Let's borrow $1 trillion to pay off bad mortgages!
That doesn't make alot of sense
The financial news these days certainly isn't boring. The article below talks about how the U.S. federal govt is going to use $1 trillion in debt to purchase toxic mortgages and get them off of the banks balance sheets.
Why does this seem so wrong.. Isn't there a term for this? Kiting?!! Using debt to pay off debt?
If consumers use debt to pay off debt, that will affect your credit score pretty badly. It tells the creditor that you're illiquid and that you don't have cash savings to pay your debt.
Fundamentally using debt to pay off debt is just wrong. It may ease the pain for the short term, but ultimately it's going to cost everybody alot more. in real estate What they're doing is taking the burden off of the individual mortgage holders, and putting it onto the over all population. That's not right, and it's not fair.
People need to be responsible for their own mortgages. If you can't afford to pay your mortgage, move to a lower cost situation.. The existing credit market is designed to work with these cases. It's not politically correct to let millions of people default on their loans and mortgages.. however there is a system to work this through. The mortgage companies and banks made piles of money at the beginning of this free-for-all mortgage bubble. Now they don't want to take the losses associated with their misdeeds.
Accountability is what it's all about. The banks get bailed out, and the individual has to take it on the chin.
Geithner Relies on Investors for $1 Trillion Plan
By Rebecca Christie and Robert Schmidt
March 23 (Bloomberg) -- The Obama administration unveiled its long-awaited plan to remove toxic assets from the books of the nationï¿½s banks, betting that it can revive the U.S. financial system without resorting to outright nationalization.
The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasuryï¿½s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.
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Bicycling is cheap - and full of adventure
I did my first 23 km bicycle ride yesterday.
I thought that for the first day of spring I should get out and bicycle some place. My favorite place to go is Southland Mall - which is an 10 KM ride, and then back home which is another 10KM.. (earlier in the day I went shopping on the bike which was 3 km.)
Along the way I stopped at Wascana Lake in Regina and took some pictures of the sites and people and geese on the lake.
I can't believe how much I missed bicycling over the winter time. It's a time to get out doors, get some fresh air, see the sites and get exercise.
It's also a cheap way to travel. I spent $1.49 at Southland mall to purchase trail mix for the ride. Better than a car loan!!
I was pleased that I was able to ride 23 km in one day, and especially at March 20th.. Last year it took me until June or July to before I could go that far on the bike with out passing out.
This year I plan to travel to Moose Jaw and back, which would be 130 KM in a day. I also plan to do even longer runs, which will take more practice and getting into shape.
The benefits of bicycling last year - Summer 2008:
- I lost around 50 lbs
- My heart was greatly strengthened
- My leg muscles get strengthened
- I lowered my cholesterol down to normal
- I saved a bunch of money on car expenses.
- I enjoyed the summer probably the most in 25 years.
- I relieved a ton of stress
The benefits of bicycling have been absolutely tremendous. For such a low cost transportation, the benefits and enjoyment have been wonderful. I would say that I enjoy riding my bicycle even more than driving my Cadillac CTS.
During this economic down turn.. why not take your bike, instead of the car.? It will save you money and you'll really enjoy it. (After you get used to it ! )
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You've got to Live - Spend Your Money???
I was listening to a radio talk show this morning and the fellow was talking about the economy. The radio announcer was complaining about Suze Orman and Suze's style of money coaching.
The comment came up that Suze recommends that people save their money and cut down on expenses. The announcer then indicated that people need to live their lives and spend their money!
I love that logic.. the announcer said, "well yeah, you need to save and pay down debt, BUT you also need to live your life."
Isn't that what got us into this problem in the first place?
Here's my point:
1) If you don't have sufficient cash reserves - you NEED TO sacrifice and start saving your money
What this yappy announcer failed to mention was this:
Most Canadians and Americans have really low savings rates. We love to spend our money , but hate saving it.
This becomes a huge problem in an economy such as this economic crisis. If all individuals had an abundance of cash reserves they would never be worried about losing their jobs . They wouldn't be worried about paying bills or paying down debt. Quite frankly, I don't think individuals would have too much debt if they had an abundance of cash saved.
For those who have no savings, and are in debt... It's my opinion these people should take a time out from spending, and put their money in the bank. Plain and simple... Just save it.
You have to live, I agree, however you need to have safety measures in place. Why are Americans so worried about this economic down turn? If they had sufficient cash reserves in place, and little debt, there wouldn't be much to worry about.
IE.. If Americans and Canadians were recession proof, they wouldn't have to worry.
What harm would it do to Sacrifice for a few years and save money ?
So you kids have less toys.. you have less vacations.. you have less consumer products.. you eat out a little less.. What would your kids say about that?
Your family might complain for a few years about not having any money to spend. At the same time, you would have less fights because of lack of money, less stress, and less worry about paying bills.
What's more important to you, instant gratification or long term peace of mind?
I wish that the media would get on board and stop asking consumers to borrow more and spend their way out of the economy. Consumers need a financial rest. They need to have their money take a time out and spend some lonely time in the bank account.
Ultimately this will make the consumer feel better, and eventually give them a more confident feeling when they start to live their life!
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AIG Bonuses - Don't eliminate the Trust Factor!
I must admit that I think giving bonues to execs who've lost $68 billion is completely wrong. But as mentioned on the news, it's in their contract.
The federal goverment should have known about these bonuses prior to purchasing 80% of the company. They should have been away of the income statement and balance sheet prior to purchasing the company.
Where I think it's completely ridiculous to give these execs $165 billion in bonuses, I think it's worse for government to step in and renege on their contracts.
I would be furious if a government of any type stepped in and started dictating what I can and cannot do with contracts in my business.
IMO.... the government shouldn't be getting involved in private business. That's eroded alot of confidence in the market place. Having government involved in private business means that business can't operate on it's own and needs life support.
Having government interfere with private enterprise contracts is the next step to BIG BROTHER and socialism.
It will erode trust even further with businesses. Businesses will be concerned if they should do something lest the government jump in and act.
I know that this is an extreme example, but when contracts are legally binding, they should be allowed to carry out, in a lawful fashion.
(AIG) Staff Get 'Death Threats' Over Bonuses
The furore over the $165m in bonuses AIG is contractually obliged to pay staff at its Financial Products Group (the unit that basically brought down the firm) reached fever pitch over the last couple of days.
The Times reports that armed guards have now been placed outside the Connecticut offices of AIG Financial Products, after staff there received death threats over the bonus payouts. Several staff are said to have refused to come to work, and others are thought to have quit. And we even had US Senator Chuck Grassley telling a radio audience earlier in the week that AIG executives should 'resign or go commit suicide' (he later clarified that remark, saying he didn't really mean that they should actually kill themselves, instead suggesting that they say 'sorry').
In the meantime, House Speaker Nancy Pelosi hopes to enact legislation in the coming days in order to slap a heavy additional tax charge on the AIG bonuses (will effectively cancel them out), and Representative Barney Frank has suggested that the US government simply step in and assert its ownership of AIG. Frank told a group of reporters Tuesday that the government needs to say, as owner of the firm: 'No, I'm not paying you the bonus. You didn't perform. You didn't live up to this contract'. And Treasury Secretary, 'dim' Tim (Geithner), has said that he is looking into the matter (he may - like all his other schemes - have a plan for a plan, with more details sometime never).
How is anybody supposed to get any work done in this trustless environment. Who would want to work in the company after all of this headline news?
I think for next time, the AIG Bonus contracts should be reconsidered. However, at this time, pay the bonuses and keep to your agreements. Agreements and fulfilling agreements are the glue of the North American economy.
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Using Credit Cards as Income - A definition
In my previous post, I talked about how you can use credit cards as a beneficial tool in your day to day finances.
In this post, I would like to talk about what using credit cards as income source means.
By allowing people to make minimum payments on their credit card debts, the credit card companies make it tempting to use credit cards as an income source.
The following are ways you could be using credit card as income.
1. Buying expensive items that you can't afford
2. Buying day to day goods on credit
3. Purchasing small items that you don't need and can't afford.
Buying expensive items that you can't afford
You say to yourself, "this item costs $1,000, but I can afford the minimum payments of $30".. I've heard this said so many times, and used as to how people justify their purchase.
What you're doing is giving yourself a $1000 payday bonus that's going to cost you alot in the end interest wise.
A better way to do this is .... Save up $30 per month until you can afford the $1,000 to make the purchase. It requires patience, however, if you really want the item then this is a better way to make the purchase.
Buying day to day goods on credit
You've spent all of your earnings and you still need money to buy day to day goods. You use your credit card to make up for the short fall in income.
This is a really bad trap to get into. What it tells the credit card company is that you do not have the ability to pay your bills, and that you're becoming a bad credit risk.
If you're running into this problem, it's a good idea to cut back expenses to the very bare minimum , and / or get another job to earn more money.
Even though access to cash advances on your credit card is easy to do ... trust me.. Using your credit card as income in this case will certainly cause alot of headaches in the future.
Purchasing small items that you don't need and can't afford.
You go to the mall and make several small purchases that you don't have the cash to repay.
You justify this by saying to yourself.. This necklace only costs $25. I can easily pay that off this month. The problem is you make several of these small purchases that add up. Eventually you start to carry a balance that you can't pay off each month.
IF YOU CAN'T PAY IT OFF EACH MONTH, THEN YOU'RE USING YOUR CREDIT CARD AS INCOME
Simply stated, you should always have enough cash in the bank to cover your credit card purchases. You should pay your account in full every month.
If you're carrying balances and paying interest, then you're using your credit cards as an income source.
I wrote this post to give people a new light to their credit card habits. In this economic crisis turmoil that's brought on by consumer spending and debt, I'm hoping that we can change the way people think about using their credit cards.
Use credit cards as a tool.. and not a source of income.
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Using Credit Cards as a Financial Tool
As I'm watching the economic news, it's hard not to hear headlines of credit card defaults, and other problems people are having.
People have been using credit cards as a source of income, when they should be using them as a financial tool.
The best example of using credit cards as income is when an individual purchases and item or service when you don't have the cash in reserve to pay off the balance in full every month.
This of course leads to individuals carrying balances on their cards, which usually increase over time.
I recommend that people use credit cards as a financial tool.
This means that you take advantage of the credit cards benefits, excluding being a source of income.
Some of these benefits are:
1. Convenience to make purchases online
2. Saving money on ATM withdrawals
3. Receiving rewards for credit card purchases
4. Receiving 30 days of free money
Convenience to make purchases online
This is one thing I use credit cards for all the time. I like to purchase software or training programs online, and of course I can't pay cash or debit card. Online companies only take payments from Paypal, credit cards or other online payment services.
Many of these services I cannot find locally, and in order to stay competitive in my business, I need to have competitive software and training for that software.
Saving money on ATM withdrawals
I learned this lesson the hard way.. I used to use my debit card at ATMs alot . I want to pay cash for things but my service charges were adding up quickly.
I decided to pay for what I normally purchase using credit card, and then promptly pay the credit card bill when I receive it.
The credit card companies don't make you pay service charges for purchases so you can do a bunch of them with out paying.
Receiving rewards for credit card purchases
I use my Canadian Tire Mastercard to buy things. I receive rewards with with I can use to buy things at their store. This is a great way to purchase household items using points.
At one point in my business, I was getting $100 per week in Canadian Tire points, and it was fun to go and spend them, as I knew the purchases weren't costing me anything.
Receiving 30 days of free money
If I make a purchase today, I generally receive 30 days or so before I need to make a credit card payment. That means that the money stays in my account for 30 days, and then when I make the payment it's one payment in stead of many.
In essence, I am using the credit cards money for 30 days while I earn interest on the money that's sitting in my bank account.
These are reasons why credit cards are actually useful. Again, credit cards shouldl never be used as an income. If you're using credit cards as an income source and don't have the cash reserve in place to make full payments each month, then you're probably in trouble financially.
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Mortgage Life Insurance in Canada
One of the most significant purchases a family makes in the course of its life is the purchase of a home. Many of your monthly expenses are centered around the fact of owning that home: cable, telephone, electricity, water, and gas, not to mention maintenance, take a up a significant part of your monthly income. The bill that in many cases takes the biggest proportion of your income is the mortgage, your monthly house payment. And it is the bill that must get paid above all; the other expenses can be put off or lived without if necessary, but if the mortgage is not paid in a timely manner, there will be no home for the family to live in.
But a family might find itself in the tragic situation where one of the people responsible for making that monthly house payment is incapacitated or even dies, and your family becomes unable to pay the mortgage. In that case, your family might face not only the death of a loved one, but the loss of their home and credit, as well.
Fortunately, there are plans that can help you avoid this unfortunate eventuality. Mortgage life insurance is designed for just such protection. Mortgage life insurance is a low-cost, flexible method to protect one of your family’s most important investments. If you develop a terminal illness, sustain a serious injury, become disabled, your mortgage insurance can offer you several benefits:
- It can pay your outstanding mortgage amount. This is the chief reason that most people buy this type of insurance. If you die or become incapacitated, the balance of your mortgage will be paid off. You may, however, still be responsible for any over due payments that have not been made.
- It can pay up to five years’ worth of accrued interest.
- It can pay any property taxes that you owe when you die so that your heirs are not left struggling with taxes.
- If you are diagnosed with a terminal illness, it can give you an option to pay out early, so that you can be assured before your death that the house is paid off for your family.
Most people sign up for mortgage insurance at the same time they apply for their mortgage. This ensures that your family is protected even before you close on your mortgage, so that if something happens to you, they will still be able to move in to the new home you have planned.
Applying for mortgage insurance
The cost of mortgage insurance is based on how old you are when you apply for the policy and the amount of your mortgage. Your premiums will not increase as you get older, as long as the terms of your mortgage remain the same. They are also conveniently rolled into your mortgage payment, so you are not paying two separate bills each month. You are eligible to apply if you are a resident of Canada, between 18 and 69 years old, and have been approved for a Canadian residential mortgage.
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How are credit card companies treating you? - Economic Crisis
I got a call from Kate Rutherford from CBC radio in Sudbury Ontario.
Kate was inquiring about how the credit card companies were dealing with the economic crisis situation. She was concerned about credit card companies increasing interest rates, service charges and even decreasing people's lines of credit.
Credit card companies make their money from interest and service charges. They base their interest rates and service charges on the level of risk that the individual is at.
This means that if your credit score all of a sudden decreases for any reason, they may charge you a higher interest rate.
American Express is charging me higher interest rates, even though I've got excellent credit
As a result of Kate's call, I contacted American Express. I have a Business Gold card with them.. The customer service rep indicated that my interest rate had increased from 14.99 % to 16.99 % even though my credit score hadn't declined. She indicated that this was because of the economy and the write offs that they're incurring.
Check your credit score with Equifax and Transunion.
If you want to understand why you've received a interest rate hike, or why you may receive one in the future..it's best to in vest $20-$30 to purchase your credit reports. This will tell you exactly where you stand with the credit bureaus. And you'll know what the credit bureaus are reporting to your credit card companies (and other lenders)
This is especially the case for workers who have been laid off in this economic down turn.. If you've used up your cash reserves, and are now using credit cards as income, this could adversely affect your credit score, thus driving up your interest rates.
I always tell people... if you're in doubt as to where you stand with the credit card company...it's worth it to take 15 minutes and call them up. After all , they are suppliers of credit, and should be there to give you the service you need.
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General Motors isn't a going concern - Deloitte & Touche
In the last few days, Deloitte & Touche, a third party consulting firm, gave a report on the viability of General Motors. The consulting firm indicated that they have substantial doubt about General Motors future and their capability to generate a profit in the near future.
I give General Motors all the credit in the world for their fighting spirit, however, what does it take to bankrupt this company?
If they're not making money, then by the definition of free enterprise, they should be left to reorganize and downsize themselves to a point where they can start making money.
Here's what bothers me about their bailout...
We Lived on $60 per week in groceries - family of four (1993)
When I was first starting my business in 1992, our revenue was pretty light as you can imagine... we lived on $60 per week for grocery money. One week we were pretty desparate so I called social services and asked them if they could help out. Social services told me that I would have to sell my house, because that would provide me with cash!!
I needed money then to feed the family. I was furious at that reply. Here I was ... working 7 days a week, trying to feed the family and had genuinely asked for help. I was refused !! At that point, I said, NEVER AGAIN, would I ask for help from the federal government.
The Federal Government is giving Welfare money to GM
The federal government is now giving bailout / welfare money to people who make $50-$60 per hour. That doesn't seem right, in my opinion.
Is this the alternative to having these families on Employment Insurance? I'm not sure..
This situation is completely wrong IMO.. General Motors should be left to fend for itself. That is the painful choice, however it will be better in the long run, in my opinion.
I've been self employed since 1992.. This means that I've earned money the real way.. creativity, hard work and sacrifice. I've made money , and I've lost money. My family has experienced the severe highs and lows of being self employed. However, we've never asked for a dime since those start up days.
We've had to adapt to our situation as it has happened. We've learned to deal with expanding the business and contracting the business. It's been painful and in some cases it's taken years to do. That's the nature of business.
If you have to down size, then you get back in the saddle and innovate. You create enough value that your customers will start to buy from you again. Again.. some times this takes years, however, you need to do what it takes.
End of rant..
Good luck General Motors, your workers, your suppliers etc!
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Canadian Consumer Toxic Debt? What do we have to show for it?
I am starting to research monetary policy and the money supply system.. in my travels I came across this Canadian money supply page that talks about how much savings Canadians have along with how much debt Canadian individuals have.
I was alarmed that Canadians have $412 billion in Consumer debt, and $1.3 trillion in debt when you add in mortgages.
I can understand the mortgages part of the equation as this debt is backed by real assets.
The $412 billion I would assume includes car loans, renovations loans, lines of credit and credit cards. I contacted the government of Canada and they couldn't give me an exact breakdown of the consumer debt portion.
What I'm really worried about is, what kind of assets do we have to back these debts? IE... are all of these debts based on highly depreciated assets?
The basis of my comment is the current collapse of the stock market.. the recent economy has been built on debt on all levels... now that the economy is crashing , there is alot of debt that we're dealing with, but it doesn't seem like this debt is backed up by solid assets.
So.... if our $412 billion in consumer debt isn't backed up by real assets, then how does that make our economy look?
It makes the Canadians balance sheet look pretty weak.
I should say that the it appears from the chart that the money supply in Canada (M2++ gross) is $1,735,973,000,000 ($1.8 trillion) so we have cash to back up the debt.
The point of this post is to express concern so that we can become a little more aware of what we're using consumer debt for. If we're buying holiday & travel, restaurants, and electronics which all have zero asset value after the purchase, then we're buying too many empty items with our consumer credit.
The other point I wanted to bring across.. if we're paying an average of 10% on our consumer credit... that's $41.2 billion dollars per year in interest. Is that what you want to be spending your hard earned dollars on?
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AIG Gets $30 billion more? - Let them go bankrupt!
My pet project is to talk about General Motors and how the federal government should let them go bankrupt.
AIG Insurance company needs an additional $30 billion bailout after losing $61.7 billion in the fourth quarter.
So... we're debating whether to give General Motors $4 billion but we're easily going to give AIG Insurance $30 billion.
This is completely ridiculous... the problem is... I can understand a little about the car industry... I have no idea about the insurance business.. (I understand life insurance) I don't understand the high level complex financial products that AIG has created.
AIG MADE TONS OF MONEY
These companies who are getting bailout money enjoyed making alot of money during the hay days. They all enjoyed the upswing. Now, with the downswing they're not enjoying themselves.
From my understanding, capitalism is all about peaks and valleys.. You make profit in the good days, and manage carefully during the down times.
Nobody wants to take the lumps of a down market.
This isn't right. And it's going to cause more problems in the future.
As painful as it may be... why not let AIG fail and restructure. Isn't business about Caveat Emptor? If individuals and companies have insurance with AIG... let them buy insurance from other companies...
I know that's not as simple as it sounds, however, caveat emptor...
AIG performed badly and should be treated accordingly. It's customers should realize that they purchased products from a bankrupt company.
CAVEAT EMPTOR - A business term for capitalism
I think consumers are getting pretty sick of government bailouts... myself included.
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