Archives For January 2010

No matter what your politics, this has to bother you:

Accord Reached on Insurance Tax for Costly PlansNew York Times

“Let me tell you something,” Mr. Obama said, pointing to elements of the legislation he said would increase access to health care. “If Republicans want to campaign against what we’ve done by standing up for the status quo and for insurance companies over American families and businesses, that is a fight I want to have.”

But there’s nothing wrong with standing by the status quo when it comes to unions, I guess.

Labor’s $60 Billion Payoff Wall Street Journal

So emerging from their backrooms, Democrats have agreed to extend a special exemption from the Cadillac tax to any health plan that is part of a collective-bargaining agreement, plus state and local workers, many of whom are unionized. Everyone else with a higher-end plan will start to be taxed in 2013, but union members will get a free pass until 2018.

Ponder that one for a moment. Two workers who are identical in every respect—wages, job, health plan—will be treated differently by the tax system, based solely on union membership.

Tell me that this isn’t a boon for unions and a great big “screw you” to everyone else.

For more:

Unions Will Dodge O’s Health TaxNew York Post
Labor, White House Have Deal on Insurance TaxMSNBC

This morning I was lounging around with my wife and daughter (the boys were still sleeping). My daughter, who is five-years old and is in kindergarten, was looking at a kids’ clothing catalog. She’s just now learning numbers and she pointed out to me that some clothes were $14 while other similar clothes were $11 and she said something like, “That’s not fair.”

Her statement made me curious so I asked her why it wasn’t fair. She replied, “Because the $14 ones cost more money.”

Trying to seize the moment, I grabbed a couple of blank index cards and held them up.

Me: “If I had these two index cards for sale…one was $5 and one was $3, which one would you want to buy?”

My Daughter: “The one that’s $3.”

Me: “Why?”

My Daughter: “Because it’s less money.”

Silly me. I had expected her to say the $5 card since $5 is bigger than $3. In other words, my daughter is smarter than I thougt she was.

Now, maybe kids are smarter than I thought. I don’t know. I didn’t have a personal finance blog when my boys were really young so I had no desire to quiz them about money except for a few teachable moments. There are lots of cool places I can take today’s conversation. For instance, the next step would be for us to compare the different products to try to figure out why one is more expensive than the other.

Anyway, today’s little episode has sparked a little idea. I’m going to “quiz” my daughter from time-to-time and post the results here. Maybe we can all use these little projects to discuss ideas on how to better prepare our kids for life.

What do you think? Do you like this idea? Let me know what you think.

Check this out: Credit Reform and My New 703.8% Card

Now before you say, “Damn! That’s a high APR,” read this:

Department Stores National Bank, which issues the card, charges a “minimum interest charge.” On my average daily balance of $3.41, that minimum charge worked out to “an actual annual percentage rate” of 703.80%. (Part of the impact of last year’s credit reform is that the issuer had to disclose that shocker on the statement, while also noting that the card’s normal APR is 24.5%.)

Did you see it? HER AVERAGE DAILY BALANCE WAS $3.41! She conveniently leaves out what the interest charge was, which couldn’t have been more than a few dollars. I’m not sure why she’s being charged interest if she’s not carrying a balance.

Besides that, what’s she doing opening a department store credit card during Christmas? Isn’t that one of things you’re not supposed to do?

Just curious. Read the rest of the article. There’s all kinds of good material there. Oh, and the name of her column is “Devil in the Details.” Hahaha…

Anyone remember Henry Blodget? Well, he was the dude who worked for Merrill Lynch during the internet boom. He talked up internet stocks in Merrill Lynch research reports and then dissed those same stocks in private emails. He eventually lost his job and settled a lawsuit with the SEC without admitting or denying wrongdoing and paid a $2 million fine.

Since then he’s written a book and currently writes columns for various websites. Ramit over at IWillTeachYoutoBeRich posted a link to Henry’s latest piece, Yes, It’s Okay To Walk Away From Your Mortgage. Some of Blodget’s logic doesn’t make sense. For instance…

“…The contract spells everything out: If you stop paying, the lender gets the house. That’s it. Unless the contract specifically differentiates between a failure to pay based on hardship (involuntary) and a failure to pay based on a collapse in the value of the house (voluntary), there’s no difference. If you had a “moral obligation to pay,” that would be spelled out in the contract.

Now, compare this to a situation in which you DO have a moral obligation to pay: When you borrow money from a friend at no interest, for example. THAT is a moral obligation to pay. In this case, your friend did not lend you money to make a profit. Your friend loaned you money as a favor–with no collateral or contract.

And here’s another way of looking at it: If you have a “moral obligation” to pay your mortgage, doesn’t the bank have a “moral obligation” to keep you in your house? After all, they loaned you the money to buy it, got your hopes up, moved your family, etc. (And, no, of course the bank doesn’t have this moral obligation).”

So, if you borrow from a bank, you’re under no moral obligation to pay it back since the bank is making money off the transaction. But, if you borrow from a friend interest-free, then you do have a moral obligation to pay it back. Interesting.

Can you compartmentalize morality? Is it okay to act with morals in some circumstances but not in others? If so, who’s to decide what’s a moral decision and what’s not? What if you borrow money from a friend with interest? Is it then okay to walk away from the debt since you’re no longer “morally obligated” to pay it back since it’s a business transaction? What if there is no contract?

This is crazy. The bottom line is YOU do what’s right, no matter what. Sure, there are circumstances beyond your control when you might lose your house. Perhaps your company shuts down and there are no other jobs in the area. Losing your home might be a reality. But to simply walk away because it’s worth less than you paid for it EVEN THOUGH you can afford the payments is wrong. No ifs, ands, or buts…it’s WRONG!

All this is going to do is make things harder on those who are responsible. For those who can get a loan, there will be longer contracts to sign with lots more CYA clauses for the banks.

I’d like to put this topic to bed but I keep running across stuff that I have to address. Feel free to leave a comment&151;or don’t if you’re tired of talking about this topic.

I was going through my inbox and found this email that came to me the week I was gone for Thanksgiving. I apologize for my tardiness but the question was interesting enough that I decided to go ahead and post about it. Here is the email:


I just found you site so forgive me if this question has been asked and answered already.

One thing I found on your site was a comparison of 15 and 30 year mortgage. The timing is perfect as I’m debating that question now. But one other question I’ve considered is this…..does it make more sense to buy a more expensive house rather than a less expensive one? My “thinking” is that the growth in pure dollars of the more expensive house will certainly be more (e.g. 3% of &500,000 is more than 3% of $250,000), but payments will be less on the the less expensive house. So, after all is said and done (e.g. after the home is paid off), which home produced the highest net worth.

I was wondering your thoughts on this – I’d welcome another perspective.



Interesting question. Here are a couple of things off the top of my head:

1. Purchasing a $500,000 home is going to require a Jumbo mortgage. Interest rates for jumbo loans are higher than interest rates for smaller loans. How much more? According to Bankrate, I found them to be 6.396% for a $500,000 30-year fixed mortgage and 5.134% for a $250,000 30-year fixed mortgage. Based on those numbers, the payments on the $500k mortgage would be $1,746 MORE PER MONTH (Over $20,000 more per year).

2. It will most likely be more difficult to sell a higher-priced home than a lower-priced one. Definitely something to think about if you anticipate having to move.

3. Property taxes (almost a form of rent) on the more expensive home will most assuredly be higher than on the cheaper home. In some cases they can be A LOT higher. Definitely something to think about. Our home is worth around $200,000 (maybe a little less) and our property taxes are around $3,200 per year. Houses nearby that are worth $500,000 are paying property taxes of $12,000 per year.

3. As far as your logic goes that a more expensive home will grow “more” than a lower-priced home…

You have to look at the big picture. Assuming you can afford either house purchase, then you have to assume that you have other options too. For instance, you could purchase the cheaper home and invest your other money elsewhere. Or you could buy the bigger house. I think the more important thing is to look at your needs. Do you need a larger home? Is the larger home in a nicer area? Better schools?

Unless there were significant advantages to the larger hosue, I think I would go cheaper and invest the difference.


I think they should give back any contributions they received from Wall Street.

Seriously, I’m getting tired of the ‘righteous indignation’ against all things Wall Street when the policitians who are raising a stink accepted political campaign contributions from these very firms! Not only that, they (from both sides of the aisle) wanted more homeowners and opened the door for a lowering of the standards.

I guess what I’m trying to say is…

There is LOTS OF BLAME to go around and it bugs me to read stuff like this comment by Phil Angelides, chairman of the Financial Crisis Inquiry Commission regarding the practices of some of the firms on Wall Street:

“It sounds to me a little bit like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars.”

Source: Panel Rips Wall Street Titans

Maybe so but the United States government was the owner of the dealership…lol.

I have serious doubts as to how profitable this commission is going to be. After all, it’s run by politicians. We may learn a thing or two but I seriously doubt that this will help prevent future bubbles. Why? Because NOBODY wants to be the one to put a kink in a supposedly well-run machine. It’s much easier to allow things to continue on until the bubble bursts and the finger-pointing can begin.

Okay, here are the five winners of the David Bach giveaway:

Commenter #’s:

3 – Dan

10 – Michael

24 – abhishek

38 – Billy

49 – Sean

Each of these winners will receive a copy of Start Over, Finish Rich: 10 Steps to Get You Back on Track in 2010*. Congrats to the winners.

More giveaways to come…

*Affiliate Link