JoeTaxpayer

Henry Paulson spoke today about the mortgage crisis and how the government was going to encourage a rescue. I suppose the cynic in me can ask what makes anyone believe that it’s going to be done right this time. The origins of the subprime meltdown are based in a remarkable combination of greed and ignorance, and I’m sure some fraud thrown in. Paulson’s plan, while well intended, may come with its own unintended consequences.

To start, I must say I appreciated his logic in categorizing the four types of subprime mortgage holders:

1. Those who can afford their adjusted interest rate [and] need no assistance.
2. Homeowners who haven’t been making payments at the starter rate on their subprime loan and may not have the financial wherewithal to sustain home ownership.
3. Homeowners [who] might choose to refinance their mortgage – putting them in a sustainable mortgage while keeping investors whole.
4. Those with steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate.

Well, (1) and (2) are not the issue. The first group seems to have gotten through just fine, and the second are clearly in the group that never should have been given a mortgage. The third and forth groups he proposes to help with a combination of state sponsored tax-exempt bonds and streamlined refinancing. The risk is this; every change in taxation has an effect. Raise the tax on a good or service and you reduce the demand for it, and perhaps raise the demand for an alternate should one exist. The tax exempt bonds, whatever their total market value, will compete for money in the bond market, raising the cost of capital elsewhere. The category (3) refinancing will make the original mortgage holders whole, when perhaps their CMO tranche didn’t deserve to be valued at 100%, perhaps it’s changed hands so many times that the current owner paid pennies on the dollar. For that investor to now collect face value does not pass the common sense test. In the end, Paulson’s plan may very well work, and we may survive this crisis without greater damage to the economy, but even so, I’ll leave with the question, “What have we learned and how do we keep history from repeating, yet again?”
JOE

Got my latest bill for the card I use regularly. It came on Monday, Nov 26 and is due on Monday, Dec 3. First, during this time of year I don’t know if the six days (I could only get a check out next day, as I get my mail after I get home from work) would be enough time to get the check received and credited on time.
I jumped onto my bank’s online system and saw that even though they pay these electronically, no paper check mailed, the earliest I could get the payment authorized was Dec 3. That’s great, but the credit card shows a time due of noon. My bank guarantees payment by 5 pm.
Now, the happy ending for me is that I’m neurotic enough to have had my eye on the credit card activity, and set up the payment right after the close of the cycle on Nov 13. I took a moment to call the credit card company and asked why a bill dated Nov 13 took 13 days to get to me. They had no idea, just offered that this time of year the mail runs slow. I asked what they’d have done if I mailed the check and they got it a week late due to the mail, and of course she offered me the late fee ($39) and interest (a lot, it was a big bill).
So, here’s my advice: watch for the bills. Note the dates the statement’s cycle ends, so you don’t get caught with a bill that you’ll pay late or need to overnight a check. If you use online banking, consider a recurring payment of an amount you know will be higher than the minimum payment. You’ll still be hit with interest if the bill isn’t paid in full, but you’ll avoid a late fee and potential black marks on your credit report.
JOE

I’ve always found gift cards a bit odd. Don’t get me wrong, I like gifts and never turn them down. But it seems to me a gift card is the giver’s way of saying, “I wanted to give you a gift, but either don’t know what you want or am too lazy to go buy an actual gift.” Worse, there are amounts you may have a tough time spending in full, say $25 at Best Buy, where you’ll likely have to dip into your pocket to buy two CDs you may have found on sale elsewhere, or just bought the two good songs a la carte on iTunes. To make matters worse, the non-store specific cards carry an ‘activation fee’ that runs as high as $5.95, this for the honor or giving them your money.
Now, I run into an article on CNNMoney that confirms my other thoughts on this topic, 27 percent of recipients never use the card they got. Forget about the cards that have a monthly fee and eventual expiration, over 1/4 of the cards given get lost, forgotten, or just put aside as they are to a store that one doesn’t frequent. My 9 year old likes the gift card, it feels like a grown-up thing to use, like a credit card. But I can do without them altogether. You want to give me a gift but don’t know what to get me? Send a check to the New England Shelter For Homeless Vets in my honor. You’ll get a tax deduction and I’ll feel better knowing the money went to help those in need.
(1/2 update – There are Consumer Protection Laws which apply to gift cards and impact the fees charged as well as expiration times, these laws vary by state.)
JOE

I think Andrew Tobias said it best on his blog this Thanksgiving Day;

“As I’ve said so often in this space, almost all of us live better than the kings of England, czars of Russia, pharaohs of Egypt ever did. We have magic carpets with seats that recline; we have jesters, bards, gladiators and orchestras on instant call (with volume control and a pause button). We have cell phones, antibiotics, zippers — Velcro, even — Novocain and aspirin.

We . . .
have . . .
air-conditioning. ”

I am thankful for these things and for that which can’t be counted or measured, the love of my family and friends. Have a wonderful Thanksgiving Day.
JOE