Wal★Mart

My wife will not shop at the local WalMart. The parking lot is a pretty scary place. Poorly lit, filled with broken down, battered cars. Sandwiched between a down-at-the-heels apartment complex, a bad Chinese restaurant, and an off-price jewelery store.

Inside, a chaotic toss-up of off-brand food, ill-shaped clothing. And people. All colors, ages, shapes, and sizes of people.

After you've made your way through the maze of aisles and found the diapers, or ink cartridges, or light bulbs, or contact lens solution that you needed, that you knew would be cheaper here than anywhere else -- if they hadn't run out again -- you make your way to the milling, glowering throng at the checkout. The registers are arranged in a manner to make an orderly queue impossible, but eventually you thread your way through, and pay, and at the end of it all, you receive a receipt.


Did I save money? I think so. Am I living better? Hard to tell.

Sometimes a trip to WalMart leaves me emotionally flattened, like it did John:

And really. I should know better. There is a reason I never go to Walmart. There's a reason that, if I am forced to go to this one in particular, I generally need some form of anti-psychotic medication, or at least a stiff drink, by the time I get out barely alive.

Just, I don't know about any of you out there, and the Walmart stores that may be near you. But this Walmart that I went to today? It is literally the place where humanity goes. TO DIE.
...

The woman in the checkout line in front of us was in her late 50s. But was still rocking bleached blond hair, giant "gold" and "diamond" rings on every single finger. And 3-inch fake nails done up in multi-colors with little rhinestones on each nail.

She was buying 4 large bags of beef jerky. Seriously.

And I lost count, after 5, of the number of obviously mentally-ill and/or otherwise not-quite-right individuals wandering about the store. One guy was shuffling along while talking to himself, his hair all disheveled and his pants about 6 inches too short.

Another woman was hitting herself in the head with a mop.

But other times, a visit to WalMart inspires me. WalMart is America, where we take all comers. Rich and poor. Smooth and lumpy. Nobody looks down his nose at you in WalMart. Warped body image issues? Not at WalMart, where everybody, including the models in their advertising, is pleasingly plump.

Maybe WalMart is the village square for the 21st century. A rag-tag lot of sellers with wares from all over the world meet a rag-tag lot of buyers out for their shopping.

WalMart has single-handedly driven the supply chain for household products to the lowest-cost global producers and shippers. And much of those savings are in the hands of consumers. Contrast this with upper-middle market retailers who sell the same cr*p from China, but mark up the price and collect the profits.

WalMart is a reminder that we live in two Americas: A rich one and a poor one. You cannot make poor America disappear by avoiding WalMart. That poor half of our country exists. They live, they die, they shop at WalMart.

Still working on the big WalMart post

It's been kind of hectic around here lately, kids, household, work obligations. Here's a soothing moment from a recent winter hike, though.

I'm working on a long post about WalMart, but I haven't been able to finish it! Here are some other things that I've been reading.

Boston Gal posts a link to this story about a working-class family living in Peabody, Massachusetts (a middle-class town north of Boston).

In the Desmond-Zeuli household, socking away for the future has mostly become a thing of the past. With three children, ages 9, 5, and 4, the bills seem to be adding up to more than the paychecks from Desmond's job as an office administrator in a Wakefield financial services firm and Zeuli's machinist position in Essex.

Grocery shopping has become a hunt for sales, coupons, and generic brands. Gone are most snacks for the kids: melted Monterey Jack cheese over nacho chips, a favorite, is a faded memory. Fruit is bought in bulk because it's cheaper.

The couple is paying $200 a week for day care and after-school programs, while shouldering $300 monthly car payments on Desmond's 2003 Ford Taurus, which has 90,000 miles on it. And then there is health insurance, car insurance, utility bills, and $1,850 rent on a four-bedroom, two-bath apartment, which includes heat. They are struggling to save for a house, let alone for college.

Like most of Boston Gal's commentators I don't think the numbers quite add up. $60K isn't much money for two full-time people to be earning; if he's a competent machinist and she can run a PC, they should be able to find employment that pays more than $30K each. Also, paying $1,850 in rent on a a $5,000 gross monthly income is on the high side ($1,250 would be the recommended 25%). Finally, there is that pesky cable bill.

Still, the article does a good job showing the impact of higher energy costs on working families: You set up a budget that reflects your priorities (a nice house but only one car, for example), and then oil costs blow a hole right in the side of it.

Of course leave it to the New York Times to tell you just how bad things really are, and how much worse they are going to get:

“The question is, Are you going to get the bad news week after week for 10 years?” he asked. “Or are you going to get the bad news right this year and then you’ll learn to live with the reality that your home is not worth what it was?”

Oh well.

Finally, I've been ruminating on the question of rich or poor. On the one hand, our just-barely-cracking-six-figures household income puts us at about the 85th percentile of US households. On the other hand, we make less than half what the typical family in our town does. We run a pretty tight ship, financially, and we benefit from a pro-family, fairly progressive tax system, but keeping a family of four going on $100,000 a year isn't simple. More about this topic to come.

No No NO!

A thousand times NO. The government should not step in and buy up oversized, overleveraged mortgages taken out by millions of morons.

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.

It is, as the article points, out, hysterical that the notoriously anti-regulation pro-free market banking industry, especially Ken Lewis, should now be thinking that the government should clean up their mess.

The whole thing really p****s me off. Proposals like this would seek to take money from people who are responsible savers and give it to irresponsible borrowers. Ridiculous. Let the banks fail. Let the homes be foreclosed upon. Let the former homeowners rent.

My therapist says...

...that I should avoid thinking about things that make me mad. Unfortunately, today's lead story in the New York Times was a little bit hard to avoid:

Rescues for Homeowners in Debt Weighed

WASHINGTON — Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.

The article states that any government plan to bail out folks who are underwater on their home loans will be "difficult to engineer ... because Democrats and Republicans alike cringe at the very word bailout and fear a backlash by people who never became overextended."

Backlash, I think, is the word that I am looking for. It was the idiots who took on huge home loans in the first place that caused everyone to need to pay so much for houses (the highest bidder sets the market price), and now the rest of us are going to get socked, one way or another, with the bill for bailing these nitwits out.

Does this make sense to you?

Why would the FDA approve a drug to treat nasal allergy symptoms with side effects that include perforated septum, fungal infections of the nasal passages, cataracts, and glaucoma? That would be Veramyst.

Just say "no" to drugs.

Sometimes good enough is good enough

When baby #1 outgrew is infant child seat/carrier, we did the dutiful yuppie parent thing and dropped 3 large on a Britax Marathon convertible child seat:

Baby #1, now a bumptious 5-year old, rides in a booster seat, of course. The Britax is still strapped into the minivan, however, where it is happily used by baby #2. Sometimes, however, I take the kids on adventures in the Mini Cooper. Because there's no room behind the driver's seat when I push it all the way back, son #1 rides in the front seat (airbag off) while the baby is strapped into the "backup" child seat in the back seat.

The backup child seat is about 10 years old. A filthy, battered old Britax that some other family dropped on us because it wouldn't fit in their trash can. Among its many shortcomings is an absence of LATCH connectors, so it's very hard to get it to fit properly in the Mini.

So this weekend, I decided to replace it with a new seat with LATCH connectors. The seat that I got cost $43. It's a Cosco Scenera from Wal*Mart.


Mrs. Bluebird was stunned by the price difference: "Why did the Britax cost $300 while this one was $40?" Both seats, of course, meet all applicable Federal safety standards. They both have 5-point harnesses and strap retainers. They both have LATCH connectors and a tether. The Britax has some extra inserts for, I guess, small-headed children. The Scenera has a cup holder.

This weekend has also been designated as "Tax Weekend." Mrs. Bluebird is going to take the kids over to Kevin's house for playtime this morning so that I can do the taxes in peace. The past two years I've used H&R Block's TaxCut online service. Since this is a Macintosh household, we could use TurboTax on the Mac, but two years ago (the first year of our Macintoshness), TurboTax was using this irritating product actvation feature, so in protest I used the web product. It worked fine and covered our tax situation, so why not?

To prepare a single Federal and State return and e-File both returns costs $44.95 at TaxCut, about the same as the past two years. Since TurboTax no longer uses irritating product activation, I thought I would do some comparison shopping. TurboTax online costs the same as TaxCut: $44.95. The downloaded Macintosh version costs $90 (basic+state+e-File both). But in the course of my research, I also stumbled across TaxACT, an online service that does Federal+State and lets you e-File both for $14.95.

I got started yesterday before supper, and it turns out that the TaxACT online system is so easy to use, and so responsive (unlike the sluggish, hard-to-use TaxCut site), that I got the taxes finished in an hour. Like Mrs. Bluebird with the child seats, I was stunned by the price difference. The popular national tax preparation sites cost triple what TaxACT costs.

Of course you need to believe in yourself if you're going to abandon the high-priced national brands. Britax plays on every parent's worst fears.

Thinking about the unthinkable

You'll do anything to keep your child safe. At Britax we think about the unthinkable so you don't have to.

While the tax guys try to scare you with the thought that you'll be missing out on big refund bucks.

Covers Over 350 Deductions

With so many possible deductions, you may worry a few will slip through the cracks. That won’t happen with TurboTax Deluxe, Premier, or Home & Business. We help you find every deduction you deserve—and even search your return for missed deductions—so you don’t overlook any opportunity to save.

I think you can go a long way with a bit of common sense. Make sure your child seat is installed correctly -- your local Police Department can check it for you -- and don't drive like an idiot. Make sure that you claim the big three deductions: 1n IRA or 401(k), state and local taxes, and mortgage interest. Take a look at the bottom and top lines of your tax return. If you are filing a joint return and you've got kids, chances are you're not paying much more than 15% of your income in Federal income taxes anyway.

Beware of people who try to scare you into buying their products.

Just another Countrywide option-ARM

From today's Times, comes an article about the spread of mortgage troubles into prime mortgages. One of the borrowers profiled is Brenda Harris, a technology analyst with a casino company. She bought her Las Vegas house for $392,000 in 2006. Now it's worth around $300,000.

In addition to the declining value of her home, Ms. Harris, 53, will soon be hit with a sharply higher house payment. She has an option adjustable-rate mortgage, a loan that allows borrowers to pay less than the interest and principal due every month. The unpaid interest gets added to the principal balance. She is making the minimum monthly payments due on her loan, about $2,400.

But she knows she will not be able to pay the $3,400 needed to cover her interest and principal, which she will be required to pay once her loan balance reaches 115 percent of her starting balance. And under the terms of her loan, which was made by Countrywide Financial, she would have to pay a prepayment penalty of about $40,000 if she chose to refinance or sell her home before May 2009.

She said that she now wishes she had taken a traditional fixed-rate loan when she bought the home. At the time, she asked for a loan that could be refinanced after one year without penalty. She said her broker had told her a week before the closing that the penalty would extend until May 2009 and that she reluctantly agreed because she had already started moving.

How typically Countrywide: An option-ARM that lets you run a negative amortization payment until the loan balance hits 115% of the principal, plus a $40,000 prepayment penalty (not disclosed until just before the closing).

I sure hope Ken Lewis enjoys his new purchase.

Monday

Sorry. When I was a kid, they used to play that song on the AM radio every Monday morning, it seemed. I can still hear it coming out of the tinny little Zenith transistor radio on my parents' kitchen counter.

Three out of four residents at Hedonic Adjustment World HQ have been sick this weekend. Elder son's intestinal ailment has resolved into a simple cold. The baby has Roseola (main symptom high fevers and irritability, and let me tell you there is nothing in the world quite like a hot, irritable 18-month old). And your author has what Boston Gal calls flu-like symptoms. Unlike Boston Gal, my couch visits have been strictly limited. Thank goodness that Mrs. Bluebird is unaffected.

But speaking of Mrs. Bluebird, she had quite a reaction to my earlier post on The Bright Side of Debt. Especially the boat. I, the person who has owned about 30 different cars in his life, am more understanding. When you need a faster boat, you need a faster boat. For me, making large, not especially sensibly purchases has always been facilitated by a remarkable ability to talk myself around to thinking that some hair-brained scheme (oh yeah, I'll just switch the truck payment over to the boat in 4 years) is perfectly reasonable.

Like the time I bought a 20-year-old ex-NATO military vehicle over the internet because I wanted to have something bigger to take trash to the dump. No really, you couldn't make this stuff up:


The one observation that I would make is that once you've gone and bought something stupid, either enjoy the damn thing or get rid of it.

Does income inequality matter?

In a provocative op-ed piece in the Sunday Times, W. Michael Cox and Richard Alm of the Dallas Fed suggest that looking at the distribution of consumption, rather than income, provides a better picture of the economic well-being of our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

So kind of an interesting argument, although it is probably mostly a statistical quirk. I suspect that a lot of the $9,000 per year that the poorest 20% of Americans spend beyond what they earn is drawn out of savings, mostly by retirees. On the other end, if the top 20% have income of $149,000 but only spend $70,000 on household expenses, what happens to the rest of their money? Well, it looks like taxes take about $25,000 of it, but the rest is simply being accumulated. Despite being, more-or-less, a member of that quintile, I would like to see some of that accumulated wealth taxed, so that we could fix some of the infrastructure problems we have and, oh, perhaps cut the federal deficit a bit.

One of the interesting bits is this graphic that shows the household incidence of various types of consumer products over time.

It's an interesting chart, although they don't cite the source of the data. Certainly a testament to the power of modern marketing.

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P.S. Bonus Photo: Sunrise at Hedonic Adjustment World HQ

How the other half lives

Our household has something in common with about half of all US households: We don't carry any debt on our credit cards.

This blog has something in common with about half of all PF blogs: the author writes (a lot) about what a clever person he is, and what a good job he does managing money.

But what is life like for the other half? I stumbled across The Bright Side of Debt the other day. I guess it's a pretty typical 'blogging my way out of debt' blog, but I found it riveting -- and rather well-written -- and I read the whole thing in one sitting. I was struck by the descriptions of just struggling day-by-day to keep ahead of the numerous debt payments, of having just no room to maneuver.

As it stands now, we are not going to have enough money to pay the two car payments or the boat payment. Plus, my Bank of America credit card payment will be late. If we can just make it to November when my husband’s paycheck start coming in regularly, we can start to turn this around. I’ll receive my first paycheck from the part-time job next week. I’ve worked about 48 hours the last two weeks in addition to my full-time job. This check will definitely come at a good time.

We’ve skirted by the past four months of my husband’s back injury barely making it each month. October came and all the bills got ahead of us instead of us staying ahead of our bills.

Not that I have ever used it, but ING Direct dropped our overdraft protection from $250 to $25. Why even bother to knock it down to $25? Why not just take it away for good. I suppose I am just being petty, but I’m just irritated today and very frustrated trying to figure out what gets paid and what doesn’t for the rest of the month.

I was also stuck by some of the amazingly bad decisions that were made (and how much courage it takes to write so honestly about them):

My husband and I are big boaters. We love going to the lake and cruising or just parking at an island and spending the day. We have three major lakes within minutes of our house. We purchased a pontoon a few years ago. The motor was a 50 hp. When we packed on our equipment, us, and the one dog (before we got the other two), it was weighted down pretty good and would only get up to about 10-15 mph. I wanted something faster.

So two years ago Memorial Day, I told the hubby that I wanted a fast boat. We ended up trading our pontoon for a 18 foot Maxum. Needless to say, we were already upside down on the pontoon which compounded the negative equity that we had in the Maxum when we pulled it out of the Marine dealership. The boat was financed for 10 years, but I had a plan. As soon as my truck was paid for, I was going to apply my truck payment to the boat payment. I figured it would knock the boat loan down to 6 years and save thousands in interest.

We have really struggled this year with the boat. Since my husband hurt his back, it has sat idle under the garage. It hurts every month to make that payment knowing that we are not getting any use out of it at all. We have tried selling it and have actually got a lot of calls on it with interested people. But, once we tell them how much we owe, we never hear back from them. We would probably have to put out at least $6,000 to get out of the boat loan if we could find someone to pay what it was worth. Obviously, we don’t have that kind of money. So…we continue to struggle to make that payment each month. It’s been late the last couple of months and this month, the payment will not be paid at all.

Where to read thoughtful analysis on consumer credit issues

Like this post from Elizabeth Warren on the inanity (my words) of thinking that the current stimulus plans are going to help fix what's wrong with our economy.

But this recession has one very special feature: Never in history have we hit a recession with the American consumer so loaded down with debt. Shouldn't that cause someone to pause before concluding that more consumer spending is the way out of this hole?

The American consumer is financially exhausted. Debt loads now exceed annual income. The proportion of income that goes to interest payments is at record-breaking highs. Twenty-three million families cannot make more than the minimum payments on their credit cards. One in four families say they are worried about how they will pay their credit card bills this month. Nearly half of all credit card holders missed at least one payment last year, and an additional 2.1 million families missed one or more mortgage payments. (Data cited here, here and here.)

The federal government can borrow money to give to families. If families are smart, they will use the money to pay off some debt. But even if they make new purchases, what are the prospects for long term recovery?

The problem is that Americans owe a lot of money. They owe so much money that they can't pay it off without substantially reducing future spending. And if they reduce future spending, they can't keep the economy going.

Think of it this way: The average American family that carries credit card debt owes about two months' income on their cards. Wages are essentially flat, and both mom and dad are already in the workforce. That means that some time in the future they can repay this debt only if they spend less than they are spending today--a lot less. What happens when they cut back on spending?

The blog is creditslips.org. Check it out.

In other news, a pretty good piece from the Journal about the rational response to being underwater on your home loan: walk away.

Now the bloom is off the residential mortgage-backed securities (RMBS) rose. And some borrowers, even those who can theoretically afford to keep their homes, realize they owe much more than what comparable houses in the neighborhood are selling for -- and think that prices won't rebound anytime soon. So they're walking away, according to anecdotal reports as well as recent statements by top executives of both Wachovia and Bank of America.

In most cases, once a homebuyer splits, the mortgage-securities investors are stuck with the loss. In some states, including California and Arizona, this provision is the letter of the law. In others, the bank forgives the balance of the loan -- a common practice that's unlikely to change now, given the criminal and civil investigations banks are already sweating through.

Essentially, mortgage-bond investors, seemingly unwittingly, sold homebuyers a put option, without properly pricing it, and now homeowners are exercising that option. Moreover, prime borrowers in many markets face the same incentives.

Clever bit, that no-money down mortgages are essentially put options on house prices.

Recession?

Suppose that you have an economy where 70% of economic activity is consumer spending, and the majority of that spending is on products manufactured in and shipped from other countries.

Suppose that this economy has been growing for nearly twenty years at an overall rate of 3% to 5%, year after year.

Suppose that all of this growth has been financed by consumer borrowing.

Suppose that those who have lent this money decide to stop doing so.

Do you think that the subsequent contraction in that economy would constitute a recession?

If the economic growth had been financed by debt, was that growth anything other than a mirage in the first place? Real household income has been flat or declining for years. We've been in a recession for 15 years, but we've been masking the problem with borrowing.

Now that the money is gone, the nation needs to face up to the problem.

Which we're doing.

By having the government borrow $150 Billion on behalf of consumers.

So they can spend it.

On consumer products from China.

And oil.

So it goes.