Better than nothing

Eat your veggie waste; it's good for you

2011-11-14T18:11:00.001-08:00

Supposedly, the French are healthier than Americans despite eating diets higher in fat, cigarettes, and booze. This is the so-called French paradox, and led to research that discovered health benefits from drinking red wine. Yet I sometimes wonder if the French paradox is likelier due to how French cooking makes use of seemingly every last scrap of a plant or animal. Bone marrow is a fatty delicacy, while the bone solids make lovely broth and scraps of vegetables can be tied into a garni, simmered to infuse their flavor into a dish, and then removed.

When we grew broccoli in our garden, they produced so may huge leaves (and our cabbage & bok choy crop performed so poorly) that we began harvesting the broccoli greens to use in place of cabbage & bok choy. We froze the broccoli stalks to feed to the dog, until my beloved found a recipe for broccoli mimolet (pureed soup) in an old French cookbook. Fresh-from-the-garden veggies are especially yummy and, if you compost, they add almost nothing to your weekly trash load.

Indeed, many of the food scraps we discard are actually rather nutritious. December's Oprah Magazine highlights 5. Celery tops, for example, have more magnesium & calcium than celery stalks. Onion skins are rich in atioxidants (particularly quercetin). And broccoli leaves are loaded with Vitamin A.
Looks like my ultimate french cookbook was a healthy eating guide, too.

WSJ: The Dog Maxed Out My Credit Card: Pet car costs

2011-11-01T23:37:00.000-07:00

From a purely dispassionate perspective, dogs are expensive to replace. It's not the $25 adoption fee (or more, depending where you live); it's the well-puppy visits, spaying, neutering, and, more importantly, the training. I have an espresso machine that knows exactly how I like my latte, how hot, how fine to grind the beans, how long to steam the milk. I paid almost $400 to repair it.

I have a dog who knows I don't like him to pee in the house, and he doesn't. He's trained to travel, so he knows he can't run up to strangers (they may not like dogs), he can't bark in the hotel room, and he'll have to spend some time in his crate peacefully. The basic obedience stuff costs about $150+, and several months of regular classes and practice. What's an hour of your time worth? You can hire somebody to do all the training (no matter what, you've got to spend some time practicing with the dog, though), starting around $600. The basic obedience "program" is relatively cheap.

If we choose to think of a dog as a replaceable commodity, we have to recognize the customization that makes each product unique. My dog knows that a closed office door means "be quiet, dad's on a conference call." He knows when "down" also means "leave me alone" and when it means "if you bring me your stuffed animal and lean against my leg, I'll find it adorable and companionable." No guarantees than a replacement model will even have the hardware for that program. This one rides quietly in the car - no worries that he'll freak out and jump under the clutch pedal like the last one (eventually trained away, but it took 10 years and buying a convertible before she was comfortable riding in the car). The puppy years cost one speaker wire and a whole lot of vigilance that I, honestly, don't have time for today. He stalked my favorite (and most expensive) pair of shoes and seemed to take it to heart when I told him I would use his hide to make a replacement. A new dog, who knows if the message would sink in before or after the $(20? 50? 150? 450?) shoe replacement? After 7 years together, I know for a fact that, if he ever did snap at someone, he'd be sick, because he hasn't got an aggressive bone in his body. I might find a well-trained, mellow, adult dog in a shelter, at minimal adoption cost, but that dog would not be a replacement. He'd just be a different dog. Maybe better. Maybe worse. Probably just different. A mysterious new friend to learn about and bond with.

It's like marriage or dating or step-parents. The subsequent ones aren't replacements. They're just different experiences. And, like human relationships, you can't really give a new experience its due unless you know in your heart that you did right in the last one. Because pets aren't commodities; they are unique exemplars (like art?) with mammalian brains. They learn from us and train us. They emit chemical signals and read our chemical signals. They communicate with their furry little faces, and they read our faces and body language. They know us, and, through knowing them, we know ourselves. We know if we're generous, loving, caring beings. We know if we're selfish, materialistic, shallow beings. We know if we're practical ($5000 to extend his life for 3 more months of agony? no thanks) or just stupid in love ($4000 and he'll live out his natural life? Sure.) or good investors ($2000 to save a good, broken-in dog? I'd spend that on training, neutering, shots, and chewed-up shoes).

Sometimes they leave us with doubts. My former dog died of - well, I'd like to say kidney failure, but she was really murdered by a contract killer I paid. Or we kindly ended her life in a humane way, depending how you look at it. It was surreal to realize that I was playing God with my dog's life. I don't know if I did it to give her a more peaceful end, or to save my own family the agony of watching her die a slow and painful death. Her last day, I sat her down and told her that, since she hadn't eaten in days (I stopped forcing her to eat when she bit me and gave me a long, meaningful look to say "I meant that in the most loving but serious way"), and she was in bad shape, I was going to put her down unless she started eating again. She glared at me and walked away. Did she understand? Even if she could understand, she had kidney failure - her body was floating in toxins and she was, essentially, drunk. She avoided me all day. In the car, she tried to jump out the window while we drove. It is so natural for a dog to go off alone to die, why was I forcing her to do it the easy - but unnatural - way? It was only at the vet's office that she crawled into my lap and snuggled. She was a selfish dog - a survivor of the mean streets and the rough conditions at the animal shelter. But she was capable of affection on her own terms. Her last day, she opted to give affection to me, the one who'd been with her for more than a decade. The puppy, the rest of the people in the family, she gave them some love, but then she crawled into my lap and just snuggled with me until it was time. We made up, she accepted my decision. I like to think she accepted the wisdom of the decision, but maybe she just accepted the futility of her situation. She went peacefully to the table and died. The puppy stayed out of the way until it was done. Then he stood up on his hind legs and looked at her for a long moment. I had a lot of doubt, contracting for my dog's death, choosing her execution date. But after some time passed, I looked at pictures from her last few weeks and realized that I had been in denial about how far gone she'd been that last week or two.

The dog before her died before I got to the vet's office, but came back just long enough to say goodbye. Another stray. It meant something to me for her to die surrounded by love. (She was a special and amazing dog, but that's a story for another day.) She was sedated, but when I put my hands on her, her legs twitched and her mouth moved and she quivered until she could look me in the eye. I held her and told her what a good dog she was and tried to give her all the love she missed during her years on the street. She gave me one last lick and just went peaceful and dead in my arms.

I'll tell you, I've felt sad about throwing away a favorite but worn and tattered t-shirt, and it's nothing compared to the feeling of losing a pet. They aren't commodities. They are living creatures, our fellow travelers in this strange universe, beings as capable of hating us as they are of loving us - yet they almost invariably choose to love us. Or else they run away. :-) I suppose a proper financial decision on pet health care costs would look at the depreciated value of the asset. Yet animals appreciate in value over the years, as the human-animal bond strengthens, the associated shared memories accumulate, and the emotional attachment grows. Some people keep their college or even high school sweatshirts and yearbooks through old age. Our furry friend assets just don't last that long, but, sometimes, money is the only thing standing between another year or a vast improvement in the quality of the remaining years, and saying goodbye.

And yet, that same money could take a healthy dog off death row at a shelter. Or put a kid through a year of community college. Or fly us home for the holidays. Or keep us out of a shelter, ourselves. How far to go, financially, is a tough and very individual decision.

I spend at least $500 for the latest (ish) and greatest (good enough) computer. Every time, I talk myself into forgetting that I'm gonna have to buy new software licenses for the products I use the most. You bet I'd pay $500 to keep my outdated canine technology in good running condition. I paid a bit more than that to repair his ACLs (on both sides) to keep his remaining years healthy, relatively pain free, and low cost (arthritis meds aren't cheap, and the damage they do over time isn't cheap to treat, either). My dog is far more entertaining than cable TV, more comforting than a hot toddy, more aesthetically pleasing than a cashmere sweater and a limited edition print, combined. And he's a furry little pain in the butt, always wanting to play when I'm stressing about a deadline (but isn't that when I need to play), wanting to go for a walk when I'm tired (you've got to make time for exercise), wanting to be with me when I just want to be alone (but alone with good company is the best kind). If my computer ever develops dog logic to give me what I want most of the time, but to give me what I need the rest of the time, well, I guess it will be worth thousands, too.

California AND Bust @ Vanity Fair

2011-10-10T13:16:00.000-07:00

Interesting article at Vanity Fair by Michael Lewis* on California's financial woes. 7 rambling pages, but highly readable and totally worth the effort.

“How does the United States emerge from the credit crisis?” Whitney asked
herself. “I was convinced—because the credit crisis had been so different from
region to region—that it would emerge with new regional strengths and
weaknesses. Companies are more likely to flourish in the stronger states; the
individuals will go to where the jobs are. Ultimately, the people will follow
the companies.” The country, she thought, might organize itself increasingly
into zones of financial security and zones of financial crisis. And the more
clearly people understood which zones were which, the more friction there would
be between the two. (“Indiana is going to be like, ‘N.F.W. I’m bailing out New
Jersey.’ ”) As more and more people grasped which places had serious financial
problems and which did not, the problems would only increase. “Those who have
money and can move do so,” Whitney wrote in her report to her Wall Street
clients, “those without money and who cannot move do not, and ultimately rely
more on state and local assistance. It becomes effectively a ‘tragedy of the
commons.’ ”

I have left California. I do not want to say where I went, because I don't want Californians following me. They messed up California, I don't want them coming here and messing up a state that still paves its streets and polices its neighborhoods. For several years, I have been expecting the California exodus, like the Dust Bowl exodus of the Great Depression era, to result in tensions against the modern-day Okies. There came a point, living in California, when I realized that California voters will approve ANY gift from the taxpayers (as long as it's paid by somebody else) and ANY new tax increase, as long as it taxes somebody else.

Partisanship is killing this country. Psychologically, it is in-group/out-group behavior. Californians have enormously fractured social identities, with little observable loyalty to the greater good. You can't get Californians to forego a light rail project in the midst of economic catastrophe, because they don't recognize that the whole society will pay for it. Instead, the majority sees their own little group (democrat, progressive, social activist, whatever name they choose) as responsible for approving "progress" while the outgroup (the rich, corporations, or anyone else they can label as less deserving of having earned money) is responsible for paying.

***********
Below are several quotes from the VF article, but the whole 7-page enchilada is well worth a read.

California had organized itself, not accidentally, into highly partisan
legislative districts. It elected highly partisan people to office and then
required these people to reach a two-thirds majority to enact any new tax or
meddle with big spending decisions. On the off chance that they found some
common ground, it could be pulled out from under them by voters through the
initiative process. Throw in term limits—no elected official now serves in
California government long enough to fully understand it—and you have a recipe
for generating maximum contempt for elected officials.

But when you look below the surface, he adds, the system is actually very good at giving Californians what they want. “What all the polls show,” says Paul, “is that people want services and not to pay for them. And that’s exactly what they have now got.” ....
San Jose has the highest per capita income of any city in the United States, after New York. It has the highest credit rating of any city in California with a population over 250,000. It is one of the few cities in America with a triple-A rating from Moody’s and Standard & Poor’s, but only because its bondholders have the power to compel the city to levy a tax on property owners to pay off the bonds. The city itself is not all that far from being bankrupt.

The problem, he explains, pre-dates the most recent financial crisis. “Hell, I was here. I know how it started. It started in the 1990s with the Internet boom. We live near rich people, so we thought we were rich.” San Jose’s budget, like the budget of any city, turns on the pay of public-safety workers: the police and firefighters now eat 75 percent of all discretionary spending. The Internet boom created both great expectations for public employees and tax revenues to meet them. In its negotiations with unions the city was required to submit to binding arbitration, which works for police officers and firefighters just as it does for Major League Baseball players. Each side of any pay dispute makes its best offer, and a putatively neutral judge picks one of them. There is no meeting in the middle: the judge simply rules for one side or the other. Each side thus has an incentive to be reasonable, for the less reasonable they are, the less likely it is that the judge will favor their proposal. The problem with binding arbitration for police officers and firefighters, says Reed, is that the judges are not neutral. “They tend to be labor lawyers who favor the unions,” he says, “and so the city does anything it can to avoid the process.” And what politician wants to spat publicly with police officers and firefighters? ....

He hands me a chart. It shows that the city’s pension costs when he first became interested in the subject were projected to run $73 million a year. This year they would be $245 million: pension and health-care costs of retired workers now are more than half the budget. In three years’ time pension costs alone would come to $400 million, though “if you were to adjust for real life expectancy it is more like $650 million.” Legally obliged to meet these costs, the city can respond only by cutting elsewhere. As a result, San Jose, once run by 7,450 city workers, was now being run by 5,400 city workers. The city was back to staffing levels of 1988, when it had a quarter of a million fewer residents. The remaining workers had taken a 10 percent pay cut; yet even that was not enough to offset the increase in the city’s pension liability. The city had closed its libraries three days a week. It had cut back servicing its parks. It had refrained from opening a brand-new community center, built before the housing bust, because it couldn’t pay to staff the place. For the first time in history it had laid off police officers and firefighters.

B y 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.

This wasn’t a hypothetical scary situation, said Reed. “It’s a mathematical inevitability.”

*Lewis was an accidental Wall Street trader before he became an author and columnist. He is a humanities guy who understands finance, and he lives in California.

Clever way to mark studs when remodeling - Painter's tape

2011-04-22T15:15:00.000-07:00

We had a fellow doing some work and I noticed he was using painter's tape to mark studs. Very clever. More visible than pencil marks and doesn't require cleaning or painting over the marks. He put the painter's tape just outside where he was mounting the wood, so it would still be visible when he lifted it into place, and the smaller tape is almost exactly the same width as a 2x4, so it can be used to mark exactly where the edges of the stud are.

An Ode to Craigslist and Freecycle (or how to save the world with your garbage)

2011-03-16T16:20:00.001-07:00

We decided to remodel our original 1973 bathroom, and most of the pieces were well-maintained despite being well-worn. This was the ugliest stuff you've ever seen, and not even in terrific shape (not abused, but, come on, 30+ years of gentle use leaves its mark). But it was SOLID and it seemed a shame to haul it to the landfill. So I decided to post everything to Craigslist's Free Stuff board, just to see if anyone would want it.

Remember my mantra - America's bums eating garbage STILL eat better than 80% of the world's workers. What we think of as garbage still has use to someone. And, sure enough, my tacky, nasty, crappy old bathroom stuff was somebody's gold. The closet doors were big, heavy, and ugly as sin - a landlord with the same model took them with GREAT gratitude - seems he was facing a huge bill for a custom replacement, or else a renovation to make standard doors fit. I only posted those ugly things because I wished someone would take them, and save us from having to carry them. Everything we posted, somebody wanted. There were artists who wanted to rework them, poor-but-handy folks who were willing to re-finish them, even a guy who used old doors as work benches (the door knob hole is perfect for running cords down to an outlet).

We also - finally - got rid of the bathroom etagere (a shelf thing that stands over the toilet). It was rusty, outdated, ugly (and it blocked a window, but we needed the storage in the old bathroom). Sad, sad little thing - an elderly fellow claimed it. His wife wanted one, but, on their fixed income, even a used etagere was out of their price range. With a free one - and free time in retirement - he could afford a can of paint and some sandpaper to make it shine. His wife e-mailed me the next day to say that he gave it to her for her birthday, and she loved it.

It does take a little more time to give your stuff away vs. hauling it to the dump. But if you spare the time, you can help an industrious neighbor and reduce the volume of the local landfill (plus reduce the amount of stuff leaching chemicals into the ground). I have been amazed at how many people (retirees especially) make a side income repairing or refurbishing stuff to resell. So if you're thinking about making a dump run, you might consider an alternative. For home building and improvement supplies in good condition, check whether your local Habitat for Humanity ReStore will take it. For things in bad condition, snap a picture, post it to craigslist or freecycle, and see if it can find a new life in a new home.

Some tips I've learned over the years:
- Describe your general location in your post (nearest major intersection) so people know how far they'll have to travel BEFORE they contact you.

- I hate posts that say "this is the address, come get it" - that means anyone who wants it has to drive out to see if it's still there (gas is $4/gallon!). I post it, promise it to the first person who meets my criteria (first response, or first person to promise to pickup right away), and ask the person for a firm commitment to pick up by a set time. I tell them I'll give it to the next person if it's not picked up by 1 hour after the agreed time (and I do!). I do not provide my address until the person sets a pickup time.

- If I don't feel comfortable having someone in the house, or if I don't want to spend time "entertaining," I put the item outside and tell them to just take it. Usually I just say "We'll be in and out, but if I'm not here, I'll leave it [describe location so they know where to look]." That way any possible crooks don't think they have free reign over the house, but you still don't have to spend time on it or open the door to a stranger.

- I know it's free, but respect the receiver's time. Post it like you were selling it - include a picture if at all possible and describe any flaws (no magnifying glass needed, but general description like "extensively chipped and stained" or "great condition" saves everybody's time and effort).

- As soon as you find someone to give it to and agree on a pickup time and place, update your post to say it's "promised." That way you won't keep getting inquiries on it (saves their time and yours). If the person doesn't show up, go through the remaining replies or update your post to say "still available." When it's picked up, delete the post (on craigslist) or post it as "taken" (on freecycle).

- 100% of the people I've encountered freebie-ing have been great. Still be security-conscious. Don't show them your diamond tiara collection on the way to picking up the free chipped china, and don't tell them that you're home because you're waiting for a delivery of gold dubloons. If you get a bad gut feeling, tell them (through the security chain) that you're really sorry, but [whatever excuse you choose]. No 10 p.m. pickups. And I, personally, approach security from the first e-mail. If it feels hinky, no reply. I don't say "we're giving this away because we just inherited money and decided to splurge on a renovation" when I post it. I use a throwaway e-mail address instead of my work e-mail Rich&Careless@I'mABillionaire.com.

- Include a phone number for fastest response. The people who call are usually more motivated and reliable. If you don't want to use your personal phone number, get a google voice number and forward it to your home or cell.

- People will flake. Just move on to the next person on the list. Get a time commitment, tell them you'll hold it until a specific time and then offer it to the next person. If you're getting a lot of interest and a lot of flakes - check the tips above (especially pictures and description), consider posting somewhere else (In my area, freecyclers can be flaky, but craigslisters are pretty reliable - that will vary by location and type of item), include specific info in your post (i.e. "I would like it picked up today"). When you select someone to pick the item up, play up their competitive spirity (boy, a lot of people want this, but you were first to respond; I'll hold it for you til ___ but any later and I've got to be fair and offer it to the next person). Or decide it's not worth the extra effort. You tried.

Unlocking your cell phone - ask your cellular provider

2011-03-14T12:58:00.000-07:00

I am contemplating changing cell phone plans. My current cell phone, long since paid off, is locked to my current carrier. I wanted to unlock it so I could either use it on a pre-paid plan or sell/gift it to someone else. I googled unlocking, and the advice was generaly to pay for unlocking or to have the buyer contact the carrier to try to unlock the phone. The rationale was that the carrier won't want to unlock the phone for a current customer, making it easier for the customer to switch providers. Since calling my current carrier sounded like a long shot, I tried a paid unlocking service, but they couldn't find my unlock code (they did refund my money, though). In desperation, I called my carrier. They provided the unlock code with no hassles other than a few days' delay.

Since I didn't see this method discussed much, I thought I would share how it worked for me. I put my SIM card into another phone and called AT&T. I explained that I was using a new phone and wanted to gift my old phone to someone on another network, so I needed the unlock code. It took some time on the phone with them, and a few days while they waited for the code to come back from the manufacturer. They e-mailed me the unlock code, I typed it into the phone, and it was all done. I did have to have another carrier's SIM card in the phone to do the unlock. I had purchased a SIM card from T-mobile pre-paid to test whether I received an acceptable signal in the places where I use my phone, so having a SIM card was no problem for me, but I could have just as easily borrowed a card from a friend.

I wish this would catch on. I see so many locked phones on eBay, and an entire cottage industry has sprung up to unlock phones; used cell phones would be more useful if they were unlocked. Our monthly cellular bill pays the purchase price of the phone, and it is fully paid off in 2 years. There is no reason for the phone to remain locked to the carrier's network after the 2-year contract period. Before you sell, gift, or donate your old phone, consider calling your carrier and asking for the unlock code. It will make your phone more useful to the next user.

The lava fireplace remodel revisited

2010-09-14T11:00:00.000-07:00

Anne posted a comment to my fireplace renovation post, asking what tools we used to remove the "decorative" lava rock surface. The short answer: a hammer and a chisel.

We had NO idea what we would find under the rock. We took a wood chisel, pushed it against the grout, with the chisel angled towards the underside of a rock and tapped, tapped, tapped until the rock broke off. The grout - rough cement - was fairly soft and didn't take too much force to break it. We were just being very delicate at first. Once we got one stone off, we used the opening to get the chisel under the surrounding stones. We broke down and bought a chisel for stone surfaces (with a metal guard to prevent whacking the hand holding the chisel). Getting them off the stone fireplace face was the easy part.

The outer edges of the stone were applied directly on the drywall. Hard stone on soft gypsum makes chiseling impossible. We tried delicately removing the stone, but gave up. We cut the drwall alongside the stone and snapped it off, drywall, stone, and all. Then we had to patch the drywall.

I believe that code requires a 1-foot zone of non-flammable materials around the fireplace sides and 16 inches along the top (if you tackle this project, consult your code enforcement department and a fireplace expert!). In any event, we didn't want to create a fire risk, so we used cement board instead of drywall. It's harder to work with, but it can handle wet mortar and heat.

We cut the drywall back to the middle of the nearest studs, to give us a place to nail the cement board in place. The surface underneath the lava rock was not even - the builder used the mortar to level the surface AND to attach the stones. So attaching the mortar board was a challenge. We mixed up a small batch of concrete patch (some high-tech version that was fireplace compatible) and slopped it onto the fireplace. Then we slapped up the cement board and screwed it into place. The original idea was to tile over the fireplace, but the uneven surface would have to be completely evened out. We would have to lay an even bed of cement to prep the surface for tile (to even it out) - well, heck, that's half the job of stuccoing it. So we decided to just do stucco. Then we attached lath (wire mesh) with spacers, to support the stucco finish.

Demolition was the easy part. There was a risk we would cause serious damage, because we had no idea what was under the rock, how it was attached, etc. But we hated the lava rock (or, as I called it, the spider habitat and dust collector). We had tried painting, but painted grout lines look like crap, and painting just the stones - not the grout - was a very slow, laborious job. We were willing to pay a contractor to remodel it, but the contractor couldn't quote a reasonable price without knowing what was underneath. So we looked at the demo as starting the job for the contractor - though we ended up finishing the job, too.

If you consider tackling a fireplace remodel, be prepared to learn about flammability - this is NOT a job you want to screw up. Have funds available to hire a pro if you need one. Get help if you need it and be very careful to ensure the final result is safe. And be very, very gentle on the first stone - the firebox and chimney are probably made of brick, too, so a heavy hand will damage the brick structure of the firebox - and that could make the fireplace unusable and unsafe.

Universal health care, or universal cost shift?

2010-03-07T19:26:00.000-08:00

When I had Champus health insurance (for Active Duty military and families), I required specialized physical therapy. My PT had advanced degrees. Each appointment took an hour - a real hour, not a psychiatrist's 45-minute hour. My PT maintained an office in San Francisco, a business license, PT licensing, etc. She paid rent, malpractice insurance, utilities, continuing education, taxes, all of her own benefits, and licenses - out of her reimbursements - before she saw a dime of income. Champus reimbursed $25 per one hour office visit. (I paid the other $100+ out of pocket.) That's government-run health care.

In some areas, government medical reimbursements amount to a fair wage for medical providers. In other areas, government-funded patients (whether on Medicare, Medicaid, Champus, etc.) have precious few providers to choose from, as providers have opted out altogether. Providers who feel that government reimbursements run too low - they can opt out, or shift the cost onto their private-pay patients. Many shift the cost to private payers.

Government also mandates that hospitals treat emergencies without regard for the patient's ability to pay. Hospitals shift those costs to private-pay patients, too.

As Baby Boomers approach the age of Medicare eligibility, the government faces a mounting problem - health-care costs are projected to increase per service, growing life expectancy increases the lifetime services used per patient, and a whole bunch of new patients are expecting the Federal government to start covering their bills. Massive tax increases are always unpopular. Reducing services for the elderly makes lawmakers look like heartless thugs. But declaring bankruptcy is not an option, either.

The proposed solution to the mess is to force citizens onto the rolls of private health insurance, which would increase the cushion of cash available for absorbing cost-shifting from under-reimbursement for Medicare. Meanwhile, insurance companies get a quick influx of cash, which makes them feel all warm and fuzzy about the lawmakers who passed the bill, and voters get to believe that the government has "done something" about health care.

The problem with this "solution" is that 1) it's unAmerican to force citizens to purchase something from private companies; 2) it does nothing to address the genuine problems in the system that have caused enormous medical-cost-inflation and will continue to cause enormous medical-cost-inflation; and 3) it does nothing to solve the Medicare tsunami, except to shift the blame from elected officials (tax hikes) to private insurance companies (rate hikes).

Save or pay down debts?

2010-03-05T17:04:00.000-08:00

Today I saw yet another article advocating that people put extra money to paying down credit cards before saving. The logic is sweet - credit card interest rates run 6-36%, so the rate of "return" from paying down a credit card is higher than you can get on savings.

Still, I disagree. Remember the scene in It's a Wonderful Life, where the bankers close with two one-dollar-bills left to their name, and have a honeymoon party for the dollars, telling them they'd better go make some babies, quick? Savings actually does breed.

Savings creates a habit of saving. Once a balance adds up to something meaningful for you (for the poorest savers, even a $10 balance becomes a significant chunk of money), you want it to keep growing. It becomes a reminder not to spend more than you need to. Financial psychologists talk about creating an anchor - a mental reference point against which one evaluates all other expenditures. Savings creates an anchor point based on how much one has saved - a far, far lower anchor than, say, the limit on a credit card. The saver remembers how long it took to save that $100, $500, $5000 balance, and that memory gets balanced against the desire to purchase an expensive luxury.

Furthermore, savings is a reliable source of cash in a crisis. Credit cards can cut limits, close accounts, and raise interest rates - making the credit card less reliable in a crisis. If a crisis hits - an unexpected major repair bill, for example - most consumers are better off pulling the money out of a savings account. Put it on the credit card, and it becomes a stepping stone to creating a habit of putting expenses on the credit card.

Credit cards can resemble the little shoe box of tax receipts - out of sight, out of mind - and one more receipt not filed, one more expense not paid off, eh, it's just one more. But one more withdrawal from a savings account - we take note. We develop affection for our little savings accounts of love, the little financial leprechauns that are meant to take care of us in our time of need. It hurts to hurt them. And spending money we can't afford should hurt. It says, hey, that's the third time we've withdrawn savings this month; we've got to change something. Credit cards don't say that until the balance (or minimum payments) hurt, and, then, it's a mighty big problem to solve.

Building a savings account is like eating healthier or exercising. It reconnects us with the big picture around our money. It teaches us about the positive effects our financial life can provide, in addition to the negatives. Credit cards' positive feedback system is like crack or heroin - it can give you joyous experiences (big purchases, vacations), but those positive experiences destroy your financial insides. Credit card interest is like rotting teeth, the balance like a cancer, slowly eating away at your financial future. It's so bleak, it can create a craving for one more high; one more won't matter. The feel-good times with credit cards are when we do things we shouldn't do. The feel-good times with savings happen when we do things that are good for us over the long haul. Open up the statement - look, it's up another hundred dollars! Cancelling cable becomes worthwhile, as we see the positive outcome grow and grow.

Once a person (or family) has 3 months emergency savings established, that's the time to start whittling down the credit card. But I think a family should keep putting at least a little money into the savings account, even just $5 or $10 a month, to keep the positive-feedback loop going, keep putting at least some financial brain energy to building a better future.

Remodeling the fireplace

2010-02-19T17:45:00.000-08:00

We have been doing some remodeling. Ideally, we'll end up with a completely new and different house. Realistically, we'll end up with a prettier house, hopefully one that is a little more usable and a lot more pleasant.

One of our projects is a fireplace remodel. We have icky 70's lava rock facades on two fireplaces. We're going to re-do them both in stucco. We started on one. We tore off the lava rock, which was just a veneer mortared over the fireplace brick and some of the Sheetrock. Now we have a flat surface to stucco, and we built a wood frame to serve as a form for the stucco. We screwed up lath, a metal mesh for the stucco to stick to - it becomes a part of the stucco, and helps attach the stucco to the fireplace. Next step, add some bonding agent and put up the scratch coat.

For the other fireplace, we won't bother removing the lava rock around the fireplace. We'll just stucco over it. Above the fireplace, where the lava rock extends to the ceiling, we'll remove the rock, because the room just isn't big enough to carry the enormity of that floor-to-ceiling stone, and a regular wall above the fireplace makes it easier to hang a picture, big TV, or whatever.

Our fireplaces are those inefficient old things hanging off the side of the house. For maximum efficiency, a fireplace should exist inside the house, with the chimney running through the living space so it can dissipate heat inside the heating envelope. We can make the fireplaces more efficient by adding a fireplace insert, but my dream would be to replace them with a wood stove or a real fireplace on an inside wall. My uber-dream would be a katchelofen located right in the middle of the house.* I can dream. :-)

One odd thing we discovered as we prepared for stucco - a clean fireplace is a beautiful thing. We don't want cleaning-splatter all over the new stucco, so we scrubbed the fireplace as an intermediate step. The fireplace extends off the side of the house (think chimney climbing up the side of a house - the firebox is in that chimney, outside the room, which is why it's inefficient). With the firebox cleaned, the brick lightened up nicely, and we can see the depth of the fireplace more easily. It visually expands the room two more feet - that is, it makes the room feel a little bigger because the furthest wall you can see is now the back wall of the fireplace, which is actually outside of the house. When it was all dark and sooty, it looked more like a flat plane, even with the interior wall.

* Does dreaming of efficient home improvements make me a major geek? If so, I'll go one geekier: Solatubes. If you go to a model home, you'll find super-bright light bulbs and lots of clean windows with the curtains open. House porn pictures often feature walls of windows, photographed during the day. Light, bright rooms look great and feel great. A solatube is a tubular skylight, 10 or 14 inches in diameter, with a super-reflective tube that maximizes natural light gain during the day. They're designed to minimize heat gain while maximizing free sunlight inside. $400 installed, $250 DIY, and it brings sunlight to a dark room, closet, or hallway. With an optional lightkit, it can replace an existing electric light and provide lighting after the sun goes down. With an optional dimmer (a baffle that rotates to block light), you can put a solatube into a TV room and close the "curtains" (the baffle) for movie watching during daylight hours. The bells and whistles double the price, but I really, really want a solatube in the kitchen so it looks and feels terrific. Another one without the bells and whistles would make the master closet brighter (and, gosh, I'm always wearing one navy sock and one black sock because I can't tell the difference in poor light), and one in the hall will make the whole house feel brighter. Though $400 each is a chunk of cash, it's cheaper than adding a window - and TONS cheaper than adding a window in my stucco-sided house.

Do you have an emergency budget plan?

2009-11-13T19:52:00.000-08:00

life-on-severance-comfort-then-crisis.html: Personal Finance News from Yahoo! Finance: "Although their rent was cheaper, Mr. Hipsher says the family continued to spend like before. They moved with three cars -- two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly."

The article talks about families burning through severance and savings and finding themselves out of cash and still unemployed. Most of the families started out as prodigious spenders and continued to spend lavishly when the $100k+ jobs disappeared; one family had pretty modest tastes (relative to income) and is still worrying.

When the economy started to turn sour, my family put together a budget that we call "survival mode." We already had a budget for buying a house, which we converted into a budget/spending plan for our day-to-day spending before buying a house. Survival mode took a while to put together - we took our existing budget and slashed, slashed, slashed. We didn't slash to the bone. We kept Internet access - although we downgraded to dial-up. We kept in mind that unemployment and severance incomes are taxable, and we budgeted for taxes. We tried to be realistic about what expenditures brought a lot of happiness, a sense of normalcy, or were very important (health insurance, for example). Still, it took a lot of soul-searching to decide which spending categories really matter and which are luxuries that we can live without.

Two things happened. One, we converted the vague anxiety about possible loss of income into the security of having a plan to survive. This is important - having a plan already in place means that we can activate plan B if we lose our income - rather than absorbing the loss of income while also frantically cutting expenses, or, as the people in the article did, continuing to spend until the money runs out. Two, we had some really good conversations about what is important. We made some of the "survival mode" cuts right away. Cable TV, for example, didn't rank high on our priorities. It was nice-to-have, but then the cable company raised rates and we realized that we just didn't get that much enjoyment out of it. So we cut cable. That freed up money for increasing savings. We also realized that the $60,000 severance that the couple in the article received, doesn't go very far when housing costs $24,000 a year (and taxes eat up a big chunk of severance money, too).

When lay-offs got too close to home, we reminded each other "it wouldn't be the end of the world. It would suck, but we would survive." We would trot out the survival-mode budget and say "look, we'd still have money for networking lunches and a nice dinner in." When stress ran high, we would remind each other than we can make it. So instead of wasting energy on worry, we could focus on moving forward. We can be strategic. We can still contemplate buying a house (although we are being cautious and we would not consider spending 40% of income on a house right now. I think that a house with room for a garden and zoning that allows chickens or sheep, would actually be a benefit if times got tough - although having a renter's freedom to move on a moment's notice has its benefits, too).

We tried to be realistic - we didn't say that we will live on library books and rice and beans, we left some money in the budget for sanity and a sense of still having choices. We kept the "lunches at work" category for networking lunches; we kept (downsized) charitable contributions and gifts. We kept health insurance, life insurance, car insurance and homeowners' insurance. We kept the budget category for healthcare co-pays. We cut groceries a bit. If things went really badly, there is more room to cut back.

Having a plan is an optimistic choice. We know we can survive on less than we earn (though, naturally, we'd prefer to increase our income). We don't have to stick our heads in the sand and say "it's too horrible to contemplate!" And we know that we need to beef up our savings if we want to have the security to stay reasonably comfortable in a financial crisis that can leave well-qualified workers out of work for over year. It is far better to realize that while money is still coming in, than to realize it after the money has run out, as so many of the people in the article did.

Families can pull together and get through anything. It's a family effort, and it helps to remind the family about the benefits of cutting back to save more, or cutting back to outlast a crisis. The fellow in the article spending $250/month on a cleaning lady ($3,000 a year) after losing his job - I bet his wife would rather have $3,000 in the bank now. It is definitely hard to adapt to a major reduction in income, but writing a what-if budget helps you prepare mentally, and if things go awfully wrong, it lets you put the austerity budget on auto-pilot while you grieve for the job, security, and lifestyle lost and get to work moving on. Give your family the gift of peace of mind. Work on building a 6-12 month emergency fund. If you need it, you will find that it is worth far more than memories of watching cable TV, eating out every week, or having a professionally cleaned home.

Universal healthcare: the Rationing myth

2009-11-10T22:38:00.000-08:00

Socialized medicine was rolled out in countries that had not developed the entrenched commercial medical system America has. "Free" health insurance in socialist countries was better than being uninsured, and few people had been privately insured long enough to develop entrenched expectations.

America is different. We all have government health insurance - emergency room care might ruin your credit, but you can use it if you have to. Medicaid (for the poor) helps the very poor - and if someone gets very, very sick, they become poor enough to qualify as soon as they're too disabled to work. Medicare (for the elderly) covers everybody during those critically expensive senior years. Most of us have private health insurance, where we receive emergency care, serious illness care, and preventive care and we only pay a relatively low deductible and relatively low cost-share/copay expenses.

We expect a high level of care. If Grandma gets sick, we expect doctors to pull out all the stops - even if it only adds six months to her lifespan. If little Timmy does something stupid and hurts himself, we expect him to be treated despite his stupidity. If little Sally develops a congenital disease, we expect doctors to provide - and insurers to pay for - all the treatment necessary to give her as close to a normal life as she can have with her condition.

Here are some interesting items that shed a tiny little bit of light on the different healthcare expectations in the U.S. versus the U.K.:

America: Health Insurer to Be Charged With Teen's Murder - ABC News: "The family of a California teenager who died awaiting a liver transplant said they would sue the insurer whom they blame for their daughter's death."

United Kingdom: Treatment for teenager denied liver transplant - Health News, Health & Families - The Independent: "A critically ill teenager who was denied a liver transplant because his condition was drink-related is to be flown to a specialist unit for treatment."

United Kingdom: NHS Blog Doctor: "Poor people get worse medical care than rich people. It's a universal truth throughout the world." The blog is an interesting read, and there are aspects of care that seem exceptional by American standards (housecalls) and aspects where the penny pinching would set Americans marching on Congress demanding that the penny-pinching stop NOW.

No rationing + full care = it doesn't add up

A lot of people get very sick right before they die. It might be terminal illness, acute illness that goes really bad really fast (lethal flu), or a serious accident. They're all costly. Cancer treatment can run a quarter million or more. In Sacramento, a college student recently died from a grisly attack by his roommate; his family received the bill for 5 minutes at the hospital, trying to save the boy's life, and the bill was $29,000. It would have been much higher if the boy had survived - days in ICU, months of rehab, multiple surgeries, pain management, possible infection. Dying is expensive (but it beats the alternative) and cheating or postponing death is expensive.

Wikipedia puts median household income in the U.S. at about $50,000. That's for a household; median annual personal income for all adults is $25k. A person earning $25k pays about $5,000 in social security and federal income tax. Assuming 40 years in the workforce, the median American pays about $200,000 in total federal taxes. That money goes to fund social security, medicare, medicaid, the military, all federal agencies, all federal entitlement programs, etc. In actuality, the federal government only collects $3,600 in income tax per citizen; which works out to $144,000 over 40 working/taxpaying years (a lifetime), but we're going to pay for $30, 60, 90, 500 thousand dollar medical expenses - for a single accident or illness - without rationing?

Right now, American medical spending averages over $7,000 per person. (Washington thinks they're going to cover 40 Million uninsured for $2,500 each.)

5% of Medicare beneficiaries cost an average of $63,000 a year, each. Complications from diabetes can add $47,000 (over a lifetime) in costs for a single patient. ~8% of Americans have diabetes. Lifetime costs for treating diabetes (for a woman) run $233,000 per patient - that's just for the diabetes. Or $423,000 for cardiovascular disease. Remember that these patients can still break bones, fall down wells, catch pneumonia, etc. There is a reason that medical insurance plans often have a lifetime limit of $1 Million per patient - because, sometimes, some people cost more than $1 Million in lifetime healthcare expenses.

Put another way:

The entire country spends approx. $2.5 Trillion on health care costs.
For fiscal year 2008, the federal government spent $2.98 Trillion in "cash" expenditures. (Wikipedia)
For FY2008, the federal government took in $2.52 Trillion in tax income. (Wikipedia) (Roughly equal to our total healthcare spending.)
We spent almost half a billion dollars more than we took in - in a household, that's called going eyeball-deep into debt. That half a trillion is 16.666 percent of total income. That's like a family earning $50k running up another $8,333 in credit card debt. On top of our existing debt...
Federal debt is about $12 Trillion right now. Which is 4.8 times as much as we took in this year. That is like a family that earns $50k/year and owns their house outright, having $240,000 in credit card debt to keep up with the Joneses (except the government is keeping up with the Jones' votes by promising them everything under the sun, even though we can't afford it.) Keep in mind - our median family example is not paying that $240k debt down, they're increasing it about $8k every year.
Anybody who has ever borrowed money knows that you have to pay it back, plus interest. The interest on that debt is food out of our mouths until we pay it off. The U.S. pays almost $400 Billion per year in interest on the national debt. If they were a median family earning $50,000, that family would be paying $8,000 in interest payments - without reducing the debt one dollar.
We also have a $59 Trillion "unfunded liability." If the government "borrows" money, it's debt. If they sign contracts or pass laws promising to pay money, it is not debt, it is "unfunded liability." To put this in household terms, the $50k/year family has promised all of their 6 kids that mom and dad will put them through Oxford - without scholarships. How does our $50k family plan to pay for $1.18 Million in college costs? If mom and dad spent every penny of their income on college, it would take 24 years to pay off that college "unfunded liability." But they might want to eat. If Mom and Dad devote 50% of their total income to paying for college, it will take them 48 years to pay it off.
Some moms and dads completely give up on getting out of debt. So when Johnny asks them to put his health insurance on their credit card, they shrug and hand over the card. If you were mom and dad's friend, knowing they have $240,000 in debt, knowing they've signed a million dollar contract with the university, knowing their debt grows $8,000 a year because they are living way too high on the hog for a family earning $50,000, would you advise your friends to pay Johnny's healthcare? Or would you advise them to break the debt addiction?
Mom and Dad have only one shot at surviving - they have to increase their income. If mom and dad are the IRS and social security, they can increase their income - by raising taxes. A lot.

How much will the health bill cost you?

2009-11-08T14:11:00.000-08:00

The rich, those nameless, faceless, spoiled saints that love to pay for everything, are going to give the rest of us "free" healthcare. Except we know how tricky the rich are - they pass their higher costs on to the rest of us. They fire their nanny, move to a lower tax state, do their shopping in Europe... and then they shift their investments to Luxembourg, cut a couple of jobs at the plant, or raise their prices. So, when you're sitting down to the annual turkey feast saying a prayer of thanks for those nice riches that pay for everything, try not to think about them passing some of the costs to you. Crying at the dinner table is gauche.

So, what if the rich pass the costs on to the rest of us? Well, if Joe Rockefeller raises his widget price 5%, Joe manufacturer has to raise his doodad price a little more than 5% - to cover the financing cost on widgets, plus, he has to make a fair profit on the money he puts at risk in his company. Then Joe Distributor raises his costs high enough to cover the 6% increase in doodad pricing, and Joe Retailer has to raise his prices enough to cover the 7% increase in doodad wholesale costs.

Maybe the rich will just take the extra taxes out of their personal budget. They'll cut back on cocaine and hookers. Weelll, when the rich go and waste their money, it creates jobs and income for others. The rich invest their money in stocks and bonds, and it provides funds for corporations to build new factories, buy new equipment, or meet payroll. Let's hope they don't cut back there! The rich hire servants who rather enjoy having a job (my grandfather sure did), so let's hope they don't fire the nanny. Maybe the rich can cut back on jet trips. Okay, I'll give you that one - but I hate flying, anyway. Oh, wait - if they don't jet off to New York for tea and shopping, New York teahouses and boutiques will have to cut back. See, rich people may waste their money (most don't waste much - that's how they got rich), but what I call "waste," some folks call "income." The French Laundry restaurant provides good jobs for staff; designer boutiques employ a plethora of rude-but-beautiful waifs, even Tiffany keeps customer service reps, designers, craftsmen, accountants, and marketing professionals off the public dole. A direct tax takes money out of your pocket, but an indirect tax can take your name off the staff directory.

So, if the cost of healthcare gets passed on to your family, how much is your share? Well, there are about 100 million taxpayers in America*. The health bill is projected to cost $1 Trillion over 10 years, or about 100 Trillion per year. Divided by 100 million taxpayers/families, that's $1,000 per year. As inflation raises the cost of healthcare, it will raise the cost of the healthcare tax, too. And healthcare inflation seems likely to continue - the bill is not addressing existing cost inefficiencies in health care. In fact, if cost increases strap American families, they may delay preventive care, which would increase the incidence of serious illness and serious complications from illness, adding further upward pressure on health costs.

* I am dividing the cost across taxpayers - instead of all citizens - because not all citizens will bear the cost increases. Children almost never have income, so they almost never bear any costs, so we can exclude the roughly 40 Million Americans who are under age 18. The poor don't pay taxes (they receive earned income credit and welfare) and they don't buy as much stuff as the rest of us, so they will carry very little of the cost load. Welfare recipients will probably receive increased payments if cost inflation rises, which would shift their individual cost-share to the taxpayers who fund welfare programs. For these reasons, I believe that most of the costs will be shifted to people whose income (and spending capacity) qualifies them to pay taxes.

Perspective, sometimes

2009-11-05T18:30:00.000-08:00

In a lot of ways, we're all just playing cops and robbers, cowboys and, um, noble native Americans. The costumes are more elaborate, the co-conspirators bigger, the Sheriff flabbier, but we're all just bigger, older versions of that little kid who needed comfort and encouragement and inspiration and, sometimes, a monster check under the bed.

Once in a blue moon, I have a moment of perspective. This, I realize, is what I have amounted to. This is that kid's life. Cool. I didn't win the Nobel prize - maybe it's not too late - but I did things I never imagined, did things I did imagine, and I think the little version of me that's been along for the ride is pretty pleased. Not smug, not without regrets, not without scars that have healed and scars that will never heal, but some of the stories would play well on the playground.

I really do have moments when I remember little me - or maybe little me re-emerges and takes the wheel awhile - and think, whoa. Wow.

And tonight I wondered, does President Obama ever think "whoa. I'm president. of the United. Freakin' States."? Did Bush, Reagan, Roosevelt? Forget your politics for a moment - love 'em or hate 'em - wouldn't that be a fun moment? If I were president, I would set aside a moment every day to be proud, awed, and humbled.

Emergency preparedness: Careful how you store your tape

2009-11-05T09:11:00.000-08:00

Tape is essential for emergency preparedness. In a hurricane zone, applying a big "x" of tape to exterior windows can reduce flying glass. It can be used to label things, close things, hold things open, hold things closed, you can tape plastic over a window to improve insulation, you can wrap metal tools to simulate an insulated/padded handle - duct tape is essential. Most men believe that anything you can't fix with duct tape, doesn't really need fixing.

But, you have to store it right. The garage seems like a natural place to keep duct tape, but it's one of the worst places to store it. My garage ranges from baking in the summer to freezing in the winter - all that temperature change made the glue on the duct tape glue the roll into a solid block. It's useless now.

More Tape Tips page 3: "If you need to store tape for a long time, keep it in a cool, dry place and turn it over from time to time so that the adhesive doesn’t migrate to one side of the roll."

Put waxed paper between rolls of tape to keep them from sticking together when stacked.

Emergency preparedness is sooo 1950's

2009-11-02T16:41:00.000-08:00

I didn't grow up with a family bomb-shelter or nuke drills at school. I am from the neglected generation, too early for school shooter lockdown drills and too late for the Red Scare. We beat the Russkies before I finished high school, and it was already evident that they were dying an economic death before that. Our parents were more likely to have grown up in bell-bottoms than poodle skirts. Rugged self-reliance was a sure sign of a Vietnam vet who hadn't come down from the panic yet.

No matter. The risks are different today, anyway. Our population is huge. Most of us live within 30 miles of a hospital and within 100 miles of a potential riot threat. How many times has Los Angeles burned? I remember the occasional childhood news report about grocery stores with ransacked shelves - usually during heavy rains. Now, grocers use just-in-time distribution to minimize shelf-spoilage and store rents, but that also means stores don't have much supply for panicked consumers. Forget the Russians, we're more worried about the Mexicans, the terrorists, the inner-city punks. We've gone almost native on natural disaster threats. I don't see many storm shelters, but I have heard people say "if I die in an Earthquake, it's God's will." After the earthquake, I'm sure the tune will change. I saw news interviews with people after one of Southern California's severe earthquakes - people were angry with grocery stores for running out of supplies, explaining that, since they don't cook, they don't keep food in the house.

Most of us have some food in the house. Most of us could survive a few miserable days eating plain canned beans in a disaster, even without a plan. Most of us don't, however, have a week's worth of water. We don't even know how much water we would need. We haven't stockpiled toilet paper or tylenol. We wouldn't need food, anyway - if the TV went out for more than 12 hours, there would be a line to jump off the nearest bridge. Lose the internet, and people will be calling the cops out and meeting them at the door with soap carved into a shiv yelling "just shoot me, please, put me out of my misery!" And who could blame them - have you ever tried having a conversation with your family? (j/k)

Now we face multiple possible pandemics, with one (swine flu) actually labeled a pandemic but, at this time, it is a fairly mild illness. The fear, however, is that swine flu will behave like the 1918 pandemic, which started with a mild flu in the spring and returned as a virulent soldier killer in the fall. Don't we have enough to worry about already, with terrorists and the economy and razor blades in Halloween candy? Anybody with a lick of sense has tuned out, bought a wii, and turned on, right? Besides, Swine flu is milder than regular flu. Except when it isn't.

Is your family prepared to spend a week too sick to shop or cook? Can you handle having mom or dad in the ICU for 3 months? Who will watch the kids if mom or dad spends a day or two in the hospital (many hospitals have banned young children from visiting hospital patients due to the flu). If the flu stays mild, you're unlikely to be hospitalized. But there are still stray bullets, reckless drivers, unknown food or bee allergies, etc.

If the flu does get bad, you and yours might stay healthy. You still might be impacted by absenteeism at work. Your electric company might not have enough workers to restore power quickly after the next storm. What if a natural disaster hit in the midst of a nasty flu season? Government aid isn't guaranteed in the first place - we're advised to have a 3-day supply of food and water and several weeks' supplies in case we have to shelter in place - but it could be delayed further by a nasty flu season, even without a pandemic or particularly deadly flu.

If you have an emergency preparedness plan, have you considered the possibility of being sick during a crisis? Have you considered the possibility of quarantine? In my area, there aren't too many natural disasters - floods are localized, we don't have an earthquake fault, we don't get hurricanes, and tornadoes are incredibly rare. But I hadn't really thought about being quarantined, and many of my emergency food stocks take more effort than a sick family would want to expend. I am adding a supply of ready-to-eat soups now. If the flu threat worsens, will communities open emergency shelters in a natural disaster?

If you haven't started preparing for an emergency, please start. Here's a very simple, basic plan: 2 gallons of water per person (or more if you can), 6 cans of Chunky soup or beefaroni per person (with pull-tab tops), a bottle of tylenol or ibuprofen, a large bottle of hand sanitizer, a deck of cards, and a box of breakfast bars or granola bars. It isn't much, but it can keep you alive for 3 days, you can throw it in a backpack for an evacuation, and it doesn't cost a whole heck of a lot. I would also add a battery powered radio, a flashlight or lantern, and batteries for both, along with plastic forks/spoons, a can opener, matches, candles, a couple of clean 5-gallon buckets (you can buy them at Home Depot) and a box of trash bags.

Keep everything together in case you need to evacuate (if you store empty suitcases, you can put your emergency supplies in a suitcase, just be sure to store it in the house or basement where temperatures won't exceed 72 degrees often). If you have pets, add a small bag of animal food and more water. You can just buy several gallon or 2 1/2 gallon bottles at the grocery store. If that seems too expensive, then wash out your empty 2 liter soda bottles, disinfect with a splash of bleach in water, rinse thoroughly, and fill with tap water. If your freezer has room, stuff some 3/4 full botles of water in the freezer and they can double as ice packs for your cooler if the refrigerator dies or the power goes out.

Don't use milk jugs to store drinking water - they're fine for toilet-flushing water, but FEMA says it isn't feasible to truly disinfect milk bottles, so you could have nasty germs growing in your survival water. Yuck.

Morning Drivetime DUI: How many drinks can you sleep off in 8 hours?

2009-10-31T17:09:00.000-07:00

Chronic DUI driver gets two years in prison: "A breath test an hour later showed that his blood-alcohol level was .22 percent, nearly three times the .08 percent level that constitutes drunken driving, authorities said." This was at 8 am.

When I took my first driving test, the only questions I missed were the DUI questions. It wasn't going to affect me, so I didn't pay much attention. That has remained true throughout my life - I avoid driving after drinking and I wait two hours per drink before driving if I absolutely HAVE to drive. So BAC hasn't been on my radar.

But this article piqued my interest and I looked up BAC. I was a bit surprised. By one source, it takes 45 minutes to lower BAC by .01, so the driver in this article would take over 16 hours to completely sober up. Granted, getting drunk to the .22 BAC level is a lot of hard work (depending on the guy's weight, it would take him 6 to 15 drinks in an hour, or 6 to 15 drinks more than his body broke down over the time he was drinking, to reach .22), so you could be talking a full 24 hour cycle, 8 hours of drinking to get that drunk, 16 hours to sober up. It would take him 11 1/4 hours to drop from a .22 BAC to the .07 BAC level that would make it legal to drive again, over 16 hours to totally sober up.

Women have it tougher, unless they bulk up. A little 120 lb. woman would reach a BAC of .22 with just 6 drinks. According to drinkinganddriving.org, an average person takes 45 minutes to lower their BAC by .01, so the woman would still need 11 1/4 hours to get down to the legal limit - although drivers are still impaired at .07, and can still be prosecuted for driving under the influence if they get into an incident behind the wheel - so the goal is to metabolize the alcohol down to a BAC of 0. From a BAC of .22, it takes 16 1/2 hours to drop to 0. Yikes. It's likely we've got a lot of drunk drivers in the morning commute.

Even the responsible drinker who walks to the bar or has a designated driver needs to count drinks if they're planning to drive in the morning. Put another way, if someone wants to wake up sober in 8 hours, the maximum BAC that can be metabolized over 8 hours of sleeping is about 10.66, 3 drinks for a little guy, 7 drinks for a 240 pound fellow, 2 1/2 drinks for a 100 lb. woman, 6 drinks for a 240 pound woman. So, for fun, I put together this handy little chart.

How many drinks can an average person sleep off in 8 hours?

Caveats:

Alcohol metabolism varies from person to person. Dehydration, overall health, presence of other drugs in the bloodstream, including prescription and over-the-counter medications, etc., can impact blood alcohol absorption and metabolism. This chart is not advice for a specific person but merely a representation of assumptions about an "average" person.

Methodology:
Blood alcohol level continues rising after the last drink is ingested, so I assumed 7 hours to metabolize the drinks consumed. In 7 hours, at a rate of .01 BAC per hour, an average person can drop from a BAC of .093 to .00. Using the charts from drinkinganddriving.org, I divided the BAC per drink by weight into the .093 BAC that can be metabolized in 7 hours, arriving at the number of drinks metabolized in 7 hours.

Most people do not slam 2 to 5 drinks, one right after another, and go to bed. But if you go to bed at 10 pm and drive to work at 6 am, an average man can only sleep off 3 or 4 drinks. Figure you get off work, go to dinner, stop at the bar at 8 and leave at 10... I never realized how few drinks an average man can sleep off between 10 pm and the 6 am commute. If you're talking about the partying youngsters staying 'til closing time at 2 am, even a big guy can only sleep off 2 drinks before morning commute, and most folks don't stay at a bar 'til 2 am for just 2 drinks. Add in the variability of individual alcohol metabolism and the fact that a patron doesn't usually know if a mixed drink contains exactly 1 oz of liquor or if a glass of wine is exactly 5 ounces, and it's tough for a person to know their exact BAC when they leave a bar or party, let alone 8 hours later when leaving for work.

Maybe you'd find these charts more realistic:

How many drinks can an average person metabolize between the 6 pm happy hour and the 6 am commute?

Methodology:
Assume 1 hour to absorb the first drink, leaving 11 hours to metabolize. The highest BAC that an average person can metabolize in 11 hours (at a rate of .01 per 45 minutes) is .1467. Divide .1467 by the BAC level an average person of a given weight gets from one drink.

Legislating to the Lowest Common Denominator (pardon my language)

2009-10-30T23:18:00.001-07:00

Today I had to send a copy of my driver's license to buy psuedoephedrine allergy medicine by mail order. How about you create a list of people who actually committed drug crimes, and make them jump through hoops to buy pseudoephedrine. Stop hassling honest, responsible, law-abiding citizens. Stop legislating to the lowest common denominator. Put the burden of stupidity on the stupid and leave the rest of us the hell out of it.

If existing laws don't encourage law-abiding behavior, it's because you aren't enforcing them or the penalty isn't severe enough or the law doesn't belong on the books. Forcing honest people to jump through hoops in a futile attempt to force dishonest people to be honest - it isn't working, it's a flawed idea, and I'm tired of being bullied because lawmakers don't understand that the criminals don't CARE what the law is. That's why they're criminals. Do you really think that meth heads won't break into pharmacies if you cut off their supply? Has this law solved the meth problem? Then why do I have to jump through hoops to get freakin' cold medicine?

People convicted of a DUI don't have to register their purchases on a Federal database to buy alcohol. Hell, when federal drug databases DO catch abuse, nothing happens. When we get an explosion of laws and regulations, authorities can't enforce them all, and it's only honest people who suffer - honest people waste time and effort and money trying to understand and comply with all the regulations dumped on them, while the crooks continue to rob, lie, cheat, and steal.

I would like to see a constitutional amendment that specifies that every proposed law or rule MUST include specific plans for funding AND enforcement for at least 10 years, with a requirement that all laws are evaluated for possible unintended consequences over a 10-year period, AND all laws not directly impacting the safety of citizens expire after 10 years unless it is renewed by lawmakers, and, lastly, only emergency legislation can come up for a vote before voters have had 60 days to evaluate proposed legislation and contact their legislators with input.

Why shouldn't we hold lawmakers to a high standard of legislative quality? Why shouldn't they jump through some hoops before they force us to jump through hoops?

we wil inhairet ur wurld wether u lik it or not (don't worry - the actual post is in real English)

2009-10-06T16:56:00.001-07:00

Do you ever think about the fact that these txt'ng young people will be the ones running your senior centers, funding your Social Security, and controlling the media in your old age? How does that make you feel?

Do you think names will be spelled fu-net-ickly on pension checks? Breakups, firings, layoffs, death notices, and denial of benefits will be notified via text message. Suspenders will come back in style as today's youth refuse to pull their pants up but discover the hazards of trying to actually accomplish something with baggy pants halfway down their thighs. Roadway lanes will officially be recognized as mere "suggestions" and showing up to work on a "schedule" will be voluntary - even for judges, police officers, ER docs, etc. Oh, yeah - there won't be any primary care docs. The existing med school system won't let go of the brutal academic and residency requirements, so only materialistic young folk will suffer through it - and they ain't doing it for a piddling quarter mil a year.

The Star Spangled Banner will be re-recorded as a rap song, and our grandchildren's generation will rebel against their parents boring rap music - by embracing country music. Teenaged rebellion will end, because teens simply cannot shock their parents anymore with anything short of 1) fiscally and socially responsible behavior and/or 2) killing things. Google's face-recognition technology will be perfected, and Google will make a trillion bucks by searching out your doppelganger and hiring him/her to go out and make friends for you, without you having to suffer the inconvenience of pretending to care about "friends'" stupid lives and boring interests.

Americans will stage a bloodless coup in the entertainment industry, wresting control back from the Canadians. We will discover that 47% of illegal "Mexican" immigrants are actually illegal Canadian immigrants with their first-ever tan.

Naw. I think that the primacy of connection will fade and today's youth will discover the joy of workaholism to avoid dealing with non-work life. But I do think their kids will struggle to rebel musically, and I fear that they will decide to rebel by playing Country and Western music at a polite volume, wearing belts that hold their pants at their waist, and either taking piercing to the next level (pierced ribs, perhaps?) or eschewing piercing altogether. And all of today's citizens complaining about illegals taking American jobs, will find themselves complaining that they can't find home healthcare aids to change their Depends. Yes folks, even today's troubled youth can grow into tomorrow's entitled retirement class, but, first, they've got to kill us off to collect their inheritances. Nighty-night, sleep tight.

What is the purpose of government?

2009-09-29T17:56:00.000-07:00

Imagine a world without governments. Think back hundreds and thousands of years, early humans, sparse populations, no mail or even currencies, just people, living their lives and trying to get by. Somebody says to these non-citizens, "Hey, I've got a great idea. Let's form a government!" What justification would be offered to entice people into becoming citizens, giving a portion of their crops to a tax collector, limiting their freedoms, bowing to the will of a monarch or a their fellow citizens? Pretend for a moment that the citizens aren't conquered or forced into citizenship; they are voluntarily subjecting themselves to government. Why? Really think about this for a minute.

Your answer forms the essence of your underlying beliefs about the purpose of government. The reasons I come up with are, first and foremost, protection from harm, senseless violence, theft, and murder. Establishment of reasonable laws that allow the most people to enjoy continued life and freedom from harm so they can continue to produce, to be family members and community members, without fear of having all that they have earned and produced taken from them unjustly. Establishing and training an army to defend against invasion would also fall under protection from harm.

The second reason I imagine is enforcement of contracts, establishment of currency, and similar rules that allow people to trade safely and fairly. I call this facilitation of commerce. If I promise to give you seeds now in exchange for food later, and you don't provide them, I may never trade seeds again. Then the only people who can farm are the ones who have something to trade in hand, right now.

I don't think people formed governments to provide sustenance to their neediest neighbors - they can do that without government. Even if they don't want to find the needy neighbor themselves, churches and other charities handle gifts of kindness quite well. I imagine a group of villagers discussing government and, if the topic of welfare came up, I imagine five of them saying "hey, Joe only needs welfare because he's lazy. If he wants food, send him over and I'll put him to work, and Jimmie - poor, old childless widower Jimmie - he should of put somethin' back when he was younger, but what's done is done. We all take turns over there, bringing him food and slopping his hogs. We don't need no government to do that!" (I don't think governments formed to provide mail services, since such a thing was barely contemplated and only affordable to the very wealthy, not that I object to the postal service - by providing a consistent means of giving legal notice, it facilitates commerce. There are plenty of new government roles that fall under the facilitating commerce and protecting from harm.)

So given my belief that the number one most important function of the government is protecting us from harm, I am disgusted and outraged at the laxity of law enforcement, the non-punitive nature of prison, and the failure to prosecute or even investigate so many crimes. Similarly, I think that military aggression is a breach of governmental purpose, since it unnecessarily puts citizen soldiers in harms way (and I say this in global terms, without any particular meaning about any current military action by any nation). Citizens have every right to ask whether a military action, over an event that does not put citizens in direct risk of harm right now, is a defensive or offensive move.

Drowning in fine print

2009-09-24T10:49:00.000-07:00

Contracts are everywhere. I am averaging multiple contracts per day. Is it realistic to expect consumers to read and understand so many contracts when the average person doesn't even read one book a year?

I just tried to purchase an item on Etsy (the artist/crafters-direct sales site). At checkout, I had to create an account and check a box saying that I agree with Etsy's terms and conditions. So I opened the terms and conditions. The main body is 26 sections 12 pages and over 4,000 words, with another 4 documents incorporated by reference, two of which were about as long as (or longer than) the actual terms and conditions.

I can't make the purchase without agreeing to the contract. I am not going to agree to a contract without reading it. I don't have time to read a 20+ page document to make a simple purchase. So no sale. I bet the seller would have preferred to have a sale.

The average adult supposedly reads 250-300 words per minute. The Etsy terms and conditions alone would take about 14 minutes. The T&C plus the other documents incorporated by reference total a staggering 12,422 words. At 300 words per minute, that is more than 40 minutes of reading, to buy a $15 tchotchke. I wish I were kidding. I wish this was rare. Nope. Ain't rare. Ain't reasonable, either. You can't even watch Better Off Ted without signing a contract. Come on. Doesn't the law already cover most of this stuff?

Instead of a traditional tv/cable box/vcr entertainment center, I have an entertainment computer. It can play regular and blu-ray DVDs, tune in television stations, and play web-based entertainment, including Hulu, Netflix, and YouTube. There is a small problem, though. Because the system is across the room (though on a large screen TV), we have our browser set to display text in "very large." Most TV websites are configured to use the exact font style and size that the designer specifies, without scaling. When we try to watch a show - say, on ABC.com (the absolute worst offender) - we have to agree to the terms and conditions. Except they're not legible from across the room when the web designer doesn't allow the text to scale to the browser settings. So we're supposed to agree to a binding contract that we cannot read. It is the equivalent of a 4-6 point font. If you printed a written contract that small, it would not be enforceable. Yet companies think that their web contracts will be enforceable because they look right on the designer's monitor!

When I take my car in for service, signing the front of the service contract means I agree to everything on the back of the contract. When I go to the doctor's office, same thing - I have to certify that I agree with their privacy policy, that I agree to assign insurance benefits to them, and a couple other contracts that they make me sign on a regular basis. They get pissy about "holding up the line" if I actually read the contracts before signing them, and they're shocked that I ask for a copy (I don't sign anything that I don't get a copy of). And then there's always some clause about my having received some notice, which I haven't received, and it's a problem to track down a copy for me. Oh, yes, the reaction I get when I insist on reading a contract before signing it, having a copy, asking questions - it is clear that 1) most people don't read the contract(s) and 2) most companies count on people not reading the contracts.

It is an insidious loop. Consumers don't read the contract, so companies develop their procedures around that - like presenting a contract to the consumer and allowing 5 seconds for the consumer to sign, any longer holds up the line or keeps an employee from returning to their important work (because dealing with a customer who is signing a contract isn't important) and then an average consumer tries to read the contract and gets socially slapped down for it, so he or she doesn't try to read contracts anymore.

Not me. I'm antisocial. If I sign a contract, I'm going to read it, and if that inconveniences the party requesting the contract - they should have considered the possibility that some people want to know what rights they're signing away. When I bought my first house with my first spouse, we sat down at closing and I read the mortgage contract. I read the purchase contract to make sure it was recorded correctly. I read every single thing I signed, and I reviewed the list of 360 payment amounts to make sure it gibed with what I THOUGHT I was signing. And every single person at the closing table made pointed jokes, then tapped their fingers, then told me I didn't need to read the contracts, then sighed deeply, then told me that NO ONE reads the contracts. Halfway through, my spouse picked up on the social cues for me to stop reading, and parroted the "I'm sure it's all correct, nobody reads it, just sign and move on" messages from the "professionals." (That's a big part of why I'm on my second spouse. I am more concerned with signing an accurate contract than with impressing the salespeople that I am "easy to get along with" when that means potentially signing away major rights, privileges, or dollars. That, and the fact that I'm a jackass who makes everybody uncomfortable by reading contracts and such.)

That's right, people who sign contracts without reading are not just taking huge risks, they are harming people who DO read contracts. Company lawyers get emboldened by the knowledge that consumers don't read the contract. So they put things into the contract that most consumers would not willingly agree to (like eBay's infamous "we are just a venue, if you get ripped of, tough tooties") and then they write 20-40 page contracts because, hey, nobody reads them anyway, so it isn't an inconvenience to the customer to deal with ENORMOUS long contracts.

So, no matter how responsible or persnickety (or whatever adjective YOU choose) you are about reading contracts, you have to share a world with the illiterates of the world (people who can read but don't read even when it's really important, may as well be illiterate so I'm lumping them in with people who actually can't read). How long would a company stay in business if they forced customers to sign a 20 page document before letting them buy something, if most customers actually read the contract? Stores would only be open on Sundays, because that would be the only day people had enough time to shop! Consumerism would die on the vine.

Now, the mortgage crisis has shown that a lot of people were swimming naked, contract-wise. I wonder if people are going to start paying more attention to what they're signing? If so, will they object to spending 40 minutes reading a contract for the privilege of buying something for less than $20? Will people hire lawyers to translate the terms and conditions on Twitter, or will they just say no? Maybe consumer contracts will go back to being sane, rational two-paragraph statements. Ah, I can dream.

Cover the children's ears, folks, it's a controversial idea

2009-09-04T19:09:00.000-07:00

http://www.cnn.com/2009/POLITICS/09/04/obama.schools/index.html?iref=mpstoryview
Cnn reports:

The White House said the address, set for Tuesday, and accompanying suggested lesson plans are simply meant to encourage students to study hard and stay in school.
Many conservative parents aren't buying it. They're convinced the president
is going to use the opportunity to press a partisan political agenda on
impressionable young minds.

"Thinking about my kids in school having to listen to that just really
upsets me," suburban Colorado mother Shanneen Barron told CNN Denver affiliate
KMGH. "I'm an American. They are Americans, and I don't feel that's OK. I feel
very scared to be in this country with our leadership right now."

Okay, I'm probably preaching to the choir, but, seriously? What has happened to America - and particularly to conservative Americans - that we can no longer tolerate having our children exposed to anything but the parents' own ideas?

Fer crying out loud, President Obama is OUR president. All of us. When libs were faulting Bush for Iraq, right wingers did plenty of hand-wringing about the importance of honoring the President, but when the vote is on the other foot, parents are upset at the idea that their children might actually hear a message from the President? Please, please tell me this is a joke. The President is the leader of our nation and he deserves our respect - not necessarily our agreement or affection, but at least the courtesy we would extend to a slightly batty elderly relative - out of respect for our nation. And if we can humor crazy Aunt Edna, then I think we're capable of treating the office of the Presidency - and, by extension, the person who holds that office - with enough respect to recognize his right to believe as he believes, even when we disagree with him. In doing so, we teach our children a little something about behaving appropriately and honoring our nation - all the more so when we teach our children to respect the President we may not like.

Within our free society - the free society that ultra-right-wing and ultra-left-wing conservatives claim to value - there is room for difference of opinion. You might believe that Ben & Jerry's is the best ice cream ever made, and I would argue that homemade, fresh, natural ice cream is the best ever made. It's okay - we can agree to disagree. When we teach our children to recognize and respect disparate (and sometimes wrong) points of view, we raise good citizens. When we stick our fingers in the kids' ears and yell "lalalala I can't hear you," we fail to teach our children the important lessons of maturity. When our kids are exposed to bad ideas, we can teach them the all-important ability to measure each claim on its own merits, a skill that will protect them when exposed to truly bone-head ideas like street racing, playing russian roulette, becoming young parents, and all manner of dangerous youthful inclinations.

Listen up, American extremists (lefties AND righties!), it is possible for children to see or hear an idea without accepting it at face value. That is why nature gave parents the ability to talk and gave children the ability to listen, understand, and consider. If your children are exposed to ideas that run counter to your beliefs, then talk to the kids about it. Explain why you believe differently. Explain why you hope they will grow up agreeing with you on the topic. If you are right, your kids will probably recognize that you are right and they will probably agree with you.

Yep, that's right folks, children can watch people kiss or discuss sex on TV and still think "hmm, that's not right for me at my age;" they can watch their peers get high and say "I think that's a bad idea, and I'm not going to join in;" they can listen to the President and think "I respect our nation's ideals, I respect the office of the Presidency, and I am still going to fight overly liberal policies that I believe are detrimental to the future of our nation." Parents have the ability - and the responsibility - to help children recognize differences of opinion, different religions, different cultures, and different values and make the best decisions that the child can make.

Chicago taxis

2009-08-28T12:17:00.001-07:00

We took a working vacation, with 6 days per week in classes. It was a busy, busy trip. We were always running, and we took taxis almost everywhere.

I have lived and/or worked in several major cities: Honolulu, Baton Rouge, San Francisco, etc. I have visited many cities. I have never enjoyed taxi service like this. We stepped out the front door of the hotel, put a hand in the air, and the tax was at the curb before we got there 98% of the time. We came out of a grocery store into a downpour, and retreated to the covered entrance. I saw a taxi in the street, waved once, and the taxi pulled right up, alongside the covered entrance. Day and night, when we wanted a taxi, it was never more than a few minutes' wait to find one.

Sure, taxis are pricey, but so are cars. It was faster to take a taxi than to pull our car out of the parking garage, pay the parking fee, drive to our destination, and find parking there. And taxi fares were generally comparable to parking fees. The ride was... interesting. I have seen racecar drivers drive less aggressively. The cab drivers whipped from lane to lane, accelerated hard, braked hard, and actually managed to keep aware of what was going on around them. We heard an interesting assortment of music from around the world.

We have considered moving to Chicago. The convenience of taxis is certainly a draw. Nowhere else have I had such an easy time finding an available taxi, on any street in any neighborhood.

Back from vacation... Do you believe in miracles?

2009-08-27T15:36:00.000-07:00

I've just returned from a working vacation in Chicago. Because of the dog, we drove to Chicago and back. As we drove out of Salt Lake City, the Interstate had a large gap between the eastbound and westbound lanes. Two lanes in each direction with a valley about 8 lanes wide in between, speed limit was 70 or 75 mph. A car on the eastbound side spun, flipped into the dirt between eastbound and westbound, and rolled all the way across the valley, finally landing, wheels down, on the westbound shoulder. Not knowing if the car would travel into the westbound lanes of traffic, we came to a complete stop and pulled onto the shoulder virtually parallel with the other car. A young woman was driving, alone, her rear hatch and backseat fully loaded with her belongings.

She was able to walk away from the car - I'll never know if she suffered shock or injuries from the tumbling, but her emergence from the accident, relatively unscathed, was amazing. The windshield shattered, but stayed intact and fell clear of the car. The driver did not even appear to have cuts or scrapes. The car tumbled fast enough that most of the forces pressed in the sides, not the roof of the car. The car landed wheels down, on the shoulder of the opposite lanes of traffic, but fully on the shoulder and fully clear of the traffic lane. Even that was a stroke of luck - the nearest ambulance service was almost certainly located near Salt Lake City, and she landed on their fastest path of approach.

An off-duty EMT was traveling behind the accident, and stopped to render aid, with first aid kit in hand. Traffic was light. Several cars stopped, and we were still close enough to the city that cell phone coverage was excellent. No one who stopped knew exactly where we were - with the EMT present and the driver in decent shape, we drove on to find a mile-marker and call it in to 911. Apparently, her tire blew out and she lost control of the car.

Late august, loaded car - probably a student returning to college. Despite all her good fortune in surviving the accident, it was probably a disaster for her. It didn't look like the kind of car someone would carry comp and collision coverage on, and even an insurance deductible can be a catastrophe for a college student. Some of her belongings fell out beside the interstate - not much, but if all your important belongings fit in your car, a little bit of stuff is a lot. I hope she is safe and well and able to complete her travels with minimal disruption.

You won't get eaten at S.F. Zoo anymore, but you won't have any money left over for popcorn, either

2009-06-20T20:07:00.000-07:00

San Francisco Zoo had a little "oopsies!" last year when a group of teens/young adults *allegedly* taunted a tiger that had never climbed out of its enclosure before. Whether they taunted or didn't taunt, the tiger found something especially delightfully delicious about that particular trio and did something no San Francisco tiger had ever done before - climbed out of her substandard enclosure and went a-huntin' for a taste of Dhaliwal*. This was not the economic high-point of their year. The zoo is now running a deficit.

It got me wondering - how bad are zoo prices in San Francisco? Well, not much worse than a movie, but, then again, the zoo pays their stars in grass, hay, kibble, mice... Here's how some zoos stack up:

City Adult/Child admission
(Generally, children under 3 are free, children over 10-13 are charged as adults)
San Francisco:
Sacramento: $9.50/7
San Diego: $35/26
Portland, Oregon: $10.50/7.50
Bronx, NY: $15/11
Queens, NY: $7/3
Boston, MA: $13/7
Minnesota: $16/10
Columbus, OH: $12/7
Chicago: Free
Washington D.C.: Free
Topeka: $5.25/3.75

You take an upper class family, they can take their kids on Safari. A middle class family can send their kids to a school with regular zookeeper visits. But poor family can raise a little genius, too, because they have access to so many stimulating experiences in American cities. Museums, Shakespeare in the Park, matinee concerts, libraries - this is the American dream, rags to riches on nothing more than pluck, perseverance, determination, sacrifice and enough love for a parent to get off their butt and schlep around to cultural experiences that narrow the gap between rich and poor. America became a leader, a beacon to immigrants from throughout the world - because we offered equality of opportunity, not because we offered really good food stamps.

And God bless 'em all. How many privileged middle class families do you see that can't be bothered to slap their child and say "you say please when you order the Barista to bring you a latte, young man! And pull your pants up!" You show me a young, poor, struggling single parent spending evenings and weekends parenting, and I'll show you 5 entitled middle-class or better families that think parenting is a fun hobby, one that should never be corrupted with discipline, responsibility or, you know, parenting.

I am a bit saddened the cost of taking children to the zoo is so high in so many cities. One of the beautiful facets of American life is that we make a tremendous amount of cultural and educational experiences available and accessible for all families. I'm not saying the government needs to guarantee every kid an annual zoo pass. A lot of zoo funding comes from committed donors, fundraisers, and volunteers. I think the 1 adult+1 child=$20 zoos should really look at their financial management and their business model. I'll tell you what, if I can walk into the zoo for free when I have a free hour, I am more likely to expose my child to the wonders of the world beyond our hometown - and I am also more likely to buy my kid the $5 ripoff bottled water, or the annual membership or the full retail priced book in the gift shop. You still get the money, but we all get to feel better about it, and the poor families still get to stimulate their children's intellectual growth.

* Yes, the Dhaliwal's friend, a young man reported to have been a pillar of society whose biggest flaw was hanging around with friends who had been arrested before and were arrested again, he is dead and his parents are now mourning the loss of their beloved son. I am sorry for their pain, and I realize that my opening paragraph is in somewhat poor taste with respect to those parents' feelings. But my BS meter really dislikes implausible stories, and it loathes implausible stories that then result in fat payouts to the people spouting the implausible stories, especially when said payout is likely to be used to pay criminal defense attorneys.

CaptchaKu Haiku by Captcha

2009-06-12T17:08:00.000-07:00

I seem to get interesting word combinations from Captcha. Today's entry:

Morning Upon
Taiwan Periled
Overlooks Inquiry
Following Finding
Electoral Complete

Although, perhaps it meant Iran.

Stress Tests: An Abundance of Caution, or a Warning?

2009-05-05T09:27:00.000-07:00

Have you noticed that the government has been giving banks "stress tests" to determine whether the banks have enough capital - for what? The stress tests supposedly measure banks' are sufficiently capitalized to survive a severe and prolonged recession. Why on earth would we test banks' ability to survive a severe and prolonged recession if we believed that the economy will improve by year's end?

It's a little reminiscent of the logical inconsistency between banks needing TARP bailouts last winter, and reporting record profits by spring. Am I the only one who feels like we've fallen into bizarro world?

Perspective, News, Media

2009-04-29T15:43:00.000-07:00

I think the single most important development in the last century is the widespread and nearly instant access to news, entertainment, and information from throughout the world. Television started it, cable TV advanced it, and the Internet strapped a rocket to its butt and lit the fuse. One odd little consequence of media proliferation is the selection of stories. Coupled with vast population increases, information sharing has changed drastically.

A hundred years ago, a person in a small town got most of their local news over the fence (gossip), and got their business/politics news from the papers. The proportion of stories would be fairly similar to the proportion of events that impacted a community (albeit with a slight emphasis on scandal and a bit of inaccuracy in gossip). So if one house was burglarized, the average person heard about one house being burglarized. If a house in another town was burglarized, that burglary would be reported in their local news. When I was growing up in the 1970s, parents worried about their children being stolen. Was it because child disappearances were an epidemic? No. It was because child disappearances seemed like an epidemic when every news-watching person in every town in America heard about virtually all of the (still rare) child disappearances happening throughout the country. Television made all news feel local.

Then you throw population increases into the mix, and the world feels mighty dangerous, indeed. Even if child disappearances held steady at (I'm totally making this number up out of thin air) 1 per 10,000 population, every time the population doubled, that would mean that the number of cases doubled. In 1930, our population was less than 3 million; today, it is over 300 million. That's 100 times more people. If long-term trends continued unchanged, that should represent 100 times more crimes, 100 times more illnesses, 100 times more divorces, 100 times more marriages and church picnics and everything else that is, generally, proportional to population.

Our perception of risk has jumped off the deep end. Some kid shoots himself while playing with grandpa's gun and the story is different through the TV lens. A hundred years ago, if you heard over the fence that little Johnny shot himself accidentally, you knew little Johnny and you knew he was an idiot. Now, you hear about it on TV and the reporter doesn't mention that little Johnny is an idiot, and a lot of people respond with "we need a law to keep that from happening to my kid!" Pretty soon, we have a lot of laws to protect normal kids from abnormal risks, and we get into a legal game of one-upmanship. "By golly, if it's illegal to talk on a cell phone while driving, it out to be illegal to ____ [fill in the blank]. That's WAY more dangerous!"

Perspective has been completely destroyed. Our brains have to filter out information just to survive (imagine if you couldn't ignore all of the conversations at other tables in a restaurant), and we alternately filter out anything that affects "the rich," "the poor," "minorities," "majorities" and various groups we aren't in, we filter out anything affecting an irrelevant number of people (only 1,000 dead? that's not news), and then we filter in anything intolerable-but-possible (children dying? I couldn't stand to have my child die!).

Maybe every newscast should end with a shot of perspective. "20 people have been diagnosed with the possible killer flu. In other news, 299,999,935 Americans probably don't have killer flu. 299,999,600 Americans have not been kidnapped, and 140,000,000 Americans did not pay any Federal income tax this year. 298 Million Americans have not been killed or seriously injured in an industrial accident, while 400,000 Americans have been laid-off as their jobs shipped to nations that do not try to outlaw every possible danger. Thank you, and Good night."

Remodeling: Contractor Progress Payments

2009-04-24T14:15:00.000-07:00

We've run into a bit of a problem with our contractor. It seems that, despite us telling him many times that we want everything done to code and we want all necessary permits, he doesn't like to pull permits. His contract - his boilerplate contract, not ours - says that he will handle all the permits and all the permit costs. So he called us the day before beginning work and asked if we wanted a permit for the job. Of course we do. Say what you will about the government's right to control construction of our house, we feel that the prudent thing for us to do is to comply with the applicable laws. If the law says we need a permit, we want a permit.

So the contractor demanded the permit fees. We pointed out that the contract says the fees are included, and that we agreed on a price in the belief that, as the contract says, permit fees are included. Consequently, the contractor feels aggrieved and has been difficult to work with. If I knew a week ago what I know now, I would have hired someone else. And I'm all the more peeved because we selected the contractor who presented the best quality quote, not the lowest price. In the process of dealing with the "forgotten" permit, the contractor breached our trust. His subsequent attempts to cut corners on the job have further damaged our respect for him.

Today we made another progress payment. We have a big mess, bare wall studs, exposed wiring, partial plumbing, a hole in the floor. Our contractor now has 65% of the contract cost in his pocket. I'm feeling a bit nervous. I made a mistake in agreeing to front-load the progress payments so much. For example, we made a large payment upon completion of framing, not realizing that framing is basically the first task. Now, the job is perhaps 30% complete, while the payments are 65% complete. I have no reason to believe that the subcontractors have been paid; if the contractor doesn't pay them, Mechanics Lien law allows the subcontractors to sue us for their fee (even though we have already paid their fee to the General Contractor), and to place a lien against the house if we refuse to pay. If the contractor quit now, he would have a legal obligation to refund us the excess payments, but we would have the burden of recouping that money from him - not an ideal position to be in when local contractors are going bankrupt.

In the future, I will make sure that we have a more detailed definition of what work shall be complete before a progress payment is due. I will also make sure that the payments are slightly back-loaded; the contractor will have to finish the job to receive payment in full for the work.

I also discovered a neat little website. In Sacramento County, you can look up building permits by contractor name, company name, job site address, etc. So next time I hire a contractor, I will look up his/her permits before I interview him or her. If he/she has not pulled a substantial number of contracts, I will ask why. And when I buy a house, I will search for permits issued to that address. If there are no permits and the house has obviously-new items that require a permit, I would rather know that before I buy than after.

Is it better to earn $11k/year or $60k/year?

2009-04-15T14:07:00.000-07:00

The Sacramento Bee has an interesting graphic depicting how long it takes various people to earn $100,000. They show a single waitress at the bottom of the heap, the poor woman takes 7 years to earn $100k. But that doesn't tell the whole story.

A family of three, headed by a single parent, earning $11,700/year gets much more than $11k/year's worth of standard of living.

The family qualifies for a Section 8 housing assistance, worth over $12,000/year.
The parent qualifies for the Earned Income Credit, worth $4,710/year.
Temporary Assistance for Needy Families gives them $8,448/year.
They get Food stamps worth $372/month, or $4,464/year.

The qualify for free school lunches, worth $2.57 each, or about $925/year.
They qualify for MediCal/Medicaid worth, conservatively, $300/month or $3,600/year.
They don't pay a penny in taxes. They contribute 8%, $941/year, towards Social Security.

Equivalent Net disposable income? $45,900. With welfare benefits, the needy family has about the same standard of living as a family earning $50k a year.

Contrast that with an accountant earning $60,000 a year to support a family of 3. The accountant will pay about $3,800 in California state taxes, and about $3,600 in Federal taxes, and $4,600 towards social security.

Net income after taxes: $47,900.

For all the years spent in college, all of the job stress, all of the work and planning that went into having a decent middle-class job, the accountant has just $4,000 more disposable income than the welfare family has. Meanwhile, the accountant has to worry about job security; the needy family has financial security because they will still have food and housing even if they lose their job.

The accountant takes work home with him/her, reads accounting journals, studies up on changes to the tax code. The job has a lot of responsibilities that spill over outside work hours. The accountant is a salaried employee, with no compensation for overtime. If you divide the disposable income by hours worked, the accountant actually has a lower net hourly wage than the "needy" parent has.

What is wrong with this picture?

The chart shows the income of a single parent with 2 children, earning $60,000 a year. The long periwinkle blue bar is the income the family keeps after taxes, the three small bars on top are state and federal income tax and social security/FICA withholdings.

The bar on the right represents a single-parent household with 2 children, earning $11,772 in wages. The blue bar near the top is social security withholdings, which is the only income tax the parent pays. The periwinkle blue bar second from top is wages. The multiple bars below wages show how much government subsidies raise the family's effective income.

Edit: Added the bar chart.

Everybody's talking about a bottom in real estate

2009-04-03T14:00:00.000-07:00

"Of all mortgages covered, at year-end slightly more than 10 percent were nonperforming, meaning behind on payments, compared to about 7 percent nonperforming in September. "

From: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/03/BUU716RR4Q.DTL

Article is a good read, with some nifty graphics.

Here in the Sacramento area, I've seen homes listed as short sales for a very long time at unreasonable prices. I made an offer on one, an incredibly risky all-cash offer, and the bank didn't accept it. The house is now in the process of foreclosure, and I would not offer the same price for it today (the market has fallen since then, and the house has had a full year of not being maintained). Generally, when a house goes from short sale to foreclosure, the bank drops the price to a reasonable price, sometimes even a fabulous price. Sometimes, although it's rare, we see short sales at reasonable prices. Why are some so incredibly over-priced that they cannot sell, while others are priced almost as low as foreclosure prices?

It appears that the banks are only willing to be reasonable on short sales if the buyer stops making payments. As long as the buyer is paying, the bank will insist on an unreasonably high price. I base this observation on another observation - over-priced short sales sit on the market for a long time, some go well over a year, which suggests that the borrower is continuing to pay (otherwise the banks would have foreclosed). Well-priced short sales, if they do not sell as short sales, come back on the market rather quickly as foreclosures, which suggests that they were in foreclosure (not making payments) while listed as short sales.

So some of the increase in "seriously delinquent" mortgages may actually be a sign of buyers catching on to the bank's tricks, rather than an indication of increasing illiquidity. Still, the fact that serious delinquencies are increasing even as the government hands out free loan modifications, coupled with the overhang of inventory that is not presently on the market, suggests that the bottom may not yet be here. The article says that 10% of all mortgages are non-performing; when you think about the fact that many, many people have less than 10 years remaining on their mortgages, many people bought their homes in the 1980's for less than $30,000, a whole lot of people owe very little on their homes, 10% of all mortgages is a LOT. Then again, at least in Sacramento, there are homes priced so low that they cash flow even at very low rent assumptions, even if expenses are rather high (like if the owner hires a property manager). So, bottom, top, I don't know, but caution is still warranted. Not inaction, not abject terror, but caution. As I look to buy, I keep reminding myself of the old saw, "markets can stay irrational longer than you can stay liquid."

Putting saving first

2009-03-25T18:16:00.000-07:00

It sounds so scary when experts tell us how much we need to save for retirement. For every $10,000 we want to spend, they tell us we need to save $250,000 (for a 4% withdrawal rate, which maximizes the likelihood it will last throughout old age). That just sounds impossible for a family making $40k a year - heck, it sounds impossible for a family making $100k a year in high-cost-of-living areas where people are likely to earn that much. But small steps lead to medium steps which lead to great results.

$25 a month is a start. Heck, if $10 is all a person can save, the $120 they've saved after just a year is a small fortune. Then, when they don't have to pay late fees and use check-cashing services to do basic banking, they can save even more. Then, when they have a couple thousand dollars, when some swindler tells them they can buy that $1500 sofa for "just $25 a month" (forever), the little voice in the back of the brain says "gosh, that's almost every dollar I've got. It took me years to save $1,500. Maybe I better buy a $100 sofa off craigslist until I can afford to pay cash for a new sofa." That is a life-altering moment that leads to financial freedom.

Cash savings means not having to sell the car for gas money. It means not refinancing the house every 2 years for living money. It means paying off the house in 30 years, and having an affordable place to live in retirement. It means having money to buy a house when everyone is selling, and being able to take that terrific job in another state, even though the employer won't pay moving expenses. It means keeping food on the table during illness or layoffs. It means being able to afford insurance so that all the little problems life throws at you - and life will throw them - don't bankrupt you.

Two years ago, on Christmas eve, our water heater died. We had just inherited a child, with private school expenses and transportation expenses and food expenses and clothing expenses that we hadn't prepared for. But we had savings, and we had a determination to get our budget under control. So we cut some expenses that we didn't need, and we dipped into savings a for a few months while we adjusted, and when that water heater died on Christmas Eve, we were blessed. We didn't have to go to the stores to return all the presents, and we didn't have to wait until the plumber that accepted credit cards opened after Christmas. We called the 24-hour plumber, wrote a check, and went to celebrate the holidays. Let me tell you, we've both been in situations where it would have been different. But we've made saving a priority - so we made continuing to save a priority - and we're not rich, but it sure feels wealthy knowing we can give Christmas presents without going into debt, even after spending 800 unexpected dollars on Christmas Eve.

Saving starts with whatever small steps we can do. Nobody needs a latte or a dinner out or a new TV. Experts sometimes make us feel like we may as well give up if we can't put away a thousand dollars a month. That's just not true. A dollar a month - if it's really all we can afford to save - gives us the small fortune of $12 after a year. $5 a month is $60 in year. $100 a month is $1200 in a year. Don't even think of it as a year, if that sounds too hard. It's just saving once a month, twelve times. Lather, rinse, repeat.

Saving is a gift to ourselves, a promise that someday, we won't go into financial crisis every time we need an oil change or a brake job or a $100 continuing education class. Eventually, after a few years, it's the gift of peace. It's getting out of debt, staying out debt, and having options. Then, as the decades pass, it's the gift of understanding money, understanding how hard it is to earn, how hard it is to keep, how much easier it is - in the long run - when we just say no rather than say "charge it!" At retirement or during an ugly layoff, it is the gift of staying fed, clothed, and housed.

A lot of experts say to pay off the credit cards before putting money into savings. For me, I needed to save first, to have the security of not needing the credit card when unexpected expenses popped up. I needed to have the sense that I could do it, that it was worth it, and what it really took. I started saving young, but things kept happening, and I eventually gave up. Just plain gave up. But when I started again, I realized that my sense of money was skewed. My idea of what was "a lot" of money had been framed by credit limits and how much I could buy for "just $25 a month" and news reports of billions, and, honestly, by the false belief that I earned my full salary every year. After taxes and deductions, after housing and food, I had less than half my salary left over, but I still thought - when spending - in terms of "I earn $X a year." After I struggled long and hard to save $1,500, I truly understood that $1,500 was a lot of money.

There's a sneaky side benefit to saving, too. If you pay 15% of your income in taxes, and you save 10%, you're only living on 75% of your income. So if you lose your job, you only need to make up 75% of your income to maintain your standard of living. If you couldn't afford to save and eat out every week, you already gave up eating out once a week - you don't have to cut back so much during lean times. It's tough to cut back after a layoff - you already feel low about losing your job, and then having to cut back makes you feel poor, on top of it. But if you cut back to what you could afford before crisis hit, so you could save, you have a cash cushion and you don't need as much. That's double the bang for the buck.

Nobody talks about the benefits of saving. They just say you should do it, save for a rainy day. I say, save for a sunny day, because savings makes those rainy days a lot less dreary. If it never rains, well, saving is still mighty good. At first, it's just less drama, but then it's dramatic benefits, being able to buy a house, being able to go on a trip without borrowing, being able to pursue a dream or retire early or put your kid through school. It's a freedom and lightness that everyone should experience for as much of their life as possible. Put saving first, before the lattes, before dinners out, before the luxuries, because financial security is the best luxury money can buy.

Swimmin' nekkid

2009-03-18T14:06:00.000-07:00

Buffet is quoted as having said, "when the tide goes out, you see who's been swimming nekkid." You see who can't make ends meet anymore, with their credit cards cut off. You see who can't handle their mortgage payment and who can't handle their car payment. But, then again, you see who hasn't been swimming nekkid. You see who is keeping their house, keeping their car, quietly buying a little investment property, picking up some small luxuries and still not going bankrupt.

You start to see that the people buying generic groceries with coupons are paying cash, while the people buying the expensive brands of potato chips are using food stamps. You notice that the big-screen TVs are being loaded into couple-year-old boring cars, and the food bank is loading groceries into bimmers and Escalades. If you're smart, you notice that the geegaws of conspicuous consumption are dragging people underwater, while the sensible cars and total lack of bling that embarrassed people's kids a few years ago turn out to be tools for financial freedom.

I have tried to teach my nieces and nephews some basic finance lessons, like saving and avoiding debt. It has sometimes been hard to teach those lessons, when the kids don't see me as a financial guru or expert. People who know about money, they think, have enough of it to drive the Escalade and live in the the McMansion and wear designer clothes. I live in a totally mundane house, drive a mundane car - gosh, the kids think, if I knew anything about money, I would be able to afford better.

Which, of course, was exactly what I was trying to teach them. If I afforded better - usually on borrowed money - I wouldn't be able to build savings. Getting rich, without an inheritance, an incredibly lucrative career, or a lottery jackpot, is all about spending less than you earn. It's about plugging the budget when you start "leaking" money. It's about putting a little away, regularly, until it becomes more than just a little, and then investing it wisely so it can grow into a little something. But all those nekkid swimmers out there, living high on borrowed money, undermined that message - for my nieces and nephews and for the rest of the kids.

So maybe it's not such a bad thing that the tide is going out for a while. Young people's heads have been filled with lies about finance. They thought that people who spend a lot of money are "rich" while people who spend moderately - but actually save - are poor. "The Millionaire Next Door" showed that more millionaires are created on moderate incomes but high savings rates, than are created on generous incomes but luxurious lifestyles. Self-made Millionaires, it turned out, clip coupons and re-use ziploc baggies and they don't have to have NFL-star salaries to make themselves Millionaires.

If young people today, going out into a work force where pensions are no longer available, where life expectancies have grown faster than savings rates, where globalization means outsourcing crummy production jobs AND well-paid professional jobs, if those young people are going to have the luxury of financial security and freedom from extreme financial stress, they need to learn the spend-less-and-save philosophy (or else the tax-more-and-make-do-with-less philosophy).

When the people who only had credit are, well, discredited as financial experts, that's painful in the short-term but healthy in the long term. When savers get the goodies and over-stretched borrowers don't, it rewards responsible behavior and creates an incentive for other people to mimic responsible behavior. That's a good message for the kids.

Now it's the Insurance Companies

2009-03-17T06:32:00.000-07:00

It's all so predictable. In the interests of marital harmony, I have avoided saying "I told you so," but my tongue is getting sore from being bitten all the time.

If you're a Californian, you're probably headed for double incentives to sell off your excess cars. The car tax is going up, and it's a darn good bet that your car insurance is going up, too. Because there's a natural cycle in the insurance industry, and most people don't realize that it rises and falls on the stock market.

The basic model for insurers is to sell insurance at just about what they expect to pay out (spread over many, many insurance customers) so that the insurance side of the business is barely profitable. But they don't pay out every dollar in the year they get it - so they invest their cash reserves and make their money on the investment profits. In a sense, the investments have been subsidizing our "cheap" premiums during all these high-growth years.

When investment markets are booming, insurance companies lower their rates to attract more customers - to attract more investment capital. Eventually, the boom fades, the investment returns slow or even reverse, and the insurance companies then scramble to layoff employees, cut costs, and raise premiums to at least cover costs. Trouble is, right when insurance companies start losing out on investment returns, their claims start increasing. People who would work through the pain in good times, take disability when jobs are scarce. People "accidentally" leave an unattended candle in the house that won't sell, they "lose" valuables and they "break" insured stuff (like cars with hefty loan payments). People make stupid mistakes when they're stressed out about the economy, and people do desperate things when the economic problems hit too close to home. Theft increases, vandalism increases, worker comp fraud increases, and the insurance companies start feeling like even their mothers only call because they need something.

Compounding the natural cycles in the insurance industry, this year we've got once-in-a-lifetime investment losses and a sudden contraction in the number of individuals (families and businesses) that can carry the necessary rate increases. When you get three generations living in one house, they're only paying one homeowners' insurance policy. A lot of people in financial distress discover that they don't need a second car, maybe not even a first car. And businesses that go out of business drop all of their insurance policies - general liability, workers' comp, key-man life insurance, business continuation insurance, et. al.

Girl Scouts aren't the only ones passing their cost increases on to the consumer.

Incongruous thought of the day

2009-03-01T16:04:00.000-08:00

MySpace: "The W H Macy appraciation societies aims are to celebrate the William H Macy through the wearing of costumes..."

(If you don't know, William H. Macy is an American character actor, and I don't know that he has ever worn a costume, outside of wardrobe and sometimes props, like eye glasses.)

The myth of the $600 hammer vs. the Data Driven Life

2009-02-27T11:12:00.000-08:00

The myth of the $600 hammer (12/7/98) -- www.GovernmentExecutive.com: "Bookkeeping based on congressional appropriations makes such cost-finding immensely difficult. Functions that in practice are inextricably intertwined are often paid for by totally separate line items in the budget. New weapons are bought with one 'color of money,' existing weapons are maintained with another, and the personnel who operate them are paid with a third. In fact, to save administrative costs, military salaries and pensions are all paid from one central office. As a result, said Eckhardt, among commanders 'there's a tendency to view military labor as free, because you're not making any expenditures from your installation [budget] to pay those people.'"

This is a fascinating article that, IMHO, should be required reading for every voter and taxpayer in the country.

In my household, we live the data-driven life. Our budget is updated to reflect actual fluctuations in income as well as risks to income. Our retirement plan includes a spreadsheet tab showing our assets and future income, with risk level specified (our home equity, for example, for a house east of Sacramento, is subject to employment trends at the major local employers, including the State of California). We break our budget down into monthly figures for both monthly costs and intermittent costs. For example, although we don't have a car payment, we have a monthly budget item for a car "payment" (the cost of our average car, divided by 5 years, because we typically replace one car every 10 years, and we have two cars). We budget for vacations and gifts and replacing the computer every few years and redecorating periodically.

The idea behind our budget is to 1) recognize the true costs of a daily latte or a Christmas splurge and 2) ensure that we set aside enough money for our day-to-day expenses as well as our year-to-year expenses. Most of our savings - in retirement accounts and taxable accounts - is earmarked for retirement and we hate to take money out of retirement for current expenses. It is, perhaps, an odd habit to try to account for both daily expenses and once-a-decade expenses in our monthly budget, but it encourages us to be honest about our expenses.

Let me give you an example. When we buy groceries, we multiply the per-meal cost by 30 to determine where it fits in our budget. If the meal cost is so low that eating it everyday would put us under-budget, that's a meal we can eat as often as preference and health considerations allow. For instance, $5 meal, if we ate it every day, would put our monthly dinner budget at $150, which is affordable. On the other hand, we make some recipes that use multiple fresh herbs. At $2 per herb, plus a pricey cut of meat and out-of-season vegetables, we have accidentally spent as much as $25 on a good, but unexceptional, meal. If we ate like that every day, our dinner budget would be $750, which strikes us as unreasonable. That's not to say that a $25 meal is out of the question - it's still cheaper than going out to eat, so it's a good value if it is at least as enjoyable as going out to eat. Our local restaurants don't use particularly fresh ingredients or especially creative recipes, so cooking something special at home is often more enjoyable for us than dining out. Expensive meals are relegated to occasional treats, not cut out altogether.

On the other hand, I agonized over replacing my laptop computer. I could get a fast, powerful computer for about $1,000, or I could get a functional computer that is much faster than my current computer, for around $500. That's a lot of extra money to spend. (In fact, I am still on the fence and holding out for prices to drop.) But we realized that we hadn't budgeted for computer replacement, so we added it to the budget. We replace the computer about every 3 years, so a $1,000 computer works out to about $30 a month. In other words, I should agonize over the $4 daily latte ($120/month or $4,300 over 3 years) and just go ahead and buy the better laptop computer.

See, without data, the latte seems like "it's only $4" and the computer - which is more useful and valuable - seems like a lot of money. Data is powerful stuff, useful stuff, and if it helps me spend money smarter and save money more often, imagine what it would do for the government?!

Ziprealty can kiss my price predictor

2009-02-15T17:50:00.000-08:00

I've written before about the heinous algorithm used in Ziprealty's "Predict It" price "game." It still sucks.

There is a neighborhood that I track. I know this neighborhood pretty well. A house came on the market, bank-owned REO. Before it hit MLS, we spoke with the bank's agent about buying the house - but their price was crack-smoking high. When the house hit MLS, I "predicted" the selling price on ziprealty. The house has languished on the market, unsold at its unrealistically-high asking price. The bank finally lowered the price, but the price is still unrealistic. Another house on the same street came on the market last week, a smaller house on a larger lot, but in much better condition. The second house is priced realistically - although not low enough to drive much traffic, let alone a bidding war.

The listing agent decided to relist the property when he lowered the price. So although the asking price is now within spitting distance of my price prediction, my "Property IQ" for the property is calculated by comparing it to the asking price in the original listing. That's a bogus programming choice, and one designed to support the asking (wishing) price as the realistic value - in a market where the State budget crisis, continuing economic uncertainty, and the all-important employment rate are all dragging home prices down. The major local employers have announced cutbacks - or investment anywhere other than California - and the State of California keeps threatening to layoff State workers. These are not conditions that bode well for rising home prices anytime soon, so why design a price algorithm that is heavily weighted towards asking price, unless the intent is to subtly manipulate buyer sentiment towards the asking price in the complete absence of any validation of asking price?

Ziprealty has an "Offer Evaluator" tool that compares the offer price you enter to recently sold properties in the same area. I simply enter $1 as the offer price, and the Offer Evaluator tells me that $1 is unlikely to be accepted because most comparable properties sold within ___% of asking price. But that's the key piece of information - it tells you what percent of asking price (typically 95%-105% of asking) most similar properties sold for. And yet, the Price Predictor skews towards asking price, even when the Offer Evaluator shows that most similar properties sold well under asking price.

Another flaw in the price predictor is that it basically ignores user input. On several properties I've "played," all players entered prices well below asking price, yet the algorithm claims that the Community prediction is merely hundreds to a couple thousand below asking price. Which begs the question - how many users does it take to make the "Community Prediction" actually match the predictions entered by the Community? A thousand? A million? 4.6 Trillion?

If this was meant to be a useful tool, it would have been designed without so many major flaws in its algorithm. If it was meant to be a subtle marketing manipulation, well, it's perfect. Bankers weren't the only sleazebags that created the bubble, they're just the only ones who've had to stop being so overtly sleazy.

Is Saving Sexy? Is Talking about Finances Romantic?

2009-02-12T17:31:00.000-08:00

Laura Crowley wrote an article about the romance of talking about finances. Oh, it seems silly - Happy Valentine's Day, honey! Let's talk about the budget! - but maybe not. In my house, we talk before holidays about what our gift expectations are, and what our budget is. It's unspontaneous, sure, but there haven't been any "how could you buy me a toaster when I got you a sports car?!" arguments, either. And the B word - budget - has been helpful for holiday spending choices, too. This is my second marriage. In my first marriage, I was always the bad guy because I tried to limit our spending to increase our saving. I got lucky this time around - I found someone I love and respect, and I also stumbled upon the perfect fall guy, Mr. Budget.

Okay, honestly, Mr. Budget doesn't get a lot of blame, but he gets to be the unromantic guy that says "Diamond tiaras for President's Day?! No way!" We agreed on a gift budget for the year, and our pre-holiday budget discussions usually go something like this:

"How much do we want to budget for [upcoming holiday]?"

"I dunno. How much do you want to budget?"

"I dunno. How much do you think is reasonable?"

"I dunno. How much do you think is reasonable?"

(Side note: Before we created a budget, this conversation would go on 5 minutes, get nowhere, and repeat every few days until the holiday itself. Now, thanks to the budget, we have an out.)

"Well, we've budgeted $__ for the year. We have $__ left. Will 10% of that work?"

"Gosh, that's not much. Do you want to just exchange cards and have a nice dinner?"

"Sure."

"Okay."

There are certainly holidays where we decide to exceed our budget. But looking at the budget first makes us mindful that the extra money has to come from somewhere - withdraw it from savings or cut some other expense. We both hate withdrawing from savings. Since we're honest with each other, we know that steaks and lattes are a luxury, and we know where we can cut back.

Chocolates and flowers are romantic gestures, but creating a way of dealing with finances that honors both partner's fiscal AND emotional needs in the long-term and short-term, that's more than a gesture. It's like getting the brakes fixed or buying clothes for the guy who hates to shop or doing the early feeding so she can sleep in. It's grown-up love, and it's romantic in a very boring, very loving way. It says "I hope I don't, but I could die. I want you to have a good, happy life without me," and then buys life insurance. It recognizes that "til death do we part" is a mighty long time, so we'd better build some savings. It puts more credence on keeping a healthy heart then on buying a fake diamond heart. This Valentine's Day, as I count my blessings, I'll spend a moment being grateful for the Hallmark-free gestures of love that sometimes get taken for granted.

Besides, a good budget always has room for chocolates.

Happy Valentine's Day!

Unemployment at 13.9%?

2009-02-06T12:19:00.000-08:00

John Burns Real Estate Consulting publishes a newsletter on housing. This week's report says that unemployment is 13.9%. "The U-6 unemployment rate, which represents 13.9% of the total adult population who wants to work, also includes part-time employees who would rather work full-time."

There is a problem with saying that things are better (or worse) today than they were during the Great Depression. We have modified our data definitions so much that today's data really isn't comparable to 1930's data.

Meanwhile, California State workers are crying about mandatory furloughs. They take a day off without pay - but their pay rate isn't cut - and they keep their jobs. One of my concerns about the mid-term housing prospects in Sacramento County was State layoffs. It has been clear for several years that state spending was unsustainable. If the State can keep workers on at a lower rate of pay (via furloughs or pay cuts), that would be a positive for State employees, for the housing market, and for the local economy.

In fact, we might consider adding tax breaks for employers who avoid layoffs over the next three years, as an incentive for employers to pull together and help the economy avoid further contraction and decline.

Stimulus Brings Out City Wish Lists: Neon for Vegas, Harleys for Shreveport - WSJ.com

2009-02-05T16:26:00.000-08:00

Stimulus Brings Out City Wish Lists: Neon for Vegas, Harleys for Shreveport - WSJ.com:

"Las Vegas, which by some accounts already glitters, wants $2 million for neon signs. Boynton Beach, Fla., is looking for $4.5 million for an 'eco park' featuring butterfly gardens and gopher tortoises. And Chula Vista, Calif., would like $500,000 to create a place for dogs to run off the leash.

These are among 18,750 projects listed in 'Ready to Go,' the U.S. Conference of Mayors' wish list for funding from the stimulus bill moving through Congress. The group asked cities and towns to suggest 'shovel ready' projects for the report, which it gave to Congress and the Obama administration."

Stimulating the economy back to 2005 would not be a good thing - we were wasting money we didn't even have, buying jewelry (bling) for our cell phones (!?!) and putting $50k/yr. families into $50k SUVs.

We need to stimulate HEALTHY spending. What's healthy spending? Investing to increase future earnings or to decrease future expenses. Building projects, though they sound good, will merely take workers off unemployment for the duration of the project, then put them back on the street when the project's done. Obama could take a page from Kennedy's book - putting a man on the moon gave us a surge of innovation and a huge psychological boost. It was ambitious, it was crazy, and it worked. President Obama needs his own "man on the moon."

How much is a Trillion?

2009-02-03T19:32:00.000-08:00

The current porkulus package is just shy of $1 Trillion. Gosh, just a decade ago, we were hearing "a million here, a million there, pretty soon you're talking about real money." Obama isn't even proposing a whole trillion - just 8 or 9 tenths of one.

We have 300 million citizens in America. Go google "1 trillion divided by 300 million" and you'll see that this one little bitty trillion dollar package will cost every man, woman, and child in America $3300. The average family is about to add $10,000 to their debt load.

America has an unfunded liability - money we've borrowed from Social Security, promised Medicare benefits, and military/government pensions that haven't been funded - of about $40 Trillion. Our national debt is about $10 Trillion. We are $50 Trillion in the hole, and digging our debt grave ever deeper.

With $50 Trillion owed, every American owes $150,000. That is roughly half a million dollars per family. That's $150,000 per man, woman, child, bank executive, welfare recipient, student, dog trainer, social worker, engineer, and salesman. That's an average of $150,000 per person, but, truthfully, a huge population of Americans will never pay more than $5000 in taxes in their lives. The rich and middle class taxpayers will end up paying their own $450,000 per family, and then they will have to pay for one or two or a hundred other families' share of the debt. And, in the meantime, we'll be paying interest on the debt. Right now, $10 Trillion of the debt is owed to outsiders, and the other $40 Trillion is owed to Social Security beneficiaries and government retirees. As baby boomers age and retire, that unfunded liability will become an actual liability, and the government will have to borrow to pay out real dollars to retirees.

For every $1 Trillion borrowed, we owe $30 Billion a year in interest (at 3%) every year. Right now, we pay about $300 Billion in interest on government debt. If we don't find a way to reduce debt and pay off our liabilities, our yearly interest payments could grow to $1.5 Trillion in interest payments every year.

So to anyone complaining about the GOP holding up the stimulus bill, maybe you should thank your local obstructionist lawmaker. Or else put your money where your mouth is - send Obama a few thou to help "stimulate" the economy, and toss in a few extra thou to help break out of the debtor's prison the United States is building around ourselves.

Stand tall, speak up, make the world a safer place

2009-01-29T14:03:00.000-08:00

New Haggard accuser: 'He really thought he was invincible' - CNN.com: "Grant Haas told CNN he began receiving text messages from Haggard in January 2006 that were 'out of the ordinary' -- questions about what sexual positions he enjoyed, what drugs he used. He said the approaches culminated in a hotel-room encounter in July of that year, when he said Haggard offered him pills and masturbated in a bed they shared."

It doesn't matter what gender Person A or Person B is; if a person in a position of power and authority over another person - adult over child, teacher over student, preacher over flock - uses that power and authority to manipulate or intimidate someone to engage in sexual relations of any nature, that person is a huge scumbag. Period.

Yet male victims vastly under-report incidents because we as a society throw 5 million kinds of bullshit onto the male sexual identity, and unreported scumbags typically go on to victimize someone else. So to every male victim willing to come forward and speak publicly about it, I say kudos. Speaking out and going public is a brave act and it will - not just hopefully, it absolutely will - help other men, and that will help other boys and girls and women and animals and the general mental health of our society. Eventually, we will reduce the stigma to a point that little boys will say something the first time someone does something bad - a key point, because abusers often test a victim first by doing small inappropriate things before they do big sexually inappropriate things. And to the fellows coming forward today, I think you stand on the shoulders of a group of men who finally broke the code of silence in the Catholic church and took a big stand against molester priests.

I know it's hard for bystanders to hear these tales, and I know it is tempting to avoid the messenger along with the perpetrator. It's easy to joke, to pretend it doesn't affect us, to hide behind gender stereotypes and lewd jokes about sexual orientation or "scoring." It's hard to admit that boys and girls and men and women cannot always protect themselves from predators, and it is disgusting to realize just how many predators there are out there. Just thinking about it makes me sick. But I realized something when I listened to those now-grown former Catholic alter boys on NPR however many years ago - every time I ignore it and hope it goes away, every time I turn away or turn off the TV or radio or click off to a less bothersome story, I am letting it go on. The only right answer to any victim of abuse is "that's terrible and it never should have happened to you." If we want a safe place for our children, our neighbors, our spouses, nieces, nephews, and friends, we've got to man up and tolerate the discomfort of hearing these stories and gulp down the bile and say "thank you. Thank you for being brave enough to speak up, so this doesn't happen to someone else." And then we have to stay there, not run away, and admit that we are powerless to fix it, that we are clueless about how to help it, but that we care enough - for the victim AND for our society - to stay and try to offer, if not comfort, then at least fellowship and acceptance.

Take your blood-pressure meds, Bobby, it's another Victims of the Housing Crisis story

2009-01-23T14:26:00.000-08:00

"He called his lender last fall hoping for a hardship consideration and asking for a two-month postponement of his mortgage payments. He wanted to have them added to the end of his mortgage. Mobley says his credit rating was excellent, and he was merely trying to free up some cash for the holidays." (Now, perhaps this fellow is too proud to admit he needs the money, so he minimizes his situation by calling it "cash for the holidays," but, please, people, children read these stories and learn by example. Freeing up cash for the holidays is NOT a good reason to ask your lender to incur the expense of processing a loan modification.)

CNNMoney.com has a story about how Tough it is to get a mortgage loan modification. They have the hard-luck cases, like the fellow paralyzed in an accident who can't get a mortgage workout (the article didn't say whether the friend helping out had power of attorney or any other legal status to represent the homeowner - could the problem be a lack of authority for a mere friend to negotiate a loan workout?). They have the real estate agent, who just wants to keep her house of 15 years (okay, not to be cynical, but did they really have half-million-dollar homes in Las Vegas 15 years ago, that would only be worth $350k today?) They have the pitiful retiree, his equity locked in a rental property with an ARM that reset so that the payment is higher than his rental income (I know, it happens, but a retiree who can't afford the potential payment increase should get a fixed-rate loan or sell the house before it's a problem).

Then they have this guy:

But when it came to obtaining a mortgage workout, he wasn't getting anywhere -- even after months of trying. He finally wrote a letter to the president of his lender to try to resolve the issue.
...
After that, however, and after he was asked to send in all his paperwork for the fifth time, he didn't hear from them again for six months. Then, recently, he finally got a call back with a loan workout offer.
The lender offered an extremely low rate, 2.8%, which sounded great.

The problem was the value of his property has dropped from $840,000 to about $620,000 and the lender would do nothing to reduce the mortgage balance. Nash believed he would be upside-down on his mortgage, owing more than the house was worth, for years.
...
He looked around town and decided he could walk away from his house and rent another comparable place for half of what he would be paying his bank just for the mortgage payment.
He loves his house but he's choosing to give it up rather than shackle himself to a bad investment for years.

That's okay, Grandma, I know your supposedly-safe conservative retirement portfolio of bank stocks is worthless now, but at least you have the comfort of knowing that you're living on cat food for a good cause. We wouldn't want poor Kenny to go without cash for the holidays, and we surely wouldn't want poor Ronny to be "shackled to a bad investment for years".

It's a Bird... It's a Plane... Oh, Crap!

2009-01-15T22:57:00.000-08:00

Warm, dry happy thoughts going out to the folks who survived the frigid waters of the Hudson River plane landing.

Funding retirement's peaks and valleys

2009-01-14T10:45:00.000-08:00

As I project our required retirement income, it's not enough to say "we'll need $X a year." Costs will probably rise, and we'll want and need different income levels at different times in our retirement. Early on, we'll probably want to travel. Much later, there's a good chance that we'll need household help and, eventually, specialized medical care. Very early on - whether due to early retirement, job loss with little chance of finding an equivalent job before retirement, or other reasons - we might not have any social security income at all.

Traditional retirement advice says we should save enough so we can comfortably live off of 4-5% of our savings. So for every $10,000/year we want to spend in retirement, we need to save between $200,000 and $250,000. Yowza. But, if we can save enough, we should be able to withdraw 4-5% a year without reducing the principal; or we can give ourselves a raise to keep pace with inflation, and it will whittle our savings down very slowly; or, in the event of catastrophic medical expenses or other major expenses, we'll have a cushion.

I look at our retirement funding in phases. Phase 1, no social security, we live on savings. Phase 2, social security kicks in and, hopefully, we won't have to tap the 401k yet. Phase 3, The 401k gives us a little more money to weather inflation - or to live it up a bit while we still can. Phase 4, perhaps we have medical expenses, or we have difficulty doing our own housekeeping and home maintenance - for whatever reason, expenses rise.

To fund phase 1, our primary plan is to keep working until we can afford to live on savings without jeopardizing our retirement savings for the later years. For phase 2, again, the goal is to save enough/retire late enough to provide adequate funding. Also, careful budgeting - both to accurately predict our income needs and to avoid unnecessary waste - will help. As we enter phase 3, we can breathe a bit easier - since we plan to live without the 401k money for several years, the 401k should just be emergency/fun/inflation money. If we're just taking the minimum withdrawals from the 401k, it should last well into phase 4, when household help and possibly medical expenses increase our costs.

Housing plays an important role in our retirement plan. If we plan well and buy well, our home will be paid-off by phase 4, when we our expenses rise fastest. Now, some folks say that a paid-off house is just trapped equity, but that's certainly not true in retirement. The more income you need to support your lifestyle, the higher your tax bracket. In retirement, higher income means giving up a big chunk of social security benefits to taxes. So a penny saved is 1.33 pennies earned, or more. Plus, a paid-off house will give us an emergency backstop - we can borrow against the house if we need cash (though only as a last resort).

Investment property plays a part in our plan, too. Experts say an average couple needs to save $300,000 just for medical expenses in retirement. My goal is to acquire rental properties with a combined total of $300,000 in mortgages - with a very strong likelihood of appreciating at market rate over 30 years. As the tenants pay the mortgage down, we'll be building up $300k in equity for our twilight years, and the properties' values should (roughly) keep pace with inflation. Ideally, we'll acquire these properties by the time we're 45 - or else buy properties that can cash-flow with 15-year mortgages. Ideally, rents will increase faster than expenses, so the rental properties will provide some income during retirement, but the primary goal is simply to have properties with an inflation-adjusted, after-sales-expenses net value greater than $300k.

That's our plan in a nutshell. We may not hit every goal, but the closer we get, the better our odds of enjoying a retirement free from major financial stress.

Why am I so hard on real estate agents?

2009-01-07T15:30:00.000-08:00

Example 1:

7524 LINDEN AVE, Citrus Heights, CA 95610

List Price: $134,500

55 days on market, 1 photo (front exterior)

Description: "Escrow fell! Your buyers gain!!!! Fannie mae owned. This home is a fixer and is located close to freeway, and shopping. A great investment opportunity!"

Yes, Mr. or Ms. Realtor(TM), let me just play phone tag with my agent who will play phone tag with you to arrange a showing, schlep three or four people across town, and waste an afternoon discovering that, no, it isn't actually a fixer, it's a tear-down. Because that is so much more efficient than YOU actually wasting YOUR time writing up a description of the property and/or taking a couple more photos. For your measly $2,000 cut of a measly $8,000 commission, yes, I can understand that you don't want to actually work more than an hour. My gosh, if you put in a few hours taking pictures and writing a complete and accurate description, you would only earn the hourly rate of a neurosurgeon, and no one wants you to lower yourself to the hourly wage of the riff-raff doctors.

Example 2:

7606 GRANITE AVE, Orangevale, CA 95662

Appears to actually be 7546 Granite Ave, which one can ascertain now that there are actual photos of the house in MLS.

List Price: $310,000

114 days on market as of today

1 Picture - of the chain across the end of the drive - when the house came on the market. First, the agent tried cutting the price, twice. Later - just a couple of weeks ago, after sitting on the market for about 100 days, the agent actually posted photos of the house.

I am unique - but you already knew that, didn't you?

2009-01-07T14:12:00.000-08:00

I took the 43 Things Personality Quiz and found out I'm a Self-Improving Organized Money Manager

I thought I would come out a "Newness-seeking Self-improving Tree Hugger," I didn't. But what was much more interesting than the label they assigned me, was this little blurb:

"0% of the 45891 people who have taken this quiz are like you."

Well, I still think I'm one in a million, but at least I know for sure that I'm one in 45,891.

Budget is Not a Four-Letter Word, especially when buying a house

2009-01-04T16:56:00.000-08:00

Around 2004, our house hunt was going poorly. We were looking for a moderate, middle-class house with a larger garage - or room to add a larger garage. We found a candidate in our price range, just a few blocks from our current home. As we toured the house, we noticed cracks in the walls - the entire center of the house was sinking. That was pretty typical of what we were finding in our price range. So we raised our price range. Then we raised it again. Eventually, we had raised our price range so high that there was not a house in the county that seemed worth the money - but there WAS a house just a couple hundred thousand more that we really liked.

How do you decide how much to spend on a house? We weren't comfortable having a real estate agent make such a big decision for us. I asked our banker what we would qualify for - she ran the application and asked how much we wanted. We didn't know, and she said she had to enter something, so I pulled a ridiculously large number out of the sky, thinking the computer would reject it and spit out the actual maximum. We qualified for the ridiculously high mortgage on a 30-year fixed rate loan. Well, great, but what do we need with such an expensive house?

Eventually, we decided to write up a budget, showing how much we were already spending on everything. We used that budget to write up a projected budget, showing how much we could spend on everything if we bought a more expensive house. In order to make the numbers work, we had to cut back on lattes and hobbies. Okay. We also had to trim our grocery budget - no problem. We had to reduce our savings rate substantially. Ouch. We had to give up 401k contributions. No way.

Voila. We now had a way to decide how much house we could comfortably afford. We put the savings and retirement contributions back into the budget. debated how many vacations and lattes we would need to feel like we weren't slaves to the house, and adjusted the mortgage figure down to accommodate what we felt was a reasonable budget for us. We saw some tempting houses, but then we looked at the budget and decided that having adequate retirement savings was far more important than having a dream house. Besides, most of the potential dream homes needed a lot of remodeling to be dreamy.

The real estate industrial complex marketers encourage a lot of emotional decision-making in the home buying process. It's easy to get caught up in the hype. But our projected budget brought us back to earth, and helped us avoid buying more house than we could comfortably afford. Unfortunately, in the midst of the housing bubble, that meant not buying any house at all. That was good for our budget, but bad for morale. Now, however, we are reaping the benefits, as Sacramento County makes the news for its high foreclosure rate, we are not one of the statistics. Several homes we considered buying in the bubble, are back on the market at $100k less - some as much as $300k less than they cost at the peak.

I would like to take a moment to thank our budget for keeping us out of trouble. I would encourage any would-be home buyer to draw up an estimated budget - including any increased utilities, insurance, and/or maintenance costs. We figured out our moving costs - including any new furniture, drapes, or remodeling we'd want for the new house. Little expenses add up - a new lawnmower, towels that match the new bathroom, blinds for the gorgeous half-circle window in the living room and extension wands for vacuuming cobwebs off the high ceiling can quickly add up to $1,000 or more. If your budget in the new house requires big changes from your current budget, you might give it a dry run - see if you can really live, happily, with cutbacks in dining out, fewer vacations, less lattes. A mortgage can be a 30-year commitment - it's important to feel comfortable that you can live with it for 30 years.

Market meltdown: Where did all the money go?

2009-01-01T14:58:00.000-08:00

On the age-old question, where did the money go... Here is one idea:

Market meltdown: Where did all the money go?: "Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, has a different explanation.

He says that from the market's bottom in 2003 until its peak in 2007, the market value of all publicly traded stocks worldwide grew from about $20 trillion to $45 trillion.

During this period, only about $1.5 trillion in cash went into the market. Debt accounted for some of the remaining increase in market capitalization, but most of it existed only on paper."

Robbing banks is illegal?

2008-12-31T15:43:00.000-08:00

"'As it stands now, they've turned [banks] into virtual cash machines,' New York
Police Commissioner Raymond Kelly said."

Golly, who's he talking about? Real estate agents? Mortgage brokers? Cash-back-at-close, zero-doc, no down borrowers? Naw, plain old bank robbers.

"In fact, bank robbers have simply handed tellers a note in a vast majority of
hold-ups in New York."

So, remember kids, its better to rob a bank with a mortgage (note) than with a hand-scrawled note. If you rob a bank with a real estate license, that's okay. If you rob a bank with a hood over your head, that's illegal. If you rob a bank by promising (via a "promissory note") to pay back money you have no intention or capability of repaying, you get a bailout. If you rob a bank by authorizing garbage loans that have slim chances of repayment, you get a fat bonus check and stock options. Confusing, ain't it?

Quotes are from: Is recession behind spike in bank robberies? - CNN.com

Happy New Year!

Health Care Flex Spending Account: Use it or lose it

2008-12-26T20:05:00.000-08:00

If you have a balance remaining in a use-it-or-lose-it flex spending account, there is less than one week left in 2008. With over-the-counter drugs and first aid supplies now flex-spending eligible, there's no need to "lose it." Depending on how much you have left, you can clean out your medicine cabinet (replacing old, expired cold medicines and the like), pick up a first aid kit, even get a home defibrillator. Personally, I have been browsing drugstore.com's FSA store, seeing what is FSA eligible and gathering up receipts for things we bought earlier without realizing they were eligible. I've whittled our balance down to $26, which I'll use to restock the first aid kit before Dec. 1.

We've made a point of submitting receipts before year-end, allowing sufficient time for the administrator to process them and hopefully notify us of any non-approved claims while there's still time for us to use up our funds.

Hope you're all enjoying the holidays in good health and good cheer.

My Property IQ is 68: Zip Realty's new feature

2008-12-20T17:10:00.000-08:00

Zip Realty has rolled out a new feature called Property IQ. This feature allows zip users to enter their best guess about what a property will ultimately sell for. In the absence of any other guesses, the list price is used as the "Community" prediction. Thus, if I guesstimate that an overpriced property will sell for less than asking - and there is not a community of other users agreeing with my guesstimate - then the algorithm deems me a nit wit. Even if I just entered the price that the agent told me the house actually went into contract for. The only "accurate" guess right now is the asking price.

The goal here seems to be to encourage, persuade, and peer-pressure buyers into the practice of thinking that homes will sell close to asking price, even when asking price is a pie-in-the-sky pipe dream. In our competitive society, we are well socialized to strive for high performance - high score, high net worth, low lap times, high status, rich networks. Games have power - pro racers play video games of unfamiliar tracks to gain familiarity, and even small-craft pilots have been known to fly three states over to pick up a good flight simulator. In striving for a win, an A, a certificate, an Attaboy, we learn over multiple attempts to perform to the grading scale rather than strive for real knowledge. Here, the grading scale is set-up out of the box to gently nudge users towards asking-price-is-the-real-value, despite launching the game in the midst of the worst real estate crisis since the Great Depression. Considering how many properties in Sacramento MSA are languishing on the market for a year and longer, the asking price is rarely ever the real value. But answering anything other than asking price, right now, is gently reprimanded through the insulting "Your Property IQ is 0!"

Yes, that's right, my property IQ was zero, because I guessed well-below-asking on a seriously overpriced property. But I was able to salvage my Property IQ by guessing well-above-asking on another property. So now I have a system - if a house sells, I bet at or above asking; otherwise, I only enter a Guess where the guess is well below asking price. I hate lazy programming and lazy algorithms as much as I hate the pervasive manipulation and bull$#!7 of the real estate industrial complex.

The End of Wall Street's Boom - What REALLY Happened?

2008-12-09T11:18:00.000-08:00

The End of Wall Street's Boom - National Business News - Portfolio.com: "The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong."

This is a lengthy article, but quite an interesting read. If you don't know Michael Lewis, he wrote Liar's Poker, about his experience working on Wall Street in the 1980s. Liar's Poker is also the game the fellows at Long Term Capital Management played - the founder of LTCM worked at Salomon Bros. in the 1980s, too. Lewis also wrote a book about baseball, and one about the dot-com era before it became the dot-bomb era, and he writes an amusing column for Slate called Dad Again.

The article reaches some very interesting conclusions, which I won't spoil here. But one of them seems to be the same one I keep coming back to - Wall Street is run by idiots. Traders don't know anything about economics, and economists regularly admit that they're terrible traders.

I suspect that the art/science of economics is something of a crystal ball on Wall Street - yet, like all mystical sciences, the economic tarot can tell you what will happen, but not when. Trading is all about the when. If you get out too early, you'll never make enough gains to retire; if you get in too early, you'll drive yourself to an early stress-related death and won't get to retire, anyway (hey, maybe that's a good retirement plan - cheaper than the $200k they recommend you put away for retirement health costs alone!). Traders use the technicals (charts and pure market data) to try to get ahead of a curve - but charts, alone, don't warn you when an enormous wrecking ball like the housing implosion is heading your way. Which is why my broker laughed at me when I said I didn't want to touch anything housing related - not even funds holding Fannie/Freddie bonds. My theory is that good traders are neither traders nor economists - they are sufficiently detached to take the signals of both disciplines with a boulder-sized grain of salt. Throw in a healthy dose of market historian and psychologist, and you might actually have a trader who can turn the odds in his own favor.

Short of that (plus a lot of luck), Mr. John Q. Public is facing some looonnnggg odds. The SEC lets banks and brokerages hold off-balance sheet risks that an average investor doesn't know about until it sinks his share price. Even the on-balance-sheet holdings are sometimes sliced and diced and innovated to a point that finance professionals can't understand what they really are, let alone what they're worth, or how quickly they can sink the company. Index funds came about specifically because fund managers aren't superior traders - managed funds and index funds have roughly equal odds of outperforming various benchmarks. The market moves on rumors that can create the sorts of problems that were rumored to be a risk. And when Mr. John Q. Public throws his hands in the air, says the heck with it, and plows his money into the age-old safe haven - banks and big, stable Blue Chips, he finds out later that the banks aren't safe and the Blue Chips are dallying in risk loans. Even Money Market funds were "breaking the buck" and losing principal value, because the professional financiers invested in bonds that - despite being triple-A rated short-term bonds - went poof. Oh, yeah, that's because the ratings agencies are either inept, corrupt, or both. But what choice does a fellow have - Social Security is bankrupt, pensions are a privilege only the government-employee class can count on, and his 401k has to make up the difference. Good luck, Mr. Public. You'll need it.

Where's the Money?

2008-12-02T12:05:00.000-08:00

jaycee commented on an earlier post:

"I am trying to understand what is going on and I found your post really interesting. But I still have a question: we are not making bets with Martians, so surely the money is staying in the system? If I make a bet with a sucker who says: Sorry, I don't have the means to pay you, it will not make me bankrupt, just a bit peeved."

It's an excellent question, and one I've been trying to figure out. I don't have an authoritative answer to jaycee's question, but I humbly offer an educated guess....

Winners and Losers, The Money's still there

For most trades, there's a winner for every loser, so the money is still in the system somewhere. If I buy Citibank at $45, the seller gets $45. When Citibank drops to $6, the $45 I gave the seller still exists. Ditto for a house - if I buy a house for $200k and it drops to $100k, the money still exists in the seller's bank account. Unless the money never existed - with fractional reserve banking, banks can lend more money than they have - basically "printing" vapor dollars. If the bank lends me money to buy a house or a stock, and I don't pay them back, the bank has to eat the loss. They lose real dollars.

Defaults suck the Vapor Dollars Out of Grandma's savings

The net losses are primarily in defaults. Suppose I'm a hedge fund trader, leveraged at 10-to-1, when I make a bad bet. I either have to eat the losses out of other gains/equity, or I'll default on the margin loan. The brokerage has to eat the defaults, and they can only eat so much. Banks are losing in mortgage defaults, and we're seeing increasing bankruptcy filings. Those are net dollars lost. As much as possible, the banks and brokerages dump the losses on shareholders.

Paper Losses Become Real Losses

Houses, stocks, and even business inventories are showing paper losses. To the extent that people have to pull cash, they are converting paper losses into real losses. That's why there's so much griping about 401k withdrawal requirements this year. Businesses have to sell inventories, even at a loss (due to tax rules, cash flow, inventory staleness/freshness, and cost of commercial real estate for storing inventory). Those losses take money out of the system permanently.
The risk is that leverage let us inflate asset values quite rapidly - doubling home values, for instance. As credit dries up and net losses on defaults accumulate, it creates a leveraged pop - that's why the government has pumped some $7 Trillion in liquidity into a $13 Trillion economy this year, and yet we're still in a recession.

Google Long Term Capital Management (LTCM) - they blew up in 1998 because they were highly leveraged and they were betting on derivatives. The government bailout in that situation was just persuading other brokerages to save LTCM, but it should have raised a red flag about the risk of leverage and derivatives.

Not Lost, Just Wandered Off

There's also the issue of money still in the system, but removed from investment assets. This is a little out there, but it does impact valuations. The money available to invest is not static. Every day, each consumer/investor decides whether to save/invest current income, or whether to withdraw/spend invested income.

Generally, a consumer invests the dollars that he or she perceives are "excess", above their basic needs. An investment dollar typically flows from investment to investment to investment; a consumption dollar flows from consumer to producer to employee/consumer to producer many times before possibly making its way back to investment markets. We are seeing net outflows from asset investments (stocks, bonds, real estate). Some of that outflow is from consumers just trying to pay the bills - some, for instance, flows to oil-producing nations, and much of that outflow won't come back. It's still in the system, but it's in the global system, essentially unavailable for domestic use. Other asset withdrawals are going to domestic producers, but as people lose their jobs, face income stagnation and cost inflation, fewer dollars are perceived as "excess" dollars to be saved/invested. Although that money is still in the system, it's a long way away from the investment assets whose valuations were based on how many dollars were invested.

Fast Money: Whoosh! It's Gone

Then there's the issue of the "velocity" of money. Middle class money is the best for stimulating economies, because middle class earners typically spend, spend, and spend some more, often spending a disproportionate amount on services. Services are almost entirely wages, which provides a second producer/consumer with money to spend - largely, on services, which provides a 3rd producer/consumer with money to spend. And so on. The exact same dollar changes hands many, many times - and each time, it counts as taxable income, it counts as GDP, it counts as someone employed, and it counts as another employee/consumer feeling a little more confident about the economy. I think of middle class money as slutty money - it gets around - well, that's velocity - the more a dollar gets around, the greater "velocity" it has. Poor folk don't have much money and rich folk keep a larger portion of their money than middle class folks do (that's why they're rich, and why an awful lot of rich folk got rich saving and investing off mere middle class income).

So if we go back to that Citibank transaction - if I buy a share for $45, the seller has the $45; it's still in the system. But I started with $45 of spendable money, $45 worth of earnings, $45 worth of wealth effect, $45 worth of net worth. If the share price drops to $7, well, there goes my spendable asset, my net worth, my wealth effect. There's a very, very good chance that my "velocity" of spending will decrease by the $38 the share dropped in value. If I was investing for a down payment on a house, that's $38 less house I can buy. If I was investing for a wedding, there goes the open bar. If I was investing for peace of mind and the satisfaction of securing my future - zoiks. Chances are, I'll pull $90 of spending velocity out of my budget to make up for the loss, and it still may not replace the lost peace of mind.

That's my best guess - we aren't suffering a mere shifting of assets, but a genuine implosion in some assets. Other assets are lost on the wrong side of the tracks, while others are dragging themselves sickly across the floor crying piteously, "help me, I'm hung over."

EcoWorld - Guest Commentary » Blog Archive » Sundown for California

2008-12-01T14:51:00.000-08:00

EcoWorld - Guest Commentary » Blog Archive » Sundown for California: "The educational system, closely aligned with the Democrats in the legislature, accelerated its secular decline. Once full of highly skilled workers, California has become increasingly less so. For example, California ranks second in the percentage of its 65-year-olds holding an associate degree or higher and fifth in those with a bachelor’s degree. But when you look at the 25-to-34 age group, those rankings fade to 30th and 24th."

Rather lengthy, but interesting reading. I'm not sure why it's on EcoWorld, as the article isn't really about ecology at all.

Universal Default: Credit's Grim Reaper

2008-11-30T14:39:00.000-08:00

Years ago, I was in the middle of a major project when AT&T Cingular shut off my cell phone. They had changed my account number when I upgraded service, never mentioning the change in account number OR the credit balance building up under the old account number as the new account became delinquent. Eventually, we straightened it out. They got the credit balance transferred to the new account, and AT&T Cingular even "generously" agreed to waive the $25 re-connect fee and all of the late fees.

For that project I mentioned, I charged many thousands of dollars of equipment to my personal credit card. I had worked with my particular client long enough to know, without a doubt, that they would pay on time once the project was complete.

Around the same time, Chase, the company that owned my credit card, notified me that I was in Universal Default and my interest rate would now be 29%. I called to ask why, and they said I had made a late payment to someone. They would not tell me who was reporting the late payment. They would not reconsider their decision, and no one at the company would tell me, specifically, why I was in Universal Default. Now, many years later, I realize that the AT&T Cingular snafu was right around the same time - but, back then, I didn't know what Chase was talking about. So I had no choice but to pay the usurious interest rate until I could pay off the account. If Chase had simply raised my interest rate (absent the declaration of Universal Default), I could refuse to accept the higher rate, close my account, and pay the balance at the prior interest rate. In Universal Default, I had no such right of refusal. My interest rate climbed 19% immediately, retroactively (on balances charged at the lower rate), and with no recourse.

Meanwhile, Universal Default can be invoked by other creditors (that's why it's Universal - if one company says you're in default, any other company with Universal Default can apply Universal Default terms to your account). So my backup line of credit was pulled. I ended up selling my second car to get through the pinch, and, of course, I cancelled my Chase account. I will never do business with them again. Ever.

I was very, very fortunate that my Universal Default nightmare only lasted a few months before I was able to tell Chase to shove my full and final payment up their, um, closed accounts file. In the meantime, I got an ugly glimpse of Universal Default. I learned one of the unanticipated risks of carrying a balance on credit cards, and I changed how I manage money.

If you carry a balance on your credit cards, it might benefit you to become positively paranoid about avoiding Universal Default. Make sure that every bill is paid on time. Check your credit limit online in between billing periods. And pay off that balance as quick as you can, because banks are looking for new sources of revenue right now.

I should have fought back.

In retrospect, I accepted Chase's actions far too easily. I should have combed through the original contract terms to find out what rights I had to protest Universal Default. I should have gotten a copy of my credit report, so I could fight the Universal Default designation with hard evidence. I should have contacted the local legal clinic for advice and a strongly worded letter. But, at the time, I had no clue how I could prove that I hadn't missed payments on anything. (Running a new business, I didn't have a lot of money to hire a lawyer).

If I had gone into Universal Default because of an unknown credit line reduction, I would fight it with every resource available to me. It's one thing to invoke Universal Default for an action the consumer should have known about (a late payment); it's quite a different and dirty and sleazy and most-likely-illegal thing to invoke Universal Default for an action the bank took, which the consumer wouldn't have known about until after exceeding a lowered credit limit.

If I went into Universal Default for exceeding a lowered credit line before receiving notice that the credit line was lowered, I would become the squeakiest wheel the bank ever heard. I would make a complaint with http://www.consumer-action.org/ and http://www.consumersunion.org/. I would be willing to testify to Congress and/or tell my story to the media. And you bet your buttons I would contact every one of my elected representatives, state and federal, asking for help. Now that we taxpayers are direct investors in the credit card companies, our government reps are sort of like the banks' unofficial, unwanted Board of Inept Directors. I think that's a bad thing, but if some good can come of that bad thing, then I'd use it. Banks want continuing help from the government, so they are probably a little more responsive to Congresspeoples' inquiries right now - and it wouldn't hurt for our reps to better understand how these banks really do business.

Interesting reading: http://www.consumer-action.org/news/articles/2008_credit_card_survey/ Note that these are survey responses by banks. I can tell you right now that some of the answers - from my own card issuer(s) and those I've read junk mail from recently - are flat-out wrong. Citibank's response to "Would you ever reduce my credit limit?" was No. But it's interesting what the banks will admit (like charging a late fee if the due date is a weekend or holiday when they are closed).

Reduced credit limits; Big Deal

2008-11-28T17:46:00.001-08:00

After Citibank lowered my credit limit, I got to thinking. Citibank claims they mailed (the undated) notification on November 5th, but I received it on Nov. 26th, the day before Thanksgiving. Citibank e-mails me balance transfer offers, but they didn't e-mail me about changing my account terms. If I were a different consumer, this could have been disastrous. I had 3 weeks to unknowingly exceed my new, lower credit limit - racking up over-the-limit fees and falling into Universal Default. Most of my mail arrives within 3 days - why Citibank's notice took 21 days is sheer mystery. But that 21 day delay in notification effectively made the credit limit reduction retroactive - I found out about it on Nov. 26th, but it took effect 3 weeks before I knew anything about it.

Consider a consumer carrying a moderate $2,000 balance out of a $6,000 credit limit. If Citibank lowered his limit to $4,000 on November 5th and he bought 4 plane tickets on November 10th for a Thanksgiving trip, he could easily max out his card long before coming home to notification of the credit line decrease. Buying $2,000 plane tickets at 10% interest - suddenly becomes a major offense. By exceeding the new and unknown lower credit limit, he gets hit with $30 fees every month he's over his new credit line, and 29% interest rates eating up $100 a month before he can pay the balance down.

For some consumers, especially ones carrying a lot more than a $2,000 balance, going into Universal Default can push them over the edge, from struggling-but-making-it to "f- it, why bother paying my credit card when I cannot possibly get ahead of it at 30% interest?" A credit card holder who didn't buy a McMansion, who is trying to do the right thing, trying to pay down debt and build up savings and work up to a better spot in life, reads every day about homebuyers and bankers and brokers and insurance companies getting bailed out. No bailout for the credit card debtor, but she keeps making her payments, trying to whittle it down, and then WHOMP! Out of nowhere, the bank changes the rules and she's suddenly over her head without doing a damned thing to fall into the abyss. Why should she keep making payments anymore? Her share of the financial bailout - counting all the cash the Fed is pumping into liquidity along with the direct bailouts of financial institutions - is over $20k++ and suddenly the bank needs to cheat her out of an extra $100 a month by telling her extra slowly that her credit line has been cut right before the holidays.

Maybe our imaginary consumers shouldn't carry a balance at all. It would be good for our economy, in the long run, if people consumed a little less than they produce. We should all carry a balance - in our savings accounts. But we don't, and the path from here to that economic utopia will be painful for everyone. And if the banks' greed and stupidity pushes people into Universal Default and that causes some of them to go into genuine, not-making-payments default, well, gosh darn it, those bastards will be back for more bailout money next year. I don't object to lowering credit limits, and I only object to tightening credit in the sense that "hey, that's not why the government is giving you bailout money!" I object to the sleazy way the banks are doing this, trying to wrest a couple more nickels out of people through downright unethical behavior.

The government is trying to loosen credit and persuade consumers to go out and stimulate the economy. The banks receiving bailout money are doing the exact opposite - they're restricting credit availability to everyone, even great credit risks, and then they're whomping innocent consumers with changes that can push them over the edge. Are the credit card companies trying to push default rates up, to justify yet another round of bailout payments? What other justification could they possibly have for virtually retroactive account changes?

Will this reduce my credit score?

2008-11-28T16:40:00.001-08:00

A couple of things that go into our credit scores include how much of our credit lines we have ever used. The credit report details our current balance, high balance, and credit limit. If a consumer runs their credit card up to the limit and then goes over the limit, it looks - to the facile programming logic of a credit-scoring computer - like that person is financially irresponsible. It's not good to exceed your credit limit. But if your credit limit gets lowered to less than your highest balance, it can look like you have been irresponsible in keeping track of your spending.

When Citibank cut my credit limit, it may have reduced my credit score. I don't remember if I've ever used the full credit line. But, in any event, the proportion of my high balance to my new credit limit will be less favorable. Closing my oldest charge account won't help, either - FICO takes into account the age of accounts, with older accounts showing a longer history of responsible payment. Since I don't have other revolving debt, the proportional hit will be bigger.

If this lowers my credit score - especially since I still live in Sacramento metro, one of the areas hardest hit by the housing downturn - my other credit cards could potentially reduce my credit limits or close my account. No big deal; if all of my credit cards were terminated, I could still use my rewards ATM/visa card, but it wouldn't give me the consumer protections that credit cards provide.

Citibank: The Grinch Who Stole my Credit Limit

2008-11-28T15:26:00.000-08:00

I'm in a real-estate-meltdown zip code. I've read about credit card companies terminating and reducing credit lines for folks in declining industries, folks who charge at rent-to-own stores, and even folks in the wrong zip code. But I continue to receive credit card solicitations. I thought my over-800 credit score made me immune to credit cutbacks. I was wrong.

Wednesday's mail contained a note from Citibank (and another pre-approved Gold card from American Express). I almost shredded Wednesday's letter, unread, since it looked just like all the balance transfer offers they send me every couple of months. I've been a Citibank customer for more than 15 years, and I've never missed a payment. I don't carry any debt outside of a small mortgage, but I do use my rewards cards for everything from purchases to monthly utility bills. I get hundreds of dollars in rewards checks this way.

My Citibank card doesn't offer rewards, and the interest rate is several points higher than my other cards (except AmEx). So I rarely use it. They do offer have a Virtual account number tool that lets me create one-time-use virtual credit cards for online transactions, so I do use my Citibank card a couple times a month. For a while there, they gave me a rebate on hardware store purchases, and I used the card a LOT more until the offer expired.

Now Citibank has cut my credit line - because I don't use their card enough. I know I'm not a super-profitable customer, since I don't carry a balance at 10%. But then, too, they'll never have to write off a penny on me. A couple percent in (ATM) transaction fees makes my bank plenty happy - wouldn't Citibank benefit from transaction fees on low-risk transactions, too?

If you ran a credit card company, wouldn't you try to keep long-term, never-missed-a-payment, no-debt customers happy? If they weren't using my card anywhere near as much as they used other cards, I would try to make my card more valuable to them. But Citibank decided to punish me for not charging a lot to their card nor carrying a balance with them. So I closed my account.

Perhaps I overreacted, since the reduction was minimal. They still left me with enough credit to buy a small car, but 1) I'm tired of the junk mail asking me to transfer my (non-existent) loans to my Citibank card, every flipping month; 2) I'm still a little burned on my Citibank stock losses (brilliant recommendation from Morgan Stanley, eh?); and 3) that's just bad business and I don't like to do business with companies that don't get it. So that's one less stack of unsolicited balance transfer checks to shred every month. Yippee!

Happy Thanksgiving!

2008-11-27T15:53:00.000-08:00

I hope you and yours enjoyed a safe and happy Thanksgiving!

Treasury Draws Fire for Shift in Rescue - WSJ.com

2008-11-14T18:23:00.000-08:00

Treasury Draws Fire for Shift in Rescue - WSJ.com: "Another problem: If the government purchased securities from banks, they [the banks] would likely have to record further losses on the markdown price, which many could ill afford."

You have gotta be kidding. I know I'm just a podunk hicktown Sacramento county nobody, but this was obvious from day one. The brain trust leading us throught the greatest financial crisis of our generation didn't realize that you can 1) buy securities from the banks at a price that is fair to the taxpayer; 2) buy securities from banks at a price that shores up their net assets (pick one). In the midst of a financial crisis, it might be nice and generous to pay banks the highest justifiable price for the securities, but, if the securities were really worth that price, the banks could sell them for that price on the open market.

What's next, inflation or deflation?

2008-11-12T14:37:00.000-08:00

What's next? If deflation is coming, I'm staying in cash. If inflation is coming, I'm buying all the rental properties I can afford. There's an argument for both.

The government can't afford deflation. Deflation would reduce their tax income while the government debt remains the same. The debt as a percentage of GDP or as a multiple of tax revenues would become even more enormous than it is now. So I would expect the government to do everything they can to avoid deflation - even at the risk of creating rampant inflation.

Although we're all breathing a huge sigh of relief over falling oil prices, gas is still over $2 a gallon at my corner station. In 2003, gas was $1.68 a gallon, and, in 2001, it was closer to $1.35. Opec wants to keep gas prices high, and who can blame them? We all want to keep our incomes as high as we can. Consumers have shown their price elasticity for gas, and, the bottom line is, we'll pay $3 a gallon and complain about it but keep buying it. Now that oil producers know we'll pay that much, they would be bad business people for accepting less. That's inflationary, because oil goes into everything - we burn it for heat, we produce electricity with it, we make everything from plastic grocery bags to medical implants from it, and we use it to transport every product we make from source to sale. Gas prices have a huge influence on consumer prices, because everything has to be trucked, shipped, flown, railroaded, or some combination thereof.

The declining value of the dollar - thanks, in large part, to our government and consumer debt - is inflationary. Everything we import is costs more when paid in deflating dollars.

On the other hand, we could be facing deflation.

As Americans worry about the future, they save more and spend less. People with products and services to sell, have to lower their prices to induce consumers to spend. Every newspaper has ads with massive rebates, incentives, and discounts on American cars. If you've been on the fence about remodeling, try getting some fresh quotes. Contractors are on sale. Lowes' price tags all say "new low price." And the Going-Out-Of-Business sales start at least 20% off. That's deflationary.

Unemployed Americans now number over a million. New layoffs are counted in the hundreds of thousands. Unemployed people don't tend to spend a lot, and they don't earn a lot. That's deflationary. Retail - the old "well, if I don't find anything else, I can go work at the mall" backstop for the unemployed, is struggling. People scraping by on savings is a deflationary force.

The Visa/Mastercard/HELOC printing press has virtually shut down. People are afraid to borrow, and that's okay, because banks are afraid to lend. Given the exponential effect lending and borrowing have on money supply, a reduction in borrowing is extremely deflationary. But, don't worry, the government is still borrowing.

An anonymous Internet user commented several years ago that we were heading for inflation in necessities and deflation in luxuries. Maybe, but a latte still costs $4.

A currency printing press in your wallet: Fractional Reserve banking

2008-11-12T12:32:00.000-08:00

Bank regulations require banks to keep enough money "in reserve" to meet customers' withdrawal needs and generally remain in business. Fractional reserve banking allows a bank to keep only a fraction of its deposits in reserve. That fraction varies, but howstuffworks reports that it is currently 3% to 10%. Wikipedia does a nice job of illustrating how a $100 deposit, through loans that are then deposited at other banks, can become $457 in currency. (Note that they are using a 20% reserve requirement in their scenario - actual reserve requirements are much lower.)

If I sell my house for a $100,000 profit and then deposit that money with my bank, the bank only has to keep a portion of the cash in reserve, say, $10,000. They can then lend my neighbor $90,000. If he uses it to buy an RV from the lady down the street, and she deposits the money in the bank, then the bank credits $90,000 to her account, puts $9,000 in reserve, and looks for someone to borrow the remaining $81,000. From that original $100k, we have my $100,000 checking balance and the RV seller's $90k in the bank. We just printed money, without bothering the government's mint. The "created" money expands exponentially.

So, if you wondered where all that money was coming from to fund home purchases at double 2001 prices, now you know. The banks, essentially, printed it out of thin air. Yippee, we're all rich, everyone can afford a Mercedes and a Humvee and a pair of jet skis. My Visa card is a pocket-sized mint.

So what happens if somebody defaults after borrowing money the bank never had? Hopefully, the bank can make up the difference out of profits. If a lot of people default on their loans, the bank can still hope to make the money back by the time I withdraw my $100k. But with stock income gone, prices climbing, and job losses mounting, more people are withdrawing from their savings.

Leverage=risk. So banks prefer to make their money originating loans, and then sell the loan to investors who can afford the risk. But investors left a clause in there that the banks have to buy back certain types of bad loans - early default, fraudulent loans, etc. Banks didn't plan to have to buy those loans back. Banks planned to keep making money.

A $10,000 cash loss is a $100,000 loss in lending ability. If Ocrenter kept a tally of losses, just on the houses he features, how much would you guesstimate that would be? A couple hundred million in losses? A couple hundred million in losses is a couple hundred billion in loans the bank can't afford to make anymore. Fractional reserve requirements create exponential growth in money supply - but when the pendulum swings the other way, it's an exponential contraction in money supply.

Ruh-roh.

365 Days on Market, and then an Above-Market sale

2008-11-10T14:05:00.000-08:00

Here's a recent example:

6848 MELLODORA DR, Orangevale, CA 95662

List Date: 05/31/07

List Price: $245,000

MLS status is now "inactive"; zillow shows a sale for $255,000.

I am hard-pressed to believe that the market value was anything near $245k. Yet now it has sold for more than asking price; surely there was some cash, renovation money, or exceptional closing cost assistance kicked back.

With a price in the mid-200s, the buyer could take out an FHA 203k loan for remodeling. Most closing costs in this market are typically paid by the seller. Nehemiah type down payment "assistance" are supposed to be gifts - if the selling price is raised by the amount of the downpayment assistance, it is not a gift. And the property tax in California is determined by the selling price - a buyer saves money by minimizing the selling price, thus minimizing property taxes for as long as they own the property. So a reasonably intelligent buyer would roll closing costs into the loan rather than the purchase price. In other words, there aren't many reasonable explanations for paying more than asking price on a home, except cash-back-at-close or horrible credit.

Buyer beware. Ask your agent to specify exactly what concessions are included in the selling price of comparables.

How big is $600 Trillion? Scary big.

2008-10-23T14:49:00.000-07:00

The derivatives market is complex and largely fairy-tale finance. The vast supra-majority of people (presidents, presidential candidates, and Congress included) do not understand the derivatives market, and most barely even know the market exists. If you are unfamiliar with derivatives, please refer to my first post yesterday, which attempts to explain derivatives in layman's terms (and I am a layperson, I have not even traded in puts and calls on stocks).

The derivatives market has a face value of $600 Trillion. While the entire $600 Trillion is not at risk (see "What the heck is a derivative"), I have an enormous problem with the notional value of the derivatives market. The world's GDP is $65 Trillion - outstanding derivatives have a face value ~10 x the entire World's annual income. Warren Buffet is the world's wealthiest person, with a net worth of $62 Billion - about 1/10,000th. In fact, the net worth of the 25 wealthiest people, worldwide, combined, is just over $750 Billion - about 1/1,000th of the face value of the derivatives market. The net worth figures do not necessarily reflect the 30%+ decline in the stock market. The world's 100 richest people have a combined net worth of about $1.7 Trillion.

The 25 wealthiest people's net worth represents the value of everything they own - derivatives, real estate, stocks, bonds, businesses, precious metals, everything. Generally, the wealthiest 1% of people own about 1/3rd of all financial assets. The world's 100 richest people have a combined net worth of about $1.7 Trillion. The derivatives market has a notional value of about $600 Trillion.

There are approximately 1,000 Billionaires in the world - the "poorest" person out of the 100 richest was George Soros, with an estimated net worth of $9 Billion. If we assume that the other 900 Billionaires have an average net worth of $5 Billion, their combined net worth is about $4.5 Trillion. The derivatives market has a notional value of about $600 Trillion.

The world's population is about 7 Billion people. The derivatives market has a notional value of about $600 Trillion. That is about $100,000 for every man, woman, and child in every city, village, prison, slum, and palace in the world.

There are about 10 Million millionaires. From Market Watch: "The high-net-worth population swelled 6% last year to more than 10.1 million people who own assets totaling an eye-popping $40.7 trillion, according to the CapGemini/Merrill Lynch World Wealth Report." The derivatives market has a notional value of about $600 Trillion.

From Slate: "By contrast, the value of the world's financial assets—including all stock, bonds, and bank deposits—was pegged at $167 trillion last year by McKinsey. "

Most financial assets are held long-term. $167 Trillion in net worth of financial assets does not equal anywhere near $167 Trillion in transactions. And derivatives are a very narrow slice of markets. The relatively enormous size of the derivatives market in comparison to the world's assets is enervating.

Okay, but it's not $600 Trillion at risk. First off, we can assume that about half of the derivatives contracts are, say, betting that the market will go up, while the other half are betting that the market will go down. The market can only go up or down, so assume that roughly half of the derivatives bets cancel each other out. Furthermore, derivatives contracts tend to be time sensitive, so many will expire without paying out a dime. The purchase price is the dollar amount that actually trades hands when a contract is created - the purchase prices are a relatively sane $17 Trillion or so. But going back to my insurance policy analogy - if you pay $800 to buy a one-year homeowner's insurance policy worth $100k, only $800 changes hands until something happens to the house. Then, the insurance company could pay out up to $100k. So the money in play in derivatives is somewhere between the $17 Trillion purchase price and the $600 Trillion notional value.

Worse, the other side of the derivative trade may not have any money at all to back up his promises.

Remember, a stock option contract is a type of derivative. If I bought a put contract for $2 that guarantees me the right to sell Intel stock at $20 a share, I would be exercising that contract now that Intel is down around $14. The person who sold me the contract - the counter party - would be out $4 (the $20 face value minus the $2 contract minus the $14 share price today). The loss, in that case, would be twice the contract purchase price and 1/5th of the notional value. If I had been trading in financial stocks, the loss could be nearly the entire notional value; even Exxon is down 29%.

One of the early links in this post is to an article that says that only about $3 Trillion dollars is actually at risk, because most derivatives contracts will cancel each other out. I take issue with that claim - prove it. Because most traders are rational. If I bet you $5 that the sky is blue, would you find someone else to bet $5, with the same odds, that the sky is not blue? Probably not. Even if you found someone willing to bet that the sky is not blue, because they want to hedge a bet they made with me that the sky is blue, you wouldn't give them the same terms - you would charge a lot more to make a bet you are likely to lose, and you would charge very little to make a bet you're certain you'll win. But then a storm comes along, the sky turns purple, and you're out your lunch money because you never thought you'd lose that bet.

As financial markets go crazy, a lot more contracts are paying out than usual. Because there are essentially no reserve requirements for derivatives issuers, this is somewhat akin to Hurricanes Katrina, Andrew, and Iniki all hitting at the same time as major Midwestern flooding, tornadoes throughout the Southeast, and earthquakes up and down the West coast. The "insurance" companies can't pay out on massive and unexpected losses - they are designed to pay out on reasonably expected losses. You can reasonably expect 1 Cat 5 hurricane in a year; 2 would be bad but not shocking, three would probably bankrupt some insurance companies. I'll take any bet if I'm certain I won't pay out - and I bet a lot of Wall Street types, especially the ones betting with someone else's money, felt the same way. Only a very few people expected the Dow to drop from 14,000 to 8,400. Few people expected oil to rise to $140, and fewer still expected it to rise to $140 and then fall to $64. Unprecedented circumstances give rise to unprecedented profits and losses, and it's easy to be on the wrong side of a bet.

"3. Unregulated, over-the-counter derivatives. There are scary numbers floated
out there (in the hundreds of trillions of dollars or more) of “notional value” outstanding. The problem with these numbers is that they don’t represent
actual amount-at-risk, and in fact nobody seems to know what that figure actually is. The lack of a regulated exchange and central clearing means that there is no margin supervision of any sort; ergo, you have no way to know if your contract is in fact good (that is, the other guy has the money.) AIG, as an example, had $500 billion dollars of exposure outstanding in these contracts, and while this sounds somewhat reasonable when one considers they have a $1 trillion dollar balance sheet in fact
it is not because most of AIG’s balance sheet assets are committed to cover liabilities
(e.g. insurance policies, annuities and the like.) The lack of margin and regulatory supervision is directly responsible for this. These derivatives have become nothing more than a fancy game of “pick pocket”, where Broker “A” sells protection to Client “A” for $X, and then tries to find someone to buy that same protection from for “$X – something.” While speculation in the marketplace is fine, speculation without being able to prove capital adequacy to back up your bets is not." ... from http://www.denninger.net/letters/paulson-bernanke-senate.pdf

Bottom line: Who can afford a $17 Trillion loss? How about $4 Trillion? $50 Trillion? In a global economy where the value of everything produced and sold in the entire world is just $65 Trillion a year, I don't think anyone can afford to back $600 Trillion bets, even if the losses are mere tens of Trillions.

Notes: Trade in derivatives data comes from the Bureau of International Settlements. $600 Trillion is rounded. World GDP is likely understated somewhat, because there is no official tracking of grey market, black market, contraband, and under-the-table income. All figures in U.S. dollars are subject to exchange rate fluctuations.

How Big is the Derivatives Crisis?

2008-10-22T19:34:00.001-07:00

My last post discussed the general concept of Derivatives. Now, let me give you some wild conjecture about the scope of the derivatives crisis.

The Bureau of International Settlements (BIS) estimates the derivatives market at about $600 Trillion. But that's the notional value - the face value. That's like saying that the face value of insurance policies is $600 Trillion - the actual amount paid out by insurance companies is a fraction of the total of all the face values of all the policies in the world combined.

So what's the real risk level?

Well, derivatives can be mere side bets - and, like the Super Bowl, the bets for and against any particular outcome should roughly even out. The BIS tries to estimate

But how much money is really going to be lost? Here's some guesses.

The derivatives market "insures" the value of assets, typically financial assets like stocks, bonds, and real estate. Financial assets are under pressure right now. The majority of real estate loans issued in the last few years borrowed against property in Florida, California, and Nevada. The once-hottest markets are now the icy-est, with property-value declines of 40% in the Sacramento market, and, conservatively, 20% in the majority of really-hot (and widely invested-in) markets. The stock market is down from a Dow of 14,000 to less than 9,000 (about a 35% decline). Oil is down from a high around $140 to today's value around $70 - a 50% decline.

So the assets that underlie the derivatives contracts have declined by about 30% (a very, very rough average of the declines in major asset categories). A homeowners' insurance contract doesn't pay out unless the house is damaged - an awful lot of our financial houses are on fire right now. This is an economic Hurricane Katrina, 1906 Earthquake, and Midwestern flood all in one.

If an insured car is totalled, the insurance company will try to sell the car for scrap and parts, while paying the car's owner to replace the car. The insurance company is out the difference between the market value of the car and the scrap value of the car. Well, with an options contract, you don't actually lose the full notional value of the contract, you merely lose (or win) the difference between today's market value and the notional value. If I buy a put contract on Corning stock at $20, the counter party doesn't lose $20 - they lose the difference between today's stock price (~$11) and the $20 contract price. So instead of losing $20, they lose $9.

So BIS says the total derivatives market is about $600 Trillion in notional value. That's like saying the Corning derivatives market is $20 - it doesn't mean anyone is losing $20 (or $600 Trillion). What they'll lose is the difference between today's value and the contract value.

Let's try a wild guess. If the major assets (real estate, stocks, oil) are down, that's the economic equivalent of a house fire. The "insurance companies" (derivatives counter parties) will have to pay out. The house isn't a total loss. Suppose that 10% of the derivatives market has to pay out - 10% of a $600 Trillion market is $60 Trillion. Now, stocks, bonds, real estate, and oil aren't total losses - they're just down.

So suppose the payout on the insurance policies (derivatives market) is the difference between face value and current value - that's about a 20% decline, on average, conservatively. That's $60 Trillion of derivatives (10% of the total derivatives market) paying out a 20% loss. That's $12 Trillion. That is, roughly, the equivalent of a full year's income for the United States as a whole. That is about 1/6th of the entire world's annual income.

Let's put this in perspective. Would you be okay with a salary reduction of 1/6th of your income? Would you be okay with your taxes increasing by 1/6th of your income? Would you lose weight if you ate 1/6th less than you eat today? 1/6th of the entire world's GDP is a lot.

I really think that assuming only 10% of the derivatives market will have to pay out, and that their losses will only be 20% of the total notional value at risk, is incredibly conservative. But, at least, having a reasonable floor gives us a basis for guesstimating the ceiling.

What the Heck is a Derivative?

2008-10-22T18:32:00.000-07:00

A derivative is a contract that derives its value from something else. The notional value of a derivative is its face value. It might be simpler to think of it like your homeowners' insurance policy; the policy can pay out up to the stated replacement cost of your house - that is the face value (or notional value) of the insurance policy. If it costs $100,000 to rebuild your house, then the market in homeowners' insurance on your house is $100,000 in notional value. The insurance company doesn't pay $100k, they're simply at risk for up to $100k. The premium you pay to the insurance company each year is the part that gets added to GDP, the part the insurance company can save, spend, or invest, the part that matters in any year that you don't have losses.

But, Hurricane Katrinas can happen. So the insurance company has to set aside enough money to pay out the claims it can reasonably expect. Insurance companies are heavily regulated by State and Federal government agencies, and they are required to use reasonable assumptions to decide how many claims to reasonably expect, and they are required to keep enough money on hand to cover those claims.

Derivatives, on the other hand, are not heavily regulated. In many ways, a derivative is like an insurance policy. If I am worried that my Corning stock might decline in value right when I want to cash it in for a down payment on a house, I can buy a put option contract (one of many types of derivatives) that gives me a right to sell the stock at an agreed-upon price within a specific time period. Effectively, I am insuring against a decline in the value of an important asset (much like you insure against a fire destroying the value of your home).

There are many other types of derivatives contracts, and they cover a wide variety of possible losses. One type of loss they cover is "credit default" - if I lend money to my brother-in-law, I know the odds aren't very good that he'll pay me back. A credit-default "swap" lets me pay somebody else to take on the risk (the other guy pays me if my BIL flakes) - we "swap" a little money in exchange for trading who bears the risk.

You'll note that my Brother-in-Law isn't very likely to pay me back, and I knew that when I lent him money. That's one of the problems with credit-default swaps. Banks made crazy mortgages, and they didn't have any good reason to believe that, say, the Target cashier buying a half-million-dollar house would actually pay the mortgage back. Since the derivatives market is essentially unregulated, you can actually buy the equivalent of a credit-default swap on your deadbeat Brother-in-Law. In real insurance, you can't do that - you can only insure against a risk that neither side could reasonably predict. Letting someone buy insurance after, say, the house burns down, would mean that the only people buying insurance are people whose houses are on fire.

Given the loosey-goosey rules around derivatives contracts, people can use options contracts responsibly and irresponsibly. The only limit is whether you can find someone to trade risk with you. And, mostly, you can - it's like having a group of dumb, fun-loving friends who will actually sell you fire insurance even after finding out you store kerosene next to your woodstove, and you're fixin' to build a fire.

And derivatives traders have something else in common with dumb frat boys. They'll bet on pretty much anything. If you've ever looked at a friend across a bar table and said "I'll bet you $10 she shoots him down," you're qualified to be a derivatives trader. Because derivatives contracts don't require that either side be directly involved in the transaction that the contract derives its value from. I don't have to own Corning stock to buy a put option on Corning, and you don't have to own Corning stock to sell me a put contract. So derivatives contracts can work as side bets - just like that bar bet about whether some guy you don't even know gets a date with some woman you don't even know.

So, that's a very rough description of these derivatives things people are talking about. My next post will provide some wild conjecture about how big the risk is in derivatives trading.

One of The Joys of Living in Northern California

2008-10-21T21:25:00.000-07:00

I found a juvenile black widow spider in the house. It is now dead. The adult black widow is black with a red hourglass marking on her belly. The juvenile is brown and black. Although the picture here isn't as clear as I'd like, it does show the beginnings of the hourglass shape on the juvenile's belly.

A debtor government cannot afford deflation

2008-10-01T11:14:00.000-07:00

Our government owes trillions of dollars (or, in smaller numbers, Thousands of billions of dollars). What's more, our government has committed to fund tens of Trillions of dollars in government and military pensions, Social Security, Medicare, and similar programs. Although there is no promissory note on these additional liabilities, they are owed just as sure as the cash your children are expecting for their next birthday. And our debt grows every year now.

Well, heck, we all know there's a lot of government debt, but what do we really care?

We care a lot - because the debt ties the government's hands. We pay a huge amount of money in interest on $10 Trillion dollars (figure $400 Billion in interest at 4%). In order to maintain that kind of debt, long-term, we need somebody to keep lending to us. Right now, there are a lot of foreign individuals and governments that are happy to fund our debt addiction. But we have to be careful to keep them happy, to keep them lending. Could part of our bailout/rescue plan be a "Keep the Chinese confident in American bonds so they keep lending us money" plan? I don't know, but there is certainly a risk that, when we hit $20 Trillion in debt to pay some of those pension obligations, lenders cut us off. That's a mighty scary scenario.

In the meantime, the debt ties the government's hands in dealing with the current crisis. If the government lets the market tank, we risk a deflationary spiral. If we have a deflationary spiral, corporate, personal and investment incomes could decline. If incomes decline, the government's tax revenues on that income will decline, too. If government revenues decline, the government's debt will not decline. Less income to pay the same debt = major pain. Either the government has to cut back (a lot) or the government has to try to keep the debt afloat until incomes rise again.

Now, we're back to the Chinese (and other foreign nations) again. Think about this - the government, in a deflationary situation, is like a CEO with a mortgage. He gets laid off, manages to find an embarassing job doing business development for a much smaller company for a much smaller salary (but he's got a job, thank goodness) - and his mortgage is suddenly huge in comparison to his income. Our CEO is suddenly a bad credit risk - he whips out his AmEx Gold card to buy a tank of gas, and it's denied. He charges the gas to his visa card, and finds out they've jacked his interest rate to 29%. Government borrowing is a bit more complex, but it's still the same basic idea - high debt-to-income rations equal higher interest rates, and some lenders just won't lend to you anymore.

The government currently spends a bit shy of $3 Trillion, with almost a $1 Trillion shortfall every year (and that shortfall gets borrowed, and added to our total debt). The government is taking in, roughly, $2 Trillion a year in an economy where the total GDP (total of everyone's income) is about $13 Trillion. Suppose GDP fell by 10%. Government revenues would probably fall about 10%, too. If a lot of people are laid off, the government could take a bigger hit (individual income taxes are a higher percent than corporate or investment income taxes) - AND more people would ask for government services (food stamps, welfare, etc.) because they can't find jobs. The government gets hit with a double whammy - lower income, higher expenses. The government's "credit rating" drops instantly.

The government is stuck between a rock and a hard place.

If they cut expenses to balance the budget, the economy will slow even more. If the economy slows more, incomes drop more, and income tax revenues drop more. The relative value of the debt becomes larger in comparison to tax revenues. Interest rates rise to reflect our declining credit-worthiness, raising expenses, requiring further cuts, further slowing the economy. Social security and pension payouts become more attractive compared to private sector employment income, and people retire earlier.

If they keep borrowing and spending, inflation will rise and their credit rating will fall and the value of the dollar will fall even more than it already has. If the value of the dollar falls, the price of oil rises, and the American public gets squeezed even harder between falling wealth and rising prices. And the government, paying to fuel everything from government vehicles to military tankers, gets squeezed, too. But, the silver lining is that the debt begins to look smaller in comparison to the inflation-swollen tax revenues. The downside, however, is that the falling dollar decimates the value of foreign investment in American debt. If a foreign investor is losing money on the exchange rate, lending us money becomes a bad investment.

When this is all said and done, I hope that the lesson future generations take away is "never, ever, ever let government debt get so high." But, for current generations, we are in an ugly, ugly place. Bottom line: I expect much higher taxes in the future, and probably for the rest of my lifetime. Priority 1 needs to be: Get things situated so we can pay down debt. Priority 2: Pay down debt. We will pay for this, one way or another. I would rather pay a little more tax today (to reduce the debt) than pay the interest over and over and over again.

(Many voters are confused about the fact the the Clinton administration left the Bush administration with a surplus. The Clinton administration left behind a mountain of debt, but with a budget that allowed surplus funds to begin whittling the debt down. Bush didn't run up the whole $10 Trillion in debt by himself. That's not to say that Bush is innocent, nor that Bush is to blame - we began borrowing from the Social Security trust fund during the Johnson administration, and every President since has continued us along this financially irresponsible path. Every Congress along the way - with ultimate power over the budget - has contributed to the mess. It is a bipartisan effort of the worst kind, and we voters should not tolerate any more partisan finger pointing.)

A tale of two doctor's visits

2008-10-01T10:04:00.000-07:00

One of the major problems with health care costs in America is that the insured consumer is insulated from the real cost of care. Health care providers take great offense when consumers ask how much care costs - and doctors choose not to know, even when the doctor himself/herself set the prices. Doctors act as if their work is too holy to be muddled with financial realities - but, the truth is, finances are a major part of health care. Finances are the reason many doctors become doctors (if doctors were not motivated by money, why are soooo many doctors going into the higher-paying specialty fields today, rather than going into primary care medicine? Why aren't more doctors taking advantage of government-sponsored debt forgiveness programs for primary-care doctors serving under served populations?). Finances are the reason many people "can't afford" * health care. Let's face it - in a money-based economy, finances are both currency and culture, a way of measuring things and a way of communicating the value we apply to things.

In a free market, consumers are free to choose how to spend limited finances. The "invisible hand" of the market is what happens when many peoples' choices aggregate - if lots of people value, say, a house very highly, the price of the house will rise to reflect all those consumers' choices. But the invisible hand relies on people making rational choices, and rational choices rely on clear and accurate information. Health care price information is not clear and accurate, and it is not readily available. If a consumer does not know that doctor A charges twice as much as doctor B, the consumer cannot make a rational choice to compare the relative value of the two options and choose the best value. We need to increase the clarity and availability of medical price information.

I changed insurance plans this year. Last year, I paid a flat co-pay for any service, and the insurance company paid the rest. No paperwork, no fuss - I thought it was more efficient. However, with no paperwork, I had no idea how much services cost. This year, I changed to a plan where my co-pay is a percent of total cost. It is actually cheaper than the flat-rate plan, and I finally know how much health care costs.

We had two doctor's visits this year - one to an Urgent Care clinic, and one to our regular doctor. Both doctors pay to rent an office, both pay malpractice, both pay a receptionist, a billing clerk, and an assistant or nurse. Both negotiate fees with insurance companies, and both participate in multiple insurance networks. Both doctors deal with uninsured patients and unpaid bills (although the Urgent Care clinic has more uninsured patients and deals with more unpaid bills). The only real difference in overhead is that the Urgent Care clinic is open 24 hours a day, 7 days a week - requiring 4 times as many staff hours as the doctor's practice, and more electricity, too.

My better half sliced open a finger a few months ago. It was an evening incident, and our doctor's office was closed. A doctor at the urgent care clinic looked at the finger, performed a quick exam, and directed a medical tech to clean and dress the wound. The bill was $80.

I pulled a shoulder muscle a couple months ago. I went to my regular doctor, who spent less than five minutes listening to my symptoms, diagnosed a pulled muscle, ignored all the symptoms of a pinched nerve, and wrote a prescription. My regular doctor is completely computerized, so she was able to pull up my chart, read it, and enter the visit notes right there in the exam room - she actually spent just minutes interacting with me. The bill was $120.

Last year, we visited the primary doctor and the Urgent Care clinic for two different situations. Honestly, the Urgent Care clinic provides better care. I simply assumed that the Urgent Care clinic was more expensive than my primary doctor. Now that I know better - and now that I know how unreasonably expensive my primary doctor is - I can make an economically rational decision about my health care spending. Oh, sure, the insurance company is paying the bulk of the cost, but they are, in effect, paying the bills with my money - if total expenses exceed what the insurance company has set aside to pay expenses, my insurance costs will rise next year.

* Some people truly can't afford health care. Some people "can't afford" health care - they have sufficient cash after paying basic expenses, but they value other things more highly. As an example, my SIL who died of something that is easily detectable and easily treatable - she "couldn't afford" health insurance because she "had" to pay for private school for her child, she "had" to pay for cigarettes, she "had" to go shopping for knick-knacks (and buy some) every week, she "had" to have supplies for her hobbies, she "had" to go out with her friends, she "had" to take her kid out to eat....

When I was 18, I couldn't afford health care. While living and working in Hawaii (yes, Hawaii - the state that Hillary Clinton held up as the model for universal health care, the Hawaii that requires employers to provide health care to their employees), I became ill. I had "aged out" of foster care, with no family to fall back on. My college went bankrupt, and I took the first job I could find to keep a roof over my head. I was poor. I had no health insurance. Without health care, I couldn't work to make money to save to pay for health care. In order to pay my health care expenses, I moved out of my apartment and became homeless for a while, as I saved money for health care. My employer, though required to provide health care to employees, did not offer me health insurance. As an 18 year-old, I didn't know any better. I could not afford health care.

So when I put quotes around "can't afford" health care, it is meant to reflect the full range of people claiming that health care is unaffordable - from the people who must choose between food, shelter, and health care, to people who choose to drive a BMW because it is a necessity, while foregoing health insurance because it is "too expensive." And you would do well to keep that distinction in mind when the inevitable Universal health care debates arise again. If health care is a necessity, then it should be paid along with other necessities (food, clothing, shelter) and before luxuries like cell phones, car payments, cable TV, etc. Before we give a family government help to pay for health care, we should make sure that health insurance is truly unaffordable for them, and not merely "unaffordable" in the face of life's many temptations.

55% Off Amazon Grocery Clearance

2008-09-04T19:11:00.000-07:00

This was worth sharing, and bookmarking for later:

Save an additional 55% instantly when you purchase select September Clearance products offered by Amazon.com. Enter code CLRNCFTY at checkout. Here's how (restrictions apply). Offer valid through September 30, 2008.

I found pages upon pages of coffees and teas included in the clearance items, as well as more standard grocery fare like soup mixes and nuts. They still qualify for free shipping if the order totals more than $25.

And while we're sharing money savers, here's a free shipping promo code for Lands End (their quality is very good and their overstocks are quite fairly priced):
Code: AUTUMN, Pin: 9432

Sorry about the hiatus

2008-08-21T20:01:00.000-07:00

I lost my four-legged best friend on Tuesday, after many months of illness. It was both a hassle to deal with the new medical protocols and an unmitigated blessing to be able to make my buddy feel better and get some more living in, for the final months of her life.

A quick update on the house we made an offer on - according to the property tax assessor, the home is still delinquent on taxes, which means it hasn't sold/closed (an escrow company would pay off delinquent taxes at close of escrow). It's not back on the market, it's not sold, and nobody's paying the taxes. Hmm.

The housing bill: First Time Home Buyers' Credit recapture

2008-07-26T18:37:00.000-07:00

All about the housing bill: "Here's how the tax credit will work. You buy a
$200,000 house. The next year, when you file your income tax return, you have a
$7,500 credit. Not a deduction -- a credit. Essentially, you get to reduce your
income taxes by $7,500. That ought to make for some big refund checks.

But. Yeah, you know there's a 'but.' But you have to pay the money back
over 15 years. Say you buy the house this October. You get the $7,500 tax credit
for the 2008 tax year. That's the one with the filing deadline of April 15,
2009. Then you have to start repaying one-fifteenth of that amount, or $500,
every year for 15 years, starting with the 2010 tax year."

That's right - the first-time home buyer tax credit isn't a reduction in taxes, it's basically an interest-free loan. For the next 15 years (or until the home is sold/made into a rental), the taxpayer will pay a tax of 6 2/3% of the amount of the credit ($500/year on a $7500 tax credit). But, hey, an interest-free loan is an interest-free loan. If you haven't owned a home in the last 3 years, and your modified adjusted gross income is $70k or less (single), or $140k (married), it's a nice little bonus for buying a house. Provided you meet all the restrictions.

And, if first-time home buyers can't be expected to read a mortgage contract, it might amuse you to imagine them reading the text of the mortgage bailout law to discover that the "free" money has to be paid back:

`(f) Recapture of Credit-
`(1) IN GENERAL- Except as otherwise provided in this subsection, if a credit under subsection (a) is allowed to a taxpayer, the tax imposed by this chapter shall be increased by 6 2/3 percent of the amount of such credit for each taxable year in the recapture period.
`(2) ACCELERATION OF RECAPTURE- If a taxpayer disposes of the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer's spouse)) before the end of the recapture period--
`(A) the tax imposed by this chapter for the taxable year of such disposition or cessation, shall be increased by the excess of the amount of the credit allowed over the amounts of tax imposed by paragraph (1) for preceding taxable years, and
`(B) paragraph (1) shall not apply with respect to such credit for such taxable year or any subsequent taxable year.
`(3) LIMITATION BASED ON GAIN- In the case of the sale of the principal residence to a person who is not related to the taxpayer, the increase in tax determined under paragraph (2) shall not exceed the amount of gain (if any) on such sale. Solely for purposes of the preceding sentence, the adjusted basis of such residence shall be reduced by the amount of the credit allowed under subsection (a) to the extent not previously recaptured under paragraph (1).
`(4) EXCEPTIONS-
`(A) DEATH OF TAXPAYER- Paragraphs (1) and (2) shall not apply to any taxable year ending after the date of the taxpayer's death.
`(B) INVOLUNTARY CONVERSION- Paragraph (2) shall not apply in the case of a residence which is compulsorily or involuntarily converted (within the meaning of section 1033(a)) if the taxpayer acquires a new principal residence during the 2-year period beginning on the date of the disposition or cessation referred to in paragraph (2). Paragraph (2) shall apply to such new principal residence during the recapture period in the same manner as if such new principal residence were the converted residence.
`(C) TRANSFERS BETWEEN SPOUSES OR INCIDENT TO DIVORCE- In the case of a transfer of a residence to which section 1041(a) applies--
`(i) paragraph (2) shall not apply to such transfer, and
`(ii) in the case of taxable years ending after such transfer, paragraphs (1) and (2) shall apply to the transferee in the same manner as if such transferee were the transferor (and shall not apply to the transferor).
`(5) JOINT RETURNS- In the case of a credit allowed under subsection (a) with respect to a joint return, half of such credit shall be treated as having been allowed to each individual filing such return for purposes of this subsection.
`(6) RECAPTURE PERIOD- For purposes of this subsection, the term `recapture period' means the 15 taxable years beginning with the second taxable year following the taxable year in which the purchase of the principal residence for which a credit is allowed under subsection (a) was made.

7 bank failures so far this year

2008-07-26T16:45:00.000-07:00

In 2007, the FDIC closed 3 failed banks. None in 2006 and 2005. 4 in 2004, 3 in 2003, 12 in 2002, 4 in 2001. So far this century, 2008 is on track to be the second worst year for bank failures.

FDIC: Failed Bank List
2007 Bank closures:
Bank Name, City, State, Closing Date
First Heritage Bank, NA, Newport Beach, CA July 25, 2008
First National Bank of Nevada, Reno, NV July 25, 2008
IndyMac Bank, Pasadena, CA July 11, 2008
First Integrity Bank, NA, Staples, MN May 30, 2008
ANB Financial, NA, Bentonville, AR May 9, 2008
Hume Bank, Hume, MO March 7, 2008
Douglass National Bank, Kansas City, MO January 25, 2008

http://www.fdic.gov/bank/individual/failed/ Includes links to Is My Account Fully Insured? and When a Bank Fails - Facts for Depositors, Creditors, and Borrowers.

A nifty little tool: The bank rater

2008-07-15T17:15:00.000-07:00

TheStreet.com has a ratings lookup tool where users can look up thestreet.com's opinion of various entities. You can check their opinion of a stock, or get their idea of the financial stability of your life insurance provider. You can also look up your bank. I discovered this tool a year ago, when the bank failures began (just a trickle at first) - the bank that failed at that time was rated an E- before they failed.

To use the ratings screener, you go to the Banks tab on the Ratings Screener, type in your bank, and hit "Go." Pretty straightforward, except that some banks don't come up by exact name - if your bank doesn't come up, type in the first part of the bank's name and then sift manually through the results. Banks are rated from A to E-, just like academic grades. Personally, I'm wary about keeping my accounts below FDIC limits, but I'd be moving my checking account if I found my bank on the C- or worse list.

If you feel like whiling away a pleasant weekday afternoon, try this:

Don't enter anything, and hit search (find out how many banks are in the database). I got 12,326.
Set the rating option to "E" - the worst available rating. I got 332. Not bad - 332 "very weak" banks out of 12,326. Less than 3%.
Set the rating option to "D" ("weak") and grab the drop-down box next to the rating drop-down - set that one to "or lower". That gets you all the D's and E's in one shot. I get 2,479 banks rated by the street.com as "weak" or worse. Yikes - That's 20% of all the banks they track.

You can play with the ratings screener, sorting by state or bank type, or see which states have the most banks named "Cowboy".

Call me paranoid, but, since I discovered the rater, I've made a point to check my bank's rating every couple of months. They're a B-rated bank, and, so far, they've maintained a solid B average.

And, please - PLEASE, pretty please with sugar on top, please keep your money FDIC insured. Consumers can keep more than $100k covered in a single bank, provided the accounts are titled in multiple names (for example, Mr. and Mrs. John Q. Public could be insured for $100k each, allowing a joint account to reach $200k before exceeding coverage limits). Payable on Death accounts can be covered for $100k per beneficiary - Mr. and Mrs. John Q. could get $400k FDIC coverage by setting up a POD account as "Payable on Death" to their 4 children.

Can the GAO get a mortgage bailout?

2008-07-07T16:11:00.000-07:00

Why some conservatives are backing Obama: "Susan Eisenhower, granddaughter of Republican President Dwight Eisenhower: 'Deep in America's heart, I believe, is the nagging fear that our best years as a nation are over. We are disliked overseas and feel insecure at home. We watch as our federal budget hemorrhages red ink and our civil liberties are eroded. Crises in energy, health care and education threaten our way of life and our ability to compete internationally. ..."

I have not made up my mind about my Presidential vote, and linking to this article is not an endorsement of Obama - nor an indictment of him. But saving, investing, buying a house, pursuing an education, even having children - all these undertakings require a certain optimism, a trust that the future will bear them out, and a lot of Americans - especially investors, savers - you know, the kind of folk who sat out the housing bubble and are now prepared to swoop in and buy up houses - aren't feeling so optimistic. Politically, I believe that our government - under any candidate - needs to shore up those American "promises" - life, liberty, the pursuit of happiness, and freedom from the over-arching fear of Federal Government bankruptcy (or government spending hitting 50% of GDP, which the GAO projects will be necessary by 2070 - I don't know about you, but I do expect to be around in 2070, a mere 62 years from now; I hope to be a spry, active nonagenarian).

During the primaries, I read a candidate's treatise on his intended policies, and I found some of the ideas quite promising, but the overall takeaway was "That adds up to a lot of new expenses. Gosh, doesn't he know how bad the government debt is?" Whether you're leaning towards Obama, McCain, Nader, or "None of The Above," here's a stark reminder:

The government only has two ways out of their economic mess - man up and start solving the problem.... (I'll wait while the laughter subsides)... or go ahead and let inflation run wild (no need to default when you own the currency printing presses). Will consumers allow inflation to run? There's an interesting test. But if inflation goes wild, home ownership is a decent bet - as long as inflation inflates your salary faster than your expenses. Rising taxes are virtually a given, under any president, because our government obligation has reached the point where it's an exploding option-ARM itself. Pay less now, pay lots more later; pay more now, pay less more later (yes, I said less more - it's gonna be more later no matter how we dice it). The housing market has given us a brilliant illustration of what happens when folks pay less than the interest on enormous long-term debts - lots of folks are overdue on their property taxes, lots of folks couldn't afford basic maintenance, and, now, lots of folks lost their homes. If America couldn't afford to have Bear Stearns implode, we certainly can't afford to have the Federal Government implode.

Data on the Government financial status:
Complete FY 2007 Financial Report (PDF, 186 pages)
The Nation by the Numbers (PDF, 10 pages)
Notes to the Financial Statements (PDF, 62 pages)

Vulture real estate investors swoop in - Jul. 2, 2008

2008-07-05T12:07:00.000-07:00

Vulture real estate investors swoop in - Jul. 2, 2008: "Jack McCabe says he still sees 'a large disconnect between what buyers are willing to pay and what lenders are willing to sell for.'
That's even more true in California, according to David Michelson, a partner in California-based developer Three Arch Investors - despite the fact that home prices there are already down 35% in the last 12 months. The company is putting together a $250 million vulture investing fund in anticipation of even further declines, and will buy foreclosed homes in California, Nevada and Arizona.

'The transactions are not happening yet,' he said. 'There are plenty of people looking, but the lenders are carrying the cash value [of these distressed homes] at two or three times the actual value,' said Michelson.

Until banks reduce these prices - and take the write downs that will come with them - buyers like Michelson won't budge.

He figures that the banks will have to start liquidating these properties by the end of the year to get them off their books. And then, he says, the floodgates will open."

This is in contrast to the cases earlier in the article, where investers are scooping up property in other areas where banks and sellers are getting real. But in California, it's different. Could it be that - in a state where half a million dollars wouldn't buy much more than a condo or an inland starter home - the banks are too heavily burdened by California defaults to dare admit just how badly they've been burned?

Centex, Pulte dump land in Rancho - Sacramento Business Journal:

2008-07-04T12:33:00.000-07:00

Centex, Pulte dump land in Rancho - Sacramento Business Journal:: "At the height of the local housing boom, $8 million would have fetched less than 20 acres of land approved for new homes as prices had escalated to $600,000 an acre in some areas. Builders and developers are still waiting for a new benchmark on what land is worth in today's economy. The buyers in this deal, Alvarado and Somers, paid $32,000 an acre."

The weird thing about this story is that - Centex, at least - had already begun building, had models up, even had some homes completed and, apparently, sold. And then - poof - Centex's web site doesn't show anything in Rancho Cordova anymore. So what happens to the fine folks who bought new homes in the midst of the graded fields of mud that Centex no longer plans to build upon?

And, yowza - Centex and Pulte, as partners together, paid $50 Million, plus they spent another $30 Million in improvements - and then sold the land for $8 Million. I'll be very curious to see who survives - the Centexes or the Lennars? Centex recognized the downturn and the falling prices ahead, and they cut prices before anyone else - so they sold out before anyone else. Lennar is still dreaming of 2005 prices. Is it smarter to cut the losses and run, or to squeeze the last no-money-down, gotta-have-granite, easy financing nickel out of what history will surely remember as a crazy, self-indulgent market.

(C) 2008 All rights reserved

June: The month from heck, and what happened to our offer?

2008-06-26T20:10:00.000-07:00

I am booked solid 16 hours a day, and get the other 8 hours a day to sleep, eat, bathe, grocery shop, cook, clean, and take care of my elderly and ailing dog. So I'll just give a quick update on our offer. Nothing. Nada. Zip, zilch, no reply, no counter, no rejection, and no, the house has not appeared on the "sold" lists in the paper. It's been about 2 months.

We made an offer on a house

2008-05-18T20:02:00.001-07:00

We found a house that met our requirements, and the asking price made sense. It's a short sale - with two Cadillacs in the garage. Indy Mac bank owns the first and second mortgages. The house generated multiple offers, but, being a short sale, any offer had to be accepted by the seller AND the bank.

We made an all-cash offer. Our only contingencies were basic things like: we could do an inspection (only on the house) and we could back out or renegotiate if necessary repairs exceed $40k. We offered a large deposit, increasing the deposit to 30% upon acceptance of our offer. We offered a fast close - less than a month. I thought our offer was as good as a cashier's check. And we offered a tiny bit above asking price.

Well, that was three weeks ago. Last we heard, the bank was still thinking about it. Our offer has technically expired, although we would still proceed with the sale if we hear from the bank, say, tomorrow. I have to admit, I am surprised that the bank would drag their feet when they have a solid offer on the table for a property in Sacramento county, one of the nation's worst housing markets right now. The house, like many Sacramento-area homes purchased in the last several years, is suffering from deferred maintenance. If we buy it, I expect to replace the air conditioner this year - and I hope that it doesn't fail before we get it replaced.

We recently looked at another house, a REO. The house has water damage and mold because the water heater failed, dumping 40 gallons right in the center of the house. It has been vacant so long that rats and birds, at a minimum, are nesting in the attic. I am open to a lot of things, but rats and snakes cross my line. Another house - another REO - is barely salvageable because it sat vacant for so long that scavengers and children have picked it clean. The banks are playing a dangerous game when they repossess a house - hoping that the house will be livable and sellable by the time the bank gets an agent assigned to sell the house. From most of what I have seen on the market, banks are getting hosed on repossessing houses. But, I guess there's something I'm missing, because, at least for Indy Mac, it's worth losing a cash offer at a fair price while they play "don't call us, we'll call you if/when we get around to it."

John Lennon rolls over in his grave

2008-05-10T17:26:00.000-07:00

Is It Time to Invade Burma? - TIME: "But we still haven't figured out when to give war a chance."

The Burmese people's only crime is being born in Burma, and, for that, many will die of starvation and preventable diseases while the world waits with food, shelter, and medicine earmarked for the Burmese. But what gives another nation the right to invade another nation? Isn't that a slippery slope that could be used against us - the Swedish could invade America for humanitarian reasons - we have the death penalty and we don't provide universal health care and daycare. The Chinese could invade - we are torturing our people with excessive opportunity and choices. Chavez could invade to deliver heating fuel to our poor. The French could invade on the humanitarian grounds that we cruelly induce our American women to shave their legs and armpits, instead of allowing them to revel in their natural, God-given beauty.

Fact is, lots of countries disagree with each others' values and methods. If we want our independence as a nation, don't we have to honor other nations' independence, too? Even when it really sucks?

An old joke about being Saved

2008-05-09T09:42:00.000-07:00

I lived in Louisiana for a few years in the 90s. I worked with a local woman whose sister had just gotten indoor plumbing - all the neighbors came to see it. There are people out in the rural bogs who make their living off insurance checks - their trailers ain't worth nuthin', but every year, when their trailers flood out again, the insurance companies declare the trailer a total loss and pay out 10 or 20 thousand dollars. It ain't much, but it's a livin'. There's an old Louisiana joke about floods and God. This article reminded me of it today: Happy Mother's Day: Woman pregnant with 18th child about a couple who are gonna keep having babies as long as God keeps sending them. The recent news about a family that prayed until their daughter died of diabetes brought it to mind, as well.

So the joke goes, there's a flood out in one of the small bayou towns. The flood waters reach Gautreau's house, rising so fast that Gautreau can't get out. Gautreau, being a good God-fearin' Christian, proceeds to pray like he's never prayed before. The flood waters reach the first floor, then the second. Gautreau manages to climb up on the roof. The flood waters reach the soffits under the roof. Gautreau's friend, Boudreaux comes rowing up in a pirogue, and calls out "Gautreau, Gautreau, lucky I reached you in time! Dis flood's da worst I ever seen. Come, I hep you into da pirogue." Gautreau pauses a moment in his prayers to answer Boudreaux, "Boudreaux, you go on an' git outta here. The lord gon' save me." Boudreaux argues, "No, Gautreau, come on, it's too dangerous, git in da pirogue!" But Gautreau stands firm, "Boudreaux, I'm a good God-fearin' Christian, and I'm tellin' you, the Good Lord is gon' save me. You, however, are the devil's hand-maiden, and you'd best git, cause God ain't gon' save the likes of you." Boudreaux shrugs and sets out on his pirogue.

The flood waters reach the bottom row of roof shingles, and Gautreau prays like he's never prayed before. A rescue helicopter sees Gautreau, and comes to save him. One of the rescuers throws down a ladder, and yells instructions to Gautreau about how to climb the ladder without falling. Gautreau shouts back "Naw, I'm a good God-fearin' Christian, and I don't need to be rescued. The Good Lord above is gon' save me." Gautreau goes back to his praying. The rescuer urges Gautreau to climb the ladder as the flood waters reach the middle of the roof. The rescuer tells Gautreau, "There's no time for that! Climb the ladder, the flood's gonna sweep you away!" But Gautreau stands firm, telling the rescuers to go away so he can get back to his prayin'. Sure enough, the flood waters reach the top of the roof. The rescue copter comes back for another pass, but Gautreau waves them away. The flood waters rise to Gautreau's waist, and the water flow tears Gautreau off his roof. Gautreau drowns.

At the pearly gates, Gautreau meets his maker. Gautreau says, "Well, Lord, I guess it was my time." God answers, "Naw, you just drowned." Gautreau wails, "but Lord, you sent the floods! I prayed and prayed, and awaited your salvation, Lord." God answers, "Gautreau, I sent a boat and a helicopter! What more do you want?!"

Los Lagos bargains

2008-04-21T16:26:00.000-07:00

Granite Bay, California is ranked number 74 on Money Magazine's Best Places to Live. Los Lagos is a gated community in Granite Bay, home to executives and local basketball stars. Even within the gated community, one finds gated estates. The community features a beautiful pond/park next to the guard shack. Even in the Sacramento area, where most of our state's leaders keep at least a part-time home, Los Lagos is a special neighborhood befitting of movie stars and sports "royalty" (the local basketball team is the Sacramento Kings).

6080 BARCELONA CT, Granite Bay, CA 95746 is a bank repo priced at $944,900. At 4500 square feet on an acre, it is perhaps a modest home for Los Lagos. It doesn't even have a pool. But with HOA dues of just $175, it is a cheap entree to a neighborhood just across the street from Eddie Murphy's 10 acre estate (on the market for $6.9 million). Zillow reports 2007 property taxes at $12,577, making the old valuation somewhere around $1.257 Million dollars. But the last sale, presumably the bank repo, was only $866k, so don't cry for the bank yet.

5634 VIA AVION, Granite Bay, CA 95746 is more befitting the storied opulence of Los Lagos. At over 7,000 square feet on a 1.7 acre lot, this house is a bank-owned, as-is bargain at $1.539 Million. The new owner will only need to install a pool, add some landscaping to block the view of the power lines, and update the decor. Zillow reports 2007 property taxes at $24,326, making the old valuation somewhere around $2.43 Million dollars. But the last sale, presumably the bank repo, was only $1,710,00. It would appear that the prior owner (or the second mortgage and the prior owner) took a $700k loss, with the primary mortgage only losing a couple hundred grand (including repo costs).

I expected the real estate market to drop. Even I didn't expect to see open houses of bank repo homes in Los Lagos.

You don't have too many guns in Chicago. You have too many criminals.

2008-04-21T15:14:00.000-07:00

32 people shot, 6 killed, in violent Chicago weekend - CNN.com: "CHICAGO, Illinois (AP) -- An epidemic of gunfire rattled the city during the weekend, with at least 32 people shot and six killed.

Police Superintendent Jody Weis blamed an excess of guns and gangs for the rash of violence. 'There are just too many weapons here,' Weis said at a news conference Sunday. 'Too many guns, too many gangs.'"

I once lived near a military base, where they had a LOT of guns. In all the time I lived there, they did not have 32 people shot in violence, nor 6 people killed violently. Over several years, shootings in that community that was chock full of guns did not add up to 32.

In suburban Pennsylvania, I learned to shoot a 12-gauge in my teens. Three of us teens loaded up the shotgun, a handgun, and a bag of rounds, and off we went to the outdoor shooting range. The friends who taught me to shoot taught me to be careful, too. It didn't take a parent lecturing us - we wanted to be safe, we didn't want to hurt each other or someone else, so we took it upon ourselves to include safety alongside "this is a trigger" and "here's how you load it." We had no adult supervision, and I don't even remember paying for the range time - it might have been a public park set up specifically for target practice. As far as I know, we were well within the limits of the law. You don't send kids out into the woods to hunt deer without giving them an opportunity to learn to shoot first. I never much thought about it - children didn't shoot up their schools back then, although we did hear about the odd adult shooting up an office or post office - but it was commonplace for a family to have guns in the house. Even children as young as 10 had hunting guns of their own. Between our own families and our friends, we all had access to guns.

We didn't have 32 shootings (not counting shooting at game while hunting) ANY weekend the entire time I lived in Pennsylvania. We didn't lock our doors, we didn't live in fear, and - remember, I'm in my 30's. I'm talking about the mid-80's to early-90's, not the Ozzie and Harriet 1950s. I read two newspapers in high school - the local paper and the Philadelphia paper - and I'll tell you, we didn't have many break-ins, muggings, burglaries, rapes, or robberies, either. All those guns - rifles and handguns and cross bows and knives and arrows - probably every other house had at least one gun - and we didn't have "an epidemic of gunfire" rattling the city, the county - heck, we didn't even have many shootings in Allentown/Reading, an area that still hadn't recovered from the steel bust. All those guns sat quiet, unused, unwanted for any purpose beyond hunting, target practice, skeet shooting, and perhaps home defense. Thousands upon thousands of guns, never once used in the commission of a crime.

So, to Police Superintendent Jody Weis, I would like to say this: You don't have too many guns in Chicago. You have too many criminals.

Copyright 2008 All rights reserved

Non-profit healthcare - "Nonprofit is a misnomer - it's nontaxable"

2008-04-04T12:03:00.000-07:00

Today's Wall St. Journal features a front-page story about nonprofit hospitals. The line in the title is a quote from the article, attributed to Edward Novack, president of for-profit Sacred Heart Hospital in Chicago.

WSJ says "about 60%" of U.S. hospitals are nonprofits, 23% are for-profit, and 17% are run by counties, states, or the Federal government. So nonprofit hospitals make up the bulk of hospital care, which accounts for 31% of medical care costs. Highly relevant, then, to any discussion on rising health care costs.

Nonprofit hospitals are generally 501(c)(3) "charitable organizations," and used to be required, under IRS code, to provide charity care for the poor. When Medicare/Medicaid were created, hospitals claimed that the demand for charity care would become too small for the hospitals to meet minimum requirements for charity care, so the IRS rules moved away from requiring hospitals to care for the poor, and moved towards requiring hospitals to provide a more generic "community benefit."

Hospitals classify some interesting things as "community benefit." One hospital cited in the article, BJC HealthCare out of St. Louis, classifies employee salaries as "community benefit"; spokeswoman June Fowler justifies this classification by saying, "The impact that any organization that's job-producing and buying goods has on a community is of benefit to that community." Other hospitals use their research and/or medical training programs to meet community benefit requirements.

One of the most galling "community benefit" claims is the write-off between "normal charges" and Medicare/Medicaid reimbursements. If a procedure costs $50, and the hospital used to charge $100, they raise the price to $300 and then claim $225 in "community benefit" when Medicare reimburses them $75.

But they're not-for-profit - surely the money they take in goes to good use? The article compares several hospitals in Chicago; Northwestern Memorial (nonprofit) derives 6% of revenues from Medicaid, while for-profit Sacred Heart derives 62% of revenue from Medicaid and then pays taxes on their building and their profits.

Where, then, does the money go? The article includes a chart of "Some of the best paid nonprofit hospital CEOs" with compensation ranging from $3.3 Million to $16.4 Million. For context, the article cites two for-profit hospitals' executive compensation - but under $250k. Executive compensation can include reimbursement of Country Club dues - because it gives the executive access to "potential donors." That's right - despite big piles of cash reserves, minimal charity care, exclusive luxury accommodations, etc. - a contribution to the local glitz and glam hospital is a tax deduction as long as it's a nonprofit under IRS regulations. Nonprofit hospital construction spending is climbing, and Northwestern Memorial provides an example of some of the expenditures - not just building plant and medical equipment, but also flat-screen TVs and room service, with Lake Michigan views from some rooms.

When you build a luxury hospital for the wealthy, how do you keep the riff-raff out? How about aggressive collections. The percentage of uninsured patients at Northwestern Memorial is reportedly less than 5%. Fret not, dear reader, Northwestern's CFO, Peter McCanna, tells WSJ that they only sued 82 patients in 2006 and 2007. The article doesn't mention how many accounts were sent to collection agencies, nor whether the hospital uses kind-and-gentle collections agents or the more aggressive, call-people-at-work-and-never-let-up types.

Yes, folks, the real problem with health care in this country must surely be greedy health-insurance companies - it couldn't possibly be greedy doctors, greedy hospitals, greedy labs - or ineffectual tax law. Oversimplification of a problem leads to oversimplification of the solution, which isn't a solution at all.

Another Rate Cut

2008-03-16T22:03:00.000-07:00

The Fed cut the discount rate another quarter point, on a Sunday no less. Also announced today, JP Morgan Chase is buying Bear Stearns for $2 a share. Bear (BSC) closed at $30 on Friday, down from $57 on Thursday and a 52-week high of $159.36. The purchase price adds up to $236.2 Million. Their office building is supposedly worth over $1 Billion, alone. Wall Street Journal reports: "Bear Stearns had a stock-market value of about $3.5 billion as of Friday -- and was worth $20 billion in January 2007. " The Fed advanced JPM $30 Billion against Bear's illiquid assets according to WSJ: "Fed officials wouldn't describe the exact financing terms or assets involved. But if those assets decline in value, the Fed would bear any loss, not J.P. Morgan."

Mortgage rates are unchanged. The dollar has slipped again. Gold is up 2%.

Congratulations, American taxpayer. You just bought a share in Bear Stearns. If the value goes up, you get your money back. If the value falls, you take the hit. It's almost as good as the odds in Vegas, but you don't get a free drink from a cutie in a skimpy skirt.

Even my dog thinks this stinks.

TheStreet.com : Another Missouri Bank Fails | TheStreet.com Ratings

2008-03-10T23:18:00.000-07:00

TheStreet.com : Another Missouri Bank Fails TheStreet.com Ratings: "When asked about the likelihood of the depositors recovering a significant portion of uninsured balances, Mr. McClure said he was 'not optimistic in this case.'

TheStreet.com provides conservative, objective financial strength ratings for all U.S. banks and S&Ls. While you may feel no need to worry about your bank's health if you have deposits of less than the FDIC's standard $100,000 limit, chances are that you or someone you know is associated with a business, school district or other entity with large deposits in a local bank.

You can quickly check your institution's rating using the ratings screener."

This is the second bank failure of 2008. It's not a bad idea to check your bank's rating.

Recent home sale transactions in Orangevale, CA

2008-03-04T16:27:00.000-08:00

Sacramento area homes have been stagnating on the market despite substantial price reductions. In my own neighborhood, renovated homes are listed at 35% below peak pricing - and the comps that sold at peak prices weren't renovated much, if at all. If you factor in the remodeling costs, that's more than a 35% discount - and no one's interested. So I was curious about what IS selling.

The Sacramento Bee publishes home sales in the business section of the Sunday paper. One city I follow is Orangevale, which is about 10 miles outside downtown Sacramento, roughly in the middle of Sacramento and Folsom. (Not a bad place to live, if you have to live in the Sacramento area.) This week's paper lists 4 sales transactions.

Below are the sold homes that were reported in the Bee. All are located in Orangevale, so I only listed the street address. Sales history is copy-and-pasted from zillow.com, with my own commentary. There are two 40%+ discounts and two 30%+ discounts - out of four sales. I've already written about some of the new home communities selling in this area; although the homes are larger than these resale homes, it is worth noting that Centex is offering new homes at about $130/sq. ft. in sizes ranging from 2000-4500 sq. ft., although the new homes are not in as desirable locations.

8947 Woodward Way

Sale History
08/10/2007: $216,750 *
09/17/2002: $199,000
Zillow does not show the recent sale reported in the SacBee, w/a $193k selling price.
Peak zestimate: $331k in 2005

$201/sq. ft. Quarter acre lot. I don't know anything personally about this home, but zillow shows it as a 3/1, 960 sq. ft. late '50s home. The overhead view shows a house that's smaller and boxier than its neighbors, with a backyard littered with cars, plus an above-ground pool, a detached 2-car garage, and an RV. Peak sale to recent sale, the loss is minor. Peak Zestimate to recent sale, however, is a different story. $138k decline in value, or 41%. Probably a cash-out refi at some point.

8728 Sherry Dr

Sale History
02/11/2008: $235,000
07/21/2005: $400,000
11/01/2001: $160,000

$200/sq. ft. .31 acre lot. I don't know anything personally about this home, but zillow shows it as a 3/2, 1178 sq. ft. '50s home. The overhead view shows a lush green backyard. Peak sale to recent sale, this is a $165k loss, or 41%.

7415 larkspur
02/08/2008: $260,000
07/15/2005: $385,000 *
12/30/1992: $134,000

$258/sq. ft. 1008 sq. ft. house, .43 acre lot, house next door has been on the market for something like 2 years, asking over $500k at one point. I haven't seen inside this house, but the neighboring house is a completely bizarre remodel where a mobile home was attached to the original house, and next door to that mess is large acreage being used, best I can tell, as a trash dump. Loss is $125k, 32%.

6935 filbert

Sale History
02/08/2008: $250,000
08/22/2005: $367,000
08/08/2001: $155,000

$156/sq. ft. About 1/3rd acre, 1602 sq. ft., was remodeled and then went REO, neighbor kids were breaking in and using it as a party pad, while other neighbors were using the front yard as a trash dump. Another funky remodel. After the 2005 purchase for $367k, a lot of money was dumped into renovations - exterior stucco, a large addition, kitchen reno, etc. It went inactive several months ago, without coming back on the market as far as I've seen, but now it's suddenly sold. Asking price from the bank was about $265k. Not counting renovation costs or peak market value - strictly comparing selling prices - this is a $117k vaporization of equity, 32% price drop.

The asterisk notes the following (copy-and-paste from zillow.com):
"Transaction Not Included in Zestimate
This transaction was not used in computing the Zestimate for this house due to anomalies we detected with this transaction. These anomalies can include unusual document or transaction types, sales between possibly related parties, unusually high or low transaction prices, or other data irregularities that might indicate the transaction is not a full-value, arms-length transaction."

New homes in Rancho Murieta shifting, cracking from foundation problems - Homeowners sue

2008-02-22T18:28:00.000-08:00

News - Rancho Murieta residents left on shaky ground - sacbee.com: "Dozens of Rancho Murieta homeowners have been left with cracked walls and listing foundations after local builder Reynen & Bardis said it can no longer afford to fix their defective houses."

More victims of the housing slowdown. Their homes were built on expansive clay soil, which undermines the foundation. The builder is trying to sell other homes in the neighborhood, for less than the previous buyers owe, so affected owners can't sell. Potential buyers may not be able to get a mortgage for a home with foundation problems. And this is a case where the builder seems to have some good intentions - they tried to fix many of the homes, and bought many of the homes back. But they ran out of money before they fixed them all.

There are pictures, too.

It's gettin' downright dangerous to buy a Sacramento home these days.

Government to citizens: Ef you

2008-02-21T18:38:00.000-08:00

Foreclosure prevention plan under attack - Feb. 21, 2008: "Both the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008 aim to provide relief for some home owners in bankruptcy. Only borrowers who live in their homes and hold subprime or non-traditional mortgages, like interest-only loans, would be eligible."

The proposal is to allow Bankruptcy judges to "cram-down" the balance on a mortgage, reducing the amount the borrower has to pay. It only applies to risky loans.

The moral of the story, kiddies, is don't bother doing the responsible thing. Responsible folk don't get any help, government only helps people who intentionally accepted a greater degree of risk than was prudent. Put 20% down, take out a loan you can afford, take good care of the house, lose your job when the housing market tanks - too bad, so sad. Put nothing down, take out a loan you can only have afforded if the stars aligned perfectly in your favor - house appreciates, you get 5 promotions in 2 years, you manage not to have another kid you can't afford, you manage to refi to a lower rate than the already ridiculously low teaser rate - the government will pull out all the stops to make your house magically affordable.

(C) 2008 All rights reserved

To Buy, or Not to Buy? Moral hazard, or prudent risk management?

2008-02-20T14:04:00.000-08:00

Janie and Bob, a fictional California family, own a home. Well, they own 2/3rds of a home, and a bank owns the other third. They have a 15-year mortgage, and they've made home improvements using a combination of cash and a HELOC. Janie and Bob paid off the HELOC. They have a good bit of equity. They have virtually no tax break, because their mortgage is very low and they can't deduct state taxes under the Alternative Minimum Tax.

They want another house - a little larger, but, most importantly, closer to school and work. They can afford a larger payment, but they're not willing to pay a great deal more - their current house is affordable and puts a roof over their heads. Anything more is nice-to-have, but not a true necessity.

If Janie and Bob sold their house and bought another, they could "liberate" equity from the current house, making the minimum down payment on a larger house. If the new house drops in value, they could ask the bank to renegotiate the mortgage balance to the lower value. The bank might not do it, but I used to think they would never, ever do a thing like that, and now banks are renegotiating mortgages in all sorts of "creative" ways. With the cash from their current house, and California's non-recourse mortgage loans, buying a new house would protect Janie and Bob's equity by cashing it out, while shifting the risk of further price declines to the bank. Heck, they could buy a house in another state for cash, and walk away from the new house if they wanted.

This is the "moral hazard" of low-down, non-recourse, renegotiable mortgages. It's like buying an option on a house for 3% down - Janie and Bob get all the upside profit, the bank gets all the downside risk and the only thing Janie and Bob stand to lose is their downpayment and their credit rating. With $100k in the bank from selling the old house, a bad credit rating wouldn't hurt that much.

Even contemplating such a move feels wrong, but then I think. People like Janie and Bob - who save, invest, watch their expenses, drive sensible cars instead of fun cars, and basically try to be financially responsible - pay the taxes to cover the costs of bailing out homeowners who weren't as responsible and thoughtful? Shouldn't Janie and Bob ensure their own family has at least as much protection and benefits as the people their taxes support? Shouldn't responsible citizens receive equal or greater protection under the law?

The homeowner with little or nothing down receives the benefits of homeownership in return for their interest payments, but the also receive a sort of pricing insurance. If the home devalues, the homeowner with no skin in the game doesn't have to keep making high payments, they don't have to pay off the loan deficiency to sell, they don't have to stay tied to a house that no longer works for them, waiting for the loan to stop being "underwater". Janie and Bob pay market rate on interest, but they don't get that free price-level insurance because they have too much equity invested. They are self-insuring the part that's paid off.

Should Janie and Bob buy a house, knowing they might default, but knowing they'll have a lot more cash as a result? Or should Janie and Bob stay in a house they don't love, in a location they don't love, because honoring a contract is the right thing to do? Forget for a moment the debate about whether the government should intervene in the housing market - accept the fact that government is intervening - what should a responsible family do? Suck up the higher taxes that will result, or grab their own brass ring while the grabbing's good?

Would it change your opinion if Janie and Bob were going to use the cash from the old house to finance their retirement? What if they used it to send their kids to school? What if they used it to pay for live-saving medical care for a child? What if they used it to buy a Hummer and go on that honeymoon they always dreamed of? What if they used it to pay the new mortgage for several years? Does it matter? Are they dumb for leaving their equity at risk, or immoral for shifting the risk to a lender?

Bank owned, falling apart, and stripped

2008-02-19T17:40:00.000-08:00

I am pretty handy with a hammer, and, if it weren't for time constraints, we'd probably build a custom house. So "bank-owned" and fixer didn't scare us off. Besides, I love the charm of old houses and despise cookie-cutter "semi-custom" tract home neighborhoods, but find truly custom home neighborhoods pretentious.

We saw an interesting houses for sale, with a price beginning to resemble rational, and we scheduled a viewing. We drove by the house the day before our visit, and watched two separate couples emerge; in both cases, the wives came out with arms crossed, faces pinched, leaning away from their husbands. The husbands' body language and mannerisms didn't suggest that they were any happier with the house. It seemed comical at the time, the similarity of both couples' reactions.

The house is on Winding Way in Fair Oaks, California. Bought in '05 for over $700k, "sold" (probably the foreclosure action) for just shy of $500k last year, and on the market today for $430k. Oh, sure, a kitchen remodel costs $50k so it would still be a half-million-dollar home, but it also had hand-coved ceilings and straight, quality wood. Well, it also had termites and dry-rot nibbling away at the wood - to the point that one window sill had a gaping hole to the outside. The bedrooms were all painted garish theme colors, and the bathroom had been painted bright yellow, right down to the vanity top, bathtub, and tub enclosure. I think that the carpet in one bedroom was actually painted - but it did match the hot-pink walls nicely, if you like that kind of thing. Half of the square footage was a badly-done addition - poor craftsmanship and the terrible "flow" of a poorly conceived floorplan. Shapes and finishes didn't match the main house, and the master shower was located in the laundry room. The pool house smelled of mold, the workshop was converted to an illegal apartment, and the garage had drainage holes so the entire backyard could drain through the garage. Wear your waders to get in the car in the morning - that sounds fun.

Still, no big deal. Put in proper drainage, gut the workshop back to a workshop, tear down the pool house, rebuild the addition. Oh, but there's more. The house had two air conditioners; now it has the exterior shell of two air conditioners, with a bunch of cut wiring poking out. One air conditioner looked brand new, but with every removable part stripped, it is probably a complete loss. Every light fixture I saw was missing parts, and the ceiling fans dangled oddly, with a blade or two removed, the wiring stripped for a few cents copper value. The lawn sprinkler controls were gone, and the entire pool pump/filter mechanism was missing. The attic access panel was askew, and I shudder to imagine what was removed up there. The little 1-foot long copper pipes from the water heater to the wall had also been cut, worth very little in the scrap market, but a nice $50 repair for the next owner. Given enough time, so much will be stripped that it will not be economically feasible to repair - the once-proud $700+k home will be just another tear down.

It might already be. The house had a 14-page Section 1 pest report (items deemed major and in need of immediate repair). Termite damage, fungus damage, broken windows, water infiltration. It seemed that every water fixture had a leak - I wonder if the pipes froze and burst? I don't know if it was an optic illusion or a major structural defect, but one of the rooms seemed to slant away from the rest of the house. The pool was green, the tennis courts cracked and being overtaken by weeds. The yard was uneven and had trenches in the front yard, an earth berm in the side yard, and a rather frightening wood retaining wall in the back. The grass, such as it was, was a motley mixture of grasses and weeds, with lovely large shade trees in the front yard, and broken branches abandoned beneath.

This, my friends, is the asset that backed a mortgage security for over half a million dollars.

IRS Mortgage Interest Deductions Limited to 100% of Fair Market Value - but market value when?

2008-02-07T18:07:00.000-08:00

The interest on home equity loans is tax deductible (subject to income limitations and maximum loan limits), as long as the debt is equal to or less than the Fair Market Value (FMV) of the home. See IRS Pub 936. What does this mean?

Suppose you have a Home Equity Line of Credit (HELOC). There is a line of credit available to you on any given day, but you don't owe any money on the HELOC. Then the value of the house declines. The house was worth $450k; with a $350k mortgage, the bank gave you another $100k line of credit to tap 100% of your "trapped" equity. Then, the housing market tanks, your house is worth $400k, and you decide to access the line of credit to give your kid a down payment for her own home. The debt is now more than the house is worth. Is the interest deductible?

According to the IRS, the test for deductibility is based on the date you open the HELOC (when the bank gives you a contract and a book of checks), not today's FMV or the FMV on the day you actually wrote one of those HELOC checks to borrow money. You take the Fair Market Value of the home, subtract other qualified debt (like purchase money mortgage), and basically determine your equity. If the HELOC line is equal to or less than your equity, on the day you open the HELOC, it's deductible.

(Note: other tax rules may restrict or eliminate deductibility of mortgage interest; I'm only looking at this one aspect). It might be worthwhile to retain documentation of the home's value on that date, although it seems unlikely for the IRS to start auditing people for taking an interest deduction on HELOCs.

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When dealing with an obscure IRS rule, I would not take a stranger's word for what's deductible and what isn't - I'd check with my CPA or with the IRS directly. So don't take this article as tax or financial advice - just an interesting footnote in the weird world of real estate tax rules (like how a loss isn't deductible, but a gain is taxable, and a HELOC'ed car or vacation is deductible, but not if you make more than some arbitrary income limit).

Foreclosures leave renters in the lurch

2008-02-06T23:47:00.000-08:00

Foreclosures leave renters in the lurch: "At first, Adriana Diharce ignored the envelope taped to her front door because it wasn't addressed to her. Then she saw the words 'trustee sale,' so she opened it. The letter said the modest, ranch-style Hayward house rented by Diharce and her husband would be sold at a foreclosure auction.

When Diharce called the phone number on the letter last month, a representative told her the house was slated for auction on Feb. 8 - tomorrow - and said the couple and their two young children would have to vacate almost immediately after that. Diharce called her landlady, but her phone had been disconnected.
'The landlady owes us our deposit, and we cannot locate her,' said Diharce, 29, who is expecting a third child in March. 'I am so upset. As a tenant, we have no rights, no deposit and nowhere to go.'"

Renters and landlords can both probably find some value in the tips (and traps) outlined in the article. If you've ever bought a house thinking "if I get transferred and can't sell it, I'll just rent it out," this article might just change your mind. Of note: Both California and the Federal legislatures have considered passing laws to protect tenants in foreclosure situations. Yes, tenants should have some warning, and yet, on the other hand, the harder we make it for banks to get their money out of a foreclosure, the harder banks will make it for people to buy homes. There's gotta be some balance.

The National Association of Realtors has mobilized - are they lobbying for YOUR best interests?

2008-02-05T22:13:00.000-08:00

Paper Economy - A US Real Estate Bubble Blog: Capitol Appeal!: "The National Association of Realtors (NAR) recently produced an email campaign that seeks to harness its legions of member Realtors specifically to urge congress to include the conforming loan limit provision of the economic stimulus package.

Not only has the “temporary” increase to the conforming loan limit been approved by the house, influential representatives are now calling for the conforming loan limit increase to become permanent."

Please click the link, read the argument, and take a moment to let your legislators know how you feel. If we want to live in a representative democracy, we have to hold our elected officials accountable to the electorate (I guarantee the lobbyists are holding them accountable). Voters have more power than lobbyists, if we choose to exercise it.