Posts Tagged Money

Found Money

No, I’m not talking about that “stimulus check”.  Nor do I mean those pennies, sometimes nickles or dimes, that you find spilled out of someone’s pocket in front of the 7/11.  I am talking about real found money.  You are going through the pockets of an old jacket, and there inside the inside vest pocket, folded up nice and neat, is a sort of crisp $50 bill.  A quick memory search reveals that a  couple of years or so ago, you don’t wear jackets that much, you put the bill there in anticipation of needing it to pay your share of some trip you and T were taking.  But that is all history now.

So what do I do with it?  Back in those spendthrift days, $50 was a night out dancing, or the movies for two, or dinner before a Laker game.  It was pocket money.  But that was before the plan.  And the monthly budget that developed from the plan.  I am semi-retired (more on that another time) and the plan is that T join me in that state as quickly as possible.  Hence the budget.

Budget for T

Monthly income less monthly expenses less minimal entertainment costs less coincidental repair or replacement expenses less automatic savings deduction to ING account and Ameritrade Save Yourself account less $10 pocket money = semi-retirement in three years.

Income stream = monthly paycheck + stoozed money market, CD, saving accounts, loan to the corportation interest earnings + off the book cash bonuses + 5 real estate rental property rents + part time real estate jobs.

Expenses = Share of  monthly rent + $25 towards weekly food + difference between monthly rental income and mortgage/insurance/repairs + medical bills for recent gall bladder surgery + ING savings + Save Yourself Ameritrade auto deduct + self-directed IRA + $ for occasional eat out/movie out/trip to casino out (more on this later too)

 So the first question is when should I share the news and let her decide about her half?  Because that’s the way it is now.  We share everything 50/50.  So now the question is what do I do with my $25?   Boy, I can tell you I am suddenly a lot less excited.  $25 is half a tank of gas, it’s a week worth of groceries, it’s my weekly expensed money, it’s the bill for two weeks worth of dry cleaning, it’s . . . not much in other words.  Wait I know where I can use it.  I’ll put into my newly formed freedom account, thanks JD.


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Financial Advice, pt. 7

Attacking the rich, maligning the poor, driving a wedge into the widening gap between the top and the bottom of the workforce, these are the topics of concern in The Trillion Dollar Meltdown’s penultimate chapter.

Chapter Seven: Winners and Losers

It is perhaps apt that this next to last chapter has this title since we have become a nation that lives and dies with the sports metaphor.  But just as the sports’ news has been dominated by spectacular betrayals of trust and honor so to has the world of finance.  Superstars, yes.  Superheroes, no.  What has become clear to the outside observer is that the last forty years have led us to a point where the idolization of the rich, and unfortunately their methods, is the major characteristic of our psychology.  Winning at any cost, walking away with it all, that is what we idolize.  We are number one in our admiration and acceptance of the rich and their apparent right to have it all.

So what if Blackstone guts Travelport of $4 billion while laying off 841workers.  We cheer as,

The private equity kings insist that they are management wizards, not financial engineers.  But, at least in its most recent phase, the numbers show that the private equity game, like subprime CDOs, is just another arbitrage on cheap money and rising asset markets. 

Billion dollar dividends to opportunistic takeover artists are just one wavelet in a long-term, and for many, increasingly dusturbing, tidal shift in American society – a widening disparity of wealth and income not seen since the Gilded Age.

Consider these wins:

  • “the top 1percent, or the top centile, who doubled their share of national cash income from 9 percent to 19 percent.
  • “the top one-hundreth of 1 percent, of fewer that 15,000 taxpayers, quadrupled their share to 3.6 percent of all taxable income.
  • “the average tax return, of those 15,000, reported $26 million of income in 2005, while the take for the entire group was $384 billion.

Seems fair to most conservatives apparently because they still claim that the poor through the government’s entitlement programs, and the middle class through tax-deferred savings, and the elderly’s social security and other retirement plans got more.  Only here are the facts of the matter according to Morris:

According to a 1999 Treasury study, 43 percent of the tax benefits from retirement savings programs went to the top tenth of households.  66 percent to the top fifth. and only 12 percent to the lower three-fifths.

Whiners and winners, that’s the net analysis.  Didn’t finish school, did your job get automated?  Well, that’s your lower class for you.  Didn’t understand that subprime mortgage contract, well that’s too bad, isn’t it?

There is no conspiracy against the poor and the middle class.  It’s more the inevitable outcome of our current money-driven political system combined with “the disposition to admire, and almost worship, the rich and the powerful,” which Adam Smith fingered as :”the great and most universal cause of corruption of our moral sentiments.”

Meanwhile, consider the drive to privatize.  Sallie Mae is an example.  Designed to be a government program to assist students in furthering their education has instead become a private company that  “was fully privatized in 2004, a year in which it made an astonishing 37 percent after-tax profit.”  See, say the free marketeers, that’s what business is all about.  When the government ran it, it just helped thousands of student learn their way to success.  But when it became a private company, and still retained the aspects of governmental protection from state usury laws, it made money.  As a matter of fact, it even spun off a separate SLM business line that racked up $800 million in debt management fees in 2005.  Imagine that.  The rich, CEO Albert Lord’s compensation package in 2003 was 12.7 million with options by 2005 up to 189 million, get richer.  While the poor (students) and the middle class (their parents) incomes stay flat.

We are apparently developing three kinds of services in this country.  The service industries that provide jobs for the lower class, the government and industry service which provides jobs for the middle class, and the financial services which provides wealth and leisure and privilege for the upper class.  Need proof, just look at Countrywide or Bear Stearns or Cit group or the K Street Project.  When they make money they are private and successful models for how to work the free market.  When they fail, the government, through the Fed or through pressure of other lenders/banks, bails them out.  Socialized capitalism is what we have.

The great consolidations of banking and investment banking into financial mega-players has proliferated armies of mega-income executives  Besides driving cash income shares toward the top of the payroll pyramid, it has greatly enhanced the political clout of Wall Street – as evidenced by steady cuts in taxes on capital gains and dividends and the persisitence of absurd tax advantages for private equity funds.

 It takes a certain kind of confidence, some would say faith, to believe that we can come out of this cycle with our overall system still intact.  Reading about the power of these forces and having watched what has happened even though the Democrats have assumed the political power for now, does not argue for success.  Those armies of execs, those walls of money strategies, those free market confidence games are not just going to go away.  America, you and I on the bottom may just have to do something about the top.

Next up:  Chapter Eight: Recovering the Balance

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Financial Advice, pt. 5

So here we are, halfway through, Charles R. Morris’s The Trillion Dollar Meltdown and it’s Friday.  Last night T and I hosted our monthly Cashflow 101 game and get together for about 15 people.  We had a guest speaker from the real estate world talk about lease purchase options.  I could not help but hear echoes and see the shadows of Morris’s book in his presentation.  Deals within deals, make a million using OPM, buy low and use the margin.  It almost made me eager to get back to our review.

Chapter Five:  A Tsunami of Dollars

Joel Grey as the stage manager in Cabaret comes to mind.  Money, money, money . . .  As you all probably know, everyone else’s currency is tied to the U.S. dollar.  How could you not know, since every financial report these days is headlined with a new comparison of how badly it’s doing.  The dollar is falling, the dollar is falling . . .  Ah well, what are we to do.  

After the meeting at Bretton Woods following WW II, “The value of the dollar, …, was fixed by a long standing commitment to redeem dollars for gold at the rate of $35 per ounce.  Virtually all prices in international trade were set in dollars.”  An agreement that lasted until 1971, when Nixon removed the US from the gold standard and we entered our current Fiat money system.   

The Fed has two ways it can affect our money.  Interest rates can be changed and/or the supply of money can be increased.  Even my untutored financial mind can see that if a government, the one that sets the standard BTW, can flood the marketplace with untethered money bad things can happen.  As Morris points out, a country’s finances can be seen “through the status of its current account, a kind of international profit and loss statement.”  Money travels in via export sales, and out via import expenses.  The negative difference between the two amounts is called a deficit.  In the US,”The 2006 trade dificit was over $750 billion, and the total current account deficit topped $800 billion.  The accumulated deficit for 2000 to 2006 is about $4 trillion.”   

Think of it this way.  If you take a dollar and you devide it into 10 equal parts and then you call each new part a dollar, you may have more dollars but clearly they are devalued quantities.  When your economy’s GDP  is growing, then expanding dollar availability via credit lines or new dollars is one thing.  But when the economy is in decline, a deficit, or recession it is quite another.  And since, the dollar is the comparison standard for the rest of the world, so to speak, our actions pull the rest like the winning side in a tug of war towards a deep and muddy hole.  Yet, that is where we find ourselves since Bretton Woods II.  Our present Fed chair, Ben Bernanke,  took this position:

 Everything is the result of market forces shaping events toward a high-efficiency outcome.  The Fed’s free-money policy was predetermined by the tidal wave of foreign savings.   Alan Greenspan was an agent, not an independant actor.  America’s housing and debt binge was made in China, and for large and good purposes.


On closer examination, the central premise of the BW2 hypothesis, that large foreign dollar-holders have no choice in the matter, is simply not true; indeed holding dollars is increasingly against their interests.

Morris’s grasp of the global marketplace must be trusted as he continues to discuss Russia’s, OPE C’s, Asia’s, and especially, China’s dollar-based economical development away from dollar dependence and toward a basket of currencies.

The rise of the Sovereign Wealth Funds was inevitable.  What country with enormous currency reserves wouldn’t want one?  “An SWF is a private investment fund under the broad control of a government but almost always outside of the official finance apparatus, free of the investment limitations that apply to official reserves.”  At this printing, “At least twenty-five surplus countries already have SWFs or are in the process of setting them up.”  If you are wondering where America is borrowing its money from these days you need look no further.

In this chapter, Morris returns to the main thesis of the book, unregulated free markets lead to a prideful fall.  This time with the facts and figures to back it up.

All in all, it’s hard to imagine a worse outcome – the United States, the “hyperpower,” the global leader in the efficiency of its markets and the productivity of its businesses and workers, hopelessly in hock to some of the world’s most unsavory regimes.  But that’s where a quarter-century of diligent sacrifice to the gods of the free market has brought us.

I have to agree with him.  At this point, “It’s a disgrace.”

Next up: The Great Unwinding

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Cash and Carry

An old phrase that makes me reminisce for the day when I worked for tips and so could measure my worth by what I had in my pocket at the end of the day.  But a quick search of the definition for that term shows me that there is more to it than meets the eye.  For instance, in the stock market the term refers to how you can connect  two trades through arbitrage.  But historically, the term goes back to a time of war and the very real truth that we have always been a nation divided on the question of making war.  They say if you want to know why something happens, follow the money.

Meanwhile, back to the topic.  I remember this term because at one time we did all our grocery shopping at a local store called the Cash and Carry.  So my financial education trained me to think in terms of real money whenever I wanted to buy something.  Personally, both T and I have developed a set aside system (hah!) for this purpose.  I use a coffee can; she uses a quart jar.  All loose change, extra money from side jobs, refunds, rebates; they all end up there waiting for the next purchase of something she or I really need or really, really want.  Yes, I confess.  I sometimes buy CDs that only have two or three songs worth listening to on them.  But that’s because I am still a neanderthal as far as techtronics are involved.  No Ipod, MP3, no downloading for me.  That, and the fact that I really don’t want to spend a lot on extra stuff just in case it might entertain me.

Money is like water in the sense that as much as we’d like to keep it in hand that’s how much it wants to leak away.

In our business, we have learned the art of stoozing.  We get a lot of 0% interest credit card offers primarily because we always pay  off our active cards within the month or way ahead of time.  Our FICO is 780.  So when we are planning an equipment purchase or an upgrade or we just need funds for operational reasons, we pick an offer and draw what we need and since there is no interest we repay with cash the credit amount borrowed from the ongoing business income.  It’s our own version of cash and carry.

Funny, isn’t it?  How it started out that pay as you go was the strategy for staying debt free and now it’s pay as much as your able to and carry the rest for later.

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Went out dancing

last night with my swing dance buddies and as usual it was time well spent.  The music was live blues and swing by a group called Buick Wilson.  Smooth lead guitar, strong bass work, great salty-voiced vocals, and the best part – two one hour sets of nothing but swing, East Coast, West Coast, and One Step with an occasional slow dance to cool us all down.  It’s a tradition that’s been going on here in the North of San Diego county for 35 years and counting.  It started out as a Friday night Happy Hour back in the 80’s, low cost drinks no cover no minimum.  Then the club, the world reknown, Bellyup Tavern, added a Wednesday edition.  I can’t tell you how easy that made the work week.  It was like having two weekends a week.  Great for your conditioning too.  Since dancers don’t drink too much and serious ones like my crowd try to dance every dance, you can’t help but burn off the lbs and develop real staying power.

As I said it has been going on for a long, long time through many different variations.  Now we pay $5 at the door and the drinks are regular priced except from the well.  But they put out pitchers of water and glasses of  ice at a pour your own spot on the bar so it is still by far the cheapest date in town.  Not that my crowd is really into the dating thing.  It’s more of a meeting place for old friends and new faces but the focus is on the dancing first and the meeting mostly second.  We also get to share the news about where else the bands we like are currently playing, like The Coyote Grill up in Carlsbad or Tio Leos down in Old Town San Diego or the Elks in Encinitas.  I guess you could say we have by happenstance formed a real community that shares concerns: how can we support a band we like or what else can we do to convince the club owners to keep using live bands.  The thing is that it is all rather unplanned.  The original BUT owned by Dave Hodges was a neighborhood bar with a small dance floor and no stage.  We went there to try out the stuff we learned in our dance classes and found out that it was a comfortable place to be.  Then as times changed, ownership too, we changed into a group concerned that we not lose this valuable experience to the vagaries of time and money.  Whenever it was needed somehow the word got spread and the dancers as we’ve come to be known in the community at large were there.

So as I said, I went out dancing with my swing dance buddies last night and it was still great.


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More about habits – Going Paperless

The last couple of days have been interesting for their lack of plan.  Not a habit I like.  Aside from the fact that I want to post regularly, I, also, want to stay on top of our budget.  But a life long habit of mine is to organize my bills around a once a month schedule.  Lately though, since I am the company book keeper and we have two companies, the corp for concessions and the sole proprietorship for the real estate, plus I also handle T’s and my monthly bills, I have been running into timing problems, especially as we have gone more and more paperless.

On the one hand the paperless path is quite good.  The bills are deducted directly from the correct account and as each account is backed up by its own savings account there is rarely a problem with funds being short.  But that being said, we have six checking accounts to keep straight and the bills are not all set up to come due together.  So going paperless means that I have to add another habit to the process of doing the bills.  Though I am not writing checks as often, I need to remember to enter the electronic debits into each check book’s register.  I have already developed the habit of checking the accounts online to verify when and which checks are in.  This, of course, is a holdover from the days when with just one account I would find myself overdrawn.  That bad habit took years to overcome.

But then I find that that is the comforting thing about developing good habits, they bring with them a sense of calm and direction.  T always seems amazed that she can now ask me any question about the state of our accounts and I can give her an answer immediately. 

The underlying reason for all this habit forming is really simple though.  A set of good and regular habits lets things get done in an orderly fashion and leaves me more time for myself.  My good friend and dance guru, Skippy Blair, says that in order to learn something you first have to hear it at least seven times.  But forming a habit takes more than that.  First of all sometimes the habit forms by itself.  You are doing a task repeatedly.  Most human beings tend to refine a repeated action until it fits them well.  Unconscious habits, behavior in response to something you don’t even understand as a stimulus, are common to us all.

You discover you are wearing a combination of green colors several times a week.  What is it about the color that has caused this habit?  You might never know more than the realization that it’s become a habit and it’s comforting.  Or at work, you are given a task that is new and as you are figuring it out, the things that work to get it done become a habit. You might never know you have formed the habit until you try to show or explain to someone else how to do the task.

Consciously forming a habit is different.  It involves repetition and recognition.  Doing the same thing exactly when you are thinking about it can be difficult but it is accomplishable.  That’s where the recognition comes in.  Which is funny when you think about it because once it becomes a habit, it’s something you do without thinking.

One last thing I have learned about habits.  Replacing them or breaking them is really difficult so it has become my habit to form new habits instead.  And I am always open to new ways to learn the old tricks, so any suggestions would be appreciated.

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Some say yea, some say nay,

We have reached one of those defining moments.  Questions abound as to what is the solution to take to deal with the credit crisis.  On the one hand, the government in power apparently believes in the approach of patching the tire.  Soon or later they guess we will get to a gas station and we can buy a new one and then continue on our trip to the free market future.  Meanwhile, they want to throw in some new rules for the drivers, read lenders here, and the passengers, read you and I and all the rest of the taxpayers here.

The government not in power, has some suggestions too.  If you are going to patch anything, they say, it ought to be the consuming, bankrupt home owning, middle class wage earning, and health care without ordinary person.

Then there are the people not in power, bloggers just like you or I, who have some ideas too.  Hellasious at Sudden Debt says don’t fix anything while Jon Taplin at taplinsblog say we need to address the budget with a view towards a new Federalism.

Where we will be tomorrow no one really knows.  Really.  But I am open to suggestions if you care to make them.

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