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2009 Goals

November 10th, 2008 at 11:54 am

I was thinking to myself why do I call them 2009 goals? I mean, these goals are just a naturally progression in my financial evolution. Does continuation of goals give it any less weight?

The truth being it is important to me to have concrete goals and ways to measure them. One year is long enough to establish real substantial goals without feeling to far away. For instance, paying of my mortgage is years if not decades away. It would be hard to keep my focus on that goal month in and month out. So I will break it down into a more manageable goal. If I could but $X towards principal this year, it puts me on a path to pay off my mortgage by 20XX.

Also with yearly time frames, it seems natural for us to all take stock of our lives around the holiday seasons. Christmas and Thanksgiving are times to remember the past with family and New Years gives a clean slate, so to speak.

I can look at my financial journey as building a house. In 2008, my objective was to clear the site - remove the boulders and trees, get approval from the wife about the house and where it would be situated, and start putting together a vision of what this house will look like at the end.

In financial terms, 2008 was spent getting on a budget and eliminating all non-mortgage debt. I started the year with over $49k in debt. I also had Murphy visit. In June, I received a medical bill for $4,500. I had to put my debt snowball on hold to attack this which caused some frustration.

Right now, I have less then $5,000 in debt. This is a very strange place to be. From last year to this year, my journey has been the difference between night and day. Last year, I was living (if you can call it that) paycheck to paycheck. This year, I am budgeting paycheck to paycheck. I have also budgeted enough to pay of 90% of my debt year to date.

2009 goals are really to set the foundation that the house will be built on. This has to be done right or else the whole house will eventually fall apart.

With that in mind, my major goals are to fully fund the emergency fund. The wife wants more then 6 months, so it will take me $30k to finish the emergency fund. Since $30k is a big number, I broke it down into months.

My other large goal is to play catch up on the college funds. $18k between my 2 sons will be as if I put $2k away for each, since they were born. I'll automatically contribute something to each 529 a month - $1,000 a month for the oldest and $500 a month for the youngest.

My last new goal is to start paying down the house.

My complete list of goals for 2009 are:
1. Invest $15,500 in 401(k)
2. EF Fully Funded
. a. 1st Month - $5,000
. b. 2nd Month - $5,000
. c. 3rd Month - $5,000
. d. 4th Month - $5,000
. e. 5th Month - $5,000
. f. 6th Month - $5,000
3. Contribute $12,000 to Son 1 529
4. Contribute $6,000 to Son 2 529
5. Extra $36,000 to mortgage
6. Rebalance portfolio

Will I accomplish every goal? Probably not. But by keeping some goals out of reach, it keeps me focused for the year.

Goals Review - October

November 3rd, 2008 at 07:47 am

So 2 of my goals were moved to next year (529s and savings $15k), and I have shorten the 4th quarter goals to 3 (max 401k, pay of all debt (except mortgage), and not add new debt with the holidays).

My 401k is now maxed so no more money going to that.

I have one debt left - my son's medical bill. I entered October owing $12,898. I paid off $6,989 leaving $5,909. How did I do this? I don't even know. I was just really focused this month, my 401k contributions stopped, and there was an extra paycheck. I was so happy earlier this month when I broke $10,000. Now, it seems to be just melting away at a staggering pace.

I'll need to finalize the holiday budget with the wife. We will need to finalize our gift budget for Christmas, wine budget for Thanksgiving and Christmas, decide if we will be hosting a happy hour at our house, and decoration budget (tree, wreaths, etc.).

I can't help but to think where I was last year and my feelings of desperation. Financially, I was just holding things together. How did I get from where I was to where I am now?

I looked at my life with my wife and we said where do we want to be? We wanted to be in a place to not worry about bills and not having enough money at the end of the month.

That's a great goal but what does that mean? How do you achieve that? And that's were the yearly goals come in. What do I need to do this year to get me to that point or closer to that point?

Then I took these goals and broke them down further into manageable pieces. What do I have to do this month or even this week to set me up for success? Each decision brings you closer or further away from your goals.

You have to prioritize your goals too. Most of us don't have enough resources to attack all the goals at the same time. We need to focus and concentrate on one or two at a time and then move on from there. That is why I have had to move two goals to 2009.

Did we fall? Yes. Did we stay down and give up? No. But, we had a shared vision of the future.

Now, you hear people saying that getting on a budget and focusing on what is important frees up money you didn't know you had. Truthfully, at first, I didn't believe this. I got nothing how could I be wasting money?

Well, that's exactly what happened. By budgeting, money was prioritized and went to achieve very focused small goals. Once goals were achieved, more money started freeing up. It started to snowball.

Which brings me to where I am now. My snowball is attacking my last debt with a vengeance. My old car payments, credit card payments, wife's braces, and 401(k) deductions are all focused on the last debt. Really, the debt doesn't have much of a chance and that's what I saw this month.

Some of you are probably struggling right now and just can't see a way out. Basically, where I was last year.

So imagine if you could take all those monthly payments and focus them on whatever financial goal you have. What would you do with that money? How much better off would your family be? How much less stress and anger would you have in your life.

The budget just keeps you in line and the goals just focuses that snowball.

Gamecock.. Just my thoughts

October 23rd, 2008 at 08:14 am

Personally, I think we have hit the bottom. And the technical analysis I have done seems to support it. Does this mean the technicals will start breaking down in the future? No. It means I have some expectations of what is occurring and so far the market is behaving the way I thought.

There is a concept in investing called capitulation. This is when everyone throws in the towel and gives up. In September, there was tremendous fear in the street. The pros were bailing out and moving to cash. Hedge funds were going under because they couldn't get there inventory out of Lehman. You might of heard something about prime brokers or other risks with Lehman. This is what they are talking about.

If you believe in Elliot Wave theory and how it pertains to the market, the last wave is when retail gives up. The Q3 statements hit people's mailboxes about 10/10. So I believe that we are seeing the last of the liquidations from the retail.

Now, I mentioned 8,451 on the dow. This was the low close. Sure the lowest point was 7,773 but in technical analysis it is the close that is important. Right now, I have support at 8,451. If you look at the chart, we keep bouncing off of 8,500. This is good, because to me it seems that the market has hit a bottom.

Now if you look at the VIX, it starting to top out. In other words, the markets are not getting more volatile, just the same highly volatile level.

With these signals, I have starting buying into the market. Did I lose a ton of money this year? You betcha.

The last is a little qualitative analysis. When Paulson handed all the money to the banks, he basically signaled that the banking infrastructure will not fail. This has in my opinion started to loosen up the credit markets. Right now, all I hear about is lower profits and recession. This is a far cry away from a global problem with the banking infrastructure.

But as I have said before, you this as an opportunity to assess your risk tolerance. Do not let fear drive you to a decision. What ever you decide is your investment philosophy, that philosophy should be followed in good times and bad.

As of this posting, the market is up 200 points.

Psychological goals are important too?

October 21st, 2008 at 12:17 pm

$10,000. It's just a number. $9,999 is only $1 less. Right? Or is it more? Is it going from a 5 digit number to a 4 digit number that big of deal? Does it really make sense that it FEELS like such a big deal? Maybe it just signals an end to a long road or a phase?

Does it even make sense? Should I even make a post about such a silly little thing? Is it embarrassing to feel I have to share this and can't keep it in? Does it really matter?

In any case, my total debt is below $10,000 (9,337 to be exact, but who's counting). What makes this number so important to me is that it's an ending of a negative phase and the beginning of a much more positive phase. It's not so much the financial aspects either. It's more of the communication with my wife, realigning our goals, coming together as a team, and really respecting each other's opinion.

Oh yea:

I wanna rock! (Rock)
I wanna rock! (Rock)
I want to rock (Rock)
I wanna rock! (Rock)

Turn it down you say,
Well all I got to say to you is time again I say, "No!"
No! No, No, No, No, No!
Tell me not to play
Well, all I got to say to you when you tell me not to play,
I say, "No!"
No! No, No, No, No, No!
So, if you ask me why I like the way I play it
There's only one thing I can say to you

I wanna rock! (Rock)
I wanna rock! (Rock)
I want to rock (Rock)
I wanna rock! (Rock)

Buy American. I Am.

October 17th, 2008 at 09:29 am


THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.


A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Source: http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&ref=opinion&pagewanted=print&oref=slogin


And that's what I am doing!!! I have been purchasing leaps (call options longer then a year)on companies that are down 80% but still have strong cashflows and balance sheets.

I just purchased some Jan 2011 call options on VMWare. I have also bought call options on some beat down financials.

If you want to be a long term investor, why not listen to greatest long term investor and a disciple of Graham?

As Buffet says, in the short term, no one knows where the market is going to go. It could drop another 1000 or go up another 5000.

But don't be foolish!!! "Be fearful when others are greedy, and be greedy when others are fearful."

Mid October Update

October 13th, 2008 at 10:43 am

Well, we are almost half way through the first month of the forth quarter. So far so good. I just accomplished another goal. I have added $15,500 to my 401k this year. It is maxed.

I also decided to move goal number 2, saving $15,000, over to next year.

I have so far put $1,533 towards my son's medical bill this month. I would like to put another $4,000 towards it. Again, my focus for this forth quarter is to pay off the medical and not incur any new debt during the holidays.

I have also started road mapping my goals for 2009. To me, this means taking my yearly budgets and breaking them down to quarterly goals and monthly goals. Since the amount of weeks in a month change, the goals for each month are slightly different.

One of the things I am really debating is paying off the house mortgage. I am all for paying down my mortgage aggressively so that it is a 15 year mortgage. The issue I have is above that.

I understand both arguments and they both make sense to me. The argument focuses on leverage. Paying of the mortgage eliminates leverage and reduces risk. Hard to be foreclosed on without a mortgage. The other argument is that leverage is good. If you borrow at 5.5% (my current mortgage rate), I could invest that in a diversified portfolio and make about 8% a year.

So there are two driving factors in my life. One being to reduce risk, and this was way before the stock melt down. The other is to start investing in real estate. And both are pulling me at about the same force.

As a compromise, I am currently looking at aggressively reducing my mortgage from 30 years to 15. At that point, I think I'll reevaluate.

I would love to hear other people's thoughts.

General Investing

October 8th, 2008 at 06:18 am

I thought I would blog a little about by investments and how I invest in general. So be forewarned.

Generally speaking, 85% of my portfolio is diversified as the experts say. I have a mix of large, small, and mid size companies. I have a mix of domestic, foreign, and emerging market. I have a mix of asset types bonds, stocks, money market. I have a mix od index funds and actively managed funds

I rebalance my allocations once a year in the first quarter. This in essence rebalances my risk. If emerging markets has a great year, my portfolio may be taking on bigger risks because a greater percentage is allocated to emerging markets then I initially thought should be. The other thing is that the market goes in cycles and by rebalancing, you are selling you winners to buy out of favor assets. In the longer term, rebalancing and dollar cost averaging outperform just dollar cost averaging.

What about the other 15%?

Well 10% of the 15% is allocated towards sector funds and is a little more speculative. These are funds that I think the pendulum has swung too far. In this case, I am investing in REITs and financials/banking.

The remaining 5% is more short term trading I do. I go long stocks, short stocks, and play in the option market. I have developed some quantitative models that narrow down the stocks that I research. Then I use technical analysis and fundamental analysis to determine when to make the trade and what to finally trade. So after everything is done I usually end up with a watch list of 10 stocks that I'll follow for months before trading.

One example is GS where I have been playing the volatility. I keep tight stops on this and so I don't lose much money. In general, I usually set up my day trades for the late afternoon. I try to determine what the day traders are doing and do the opposite. In other words, if I feel the day traders are short, I'll buy the stock around 1:30 or 2:00 and end the position before the market closes.

I have been following NCC trying to figure it out. I have been filling out an excel sheet detailing when I would trade it and if it would be a profitable trade. I am still not ready to trade it and may never trade it.

But let's go back to my sector funds. How do I determine whether to get into to what when?

Well I first start looking at the major indices. I try to start determining support. I had support of the Dow at 10,750 then I had it at 10,000. Now? I am still trying to figure it out. What I am looking for is the indices to find support and hold it. What this means to me is that the big players are done selling.

I also look at the VIX, which talks about fear on the street or volatility in the option market. Usually high volatility signals tops and bottoms. So, I am looking to see if the VIX starts to retrace (go down).

Now I start looking at my industry charts and I start looking at sector funds and ETFs. In the REITs, I am in a sector mutual fund. I bought ETFs for banking and financial services.

Basically, split my buys into 3 baskets. I start with a 25% investments and then a 50% investment and then another 25% investment. So let's say I am going to invest 10,000 in banking ETFs. My first invest would be 2,500 then 5,000 and then 2,500.

This year I did my initial investment of 25% in banking and financial ETFs in March. I have been waiting to put in by second allocation. I will wait until the VIX retreats and the sectors start rebounding before the second investment.

This is an over simplification, but it is a general overview of the large things I look at around investments. Also, I small percentage of my portfolio is in trading/speculative investments. And only 5% is in single names.

U.S. options fear gauge soars to record close

October 7th, 2008 at 01:29 pm

I won't be buying stocks until the VIX starts moving down. For those of you who don't know, the VIX is basically a fear measure. It looks at the volatility of options; and besides 1987, it's at an all time high.


By Doris Frankel

CHICAGO, Oct 6 (Reuters) - An index regarded as Wall Street's fear gauge surged to a record close on Monday as investors clamored for protection in anticipation of more stock market turmoil on worries over the widening credit crisis.

The Chicago Board Options Exchange Volatility Index .VIX, or VIX, surged to a record high of 58.24 before easing back to close up 15.31 percent to 52.05.

"This is absolutely amazing. The elevated VIX is reflecting that people are unsure about every financial relationship they have ever known not only in the U.S. but worldwide," said Joe Kinahan, chief derivatives strategist at thinkorswim Group.

Persistent strains in the credit markets added to nervousness about the wider economic outlook, while a spate of bank rescues in Europe heightened worries about the stability of global financial institutions.

"Not only are the U.S. banks in financial trouble but it appears that the European and foreign banks may be in worse trouble due to the credit crisis," Kinahan added.

The Dow Jones industrial average .DJI dropped 369.88 points to fall below 10,000 for the first time in four years. The Standard & Poor's 500 index .SPX fell 3.85 percent to 1,056.89.

The VIX, which reflects investors' consensus about anticipated stock market volatility over a 30-day period, tends to move inversely to the S&P 500 benchmark, and spikes upward when the market posts sharp losses.

The record level in the VIX on Monday reflects a change in the index made by the CBOE in 2003 to provide a more precise reading on stock market conditions, basing the index on the prices of the more popular S&P 500 options.

The old VIX, introduced in 1993, is based on S&P 100 options, a smaller basket of stocks. That index, the VXO .VXO ,also hit a multiyear high on Monday, closing up 14.95 percent at 59.50, after scoring a new peak of 66.42.

"With today's high on the VXO of 66.42, it is safe to say the uncertainty now exceeds all times in recent history, with the exception of the crash of 1987 when the old VIX hit 150.19 briefly and remained above the current levels until about Oct. 29, 1987," said Randy Frederick, director of derivatives at Charles Schwab in Austin, Texas.

From a contrary view of the markets, the spike in the VIX is possibly a sign that investors have overreacted and the equity market is oversold.

But being a contrarian during the recent stock market decline has not been a winning strategy, said Frederic Ruffy, options strategist at website WhatsTrading.com.

He noted each time the VIX moved above key levels at 30, 40 and 50 readings, the stock market experienced a short-term bounce but the rally proved to be short-lived and the S&P 500 eventually faltered, falling to new lows.

Volatility remains exceptionally high and with the ongoing problems in the credit markets, many would-be buyers are likely to remained sidelined, Ruffy added.

"After being burned so many times during the recent market decline, very few investors are going to dive in and try to catch the absolute bottom," Ruffy said. "Instead, they might wait for signs that volatility is indeed falling and that stocks have found a solid leg to stand on." (Reporting by Doris Frankel; Editing by Leslie Adler)

Source: http://www.reuters.com/article/marketsNews/idINN0633769120081006?rpc=44&pageNumber=2&virtualBrandChannel=0

Goals Review - September

October 1st, 2008 at 07:26 am

Another challenging month. I was basically trying to get back in the swing of things but two things happened. We took a vacation in September and the total cost was $850. A great time was had by all and I really can't complain at the end of the day. The second thing is that if I don't work, I don't get paid. So, it was a three paycheck month instead of four.

Good news is that I lived within my means and didn't need to take on any new debt. The bad news is I only paid off $1,000 towards debt.

So let's get started.

My goals for 2008 are:

1) Pay off debt (except mortgage) by October 1st
. DONE a) Pay off CC by April 1st
. DONE b) Pay off Car 1 by June 1st
. DONE c) Pay off Car 2 by Aug 1st
. DONE d) Pay off wife’s braces by June 1st
. e) Pay off son’s medical by October 1st
2) Invest $15,000 by year end
3) Invest $15,500 in 401(k)
DONE 4) Review and reallocate retirement funds by end of Q1
DONE 5) Will by end of Q2
DONE 6) Life Insurance by end of Q2
MOVED TO 2009 7) Save $4,000 for college by end of Q4

1) Pay off all debt but the mortgage by October 1st

Total Debt
09/30/2008 - $12,898 ($1,000 paid)

Son's medical (0% interest rate)
08/31/2008 - $12,898 ($1,000 paid)

This won't be paid off by today or for that mater this month. With only one quarter left, this will be my primary goal for Q4 – Entering 2009 with only mortgage debt.

2) Invest $15,000 by year end

With the holidays coming up, most of this will be pushed to 2009. But, I'll see how much I can accomplish by year end.

3) Invest $15,500 in 401(k)

Invest $15,500 in 401(k)
09/30/2008 - $14,991 invested

Will be done with my 10/10 paycheck.

4) Review and reallocate retirement funds by end of Q1


5) Will by end of Q2


6) Life Insurance by end of Q2


7) Save $4,000 for college by end of Q4

Moved to my 2009 goals. The $18k goal will fully catch me up to where I think I need to be with the 529 plans.


So, yea, life happens. Two goals will need to be moved to 2009 – saving $15,000 to top of the emergency fund and catching up on the kids college (the total goal for 2009 is $18,000).

Am I disappointed? Not at all. This is a journey; and looking back, I am in a lot better position then I was last year at this point. At this point last year, I had a son that was born in August. After being home for a few days, started having seizures. And medical bills were just starting to come in in October. I was living paycheck to paycheck and I knew drastic measures had to be taken.

I entered 2008 with debt of $49,442 and got a bill in June for more medical expenses of $4,498. I am looking to pay off $53,940 in debt this year and save $15,500 for retirement.

I also threw a great party for my wife in August that cost somewhere around $1,500 and went on vacation this last month for $850 and lost a week of pay.
I am not trying to brag or say look at me. I am just trying to point out that you can do this too. If you're in debt and feeling the pressure, perhaps you have small kids and a spouse you have to support, I understand. I have been there. YOU can change your path. YOU can succeed.

And with that, my Q4 goals (yes we are in Q4) are to pay off the remainder of my debt, save $15,500, and not incur new debt.

Remember, that this is the holiday season. I have started setting up a holiday budget. Not only for Christmas presents and wine for holiday parties but budget for tree, decorations, food and liquor for a party, wreaths, etc.

My Take On The Markets

September 25th, 2008 at 11:00 am

Where do I even start? Ok, first let me say that I don't hold presidents responsible for economic issues. So, I won't be bashing Bush, Clinton or Bush.

Was it caused by real estate speculators, the mortgage brokers writing loans with out proof of income and employment and 100% + loans, was it caused by credit agencies rating all the paper off of SIVs and CDOs AAA and Aaa?

I believe the underlying problem started after the S&L crisis. Coming out of the S&L we hit a little recession where the unemployment rate hit 7.5% and middle management was being squeezed. From 1991-1992, the fed lowered the fed fund rate 375 basis points in less then 2 years. This made credit very easy to get, whether it was buying stocks, loans for companies, and yes even mortgages.

When everything is clicking, this added leverage in the economy causes the economy to expand. Jobs are easy to find, labor pay increases … life is good. But leverage can also cut the other way too.

You could even go further back in time. The S&L crisis caused a recession which caused the fed to loosen the economy. The deregulation of the 1980's caused the S&L crisis. The inflation of the early 1980's caused the deregulation as a last ditch attempt for the S&Ls to save themselves. In the 1970's, S&Ls didn't realize that their business models were fundamentally changing and didn't have a plan when inflation hit.

I could probably go on and on. One thing feeding of another. If I had to choose one thing, it would be the fed aggressively open up credit to everyone in the 1990s, and this has evident in all industries, corporations,

So here we are today. We have underlying assets devalueing or correcting (which ever term you want to use). When these assets started to devalue, firms went out and raised capital (in other words debt). Some of the headlines were Baclays raises 4.5 billion, Fifth Third raise 2 billion, Lehman posts 3 billion loss and sets 6 billion stock sale.

But recently something happened in the markets. The write downs of the assets didn't stop and investors stopped loaning money and buying preferred stock.

So now we are in September, AIG's assets deterred to a point where they had to keep putting up more capital and just couldn't do it any more. Lehman was basically shut out of the capital markets. Write downs are still occurring and financial ratios are still deteriorating.

So what has the government done? First is to save AIG. AIG is basically the insurance provider for the financial industry. If they went under, it would have caused a ripple affect of failures as hedged positions became unhedged.

The second issue was the common citizen losing confidence in the financial system. This was seen when there was a run on money market accounts. Money Market accounts invest in safe short term paper (except the cash enhanced which invest in CP on SIV and CDOs. Black Rock wrote about this last December). In any case, if everyone sells out of a money market fund, the portfolio manager must liquidate the fund. This causes them not to get full value and liquidate for less then a dollar. We say State Street lose 35% of its value in one day because of this.

So the government has now set up $400 billion to guarantee that money markets will have a dollar price. This has had the effect of stopping the run on the mutual fund industry and chances are the none of the $400 billion will be used. If the market works with out panic, the portfolio managers can unwind there positions without forcing to liquidate at a fire sale.

The next piece is to free up capital and let the credit markets work again. This is the $700 billion. Right now, the institutions carrying this debt bad assets keeps writing them down and doesn't have capital to lend and people with capital to lend don't want to lend it because these write off just keep continuing.

Some the $700 billion is there to buy this debt from the financial institutions. The consensus is that the price will be above the fire sale price currently out there put below the maturity value of the debt. The government will then hold the securities until the market recovers or keep them to maturity. There is talk of starting with the MBS (mortgage backed securities) and moving to others.

So a MBS is security that represents a pool of mortgages. So they take a bunch the 30 year fixed at 5.5% and sell a slice to the bond fund. Most people pay there mortgages so most of the mortgages in the pool will be fine. It's just this small percent that will default and no one knows how much it is. So there is now a supply of MBS and not a lot of buyers. The yield on these are 15%-20%, so the are already steeply discounted.

Now the government is going to come in and basically buy the securities so the yield might be 10% - 15% and hold until the market recovers or the pools mature.

Personally, I expect the government to make money on the AIG deal and the MBS deal and maybe loss less then a billion on the money market thing. Also the terms are that the money will be available if needed. This usually means that the government will sell treasury if the money is needed, they don't have it on hand.

There is an urgency to this. You don't want the credit markets to sieze.

So that's my take. Hope it may sense.

Retirement Numbers

September 24th, 2008 at 08:38 am

Every financial site has there 2 cents on how to determine a retirement number. Some are complex formulas that use monet carlo simulations. They simulate various market conditions and inflation scenarios about a 1,000 times to spit out numbers like there is an 87% chance that you will reach 73% of your goal.

So what is a lay person to do?

Personally, I like simple and easy things. So the first thing is to determine the amount of income you need in retirement. Some sites say 80%, some others say less. I use 100% of my income.

Why? First, it is easy to compute (income * 100% = income). Secondly, I know I can live off this income (I am doing it know). Third, I am actually living below it so I have some cushion. Forth, even if I retired, my work related expenses would decrease but my leisure expenses would increase so it would probably be a wash.

Now take your income and multiply by 25. Why 25? Because 25 times your salary would allow you to withdraw your salary every year and allow for your savings to grow and keep up with inflation. So, if you could get an 8% return, you could take out 4% and increase your yearly withdrawal by 4% to keep pace with inflation.

But that number is huge!!! 25 times let's say 100k = 2.5 million. That is a lot of money. This number can also be adjusted down. If you have a pension, annuity, income producing real estate, or social security, you could reduce that number significantly.

Let's say I am going to get 1,500 a month for SS or 18,000 a year. I have a three family that's paid of when I retire and I can get 2,200 a month from that after expenses or 26,400 a year. Well, that's 44,400 a year in income. So theoretically, I would only need to generate 55,600 a year and my number would need to be 1.39 million instead of 2.5 million.

Now, I am figuring this all off of invested assets. I am not including my house, automobiles, furniture, etc. I am not including the house because I don't know where I will live in retirement. It may cost more or less. But I could live in my house for most of retirement.

I didn't include the rest because the resale value is negligible on a nest egg of 1.39 million.

What I also like is that this approach tends to be pretty conservative. In other words, I am retiring on what I am currently making adjusted for inflation without touching my 1.39 million nest egg. This allows me to have a cushion for the unforeseen, take care of nursing home expenses, leave a little something to the people I love, and most importantly not be a financial burden.


September 22nd, 2008 at 06:22 am

If you have under $100,000, you money is safe. Since FIDC started, it has not lost a penny of any depositors money under the $100,000 threshold. Either your deposits will be transferred to another FIDC insured bank or FIDC will send you a check.

If you have over $100,000 in one account (there are multiple type of accounts you can have and I think each one has the 100k limit), the acquiring bank can buy the deposits in full or a percentage (even 0%) of the uninsured deposits. So even though, the deposit is uninsured, you have a good chance of getting something. Of course, I would recommend you keep within those insured limits.

FDIC has its own fund. All FDIC banks pay a premium to the fund. If the fund were to run out, FDIC has the ability to borrow as much money as it needs directly from the Treasury. There is interest charged to the loan.

Most of the bank failures do not cause the FDIC to take a loss. Indy Mac is an example of one where the FIDC will need to pay money. It currently looks like FIDC will need to pay 8.9 billion for the 32 billion bank failure.

All the talk about the FIDC fund drying up is because the reserve ratio (the funds balance divided by insured deposits) fell to 1.01 in June form 1.19 in March. The FDIC is forced to restore the ration back to 1.15, meaning banks will need to pay a higher premium in 2009.

The decline from 1.19 to 1.01 was mainly due to 10.2 set aside for insurance losses. (This number does include 8 billion set aside for Indy Mac.)

This was the lowest level since 3/31/1995 when it was 0.98.

Sigh...Monster Up Day Setting up

September 19th, 2008 at 05:31 am

The futures are currently pointing to a huge up day today on top of the 400 point surge yesterday.

As I look premarket GS is up $32 to $140. STT is up $6 to $65. WM is up a buck to $4. Hell, Apple is even up almost $8. Oil is at $97.5 probably going down today. Gold is down $54.

So what happened? Is everyone drunk? Is it like someone about to jump off the ledge and the sun comes out?

"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. "


"U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change. "

Source: http://www.bloomberg.com/apps/news?pid=20601103&sid=am.XqrSCUntI&refer=news

AIG Deal and Changes to Naked Short Rules

September 17th, 2008 at 08:18 pm

AIG Deal

Just to be clear about the deal. It's an $85 billion 2 year revolving credit loan at 3 month LIBOR + 850 bps.

The loan is collateralized by all the assets of AIG which is estimated to be be about $1 trillion. Just the air leasing and foriegn life insurance division are estimated to be worth about $94 billion.

The other piece is a 79.9% equity stake in AIG, where the government can veto dividends to common and preferred shareholders.

Now the 3 month LIBOR is around 2.88. Or, the interest on the loan is 11.38%. That ain't cheap money and the government has enough power to liquidate the company and get their money first. But it did this to give AIG time to unravel and not have to put everything on a fire sale.

Source: http://www.federalreserve.gov/newsevents/press/other/20080916a.htm

Naked Shorts - Technical

The Commission's actions were as follows:

1)Hard T+3 Close-Out Requirement;

Penalties for Violation Include Prohibition of Further Short Sales, Mandatory Pre-Borrow

The Commission adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so.

If a short sale violates this close-out requirement, then any broker-dealer acting on the short seller's behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed. The prohibition on the broker-dealer's activity applies not only to short sales for the particular naked short seller, but to all short sales for any customer.

Although the rule will be effective immediately, the Commission is seeking comment during a period of 30 days on all aspects of the rule. The Commission expects to follow further rulemaking procedures at the expiration of the comment period.

2)Exception for Options Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed

The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.

As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.
Rule 10b-21 Short Selling Anti-Fraud Rule

The Commission adopted Rule 10b-21, which expressly targets fraudulent short selling transactions. The new rule covers short sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver. This rule also becomes effective at 12:01 a.m. ET on Thursday.

Source: http://www.sec.gov/rules/other/2008/34-58572.pdf

Russian Markets Halted as Emergency Funding Fails to Halt Rout

September 17th, 2008 at 06:30 am

Could be worse....

Sept. 17 (Bloomberg) -- Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.

The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.

The Finance Ministry attempted to stop the selloff by offering 1.13 trillion rubles ($44 billion) of budget funds to the country's three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, for at least three months. That measure came as KIT Finance, a Russian brokerage, said it's in talks to find a buyer after failing to meet some financial obligations related to repurchase agreements.

Bond Market `Closed'

``The bond market remains effectively closed and banks are reluctant to lend to one another,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.''

Finance Ministry Minister Alexei Kudrin said on state television that the decision to increase the amount of budget funds available to three state-controlled banks would ``smooth over the shock changes'' in the markets and enable the banks to make loans to smaller competitors.

``We must soften such shock changes connected with the market falling,'' Kudrin said. ``With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize.''

Sberbank, eastern Europe's biggest bank, can borrow as much as 754 billion rubles, VTB has a limit of 268.5 billion rubles and Gazprombank can get 103.9 billion rubles. About 400 billion rubles more of unspent budget funds is available to other banks.

``These are market-making banks capable of insuring the liquidity of the banking system,'' the Finance Ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.

Sberbank dropped 2.1 rubles, or 6.1 percent, to 32.55 rubles. VTB sank 0.44 kopek, or 14 percent, to 2.73 rubles, a record low.

``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aIRza4.azeC4&refer=worldwide

Russian Markets Halted as Emergency Funding Fails to Halt Rout

September 17th, 2008 at 06:29 am

Could be worse....

Sept. 17 (Bloomberg) -- Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.

The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.

The Finance Ministry attempted to stop the selloff by offering 1.13 trillion rubles ($44 billion) of budget funds to the country's three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, for at least three months. That measure came as KIT Finance, a Russian brokerage, said it's in talks to find a buyer after failing to meet some financial obligations related to repurchase agreements.

Bond Market `Closed'

``The bond market remains effectively closed and banks are reluctant to lend to one another,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.''

Finance Ministry Minister Alexei Kudrin said on state television that the decision to increase the amount of budget funds available to three state-controlled banks would ``smooth over the shock changes'' in the markets and enable the banks to make loans to smaller competitors.

``We must soften such shock changes connected with the market falling,'' Kudrin said. ``With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize.''

Sberbank, eastern Europe's biggest bank, can borrow as much as 754 billion rubles, VTB has a limit of 268.5 billion rubles and Gazprombank can get 103.9 billion rubles. About 400 billion rubles more of unspent budget funds is available to other banks.

``These are market-making banks capable of insuring the liquidity of the banking system,'' the Finance Ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.

Sberbank dropped 2.1 rubles, or 6.1 percent, to 32.55 rubles. VTB sank 0.44 kopek, or 14 percent, to 2.73 rubles, a record low.

``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aIRza4.azeC4&refer=worldwide

US Govt Owns 79.9% of AIG for 85 bill

September 16th, 2008 at 06:29 pm

WASHINGTON - In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG.

The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."

Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."

"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.

The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.

Earlier, Fed chairman Bernanke and Paulson met with Sen. Christopher Dodd, D-Conn., Majority Leader Harry Reid, D-Nev., and House Republican leader John Boehner of Ohio, to brief them on the government's option.

"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."

On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent — and another 45 percent after hours. Still, no deal emerged.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance — such as banks and other financial companies — would have found themselves without protection against losses on the debt they hold.

"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."

New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."

Source: http://news.yahoo.com/s/ap/ap_on_bi_ge/aig

BOA buys Merrill for 44 bill and Lehman No more

September 14th, 2008 at 08:21 pm

Seems that BAC bought Merrill for 44 billion and Lehman after 158 years in business is out.

Bank of America Reaches Deal for Merrill
September 15, 2008

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter.

Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation's largest force of stock brokers as well as a well-regarded investment bank.

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman's looming demise.

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."

Bank of America and Merrill Lynch wouldn't comment on any discussions.

Merrill would give Bank of America strength around the world, including emerging markets such as India. And Merrill is also strong in underwriting, an area Bank of America identified last week at an investors' conference where it would like to be more aggressive.

Dramatic Deal

A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis.

The integration of Merrill, known for its proud, and sometimes testy, brokerage force, could turn out to be the biggest test of Mr. Lewis's career. Typically, the bank has made one big deal and then taken time to carefully merge the two institutions. But in recent years, acquisitions have come at a furious pace. In 2004, the bank bought FleetBoston Financial Corp. A year later, the bank agreed to buy MBNA Corp., the credit-card firm. In 2007, Bank of America bought Chicago's LaSalle Bank as part of the break-up of Dutch bank ABN-Amro Holding NV. Then came this year's purchase of Countrywide.

As of Sunday evening, a deal had not yet been signed, said people briefed on the discussions. And other last-second bidders could emerge from the woodwork. Yet with news of the Bank of America talks breaking Sunday, it became all the more difficult for Merrill and Mr. Thain to rebuff a deal. Should the talks collapse, most on the Street were expecting Merrill's shares to fall even further amid widespread worries about independent broker-dealers.

Inside the Fed meetings in Lower Manhattan this weekend, there was a general worry that Merrill could be the next to fall after Lehman. Through the weekend, federal officials including Federal Reserve Bank of New York head Timothy Geithner made it clear that they strongly encouraged a deal to sell Merrill, said people familiar with the matter said.

If struck, a deal would come together at breakneck speed. On Friday, Bank of America's top executives were pushing for a deal with Lehman Brothers, scrambling to perform due diligence on Lehman's books. Just 48 hours later, they were locked in discussion with Merrill and its top executives.

During the flurry of historic dealmaking this weekend, Merrill approached Morgan Stanley about a possible deal, which would have united two of Wall Street's oldest brands, according to a person familiar with the talks. But the talks didn't go anywhere because there wasn't enough time for Morgan Stanley to review the idea and Merrill wanted to do the deal quickly, this person said. Merrill was also stepping up talks with commercial banks both in Europe and the U.S. While Mr. Thain had once orchestrated a trans-Atlantic deal for his old firm, NYSE Euronext, in this race, a U.S. deal proved the quickest, best option for Merrill.

'The Ultimate Realist'

"I think John Thain at Merrill is the ultimate realist," Ms. Bush said, the analyst, who expected federal regulators to bless the deal by relaxing deposit limits for bank-holding companies. "He knows if Lehman goes under he is not far behind. He wants to cut the best deal he can."

In the past 15 months, Merrill and Lehman have both had tens of billions of dollars worth of risky, illiquid assets carried on balance sheets that were leveraged at a debt-to-equity ratio of more than 20 to one. When the credit crunch hit in mid-2007, the assets kept deteriorating in value and couldn't easily be sold, eating into both firms' capital cushion. Recently, Lehman's balance sheet topped $600 billion and Merrill's $900 billion.

Merrill's one-time chief Stan O'Neal was ousted in October 2007, and his successor, Mr. Thain, tried to repair the firm's balance sheet by arranging an infusion of more than $6 billion in capital starting last December by investors led by Temasek Holdings, a Singapore government investment fund.

But as the losses kept coming this year, Mr. Thain was forced in July to sell a huge slug of more than $30 billion in collateralized debt obligations at a price of just 22 cents on the dollar. That step required the firm to raise still more capital, under painful terms that re-priced some of the December stock sales at about half the original price.

One top Merrill executive lamented the pending sale of the venerable company, saying "it's sad but inevitable." This executive said that he was pleased it was Merrill, rather than rival broker Morgan Stanley, that was hatching a deal with Bank of America.

The fate of both Morgan Stanley and Goldman Sachs will be front and center Monday morning, as the Street wakes up to a world where the independent broker-dealer are increasingly thin in number.

This tumultuous year has made it clear that investment banks like Lehman and Bear Stearns face vulnerabilities that commercial banks such as J.P. Morgan and Bank of America are less prone to. The investment banks must constantly depend on short- and medium-term money markets to fund their operations. Commercial banks, meanwhile, can count on more stable consumer deposit bases.

In a highly volatile market, some advantages accrue to banks that can rely on those more stable deposit bases.

At Merrill, "we became convinced that for investment banking to be possible, we need to be part of a much bigger capitalized commercial bank," the Merrill executive said.

Merrill acted to avoid the same fate as Bear Stearns and Lehman, some analysts said. "Bear didn't think it could happen to them and Lehman didn't think it could happen to them either," said analyst David Trone of Fox-Pitt, Kelton. "I think management looked at Bear and Lehman and said we're not going to go down that slope, we're going to try and get our shareholders something before we end up in the same camp."

source: http://online.wsj.com/article/SB122142278543033525.html?mod=special_coverage

Wall Street Prepares for Potential Lehman Bankruptcy (Update3)

By Craig Torres and Shannon Harrington

Sept. 14 (Bloomberg) -- Wall Street readied for a potential Lehman Brothers Holdings Inc. bankruptcy after Bank of America Corp. and Barclays Plc pulled out of talks to buy it and the government indicated it wouldn't provide funds to prevent a collapse.

Banks and brokers today held a session for netting derivatives transactions with Lehman, or canceling trades that offset each other, in case the New York-based firm files for bankruptcy before midnight.

``The purpose of this session is to reduce risk associated with a potential Lehman'' bankruptcy, the International Swaps and Derivatives Association said in a statement today. The ISDA includes 218 banks, brokerages, insurance companies and other financial institutions from the U.S. and abroad.

The step indicates Wall Street lacks confidence that three days of talks to find a buyer for Lehman, held at the Federal Reserve Bank of New York, will be successful. Treasury Secretary Henry Paulson, who has led the talks with New York Fed President Timothy Geithner, was adamant two days ago against using taxpayer funds to help a purchaser take Lehman over.

U.S. regulators are betting that the financial system will be able to withstand the failure of a large institution without severe disruptions to an already weak economy.

A benchmark gauge of credit risk that banks and investors use to speculate on corporate creditworthiness or to hedge against losses was being quoted at the widest levels ever, contingent on a Lehman bankruptcy.

Confidence Deteriorates

The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, was trading at about 200 basis points, said Brian Yelvington, a strategist at CreditSights Inc. in New York. It closed at 152 basis points Sept. 12, according to CMA Datavision in London. The index, which rises as investor confidence falls, reached 198 basis points in March, CMA data show.

A gauge of risk in the U.S. leveraged-loan market that falls as credit risk increases was being quoted 1.75 percentage points lower, contingent on a Lehman bankruptcy, according to Goldman Sachs Group Inc. The Markit LCDX index was being quoted at a mid- price of 94.25. The index is tied to the high-yield, high-risk loans of 100 companies.

If Lehman files for bankruptcy, ``that obviously puts a lot more risk in the market, so it's definitely going to be wider,'' Yelvington said.

Paulson's Stance

Paulson opposed using government money because Wall Street has had time to prepare for the Lehman situation, a person familiar with his thinking said two days ago. That would make the case different from the Bear Stearns Cos. collapse in March, when the Fed provided $29 billion of financing to help JPMorgan Chase & Co. take over the firm.

``Treasury and the Fed have determined that markets have adjusted to the situation since Bear Stearns,'' said Gilbert Schwartz, a partner at Schwartz & Ballen LLP in Washington and a former Fed Board attorney. ``If the markets, every time a big institution went bust, expected the government to step in, no one would ever adapt.''

Paulson, Geithner and Securities and Exchange Commission Chairman Christopher Cox held talks with Wall Street chiefs from the evening of Sept. 12.

The market value for all over-the-counter derivatives swelled 50 percent last year to $14.52 trillion, with interest- rate contracts accounting for almost half of the total, according to the Bank for International Settlements.

Insolvent Banks

After the Bear Stearns episode, Paulson pushed for a resolution mechanism to shutter a failing investment bank, similar to how the Federal Deposit Insurance Corp. resolves insolvent commercial banks.

``We must limit the perception that some institutions are either too big or too interconnected to fail,'' Paulson said in a June 19 speech. ``If we are to do that credibly, we must address the reality that some are.''

Without such a mechanism in place, a failing firm has the option of filing for bankruptcy. Bear Stearns officials told the Fed in March they would have to make such a filing without emergency assistance.

Fed Chairman Ben S. Bernanke said in April that he wanted to avoid another Bear Stearns case.

``The financing we did for Bear Stearns is a one-time event,'' Bernanke said in April. ``It's never happened before and I hope it never happens again.''

Lehman Trades

The fourth-largest securities firm until the past week, Lehman has thousands of such trades in credit, equity, commodity, interest rates and currency derivatives.

The ISDA said the ``netting trading session'' began at 2 p.m. and will continue until at least 6 p.m. New York time.

``Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time, Sunday, Sept. 14, 2008,'' the ISDA said. ``If there is no filing, the trades cease to exist.''

Barclays, the U.K.'s third-biggest bank, said earlier today it abandoned talks to buy Lehman, contending it couldn't obtain guarantees to protect against potential losses at the U.S. securities firm.

Less than three hours after the Barclays news, Bank of America also pulled out, according to a person with knowledge of the matter.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.netShannon Harrington in New York at Sharrington6@bloomberg.net

source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNMh_8NRE6QM&refer=worldwide

Goals Review - August

September 3rd, 2008 at 09:51 am

Wow, what a month. My wife's birthday in Boston wasn't cheap but worth it and everyone had a great time. Went on a mini vacation to New Hampshire with 2 other families and went Storyland (amusement park for little kids). Greatest part no new debt!!!

So let's get started.

My goals for 2008 are:

1) Pay off debt (except mortgage) by October 1st
. DONE a) Pay off CC by April 1st
. DONE b) Pay off Car 1 by June 1st
. DONE c) Pay off Car 2 by Aug 1st
. DONE d) Pay off wifes braces by June 1st
. e) Pay off sons medical by October 1st
2) Invest $15,000 by year end
3) Invest $15,500 in 401(k)
DONE 4) Review and reallocate retirement funds by end of Q1
DONE 5) Will by end of Q2
DONE 6) Life Insurance by end of Q2
MOVED TO 2009 7) Save $4,000 for college by end of Q4

1) Pay off all debt but the mortgage by October 1st

Total Debt
08/31/2008 - $13,898 ($2,162 paid)

Wife's braces (0% interest rate)
08/31/2008 - $0 ($1,560 paid)

All paid off!!!

Son's medical (0% interest rate)
08/31/2008 - $13,898 ($602 paid)

And then there was one. Only on debt left!!! Not a bad month, I had some extra expenses I need to pay also, like preschool and life insurance policy on top of the fun money a mentioned above.

Next week, I am going to the Cape for vacation. I wouldn't get paid for that week from work. I figure I need to save about $350 from my next paycheck in order to be able to get through the week. I have a budget of about $500. The place is paid for. So, it's pretty much gas to get me there, miniature golf, maybe one a meal out, and some groceries. Maybe I should up it to $750. I'll need to go through the finally budget numbers with the wife.

2) Invest $15,000 by yearend

This goal will be started in Q4, only a month away. This is really just to top off my emergency fund.

3) Invest $15,500 in 401(k)

Invest $15,500 in 401(k)
08/31/2008 - $13,848 invested

I am thinking this goal will be accomplished with my 10/10 paycheck, then I'll go back to goal 2.

4) Review and reallocate retirement funds by end of Q1


5) Will by end of Q2


6) Life Insurance by end of Q2

DONE. Bill paid!!!!

7) Save $4,000 for college by end of Q4

I am actually moving this to my 2009 goals. The $18k goal will fully catch me up to where I think I need to be with the 529 plans. Basically, if I started saving $2k a year for each at birth.


So, this is the last month of the third quarter. I am still on track for the end of the year. I'll take another look this month at my 2009 goals and see what I need to do now to stay on track.

As an aside, you should have a will and life insurance policy. If you haven't done it yet, set it up as a Q4/Q1 goal. Being a man or a woman today means being responsible for your family. If you are gone, what happens to your family? If you and your spouse are gone what happens to your family or pets? Do you have enough money to take care of the house, children, college? Just do the right thing and get it done.

Also, Q4 is less then a month away. I have already started looking at budgeting for the holiday season.

U.S. Says Banks on `Problem List' Rose 30% in Quarter

August 27th, 2008 at 09:43 am

Aug. 26 (Bloomberg) -- The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased 30 percent in the second quarter to the highest total in five years as more commercial real-estate loans were overdue.

The list had 117 banks as of June 30, up from 90 in the first quarter and the highest since mid-2003, the agency said today in its quarterly report without naming any institutions. FDIC-insured lenders reported net income of $4.96 billion, down 87 percent from $36.8 billion in the same quarter a year ago.

``More banks will come on the list as credit problems worsen,'' FDIC Chairman Sheila Bair said at a news conference in Washington.

Regulators are adding to the list as bank assets, liquidity and other fiscal measures weaken. Nine banks have failed this year, including California-based mortgage lender IndyMac Bancorp Inc., which the FDIC is running as a successor institution, IndyMac Federal Bank FSB.

IndyMac's failure will cost the U.S. deposit insurance fund about $8.9 billion, exceeding a $4 billion to $8 billion estimate, said Diane Ellis, the associate director of financial- risk management. The FDIC discovered additional insured deposits and had time to value the assets, Ellis said.

Second-Lowest Earnings

Second-quarter earnings fell from $19.3 billion in the previous quarter, driven by higher provisions for loan losses, the FDIC said. It was the second-lowest net income reported since the fourth quarter of 1991 behind the $600 million reported in the fourth quarter of 2007, the agency said.

``The results were pretty dismal, and we don't see a return to the high earnings levels of previous years any time soon,'' Bair said.

Funds set aside by banks to cover loan losses more than quadrupled to $50.2 billion from $11.4 billion in the year- earlier quarter.

Loans 90 days or more overdue, deemed troubled by the FDIC, jumped 20 percent to $162 billion from $136 billion in the first quarter, the FDIC said. Real-estate loans accounted for almost 90 percent of the rise in the past three quarters, the agency said.

The deposit insurance fund fell 14 percent to $45.2 billion and the reserve ratio, or balance divided by insured deposits, was 1.01 percent. The FDIC is required to shore up the fund when the ratio falls below 1.15 percent.

Higher Premiums

The agency in October will consider a plan to replenish the account that will likely include an increase in the premiums charged banks, Bair said.

A greater share of the increase will be shifted to ``riskier institutions so that safer institutions won't be unduly burdened,'' she said.

Lenders on the ``problem list'' had assets of $78.3 billion at the end of the second quarter, triple the $26.3 billion in the first quarter, the agency said. The FDIC said IndyMac's assets represented $32 billion of the increase.

Many banks on the list have high levels of commercial real- estate loans, especially in construction and development loans, said John Corston, the FDIC's associate director of large bank supervision. The number of problem institutions will continue to rise, he said.

``Problem institutions continue to be scattered across the country,'' Corston said. ``However, we expect to see some migration to areas experiencing the greatest stress.''

Regulators rate banks based on their asset quality, earnings, liquidity and other fiscal measures. Banks are ranked on a numerical scale, with 1 being the highest and 5 the lowest. A rating of 4 or 5 places a bank on the ``problem'' list.

The FDIC is a Washington-based bank regulator that insures deposits at 8,451 institutions with $13.3 trillion in assets.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aXGDnqbSdt.s&refer=worldwide

Highest level since 2003. I don't remeber worring to much about bank's solvency in 2003. I did in 1991 though.

Inflation Could Be Worse

August 20th, 2008 at 09:59 am

Zimbabwe "inflation rocketed to a staggering 11 million percent in June, the highest in the world, from 2.2 million in May, and chronic food, fuel and foreign currency shortages are worsening.

But many economists believe the figure is higher still and it has little meaning for Zimbabweans, who find that a loaf of bread costs almost five times more than it did a month ago -- if it can be found for sale."

Source: http://www.reuters.com/article/marketsNews/idUSLJ72598820080819?pageNumber=2&virtualBrandChannel=0

Mid August Update

August 19th, 2008 at 06:07 am

We are half way through the third quarter. So far this has been a tough quarter. I paid of $4,500 in wife medical, paid life insurance policy of $920, paid for my wife's birthday party of $1,500, and need to save $500 for a vacation in September. The vacation house is paid for the week in Chatham down on the Cape. All I need to do is my some groceries (read beer and wine), probably a dinner out, and entertainment (read mini golf and ice cream). So, $500 should be enough maybe I should save $750, now that I am thinking out load.

Anyway, before that last tangent, that's over $7,400 in expenses that I paid out that didn't go to reducing debt. At first glance, I look at my debt and *sigh* thinking of how much more I could have paid down. But you know, I don't feel that bad. At the end of day, I am talking about probably $2,000 I could have put towards the debt.

Needless to say, I am back on track. I am looking at paying of my wife's braces this month and then attacking my son's medical. Also, looking at getting over the $3,000 mark for debt payment in September.

So, this quarter was all about rolling with the punches and being flexible in the budget. The most important thing NO NEW DEBT!!!!

I also started posting my 2009 goals on the left and added a new page with retired debt. Just trying to declutter the webpage a little.

Exxon Mobil and Obscene Profits

August 7th, 2008 at 01:21 pm

The profits Exxon Mobil made fro Q2 are obscene. No firms should make that much. Right? But should we stick to one sector? Are there other companies making obscene profits?

How would be compare? I say we use the Net Profit Margin come up with a number and then take 100% of profits over that number. So Net Profit Margin for Exxon is profit divided by revenues. So thats, $11.6 billion obscene dollars divided by $138 billion in revenue or 8.4%. So if a company makes 8.4 cents of profit on every dollar of revenues they sell, it's considered obscene.

Ok Google has a net profit margin of 25%. Talk about obscene. That' s 297% more obscene then Exxon.

In fact, the average net profit margin of the S&P is over 9%. Healthcare industry is at 12.28%, tech at 9.31%, Internet firms at 20.8%, and Personal products at 11%.

Over half the companies in the S&P 500 are gouging us. From banks to computers, to household companies. I say stop the gouging and cap the net profit margin at 5%. Anything above should be taxed at 100%.

It's time that companies stop gouging the American public. These companies would be forced to either increase their costs (like hiring people) or reduce their prices. Every company would be on a level playing field.

Source: http://biz.yahoo.com/p/s_conameu.html

I almost forgot those evil railroads at 13.5%.

Goals Review - July

July 30th, 2008 at 07:05 am

My boat's capsized
it's gonna sink to the bottom
I can see the lights on the shore
getting farther away

I don't if I'll make it home tonight
but I know I can swim
under the Tahitian moon

Yes my boat did capsize. And as it was sinking, the lights on the debt free shore were getting farther away. So, I don't know when I'll be done, but I know I can swim. And what better place to swim then under a Tahitian moon?

All in all, a good month and looking forward to August. 2 things I have to be aware of in August: My wife's birthday party and saving for vacation in September. The vacation is paid for and all set. But if I don't work, I don't get paid. So I got to save a little to make sure the bills get paid.

So let's get started.

My goals for 2008 are:

1) Pay off debt (except mortgage) by October 1st
. DONE a) Pay off CC by April 1st
. DONE b) Pay off Car 1 by June 1st
. DONE c) Pay off Car 2 by Aug 1st
. d) Pay off wifes braces by June 1st
. e) Pay off sons medical by October 1st
2) Invest $15,000 by year end
3) Invest $15,500 in 401(k)
DONE 4) Review and reallocate retirement funds by end of Q1
DONE 5) Will by end of Q2
DONE 6) Life Insurance by end of Q2
7) Save $4,000 for college by end of Q4

1) Pay off all debt but the mortgage by October 1st

Total Debt
07/30/2008 - $16,060 ($1,585 paid)

Car 2 (3.9% interest rate)
07/30/2008 - $0 ($929 paid)

All paid off!!!

Wife's braces (0% interest rate)
07/30/2008 - $1,560 ($156 paid)

Son's medical (0% interest rate)
07/30/2008 - $14,500 ($500 paid)

Wife's medical (Not included in total)
06/01/2008 - $4,498.52
06/25/2008 - $1,498.52 ($3,000 paid)
07/30/2008 - $0 (1,498.52 paid)

So all I have left is the wife's braces and the son's medical. I paid off the wife's medical form 2007 and the second car (I'll send in the payment next week).

All in all, not bad. I am getting back on track and looking forward to pay off the braces this month.

2) Invest $15,000 by yearend
This will be started in Q4.

3) Invest $15,500 in 401(k)

Invest $15,500 in 401(k)
07/30/2008 - $11,787 invested

Right on target to finish this up in October. Just chugging along.

4) Review and reallocate retirement funds by end of Q1


5) Will by end of Q2


6) Life Insurance by end of Q2

DONE. Just received a letter that everything looks good from my physical and I have been approved for a policy. Just waiting for the bill.

7) Save $4,000 for college by end of Q4

Looking for 4th quarter on this.


So, even though Murphy took the wind out of my sails, I am starting to make progress again. Even though good old Murph threw me off about 5-6 weeks, I didn't change my goals for the year. They were very aggressive before and should be all but impossible now. But, the aggressive goals keep me focused and on point. I feel you need to keep them out of reach but not impossible.

Rough Goals for 2009? Already?

July 28th, 2008 at 10:37 am

At one time in my life, I managed a staff of 35 with a budget of $10 million. This time each year I would start preparing my budget. I would list what I needed to do for the remainder of the year and what big projects I would do in the next year. Some of the stuff that was budgeted was additional phases for existing projects, others were new projects, and some was maintenance.

This caused me to focus and what I really needed to get done in the last 5 months of the year and what I could do now to achieve my goals for 2009. It could be educating myself about some project before it started. It could be altering a current project slightly to make a future project easier.

The point was to line everything up and start removing any roadblocks that I could see in the road. And with that, I am starting to think about my goals for 2009. Some of tmy goals for 2008 may spill over, but hopefully not.

So there are basically two types of goals: tactical and strategic. My strategic goals are my long term goals of financial freedom (not having to work for a living), starting a real estate investment business, and spending more quality time with my family.

Now my tactical goals are what do I need to accomplish to move me towards these goals.

My 2008 goals were to set down a solid foundation (get out of debt, emergency fund, college savings, will, and life insurance) as well as some maintenance goals (max 401(k) contributions and rebalancing portfolio).

So for 2009, the maintenance goals will move forward. (max 401(k) contributions, rebalancing portfolio, and college savings). That's the no brainer as far as goals go.

The next step of goals is to start thinking about the next tactical steps to achieving my long term goals. The first few will be to continue saving.

The first goal will be to fully fund the college account for both kids. I will add $14,000 to their college fund over the year. In other words, I am going to catch up to where the accounts should be if I was contributing $2,000 per kid per year.

The second goal would be to save an additional $15,000 into investment accounts. This I can use for the business eventually or other big ticket items. I am thinking of saving 100k for the business. I want to go in cash heavy to start off cash flow positive with capital left (kind of like a business emergency fund).

The next goal is to continue to pay down debt. In this case, paying down on my mortgage at a rate of $2,000 $3,000 a month. If I do $2,000, it will be paid off on 12/1/2017. If I do $3,000, it will be paid off on 10/1/2015.

So the last goal is to educate myself. This would include personal finance, how to run a business, real estate market, land lording, etc.

That's how my goals for 2009 are shaping up. I'll probably finalize them in Sept/Oct and then post them on the left.

So what are your goals next year and what are you doing today to help you to achieve them? You only have 5 months left.

He ventured forth to bring light to the world

July 25th, 2008 at 08:03 am

And it came to pass, in the eighth year of the reign of the evil Bush the Younger (The Ignorant), when the whole land from the Arabian desert to the shores of the Great Lakes had been laid barren, that a Child appeared in the wilderness.

The Child was blessed in looks and intellect. Scion of a simple family, offspring of a miraculous union, grandson of a typical white person and an African peasant. And yea, as he grew, the Child walked in the path of righteousness, with only the occasional detour into the odd weed and a little blow.

When he was twelve years old, they found him in the temple in the City of Chicago, arguing the finer points of community organisation with the Prophet Jeremiah and the Elders. And the Elders were astonished at what they heard and said among themselves: Verily, who is this Child that he opens our hearts and minds to the audacity of hope?

In the great Battles of Caucus and Primary he smote the conniving Hillary, wife of the deposed King Bill the Priapic and their barbarian hordes of Working Class Whites.

And so it was, in the fullness of time, before the harvest month of the appointed year, the Child ventured forth - for the first time - to bring the light unto all the world.

He travelled fleet of foot and light of camel, with a small retinue that consisted only of his loyal disciples from the tribe of the Media. He ventured first to the land of the Hindu Kush, where the

Taleban had harboured the viper of al-Qaeda in their bosom, raining terror on all the world.

And the Child spake and the tribes of Nato immediately loosed the Caveats that had previously bound them. And in the great battle that ensued the forces of the light were triumphant. For as long as the Child stood with his arms raised aloft, the enemy suffered great blows and the threat of terror was no more.

From there he went forth to Mesopotamia where he was received by the great ruler al-Maliki, and al-Maliki spake unto him and blessed his Sixteen Month Troop Withdrawal Plan even as the imperial warrior Petraeus tried to destroy it.

And lo, in Mesopotamia, a miracle occurred. Even though the Great Surge of Armour that the evil Bush had ordered had been a terrible mistake, a waste of vital military resources and doomed to end in disaster, the Child's very presence suddenly brought forth a great victory for the forces of the light.

And the Persians, who saw all this and were greatly fearful, longed to speak with the Child and saw that the Child was the bringer of peace. At the mention of his name they quickly laid aside their intrigues and beat their uranium swords into civil nuclear energy ploughshares.

From there the Child went up to the city of Jerusalem, and entered through the gate seated on an ass. The crowds of network anchors who had followed him from afar cheered Hosanna and waved great palm fronds and strewed them at his feet.

In Jerusalem and in surrounding Palestine, the Child spake to the Hebrews and the Arabs, as the Scripture had foretold. And in an instant, the lion lay down with the lamb, and the Israelites and Ishmaelites ended their long enmity and lived for ever after in peace.

As word spread throughout the land about the Child's wondrous works, peoples from all over flocked to hear him; Hittites and Abbasids; Obamacons and McCainiacs; Cameroonians and Blairites.

And they told of strange and wondrous things that greeted the news of the Child's journey. Around the world, global temperatures began to decline, and the ocean levels fell and the great warming was over.

The Great Prophet Algore of Nobel and Oscar, who many had believed was the anointed one, smiled and told his followers that the Child was the one generations had been waiting for.

And there were other wonderful signs. In the city of the Street at the Wall, spreads on interbank interest rates dropped like manna from Heaven and rates on credit default swaps fell to the ground as dead birds from the almond tree, and the people who had lived in foreclosure were able to borrow again.

Black gold gushed from the ground at prices well below $140 per barrel. In hospitals across the land the sick were cured even though they were uninsured. And all because the Child had pronounced it.

And this is the testimony of one who speaks the truth and bears witness to the truth so that you might believe. And he knows it is the truth for he saw it all on CNN and the BBC and in the pages of The New York Times.

Then the Child ventured forth from Israel and Palestine and stepped onto the shores of the Old Continent. In the land of Queen Angela of Merkel, vast multitudes gathered to hear his voice, and he preached to them at length.

But when he had finished speaking his disciples told him the crowd was hungry, for they had had nothing to eat all the hours they had waited for him.

And so the Child told his disciples to fetch some food but all they had was five loaves and a couple of frankfurters. So he took the bread and the frankfurters and blessed them and told his disciples to feed the multitudes. And when all had eaten their fill, the scraps filled twelve baskets.

Thence he travelled west to Mount Sarkozy. Even the beauteous Princess Carla of the tribe of the Bruni was struck by awe and she was great in love with the Child, but he was tempted not.

On the Seventh Day he walked across the Channel of the Angles to the ancient land of the hooligans. There he was welcomed with open arms by the once great prophet Blair and his successor, Gordon the Leper, and his successor, David the Golden One.

And suddenly, with the men appeared the archangel Gabriel and the whole host of the heavenly choir, ranks of cherubim and seraphim, all praising God and singing: Yes, We Can.

source: http://www.timesonline.co.uk/tol/comment/columnists/gerard_baker/article4392846.ece

Mid July Update

July 18th, 2008 at 10:01 am

Well, I have been comparing my journey to get out of debt to the Boston marathon.

I first phase is to find a good pace. You dont want to come out too fast or youll just run out of stem and quit. You dont want to come out too slow because youll never finish. For each of us the journey is different. Some of us will finish in 2 hours and some of us will take 8 hours. And much like the Boston marathon people will be cheering us on regardless. Come on!! Youre almost there!! You can do this!!!

The second phase is when we find that pace. Ah, life is good, things are turning around. I CAN do this. We are cruising along and we can see the road ahead of us. The crowds are cheering and we feel good.

The third phase are the Newton hills. Its really a stretch of 5 miles of four hills. The last hill is .4 miles long and rises 88 feet. This is where I am and am about to crest the hill. Thats right. This weekend I will be putting the last money towards my wifes $4,400 medical expense that we just got billed on from last year.

The last phase of the marathon is 5 miles of little nasty hills, where your body is broken down and it just your mind pushing you on. I can see some of this course coming up. I have to allocate some money for a vacation in September because if I dont work then I dont get paid, by wifes birthday party in Boston in August (I should be able to cash flow it), and my wants.

Yes I said it My wants. I want a riding lawn mower for my acre of yard, I want a shed, I want a sprinkler system, my wife wants new furniture, my wife wants new clothes . We know what we must do, but we still feel the pull and its getting greater the closer we get to the end of this phase.

Getting out of debt may not be rocket science, but it sure aint easy.

Time for team Merch to have a pep talk and keep the focus.

Truckin, like the do-dah man. once told me youve got to play your hand
Sometimes your cards aint worth a dime, if you dont layem down,

Sometimes the lights all shinin on me;
Other times I can barely see.
Lately it occurs to me what a long, strange trip its been.

The facts on bank failure

July 16th, 2008 at 02:24 pm

With the failure and government bailout last week of IndyMac, the fifth bank to fail this year, here are some questions and answers about what happens when a bank fails.

Q.What happens when the government takes over a bank?

A. In such a scenario, called a conservatorship, a bank's regulator takes control of the company and oversees the operations. The move is to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by the bank.

Q.Is my bank at risk?

A. John Bovenzi, the former chief operating officer of the Federal Deposit Insurance Corp., which guarantees bank deposits up to $100,000, has said that bank failures have been rare in the past, and that if more banks do fail, the government has enough in reserve. According to regulatory policy, there is no advance notice given to the public before a bank's assets are seized by federal regulators.

Q.How can I make sure my money is safe?

A. All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured up to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

In a joint account, each depositor is insured up to $100,000.

The FDIC has information about its insurance on its website, at http://www.fdic.govdeposit/deposits/insured/yid.pdf.

Q.How much money does the FDIC have?

A. The FDIC has nearly $53 billion in insurance funds. Beyond that figure, Bovenzi said the FDIC would have go to other banks to raise more money, adding that in such a case, consumers could expect to see some of that amount passed on to them in the form of higher fees.

The current estimated loss to the FDIC resulting from IndyMac's failure is between $4 billion and $8 billion.

Q.How big does FDIC like to keep its deposit insurance fund?

A. The FDIC board of directors has set a designated deserve ratio of 1.25 percent. That means their ''target'' balance for the fund is 1.25 percent of estimated insured deposits. As of March 31, the fund was $52.843 billion and insured deposits were $4.431 trillion, which resulted in a reserve ratio of 1.19 percent, 0.06 percentage point below the Board's target. If the fund falls below 1.15 percent of estimated insured deposits, the FDIC is required by law to adopt a restoration plan that will bring the reserve ratio back to 1.15 percent within five years.

Q.Do banks have to pay into the deposit insurance fund?

A. Yes. The total amount depends upon the assessment rate assigned to the institution and the size of its assessment base -- which is roughly equal to an institution's total domestic deposits. Assessment rates are assigned to institutions based upon the risk they pose to the fund, and currently range from 0.05 percent to 0.43 percent, with the vast majority if institutions -- almost 94 percent -- paying between 0.05 percent and 0.07 percent.

Q.Does the government's decision to aid Fannie Mae and Freddie Mac help the nation's banks?

A.Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte, says yes. ''As mortgage money becomes harder to get and real estate prices go down even more, the solvency of many banks is called into question,'' Plath said. ``The Fed is moving to protect the solvency of the banking industry by maintaining integrity.''

Source: http://www.miamiherald.com/business/story/606067.html

The 10 Biggest U.S. Bank Failures

July 16th, 2008 at 02:18 pm

With an estimated $32 billion in assets, IndyMac Bank of Pasadena, Calif., which federal regulators seized Friday, is poised to become the third-largest bank failure in American history. Here is a list of the top 10 failures, based on total assets, according to Federal Deposit Insurance Corp. data covering 1934 through 2007.

1. Continental Illinois National Bank and Trust, Chicago (1984)
Total assets: $40.0 billion

2. First Republic Bank, Dallas (1988)
Total assets: $32.5 billion

3. American S&LA, Stockton, Calif. (1988)
Total assets: $30.2 billion

4. Bank of New England, Boston (1991)
Total assets: $21.7 billion

5. MCorp, Dallas (1989)
Total assets: $18.5 billion

6. Gibraltar Savings, Simi Valley, Calif. (1989)
Total assets: $15.1 billion

7. First City Bancorporation, Houston (1988)
Total assets: $13.0 billion

8. Homefed Bank, San Diego (1992)
Total assets: $12.2 billion

9. Southeast Bank, Miami (1991)
Total assets: $11.0 billion

10. Goldome, Buffalo (1991)
Total assets: $9.9 billion

Source: Federal Deposit Insurance Corp.

Bank Failure Facts

According to the FDIC, from 1934 through 2007, there were only two years with no bank failures, 2005 and 2006.
The year during that period with the most bank failures was 1989, when 534 banks closed their doors.
During the savings-and-loan crisis (1986-95), 2,377 banks failed, representing 67 percent of the 3,559 bank failures from 1934 through May 2008. At the peak of the crisis (1988-1989), 1,004 banks failed, a rate of one failure every 1.38 days.
Bank Failures by Decade

2000-2007: 32
1990-1999: 925
1980-1989: 2,036
1970-1979: 79
1960-1969: 44
1950-1959: 28
1940-1949: 99
1934-1939: 312
Source: FDIC Historical Statistics on Banking, 1934-2008

Source: http://www.usnews.com/articles/business/economy/2008/07/15/the-10-biggest-us-bank-failures.html

Whats next?

July 16th, 2008 at 07:39 am

I was reading a few blogs over the last few days and it seems that everyone seems to be hitting one of those patches where life is a little tougher then normal. I dont know whether its the news, the economy, the weather, gas prices, food prices, whatever.

I could say hey, everyones in the same boat. Or Yeah it sucks its _____ fault. Please fill in the blank with president, congress, big oil companies, republicans, democrats, banks, or whatever.

The point is that we all get in these funks and the purpose is not stay in them. I truly believe that in the end, you are the one holding you down. Sure, you may have hit a stretch of bad luck. Sure Murphy is in my house taking up residence.

So how do I usually get out of my funks.

I first throw a pity party for one. I complain how life is not fair. I shouldnt be in this spot. Everyone is out to get me.

Then, I will usually look at my long term goals (5 years out). Is this truly where I want to be? Does my plan still make sense? Are the steps to get there still correct? Do I have to add some steps because of this rough patch?

Whats next?

Work the plan. I need to take my first step. Is it a phone call? Is it a tough conversation in need to have? Is it doing more research on an issue?

Whats next?

I am executing a task list. I am starting to get back on track. Hope is starting to be restored.

This is where I am today. I got derailed with some medical bills of $4,400. It caused me to have a little pity party. Blaming hospitals and the insurance companies for screwing me. Then, I made a plan with a couple of tasks and started executing.

Whats next?

End of this week, Ill be back on track moving towards my goals.

You dont have to live the life you are living. But you do need a plan to turn it around. Never lose focus of your big goals.

And two of my favorite words are Whats next? I find that if I keep asking myself whats next?, it keeps me moving forward, building the momentum.

So, whats next?

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