Archives For March 2010

AFM reader, “EZ,” sent me an email with a link to this op-ed piece that was recently published in the New York Times. The op-ed piece was about how the bankruptcy process should be easier so that “American families torn apart by the economic upheavals of the last two years…” (Ronald Mann’s words) can move on with their lives.

EZ’s response was quite good:

Good Morning Sir,

I just read your Op-Ed piece in the online NY Times. I disagree with your premise as summarized by your last paragraph.

“Such a bold reshaping of the bankruptcy system would provide Americans immediate respite from crushing debt and the ceaseless emotional and financial pressure that comes with it. Then they could turn their attention to finding new jobs, moving into housing they can afford and caring for their families.”

I believe making it easier to declare bankruptcy would only put more pressure on citizens who are responsible, pay their debts and taxes, and positively contribute to our economy and country. My wife has been in the mortgage business for nearly 30 years and she thinks your idea is wrong headed. She has experienced people, well before the meltdown, who had declared bankruptcy and waited 2 years to purchase another house. Inevitably, when she told them they were purchasing too much home for their income, they would respond by saying that if they couldn’t make the payments, they would declare bankruptcy again. A lot of folks have lost jobs or are experiencing reduced wages through no fault of their own but many more people who used their homes as a bank to pay for vacations and new cars or who bought homes they really couldn’t afford are in trouble by their own volition and irresponsibility. If we make it simple to declare bankruptcy, these people will use it as a financial turnstile to once again live beyond their means at our expense.

Take a look at the US savings rate over the last 10 years. So many were living paycheck to paycheck, not planning for a financial misstep. Also look at the lifestyles of these same people. New cars, houses they could not afford and vacationing like there was no tomorrow. Too much credit, not enough responsibility. And yes, there are others that share the blame. Congress, banks, regulators, credit ratings companies and overpaid CEO’s. But at the end of the day, it was the consumer who purchased homes, cars and vacations they never could afford.

Why do you think people should not honor their debts and commitments? Who made them buy the house they could not afford? By the way, just because a homeowner is underwater on their mortgage doesn’t mean they cannot afford to keep paying for their home. It just means they cannot use the home as a bank anymore.

I truly do not mind helping people who are in need. But I do mind when someone tries to make me help someone who lived irresponsibly and is now looking for a handout(that includes corporations). Making it easier to declare bankruptcy punishes those of us who lived frugally and responsibly. In this area, I believe my wife has much more experience than you do. So many times she told borrowers they were trying to get a mortgage they could barely afford. Most times she was told that they did not care and if my wife would not do the loan, they would find someone who would. My wife lost a lot of business that way.

First sentence of the second section of the Declaration of Independence: “ We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” It only guarantees the Pursuit of Happiness, not happiness itself.

Have a Great Day!


Interesting Jason Zweig piece in last weekend’s WSJ regarding dividends:

Last year, the companies in the Standard & Poor’s 500-stock index reduced their dividends by $48 billion. Today, payouts are running at an annual rate of $206 billion. So far, dividends are down 9.4% from 2009’s first quarter.

It continues…

But many other companies are declining to pay dividends not because they are unable but because they are unwilling. U.S. nonfinancial companies have amassed nearly $1 trillion in liquid assets. While much of that is in marketable securities, senior index analyst Howard Silverblatt of S&P estimates that more than $580 billion is pure cash, which could effortlessly be paid out in dividends.

Firms may sit on cash for good reasons—as a precaution against a further slump in the economy, as a war chest for acquiring competitors at cheap prices or as a funding source for building new factories or developing innovative products.

Personally, I’m a fan of dividends. Why? Control. If the company pays me a dividend, I can choose to spend it, invest it somewhere else, or reinvest it back into the company. If the company holds it, then they are in control. And, as Zweig mentions in his article, the company may not always have my best interest at heart.

Yes, dividends are taxed while share buybacks are not. This can be remedied by holding the stock in a tax sheltered account.

Anyway, if you have a couple of minutes, read Zweig’s short piece.

File this under “Useless but Interesting Trivia”

A little over a year ago, you could have purchased 10,000 shares of Pier 1 for $.10 each (YES…that’s TEN CENTS EACH) for a total investment of $1,000.

At the close yesterday, those 10,000 shares would have been worth right at $74,000!

Of course it would have taken some real guts to invest in Pier 1 back when it was worth $.10 a share. Obviously things did not look good for the company or the economy at that time. Then again, it’s not like wagering $1,000 (let’s face it…this is gambling) would have been such a big loss if it didn’t work out.

What Would You Do If…?

March 16, 2010

Interesting tidbit from this short article today’s WSJ:

Warren Buffett gave his son enough to follow his dream, but not enough to do nothing.

What would you have done if someone, very early in your adult life, had given you a free ticket to explore any career you wanted—but not enough to stop working forever? Would you have used that freedom to pursue another life path? How would your life be different now?

This is what I want to do for my grandkids (when I have them) through a Roth IRA. A big enough Roth IRA inherited by a grandchild, could kick off enough income to help them to pursue a career in teaching or some other rewarding—though lower-paying—profession. You can read all about this idea in this post I did a couple of years ago (it’s probably one of my favorite posts).

The sad part about the above-mentioned WSJ article is that Warren Buffett gave his son $90,000 worth of Berkshire around 1977, which Peter sold in order to start his music career. Well, that $90,000 would be worth $72 MILLION today. That’s the ultimate of opportunity costs.

Note: This post uses some sarcasm. You have been warned.

I was perusing YouTube today and came across Ameriprise’s YouTube Channel. I watched a couple of videos from their “Client Stories” section. They almost gave me the warm fuzzies.

They talk about various clients and what their goals and dreams are and how the Ameriprise advisor helped (vaguely) them and then the clients talk a little about the experience.

What they don’t tell us is what products were used. Understandable since these are feel-good videos. I hope no one decides to use Ameriprise based on watching the videos.

I was going through our stack of mail this morning and came across my wife’s copy of Ladies’ Home Journal. I picked it up and thumbed through it because I saw something about organization on the front cover, which went along with a post I did just a couple of days ago. While looking for the article, I stumbled upon Holly Robinson’s The Politeness Project, which opens with:

Recently three people were rude to me in as many hours. First a bank teller shrugged and snapped her gum when I asked why she put a hold on my paycheck. Then a teenager whizzed by on a skateboard and nearly knocked me flat. Finally, at lunch, the waitress forgot my order; after I reminded her, she brought me cold soup and shoved it in front of me without a word. I’m no doormat, so naturally I let these people have it. But when I saw the rude waitress stomp into the kitchen to tear into the cook, I instantly regretted my bad temper. She’d been dissed by me, so now she was setting out to do exactly the same thing to someone else.

I thought of my British grandmother, who knew how to pour a proper tea and schooled me in the power of good manners early on. When faced with a rude salesclerk, for instance, Grandmother was apt to pat the woman’s arm, compliment her sweater, and apologize for bothering her — which inevitably led the salesclerk to scurry off to find whatever item my grandmother required, pronto. Grandmother would never have gone off on the waitress the way I did. Instead, she would have sweetly asked her to reheat her soup because it was so delicious that she wanted to savor every sip.

She then goes on to say that she was determined to use her manners for seven days. The rest of the article is a day-by-day account of her experiment. It’s worth reading.

Her article reminded me a lot of Dale Carnegie’s book, “How to Win Friends and Influence People,” which is all about putting other people before yourself. By doing so, you can get what you want. I know it sounds kind of selfish and manipulative but it’s really not—as long as you have the right motives.

I think I might try my own Politeness Project.

It’s Friday and I’m going to take a break from finance on this post and share with you a couple of music videos.

This first one is one of my favorites:

This one I saw on Russ Thornton‘s facebook page. I have never really listened to Radiohead but I really like this song:

This last one is the 4th movement from Felix Mendelssohn’s Symphony No. 4 “Italian.” The sound quality isn’t great but I love the music: