MIAMI (Reuters) – Georgia is joining a Florida-led group of states in a lawsuit challenging President Barack Obama’s overhaul of the U.S. healthcare system, Florida’s attorney general said on Tuesday.
I hope that it’s only amnesia
Believe me, I’m sick but not insane
People often ask me how to improve their credit score.
My usual response is why?
If you need to improve your credit score, it usually means you have lousy credit.
Before trying to fix the score, people need to ask themselves how their credit got so bad to begin with.
Some would be better off not having access to credit at all. They can’t handle it.
I’m not talking about people who got behind because of medical bills, life emergencies, or unemployment. Those are people with a good credit history who had something bad happen to them. They deserve a second chance.
I’m focused on the other category: people who spend beyond their means or spend money on stupid stuff.
I don’t want those people to have access to credit; if they do, they will get in trouble again.
They need to figure out how they got in trouble the first time.
They need to look at themselves and understand some basic principles about finance.
I tell people to spend less, pay for things in cash, start budgeting and write down all of their expenditures.
Many need to learn the difference between needs and wants. People need food, clothing and shelter. They don’t need the latest IPad.
People often get into trouble trying to keep up with friends and neighbors who also make stupid spending decisions.
Once that spirals starts, it rarely stops. Those who are caught up in it spend all of their lives trying to keep ahead of creditors.
And they think that getting more credit is their answer.
My advice rarely goes anywhere. Particularly with those out to impress their buddies.
I run into people who blow all their money every weekend and have no long run plans.
Gamblers have a term for people with that type of financial outlook: suckers. They call the money that these people spend “sucker money”.
There are a lot of suckers out there. Likewise, there are a lot of people who want to take advantage of them.
If you have a lousy credit rating, there are a host of the sub-prime lenders, high-interest credit card issuers, check cashing companies and payday lenders dying to get their hands on you.
They will give you more debt and more bills to pay.
A cottage industry has developed among companies claiming they can improve people’s credit scores.
I’ve never seen these companies achieve any real success. They prey on suckers looking for quick and easy solutions. Since the companies charge a hefty fee for their services, they get debtors even further into debt.
There are two simple ways to improve your credit score. One is to pay your bills on time. The other is to not have as many debts. If you don’t have many creditors, it is easy to handle what debt you have.
I give that advice often. I then watch people’s eyes glaze over.
If I were to turn evil and offer them an easy credit fix or a payday loan, I’d become a billionaire.
It is not easy to get people to take a hard look at themselves. Addiction to credit is like addiction to anything else: people usually won’t get help until they bottom out.
When people with poor credit get themselves together, they often get amnesia about what got them in trouble. They make the same mistakes over and over.
That is not amnesia; that is insanity.
Don McNay, CLU, ChFC, MSFS, CSSC is one of the world’s leading authorities in helping people deal with “Big Money” issues.
He is currently on a book tour for Son of a Son of a Gambler: Winners, Losers and What to Do When You Win the Lottery.
McNay is an award winning, syndicated financial columnist.
You can read more about Don at www.donmcnay.com
Read more: Sucker Money, Debt, Spending Habits, Big Money, Ipad, High Interest Credit Cards, Credit Score, Check Cashing Companies, Personal Finance, Payday Lenders, Collection Agencies, Kentucky, Don McNay, Credit History, Credit Cards, Subprime Lenders, Banks, Son of a Son of a Gambler, Credit Agencies, Business News
In February, the Wall Street Journal reported that Republicans were “stepping up their campaign to win donations from Wall Street. In discussions with Wall Street executives, Republicans are striving to make the case that they are banks’ best hope of preventing President Barack Obama and congressional Democrats from cracking down on Wall Street.”
Two months later, it seems the GOP is relying on the same strategy. In return for obstructing Democratic legislation to hold Wall Street CEOs accountable, Republican lawmakers are pressing bankers for financial help heading into the November elections.
FoxBusiness.com reported that Senate Minority Leader Mitch McConnell (R-KY) and National Republican Senatorial Committee chairman John Cornyn (R-TX) had a “private meeting” with “25 Wall Street executives, many of them hedge fund managers.” After listening to “numerous complaints the executives have with the bill,” the GOP lawmakers reportedly assured the bankers that Republicans would be their ally in the fight. After discussing likely Republican electoral gains this November, “McConnell and Cornyn made it clear they need Wall Street’s help.”
A day after the story broke about McConnell’s “private meeting” with Wall Street bigwigs, he stormed onto the Senate floor to spout false attacks on Democratic efforts to hold those bankers accountable. The timing was no coincidence.
Republicans are brazenly playing politics by putting the needs of big banks and credit card companies above struggling American families. Now is the time to hold Wall Street accountable for causing the worst recession in a generation.
True financial regulatory reform would restore fairness to America’s banking system, get rid of confusing fine print, and hold Wall Street’s bad actors accountable for getting us into this mess.
Chris Harris is Communications Director for Media Matters Action Network
Read more: U.S. Economy, Mitch McConnell, Lobbying, Lobbyists, Financial Reform, Wall Street Reform, Reform, Wall Street Crisis, Wall Street, Hedge Funds, Financial Crisis, Banking Crisis, Global Financial Crisis, Bank Lobbying, Special Interests, Republican Party, Republicans, Politics News
Over at Zero Hedge, guest blogger Graham Summers of Phoenix Capital Research has laid out what life is like for Americans earning the “median” income ($50,300, based on available data from 2008) — and quickly discovers that, even under optimal circumstances and monastic spending habits, it’s terribly hard for ordinary Americans to simply “get by” in today’s economy.
In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.
Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.
Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.
So, right off the bat, Joe’s monthly income is cut to $2,438.
Summers proceeds from there, ticking off typical expenses related to food, utilities, transportation costs and health insurance. If you allow the median earner expenses related to cell phones, cable television and Internet service, Summers figures they are left with about “$100-200 discretionary income left at the end of the month.”
One can quibble at the margins of this analysis, certainly. Available public transportation can eliminate the need to maintain an automobile, there are strategies for reducing the cost of food and no one really needs cable television if it means starving to death. But I’d point out that there are plenty of median earners in expensive rental markets, a family medical crisis could easily blow this budget to shreds and I don’t see any line items for childcare expenses (or, indeed, clothing, which last time I checked is a necessity).
Oh, and maybe we should drop the curtain on the economic cheerleading?
This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).
I’m reminded of Dale Maharidge, who told me that “we’re a nation of the working poor, and it’s something that people don’t want to acknowledge,” and that more journalists should get beyond the idea that economic realities can be adjudicated in a white paper or in a boardroom. Summers’s contribution is a rare one that works to reveal the nuts-and-bolts reality of what the average American is going through.
And, naturally, that’s the median experience in America. There are people doing a lot worse. Many of 2008’s median earners, in fact, may be un- or underemployed in 2010. But, as David Brooks reminds us, these are all just losers who don’t work as hard as rich people, never mind them.
It’s Impossible to “Get By” In the US [Zero Hedge]
[h/t: CJR’s The Audit]
White House Chief of Staff
Politician selected by Magnetar’s CEO to be sole recipient of his political donations, 2006-2008
Strange as it may seem, nearly three years after the onset of the global financial crisis, its greatest, most destructive, and most profitable “it ought to have been a crime” has gone almost entirely unnoticed.
Most people believe that they understand the broad outlines of the financial crisis, and that a central element was an explosion in mortgages made to people who could not afford them.
But how did such destructive behavior occur on such a large scale? The conventional view is that the subprime mortgage blowup resulted from bank executives being shortsighted, greedy, or both.
But that simple story deters inquiry into how and why this disaster came to pass. Some recognize that the appetite for subprime mortgages seemed to come from investors. In fact, it resulted in a large degree from the way traders at certain large banks used subprime mortgages in a strategy to make their profits seem much larger than they actually were. The effect of this “negative basis trade” strategy was to overpay employees of those banks and consequently eviscerate the banks’ abilities to withstand future economic uncertainty.
The appetite for subprime mortgages was also inflated by people who were betting that the housing market would fail.
Moreover, the devastation wrought by this strategy remains virtually a secret. The fact that it has been almost invisible and appears to have been entirely legal, demonstrates a set of vexing problems. First, that investigations of the crisis have not delved deeply enough, and second, that the deregulation so keenly sought by the financial services industry has made activities legal that by any common-sense standard should be criminal.
But the sponsors of this toxic trade did bother to make sure they had a powerful friend. The head of the firm in question gave substantial amounts of money by political contribution standards to Rahm Emanuel’s PACs, and only his PACs, over the period when these transactions were in play.
The moving force behind a brilliant and devastating subprime short strategy was a heretofore unknown Chicago hedge fund, Magnetar, headed by Alec Litowitz, formerly of the hedge fund behemoth Citadel. Our studies indicate that Magnetar alone accounted for between 35% and 60% of demand for subprime mortgages in the year 2006.
This is how their strategy worked in detail.
The ruse at the heart of their transactions was creating subprime (so called “mezz” or mezzanine) collateralized debt obligations by investing in the riskiest layer, the so-called equity tranche. This kind of CDO consisted almost entirely of not just any subprime risk, but that of the dodgiest layer that could be sold short, the BBB tranches, via a combination of actual bonds and credit default swaps.
But Magnetar’s true objective was not to invest in this toxic waste, which its role as funder of the CDO would lead most to believe. While Magnetar paid roughly 5% of the total deal value for its equity stake, it took a much bigger short position by acting as a protection buyer on some of the credit default swaps created by these same CDOs. This insurance in turn was artificially cheap because over 80% of the deal was rated AAA. Most investors did not understand what Magnetar recognized: this concentrated exposure to the very riskiest type of bond associated with risky mortgage borrowers, each of these CDOs was a binary bet. It would either work out (in which case Magnetar would still show a thin profit) or it would fail completely, giving Magnetar an enormous profit and wiping out even the AAA investors who mistakenly believed they were protected by having other investors sit below them and take losses first. Thus the AAA investors were only earning AAA returns for BBB risk.
As the equity investor, Magnetar could further stack the deck in its favor through the influence it gained over the deals’ parameters. It was able to ensure that the CDOs held particularly dubious BBB exposures, and pushed for, and often got, “triggerless” structures, which stripped away another protection most deals had. When CDOs start to show significant losses, the payments to the lower-tier investors, including the equity tranche, are cut or halted to defend the AAA layer, much the way the human body, when exposed to severe cold, will restrict blood flow from the extremities to save the brain and organs. But triggerless deals, even as they started to fail, kept paying the lower tranche holders, including, in this case, Magnetar itself.
While these transactions may sound similar to the widely decried Goldman synthetic CDO program, Abacus, by which the firm went short various real estate exposures, effectively dumping the risk on customers, the Magnetar program was not only much larger, but also produced far more devastating systemic consequences, thanks to the distinctive structure of its CDOs.
As I explain at greater length in my book ECONNED: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, the use of cash bonds turned mezz CDOs from a dumping ground for otherwise unsellable mortgage bond risk to a breeding ground for demand. Ex Magnetar-inspired appetite, it is hard to find an explanation for the widely-discussed phenomenon of 2006 and 2007, of the mortgage securitization pipeline screaming for more subprime product, precisely when Federal Reserve interest rate increases should have stanched demand for risky loans above all others.
Market participants have estimated that Magnetar’s CDOs drove over 50% of demand for subprime bonds during the market’s toxic phase, 2006 and 2007. With the input of a team including professionals who have worked on some of these trades, ECONNED, we’ve performed repeated, conservative analyses that indicate the true figure is probably at least 35% of demand, and perhaps as high as 60%. And that’s before allowing for the fact that Magnetar’s strategy was imitated by the proprietary trading desks of major dealers. And for good reason. Magnetar made billions, some observers contend as much as subprime kingpin John Paulson, whose fund earned over $20 billion on its short strategy.
And the hedge fund’s cagey bet on Rahm? Litowitz and his wife had never before made significant political donations. In 2005, they started giving to Rahm and his PACs, and only PACs connected to Rahm, just before the Magnetar CDO program began, and continued through the first quarter of 2008, when the trade would have started to pay out handsomely. The Litowitzs gave a total of $8,000 to Emanuel and $10,000 to his Our Common Values PAC in May 2005. In 2006 and 2007, they contributed $51,700 to the Democratic Congressional Campaign Committee, while Emanuel was chairman. We have been advised by individuals involved in political fundraising that the amounts given would be considered significant, and the way the payments were distributed across the PACs is sophisticated. Put it another way: this money was not given impersonally.
But this troubling connection should be no surprise. Rahm has long been a favorite of the hedge funds, having raised more money from them than any Senator not running for President. Not surprisingly, he has been a staunch supporter of the financial services industry, and is widely credited with playing a key role in securing passage of the TARP after its initial defeat.
As the Magnetar-Rahm connection highlights, Obama raised more money from financial services players than any previous presidential candidate, so it can hardly be a surprise that he and his minions are happy to give the industry a free pass. Key policy figures maintain that no one was at fault, that there was a pervasive lack of regulation, and there are therefore no bad actors. That party line also means that destructive behavior is and will remain unquestioned, unexamined, uncorrected, and unpunished. We are still paying for the costs of the financial train wreck of 2007 and 2008. We can no longer afford the costs of willful blindness.
Addendum: Hat tip to Corrente who posted on this relationship on April 11, and finally prodded us to post our writeup of this story. We worked closely with Moe Tkacik on the story she put up on DailyFinance and took down, and had held off publishing our version pending her releasing her final version.
As part of our Bearing Witness 2.0 project, the Huffington Post is rounding up local stories of formerly middle-class families who are now struggling to stay afloat. If you or someone you know has a story to tell, please e-mail me at LBassett@huffingtonpost.com.
Two years ago, Ben and Jennifer Agins of Somerset County, New Jersey, thought they were on track to finally purchase their first house. She was making $65,000 a year as a patent administrator for a pharmaceutical company, he was making $55,000 a year as the manager of residential business for Edison Overhead, and they were comfortably supporting their four kids in addition to one foster child.
That dream of homeownership began to slip away in August of 2008 when Jennifer’s job was outsourced, leaving Ben to support their family of seven on his salary alone. Adding insult to injury, Agins says he was told that he would not be receiving his 3 to 5 percent salary raise that year or for the next few years, since the tanking economy had put a dent in his business.
“My wife and I used to be middle class,” Agins, 38, wrote in an email to HuffPost. “Now we’re the ‘working poor.’ We have 5 children that we are trying to support on my 55k salary, but we have been unable to get any government assistance because we make too much money.”
Agins says his wife has been aggressively applying for jobs, everywhere from Quickcheck, the local convenience store, to FedEx, but every job she finds either offers her less money than she receives on unemployment or rejects her for not having the right kind of experience. She has been out of work for almost two years now.
“It’s gotten pretty tough,” Agins said. “Not only was she making more money than me, but she had the benefits through a major corporation. When she lost that job, I had to pick up the benefits here, which were more than double the cost of what she was paying.”
Jennifer is currently training to do medical billing for the New Jersey Department of Labor and Workforce Development, and in the meantime, Ben says, the family is just trying to get by.
“It took her 18 months to get into that program,” Agin said. “Somehow we’ve managed to pay rent every month, although we were late a couple times. We’re starting to get used to living on less.”
Agins says he doesn’t mind the lifestyle changes as much, although he hates having to say no to his kids. His daughter’s cheerleading team placed third in a national championship in 2008, but he had to pull her off last year’s team because it got too expensive. He says he also had to tell his 15-year-old son that he could no longer attend his favorite summer skateboarding camp.
“They’ve since gotten over it,” he said. “My 18-year-old got lucky — a friend of the family donated a car when he got his driver’s license. I couldn’t have given him that.”
Despite all of their financial challenges, the Aginses seem to be hopeful about the next few years — Ben says his wife is one of the top students in her vocational class, and his business is showing signs of picking up.
“We’re already seeing people start to spend money a little, fix up their houses,” he said. “So we’re just holding out until things turn around.”