In an earlier blog I described the delightful process of refinancing our mortgage. A few days ago we received an offer from our bank that prompts me to offer a follow up.
The offer was for us to pay the mortgage every two weeks instead of the usual once per month, with each payment being ½ the usual monthly amount. Why, you ask would this be to our benefit? The enticement was that over the course of a year this would amount to 26 payments, the equivalent of 13 monthly payments. That extra payment over the course of the loan would save a considerable amount in interest and result in paying off the loan more quickly.
Now for the fine print. For helping us save all this money, the bank would assess a service charge for each payment, and a one-time start up fee of $299. Cha-ching! Plus, of course, the bank receives more money sooner, which allows it to invest, loan out, pay executive bonuses, etc., etc. Keep in mind, the terms of our mortgage allow additional principal payments at any time for free – if you pay them an additional amount each month it will accomplish the same thing without incurring any charges at all.
The bank’s offer is now confetti at the bottom of my shredder.
Wednesday, May 20, 2009
Friday, May 1, 2009
New Meaning to “The Economy is in the Dumper”
I’ve written in a couple of previous blogs that one of the revelations of the current economic meltdown is that we have created an economy that depends on ever greater spending and borrowing by consumers. Specifically, if we don’t buy more and more goods – and borrow the money to do so – the system collapses. A recent Associated Press report by James Hannah shows that we must also throw away the stuff we buy.
It seems that an unexpected negative (yes, negative) consequence of the downturn is that people are throwing away less trash, with dire economic consequences: “With consumers cutting back on new purchases, there is less packaging to throw away. The downturn in new housing means less waste from construction materials such as insulation and from discarded drywall and lumber. Restaurant waste is down because people are eating out less...Landfills in Ohio received 15 percent less waste from August to January than they did for the same period a year earlier. The waste stream at Miramar Landfill near San Diego has dropped 35 percent over the past year. Waste at Puente Hills Landfill near Los Angeles is down from 12,500 tons of trash a day to about 8,500.”
Although this might be a good thing for the environment it turns out that in our waste-based economy it’s downright tragic: “To deal with the drop-off in dropoffs, landfills are laying off workers, reducing hours of operation and hiking disposal fees, with the increases passed along to cities, businesses and consumers...About 82 temporary workers have been laid off at Puente Hills and its two sister landfills, shrinking the work force to about 280 and forcing permanent employees to take over traffic control, windy-day litter pickup and landscaping. Several landfills operated by Waste Management Inc. - which runs about 270 active landfills in 47 states - have gone from operating six days a week to five or have reduced hours of operation, said spokeswoman Lisa Kardell.”
Clearly, this may mean we will need a government bailout of the trash industry. “Waste Management's fourth-quarter profit slid 29 percent on declines in its recycling business and one-time charges. But in its earnings report, the Houston-based company also mentioned declines in the collection of industrial waste.” Companies such as Waste Management are bravely coping with this problem in a good old capitalistic way – raise prices. As Hannah explains, “Landfill operators rely on disposal fees to fund operations. If the amount of waste decreases, operators have to cut costs, dip into reserve funds or increase the fees, which are passed along to consumers. In the Columbus suburb of Grove City, the Solid Waste Authority of Central Ohio landfill- with 10 percent less waste - has raised disposal fees by $2 a ton to $35.50 and dipped into its reserve fund. The landfill also is considering accepting trash from out of the district.”
There you have it. We have economy based on consuming, borrowing, and disposing. Can this really be sustainable?
It seems that an unexpected negative (yes, negative) consequence of the downturn is that people are throwing away less trash, with dire economic consequences: “With consumers cutting back on new purchases, there is less packaging to throw away. The downturn in new housing means less waste from construction materials such as insulation and from discarded drywall and lumber. Restaurant waste is down because people are eating out less...Landfills in Ohio received 15 percent less waste from August to January than they did for the same period a year earlier. The waste stream at Miramar Landfill near San Diego has dropped 35 percent over the past year. Waste at Puente Hills Landfill near Los Angeles is down from 12,500 tons of trash a day to about 8,500.”
Although this might be a good thing for the environment it turns out that in our waste-based economy it’s downright tragic: “To deal with the drop-off in dropoffs, landfills are laying off workers, reducing hours of operation and hiking disposal fees, with the increases passed along to cities, businesses and consumers...About 82 temporary workers have been laid off at Puente Hills and its two sister landfills, shrinking the work force to about 280 and forcing permanent employees to take over traffic control, windy-day litter pickup and landscaping. Several landfills operated by Waste Management Inc. - which runs about 270 active landfills in 47 states - have gone from operating six days a week to five or have reduced hours of operation, said spokeswoman Lisa Kardell.”
Clearly, this may mean we will need a government bailout of the trash industry. “Waste Management's fourth-quarter profit slid 29 percent on declines in its recycling business and one-time charges. But in its earnings report, the Houston-based company also mentioned declines in the collection of industrial waste.” Companies such as Waste Management are bravely coping with this problem in a good old capitalistic way – raise prices. As Hannah explains, “Landfill operators rely on disposal fees to fund operations. If the amount of waste decreases, operators have to cut costs, dip into reserve funds or increase the fees, which are passed along to consumers. In the Columbus suburb of Grove City, the Solid Waste Authority of Central Ohio landfill- with 10 percent less waste - has raised disposal fees by $2 a ton to $35.50 and dipped into its reserve fund. The landfill also is considering accepting trash from out of the district.”
There you have it. We have economy based on consuming, borrowing, and disposing. Can this really be sustainable?
Thursday, April 16, 2009
Domains of Pirates: High Seas, Cyberspace, and Boardrooms
I think there is a connection between three recent world developments – the activities of Somali Pirates (particularly the hijacking of the American freighter Maersk Alabama and the rescue of its Captain by the U.S. Navy), the spread of the sophisticated Internet Worm Conficker, and the subprime lending practices of financial institutions that led to economic chaos (and to the invention of the catchy term, “toxic asset”).
These developments aren’t directly related, of course. To my knowledge the Somali Pirates aren’t hackers, and although bank executives may have boats, they’re more likely to be found sailing near cushy resorts than on the high seas. Still, all three share some common qualities that are fun to ponder.
First, all three are motivated by greed. The Somali Pirates are collecting millions of dollars by holding ships and crews for ransom. The authors of Conficker seem to be positioning themselves to sell certain services, like computer system sabotage and spamming, to the highest bidder. Financiers at companies like AIG, Citicorp and Goldman-Sachs collect huge salaries and bonuses for enticing people with questionable creditworthiness to take out loans.
Second, all three have arisen from environments that lack normal restraints against unethical behavior. Somalia is essentially a country without a government, where the rule of law is in the hands of local warlords. The internet by design lacks centralized control and makes detection and enforcement very difficult. The de-regulation of financial markets is blamed by many analysts to be a major cause of today’s economic melt-down by allowing questionable activities to go unchecked.
Third, all three require victims that are vulnerable because of ignorance, impotence, self-interest, or some combination of these. Somali Pirates have been successful because the ships they have preyed upon are undefended and therefore impotent to withstand even a small force of attackers. The spread of the Conficker worm was possible only because computer users lack the knowledge and motivation to update their computer systems, and infected machines at first show no visible signs of being host to the Conficker program. Homebuyers with less than adequate means were ignorant of the long-term consequences of over-extending themselves, and were eager to take advantage of high-risk loans promoted by lenders.
Finally, all three of these developments contribute to the general feeling that things are out of control and that our old beliefs just don’t seem to apply any more. It is very uncomfortable to face the possibility that an economy based on “the American Dream” may not be sustainable, or that unethical behavior can’t be punished without hurting even further the victims of that behavior, or that lawlessness can’t be stopped. This is a feeling that makes people very vulnerable to political and religious leaders who offer simple fixes. Simple fixes can’t really work in this complicated environment, but believing that they will solve our problems will certainly make us feel better. On the other hand, if the current crises can somehow lead to a more realistic assessment of the true nature of our economy and its impact on society as whole, then perhaps all this will have been worth it.
These developments aren’t directly related, of course. To my knowledge the Somali Pirates aren’t hackers, and although bank executives may have boats, they’re more likely to be found sailing near cushy resorts than on the high seas. Still, all three share some common qualities that are fun to ponder.
First, all three are motivated by greed. The Somali Pirates are collecting millions of dollars by holding ships and crews for ransom. The authors of Conficker seem to be positioning themselves to sell certain services, like computer system sabotage and spamming, to the highest bidder. Financiers at companies like AIG, Citicorp and Goldman-Sachs collect huge salaries and bonuses for enticing people with questionable creditworthiness to take out loans.
Second, all three have arisen from environments that lack normal restraints against unethical behavior. Somalia is essentially a country without a government, where the rule of law is in the hands of local warlords. The internet by design lacks centralized control and makes detection and enforcement very difficult. The de-regulation of financial markets is blamed by many analysts to be a major cause of today’s economic melt-down by allowing questionable activities to go unchecked.
Third, all three require victims that are vulnerable because of ignorance, impotence, self-interest, or some combination of these. Somali Pirates have been successful because the ships they have preyed upon are undefended and therefore impotent to withstand even a small force of attackers. The spread of the Conficker worm was possible only because computer users lack the knowledge and motivation to update their computer systems, and infected machines at first show no visible signs of being host to the Conficker program. Homebuyers with less than adequate means were ignorant of the long-term consequences of over-extending themselves, and were eager to take advantage of high-risk loans promoted by lenders.
Finally, all three of these developments contribute to the general feeling that things are out of control and that our old beliefs just don’t seem to apply any more. It is very uncomfortable to face the possibility that an economy based on “the American Dream” may not be sustainable, or that unethical behavior can’t be punished without hurting even further the victims of that behavior, or that lawlessness can’t be stopped. This is a feeling that makes people very vulnerable to political and religious leaders who offer simple fixes. Simple fixes can’t really work in this complicated environment, but believing that they will solve our problems will certainly make us feel better. On the other hand, if the current crises can somehow lead to a more realistic assessment of the true nature of our economy and its impact on society as whole, then perhaps all this will have been worth it.
Tuesday, March 17, 2009
Banker’s Math: 29=31=$
My wife and I refinanced our mortgage a few weeks ago. We were fortunate to be among the few who qualify these days, given that the banks have now decided to be more responsible in their lending practices. To their credit, they scrutinized us oh-so-carefully, despite the fact that our loan to value ratio was less than 50%, we have no other debts, we have credit scores over 800, and we have a record of over 35 years of never missing or being late with a payment on anything, including mortgages.
For those of you who haven’t been through this process, be prepared to see just how it is that banks and others involved in the loan business make money for doing essentially nothing, and how everything is set up to favor the lender, not the borrower. For example, even though the new loan is with the same bank as the original loan we took out five years ago, we had to pay for them to do another title search and issue a new title insurance policy (note, there had been no change of ownership to the house and they knew it). Then we have all the fees – a fee to close the old loan, a fee to prepare the documents, a fee to record the documents, a fee to check our credit scores, a fee to calculate the fees, etc., etc.
The coupe de grace came when we received the figure needed to pay off the old loan. The day of reckoning, when the old loan was paid and the new one began, was March 2nd. Our last payment on the old loan had been for interest to February 1st. Since 29 days had gone by (28 in February, plus 1 in March) I expected to pay 29 days’ worth of interest. Wrong. According to bankers’ math, a standard month (30 days) had gone by, plus one more day for a total of 31 Bankers’ days of interest required for the payoff. Seriously – to our bank, February has 30 days, not 28, and we had to pay for those 2 extra days as well as the 29 that had actually gone by. I called the bank about this and of course got nowhere. Banker’s math trumps the borrower’s math every time. Cha ching!
For those of you who haven’t been through this process, be prepared to see just how it is that banks and others involved in the loan business make money for doing essentially nothing, and how everything is set up to favor the lender, not the borrower. For example, even though the new loan is with the same bank as the original loan we took out five years ago, we had to pay for them to do another title search and issue a new title insurance policy (note, there had been no change of ownership to the house and they knew it). Then we have all the fees – a fee to close the old loan, a fee to prepare the documents, a fee to record the documents, a fee to check our credit scores, a fee to calculate the fees, etc., etc.
The coupe de grace came when we received the figure needed to pay off the old loan. The day of reckoning, when the old loan was paid and the new one began, was March 2nd. Our last payment on the old loan had been for interest to February 1st. Since 29 days had gone by (28 in February, plus 1 in March) I expected to pay 29 days’ worth of interest. Wrong. According to bankers’ math, a standard month (30 days) had gone by, plus one more day for a total of 31 Bankers’ days of interest required for the payoff. Seriously – to our bank, February has 30 days, not 28, and we had to pay for those 2 extra days as well as the 29 that had actually gone by. I called the bank about this and of course got nowhere. Banker’s math trumps the borrower’s math every time. Cha ching!
Monday, February 23, 2009
Ah, Love Those Changes of Seasons!
My wife and I lived in Ohio for over thirty years. A friend who still lives there recently forwarded the following parody of a Yuppy Diary that seems to capture part of the reason we left after retirement. You non-Ohioans just substitute whatever is appropriate given your locale for “Ohio” “fall color,” “snow,” “deer,” and “rust.”
There are a number of lessons in this parody, one of which is that it is not so much the world around us that changes over time, but our perception of it. As we begin to take the positive qualities of things for granted, the negative qualities (which were there all the time) begin to emerge more prominently. I’ll bet the writer of this diary was just as negative about Florida a year later.
“Dear Diary: Ohio Winters:
Aug. 12 - Moved into our new home in Ohio. It is so beautiful here.
The hills and river valleys are so picturesque. I have a beautiful
old oak tree in my front yard. Can hardly wait to see the change in
the seasons. This is truly God's Country.
Oct. 14 - Ohio is such a gorgeous place to live, one of the
real special places on Earth. The leaves are turning a
multitude of different colors. I love all of the shades of
reds, oranges and yellows, they are so bright. I want to walk
through all of the beautiful hills and spot some white tail deer.
They are so graceful; certainly they must be the most peaceful
creatures on Earth. This must be paradise.
Nov. 11 - Deer season opens this week. I can't imagine why
anyone would want to shoot these elegant animals. They are the
very symbol of peace and tranquility here in Ohio.
I hope it snows soon. I love it here!
Dec. 2 - It snowed last night. I woke to the usual wonderful sight:
everything covered in a beautiful blanket of white.
The oak tree is magnificent. It looks like a postcard.
We went out and swept the snow from the steps and driveway.
The air is so crisp, clean and refreshing. We had a snowball fight.
I won, and the snowplow came down the street. He must have gotten too
close to the driveway because we had to go out and
shovel the end of the driveway again. What a beautiful place.
Nature in harmony. I love it here!
Dec. 12 - More snow last night. I love it!
The plow did his cute little trick again. What a
rascal. A winter wonderland. I love it here!
Dec. 19 - More snow - couldn't get out of the driveway
to get to work in time. I'm exhausted from all of the
shoveling. And that snowplow!
Dec. 21 - More of that white shit coming down. I've got
blisters on my hands and a kink in my back. I think that the
snowplow driver waits around the corner until I'm done
shoveling the driveway. Asshole.
Dec. 25 - White Christmas? More freakin’ snow.
If I ever get my hands on the sonofabitch who drives that
snowplow, I swear I'll castrate him. And why don't
they use more salt on these roads to melt this crap??
Dec. 28 - It hasn't stopped snowing since Christmas. I
have been inside since then, except of course when that SOB
"Snowplow Harry" comes by. Can't go anywhere, cars are
buried up to the windows. Weather man says to
expect another 10 inches. Do you have any idea how many
shovelfuls 10 inches is??
Jan. 1 - Happy New Year? The way it’s coming down it
won't melt until the 4th of > July! The snowplow got stuck
down the road and the shithead actually had the balls to
come and ask to borrow a shovel! > I told him I'd broken 6
already this season.
Jan. 4 - Finally got out of the house. We went to the store
to get some food and a goddamn deer ran out in front of my
car and I hit the bastard. It did $3,000 in damage to the
car. Those beasts ought to be killed. The hunters should
have a longer season if you ask me.
Jan. 27 - Warmed up a little and rained today. The rain
turned the snow into ice and the weight of it broke
the main limb of the oak tree in the front yard and
it went through the roof. I should have cut that
old piece of shit into fireplace wood when I had the
chance.
March 23 - Took my car to the local garage. Would you
believe the whole underside of the car is rusted away from all of
that damn salt they dump on the road? Car looks like a
bashed up heap of rusted cow shit.
May 10 - Sold the car, the house, and moved to Florida.
I can't imagine why anyone in their freakin' mind
would ever want to live in the God forsaken State of Ohio”
There are a number of lessons in this parody, one of which is that it is not so much the world around us that changes over time, but our perception of it. As we begin to take the positive qualities of things for granted, the negative qualities (which were there all the time) begin to emerge more prominently. I’ll bet the writer of this diary was just as negative about Florida a year later.
Sunday, January 18, 2009
Christmas in January?
When I was young I got very excited at Christmas time. I remember that some years I could hardly sleep Christmas Eve and I would lie awake all night, impatiently waiting until it was late enough in the morning to rush to the tree and open my presents. Generally I got a good portion of what I had asked for, but it was still exciting to rip open the packages and fondle the toys I had been yearning for and building up in my mind as the greatest things since pizza.
A few hours after this initial emotional high, though, the whole thing lost its luster – the toys weren’t as wonderful I had believed they would be, and they generally didn’t perform as well as they had in the advertisements (or maybe in my interpretation of the advertisements). My excitement turned to a vague disappointment and disillusionment – wasn’t there supposed to be more to it than this??
Of course, I now realize I was right – Christmas wasn’t about the toys, it is about the spirit of the season and the joy of being with family and friends. The only trouble is, the expectation of warm and fuzzy family get-togethers often leads to disappointment. In my own experience, and in my observations of other people’s experience, the reality turns out far less wonderful than we want.
The difficulty, I think, is that we expect far more than can be delivered, and we are bound to be disappointed with the real situation or else we have to delude ourselves mightily to maintain the belief that we have attained our wish. A realistic expectation need not be negativistic – just an appreciation for the factors that may limit the degree to which our expectations can be met.
I wonder if the upcoming inauguration isn’t akin to Christmas in January for many people. Such great hopes and expectations have been placed on Obama that it will be almost impossible to meet them. Just like Christmas, the constraints of reality will make it unlikely he can truly fulfill these expectations. Perhaps it would be better to be open to a range of outcomes and to realize that he isn’t a Christmas present. It might make us more likely to appreciate his actual achievements and accomplishments, which are likely to be considerable, even if they aren’t miraculous.
A few hours after this initial emotional high, though, the whole thing lost its luster – the toys weren’t as wonderful I had believed they would be, and they generally didn’t perform as well as they had in the advertisements (or maybe in my interpretation of the advertisements). My excitement turned to a vague disappointment and disillusionment – wasn’t there supposed to be more to it than this??
Of course, I now realize I was right – Christmas wasn’t about the toys, it is about the spirit of the season and the joy of being with family and friends. The only trouble is, the expectation of warm and fuzzy family get-togethers often leads to disappointment. In my own experience, and in my observations of other people’s experience, the reality turns out far less wonderful than we want.
The difficulty, I think, is that we expect far more than can be delivered, and we are bound to be disappointed with the real situation or else we have to delude ourselves mightily to maintain the belief that we have attained our wish. A realistic expectation need not be negativistic – just an appreciation for the factors that may limit the degree to which our expectations can be met.
I wonder if the upcoming inauguration isn’t akin to Christmas in January for many people. Such great hopes and expectations have been placed on Obama that it will be almost impossible to meet them. Just like Christmas, the constraints of reality will make it unlikely he can truly fulfill these expectations. Perhaps it would be better to be open to a range of outcomes and to realize that he isn’t a Christmas present. It might make us more likely to appreciate his actual achievements and accomplishments, which are likely to be considerable, even if they aren’t miraculous.
Monday, December 15, 2008
These Will Be "The Bad Old Days"
I believe in meritocracy. Someone with a special, unique talent or skill or knowledge that is beneficial to society can be rewarded extravagantly and I don’t mind. I also believe in the basic tenets of capitalism – or at least the version of capitalism I was taught as a kid in school. Competition, for example, is a good thing because products and services that are better than their peers will out-compete those that are inferior. People who invent, manufacture, and market the superior products deserve to be compensated more than those who are associated with inferior versions. Indeed, those with inferior products deserve to go broke.
In traveling the world I’ve seen evidence that seems to support my beliefs. For example, in Vietnam the economy was in shambles after the north won the war against the U.S. and tried to implement collectivist communism. After years in which people nearly starved to death, the government allowed a restricted form of free-market economy and things are booming – in just a couple of years the country went from having to import rice to feed its people to being a rice exporter. And people who are enterprising, clever, and hard-working are being rewarded for their efforts. This same scenario has been happening recently in other communist countries as well, including China.
And now for the “BUT.”
Revelations coming from the recent economic crisis suggest that my beliefs are way too idealistic and don’t pertain to how things actually are in this country (maybe they never did). For example, we’ve learned that many CEO’s are grossly overcompensated relative to their performance, to the point that even G.W. Bush warned big companies almost two years ago that CEO pay should be more closely tied to shareholder interests. The huge bailout packages to financial companies and most recently to GM, Ford, and Chrysler, show that poor judgment and inferior products don’t mean failure at all – the risks of big business are now assumed by consumers and taxpayers. It seems we’ve created an economy that depends on ever greater spending and borrowing by consumers. Specifically, if we don’t buy more and more houses and cars – and borrow the money to do so – the system collapses. And we’ve learned that greed and fraud seem to permeate Wall Street, that supposed bastion of capitalism at its finest – the latest instance being the 50 billion dollar Ponzi scheme of Bernard L. Madoff.
I wish I had a solution but I don’t. Pay me $50 or $60 million a year, though, and I’ll be glad to try. Or better yet, just hand over 700 billion and I’ll fix things – just trust me, don’t bother with the details and don't ask me to justify what I'm doing. Geez.
It seems like we are now living in an era reminiscent of the Vietnam War, when many of us came to question some of our deepest beliefs about America. It was a time when authorities lied to us, when those whom we had trusted as leaders were exposed as shams, and when the future was uncertain and various shades of bleak. There is a glimmer of hope as we begin a new presidency with a man who so far shows that at least he values experience and competence in those whom he is appointing to positions of power and influence, and is not afraid to give a voice to those with whom he disagrees. What a refreshing change.
In traveling the world I’ve seen evidence that seems to support my beliefs. For example, in Vietnam the economy was in shambles after the north won the war against the U.S. and tried to implement collectivist communism. After years in which people nearly starved to death, the government allowed a restricted form of free-market economy and things are booming – in just a couple of years the country went from having to import rice to feed its people to being a rice exporter. And people who are enterprising, clever, and hard-working are being rewarded for their efforts. This same scenario has been happening recently in other communist countries as well, including China.
And now for the “BUT.”
Revelations coming from the recent economic crisis suggest that my beliefs are way too idealistic and don’t pertain to how things actually are in this country (maybe they never did). For example, we’ve learned that many CEO’s are grossly overcompensated relative to their performance, to the point that even G.W. Bush warned big companies almost two years ago that CEO pay should be more closely tied to shareholder interests. The huge bailout packages to financial companies and most recently to GM, Ford, and Chrysler, show that poor judgment and inferior products don’t mean failure at all – the risks of big business are now assumed by consumers and taxpayers. It seems we’ve created an economy that depends on ever greater spending and borrowing by consumers. Specifically, if we don’t buy more and more houses and cars – and borrow the money to do so – the system collapses. And we’ve learned that greed and fraud seem to permeate Wall Street, that supposed bastion of capitalism at its finest – the latest instance being the 50 billion dollar Ponzi scheme of Bernard L. Madoff.
I wish I had a solution but I don’t. Pay me $50 or $60 million a year, though, and I’ll be glad to try. Or better yet, just hand over 700 billion and I’ll fix things – just trust me, don’t bother with the details and don't ask me to justify what I'm doing. Geez.
It seems like we are now living in an era reminiscent of the Vietnam War, when many of us came to question some of our deepest beliefs about America. It was a time when authorities lied to us, when those whom we had trusted as leaders were exposed as shams, and when the future was uncertain and various shades of bleak. There is a glimmer of hope as we begin a new presidency with a man who so far shows that at least he values experience and competence in those whom he is appointing to positions of power and influence, and is not afraid to give a voice to those with whom he disagrees. What a refreshing change.
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