows they should save money. Unfortunately, many can't afford to, and, even when they can, they often don't know how to prioritize those savings. Here’s how:

First, as we noted in a previous blog, everyone (no matter how affluent or modest their financial situation) should have an "emergency fund", an amount of money equal to 5-6 months of your monthly costs (7-9 months if you're self-employed), in a safe, liquid account (such as a saving account, or money market mutual fund);

Second, once you have an emergency fund, you can, if want or need to, save for "short -term" investments, such as buying a home. If you're conservative, this money should be kept in the same place as your emergency fund; if you want to be a little less conservative, some of this money can be invested in "balanced" mutual funds. (For a list of suggested balanced mutual funds, see the BestMoneyinfo Mutual Fund list – you can find that list by clicking on the
Best Money info icon on the 969WTKK.com home page.)

Third, for most people, the rest of your savings should go towards retirement. Your goal is to save 20% of your gross family income (15% if your job guarantees you a pension) each year towards retirement, in a well-diversified portfolio of mutual funds. (Of course, this is a goal that people should strive for, but many consumers will not be able to afford. If not, that doesn't mean, however, that you’re destined to be destitute in retirement. Moreover, if they have to start saving later in life, such is a perfect example of "better late than never".

Finally, we can’t stress the following enough: while it may seem harsh, parents need to recognize that, given the respective costs of retirement and college education today, they cannot afford to save for their children's college education (other than gifts given to and money earned by their kids) unless they (the parents) are saving 20% of their annual family income (15% if they’re guaranteed a pension) towards their retirement each year.

SAVING FOR RETIRMENT – 6-14-08

There are a number of financial rules of thumb that we repeat time and again on “The Money Show”, but one especially bears repeating, namely,

-- Your goal should be to save 20% or your gross yearly income towards retirement each year (15% if you’re in a job that guarantees you a pension). The reality for most people, however, is that in most (if not all) years, this goal is not attainable. Does this mean you shouldn’t bother saving for retirement at all?

-- Of course not. Nor does mean that you’re destined to be destitute once your reach retirement (or that you’ll have to keep working until age 100). Instead, it means that you should try and save as much as you possibly can. (And, remember, for most, in order to save enough (or as much as possible) towards retirement, that means you won’t be able to save anything – or, at most, very little – towards your kids’ college education. A harsh reality, yes – but again, for most, a reality nonetheless.)

-- How should you invest those monies? Most preferably, in a well diversified portfolio of mutual funds, first by maxing out your 401(k), 403(b) or other work offered retirement plan (or, if you’re self employed, by starting and investing in your own retirement plan – such as a SEP or Simple IRA.). Next, if you qualify (and still have money to save), investing in a Roth IRA. Finally, if you still have money to save, investing in mutual funds outside of a retirement plan or IRA, but which you “earmark” for retirement. These “earmarked” funds should compliment the diversification of funds you’ve invested in in your work offered retirement plan(s) and/or your IRA(s). (For a list of suggested mutual funds from which you can develop a well-diversified portfolio, see the BestMoneyinfo Mutual Fund list—you can find that site by clicking on the Best Money info icon on the 969WTKK.com home page. You can also find more information in general about saving for retirement on the BestMoneyinfo site, and in the BestMoneyinfo e-book.)

SHOULD YOU TRADE IN YOUR VEHICLE FOR BETTER GAS MILEAGE? -- (6-9-08)

With gas prices at $4 a gallon and no decrease in sight, more and more consumers are considering trading in their vehicles (especially if they own a gas guzzling truck or SUV), for smaller, more gas efficient vehicles.

But financially, is this a good idea? Generally not. Why? Because in most cases, the cost of trading in a still viable vehicle for a smaller, more gas efficient one is not offset by the savings realized in fuel costs.

What should you look at when considering trading for a smaller, more gas efficient vehicle?

· Most importantly, decide whether your current vehicle is still “viable”.
· What constitutes a viable vehicle? One that is safe, reliable, and does not “nickel
and dime you to death” with the need for constant repairs. And, indeed, most
vehicles today should remain viable for at least 100,000 miles (and, many, 150,000 miles
or more). Which means, most people should get at least 5 or 6, and often 7, 8, 9 or possibly
more good years out of their vehicle. And, again, as long as your vehicle is still viable,
financially, your best bet is to keep and run it until it no longer is viable, high gas prices or
not.

OK. What if your vehicle is still viable, but its getting “long in the tooth”, and you know that you’ll likely have to trade it in within the next year, 2 or 3? In this situation, is it worth trading for a more gas efficient vehicle “early” so as to save on fuel costs? Here, there are two basic factors to consider:

· How many miles do you drive each year? If you don’t drive at least 15,000 –
20,000 per year, any savings in fuel costs on the more gas efficient replacement vehicle in
most cases won’t cover the monies you’ll lose by trading in a viable vehicle early.
· How much do you owe on your current vehicle compared to how much its
worth? Bottom line – if you owe more on your current vehicle than its worth in trade
(i.e. – “upside down on your car loan”, as many people are) there is virtually no way that
the savings on fuel costs on a more gas efficient vehicle will offset the loss (and, in many
such cases, a big loss) that you’ll take when you sell or trade in your current vehicle early.

Finally, what if you really do have to replace your current vehicle because it’s no longer viable, or you have to buy a vehicle because you currently don’t have one? Here, while it should not be the only factor you weigh in deciding on what new (or, better yet, a slightly used vehicle, or a “new” vehicle that is last year’s model but still left over on a dealer’s lot) to buy, the fuel efficiency of the vehicle you choose is one of the factors to consider.

However, even in these situations, be careful. Many people, when looking for gas efficient vehicles these days, are gravitating towards hybrids, which are designed to be very fuel-efficient. The problem is, hybrids generally cost 2, 3, or even $4,000 more than a similar, non-hybrid vehicle. And, once again, unless you drive a lot of miles each year, its unlikely the fuel savings from the hybrid will make up for the higher cost you pay up front for the vehicle.

WHAT TO DO WITH YOU RETIREMENT SAVINGS IN TODAY’S DIFFICULT ECONOMIC TIMES -- 6-2-08

Here’s a stark reality. In times of economic stress and uncertainty like we’re experiencing today, most people have a burning desire to do, with their retirement savings (i.e. long term savings – at least 5 years) exactly what they shouldn’t do. What’s that? A) pull their retirement portfolio (hopefully, a well diversified group of mutual funds) out of the stock market; B) place these savings in a safe haven – such as cash reserves, treasury bonds (or, in extreme cases, under their mattress), and then, C) refuse to invest these savings back into the market until the market has ‘hit bottom.’

What’s the problem with this practice? The overwhelming majority of investors, do not know when the market has “hit bottom.” The result? By the time you figure out it has hit bottom, the market has already begun and made a large portion of its recovery; however, your retirement investments, sitting on the sidelines in “safe” investments” will (by the time you’ve figured it out) miss a large portion (and, in some cases, a very large portion) of the recovery.

So, what should you do with your retirement (i.e. – long term – 5 years or more) savings during difficult economic times like these? Exactly the same thing you should do during mediocre or good economic times: Check your retirement savings once (or twice, at most) per year to be sure they are invested in a well-diversified portfolio of mutual funds (if you’re not sure where to start, check the BestMoneyinfo Mutual Fund List – click on the “Best Money info” icon on this page to access – and then, do nothing!

And, if you find that hard to do, remember this. The only time you gain or lose on your investments is when you cash those investments in. So, since retirement investments are generally long-term investments (which means you won’t be cashing them in for a long period of time, during which time the portfolio, if well invested, will likely fully recover from any downturn and then continue to grow), in actuality, you really haven’t lost anything.

GREENSPAN, THE MORTGAGE MELTDOWN, AND GLOATING – 5-27-08

Generally, we don’t like to gloat too much here. However, for years on “The Money Show”, you’ve heard us say that Fed head Alan Greenspan was not the so-called great economic “Maestro” most everyone else seemed to think he was, and in general, was not doing a good job at all. Well, it now appears others are starting to see the light.

At a recent forum at Suffolk University Law School in Boston, U.S. Representative Barney Frank (as reported in the Tuesday, May 20th edition of the Boston Herald) had the following tidbits to say about Mr. Greenspan and the mortgage industry/credit meltdown:

· “I believe that if the Fed under Alan Greenspan had issued the regulations that are now being promulgated, we would have much less of a crisis.”
· “To Greenspan, you had two choices – (raise) interest rates drastically and take down the whole economy in the process, or let (market excess) go on.”
· “Congress gave Greenspan [under legislation passed in 1994] the authority to regulate mortgages – but he wouldn’t do it…He would say ‘Oh, the market knows better.’ Well, the market clearly didn’t [Respresenative Frank's empahsis] know better.”
· Additionally, representative Frank contrasted Greenspan to current Fed Head Ben Bernake, who has begun and plans to continue to use the 1994 law to regulate the mortgage industry. As Representative Frank put it, “Bernanke is kind of the ‘un-Greeenspan'.”

In short, what Representative Frank said (and, it appears, others are beginning to realize) about Alan Greenspan in general and the regulation of the mortgage industry in particular is what we’ve been saying about Alan Greenspan on “The Money Show” for years.

Alright. Maybe we do like to gloat, just a little.

PAYING DOWN YOUR MORTGAGE EARLY – 5-18-08

Recently, a listener posed this question: a well known, and usually very objective consumer magazine suggested that consumers who find they have ‘extra cash’ each month would be much better off (i.e. – would ultimately get a much better return) if they invested that money rather than using it to “pay down” their mortgage. At first glance, such would seem to be good advice. Unfortunately, such advice is too general to be considered a hard and fast financial rule of thumb. Why?

Two main reasons. It’s true, if you invest your ‘extra cash’ in a good investment vehicle that gives you a better return than your mortgage rate, than the advice is sound. However, what if you purchase a bad investment vehicle (always a possibility, and not one you can definitively know beforehand…indeed, one never knows whether an investment is good until one has owned it for a period – usually a long period – of time) Or, what if you purchase a “good” investment vehicle which – if it truly is safe – will have a relatively low interest rate (for example, a short term treasury bond). In either of those two cases, paying down your mortgage with your ‘extra’ cash would end up being a better (from a net return perspective) idea.

However, while extremely important, net return is not the only reason to choose an investment vehicle or strategy. What the consumer magazine doesn't take into consideration with this ‘advice’ is the psychological effect (which should not be neglected out of hand) that having the mortgage on one's home paid off has upon many people (i.e. albeit conservative, the “comforting” effect of that knowing you’ll own your home free and clear sooner gives to many home owners.)

The bottom line point, therefore, is two-fold. First, as we’ve noted many times, with very few exceptions (for the exceptions, see the BestMoneyinfo website), financial rules of thumb usually do not present sound advice. Second, when deciding when and where to invest one’s money, you should always start with a potential net return analysis (namely – which investment(s) will, or are most likely to, bring you the best net return, with the lowest – or, at least, an acceptable – degree of risk). However, when finalizing your decision(s) as to where to invest your money, your peace of mind (basically, your risk tolerance) should also be taken into consideration.

ECONOMISTS'S PREDICTIONS -- 512-08

If you’re a regular listener to The Money Show, you’ve probably deduced that we don’t put a lot of stock in what economists and economic pundits have to say about the present, and even less in what the predictions they make for the future. Here’s a perfect example why.

As reported in the May 9th edition of the Boston Herald, Wellesley College Economics Professor and “housing market guru” Karl Case, despite the doom and gloom most continue to predict re: the residential housing market, sees strong signs that the decline in the housing market has hit bottom and is ready to turn upward. Mr. Case (who is the “Case” in the “Standard and Poor’s/Case-Shiller home price index” – an oft-cited monthly measure of the residential housing market), bases his prediction on statistical evidence which illustrates that, over the past 30 years, every time a particular measure of housing “starts” drops below 1 million (which it did, recently), this has signaled the beginning of a turnaround in the housing market.

Now, we certainly hope Professor Case is correct. However, as we’ve stated many times before, as Mark Twain originally said, there are lies, damn lies, and then there are statistics. But, that’s not the point here. Rather, the point is that, recently, a well known Yale economist predicted that, not only isn’t the housing market about to turn around, but rather, price declines in home values in this downturn may be worse than those experienced during the Great Depression. Who exactly is the economist who made this particular prediction? Robert Shiller, who happens to be Karl Cases’s business partner and the “Shiller” of the “Standard and Poor’s/Case-Shiller home price index”.

What’s the point? Actually, there are two. First, when it comes to economists and economic pundits, you can always find one (and usually, many) predicting one of the numerous possible economic occurrences along a 180-degree spectrum that could occur in the future. Second, as to the general record of correctness of the predictions economists make, the old saying, “Hindsight is the only 20-20 vision”, holds true.

HOW SHOULD YOU USE YOUR REBATE CHECK?– 5-5-08

Shameless plug – a business reporter from the “Concord Monitor” recently called. The question they asked was simple – how should one spend their “stimulus package” rebate check. Thirty minutes later, the answer was completed.

The point? First, despite what the Bush administration hopes, most consumers should not be spending their rebate checks on disposable consumer items (and thus, the so-called stimulus package won’t do too much stimulating. The other part of the stimulus package – mostly overlooked by the media – are some of the tax breaks it gives to industry, which could have a small stimulus effect. But that’s another story.)

So, second, what should you do with your stimulus package check (which, really, is simply a tax rebate.) As with virtually all money related matters, it depends on your specific situation. However, following are three possible options that likely are good ideas for a large portion of the population:

· Pay down high interest debt. If you’ve got credit card or other consumer debt with very high interest rates (10% or more), pay down the debt.

· Fund an Emergency Fund. If you don’t have, or have a very small emergency fund (see the “Emergency Fund” blog or the Emergency Fund section of the BestMoneyinfo website for an explanation of Emergency Funds), start one or add to your current Emergency Fund with your rebate check.

· Fund a Roth IRA. If you max out your 401K, 403B, or other tax-deductible retirement plan, and if you qualify, fund a Roth IRA either for 2008, or – if you’ve filed an extension, but haven’t filed your final 2007 tax return – you can still fund a Roth IRA for 2007.

Of course, as President Bush himself recently admitted (more than likely, reluctantly), consumers can use their rebate checks to offset the rising costs of necessary consumer goods, such as gas (and fuel in general) and food. Such use of rebate checks will not have the originally desired effect of stimulating the economy (but, indeed, the Bush Administration and Congress’s stated hope that this tax rebate would make a serious dent in and greatly stimulate the current lagging economy was always a pipe dream.) However, if, as suggested here that most consumers end up using their rebate check for (if they can afford to) one of the three options listed above, or (if they can’t afford any of those options) use the check simply to help make ends meet, than, unlike so many things that the current administration and Congress do that is bad, this piece of legislation can be counted as a good thing.

UPDATE TO “THE ONGOING MORTGAGE/CREDIT/REAL ESTATE MESS” -- 4-30-08

In a recent blog, we talked about how the mortgage industry’s reaction to the credit crunch mess is to impose policies that only make matters worse. The illustration given (from a recent Kenneth Harney column that appeared in the Boston Sunday Herald) noted how “…one major private mortgage insurance company has now designated over hundreds of geographic sections (by Zip Code) around the country as “declining market” areas, and stated that they will no longer sell private mortgage insurance coverage on condominium units in these areas. (This ‘ban’ is irrespective of the prospective condo buyer’s credit score or financial assets.)”

That blog further noted that “…this ban will almost certainly result in a further decrease in both the selling price of and, even more importantly, the number of condo units sold in these “banned” geographic areas (areas that are almost assuredly already experiencing great difficulty in their real estate markets).”

Well, not surprisingly, many others, especially consumer groups, have noticed the harmful effects of such ‘geographic bans’, and are trying to get such bans changed. As Harney points out in a follow up column (Boston Herald, 4-27-08):

“…a broad-scale reaction to declining real estate market policies [such as these ‘geographic bans’] is taking shape…Consumer and industry groups are demanding that lenders and investors abandon or modify [these] approaches.”

So far, in response, those in the mortgage industry are reacting by listening to the consumer complaints and considering making changes to their policies. But, as to any concrete changes – so far, none (and, we hasten to add, unfortunately, not surprisingly).

As Harney concludes, so long as the mortgage industry designate certain real estate markets as “declining market” areas:

“[If] you own a property or plan to buy in any of [these areas], expect [that buyers in such areas will have to] pay extra…for a loan…and [will likely encounter] a more limited menu of loan options. That’s the case even if the property is actually gaining in market value, not depreciating, and sales in [the] neighborhood are on the upswing.”

Which once again leads us to the same conclusion we’ve noted time and again on these pages and on “The Money Show”: As distasteful as government regulation is, one industry that absolutely cries out for government regulation is the mortgage industry.

BTMW ("By The Money Way") – “Die Hard”, “Wall Street” and today’s economy -- 4-28-06

Was watching “Die Hard” on one of the cable TV networks the other day (a movie which, BTW, is 1) a classic, and 2) has been out for 20 years…so, if you haven’t seen it yet, WHAT are you waiting for?!!!!). Anyhow during a commercial break, the network had a preview clip of the movie “Wall Street”. And suddenly, as they say, “Light dawned over marble head”. Mix the personalities and attitudes of the Ellis character in “Die Hard” with the Gordon Gecko character in “Wall Street”, and you get a very good idea of the personality/attitude of much too large a portion of those who ran and/or worked in the mortgage/investment banking industry and on Wall Street over the past decade or so. And, when looked at in that light, it’s not at all surprising that the economy in general, and the credit ‘industry’ in particular, are in the very difficult straits they’re in today.

THE ONGOING MORTGAGE/CREDIT/REAL ESTATE MESS -- 4-26-08

We’ve given the example, relative to the current state of the mortgage industry, of a pendulum, having swung way too far to one side, now swinging back way too far to the other side, causing us all to suffer until it swings back to the middle, where it belongs.

Well, here’s a starker analogy. Think of the most of the players in the mortgage industry, over the past number of years, as a person who has gotten – really fat – 300-lbs-so-overweight-their-health-is-severely-threatened-fat– by eating everything in its sight, good food and bad food (i.e. an industry that has given loans to those who rightfully qualified for them AND to those who had no business getting a mortgage, and at the same time, giving good loans (such as 30-yr. Amortization, Fixed rate, full income verification loans) and, frankly, terrible loans (2-year adjustable rate, interest only, no income verification loans). Now, having looked (or, rather, been forced to look), in the mirror, and realizing it (the industry) is “300lbs overweight”, (i.e. stuck with all these terrible, and, in every growing number, “non-performing” loans, what does it, the mortgage industry, do? Go on a healthy, long term, diet (i.e. go back to the sensible
risk evaluation/risk formulas that served it well for (a least, for the most part) decades? NO!! Of course not. Rather, the mortgage industry has gone on a crash diet, eating less and less, getting closer and close to a fast, starving themselves (and, in the process, the real estate market) nearly to death (i.e. denying loans to those who rightfully don’t and shouldn’t qualify for loans, AS WELL AS, in FAR too many cases, denying loans to those who rightfully should qualify for a mortgage.

This near fast the mortgage industry has put itself on is manifesting itself in numerous ways. One of the most insidious was recently explained by Kenneth R.Harney in his syndicated real estate/consumer column “The Nation’s Housing”. (An aside – despite the fact that they make a big mistake by burying Kenneth Harney’s column in their real Sunday edition’s real estate classified section, nonetheless, Harney’s column alone is reason enough to purchase the Boston Sunday Herald.) As Harney explains in a recent column, many mortgage companies are making the acquisition of financing for the purchase of condominium units much more difficult. One example: one major private mortgage insurance company has now designated over hundreds of geographic sections (by Zip Code) around the country as “declining market” areas, and stated that they will no longer sell private mortgage insurance coverage on condominium units in these areas. (This ‘ban’ is irrespective of the prospective condo buyer’s credit score or financial assets.) Given that private mortgage insurance is a requirement on nearly all mortgages where the amount financed is above 80% of the property’s appraised value, the result of this ban will almost certainly result in a further decrease in both the selling price of and, even more importantly, the number of condo units sold in these “banned” geographic areas (areas that are almost assuredly already experiencing great difficulty in their real estate markets).

Contrast the above ban with, for example, the private mortgage insurance program offered by MassHousing, the quasi public mortgage institution that offers a mortgage insurance program which not only covers a property’s equity but also pays up to six months of mortgage payments for covered home owners who lose their job) and one can see how (not all, but) the bulk of the private mortgage industry – in its overreaction to the mortgage crises/fiasco is, rather than trying to correct the mistakes it made (which, to an extremely large extent, created the current mortgage/credit/real estate mess in the first place), is acting in ways that only make a bad situation MUCH worse.

What then, is the answer? At the risk of sounding like a broken record, while not a big fan at all of any kind of government regulation, in this instance, the bulk of the companies in the mortgage industry and their track record over the last five-plus years CRIES OUT for renewed and ongoing regulation. And, while such regulation WILL NOT cure this mess, it could, if done properly (admittedly, a big if whenever Congress is involved) prevent the current mess from getting worse, and prevent such a mess from happening again.

EMERGENCY, EMERGENCY! (4-23-08)

Despite what much of the mainstream media would have you believe, the sky is not falling, the value of your home has not depreciated to zero, and the economy is not about to enter into the second coming of the Great Depression of the 1930’s. That said, it comes as news to no one that the economy is definitely in a down cycle. Whether we are “statistically” in a recession is unclear, and, frankly, really only important to economists. What is important is that times are tough for many, and, while there are signs that things may turn for the better soon, its always a good practice to ‘hope for the best, plan for the worst’. Towards that end, now’s a very good time to review a number of questions about emergency funds.

First – What is an emergency fund? An emergency fund is, as the name suggests, is an amount of money that you set aside for those times when your monthly cash flow is either stretched – due, for example, to an unexpected medical bill or home repair – or, temporarily stopped – due, for example, to a layoff.

How much should you keep in your emergency fund? Generally, you it should contain an amount equal to at least five to six months worth of your necessary living expenses (expenses you can’t decide not to pay – rent or mortgage, food, gas, insurance, heat, etc.) or eight to ten months of living expenses if you’re self-employed. So, for example, if your monthly living expenses equal $3,500, your emergency fund ideally should contain $17,500 – $21,000 ($28,000 – $35,000 if you’re self employed).

Where should your keep you emergency fund? Your emergency fund should be kept in a safe, liquid account that guarantees the full amount will be there and easily accessible if and when you need it.

What qualifies as a safe, liquid account? Savings or checking accounts covered by deposit insurance, or insured (either by the government, or by the large institution offering it) money market funds (for example a cash reserve account at one of the large brokerage houses.

A few final questions. Does a CD qualify as a “safe, liquid account”. Technically, no, since the money is not fully liquid. Should non-money market mutual funds and individual stocks be considered part of your emergency fund. NO! Why – because they are not fully liquid, and, much more importantly, they aren’t completely safe. Finally, can a home equity line of credit be considered an emergency fund? Again, NO! Why? To begin with, a home equity line is not savings at all, but a vehicle that gives you access to the equity in your home, equity which you only want to tap for “emergencies” as a last resort, and, as we’ve seen of late, access to equity that can quickly disappear (either because the value of – and thus the equity in – your home goes down, or, because, the home equity line is suspended (as more and more lenders are doing to home equity lines – even those of long time, very good borrowers – during the current ‘credit crunch’).

TAX FILING EXTENSIONS – 4-14-08

It’s April 14th, which means, its tax time. Hopefully, you’ve already filed your tax return. However, if you haven’t, and won’t have it done in time, you’re not fully out of luck. Both the IRS (federal) and (in Massachusetts) the Department of Revenue do allow taxpayers to file for an automatic, six-month extension to file their tax return. But, if you choose this route, there are a few things you should keep in mind.

Most importantly, both the federal and state extensions give you an automatic additional six months to file your tax return. They do not, however, give you any additional time to pay any taxes you still owe. Accordingly, if you owe (or think you owe) additional taxes for last tax year, the exact amount, if you know it, or, if you don’t, your best, good faith estimate of how much additional tax you owe should be sent along with your request for an extension to file your return. If you don’t, the IRS, DOR (or, depending on who and what you owe, both) will levy interest and, in some cases, penalties on the amount owed until that amount is paid.

Some additional points to keep in mind. In many cases, you can contribute monies to certain retirement plans – for example, a Roth IRA – for last tax year up until the time you file your final tax return. So, for example, if you qualified for a Roth IRA in 2007, but won’t have the monies to fund a Roth IRA (for tax year 2007) for another month or two, it would likely be in your best interest to file for an extension to file you return (paying, of course, any additional taxes owed) wait the month or two until you have the money, set up and fund a Roth IRA for 2007, and then file your final 2007 federal and state tax returns.

As for the extension forms themselves (and instructions for using and filing them) the federal extension with instructions (Form 4868) is available at the IRS website www.irs.gov/ , while the Massachusetts state extension form (Form M-4868, and instructions) is available at the DOR website www.taxsites.com/state.html#links .

Finally, remember that all tax related issues can be both complicated and confusing. Accordingly, if you have any questions or concerns regarding filing an extension to file your tax return (or, questions or concerns about any other tax related matter), it’s always best to seek and take the advice of an experienced CPA or tax attorney.