In a post by Zach, he discusses retirement plans and how it is still necessary to save for retirement despite the current problems in the economy. Zach explains that many employees are often worried about problems with their retirement funds supplied by employers and now that fear seems to be happening. He gives details about some companies that are now liquidating their retirement funds to maintain operations in the current economic climate. Zach also notes that Fidelity Investments still seems to be doing fine, with only a 1% drop in overall retirement funds.
Zach’s Blog
I found his blog to be quite interesting because I had the opportunity to intern at Mercer consulting this past summer as an actuarial intern within the pension/retirement department. I was able to see the variety of different retirement plans available – and worked with defined benefit and defined contribution plans. However, in reading the article Zach mentions, it notes that the changes being made are simply to the matching of funds by employers. With an ever increasing switch from defined benefit plans to defined contribution plans, where employees are more liable for their own investments, employer contributions are a key thing. Therefore I agree with Zach that this is definitely a problem and I am not surprised at the fear this causes employees.
DB vs. DC Retirement Plans
However, on the other hand there are a vast amount of laws protecting employees from unfair changes in retirement plans. The Employee Retirement Income Security Act has been implemented since 1974. ERISA does a great job at protecting the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. ERISA does set limits for employees such as how long the must be employed to become a participant or what rights their spouses have for being a part of their 401K plan, among many other things. However, it also requires that those employers who establish 401K plans meet certain minimum standards, so employees are well protected.
401K Regulations
I also strongly agree with Zach’s suggestion that individuals should prepare for their retirement outside of one’s employer and the government. In looking at statistics about retirement savings, it is quite shocking and unnerving to see some of the numbers. For example, two in five workers say they are not too willing or not at all willing to cut back on their spending in order to save for retirement. Additionally, four out of ten people aged 55 or older have less than $100,000 saved toward their retirement. The problem is that many people don’t view retirement saving as an important enough thing and are more focused on their current situation, often times saying that they are willing to work longer if they have to. But, pair this with the fact that four in ten retirees end up having to leave the work force earlier than expected due to health problems, disability or company downsizing. So, even though an individual feels that they don’t need to save up, and will just work more years, this doesn’t always work out like planned. People need to view retirement saving as a more important thing, as it determines what their quality of life will be once they finish working.
Retirement Statistics
Overall, I think that people need to be more aware of saving for retirement at an early age. I realize that there are many other aspects of an individual’s life that may seem more vital at the current time, especially given the current economic circumstances, but this is definitely something that should not be ignored. Often times individuals rely too much on government and employer aid, and this is not right. Though I think it is unfortunate that some employers are lowering their matching contribution for defined contribution retirement plans, it almost seems necessary given current circumstances. Given the choice of layoffs to save money, or lowering retirement plan funds, I think most employees would choose the later. Especially given the fact that there are many laws protecting employee defined contribution plans, and a great deal of this is also set in employees contract upon their hire. So, with a little more savings on the part of individuals for their retirement, they will be much better off.
Saturday, April 18, 2009
Sunday, April 12, 2009
Ford and Government Bailout Money
In Keval’s post from April 6th, he discusses the fact that despite huge bailout requests from major competitors, Ford has not requested or received any bailout money. Instead, Ford has decided to take action themselves – working on a variety of aspects of their company to survive on their own through these rough financial and economic times. Keval explains that they have already reduced their debt by $9.9 billion and increased their share price by 16%. Keval believes that this strategy Ford has, to survive and increase value on their own, is a great one, because it pleases shareholders and consumers. He says that if consumers see that Ford required no assistance (unlike its competitors), managed themselves efficiently, and still increased value, that they would be extremely happy and pleased with the company. This suggests that these consumers would be more loyal to Ford, rather than its competitors.
Keval's Post
For the most part I do agree with the points that Keval makes about Ford. I think it is quite admirable that they are going through these rough times on their own. This is especially true given how much Ford’s competitors – GM and Chrysler – have accepted in government bailout money. In fact these two companies just recently asked for $22 billion more in bailout money. An article I found from MSNBC describes in detail Ford and its strategy to avoid government assistance. The article mentions good things Ford is doing such as standardizing its products globally, improving the efficiency of management, and moving towards more fuel-efficient vehicles, which are helping it succeed within the market. However, Ford is also doing other things to decrease costs, which aren’t necessarily good for everyone. For example, they have had to shut down a number of manufacturing plants (causing layoffs), and have worked with United Auto Workers to make large pay cuts across the company. So, although the company is not accepting government bailout money, it doesn’t mean everything is going great for the company. Additionally, the article explains that they feel it is just a matter of time until Ford does succumb and accept government money. One main reason for this is because Ford has been quite overoptimistic on their sales, and if these sales goals are not met, Ford will be in trouble. For example, its assumptions for sales are 1 million more than its competitors and they have not correctly accounted for different costs associated with sedans verses trucks verses SUVs, which can greatly affect their cost structure and profit.
MSNBC Article: How Long Until Ford Also Needs a Bailout?
Additionally, it seems as though Ford isn’t in as great of a position as it portrays. For example, Ford recently underwent its worst loss ever at over $5.9 billion, and burned through over 40% of its cash on hand. Though it will definitely look great to consumers if Ford can survive without government assistance, the problem is they most likely won’t be able to do so. Therefore, it seems as though they are unnecessarily making themselves worse off, and simply postponing the inevitable. Additionally, the article mentions that Ford has already asked for a $9 billion line of credit from the government, but has said they have enough cash to make it through 2009, and won’t use government loans unless economic conditions worsen. But, many fear that Ford will need the money eventually and is simply trying to slip under the public radar. John Wolkonowicz (an analyst at IHS Global Insight) explains that “They’ll need money from the government by mid-year. But when they do put their hand out, it won’t captivate the media nearly as much, and it will go by with less fanfare.”
Daily Markets Article: “Ford Says ‘No Bailout Funds’ Despite Worst Loss Ever”
The CEO of Ford, Alan Mulally, has also been quite vocal over the government bailouts within the market recently. Mulally is quite sturdy on his stance regarding the government bailouts, explaining that Ford has not changed and most likely will not change its mind about needing a bailout. Mulally said it would take an “event such as the bankruptcy of a major competitor,” which would also drag down some of Ford’s suppliers, to force Ford to ask for government loans. Mulally also makes very vague statements in this article, such as “Ford doesn’t need a bailout — unless conditions get a lot worse.” However, he fails to give specific statistics or numbers on what he means by “much worse” within the market and economy. The article also mentions that a major reason why Ford has not required government bailouts up to this point is because it did a huge refinancing back in 2006, and recently has drawn down/borrowed last remaining $10.1 billion it had available from that refinancing.
BNET Auto Article: “Ford CEO Mulally says No Bailout Needed – Unless It Is”
Overall, I think that Ford is doing as well as it can to avoid government bailouts given the economy. I think it is admirable that they are looking towards alternatives instead of simply giving in and asking for assistance like their competitors have. It will be a great thing for the company if they are able to make it through, without any government assistance. However, from these articles I’ve read it seems that that might not be the case. Ford has seen a great deal of losses and may end up in the same position as its competitors soon. However, the thing that worries me most is if Ford deceptively takes money from the government without disclosing it, thus deceiving customers. This seems like it could be possible given the fact that Ford already has asked for loan money, but has not actively taken it yet – making it much easier for them to actually accept the money soon, without others knowing it.
Keval's Post
For the most part I do agree with the points that Keval makes about Ford. I think it is quite admirable that they are going through these rough times on their own. This is especially true given how much Ford’s competitors – GM and Chrysler – have accepted in government bailout money. In fact these two companies just recently asked for $22 billion more in bailout money. An article I found from MSNBC describes in detail Ford and its strategy to avoid government assistance. The article mentions good things Ford is doing such as standardizing its products globally, improving the efficiency of management, and moving towards more fuel-efficient vehicles, which are helping it succeed within the market. However, Ford is also doing other things to decrease costs, which aren’t necessarily good for everyone. For example, they have had to shut down a number of manufacturing plants (causing layoffs), and have worked with United Auto Workers to make large pay cuts across the company. So, although the company is not accepting government bailout money, it doesn’t mean everything is going great for the company. Additionally, the article explains that they feel it is just a matter of time until Ford does succumb and accept government money. One main reason for this is because Ford has been quite overoptimistic on their sales, and if these sales goals are not met, Ford will be in trouble. For example, its assumptions for sales are 1 million more than its competitors and they have not correctly accounted for different costs associated with sedans verses trucks verses SUVs, which can greatly affect their cost structure and profit.
MSNBC Article: How Long Until Ford Also Needs a Bailout?
Additionally, it seems as though Ford isn’t in as great of a position as it portrays. For example, Ford recently underwent its worst loss ever at over $5.9 billion, and burned through over 40% of its cash on hand. Though it will definitely look great to consumers if Ford can survive without government assistance, the problem is they most likely won’t be able to do so. Therefore, it seems as though they are unnecessarily making themselves worse off, and simply postponing the inevitable. Additionally, the article mentions that Ford has already asked for a $9 billion line of credit from the government, but has said they have enough cash to make it through 2009, and won’t use government loans unless economic conditions worsen. But, many fear that Ford will need the money eventually and is simply trying to slip under the public radar. John Wolkonowicz (an analyst at IHS Global Insight) explains that “They’ll need money from the government by mid-year. But when they do put their hand out, it won’t captivate the media nearly as much, and it will go by with less fanfare.”
Daily Markets Article: “Ford Says ‘No Bailout Funds’ Despite Worst Loss Ever”
The CEO of Ford, Alan Mulally, has also been quite vocal over the government bailouts within the market recently. Mulally is quite sturdy on his stance regarding the government bailouts, explaining that Ford has not changed and most likely will not change its mind about needing a bailout. Mulally said it would take an “event such as the bankruptcy of a major competitor,” which would also drag down some of Ford’s suppliers, to force Ford to ask for government loans. Mulally also makes very vague statements in this article, such as “Ford doesn’t need a bailout — unless conditions get a lot worse.” However, he fails to give specific statistics or numbers on what he means by “much worse” within the market and economy. The article also mentions that a major reason why Ford has not required government bailouts up to this point is because it did a huge refinancing back in 2006, and recently has drawn down/borrowed last remaining $10.1 billion it had available from that refinancing.
BNET Auto Article: “Ford CEO Mulally says No Bailout Needed – Unless It Is”
Overall, I think that Ford is doing as well as it can to avoid government bailouts given the economy. I think it is admirable that they are looking towards alternatives instead of simply giving in and asking for assistance like their competitors have. It will be a great thing for the company if they are able to make it through, without any government assistance. However, from these articles I’ve read it seems that that might not be the case. Ford has seen a great deal of losses and may end up in the same position as its competitors soon. However, the thing that worries me most is if Ford deceptively takes money from the government without disclosing it, thus deceiving customers. This seems like it could be possible given the fact that Ford already has asked for loan money, but has not actively taken it yet – making it much easier for them to actually accept the money soon, without others knowing it.
Credit Rating Agencies and the Mortgage Crisis
Recently in class we have been discussing a lot about credit rating agencies and the role they play. These companies are responsible for assigning credit ratings for issuers of certain types of debt obligations as well as debt instruments themselves. A credit rating assigned takes into consideration a variety of aspects about the issuer’s credit worthiness, and thus affects the interest rate applied to the particular security being issued. Some of the main credit rating agencies within the U.S. include Moody’s, Standard and Poor’s, and A.M. Best.
With the current crisis going on in the U.S. economy, a great deal of attention has been focused upon the loans given to subprime borrowers for mortgages. Recently many people have been most concerned with who is really responsible for all the mortgage problems in the economy today. Some have argued that mortgage brokers are to blame, for pursuing predatory lending practices. While others have blamed the mortgage problems on the actual home owners who accepted loans they could not afford. Still others have pointed the finger at the SEC for easing lending regulations and investment banks for creating defaulting securities. Though, it seems like the most common answer for who to blame is now the credit rating agencies, who have been irresponsible in giving ratings to borrowers.
I was interested in this topic, so I researched a little more about it and came upon an article by the Business Times Online, titled “Credit Rating Agencies Admit Ranking Many Mortgage-Related Securities Too High.” This article goes into detail about how the CRAs have now accepted some responsibility for the mortgage crisis, and have said that they have assigned ratings on many mortgage-related securities that are far too high. The article also explains that one of the main problems was that many assumptions used in preparing the ratings on mortgage-backed securities did not work because of the extreme economic and financial situation the United States is in. The CRAs are now looking for a new way to create these ratings, since it is evident that the current system is quite inefficient. In fact, the article mentions that recently the three big agencies agreed to work with New York attorney-general to overhaul how they evaluate investments backed by high-risk debt. This is a start to fixing the current problems in this system.
I agree with the article that something needs to be done to make changes to the way the ratings are currently being done by the CRAs. Clearly, many ratings have been too high as seen by the high level of default. I think that they definitely need to look a little bit deeper into the borrowers they are assigning ratings for, and they need to better determine what aspects affect the repayment of the debt. Also, I think another major problem, which was briefly brought up in the article, is the whole idea of this system. The credit ratings agencies are competing for their business and being paid by the debt issuers. This is a major problem, considering it prevents the analysts from putting the investors’ interests first. I think it may be a poor idea to place the blame for the whole mortgage crisis upon one entity, but I do think that it is clear that the credit ratings agencies did play some role in this whole mortgage disaster we currently face.
The Subprime Mortgage Crisis Info
Wikipedia Definition of Credit Rating Agencies
Business Times Online CRA Article
With the current crisis going on in the U.S. economy, a great deal of attention has been focused upon the loans given to subprime borrowers for mortgages. Recently many people have been most concerned with who is really responsible for all the mortgage problems in the economy today. Some have argued that mortgage brokers are to blame, for pursuing predatory lending practices. While others have blamed the mortgage problems on the actual home owners who accepted loans they could not afford. Still others have pointed the finger at the SEC for easing lending regulations and investment banks for creating defaulting securities. Though, it seems like the most common answer for who to blame is now the credit rating agencies, who have been irresponsible in giving ratings to borrowers.
I was interested in this topic, so I researched a little more about it and came upon an article by the Business Times Online, titled “Credit Rating Agencies Admit Ranking Many Mortgage-Related Securities Too High.” This article goes into detail about how the CRAs have now accepted some responsibility for the mortgage crisis, and have said that they have assigned ratings on many mortgage-related securities that are far too high. The article also explains that one of the main problems was that many assumptions used in preparing the ratings on mortgage-backed securities did not work because of the extreme economic and financial situation the United States is in. The CRAs are now looking for a new way to create these ratings, since it is evident that the current system is quite inefficient. In fact, the article mentions that recently the three big agencies agreed to work with New York attorney-general to overhaul how they evaluate investments backed by high-risk debt. This is a start to fixing the current problems in this system.
I agree with the article that something needs to be done to make changes to the way the ratings are currently being done by the CRAs. Clearly, many ratings have been too high as seen by the high level of default. I think that they definitely need to look a little bit deeper into the borrowers they are assigning ratings for, and they need to better determine what aspects affect the repayment of the debt. Also, I think another major problem, which was briefly brought up in the article, is the whole idea of this system. The credit ratings agencies are competing for their business and being paid by the debt issuers. This is a major problem, considering it prevents the analysts from putting the investors’ interests first. I think it may be a poor idea to place the blame for the whole mortgage crisis upon one entity, but I do think that it is clear that the credit ratings agencies did play some role in this whole mortgage disaster we currently face.
The Subprime Mortgage Crisis Info
Wikipedia Definition of Credit Rating Agencies
Business Times Online CRA Article
Sunday, April 5, 2009
Critique of Ceiling on Credit Card Fees
In a recent blog post by Yu, he discusses his thoughts on the recent legislation considering credit card fees. The article he discusses explains that the senate is considering putting a limit on the fees charged to consumers by major credit card companies. This measure is aimed at “punishing credit card companies that raise their interest rates to a high level and at giving consumers who may be on the verge of bankruptcy greater leverage to negotiate better deals with those lenders.” Yu suggests that this measure is a bad thing, because it undermines the credit system. He explains that individuals know what fees they are being charged and should take this into consideration in evaluating their use of their credit cards. Yu also gives examples of those who use credit cards properly such as those building up their credit history, and college students who use credit cards. Additionally, he explains that these fees help give credit card companies revenues, and individuals need to take responsibility for their own actions rather than always requiring government intervention.
Yu's Blog
I agree with many of the points Yu makes within his blog. I think that too often, people depend on the government to bail them out of the financial situation they get themselves into, and this is not right. I found another article that further detailed this plan by the government. It explained that this new bill is called the Consumer Credit Fairness Act. It would prevent companies from raising their interest rates higher than 15%, plus the current yield on a 30-year treasury bond (18.5% total). The article also explained that though these changes could be positive for consumers, they could really affect the whole credit industry, causing a reworking of “credit card industry’s internal operations, pricing models, and functioning mechanisms.” And in fact, these new laws could be imposed in as soon as 90 days if it is passed.
Credit Card Fee Limit (Fox News)
The first thing I looked into after reading this article was looking at some of the statistics about credit card usage. It seems like so many people make unwise credit decisions, purchase beyond their means, and don’t consider the consequences they will face when they can’t repay all their debt. For example, in 2008 the total balance of bank-issued credit cards per consumer was $5,710. And, total U.S. consumer credit card debt reached $2.56 trillion at the end of 2008. These amounts are quite high and show the lack of consideration on the part of consumer. Though I do believe credit card companies do charge high, unreasonable fees in some circumstances, that is the industry. It is not the responsibility of the credit card companies to limit their fees to help out those consumers who have made unreasonable risks and poor decisions in accumulating debt they can’t repay.
Credit Card Statistics
Additionally, I feel like this is a poor thing for the government to do because it just shows people that they don’t have to be responsible for their own actions. For many years before I even had my own credit card I was taught how to make good decisions regarding credit cards and purchasing. There are so many resources out there to teach people how to handle credit properly, and how to get out of debt if they do make poor decisions with their credit cards. I do feel bad for those that are struggling with their mortgage payments, and bills, and now the additional fees that they face from these credit card companies, but that is simply not a problem that the government should control. When an individual gets a credit card they are presented with all the information on fees and rates they will be charged on their cards, and it is their responsibility to go over this and base decisions based on this information. It is required that credit card companies disclose this information, and it is something that consumers clearly need to pay more attention to. There are already many regulations on credit card companies that ban unfair and deceptive practices, and this would be yet another thing imposed on them. Credit card companies need a way to profit, and putting more and more regulations on them will limit their ability to do so. The following site I found gives great advice to individuals with credit cards. They offer may suggestions on how to avoid costs of going over one’s credit limit. These include knowing your credit limit, not expecting your creditor to stop you, enrolling in balance alerts, keeping your balance low, and remembering to consistently check your balance if you aren’t sure what it is. Many websites such as this exist which will help individuals better manage their finances and the costs they assume by using credit cards.
Suggestions to Avoid Credit Card Fees
Overall, I feel that the government should not need to limit the fees and rates charged by credit card companies so stringently. These companies already have so many regulations and limitations upon them and this would just be one more. People need to take responsibility for their own choices, and their buying decisions using credit cards. I realize that the economy is hard right now and it is causing more people to use their credit cards more often. The reality of it is that people need to assess the levels of risk they are assuming in their financial decisions, and using credit cards is one of them. Simply bailing individuals out all the time and being so strict on credit card companies does not teach individuals to have any responsibility.
Yu's Blog
I agree with many of the points Yu makes within his blog. I think that too often, people depend on the government to bail them out of the financial situation they get themselves into, and this is not right. I found another article that further detailed this plan by the government. It explained that this new bill is called the Consumer Credit Fairness Act. It would prevent companies from raising their interest rates higher than 15%, plus the current yield on a 30-year treasury bond (18.5% total). The article also explained that though these changes could be positive for consumers, they could really affect the whole credit industry, causing a reworking of “credit card industry’s internal operations, pricing models, and functioning mechanisms.” And in fact, these new laws could be imposed in as soon as 90 days if it is passed.
Credit Card Fee Limit (Fox News)
The first thing I looked into after reading this article was looking at some of the statistics about credit card usage. It seems like so many people make unwise credit decisions, purchase beyond their means, and don’t consider the consequences they will face when they can’t repay all their debt. For example, in 2008 the total balance of bank-issued credit cards per consumer was $5,710. And, total U.S. consumer credit card debt reached $2.56 trillion at the end of 2008. These amounts are quite high and show the lack of consideration on the part of consumer. Though I do believe credit card companies do charge high, unreasonable fees in some circumstances, that is the industry. It is not the responsibility of the credit card companies to limit their fees to help out those consumers who have made unreasonable risks and poor decisions in accumulating debt they can’t repay.
Credit Card Statistics
Additionally, I feel like this is a poor thing for the government to do because it just shows people that they don’t have to be responsible for their own actions. For many years before I even had my own credit card I was taught how to make good decisions regarding credit cards and purchasing. There are so many resources out there to teach people how to handle credit properly, and how to get out of debt if they do make poor decisions with their credit cards. I do feel bad for those that are struggling with their mortgage payments, and bills, and now the additional fees that they face from these credit card companies, but that is simply not a problem that the government should control. When an individual gets a credit card they are presented with all the information on fees and rates they will be charged on their cards, and it is their responsibility to go over this and base decisions based on this information. It is required that credit card companies disclose this information, and it is something that consumers clearly need to pay more attention to. There are already many regulations on credit card companies that ban unfair and deceptive practices, and this would be yet another thing imposed on them. Credit card companies need a way to profit, and putting more and more regulations on them will limit their ability to do so. The following site I found gives great advice to individuals with credit cards. They offer may suggestions on how to avoid costs of going over one’s credit limit. These include knowing your credit limit, not expecting your creditor to stop you, enrolling in balance alerts, keeping your balance low, and remembering to consistently check your balance if you aren’t sure what it is. Many websites such as this exist which will help individuals better manage their finances and the costs they assume by using credit cards.
Suggestions to Avoid Credit Card Fees
Overall, I feel that the government should not need to limit the fees and rates charged by credit card companies so stringently. These companies already have so many regulations and limitations upon them and this would just be one more. People need to take responsibility for their own choices, and their buying decisions using credit cards. I realize that the economy is hard right now and it is causing more people to use their credit cards more often. The reality of it is that people need to assess the levels of risk they are assuming in their financial decisions, and using credit cards is one of them. Simply bailing individuals out all the time and being so strict on credit card companies does not teach individuals to have any responsibility.
Short Selling for Homeowners
Recently in class we had been discussing all sorts of different options, forwards, and combinations of these. As I was looking up more information about these topics, in particular about short sales, I came upon a very interesting article about a new trend in selling short. This is for the mortgage/housing industry, as individuals are beginning to sell their property and houses short within the market.
Because so many families nowadays are having trouble keeping up with their mortgage payments, they are looking for any way possible to get out of their difficult circumstances. This is how selling short comes about for homeowners. In a short sale, the lender allows the house/property to be sold for less than the total amount due on the loan, and in some cases the lender forgives the remaining debt. The process was not even heard of by most before the whole housing mortgage crisis, but now it is helping many people avoid foreclosure on their houses.
Overall, it seems to me that short selling for homeowners can be a really great helpful thing for those with financial hardship. Given the high levels of unemployment, increasing layoffs, declining sales, and struggling stock market that we have in the economy today, it is inevitable that people will have problems paying their mortgages. This is especially true given the unreasonable loans many individuals were given, making it very difficult for them to make such high payments in the first place. Short selling is very helpful for these people because it gives them an option besides foreclosure. Foreclosure would leave a long-lasting mark on one’s credit history and can take a very long time, costing them even more in the long run. On the other hand, short selling can be a faster and less expensive process. Additionally, it is helpful because short selling does not look as horrible on one’s credit report.
However, I definitely don’t think short selling is perfect on all levels. One problem could be that it is difficult to convince a lender to short sell a property. Also, another major problem is that in the case that some amount of the loan is forgiven by the lender, it still will most likely be subject to taxes, that the borrower has to pay. Though, I think this might be a good thing, as it still makes the borrower somewhat accountable for their insufficient payments made.
Overall, it seems that there are positive and negative aspects to short selling for homeowners. It’s great that it offers struggling homeowners an option besides simply foreclosure. However, both positives and negatives need to be considered. As this new strategy becomes increasingly popular, there are a growing number of websites that explain the process and provide resources for those that might be interested in short selling their homes.
The New Exit Strategy: A Short Sale
How To Do a Short Sale
Because so many families nowadays are having trouble keeping up with their mortgage payments, they are looking for any way possible to get out of their difficult circumstances. This is how selling short comes about for homeowners. In a short sale, the lender allows the house/property to be sold for less than the total amount due on the loan, and in some cases the lender forgives the remaining debt. The process was not even heard of by most before the whole housing mortgage crisis, but now it is helping many people avoid foreclosure on their houses.
Overall, it seems to me that short selling for homeowners can be a really great helpful thing for those with financial hardship. Given the high levels of unemployment, increasing layoffs, declining sales, and struggling stock market that we have in the economy today, it is inevitable that people will have problems paying their mortgages. This is especially true given the unreasonable loans many individuals were given, making it very difficult for them to make such high payments in the first place. Short selling is very helpful for these people because it gives them an option besides foreclosure. Foreclosure would leave a long-lasting mark on one’s credit history and can take a very long time, costing them even more in the long run. On the other hand, short selling can be a faster and less expensive process. Additionally, it is helpful because short selling does not look as horrible on one’s credit report.
However, I definitely don’t think short selling is perfect on all levels. One problem could be that it is difficult to convince a lender to short sell a property. Also, another major problem is that in the case that some amount of the loan is forgiven by the lender, it still will most likely be subject to taxes, that the borrower has to pay. Though, I think this might be a good thing, as it still makes the borrower somewhat accountable for their insufficient payments made.
Overall, it seems that there are positive and negative aspects to short selling for homeowners. It’s great that it offers struggling homeowners an option besides simply foreclosure. However, both positives and negatives need to be considered. As this new strategy becomes increasingly popular, there are a growing number of websites that explain the process and provide resources for those that might be interested in short selling their homes.
The New Exit Strategy: A Short Sale
How To Do a Short Sale
Friday, March 27, 2009
Assessing Risk Tolerance
In class we have been discussing risk tolerance little bit, with respect to industries as a whole, as well as particular companies, and individuals’ portfolios. So I decided to learn a little bit more about how risk tolerance is assessed, and find some instances to view risk tolerance. One thing I find interesting is how individuals assess their own risk tolerance in deciding what investments to choose and how to keep their finances on track.
First of all risk tolerance, like discussed in class is the degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio. I read an article from Consumer Reports Money Advisor that had very detailed information for investors on how to assess their personal risk tolerance on a variety of levels. I feel like this is a really important thing for investors to do on a frequent basis, especially given the high level of volatility in the market today. Assessing one’s risk tolerance helps plan for the future, and like the article stated “Determining your risk tolerance is essential.
You don’t want to react emotionally when the market tumbles.”
An additional aspect of the article that I found interesting was it offered resources for people to learn more about the risk and rewards associated with their investing activities. I think that often times people simply listen to the media when making financial decisions, and end up selling low, and then get back in when the media say that the market is starting to run up, even though it may not always work out like planned. By being better informed and educated about the market, people will be able to make better decisions in the diversification of their portfolios. One great resource the article gives readers is www.vanguard.com. Vanguard’s website offers an online risk-tolerance questionnaire, with relevant suggestions on how to apportion one’s money between stocks, bonds, and cash. This is very helpful so that investors can calculate how risk tolerant they are, and how much they could lose given their investment choices.
Additionally, the article also discussed other need’s one has in order to protect themselves from risks in life. One of the main issues discussed was life and health insurance. The article explains that most people do not buy nearly enough coverage to protect themselves. For life insurance in particular, “They rely on old rules of thumb, like buying coverage equal to six times their annual income. This method doesn’t take into account your financial goals, like putting your children through college or providing a comfortable retirement income for your surviving spouse.” I feel like it is very important for people to be well insurance, especially with regard to health insurance (and life insurance depending on age). I have a few friends that don’t have health insurance at all, and it is a scary thought that they may get very sick, and not have access to the medical treatment that they need. I feel like this is another level of measuring one’s risk tolerance. Sometimes, it seems that individuals view themselves as completely free of risk. But, individuals need to take a step back and see all that they could possibly lose, and all that is at risk.
From the article, I gained an even better understanding of risk tolerance and the importance of it in an individual perspective. I think that is clearly shows that it is beneficial to really consider one’s risk tolerance before entering into investments for a portfolio, or other risky aspects of life. This can help an individual personalize the correct portfolio for themselves based on their particular risk tolerance and how much uncertainty and possibility of losses they can handle.
Consumer Reports Money Advisor
Vanguard
First of all risk tolerance, like discussed in class is the degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio. I read an article from Consumer Reports Money Advisor that had very detailed information for investors on how to assess their personal risk tolerance on a variety of levels. I feel like this is a really important thing for investors to do on a frequent basis, especially given the high level of volatility in the market today. Assessing one’s risk tolerance helps plan for the future, and like the article stated “Determining your risk tolerance is essential.
You don’t want to react emotionally when the market tumbles.”
An additional aspect of the article that I found interesting was it offered resources for people to learn more about the risk and rewards associated with their investing activities. I think that often times people simply listen to the media when making financial decisions, and end up selling low, and then get back in when the media say that the market is starting to run up, even though it may not always work out like planned. By being better informed and educated about the market, people will be able to make better decisions in the diversification of their portfolios. One great resource the article gives readers is www.vanguard.com. Vanguard’s website offers an online risk-tolerance questionnaire, with relevant suggestions on how to apportion one’s money between stocks, bonds, and cash. This is very helpful so that investors can calculate how risk tolerant they are, and how much they could lose given their investment choices.
Additionally, the article also discussed other need’s one has in order to protect themselves from risks in life. One of the main issues discussed was life and health insurance. The article explains that most people do not buy nearly enough coverage to protect themselves. For life insurance in particular, “They rely on old rules of thumb, like buying coverage equal to six times their annual income. This method doesn’t take into account your financial goals, like putting your children through college or providing a comfortable retirement income for your surviving spouse.” I feel like it is very important for people to be well insurance, especially with regard to health insurance (and life insurance depending on age). I have a few friends that don’t have health insurance at all, and it is a scary thought that they may get very sick, and not have access to the medical treatment that they need. I feel like this is another level of measuring one’s risk tolerance. Sometimes, it seems that individuals view themselves as completely free of risk. But, individuals need to take a step back and see all that they could possibly lose, and all that is at risk.
From the article, I gained an even better understanding of risk tolerance and the importance of it in an individual perspective. I think that is clearly shows that it is beneficial to really consider one’s risk tolerance before entering into investments for a portfolio, or other risky aspects of life. This can help an individual personalize the correct portfolio for themselves based on their particular risk tolerance and how much uncertainty and possibility of losses they can handle.
Consumer Reports Money Advisor
Vanguard
Problems with the Public Education System in the U.S.
In Dwayne W.’s post from March 10th, he analyzes the U.S. public education system and the problems it has caused in the country. He asserts that our poor education system is much to blame for the economic crisis that we are currently in. Dwayne explains how many teachers nowadays simply pass all the kids in their classes, despite the fact that some really should be held back to ensure they have fully grasped important concepts. He explains that these poorly educated individuals often times grow up, and have a very poor understanding of finances and how to manage financial decisions within their lives – such as when entering into a mortgage. Dwayne argues that in order to fix the economy, we need to look are more than just money, and truly understand the underlying aspects behind the country’s problems. One of these main problems is the public school system. With more funding and focus on education, the U.S. will be able to see positive results, as our labor force becomes better educated and prepared for more advanced careers.Dwayne's Blog
Dwayne's Blog
I agree with the points that Dwayne brings up about the education system in the United States. Like him, I saw lack of concern for some students at my college, as teachers passed them, despite the fact that they really should have been held back. It seems to me that many times this occurs because teachers are highly reprimanded and questioned for failing a student in a class, particularly if it hinders the student from an on schedule graduation. Or, the teachers simply don’t want to deal with the student in their class anymore. This is a very poor way to look at education – if a student is struggling and fails to understand the material of the class, they should be held back until they fully understand it. Although holding them back may cause short term frustration for the student, it is undoubtedly worth it in the long run, as it will allow the student the opportunity to learn more and eventually achieve more success in life and their career. This will ultimately help the U.S. get out of the economic crisis, by increasing the pool of skilled, educated individuals in the country in the work force.
One article about this issue I read was published by Stanford University, and focused a great deal on how this education crisis is a cause of so many issues in the U.S., and contributes to the economic problems we face. New York City Schools Chancellor Joel Klein said that “The greatest domestic issue we as Americans face is failing to prepare students to compete globally in the 21st century.” I feel that this relates well to Dwayne’s article, because of the fact that without this, the U.S. will not be competitive with other countries labor around the world. The quality of public schools in the United States is embarrassing and upsetting compared to those of Asian and European countries, especially with regard to math and science. The problem is that without proper education, these individuals are unable to contribute much to the work force of the U.S. and employers look elsewhere to fill positions. This is causing companies to draw in more experienced, educated individuals from other countries, rather than looking within the country, causing a problem of diminishing jobs available.
"Public Education Crisis ‘The Greatest Domestic Issue’ Americans Face Today" by Lisa Trei
Additionally, another article I found placed the blame more on lack of math education, rather than just the U.S. public school system in general. This article, by James Bowers, gave some alarming statistics about the majority of the population. For example, “65 percent of respondents could not identify what remained if you subtracted 25 percent from eight. Another question revealed that 1 in 3 adults could not calculate 1 percent of 50,000.” If individuals can’t even do simple math such as this, how could they possibly calculate how much a mortgage would cost them, and if they were financially able to afford it based on their income. Clearly, the public education system did not do an adequate job at preparing these individuals for real world situations, such as a mortgage. Simple fees get translated into confusing annual percentage rates, and it's a lack of understanding on these issues that results in many people taking on car and home loans they can't afford, and overdrawing their bank accounts. In fact, a new FDIC study showed that banks make billions of dollars in overdraft fees - an expense that disproportionately targets low-income and uneducated Americans.
"Financial Mess Stems From Poor Math Education" by James Bowers
The problem is that the United States needs to be much more focused on education, starting from lower grade level children all the way through college aged students. More education and hard work from Americans ultimately leads to more economic freedom and will greatly help out the economy. Human capital is the most important resource, and it is something that the United States nowadays is clearly behind in. The problem is that there are few well educated individuals that can compete for high power, high paying positions in many companies, and a multitude of uneducated or poorly educated individuals with very little to offer. For example, in an article by Nicolle Girolamo and Helen Siaxabanis they explain the market now “consists of a few skilled labors that command high wages, while there is a flooded market of unskilled labor that ‘have little bargaining power.’” By focusing more on education, the U.S. will be able to increase the pool of talent, thus minimizing the effect of poor education on the economy.
"Lack of Education Driving Force of Poor Economy in U.S." by Nicolle Girolamo and Helen Siaxabanis
Overall, it is evident that the U.S. needs to do something to greatly improve the quality of the public school system. It seems that more and more, we are falling behind other countries, who consistently better prepare students for the future. If something isn’t done then individuals will continue to lack the knowledge necessary to lead a fulfilling life with a good career, and will continue to make mistakes, such as those that caused the whole mortgage crisis we are in. Additionally, if the education system is not improved, our level of human capital will continue to fall below that of other countries, and more and more employers will look to other countries for possible employees. By increasing our pool of educated, skilled labor, it will undoubtedly make a big difference for the U.S. economy.
Dwayne's Blog
I agree with the points that Dwayne brings up about the education system in the United States. Like him, I saw lack of concern for some students at my college, as teachers passed them, despite the fact that they really should have been held back. It seems to me that many times this occurs because teachers are highly reprimanded and questioned for failing a student in a class, particularly if it hinders the student from an on schedule graduation. Or, the teachers simply don’t want to deal with the student in their class anymore. This is a very poor way to look at education – if a student is struggling and fails to understand the material of the class, they should be held back until they fully understand it. Although holding them back may cause short term frustration for the student, it is undoubtedly worth it in the long run, as it will allow the student the opportunity to learn more and eventually achieve more success in life and their career. This will ultimately help the U.S. get out of the economic crisis, by increasing the pool of skilled, educated individuals in the country in the work force.
One article about this issue I read was published by Stanford University, and focused a great deal on how this education crisis is a cause of so many issues in the U.S., and contributes to the economic problems we face. New York City Schools Chancellor Joel Klein said that “The greatest domestic issue we as Americans face is failing to prepare students to compete globally in the 21st century.” I feel that this relates well to Dwayne’s article, because of the fact that without this, the U.S. will not be competitive with other countries labor around the world. The quality of public schools in the United States is embarrassing and upsetting compared to those of Asian and European countries, especially with regard to math and science. The problem is that without proper education, these individuals are unable to contribute much to the work force of the U.S. and employers look elsewhere to fill positions. This is causing companies to draw in more experienced, educated individuals from other countries, rather than looking within the country, causing a problem of diminishing jobs available.
"Public Education Crisis ‘The Greatest Domestic Issue’ Americans Face Today" by Lisa Trei
Additionally, another article I found placed the blame more on lack of math education, rather than just the U.S. public school system in general. This article, by James Bowers, gave some alarming statistics about the majority of the population. For example, “65 percent of respondents could not identify what remained if you subtracted 25 percent from eight. Another question revealed that 1 in 3 adults could not calculate 1 percent of 50,000.” If individuals can’t even do simple math such as this, how could they possibly calculate how much a mortgage would cost them, and if they were financially able to afford it based on their income. Clearly, the public education system did not do an adequate job at preparing these individuals for real world situations, such as a mortgage. Simple fees get translated into confusing annual percentage rates, and it's a lack of understanding on these issues that results in many people taking on car and home loans they can't afford, and overdrawing their bank accounts. In fact, a new FDIC study showed that banks make billions of dollars in overdraft fees - an expense that disproportionately targets low-income and uneducated Americans.
"Financial Mess Stems From Poor Math Education" by James Bowers
The problem is that the United States needs to be much more focused on education, starting from lower grade level children all the way through college aged students. More education and hard work from Americans ultimately leads to more economic freedom and will greatly help out the economy. Human capital is the most important resource, and it is something that the United States nowadays is clearly behind in. The problem is that there are few well educated individuals that can compete for high power, high paying positions in many companies, and a multitude of uneducated or poorly educated individuals with very little to offer. For example, in an article by Nicolle Girolamo and Helen Siaxabanis they explain the market now “consists of a few skilled labors that command high wages, while there is a flooded market of unskilled labor that ‘have little bargaining power.’” By focusing more on education, the U.S. will be able to increase the pool of talent, thus minimizing the effect of poor education on the economy.
"Lack of Education Driving Force of Poor Economy in U.S." by Nicolle Girolamo and Helen Siaxabanis
Overall, it is evident that the U.S. needs to do something to greatly improve the quality of the public school system. It seems that more and more, we are falling behind other countries, who consistently better prepare students for the future. If something isn’t done then individuals will continue to lack the knowledge necessary to lead a fulfilling life with a good career, and will continue to make mistakes, such as those that caused the whole mortgage crisis we are in. Additionally, if the education system is not improved, our level of human capital will continue to fall below that of other countries, and more and more employers will look to other countries for possible employees. By increasing our pool of educated, skilled labor, it will undoubtedly make a big difference for the U.S. economy.
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