Flow of Funds

Every quarter the Fed releases a summary of who's got how much. It's pretty daunting data, but Calculated Risk extracts some of the salient points:

Household percent equity (of household real estate) was up to 38% from the all time low of 33.5% earlier this year. The increase was due to a slight increase in the value of household real estate and a decline in mortgage debt.

Note: approximately 31% of households do not have a mortgage. So the 50+ million households with mortgages have far less than 38% equity.

The Journal extracts household debt and income statistics:

...household debt surged during those two bubbles and remains high. At 122% of disposable income, it is down from its peak of 129%, but it was 80% before the bubbles expanded.

The aggregate ratio of household worth to disposable income has fallen dramatically, returning to close to its long-term average:

So what are your household ratios (net worth as a percentage of disposable income, debt as a percentage of disposable income, and home equity as a percentage of real estate assets)?

Here at H.A. World HQ, the numbers are 2000%, 22%, and 95%, more or less.

Something to read on a rainy morning

Just a soft piece from CNN/Money about a - there's no other word for it - fraudulent mortgage-backed security foisted on the world by Goldman Sachs back in 2007:

Back two years ago when the mortgage meltdown was heating up, we wrote an article called "Junk Mortgages Under the Microscope" dissecting a particularly wretched mortgage-backed securities issue peddled by Goldman Sachs.

We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities.

We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted. Two of the three original AAA -rated tranches (French for "slices") are facing losses of about 90%, and even the "super senior," safer-than-mere-AAA slice is facing losses of 25%. How could this happen? And what lessons can we take away from it?

Yes, that Goldman Sachs. The one who collected $120 Billion in AIG counterparty payments from the US taxpayer, and who is now poised to pay huge bonuses to its top "talent".

Reality at the mall

I never, ever thought I'd see this:


An actual portly mannequin in the "Big 'n Tall" section of the local JC Penney. Check out those industrial-grade pleats!

Of course, like always, "Big 'n Tall" really means "Big 'n Fat", as of course they don't stock clothes for tall people (of any girth). 52x32 blue jeans anyone?

"Lending money to people is never a difficult exercise"

So says Shailesh Mehta, a pioneer in the development of the modern credit card, in an interview in PBS Frontline's The Card Game.

Definitely worth watching, mostly to see the self-justifying hypocrisy of the leaders of our financial services industry.

Probably the most remarkable thing, at least to me, is the complete abandonment of the notion that it is wrong to exploit, poor desperate people by charging them 20%, 30% (or in the case of payday lenders) 460% to borrow money. Even the Obama administration, left-leaning though it is, refuses to even consider a federal cap on interest rates.

And the ironic part is, the current system results in the poorest borrowers paying the most while the wealthiest pay the least.

Do-over

More than a year and a half ago, I wrote about whether or not to take some money that my kids' grandparents had sent to be put toward their college expenses and use it to pay off the mortgage instead. In the end, I put the money into a pair of 529 plans, and watched the value of those accounts tumble for the next 12 months.

So in retrospect, I wish I had paid off the mortgage. I would have earned a stout 4.875% on the money (the fixed mortgage rate) and, if I had followed my plan, I would have invested about $5,000 -- dollar cost averaged over 18 months -- instead of $20,000 in my wobbly 529 plans.

Well now I find myself presented with a similar question all over again. This time, the source of funds is an unexpected distribution from a deferred-compensation arrangement at work. After taxes, the distribution is almost exactly equal to our outstanding mortgage balance. With the recent froth in the price of stocks and bonds (and pretty much every other asset class except for Las Vegas condominiums), I doubt that I could bring myself to "invest" this money.

But by paying off the mortgage, I am getting that same guaranteed 4.875% return with absolutely no risk.

And, for the first time in quite a few years, I will be absolutely debt-free.

Have you learned anything from the meltdown?

The Journal is offering this interactive quiz (which may not load properly in Safari). Pretty tame stuff, but the most interesting tid-bit is that over the past 10 years, the S&P 500 returned -0.2% while a broad bond index returned +6.2%. I hope that we can all remember in the future that stocks do not always beat bonds with a ten-year time horizon.

By their manuals shall ye know them...

So take a look at the 'droid "Quick Start Guide" compared with the iPhone 3GS "Finger Tips":

Overview of the Device:




Making a Call:

Thoughts on the 'droid and iPHone

Everybody is comparing the new Motorola 'droid to the iPhone. I have an iPhone, and I spent a little bit of time playing with a 'droid the other day, and here's the Hedonic Adjustment take:

• The 'droid is big, thick, and heavy; the iPhone is slim, light, and elegant.
• The 'droid is endlessly configurable; the iPhone forces you to live with Steve's view of what's right.
• The 'droid software interface is rough, inconsistent, and complicated; the iPhone's is polished and simple.
• The 'droid screen is bigger, brighter, and has way more pixels; the iPhone's looks better.
• The 'droid lets you multitask; the iPhone doesn't (but it's worst-case battery life is better).
• The 'droid limits you to 256MB of app storage; the iPhone lets you use the entire 16GB for apps.

When I got my iPhone, the feature that I liked the best was that it had a dedicated switch on the outside of the phone to turn the ringer off and on. I was so sick of fumbling in meetings, trying to turn off the ringer, and now I could do it by touch. The 'droid is just like every other cellphone: you have to find the right menu to do this universal, 'gotta-do-it-inconspicuously' operation.

Bottom line: The 'droid is a PC and the iPhone is a Mac.

National two-tier wage structure

From the Journal, an article about how laid-off workers rarely find work at their old salaries:

That's certainly the way things are going around here, and it certainly seems to contribute to the haves/have-nots divide in the US.

The wage cuts come as the unemployment rate, at 10.2%, is at its highest level in more than 26 years. To help those who can't find jobs after extensive searches, President Barack Obama has signed a measure adding 20 more weeks of federal unemployment benefits.

Those returning to work are taking an average 40% pay cut from their old jobs, estimated Kenneth Couch, an economics professor at the University of Connecticut. He based the number on the experiences of Connecticut residents during the 2001 recession and similar studies elsewhere during the 1981 recession.

In the past, Prof. Couch said, it has taken six years before people were earning an average of 80% of their old paycheck, with younger workers creeping closer to their old wages more quickly than older workers.

Catina Martin, 37, was laid off in January as an assistant in the sales department at Hartford Insurance in Charlotte, N.C. She recently took a job at a warranty company and took a pay cut of $13,000 -- about 25% -- setting her back to the same salary she was earning when she joined Hartford a decade ago.

The more interesting question, not addressed in the article, is what do companies do as they start to hire? They can hire new workers for much less than they pay existing ones; how do they maintain an equitable pay structure? If they hire new workers at the lower rate, they build in the kind of unequal pay that kills morale ("the guy sitting next to me does a worse job than I do, yet he gets paid 25% more").

At my job, they're masking the effect by shifting new hiring overseas, leaving a dwindling number of nominally overpaid US workers looking over their shoulders...

Tuesday Roundup

Bank of Skank

More shocking news. Hoping to beat the upcoming consumer protection law, credit card companies are busy jacking up rates and cutting off borrowers.

As a result of ever-escalating rates and fees, cardholders like Carole Hoppe Mezian of Norwood dread the arrival of their monthly statements. Hoppe Mezian carries a $10,000 balance on her Discover card and says she sometimes can’t make payments on time. Since May, her interest rate has ballooned from 14.99 percent to 29.99 percent, and the minimum due on her September bill was $771, mostly in interest and penalties.

“I might have been better off going to the Mafia and getting a loan that way,’’ she said.

Matthew Towson, a Discover spokesman, said the company is willing to work with Hoppe Mezian to help manage her debt.

I never really thought much about credit card interest rates, because I never pay credit card interest, but the idea that you could borrow $5,000 or $10,000 and then have your lender turn around and double the interest rate to 30% is pretty sick.

Mrs. Bluebird and I each have but a single credit card. It has no fee and pays 1% back in cash. I'm expecting the issuer to start imposing an annual fee shortly, and odious though it is, I'll probably pay it (since we typically collect about $400 to $500 a year in cash from the bank).

Yeah, I know, we spend more on credit cards than lots of families earn in a year :(

Haves and Have Nots

From the Times comes a note about the recent meeting of the Association of National Advertisers:

“There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.
Among the steps Wal-Mart is taking to address the changes in shopping habits, Mr. Quinn listed an overhaul of the retailer’s private-label brand, Great Value, which is promoted in commercials describing how families can fix dinners with Great Value products “for less than $2 a serving.”
Eric E. Schmidt, chairman and chief executive of Google, began his speech by declaring, “We know we have begun the recovery” because searches on google.com for terms like “restaurants” and “dancing” are increasing. “I think we should be optimistic,” he said.

It really does seem that the disparity between those who have been hit by the recession and those who have not is growing. And I think it's harder and harder to argue that it is personal virtue that decides on which side you wind up.

Repositioning as a 'Value Brand' or just cut the price?

From the Journal, a bit of a puff piece on how catering to the newly frugal remains the order of the day for national consumer products companies:

Pricing is perhaps where companies are finding consumers at their most grudging. Procter & Gamble Co. and other major makers of household staples, while vowing to resist price wars, say they plan to flood stores with enhanced versions of existing products. After nearly a decade of introducing increasingly expensive items, P&G's new products will span a wider range of prices, most notably at the low end. Among its efforts, P&G is paring the price of its Cheer detergent to reposition it as a "value" brand.

I enjoy the mental picture of "avoiding a price war" while cutting prices. I guess that's the magic of repositioning.

Why Bloated Banker's Bonuses are a Good Thing

Where else but the Journal could you find such high comedy as this:

New York's state government, and its dysfunctional neighbors in New Jersey and Connecticut, already are in deep financial crisis. Without the tax revenue from Wall Street pay and bonuses, they could find themselves closer to the brink.

But in the same way banks became addicted to mortgage-backed securities and collateralized debt obligations, so did state and local governments rely heavily on financial-sector wealth. In the broadest sense, the last decade turned the entire Northeast into bankers and traders, all waiting for that bonus check.

Thirty years ago, the securities industry generated less than 3% of all private-sector salaries and wages in New York state, according to E.J. McMahon of the Empire Center for New York State Policy, part of the Manhattan Institute, a conservative think tank. By 2007, these wages accounted for nearly 20% of the total.

Alright, fair's fair. Berman has a point, especially about how when bank profits that wind up as bonus payments get taxed at a much higher rate (in New York City, well over 50%), but I think we'd all be better off if the Feds just imposed a windfall profits tax on Goldman -- at least enough to recover every last dime of AIG bailout money that wound up a Goldman.

Grim, and likely to remain so

Again from the Journal, this troubling statistic. At the end of the 1983 recession, the previous low-water mark for recessions, the aggregate ratio of household debt to disposable household income was 62%. Today the ratio is 122%. And this after two years of massive mortgage defaults, credit card defaults, and the evaporation of consumer lending.

It will be a long, long time before consumer spending will be ramping up to power a recovery.

Fall is not my favorite season

I'm sorry to report that I'm in kind of a funk this afternoon.

Jobless Recovery

• Johnson & Johnson ("A Family Company") is eliminating more than 8000 jobs over the next two years.
• Massachusetts is planning to eliminate between 1,000 and 2,000 jobs to help close its every yawning budget deficit.
• Microsoft is cutting another 800 jobs, bringing their 2009 total to 5,800.

Where I work, we've laid off about 15% of our staff over the past 18 months. There are faint signs now of improving business conditions, however, and some selective hiring has started. But the company has adopted a new policy that all but the most senior management positions are to be hired in "low-wage areas". Which means not in the United States, and most particularly not in Massachusetts.

I hold out very little hope for the next few years. Congress just passed legislation extending unemployment benefits for another 33 weeks, for laid off workers in high-unemployment states. I expect that these kinds of unemployment extensions will continue for at least another year, meaning that some American workers will spend two or even three years collecting unemployment benefits.

Hedonic Adjustment

In general, hedonic adjustments are applied to prices to reflect the improved quality of today's product or service when compared with yesterday's. The overall effect of this adjustment is to adjust inflation numbers downward.

But think about all the household items that you've bought over the past few years that were of inferior quality to the one that they replaced. Snow shovels that snap in half at their first use. Work gloves that fall apart within a couple of weeks. Lawn rakes with mysteriously shrunken handles. Ground beef ever more likely to be contaminated with E. Coli.

The prices of these goods should be adjusted upward, to reflect that we keep getting less for our money.

Absolutely Shocking News

A recent report from Moody's confirms what anyone with half a brain long suspected: Private equity firms wreck companies while enriching themselves.

The 10 largest companies bought by private equity companies are performing worse than similar stand-alone companies or smaller private equity deals, according to a new report from Moody’s, the rating agency.

Four of the 10 companies have defaulted on their debts, one is about to, and at least three have done special deals — called distressed exchanges — to reduce the debt loads placed on them by private equity transactions, the report says.

“It appears that when you do a large dollar value transaction and you lever that company up, you seem to be at more risk of having problems in a downturn,” said John Rogers, a senior vice president at Moody’s and the lead author of the study.

The report found that deals by two private equity firms, Cerberus and Apollo, have performed the worst among their peers. Four of Cerberus’s six buyouts are in distress or in default, and about two-thirds of Apollo’s companies are in equally dire straits. Moody’s defines default as the nonpayment of debt on time and it includes various types of debt exchanges. Representatives for Cerberus and Apollo said they had not seen the report so could not comment on it.

Cold comfort to the workers left jobless, communities left without factories, and taxpayers forced to pick up the mess. But at least the private equity barons were able to avoid paying tax on the bulk of their income.

Where there's a will, there's a way...

But when there's no will? No way.

Which is to say that Mrs. B and I are engaged in the surprisingly difficult process of setting up an estate plan. I had been fond of saying that this wasn't something that we needed to worry about right away, because the chances of both of us dying at the same time and our children surviving were so remote. Until it happened to a family a couple of towns away. Mom and Dad both killed in a car accident. Kids in the back emerge unscathed. Aged 4 and 7.

Shudder.

So now we need to figure out how to arrange for our kids to be looked after, and also how to arrange for their money to be looked after. Who will make sure that it's invested in no-load, low-cost index funds? Who will keep it out of the hands of rapacious financial advisers? Is it fair to burden a friend or family member with both the job of taking care of a pair of kids and looking after a couple million dollars?

It is keeping me up at night.

Need to wrap this up so I can read The Economist

One of the many ways I save money is dropping by the library once a week to read The Economist. The sheer volume of in depth reporting, analysis, and commentary is staggering. But before I can read it, I gotta get the rest of this stuff off my chest.

Speaking of Which

Pretty shocking news about ING. They were friended by many a PF blogger, back in the day, for their smooth website and great rates on deposits. Now their US-based online bank is for sale. Of course the only reason that they were offering those rates was to draw in people to whom they could sell loan products. That's the only reason a consumer bank every does anything, 'cause banks aren't in it for the deposits, they're in it for the lending.

The iPhone Will Continue to Rule

The phone that I had before I got my iPhone was a Nokia 6550 flip. I wanted a phone to replace my trusty RAZR V3. The key features were a decent camera, the ability to synch with a Macintosh, and decent Bluetooth support (by which I mean the ability to get pictures off the phone).

The 6550 did all of those things, but it was awful to use, mostly because Nokia had ruined the handset at the behest of AT&T. They added an additional row of keys, including dedicated keys to open the online ringtones store and launch the GPS function (which cost $10 per month). The button on the side of the phone was hard-wired to start the PTT function (another $10 per month). Every time I touched the damn thing I had to cancel out of a dialog that was trying to get me to buy something I didn't want.

Somehow, Apple avoided this with the iPhone. My phone never tries to ambush me into buying more stuff. I can use its GPS and online maps service without paying extra. I can install exactly the apps I want, and they work great.

There's a lot of buzz about Android and the upcoming 'droid phone from Verizon. I'll be shocked, however, if the carriers can resist adding a lot of bloatware and traps to the Android 2.0 phones. After all, it's the carriers who are doing all the marketing for the phones, not Google, and not the handset makers.

The Vilest Place on Earth

That would be the food court at the Natick Collection. Somehow, in my 50 years on earth, I managed to never eat at a shopping mall food court. Until last night. Endless ranks of tattooed children serving greasy wads of dough. Garish lighting. Filthy tables. Appalling music. Once in a lifetime (I hope) experience.

Trying something new

From time to time I refer to "my other blog", but I never link to it. It's a blog that's under my own name, full of personally identifying information. It's about happiness, and some other stuff, but not at all about money. I'm kind of a busy guy, and I'm always looking for ways to save time, or make life more efficient, so I keep thinking -- how can I get myself down to just one blog.

With that in mind, I'm going to take a shot at writing a Hedonic Adjustment post about one of my other interests: cars. Specifically my latest car, a 2005 Volvo V70 station wagon.


I am a car guy. I love cars, especially interesting cars and/or fast cars. The Volvo took the place of a supercharged Mini Cooper S, a fast and interesting car. The Volvo shares garage space with a somewhat elderly Porsche 911, also fast and interesting. (And with Mrs. Bluebird's Honda minivan, but that's another story.)

But right now, the car I love the best is my Volvo. It is not fast, with its 170 HP 5-cylinder motor trying to push around 3600 pounds of Swedish steel. It is not interesting. It has 15-inch wheels, and skinny 65-series tires. No turbo. No stick shift. No anti-roll bars. The automatic transmission is programmed to shift up at 2000 RPM. I love it.

It meets every functional requirement for an automobile. It carries five people in comfort. It has automatic climate control. It gets 30 MPG at 75 MPH. It can carry an immense amount of cargo. It asks nothing. It gives everything.

It makes me happy.

$250 for Seniors

So what do you think about Obama's plan to make a special one-time $250 payment to Social Security recipients in lieu of a cost-of-living adjustment for 2010? I mean it kind of seems like moving the goalposts, or heads you win tails I lose, or something. After all, if you're going to index a benefit to the CPI, sometimes you win (like last year, when there was a 5.3% COLA raise, despite the fact that energy - the major inflation driver - is not as big an expense for retirees as it is for workers) and sometimes you lose (like this year).

On the other hand, most retirees, survivors, and disabled folks are not able to make the kinds of adjustments to income and spending that the rest of us do.

What do you think?

"The democratization of credit"

From the Journal, The 'Democratization of Credit' is Over -- Now It's Payback Time, a typically Journal take on the financial crisis. Turns out it's all the fault of those pesky democrats

The democratization of credit began decades ago. Federal legislation in the late 1970s required banks to avoid discriminatory lending and meet the needs of local communities, spawning a wave of home buying and entrepreneurship in lower-income neighborhoods. The rate of homeownership in families with incomes in the bottom two-fifths rose to nearly 49% by 2001 from below 44% in 1989, according to Fed data analyzed by Mr. Mann at Columbia.

and shiftless poor folks:

Out of college and working at the shoe store, Ms. King kept up a busy social life, eating out several times a week and going to movies -- even as the collectors called. But she lost the shoe-store job in January, and then learned that a prospective new employer had rejected her after running a credit check. Fearing that her credit record would trip her up again and again, she resolved to fix her financial mess.

Gone are dinners at Red Lobster and Olive Garden and purchases like new basketball shoes. She has a part-time job as a tour-bus driver that pays $13 an hour plus tips. She held a second part-time job, in telemarketing, for several months, but it was on suburban Long Island, and getting there, using both the subway and a commuter train, finally became too much. She now is looking for a second part-time job closer by.

Not the fault of greedy bankers. Oh no.

Credit-card borrowing took a similar path. One cause was a 1978 Supreme Court decision that let banks charge whatever interest rate was legal in the state where their card operation was headquartered. The ability to charge higher rates made it more profitable to offer cards to risky borrowers. Adding oomph to both credit-card and mortgage lending was the growth of markets where lenders could sell their loans.

Like the Supreme Court wasn't ruling on a case brought by the banks themselves. Like that decision didn't just give the banks the end run around state usury laws they'd been seeking.

While the banking industry (and its mouthpiece) is happy to blame the woes wrought by their exploitation of low-income borrowers on the victims themselves, the truth is that banks profited handsomely from their pursuit of the poor and foolish, and they left the wreckage for someone else to clean up.

Working for less

The Times has a piece on the trend toward more salary cuts instead of (or in addition to) layoffs and furloughs:

MECHANICSVILLE, Va. — The dark blue captain’s hat, with its golden oak-leaf clusters, sits atop a bookcase in Bryan Lawlor’s home, out of reach of the children. The uniform their father wears still displays the four stripes of a commercial airline captain, but the hat stays home. The rules forbid that extra display of authority, now that Mr. Lawlor has been downgraded to first officer.

He is now in the co-pilot’s seat in the 50-seat commuter jets he flies, not for any failure in skill. He wears his captain’s stripes, he explains, to make that point. But with air travel down, his employer cut costs by downgrading 130 captains, those with the lowest seniority, to first officers, automatically cutting the
wage of each by roughly 50 percent — to $34,000 in Mr. Lawlor’s case.

The demotion, the loss of command, the cut in pay to less than his wife, Tracy, makes as a fourth-grade teacher, have diminished Mr. Lawlor, 34, in his own eyes. He still thinks he will return to being the family’s principal breadwinner, although as the months pass he worries more. “I don’t want to be a 50-year-old pilot earning $40,000 a year,” he said, adding that his wife does not want to be married to a pilot with so little earning power.

At my office, there was a mandatory, temporary 20% pay cut during the summer, although the company allowed the employees to cash in unused vacation time to make up the difference. A friend of mine has seen his salary cut nearly in half, as his company, a civil engineering firm, teeters on the edge of bankruptcy. My company took pains to apply the cuts equitably across all employees (and there were additional pay cuts for executives), but there is definitely some lingering resentment about it.

As with most people, I'm very happy to be employed. I think the market for people who do what I do is weak right now, and if I needed to move elsewhere, I would not expect to make the same salary as I do now. A co-worker who was laid off nearly a year ago remains without a job today.

Pay cuts and temporary furloughs barely blunt the stark divide between the recession's haves and have-nots. If you've lost your job during this recession, you and your family have likely taken a financial blow from which recovery will take years, if it happens at all.

The Journal predicts my mail

So the other day, well yesterday actually, the Journal had a little squib in Heard on the Street about how banks weren't going to have a lot of options, once the beneficial effect of diminishing loan loss reserves wore off, for increasing their earnings:

Coming out of the 1990-91 recession, household liabilities were just under 90% of disposable income. There was enough borrowing capacity among individuals to drive solid loan growth through the 1990s to leave that ratio at 101% in 2000. The credit bubble hoisted that metric to a scary 138% in 2007 -- and left the banks swamped with bad debt as the recession hit. An adjustment back to around 100% might set the stage for a prolonged upturn in lending. But that yardstick has dropped only to 129%.

As a result, banks now have two choices: Repeat their recent mistake of lending to overburdened individuals. Or battle with each other to lend to a small amount of credit-worthy customers.

And what was in Tuesday morning's mail? A sheet of the infamous "convenience checks" from the credit card company for Mrs. Bluebird. And what are the terms of these checks?

• Any check that posts to her account before November 30th of this year accrues interest at 3.99% for 12 months, then switches to the usurious standard level of 21%.
• Any check that posts after the 30th immediately starts burning interest at 21% (hope the payee doesn't sit on the check!!!)
  
• Any check that posts at any time incurs a 3% "Promotional Discount Transaction Fee", which I guess means that you the borrower are paying for our promotion.

So my conclusion is that our bank is taking the latter strategy, trying to get its credit-worthy customers to borrow more money.

To which I say, of course, good luck with that!

Global house price trend visualizer

For the wonkier, check out this interactive display that lets you look at house price trends globally.

For example, here are 10 years worth of house price data for some selected countries:

Maybe we're not so bad off after all, compared to the Europeans (still in the bubbly clouds) or the Japanese (house prices declining nominally for the past ten years).

Life at Wal-Mart, Recession Edition

OK, kind of snotty, but there you go.

On a more serious note, a very nice post from Grace about talking to your kids about money:

I grew up in a working class family that seldom discussed finances. As children, my sister and I would ask for things or ask for money, and the answer was either yes or no, and that was it. It was only as an adult that I realized our family was always teetering on the edge of poverty. Still, because that was the same for most of the families in our small town, I never felt particuarly poor.

However, I was determined that money would not be a taboo subject with my kids. I wanted them to know the general state of my finances (which were tight while I was rearing them) so I did talk money with the children. Now I wonder if I did so too frankly.

I well remember one Disneyland vacation with three of my daughters where I ran out of money and we ate peanut butter sandwiches the entire two days it took us to drive home. I know that I spent those two days obsessing out loud about the money we'd spent and whether I had enough to buy gas to get us back.

My oldest is 6, and his thinking about money is still in the realm of magic.

Him: Dad, I need to get a credit card!
Me: Oh? Why's that?
Him: So I can buy stuff (complete with 6-year old, 'how can they be so thick?' eyeroll)
Me: Do you know what a credit card is?
Him: Sure, it's something you use instead of money to buy stuff.

My own parents never talked about money, so I really grew up with no idea how much they had, or made. There was always enough, I guess.

Bits

What's Your Pudding Score?

Simple, answer four questions and get a normed score that indicates your readiness for retirement.
Hedonic Adjustment scores a reassuring 144, although the Pudding computer doesn't have a place to enter the looming expense of two kids going to college. On the other hand, I did better than Boston Gal :)


Finding a Successful Financial Adviser

When you look for a financial adviser, should you look for one who appears to be doing well? Nice office, nice car, prestige address? Well, keep in mind that for a financial adviser, success means being good at separating clients from their money.

The Only Thing Better than Being Rich Is...

Having people think you're rich. Like the dealership where I bought my used, out-of-warranty Volvo wagon. I was having a problem with the car, irritating rather than serious, and I'd been putting off dealing with it. My phone rang the other day and it was the salesman who sold me the car.

"How's everything going with the new car?" he asks. Well great, I answer, except for this little problem. Oh let me connect you with service. Free loaner car. Car fixed at no charge.


Hidden Benefit of Having your Credit File Frozen

I recently decided to change my household checking account from a NOW account (0.1% interest, no fees or charges with a $1,000 average balance) for a "Freedom Gold" checking account (no interest, no fees or charges with combined balances in all account of $10,000, and reimbursement of all foreign ATM surcharges -- the irritating one that you get dinged with at the ATM machine).

To make up for the loss of interest, I was planning on keeping less money in the account since I didn't have to worry about the $1,000 minimum balance. But to avoid the chance of an overdraft, I figured I would add an overdraft line of credit, which is free.

But I forgot that my credit file is frozen, and in the time it took me to figure out how to unfreeze it, I decided that I didn't really need that line of credit after all.

Which is nice, one less account, one less potential debt.

Voices from the recession

One of Hunter's playmate's dad has been out of work for a year. I saw his wife yesterday. The stress is written all over her face.
-- J.R. Wrentham, Mass

After a nine-month layoff, I recently found a job in Boulder, Colo. It involves a 50-mile commute each way. I am looking for a reliable, fuel-efficient car that can handle snow and befits a senior legal executive.
-- S. Shea, Littleton, Colo

What do you say when you run into your young son's classmate's dad (who was most recently introduced to you as a financial adviser) working at the mall?
-- K.L. Weston, Mass

When I'm hiring, my first choice is not someone who is unemployed, especially if they've been out of work for a while.
-- Tech Company Manager, Waltham, Mass

Speed blogging

I have exactly 50 minutes to get everything off my chest. It's been a busy month, with family travel, lots of trouble at work, and a pair of rascally kids, so this is it.

I promise, no more tear-stained threats to quit

It's humiliating, these annual "oh I'm so over this blogging thing, I'm quitting." Pathetic attempts for validation (thanks everyone for helping out). Never again.

Thanks Mrs. Bluebird for pointing this one out.

Very cool interactive graphic of Massachusetts foreclosures

From the Federal Reserve Bank of Boston via the Globe's Real Estate Now blog. Here's a screen shot, but go to the interactive web page.

Basically, you can drag the slider back and forth to watch the big foreclosure waves of the early 1990s and right now, and you can zoom in and watch the trends at the town-by-town level. Awesome piece of software.

What does your car say about you?

When you look at a car with its owner, do you draw conclusions about the person based on the car? Is that Prius owner sincere or sanctimonious? Does that Lexus SUV house an insecure status seeker, or just someone with a lot of kids?

Or do you assume that people put as much thought into their choice of car as they do into their choice of dishwashing soap?

I recently swapped my Mini Cooper for a Volvo wagon, and frankly I'm very happy with my new image of probity, responsibility, and thrift, as opposed to whatever it was that the Mini was projecting (insanity, perhaps, with the two child seats in the back?)

Krugman

I love Paul Krugman's writing for the Times, and in this past Sunday's Times Magazine, he presents his case for Keynes, based on the utter failure of the now-dominant "efficient markets" economics to predict, or even accept the possibility of, the recent debacle.

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.

Krugman gleefully twits mainstream economists (most particularly Greenspan) not just for their abject failure to predict the recent collapse, but for denying even the possibility of such collapse.

In recent, rueful economics discussions, an all-purpose punch line has become “nobody could have predicted. . . .” It’s what you say with regard to disasters that could have been predicted, should have been predicted and actually were predicted by a few economists who were scoffed at for their pains.

Take, for example, the precipitous rise and fall of housing prices. Some economists, notably Robert Shiller, did identify the bubble and warn of painful consequences if it were to burst. Yet key policy makers failed to see the obvious. In 2004, Alan Greenspan dismissed talk of a housing bubble: “a national severe price distortion,” he declared, was “most unlikely.” Home-price increases, Ben Bernanke said in 2005, “largely reflect strong economic fundamentals.”

...

But there was something else going on: a general belief that bubbles just don’t happen. What’s striking, when you reread Greenspan’s assurances, is that they weren’t based on evidence — they were based on the a priori assertion that there simply can’t be a bubble in housing. And the finance theorists were even more adamant on this point. In a 2007 interview, Eugene Fama, the father of the efficient-market hypothesis, declared that “the word ‘bubble’ drives me nuts,” and went on to explain why we can trust the housing market: “Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed.”

Indeed, home buyers generally do carefully compare prices — that is, they compare the price of their potential purchase with the prices of other houses. But this says nothing about whether the overall price of houses is justified. It’s ketchup economics, again: because a two-quart bottle of ketchup costs twice as much as a one-quart bottle, finance theorists declare that the price of ketchup must be right.

As I've mentioned many other times, Robert Shiller is a hero of mine. What is truly remarkable is not that he predicted both the stock bubble of 2000 and the real estate bubble of 2005-2007, not that he made these predictions primarily on the basis of the simple historical price data, but that despite his demonstrated record, nobody seems to take him seriously.

Rolling in Dough

Well I'm not, really, but if I counted the value of the owner's equivalent rent that I am receiving from my very-nearly-mortgage-free house, I would be. Of all of my investments, none has been more reliable than my house. Every month it throws off at least $3,000 worth of tax-free income in the form of a place to live. Love it.

iPod Terror

Just three days ago, I ordered my brother a new iPod Touch for his birthday. The very next day, I started reading these news reports about how today Apple was going to announce new iPods with cameras, and vibrating massage, and 16 terabytes of storage, and they were going to cost like $10, and boy did I feel stupid for ordering one on the last day, the very last day, before the big press event, and why wasn't I paying attention, and are I not such an IDIOT!

But fortunately, I had ordered the 8MB model, and all that happened to that one is that they cut the price by $30.

Bank of Skank

(Sorry about the title, I'm still a little jet-lagged from a weekend trip to California.)

So thank you very much to Barney and Elizabeth (Frank and Warren)! The first consumer-friendly bit of new banking regulation has gone into force. Banks and credit card issuers are now required to provide at least three weeks between the time a statement is mailed and the due date.

As described here and here, my credit card issuer loves to try to play games to trip you into paying late (sitting on mail, setting due dates on legal holidays, refusing to accept online payments on weekends, etc).

I was quite convinced that the bank was simply going to refuse to comply with this new regulation, but much to my surprise (and delight) this month's first statement provides a luxurious 24 days between the time the statement posts to the bank website and when the payment is due. This extra time (it used to be about 16 days) means that the upcoming payment rolls into the next payroll period, so I suddenly have an extra paycheck to fool around with.

Next stop, Apple store.

$30 ( a month) worth of happy

OK I lied. I'm still blogging. This weekend finds me in California for a wedding. I'm blogging on my newish iPhone, a purchase that I agonized over for months.

It wasn't the cost -- I'd happily pay two-hundred clams for the device -- but the requirement that I sign up for a $30 a month data plan with AT&T. For two years.

Yeah, seven hundred and twenty bucks.

All that agonizing was wasted. Within a day I felt like I was getting my full ration of pleasure and more.

To wit, the top ten ways that my iPhone males me happy:

I no longer need to keep my wallet stuffed with pictures of my cute kids--I can keep hundreds of pictures on the phone

I can instantly get traffic information displayed on a gps-enabled map

I can read everything on the phone without squinting.

I can focus and set the exposure of the camera with one tap.

With google sync I can automatically keep my contacts and calendar in sync between my phone and any desktop instantly, with no work, and for free.

There is one easy to use, integrated place for all phone settings.

When I adjust the volume on my Bluetooth headset, the phone displays the new volume on the screen.

It has exactly the right number of buttons, including a dedicated button for silencing the ringer.

It is so over

Why no posts for the past few weeks? Well, it started off with an illness in the family. I've been spending a lot of time traveling, and trying to be helpful, in that irritating way of eldest siblings.

I still read the New York Times, and the Wall Street Journal, and the Economist, however, and I come across -- pretty much every day -- articles that would be good material for a Hedonic Adjustment post, but nothing gets written.

And I'm still earning, and investing, and saving, and spending, and doing so in ways that are blogworthy, or at least bloggable.

But nothing gets written.

And this is, I think, because I have come to realize how little money has to do with my happiness. Or how I have so much more money than I need to be happy. Or how, even though I am taking my customary Tuesday night out, I would really rather spend time with Mrs. Bluebird and the kids (even the one who's had diarrhea for the past 3 days) than writing this silly blog.

So I'm going to try to spend a little more time working on my other blog, the one that's all about happiness and not at all about money and that nobody reads.