Beware of Credit Card Company Telephone Practices

Minnesota’s attorney general filed a lawsuit against Discover Bank. The suit says that Discover was engaging in deceptive practices to enroll cardholders into its payment protection program and similar offerings.

Here's what some consumers have said:

• Discover routinely calls me and offers me services I don't want. They're pretty pushy about it. 
• Bank of America credit card services tried to do this to me 2 weeks ago for their credit monitoring service.
• Over the past weekend, I received four phone calls from Discover in a 48-hour period, with the same message left each time: "This is ____ from Discover calling. It is important that you return this call to 800-xxx-xxxx." As a cardholder, I became concerned about misuse of my card or account number, and I called back, only to be grilled for confirmation details . . . and then "offered" an expensive protection package. Clever sales ploy indeed, but met with only an abrupt hang-up at my end, once I understood the real purpose of their harrassing and worrisome calls.

Read other consumer responses and stories.

Americans Don't Want Tax Cuts for All

According to a new CBS News poll, 53 percent of Americans want the Bush-era tax cuts extended only for households earning less than $250,000 per year. That roughly matches the proposal put forth by the White House, which wants to extend the cuts only for incomes less than $250,000 for families and $200,000 for individuals.

Even among Republicans, support for extending all the cuts is less than half at 46 percent.

[source: http://www.cbsnews.com/8301-503544_162-20024494-503544.html]

Calculate your tax impact online: http://calculator.taxpolicycenter.org/

Bright Spot for American Manufacturing & Jobs

GM went public this week and now enjoys a market capitalization of $50 billion.  And there's 1 main reason why that was even possible: the lifeline that the U.S. government made to GM in loaning them over $40 billion back in 2009.  Behind these numbers are are millions of American jobs that were saved.  Here's the full story:

What Do Germany, China, and India Have to Do with U.S. Unemployment?

In this straight-talk video, Austan Goolsbee explains how the U.S. economy stacks up against the other major economies of the world. 

I think he does a fair good job in explaining how Germany, China and India stack up to the U.S..  But I'd like to see him do a better job explaining what's at stake in these so-called "trade talks" and "trade agreements" between countries (practically inscrutable if  you follow the business press).  

I also would like him to do a better job of talking about why the U.S. has to start promoting manufacturing and export industries the way for example Germany has. As long as our corporations are making money, we haven't cared where goods are made or by whom.  And guess what, the chickens are coming home to roost now because not only have we lost manufacturing know-how but we have decimated our middle class so that over time our consumer power will erode and we'll become a less affluent nation.  

Grim?  Irreversible?  No way.  But the answers won't come from existing Fortune 1000 business leaders who are all too happy to send American jobs and factories overseas.

Fed Takes a Shellacking

The business press has been reporting about the "shellacking".   No, not that one, this one is being administered to the US Federal Reserve bank by foreign governments.  So I guess the Fed Reserve must be doing something wrong, right?  Wrong.

The Fed Reserve is finally standing up for the American economy against currency manipulation (by the Chinese) and lack of demand spurring policies (Germany) that have sealed the fate of the American economy.

Here's what British Economist Roger Boutles recently said:

" The fundamental fact we have to bear in mind all the time is that America has been supporting world demand, and most of the countries in Asia have been doing the opposite. And that as far as I'm concerned means that the Americans are the good guys and the Chinese and the other Asians are the bad guys. In simple terms, they've been living off the fruits of demand created in America and the Anglo-Saxon world and it can't go on. Germany should be in the dock as well."

Mr. Boutles continues:

"The fact that German demand is as weak as it is, is Germany's fault. Who else's fault is it? The British fault? The American fault? How can we control German domestic demand? The fact of the matter is, this is a country - and China's another one - which adopt mercantilist principles; that's to say, they think it's perfectly okay to get richer at the expense of other countries. Well of course, for the world as a whole, that can't work and we are coming to pay back time."

What do voters want? What do voters think?

Here's a sampling of results from exit polls during the November 2, 2010 U.S. general elections:

Do You Support the New Health Care Law?

• Yes 47%
• No 48%

 What Should be Congress's Highest Priority?

• Spending to create jobs 37%
• Reduce the budget deficit 39%

 Should the Bush Tax Cuts Be Extended?

• No 60%
• Yes 40%

How Many of You have An Unfavorable View of:

• Democrats: 53%
• Republicans: 52%

 Who Do You Blame Most for the Economic Problems?

• Wall Street Bankers 35%
• President Bush 29%
• President Obama 23%

Source: http://www.nytimes.com/2010/11/06/us/politics/06myths.html 

America's New Addiction: Outsourced Jobs

As President Obama was departing for an overseas trip to Asia this week, he commented:

"The primary purpose is to take a bunch of U.S. companies and open up markets so that we can sell in Asia, in some of the fastest-growing markets in the world, and we can create jobs here in the United States of America."   - President Obama

I believe the President but I'm not sure the problem is closed markets.

Over 200 business executives will accompany President Obama on the trip.  They are the same executives that have fired American workers and replaced them with workers in Asia during the Great Recession.

According to a poll conducted by San Jose State University researchers (see chart to the right), 2 out of 5 Silicon Valley households have been hit by job losses since the Great Recession began nearly three years ago.  

Tech had done well during the Great Recession

During this same 3 year period, the NASDAQ has returned to par (not bad for a recession) and tech headliners like Apple have soared. In other words, while American CEOs have argued that they must lay off workers because of the economic downturn, their companies have done quite well and weathered the Great Recession in flying colors.  That's a great testament to American business know-how.
 
While at lunch with a friend the other day he said I had buried my head in the sand and and wanted to know why I refused to accept that America's best days were behind us.  I believe that our enterprising nature will always find ways out of short term problems if given the chance.  I just wish more American companies would give American workers a chance.
   

Whitman & Fiorina Lose - Bad Day for Silicon Valley?

2 Silicon Valley tech CEOs were running for public office in California yesterday.  Both had served at blue chip, name brand companies, and both were financially very successful.  You could say they were poster children for the tech economy.  So what does it say that both Meg Whitman and Carly Fiorina lost? It's a good day for Silicon Valley entrepreneurs and Silicon Valley workers.

Both Ms. Whitman and Ms. Fiorina inherited businesses and rode the high tide to success.  Neither was a thought leader or visionary when it came to technology or how to make the technology economy work for America workers.  In fact both were comfortable outsourcing jobs abroad while lamenting the decline of skills in American workers - an overused, under-supported argument from American CEOs lately.  How exaclty can you expect more students to go into the sciences when the jobs are being sent to workers overseas?  So it is easy to see how some are saying that American students are making a very rational choice to shun jobs in the sciences for business degrees and jobs in consulting or banking. Wouldn't you?

Those who invest in America, such as Marc Benioff of Salesforce.com who just announced he is building a vast headquarters campus in San Francisco, are the better role models for Silicon Valley and for American business everywhere.

Do the elections of 2010 mean anything?

Yesterday's election in the U.S. may have changed who the Speaker of the House is, but the smart money hardly noticed as evidenced by the stock markets today.  The Dow was up just 0.24%

In the words of Benjamin Graham, "in the short run, the market is a voting machine but in the long run it is a weighing machine."

What this says to me is that while the topsy turvy world that is the American electorate voted to change their Congressperson as a way to vent, Wall Street doesn't believe that things will actually get any better anytime soon.  As there were more Democrats in Congress, it just makes sense that more of them were made to pay for the recession we are going through.  In American politics there has always been a very strong "throw the bums out" strain when things in the economy are going poorly.  So it was an outcome that was not a surprise as it has happened with regularity during midterm elections in the past.  In recent memory alone:

• Newt Gingrich (R) became Speaker during President Clinton's (D) tenure
• Nancy Pelosi (D) became Speaker during President Bush's (R) tenure

And so John Boehner will be the new Speaker of the House.  But one person cannot change the tough times we are in.  So what will John Boehner do?  Reading his past speeches doesn't instill much confidence he will do anything to move the country forward.  He was after all the architect of the "hell no" strategy intended to thwart any legislation proposed by the President.   He has proposed no new ideas, a cynical approach to leadership.  An obstructionist is the last thing we need in America right now.

So do the elections of 2010 meaning anything?  If it means anything at all it's that the recession caused by the mortgage bubble that tanked the economy in 2008 is still with us and has caused a lot of pain for American voters who want to "throw the bums out".   And they'll do it again in 2 years if things don't improve.

I still see the glass half full and believe that there is hope that things will improve but it won't be easy. The formula for turning things around involves just 2 actors: the private sector and the public sector, or the government.  Just today the Fed Reserve, the nation's central banker, announced it is buying $600 billion in debt as a way to bring down long term interest rates.  Now we need the private sector to hire Americans and not send jobs overseas.  American companies are sitting on a record amount of cash (Apple alone added $17 billion to its balance sheet last year) and without more investment the only other option is another stimulus bill from Congress which Mr. Boehner has already dismissed. At times like these we need leadership.  Will they answer the call?

Your savings didn't do so well this past decade.

In the 10-year time frame ending Sept 30, 2009, this chart shows how the U.S. stock indices (and your money in them) performed - not a pretty picture.  Your "certified" financial planner has probably told you that over a decade stocks increase 12% on average.  Now you know what kind of advise you have been getting.

By keeping the interest rate low, the Federal Reserve has created all sorts of problems for the U.S. economy.  Not the least of which is depriving hard working, hard saving American families of a safe investment vehicle, such as FDIC insured bank accounts, in which they could deposit their money and earn a decent interest in return.

Without real interest-bearing accounts, Americans deposited their savings and retirements in the U.S. stock market and have lost an entire decade. 

So a penny saved is a penny earned but not much more.  For many Americans this means that retirement is much further off then they thought.

Should I walk away from my mortgage?

If you are like many U.S. homeowners your mortgage is more than your house is worth.  If you are in Nevada you are in the 2/3 majority, in some California counties the number is even higher.  So you are asking yourself whether you should walk away from your mortgage since your bank has refused to reassess and reduce your mortgage.

There is a lot of writing on this subject mostly from financial columnists (MSN, Kiplinger, etc.) who were advising you just a short while ago to not worry about ARMs and to get into the real estate market to "build equity".  But they never really get to the point about what you should do now.   Even state and federal governments aren't doing their responsibility to fully help you know your options, take for instance Feddie Mac which I think puts undue pressure on staying in your "under water" house: http://www.freddiemac.com/avoidforeclosure/your_options.html.


My view is that if your mortgage exceeds the market price of your home by  more than 15% you should give the keys back to the bank.  Why?  Because making up 15% is a long way back for the real estate market and it won't happen for a long time, probably more than 5 years.

Simple example: you bought a $500,000 home with 10% down. You've been making payments for several years and your mortgage is now $425,000.  Your neighbor's house sold for $350,000 in Q4 2009 (Oct - Dec).   If you sold the house today you would have to find another $75,000 (plus fees associated with the sell) to pay the bank which is 20+% of the sales price.  If you have that much additional cash sitting around, save it and buy some I Series U.S. Savings Bonds. 

I came to my conclusion after reading a lot of opinions on the subject.  The writing that most influenced me was from Professor Richard Thaler at the Univesity of Chicago writing in "Sunday Money" at the Times.  (There's also a paper by Prof Brent White:http://online.wsj.com/public/resources/documents/WalkingAway1029.pdf)  Here are the main points:

• One can have a good credit rating again--meaning above 660--within two years after a foreclosure.
  
• If lenders and big property owners are doing what is in their interest, such as defaulting, then why shouldn't home owners? (Example: Tishman Speyer of New York)
  
• In states like California and Arizona, mortgages are non-recourse which means that the lender has no claim on a borrower's other possessions separate from the home.  In fact says Professor Thaler, homeowners in California and Arizon pay extra for the right to default without recourse.
• The economic and social costs of giving the house back to the bank is far less than the cost of paying off an underwater mortgage.

So if you are "under water"  on your mortgage seriously consider giving the keys back to the bank and look forward to another day when you might be in a position to re-enter. It will be a big burden of your back (and heart) and it's not as big of a deal as you might think.

Krugman was Right

When President Obama came to office in January 2009, the U.S. ecnonomy that he inherited from his Republican predecessor was headed into collapse. The jobs report and the stock market indices were shedding big numbers. As the president considered what to do he turned to this economic team of Larry Summers (the Treasury Secretary under Clinton who championed allowing banks to gamble with credit default swaps and went on to earn tens of millions at hedge fund DE Shaw) and Tim Geither (former NY Fed Reserve boss who signed off on allowing Goldman and JP Morgan to get away with billions in US tax payers money by paying them 100% on their insurance contracts with the failed insurance giant AIG).

The advise he got from Larry and Tim was not only bad for Americans out of work, it was also bad for the president's future.

What Larry and Tim advised the president to do was to go easy on the banks saying that if he did so they would start lending money, everyone would just forget about what the banks had done to cripple the economy and the who scary story could just go away.

Paul Krugman at the time wrote that this was folly. He said that the president needed to inject significantly more money directly into the real economy to create jobs not give it to the banks. Krugman also said that if the president didn't take this direct course of action that he would lose political support.

The election of Republican Brown to the seat held by the late Teddy Kennedy shows how prescient Mr. Krugman was.

U.S. Markets Head for A Crash

U.S. stock markets and institutional investors and traders wanted desperately to forget about Oct 2008 and the year-long pain that ensued. For them the Dow was back up and they wanted their bonuses. They did not care that careless decisions made by banks and insurance companies had brought the U.S. economy to the brink of total collapse and resulted in the greatest economic downturn since the Great Depression of the 1920s and 1930s.

The likes of JP Morgan Chase and Goldman Sachs had off-loaded bad loans to the government (i.e., Bear Sterns) and had changed their form of incorporation to benefit from the government bailout (as did Goldman when it gave up its investment banking classification to become a commercial bank) and they were sailing free.

Then in December 2010 came the election for a U.S. Senate seat in Massachusetts held by the Kennedy brothers for half a century. When the results were in, a Republican had won and joined the all Democratic Mass delegation.

The election served as a wake-up call for the President who realized that his financial advisers (Larry Summers and his protege Tim Geithner) were out of touch with the anger the American people held for what the banks had did to their jobs and retirement savings. The president realized that the people correctly saw that the banks were sailing free while they, the people, were feeling the pain.

The president remembered the words of a past Chairman of the Fed Reserve (Paul Volker) who had argued for the reduction in the size of banks and for the elimination of "casino-like" operations at the banks. The president called a press conference to let the banks know we was ready for a fight to change their ways.

The bankers realized they weren't smooth sailing yet.

The champions of the banks (Bernake, Summers, Geithner) started to worry about their jobs.

And the markets and investors headed for the exits.

Observers started to wonder if we would see a crash when markets opened on Monday.

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US Market (Dow) past 1 month (as of 1/22/10)












US Market (Dow) past 1 year (as of 1/22/10)

U.S. Supreme Court Legalizes Bribery

In a remarkable display of judicial radicalism, the U.S. Supreme court ruled 5-4 to legalize the unlimited participation of billion dollar corporations in bankrolling politicians.

The ruling, Citizens United v. Federal Election Commission, overruled two precedents: Austin v. Michigan Chamber of Commerce (1990) and McConnell v. Federal Election Commission (2002).

On this issue the U.S. Supreme Court has taken action more radical than any other court in U.S. history.

Here are the 2 arguments being made in support of the ruling:

1) The "middle class" argument - Proponents of this line of reasoning say that today only rich candidates bankrolling themselves can win in U.S. politics and so by allowing corporations to bankroll less well off candidates this decision is restoring democracy. But what about the influence and hold that these billion dollar corporations will have on candidates they've backed with cash? It seems to me that the real problem here is our system of financing of elections. Rather than have corporations bankroll our democracy, why not remove all private money and have 100% public financing for election? Now that would really level the playing field between rich and poor and return government policy-making to the people.

2) The "First Amendment" argument - This argument is popular among right-wing thinkers and was used by the Supreme court Justices in their 5-4 decision. They argue that the First Amendment applies to corporations and that money is a form of free speech. Here's what the First Amendment actually says:

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

It always amazes how conservative jurists can switch from following the exact text to being expansive in their reading of the Constitution when they want to be.

I have to believe that the framers of the constitution were not oblivious to money matters and that if they had wanted to they could have made the First Amendment specifically include money as a right in elections, not just "the freedom of speech".

Bad Supreme Court decisions don't stand that test of time. Who today would agree with Plessy v. Fergusson? Citizens United v. Federal Election Commission will come to be remembered as the decision made by 5 right-wing Justices out of step with where American democracy stood in 2010.

It is also the case that while U.S. corporations can be fined and their executive sent to jail for bribing foreign officials (see: Foreign Corrupt Practices Act), they have a free ride when it comes to bribing domestic ones.