Now a real person

My second son, who is now 14 months old, now possesses an official US Government identity: he's received his very own social security number. Nowadays, hospitals generally initiate the application for an SSN when a child is born, and it's just one of the many pieces of paper that swirls around the gonked out parents of a newborn. But in my son's case, since he's adopted, that didn't happen. Instead, we needed to wait until the adoption was finalized by the court, then apply for a new birth certificate*, then once the certificate had been issued, apply for a Social Security Number.

His new card arrived in the mail yesterday, and last night I opened a 529 Plan for him (the Vanguard/UPromise's Nevada plan) as well as a UTMA account, also at Vanguard, to hold the $1000 that his great-uncle gave to him upon his birth.

We have a lot of different account types at Vanguard (individual taxable accounts for Mrs. Bluebird and me, my rollover IRA, taxable and Roth IRAs for both of us, a taxable joint account, and 529 and UTMA accounts for both boys). It just makes me happy to see D---- listed alongside the rest of us as an account holder!

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* Most non-family adoptions in this country are now open adoptions, where one or both of the child's birth parents are known to the adoptive parents (and typically vice versa). The actual legal mechanics of adoption, however, are rooted in the past, when adoptions were closed and there was no contact between birth parents and adoptive parents: Once a court issues a final decree of adoption, the vital records department of the child's birth state seals the original birth certificate and creates a new one that names the adoptive parents as the child's parents and lists the child's name as his or her "new" name. About half of states now make it possible for adult adoptees to obtain their original birth certificate.

The credit freeze rant

I just finished typing up six letters, addressing six envelopes, and writing six checks for $5 each. This is what it takes, I hope, to get my wife's and my credit files frozen at the three major credit reporting agencies. That's $30 and an hour and a half out of my life to stop those agencies from doing something they shouldn't do anyway.

I mean think about it. The whole point of a credit reporting agency is to provide a clearinghouse for credit information so that when I apply for credit, my prospective creditor can find out if I'm a deadbeat or not. But that role now seems incidental to the credit bureaus, who form the backbone of a massive lending and spending economy, making billions of dollars selling my personal information to people and companies that I've never heard of.

And of course the newest profit center for the credit bureaus: selling anti-fraud services to people:

• TransUnion: $119 annually to notify you when someone opens a credit account in your name
• Experian: $179 annually for access to your credit file and notification of activity
• Equifax: $179 annually for access to your credit file and notification of activity

What am I missing here? These companies want to charge me serious coin for access to information that belongs to me? Essentially, they are attempting to extort nearly $500 a year out of each consumer: "We've got your personal information, and we're going to pass it out like a Wal*Mart circular to anybody who asks unless you fork over the money."

Shouldn't this crap be illegal?

Show me the money

I'm sitting at the kitchen counter this morning, having coffee and a bagel with Mrs. Bluebird. We hear the thwack of the Wall Street Journal Saturday Edition hitting the front door. Mrs. B thoughtfully goes to retrieve the paper, brings it in, and asks if I'd like a section.

I say, "show me the money [ and investing section]."

And right at the top is a headline and an associated graphic that causes my blood to run cold:

Bond Funds Are Victims of Timing

I shudder, because I have a boatload of money in the fund at the top of the list, PIMCO's Total Return fund. So I read the article, and it turns out that the PIMCO fund is one of the counter-examples in the article, a bond fund where the manager, Bill Gross, correctly identified the likely fallout of the mortgage debacle, and then stuck to his guns.

"When the tide goes out, you get to see who's swimming naked," Mr. Gross says.

"Pimco has had its bathing suit on for a long time," Mr. Gross says, expecting a housing downturn and a deterioration in mortgages and derivatives related to that.

So thanks, Mr. Gross, for living up to your reputation as a smart, responsible fund manager who does is best to look out for his investors.

News Roundup

So whenever I'm goofing off at work waiting for a build to complete, I sometimes catch different news stories and stuff, but since I would never, ever actually blog at work, I dump them into a gmail draft message, and then later put them into a blog post. Like this one.

Foreclose THIS!

From the Times comes this story about a sudden wrinkle in the foreclosure wave. Turns out the various securitized mortgage holders often don't have any clear documentation that they really own the loan on the property upon which they're trying to foreclose.

On Oct. 10, Judge Boyko, 53, ordered the lenders’ representative to file copies of loan assignments showing that the lender was indeed the owner of the note and mortgage on each property when the foreclosure was filed. But lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages rather than proof of ownership as of the foreclosure date.

Saying that Deutsche Bank’s arguments of legal standing fell woefully short, the judge wrote: “The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the court to stop them at the gate.”

It's hard to muster up much sympathy for the banks in these cases, and it only adds more evidence that the self-described "smartest guys in the room" who run our financial system aren't.

Buy Commercial Paper Direct from GE?

Anybody else seen the advertisements from GE Financial for direct consumer purchases of GE commercial paper? I don't think I've ever seen anything like this before -- kind of like prosper.com for the commercial market?

West Coast Money Makeover

I'm not sure why I saved this money makeover from Seattle. Maybe just because it doesn't have the same agita quality that the Globe's Boston money makeovers do. Or maybe it was the scary mortgage that he signed up for:

"My mortgage worries me the most," Wong said. "I think I got suckered into a bad deal."

He wants to refinance and get out of his 5/1 adjustable-rate, interest-only mortgage. He also took out a home-equity loan, which he used for the down payment on his house. That $50,000 loan has a variable interest rate that started at 8.6 percent and could go up to 18 percent.

Or maybe it was because it seemed like the quoted financial adviser seems like a good egg: a real fee-only planner.

Letting go

From David Wessel at the Journal comes an interesting opinion piece on why it makes sense to do some kind of wholesale readjustment of subprime mortgages:

While we're sorting out the big question about the subprime debacle, how to preserve the good (hard-working, bill-paying people once barred from the American dream becoming homeowners) without repeating the bad (fraud, reckless lending and fast-talking salesmen peddling mortgages to folks who simply can't afford them), there's an issue that can't wait: a tidal wave of foreclosures.

Interest rates on about two million once-popular, subprime mortgages known as 2/28 or 3/27 (because the rate for the first two or three years is lower) are poised to jump in the next year. Many will rise to a range of 9.5% to 11% from 7% or 8%. That would boost a typical subprime borrower's payment by roughly $350 a month. For many of those borrowers, that's the difference between affordable and not.

His key point is that there is a (huge) segment of subprime borrowers who could be helped (their upcoming rate reset is the difference between keeping the house and losing it), that should be helped (they were encouraged to take on these loans by industry), and that it is in our interest as a nation that they be helped (massive foreclosures hurt us all).

My favorite quote in the article, however, comes from Richard Syron, CEO of Freddie Mac:

"We've gone way, way too far in thinking you can solve the entire homeownership problem on the basis of financing."

Hopefully we're seeing the end of the "ownership society" as the answer to all our ills.

What goes around comes around

From Bloomberg comes the story of how the tighter, pro-lender bankruptcy laws adopted in 2005 at the urging of the credit card industry have had the effect of forcing more people into foreclosure, since they can't get out from under unsecured debts such as credit card loans. Further, apparently, the regulations mean that even when you do file a Chapter 13 bankruptcy, the filing can't reflect the likely effect of an upcoming rate adjustment, so the plan fails anyway and the house gets foreclosed upon.

Morgan Stanley, the second-biggest securities firm, said in a statement today that subprime losses will cut fourth-quarter earnings by $2.5 billion. The New York-based bank said it lost $3.7 billion in the two months through Oct. 31 as prices for securities linked with home loans to risky borrowers sank further than traders expected.

Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.

``The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,'' said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. ``It's bad for the mortgage borrowers and bad for subprime investors because it means more losses.''

The article cites Washington Mutual in particular as having lobbied hard* for the change ($25 Million worth), and now being stuck with a lot of foreclosures.

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* Just a tidbit: Senator Hillary Clinton originally opposed the new bankruptcy law, but wound up supporting it. She received $685,000 from the banking industry between 2000 and 2006.

Geeking out

Verizon provides landline phone services here at Hedonic Adjustment World HQ, charging the sum of $50.35 per month for unlimited phone service throughout the USA and Canada. This morning, as I was putting the check in the envelope, I thought to check and see if their on-line bill payment page accepts credit cards.

It does.

Woot!

Tear up that check, add a payment reminder to Google Calendar, and count the savings:

• I get an average of 30 days of float on the bill balance of $50.35. My cash account is paying 4.83% today, so that equals $50.35 x .0483 or $2.43 per year.
• The credit card pays 1% cash back, so that equals $50.35 x .01 x 12 or $6.04 per year.
• On-line payment means no stamps, so that equals $.41 x 12 or $4.92 per year.

For a grand total of $13.39 in savings. And the absolute best part of this is that it costs me nothing. The time it takes to enter the payment information in Google Calendar and actually make the payment at Verizon.com is less than or equal to the time required to write a check, stuff an envelope, and take it out to the mailbox.

I am doing the same thing with my cell phone bill ($21.30 saved) and cable bill ($19.94 saved). In fact the only bills for which I write checks are the mortgage (since the mortgage is an arrear bill* and it has a 30-day grace period, I'm already getting at least 30 days of effective float), the NSTAR electric bill (they only accept online payments from a bank account), the various insurance bills (ditto), the property taxes (they will take an online payment with a credit card, but they charge a 3% convenience fee), and the heating oil bill (cash discount for paying within 10 days).

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* When you pay interest on a mortgage, you pay for the previous month's use of the principal. This type of arrangement is sometimes called an arrear, not to be confused with "being in arrears."

Real estate crash: Mindless consumer spending to be affected - NYT

According to the Times, Homeowners Feel the Pinch of Lost Equity.

As his wedding day approached last spring, Marshall Whittey found that his money could not keep pace with the grandiosity of his plans. But rather than scale back, he chose instead, like millions of homeowners across the country, to borrow against the soaring value of his home.

He and his bride, Holly Whittey, exchanged vows on the grounds of a sumptuous private estate in the Napa Valley. They spent their honeymoon at a resort in Tahiti.

But now, in an ominous portent for the national economy, Mr. Whittey has grown tight with his money. His home is worth far less than it was a year ago, and his equity has evaporated. And like many other involuntary adopters of a newly economical lifestyle, he can borrow no more.

“It used to be that if I wanted it, I’d just go and buy it and finance it,” Mr. Whittey, 33, said. “I’m feeling the crunch, and my spending is down significantly.”... A sales manager at a flooring and tile company, he [Whittey] exudes the unflappable air of someone raised amid the easy money of the casino world. Until recently, he and his wife regularly embarked on shopping sprees of $1,000 and up.

He bought a 21-foot boat and two flat-screen televisions for their home. He sold his old truck and bought a new one, he said, “just ’cause I didn’t like the color.” Mr. Whittey could live in such fashion because his company was making good money and his house was appreciating.

But today, the value of his own home, which reached $500,000, has fallen and a separate investment property he bought seems likely to fetch far less than the $580,000 he owes the bank. His commissions have diminished, so his income is down. His neighbor recently fell behind on house payments, prompting the bank to foreclose. Anxiety reigns.

Wow. Bought a 21-foot boat and replaced his truck 'cause I didn't like the color'. Thus speaketh the consumer upon whom the fate of our economy rests.

Tasteful Underwriting

Observant readers will notice the addition of a tasteful banner of tasteful advertisements from tasteful Google. I am hoping to generate enough revenue to cover the expenses associated with owning the hedonicadjustment.com domain name, and it looks like I'm on track to do just that. Of course I won't actually get a check until some time in 2016, but in spirit I'll be covering the godaddy.com bills.

Bad Advice

529 Plans aren't the greatest savings vehicle in the world (that would be either a 401(k) or a Roth IRA, depending on your personal tax situation), but they can be a helpful way to save for college:

• Contributions are made from taxable money.
• Earnings on the money are not taxed.
• Withdrawals used for educational purposes (broadly defined) are tax-free.
• 529 account balances are treated like other assets for the purpose of computing the expected family contribution (EFC) under financial aid rules.
  
• For about half of the states, there are state tax benefits as well.

There are drawbacks too:

• The plans are sponsored by individual states, and are not subject to any regulation by the SEC, which ordinarily regulates this type of offering.
• Investment choices are generally limited.
• There are strict limits on how much control you have over the account. For example, you can only change the investment mix a few times a year, and you must make such requests in writing (e.g. no day trading).

Probably the biggest drawback is confusion: There are nearly 100 different plans, and it's very difficult to select a good one. One of the worst plans, however, is Ohio's Putnam CollegeAdvantage plan for non-residents. Here's what Morningstar has to say about it:

Investors can do better than this costly and middling broker-sold plan managed by Putnam Investments. Fund manager turnover has been high at the troubled investment shop that also recently announced that it was being sold to a Canadian asset management firm. Despite a state income-tax deduction on contributions of up to $2,000 per contributor (or married couple) per beneficiary, per year--with unlimited carry forward in future years until the full amount is deducted--residents stand to suffer from the plans multiple layers of fees. In addition to a sales charge to their broker, investors face annual program management and administrative fees of 0.40%, an Ohio Tuition Trust Authority (OTTA) levy of 0.20%, and miscellaneous charges of 0.04% tacked on top of the cost of the underlying funds--resulting in overall yearly costs for the moderate age-based track of 1.23% to 1.42% of assets.

Morningstar politely doesn't mention what the sales charge is for this plan: 5%. That's right, if you sign up for this 529 plan through a broker or financial adviser, five cents of every dollar that you contribute goes right into the adviser's pocket. And then every year Putnam eats up another 1.4% of assets.

But here's the really shocking part. You'd think a clunker like this wouldn't be popular with savers. Turns out that it's the sixth largest plan in the country, with $4.3 billion in assets. Why? Marketing.

On two occasions, people have tried to get me to invest money in this plan. First, a social acquaintance here in town, a financial adviser, suggested the plan to my wife and me about a year after our first child was born. Second, my employer offers a payroll deduction plan for automatically saving in this 529 plan.

I guess I understand about my acquaintance -- I mean unless you're working with a Registered Investment Adviser or other fiduciary such as an attorney, you are nearly always dealing with someone whose interests are in conflict with your own. But why my employer would cut a deal that is so clearly against the interests of its employees, that I cannot understand.

Well, maybe I do understand. I'm sure the adviser that they're working with covers all the expenses associated with managing the plan, the payroll deductions, and so on. And probably it is getting people to save who otherwise wouldn't. But it is a stark reminder that people who are trying to sell you something, even people whom you are inclined to trust, generally do not have your interests in mind.

Antediluvian

That is to say, before the flood...

Topic A: What do you spend on alcohol?

Hard to say precisely. Bluebird is a teetotaler while Mrs. Bluebird has a couple of cocktails a month, plus wine at holidays. Figure $200 a year total? But how would you feel about spending $3600 a year on booze?

Still, they were surprised when they tallied up their individual estimates of $45 and $35 a week — for what they considered a modest level of consumption — to arrive at a total of well over $300 a month. “It feels funny to hear that you’ve spent that amount on alcohol,” said Ms. McKinley.

Topic B: Thanks Madame X!

My Open Wallet has updated her link love listing to organize the authors by sex. Not only was Hedonic Adjustment correctly classified, but we received a coveted double-star "frequent read" rating. A number of PF bloggers maintain lists of under-30 posters, but where are all the over-40 posters? Ever since Chree's World folded two years ago, they've been few and far between. So if you know about (or if you are) an over-40 PF blogger, post a comment!

No post

This is where I once again stand in awe of Claire at TBH. Two jobs, one kid, no time, and still she keeps on posting...

Some things that I've been meaning to post about include:

My borderline-weird frugal habits:

• Brown bag lunch 5 days a week and I bring the brown bag back home and use it again
• One bathroom in the house. Most mornings, I'm shaving while the 4-year-old paints a mural on the wall in toothpaste, the one-year-old attempts to dive into the tub, and Mrs. Bluebird attempts to comb everybody's hair at once. In a room that's about 30 square feet in size.
• Despite having a yard that's nearly an acre in size, and a 200 foot driveway, I steadfastly refuse to hire a landscaper or Mr. Plow. No matter what anybody says about how crappy the yard looks.

Some interesting web sites I've found:

• The Loan Workout Blog, which really dives into the whole mortgage mess at ground level. Very interesting take on Countrywide.

• A pretty good demographic data viewer. You can drill down to your county or town to get a sense of who you're living with.
  

• A decent introduction to personal finance from CNN/Money.

• An interesting story about a high-end foreclosure in Virginia. Cluck buys a big house with an interest-only loan, then loses his job and goes belly-up. Note the breathless description of the property:

In Crick's case, he and Wachovia Bank agreed to an interest-only, adjustable-rate mortgage of $882,650 to purchase the Falcon Ridge address in June 2005, according to documents filed with the Roanoke County Circuit Court. Crick paid $909,950 for the property, which was newly built at nearly 6,000 square feet. It has a movie room, a large master chamber and upper and lower garages.

The oddest quote of the week:

“This is not a housing correction. It is a massive, once-in-three-generations bursting of a housing bubble. It’s a catastrophe, not a correction.”

This is from the normally reliable Ian Shepherdson of HFE. Did the Times catch him in a bad mood, or is he seeing data that the rest of us are missing?