Archives For January 2009

I haven’t posted a question of the day in a while.

Here’s today’s Question of the Day:

Where do you buy your clothes?

For me, almost everything I buy these days comes from Dillards. Most of what I buy at Dillards, I buy during the off season at reduced prices. I used to shop at Penney’s but I just hate our store. They did a “remodel” of our store and it’s WORSE than it was before the remodel. I just hate going in that store.

My wife shops wherever. She likes Kohls, Penneys, Dillards, and Talbots (although she thinks they are overpriced). She used to buy cheap but has gotten away from that because she just likes the quality of some of the higher-priced clothing.

For the kids, we shop wherever we can. My oldest son has gotten into the Abercrombie and Hollister stuff (I wrote about this awhile back). My wife and I will pay for normal clothing and if they want something else, they can pay the difference. What’s killing me is the price of shoes! My oldest is now in men’s sizes and I swear they double in price from the biggest kid’s size to the smallest men’s size. I HATE shopping for shoes.

For our daughter, we shop at Dillards, Penneys (a little), Gymboree (overpriced, so we shop there just a little), and Target.

What about you? Where do you find yourself shopping the most frequently?

Today’s Wall Street Journal mentioned that Option ARMs are seeing rising defaults. It’s not hard to figure out how this could happen. According to the article, an Option ARM mortgage gave borrowers several options regarding their payment. They could pay only the interest portion of the loan, principal an interest, or a minimum payment that was often LESS than the interest portion of the mortgage.

Let’s look at an example to see how this might have looked on a $200,000 mortgage. Let’s say a couple obtains a $200,000 Option ARM at 6%. Their monthly payment would be $1,199 per month. Their first payment would be broken down as $1,000 going towards interest and $199 going towards principal. Here is a look at the first year’s payments:

Now lets look at what happens if this couple only pays the interest portion of their payment (assuming this is a 5-year option ARM):

As you can see, the mortgage balance is staying the same from month-to-month. Under a 5-year ARM, this would remain this way until the term expired. At that time, the borrower would then have to begin making principal and interest payments on the mortgage, which would mean that they would have to pay out a lot more money on a monthly basis.

So let’s see what happens if this couple pays a minimum payment of $800 per month, which is less than the monthly interest on the mortgage.

Choosing this payment method means that the mortgage balance grows from month-to-month. At the end of 12 payments, this couple would owe $2,000 more on their mortgage than they borrowed. It’s not hard to see how people could get into trouble.

So why were people even considering this kind of loan?

Well, if they thought housing prices were going to continue going up, they could always refinance into a new mortgage with lower payments. It doesn’t take a genius to figure out the risk in this line of thought. Imagine this couple above. What happens at the end of year one if the value of their house declines 15 percent? Assuming $200,000 was a fair price to begin with, their house would be worth $170,000 after a 15% decline in price.

You can’t refinance a $200,000 mortgage when your house is only worth $170,000!

Of course, the way around this is to accept the new higher payment and stay in the house until things rebound. Most people couldn’t afford to do that.

This is why we are in the fix that we are in right now. And I’m sorry but there’s NO BAILOUT IN THE WORLD that’s going to fix this mess. We have to let people who made these decisions reap the consequences of their decisions. The more we try to prop them up with bailout plans, the longer we stretch this thing out.

The two sides of Capitol Hill appear to be engaging in a bidding war to see who can put more money toward the prevention of sexually transmitted diseases in its version of the economic stimulus bill.

The House included $335 million in its package. But the Senate, not to be outdone, provided $400 million in STD spending in its bill.

Someone please explain to me how STD Prevention belongs in the stimulus bill.

You can read about it here: Economic-Stimulus Bills Allot Millions for STD Prevention.

I wish our politicians (ALL POLITICIANS) would get a freakin’ clue and do what’s best for America rather than appeasing to special interest groups.

I received Fortune’s “The 100 Best Companies to Work For” issue in yesterday’s mail. Here are the top ten (sorry no link to the article):

1. NetApp

2. Edward Jones

3. Boston Consulting Group

4. Google

5. Wegmans Food Markets

6. Cisco Systems

7. Genetech

8. Methodist Hospital System

9. Goldman Sachs

10. Nugget Market

Surprisingly, two of the top ten are grocery chains.

Okay, if my memory serves me correctly, John Thain was brought in to replace Stan O’Neal as Merrill Lynch’s CEO. This occured in late 2007. Thain was hired to clean up Merrill Lynch after they lost lots of money during the mortgage/credit crisis.

So, what does Mr. Thain do after he becomes CEO? He decides to spend $1.2 million renovating his office (emphasis mine):

Mr. Thain said he plans to reimburse Merrill for the $1.2 million spent to renovate his office, saying those expenses were “incurred in a very different environment.” Mr. Thain renovated his office when he first arrived at Merrill in late 2007. Among the items purchased for the office were an area rug for $87,784, Roman shades for $7,315 and four pairs of curtains for $87,784.

Ummm…no they weren’t! True, we didn’t know how bad things were going to get, but we knew things were bad.

My question is: how bad could his office have possibly been in that would require a $1.2 million renovation?

Oh, and don’t even get me started on bonuses:

According to a person familiar with the situation, the merger agreement specified that Merrill pay regular bonuses. Since the company was going to cease to exist at the end of 2008, that meant, by definition, that the bonuses had to be paid before the end of the year.

Why would Bank of America agree to this in the first place? These companies are losing money left and right and they have the audacity to even think about paying out bonuses. COME ON!

Source: Thain Fires Back at Bank of America, Wall Street Journal Tuesday, January 27, 2009

Thank You, Coca-Cola!

January 27, 2009

Last night I had to go to the grocery store for a few things. I went down the soft drink aisle to pick up a 12-pack of Coke (my FAVORITE soft drink). Kroger was selling 12-packs of Coke products for $4 each (and that was their “low price”). I looked at their 24-packs, which are usually quite a bit cheaper but they were selling for $7.99. I used to pay $6.49 for the 24-pack and about $3 for a 12-pack.

All the sudden Coke has gotten a lot more expensive.

So, I decided then and there that I didn’t need Coke. I don’t need the sugar, and I don’t need to pay more for what is essentially crap.

Anyway, I just wanted to thank Coca-Cola for making my decision to stop drinking their product A LOT EASIER!

Here is this week’s Ten For Tuesday. Enjoy.

1. Forecasters are predicting a historic drop in retail sales for 2009.

2. Democrats are trying to lower economic expectations. Look, I know the economy stinks. I just think it’s funny how they didn’t do this during the election.

3. The Finance Buff has a not-so-favorable review of Phil Town’s book, “Rule #1.” The book has been out a long time. I’m only mentioning this review because I have always thought Phil Town was full of…

4. WIN a copy of Kay Bell’s book.

5. Wanna lose a lot of money really quickly? The Digerati Life shows how trading stocks is a great way to lose money.

6. Here are 6 ways to motivate yourself.

7. Lazy Man has some ways to save money on utilitities. My house is nearly 50-years old. It would take a sizeable investment to make it energy-efficient.

8. Has tipping gotten way out of hand? Weigh in with your opinion.

9. Meg talks about her refinancing.

10. Lastly, here are 5 ways to take advantage of deflation.