It is a shame that it is no surprise when a bank lies to you. I got a “priority notice” from my mortgage company that my 30 year fixed load could be reduced. They show big huge figures showing current interest rate, new interest rate, potential yearly savings of over $5,000… Complete lies. They are claiming savings with a completely different mortgage, a 5/30 year adjustable rate mortgage (which you have to turn over the paper and note they list “mortgage product: 5/1 ARM” and then know what that means).
Then they go on for a page with all sorts of text seemingly designed to confuse fools. Obviously they try to claim the savings are what is important and the different mortgages, risks of rising interest rates etc. are not important [why don't they just make it a 30 year mortgage at the low rate, if they think the interest rate risk they try to stick the client with is such an unimportant detail that isn't even mentioned on the front page with the "comparison" mortgage rates]).
Anyone that trusts any company that so blatantly tries to fool you is crazy. When they are not shy about using such obviously deceitful tactics you can’t trust them to do much much worse in ways that are very difficult to protect yourself from.
As I have said before, don’t trust your bank. More than any other companies I see, financial institution, treat customers as fools to be fleeced not customers to provide value to. It really is amazing people defend banks paying obscene bonuses to those that are able to fool financial illiterates into stupid decisions. The company trying to deceive in this case, did indeed fail (and was saved by the FDIC). Financial institutions have decided that they will just focus on tricking those that are not financially literate out of as much money as they possibly can. If you don’t educate yourself you are at great risk to be taken advantage of by financial institutions focused on finding people they can take advantage of.
Related: FDIC Study of Bank Overdraft Fees – Ignorance of Many Mortgage Holders – Don’t Let the Credit Card Companies Play You for a Fool – Customer Hostility from Discover Card – Legislation to Address the Worst Credit Card Fee Abuse – Maybe
Welcome to the Curious Cat Investing and Economics Carnival: we highlight recent blog posts we found interesting.
- Dividend stocks that beat the market by Jim Jubak – “A hefty dividend isn’t enough to prevent major capital damage when a sector takes that kind of punishment. Another lesson is that a dividend income portfolio needs more frequent care and feeding than I gave this one.”
- Get Real On The Economic Recovery And Stock Market Rally – “Another rapid slump in global economy is far from impossible. Double dip recession could arise from sky-high public debts or another financial crisis sparked by delinquency in prime mortgage loans, risky commercial sector or derivatives.”
- Don’t Miss Out on a Good Investment Today Because You Missed a Better Investment Earlier by John Hunter – Instead of just missing out because I made a mistake and didn’t buy a stock at a lower price earlier, I have learned to accept that buying at the higher price available today can be the best option…
- How much should be in your emergency fund? by Patrick – “Some people recommend at least 3-6 months living expenses, some recommend 6 months to a year, and some recommend a few thousand dollars. In my opinion, this is a very personal decision and should be based on your individual circumstances.”
- Weakon 238: Stock Beta by Philip – ” If the beta comes back 1 or higher then you are relying on the market for your returns and are not protected against a down market. That isn’t a bad thing if you’re tolerant to risk, the beta on my 401(k) is 1.3.”
- Government Debt Around the World as Percentage of GDP 1990-2007 by John Hunter – The overall OECD debt to GDP ratio decreased from 77% in 2005 to 75% in 2007. The USA moved in the opposite direction increasing from 62% to 63%
There are several factors that need to be addressed relating to the broken health care system in the USA.
1) It is bankrupting the government
2) It is severely handicapping business that must pay for the expensive and poorly performing system
3) It is bankrupting individuals (Employees Face Soaring Health Insurance Costs)
4) It is hampering economic freedom due to the model that ties health care to employment. If I want to go start my own small business, I not only have to worry about all the risks of running a business I have to risk my heath coverage (coverage is expensive and if you get sick you can be dropped, or rates increased so dramatically that they are not affordable – hardly insurance when you are dropped when you need it).
5) social inequity – no other rich country denies basic health care to everyone
6) the results are poor to mediocre (at by far the highest cost of any country)
The idea that a system that is far more expensive than any in the world and performs, at best, in the middle of the pack of rich countries while creating huge economic and human hardships should not be reformed is crazy. Unless you believe the USA is just incapable of performing even at a mediocre level in health care, for some reason, you have to believe they current performance needs to be dramatically improved.
Now there may well be disagreement about which failures are most important. Some may not care about the huge competitive disadvantage companies are put in by the current broken system. Others may not care that millions don’t have basic coverage. Others may not care that sick people go bankrupt. Others may not care that the heath results are mediocre at best – that tens of millions have much less healthy lives than they would. Others may like that they make a great deal of money from the current system. Others may like that they personally get good health care. So in what ways the broken system in place now needs to be fixed is open for debate.
The long term result is very simple to see. The current system is very broken and will not work. Different people suffer differently depending on what solution is adopted. My desire would be to reduce spending on hugely expensive miracle cures (especially for terminal ill patients) and increase spending dramatically on preventative and healthy living (versus spending on managing sickness) but I can see that such a solution is not at all popular. So we are not going to adopt that part of what I would like to see.
But I have no doubt the system will be dramatically reformed. Because if not the economic costs will destroy the economic future of the country. I don’t believe tens of millions without health care will drive action – we have seen that we are perfectly willing to allow that to continue. If the economic costs (say reducing the economic benefit to every person in the USA by $5,000 a year) just stayed at that level, it seems those that are benefiting from the current system are able to hold off improvement. But that figure is increasing each and every year. Eventually the costs grow too large and too many people will demand the broken system be improved.
Amazon’s stock price is up 25% to $117 today, after announcing good earnings and increasing sales projections for the 4th quarter. I own stock in Amazon and have it in my 12 stocks for 10 years portfolio. That portfolio is currently beating the S&P 500 by 500 basis points (for annualized return) with a beta of .96 (meaning with a bit less risk than the S&P 500 historically and an alpha of 4.7).
Operating cash flow for Amazon was $2.25 billion for the trailing twelve months, compared with $1.27 billion for prior year. Free cash flow increased 98% to $1.92 billion from $0.97 billion for the trailing twelve months.
Net sales increased 28% to $5.45 billion in the third quarter, compared with $4.26 billion in third quarter 2008. Operating income increased 62% to $251 million in the third quarter, compared with $154 million in third quarter 2008.
Net income increased 68% to $199 million in the third quarter, or $0.45 per diluted share, compared with net income of $118 million, or $0.27 per diluted share, in third quarter 2008.
“Kindle has become the #1 bestselling item by both unit sales and dollars – not just in our electronics store but across all product categories on Amazon.com. It’s also the most wished for and the most gifted. We are grateful for and energized by this customer response,” said Jeff Bezos, founder and CEO of Amazon.com. “Earlier this week we began shipping the latest generation Kindle. Its 3G wireless works in the U.S. and 100 countries, and we’ve just lowered its price to $259.”
North America segment sales, representing the Company’s U.S. and Canadian sites, were $2.84 billion, up 23% from third quarter 2008. International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $2.61 billion, up 33% from third quarter 2008. Worldwide Electronics & Other General Merchandise sales grew 44% to $2.36 billion.
For the quarter that ends in December, Amazon forecast sales of $8.1 billion to $9.1 billion (compared with $8.19 billion in previous analyst estimates).
Amazon continues to build a strong company for the long term. I must admit I think the current stock price might be a bit too high. But I believe in the long term success of the company. They continue to make intelligent, customer focused decisions.
Related: 12 Stocks for 10 Years – July 2009 Update – Another Great Quarter for Amazon (July 2007) – Very Good Amazon Earnings (April 2007) – Amazon Innovation – Jeff Bezos and Root Cause Analysis – Jeff Bezos management quotes
This hardly constitutes an outright collapse, nor is it necessarily cause for concern. American exporters, whose goods have become more competitive abroad, are happy with their weaker currency. Similarly domestic producers may be cheered that rival, imported goods are more expensive. And European tourists, who can buy more for their euros during weekend shopping excursions to America, may cheer too. However, the continued decline of the dollar does come against a backdrop of ominous murmurs from the likes of China and Russia, who hold much of their reserves in dollars, about the need to shift their reserves out of the greenback. Brazil’s imposition of a 2% levy on portfolio inflows is also a sign that other countries are getting nervous about seeing their currencies rise against the dollar.
But it is hard, also, to think of a parallel in history. A country heavily in debt to foreigners, with a government deficit it is making little headway at controlling, is creating vast amounts of additional currency. Yet it is allowed to get away with very low interest rates. Eventually such an arrangement must surely break down, bringing a new currency system into being, just as Bretton Woods emerged in the 1940s.
The absence of a credible alternative to the dollar means that, despite its declining value, its status as the world’s reserve currency is not seriously under threat. But the system could change in other ways. A world where currencies traded within bands, or where foreign creditors insist on America issuing some debt in other currencies, are all real possibilities as the world adjusts to a declining dollar.
The issuance of USA government debt of any significant size in other currencies would be an amazing event, to me. However, that does not mean it won’t happen. In my opinion it is hard to justify the non-collapse of the dollar, and has been for quite some time.
The huge future tax liability imposed over the last few decades along with the failure to save by those in the country creates a hollow economy. Granted the USA had a huge surplus of wealth built up since the end of World War II. The USA has to a great extent sold off that wealth to finance living beyond the productive capacity of the country the last 20-30 years. But that can only go on so long.
The only thing saving the dollar is that other countries do not want the dollar to decline because they don’t want the competition of American goods (either being sold to their country or for the goods they hope to export). So they intervene to stop the fall of the dollar (and buy USA government debt). That can serve to artificially inflate the dollar for some time. However, eventually I think that will collapse. And when it does it will likely be very quick. The idea of the USA issuing debt in other currencies seems crazy now. It could then go from possibility to necessity within months.
You cannot print money forever to live beyond your means and have people accept it as valuable. The government can runs deficits if the citizen’s finance that debt with savings: and still maintain a sound currency. But the recent period, given the macro-economic conditions, don’t justify the value of the dollar. It should have fallen much further a long time ago. The other saving grace for the dollar is few large economies have untarnished economies. The Euro has strengths but is hardly perfect. The Chinese Renminbi is possibly the strongest contender but the economy is still very controlled, financial data is untrustworthy, political freedom is not sufficient… The Japanese Yen does have some strengths but really their long term macro-economic conditions is far from sound.
In the current economic environment investing in currencies is one way to look for higher returns and even to diversify and hedge your portfolio using forex trading strategies.
Related: The USA Economy Needs to Reduce Personal and Government Debt – Let the Good Times Roll (using Credit) – Federal Reserve to Buy $1.2T in Bonds, Mortgage-Backed Securities – Who Will Buy All the USA’s Debt?
” ‘Too big to fail’ has become worse,” Bair told USA TODAY. “It’s become explicit when it was implicit before. It creates competitive disparities between large and small institutions, because everybody knows small institutions can fail. So it’s more expensive for them to raise capital and secure funding.”
The left-leaning Center for Economic and Policy Research last month found that banks with more than $100 billion in assets paid 1.15% for funds, and all others paid 1.93% late last year and early this year. That amounted to an annual subsidy worth up to $34.1 billion for the 18 biggest bank companies.
Too big to fail is too big to exist. The actions to provide massive taxpayer bailouts to banks deemed too big to fail so that they could pay out billions in bonuses to those who failed so completely in managing their banks has been a continuing example of how bad an idea corporate welfare is. Not only are those given the huge bailouts just looting those payments for their friends much of the rest was just forwarded onto other big financial institutions (that had made bad bets in the unregulated financial markets they lobbied for) to have worthless financial instruments payoff with billions from taxpayer welfare payments to them.
If we allow the continual increase in anti-competitive behavior by financial institution to be encouraged by the politicians they provide with huge payments we are going to have much bigger problems than we have seen so far.
If you have accounts with these mega welfare financial institutions: close them. Move to some other institution that can support itself and does not abuse the taxpayers with support from “your” politician.
Related: Looting: Bankruptcy for Profit – Small Business Owners Angry at Big Banks – Canada’s Sound Regulation Resulted in a Sound Banking System Even During the Credit Crisis – More Outrageous Credit Card Fees
I really like micro-credit as a tool to improve the lives of those willing to put in the effort to build a successful business. I do worry however, that the actual success is less than what is hoped. The idea is so appealing but objective results are not as obvious (for one thing the results, do not seem to be available). I want to find research that indicates what will make micro-credit most effective at improving the economic well being of people. Small change by Drake Bennett
They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly denied loans while other otherwise identical applicants had loans approved.
Working with a microcredit bank in India that was looking to expand in the city of Hyderabad, the researchers did find some small positive effects. Borrowers who already had a business did see some increase in profit. Households without businesses that the researchers judged more predisposed to start one were found to cut back on spending, suggesting they were saving to augment their loan for a capital business expense like a pushcart or a sewing machine.
Overall the article suggests that the data is hard to get. The time of the studies may be too short to see improvement. And the gains seen are small. I do believe we are in danger of creating problems with the rapid expansion of micro-credit. I can understand why, the situation is desperate for billions of people still. And we do not have many good methods for improving economic conditions for the world’s poor. I still strongly support micro-credit but I worry, especially if interest rates are high, that it may not help. We need to study what is working and adopt methods that will bring about improved results.
Manufacturing is an powerful driver of economic wealth. For years I have been providing data to counter the contention that the manufacturing base of the USA is gone and the little bit left was shrinking. The latest data again shows the USA is the largest manufacturer, and manufacturing in the USA continues to grow. It is true global manufacturing has begun to grow more rapidly than USA manufacturing in the last few years. I doubt many suspect that the USA’s share of manufacturing stayed stable from 1990 to 1995 then grew to 2000 took until 2006 to return to the 1990-1995 levels and then has declined in 2007 and 2008 a bit below the 1990 level and during that entire time was growing (even in 2007 and 2008).
The USA’s share of the manufacturing output, of the countries that manufactured over $185 billion in 2008, 28% in 1990, 28% in 1995, 32% in 2000, 28% in 2005, 28% in 2006, 26% in 2007 and 24% in 2008. China’s share has grown from 4% in 1990, 6% in 1995, 10% in 2000, 13% in 2005, 14% in 2006, 16% in 2007 to 18% in 2008. Japan’s share has fallen from 22% in 1990 to 14% in 2008 (after increasing to 26% in 1995 then steadily falling). The USA has about 4.5% of the world population, China about 20%.
Based on the latest UN Data, for global manufacturing, in billions of current US dollars:
* I am using the data from last year that separated the manufacturing data (this year the data does not provide separate manufacturing data for China) instead of that shown in the most recent data (which doesn’t separate manufacturing)
** The China data is not provided for manufacturing alone. The percentage of manufacturing (to manufacturing, mining and utilities) was 78% for 2005-2007 (I used 78% of the manufacturing, mining and utilities figure provided in the 2008 data).
I hope to write a series of posts examining global manufacturing data including looking at manufacturing data specifically (excluding mining and utility data).
The Royal Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2009 to Elinor Ostrom, Indiana University, USA, “for her analysis of economic governance, especially the commons” and Oliver E. Williamson, University of California, Berkeley, USA, “for his analysis of economic governance, especially the boundaries of the firm.”
Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.
Oliver Williamson has argued that markets and hierarchical organizations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest. The drawback of markets is that they often entail haggling and disagreement. The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets. A key prediction of Williamson’s theory, which has also been supported empirically, is therefore that the propensity of economic agents to conduct their transactions inside the boundaries of a firm increases along with the relationship-specific features of their assets.
Elinor Ostrom starts talking at the 9 minute mark.
Which is why the last thing a Blueline driver ever wants to do is come to a stop. Every move he makes is done with the intent of keeping the bus in motion: slowing just enough so debarking passengers can jump off, then picking up speed as the new passengers run alongside the bus, swinging themselves up and in as the conductor screams at them to hurry.
But with an estimated 2,200 Blueline buses careening across Delhi on any given day, it’s no wonder the newspaper reports are almost identical every day. After an accident, the driver tries to flee, an angry mob beats him, the police impound the bus, the driver is thrown in jail, the owner of the bus is not mentioned. Sometimes the driver escapes, in which case the mob finds its release in setting fire to the bus.
This is a good example of looking at problems economically. It also shows the problem with failure to regulate. I am perfectly happy to live with regulation that removes the economic pressure to risk human life.