Financial suggestions from an old fart (a reprise)

Recognizing there are many places for financial advice, as an old fart, I thought I would offer some specific examples on ways to save money. Some of these are in reaction to various conversations I have had with my children, nieces and nephews, but regardless of age, it does not hurt to validate your thinking from time to time. Please take these for what they are worth, examples of lessons learned, pitfalls avoided and plans executed when I was prescient enough to listen to someone else beforehand. NOTE: I am not a financial advisor, so please do not interpret this as coming from such.

• Don’t have too many credit cards. I have one debit and two credit cards – you will pile up too much debt otherwise and expose yourself to identity theft with too many. Pay down your largest interest rate first and close it out. Don’t just cut up the card, cancel it as identity theft can still occur – trust me on this.
• If you are working and have access to a 401(k) or 403(b) plan, for God’s sake use it. If there is a match, find a way to contribute up to the maximum match percentage. You will retire from some place and the cash provides cushion if you are laid off (company’s do that and it has happened to people who are better at their jobs than you are). You are throwing money away otherwise.
• Do not play the lottery. I repeat, do not play the lottery. You might as well throw the money out the window. Lotteries are a regressive tax – it means people who can least afford to pay taxes, contribute to the lottery. Use the money instead in the 401(k) or 403(b) plan.
• Avoid online fantasy team and sports betting. You are playing against an audience using multi-variable regression tools for their predictions. A very small percentage of people win the bulk of the money, with everyone else in the red. If you do play, set a small budget.
• Avoid payday lending. In the bible, usury is a sin. In Dante’s Inferno, there is a level of Hell for payday lenders of the day. These guys are a step away from legbreakers. You will go into a death spiral of debt if you succumb.
• If you can’t get a job, try volunteering for a charity group. The networking is good as people will see your energies on showcase in a good way. Plus, the psychic income is rich. By working, you will avoid depressive thoughts and can use your energy in a positive way. Some non-profits may be able to figure out a way to get you some income. Plus, you can see ways to tap services if needed.
• If you have some money to invest – think dividend paying stocks with low P/E (price to earnings) ratios. Take the price per share of the stock and divide it by the earnings per share. If 20 or under, it may be worth the effort. These companies may also have Dividend or Customer Purchase plans you can access online. This means you buy the stock without a sales charge driectly from the company.
• You do not need to own the newest gadget or thing. Companies do this to get you to buy something. I am not impressed by who owns what. Most people are not. If people are more impressed by your gadgets than you, then you may want to hang around a different crowd.
• Be smart with your fast food purchases. Do not buy the drinks there as the margins are huge on liquid. Get out of your car and go inside. You are wasting a ton of gas waiting in line and it may be faster if the line outside is long. Read the calorie chart – the Affordable Care Act is requiring disclosure. This will help you be less of a train wreck later on. And, please do not supersize as you will become what you eat – supersized.
• Better yet, eat more meals at home and yes, eat the leftovers. The savings are huge. I will never die of food poisoning in my own house, so I usually have to be quick with the leftovers before my wife tosses them.
• Avoid eye level purchases in stores, especially if you are woman. Not to be sexist, but the highest margin items in a grocery store are at the eye level of a 5’5″ woman. Also avoid out-of-place stuff at the end of an aisle or by the cashier. The stuff by the cashier is lethal. While we are at it, do not go inside a convenience store when you pump gas unless it is to use the restroom. Their margins are huge inside on purchases.
• Reduce water usage by not running water while you shave, brush your teeth, etc. Also, get a lower flush toilet or put a small enclosed container of rocks in the tank as this will reduce the water usage. Use the energy saver setting on dishwashers.
• Shut off electrical devices overnight. This will save energy plus it will slow the deterioration of modems, routers, computers, etc. And, it will reduce a fire hazard.
• Go generic on all prescriptions (some generics are the same pill). Use the store brand ibuprofen, decongestants, etc. as they work just as well. Not all pills are the same as one of my sons breaks out in a rash with one generic, but the brand is fine, so use trial and error.
• Get a second and third opinion on surgeries or diagnosis. Especially, back surgeries. Sometime surgeries can do more harm than good. If you need one, make sure you get all the answers to your questions and have exhausted other options.
• Walk to errands. Take a couple of shopping bags and walk to the store. You will be healthier, plus you will buy less because you cannot carry it all back.
• Don’t drink so much. I don’t drink anymore, but have drunk enough for a lifetime before I quit fifteen years ago. You would be amazed at how much you save, plus the better health pays dividends. My last straw was a friend who died at age 59 because of alcoholism. I can tell most people drink more than they tell people. So, find ways to cut it back. Trust me, I know.

That is all I have for now. I hope this was useful. I am sorry about the preaching on the last item, but that is a big-ticket savings item. I welcome other ideas as I want to learn how to save more as well. Please provide additional suggestions below.

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Good economic news per Jennifer Rubin and Wall Street Journal

In an editorial by Jennifer Rubin of The Washington Post called “Opinion: Biden gets an early Christmas gift: Good economic news,” she discusses the good economic news hearing into 2022. In excerpts below, she cites The Wall Street Journal and The Conference Board to support her claim.

“Presidents have some control over fiscal policy, but markets, the Federal Reserve and, yes, the state of the pandemic have a lot more say on how the economy is performing. Nevertheless, if President Biden can be bashed for bad economic news during his presidency (e.g., inflation), then he also should get some credit for successes. And right now, there is plenty for him to crow about.

Heading into the new year, the economy looks in better shape than Biden’s legislative agenda. The Wall Street Journal reports: ‘A booming U.S. economy is rippling around the world, leaving global supply chains struggling to keep up and pushing up prices. The force of the American expansion is also inducing overseas companies to invest in the U.S., betting that the growth is still accelerating and will outpace other major economies.‘

With a projected 7 percent annualized growth rate for the fourth quarter, the United States is running circles around Europe and China. That relative strength against the rest of the world, reflected in a strong dollar that lowers the cost of imports for U.S. consumers, matters greatly.

The economy grew 2.3 percent in the third quarter (higher than the expected 2.1 percent). Moreover, for all the talk of inflation and the pandemic, consumer confidence is through the roof. ABC News reports: ‘The Conference Board, a business research group, said Wednesday that its consumer confidence index — which takes into account consumers’ assessment of current conditions and their outlook for the future — rose to 115.8 in December, the highest reading since July.‘

…Furthermore supply chain woes are showing signs of abating. As Biden said at a meeting on Wednesday with his supply chain task force, “Packages are moving, gifts are being delivered and shelves are not empty.” He was also able to point to concrete steps his administration has taken to address the issue, such as obtaining the ports’ agreement to operate 24/7.“

The full editorial can be linked to below. Rubin’s first point about presidents getting too much credit and blame for the economy is a good one. Yet, they do provide headwinds and tailwinds, usually a little of both. Biden’s predecessor inherited an economy that was in its 91st consecutive month of economic growth in January 2017 with six consecutive years of 2 million plus annual job growth. To his credit, it continued and was lifted some by a temporary sugar rush of the corporate tax cut in 2018, before falling back to previous levels after the sugar rush waned. Once the pandemic hit, all bets were off and we retrenched.

Biden and Trump invested in stimulus payments to get the economy going providing money to spend. And, it helped tide us over until more of us started working. Was it the best use of funds? Arguably. Some contended we should have provided the subsidies to employers to keep people employed. I would preferred to have seen that, as people would still be tethered to their job. The recently passed Infrastructure Bill will provide some additional tailwinds as would the Build Back Better bill that is still waylaid.

Inflation is of course a concern. Yet, politicos like to highlight bad news when their tribe is not in charge and lessen the focus on good news. In addition to the new COVID strain, what gives me pause is the stock market continues to remain at record high levels. The question is how long can it remain there? If you know that, you are way ahead in the game.

https://www.washingtonpost.com/opinions/2021/12/22/biden-gets-an-early-christmas-gift-good-economic-news/

Don’t let Black Friday take you into the red, plus other savings ideas (a reprise)

In the US, the day after Thanksgiving is known as “Black Friday” which is the official launch of holiday shopping. Some even start on Thanksgiving, which is usurping the best family holiday in America, for people to spend money. If you are an American or know one, you know that Americans like to do two things more than anything else – be entertained and buy stuff.

I have written before about ways to save money, as we have too many folks who want yours. Let me use this Black Friday to rehash a few of them and speak to the holiday season where buying gifts is done in excess. If you follow a few of these, you will end up with more money to live better, have less stress, retire earlier, and be more in control of your life. In no particular order:

– you don’t need to participate in Black Friday. Trust me, the retailers will get desperate closer to Christmas and layer in discounts. You will also be less tempted to buy if you take your time.

– speak with your family and friends about gift giving. Maybe you could limit the giving to the kids or have a charity donation for adults donating a small sum to a favorite charity of the recipient.

– for year-round, do not play the lottery. I have written several posts on this, but my favorite line is from John Oliver who stated your chances of winning the lottery are the same as being struck by lightning while being bitten by a shark. Save the $10 a week and at year-end you will have $520 plus interest.

– for borrowing, tear up all credit cards but one or two. You do not need more than that. My wife and I get 3 to 5 offers a week for new cards. You get very popular when you manage your debt and save a lot of money.

– do not borrow from pay-day lenders. They are one step above leg-breakers and you will quickly spiral into a rabbit hole of debt with over a 1000% interest rate. I am not making this up. This is about the worst thing you could do if in trouble.

– be wary of credit consolidators. They are not all created equal, so do your homework. Also, there are a number of non-profit advisors who can help you consolidate or manage your debt.

– be wary of for-profit colleges which are 5 to 6 times the cost of community colleges. A rule of thumb, the bigger the celebrity advertising the college, the worse its record for graduating. These colleges prey on veterans, spend more on marketing than education and graduate less than 15% of their students.

– if you have no health coverage, sign up for the Affordable Care Act at http://www.healthcare.gov. Subsidies to pay for premiums are available up to $95,000 in income for a family of four, higher if a larger family and lower if smaller. Healthcare coverage will get you doing preventive medicine rather than reactive medicine and keep you from going bankrupt.

– if you work, save in your 401(k) plan or something similar. Using payroll deduction, it is like paying yourself first, especially when the employer will match your savings.

– walk more, drive less. Many stores are within walking distance, so if not buying many things grab a tote bag and walk. Your health and the environment will benefit, plus most accidents occur within a mile of your home. And, with one bag, you have to limit your buying.

Finally, be wary of scammers. If it sounds too good to be true, it usually is. Many scammers prey on church and association leaders to get at others, prey on the elderly with confusion, and prey on everyone with fear (IRS scams, power shut off scams, computer repair scams, etc.). If someone offers you a potential high rate of return with no risk of loss, it is a scam.

If you do all of these things, great. If you know someone who would benefit from the advice of an old fart, please send them this link. Always remember, you do not have to buy anything except food, water, minimal clothing, transportation and shelter. The rest becomes wants and can be managed. Happy holidays.

American Winter – what poverty looks like (a reprise from 2013)

The following post was written eight years ago, but unfortunately still applies today. Our situation has been exacerbated by the COVID-19 pandemic, where too many small employers had to close their doors. Some of the observations come from my volunteer work to help homeless working families. If you only have a minute, read the next to last two paragraphs, which speak volumes of why we should help.

There is an excellent documentary on HBO called “American Winter” by Joe Gantz which tracks eight Portland families who are struggling in this economy. Please check it out at www.hbo.com/documentaries/american-winter. This documentary puts a face on poverty and shows what these families are dealing with during the economic crisis. Since I volunteer with an agency that helps homeless families, I can assure you the problems portrayed in Portland are in evidence in North Carolina and elsewhere in the United States. For example, the median family income of the homeless families we help at the agency is $9 per hour. With a living wage in NC of $17.68 for a one adult/ one child family, you can see how people are having a hard time.

These people are living paycheck to paycheck and it takes only one thing to cause them to lose their house. It could be the loss of one job or the cutback on hours worked. Or, it could be a healthcare crisis.  We have people in America who are struggling and even dying because of lack of healthcare. According to The American Journal of Medicine in 2009: 62% of bankruptcies in the US are due to medical costs and 75% of the people whose illnesses caused bankruptcy were not insured or were under insured. This is the key reason we need the Affordable Care Act and for states to permit the expansion of Medicaid to cover them.

Yet, rather than make this about healthcare, I want to focus on why we have people in such crisis. I addressed many of these issues in two companion posts last fall based on Tavis Smiley and Cornel West’s book “The Rich and the Rest of Us.” The first post was written on October 20, 2012 and the second on October 29, 2012. We are not talking enough about our poverty problem in the US. The middle class problem is referenced often, but where did they go? Only a few moved up in ranks, where as the significant majority fell into poverty or near poverty.

As organizations have taken efforts to improve their profit margins dating back to the 1980s, we have seen a continuous downsizing and outsourcing of jobs. Since the early 1980s, the disparity between haves and have-nots became even more pronounced with the trickle down economics which has been proven to be unsuccessful, unless you were viewing it from the higher vantage point. As a result, there were multiple pressures on the middle class, which has led to its decline.  It only got worse when the economy went south. While there has been some repatriation of outsourced manufacturing jobs to the US, they have remained overseas for the most part.

So, if the worker did not stay up to speed with new technologies and, even if he did, there are fewer jobs for those without a college education. And, with the economic crisis, we have seen even having a college education is not enough these days. These unemployed did what they must, so where they could, started getting service jobs in retail, restaurant and hospitality industries. These jobs are near or at minimum wage and make you beholden to the number of hours you are permitted to work. Unfortunately, these jobs perpetuate poverty. You cannot afford healthcare and better food options and can barely afford rent. So, if something happens to your hours or job, you may lose your home.

The homeless families I have worked with work their fannies off. There are some I speak with in churches , who believe these families are homeless because they are less moral or virtuous and that is not it at all. Per Smiley and West’s book, poverty is the absence of money. Nothing more, nothing less. A few national stats to chew on:

– 40% of all homeless families in the US are mothers with children, the fastest growing segment;

– 75% of homeless children never graduate which perpetuates an ongoing cycle of homelessness; and

– 90% of homeless children suffer extreme stress; some worse than PTSD that former military face.

I mention these last two items, as even with all I say to the contrary, some people do not want to help the adults, who these obstinate people feel are totally responsible for their plight or are lazy. They see a chronic homeless panhandler on the street and paint all homeless people with that brush. That is a small, small subset of our homeless problem and, while we should help the chronic homeless people, there is a significant majority of homeless people who work hard, but cannot make it. Yet, I try to sell the concept of helping the kids. They did not sign up for being homeless and if we can help them, we can break the cycle of homelessness, the cost of caretaking is less, we gain a taxpaying citizen and we may be untapping a huge potential. The second place Intel Science Award winner in 2012 was a homeless girl, e.g.

We need to help these folks climb a ladder out of the hole they are in. It will be more beneficial to them and our society. And, we must provide educational paths forward, whether it be getting a GED, community or tech college schooling to learn new or improved skills. There have been some amazing things going in community colleges which can provide some paths forward. And, we need to pay people more. We have to improve the minimum wage to get at least to a living wage for an individual. It needs to be more, but if we can make that statement (making the minimum wage = a living wage) it speaks volumes and will help.

One of our dilemmas as a society is we must have a vibrant middle class to flourish. Unfortunately, the American Dream is a myth for many. We have one of the least upwardly mobile countries in the world. So, unless we make changes to our societal investments, we are destined to have only two economic classes of people. If you do not believe me, please check out my blogging friend Amaya’s website at www.thebrabblerabble.wordpress.com and check out the short video on economic disparity in our country. It is atrocious and unforgivable that this can happen in the US.

This is our collective crisis. Please watch “American Winter” or check out the above posts or Amaya’s. While “American Winter” highlights eight families, let me add a couple of more for you. One of our new Board members who works for a large bank was touring the homeless shelter and she came upon a colleague who was employed by the bank who was homeless. This stunned her that someone who worked at reasonable pay could end up homeless. Many live paycheck to paycheck in our country and it only takes a nudge for some to lose their home.

The other person I want to mention was living in a tent with her parents and younger siblings. Her dad was a construction worker and got some handy man jobs, but neither he nor his wife made enough to prevent losing their home. I highlight this teenager, as she would volunteer at a food bank to help others in need. Let me repeat this for emphasis. This homeless girl would volunteer to help people in poverty working at a food bank. We have helped this family get housed and they are climbing the ladder out of poverty. And, this young lady is now in college.

Let me shout this from the rooftops. Please help me become more vocal. We have a poverty problem in the US. We have a homeless problem in the US. We must help our neighbors and by helping them, we will help ourselves and country. Let’s help them climb these ladders. Let’s give them opportunities to succeed. If we don’t then we all will suffer.

Lessons from Sully Sullenberger and Paul O’Neill – a review

The following post was written seven years ago when GM was having some issues that did not get communicated upward and were left to fester. This is not an uncommon problem, nor is knowing about problems and choosing not to act.

I have written before that organizations take on the personality of its leaders. Earlier this week, CEO Mary Barra of General Motors (GM), reported on the findings of an internal audit of why they did not have an earlier recall when problems arose on some cars. Many heard a lot of blame down the ladder, but we did not hear much about culpability at the top. The key question asked, but not answered, is why did people not share their concerns with management that something was amiss? The unstated answer is it is in the culture of the organization, where people at the top did not want to hear of failings or heads would roll. An analyst who covers the car industry noted there was a modus operandi of “don’t mess with the launch of new line.”

I have written before about two leaders, Captain Sully Sullenberger and Paul O’Neill, who was the CEO who turned around Alcoa and later became Secretary of the Treasury under President George W. Bush. They have some good lessons that GM should emulate  going forward. Sullenberger was the right person at the right time as captain of US Airways Flight 1549 that he safely landed in the Hudson River. He not only studied accidents for airlines, he was on task forces to go to crash sites and help ascertain why the planes went down. So, he knew from his research and experience, what he needed to do to safely land in the Hudson.

He also knew what GM failed to remember. He was the leader of the crew, but he understood all to well that each member of the team has a role in the safety of the flight, including the flight tower personnel. His research showed that many accidents occurred because navigators and co-pilots did not feel comfortable offering input to the pilot or tower. A couple of examples might help. A plane crashed in Japan, because the co-pilot had to acquiesce to the pilot due to seniority. In this case, the co-pilot was on record as being correct that the plane was off course, but the pilot’s judgment could not be overturned. In another, the Brazilian flight crew of a doomed flight did not have confidence to disagree with an American flight tower and the plane crashed.

Sullenberger was aware of other examples that had been noted and improved over time. But, what he did every time he had a new flight crew (even one new member), was get them all together to get to know them and encourage them to speak up if they saw something amiss. Anything, even if small. He noted in his book, what gave him great comfort during these few seconds on Flight 1549, was he could hear everyone doing their job. He got quick advice from the tower, his co-pilot and navigator. He shared his thoughts quickly and made sure everyone knew what was going to transpire. When he concluded that getting nearby Teterboro Airport was not possible, he offered up and concluded, “it looks like we will be in the Hudson” which allowed rescue crews to be alerted.

O’Neill joined Alcoa which was struggling. And, his first public comments were “we are going to make Alcoa the safest company possible.” This was an odd mission to start out with and many analysts were not impressed. One analyst told his investors to sell Alcoa stock, which he later added, was the worst advice he had ever given. O’Neill knew that the only thing he could get management and union leaders to agree on was safety. So, that is where he started. He also knew that for safety to be important, managers had to talk to floor personnel to understand better the problems, so that a plan to fix them could be developed. So, communication got better up and down the line. The empowered employees starting sharing ideas on how to improve not only safety, but process as well. The company performance and stock price took off.

Both Sullenberger and O’Neill knew that they were part of a team. They also knew the best ideas can come from anywhere, but especially from those closest to the action. So, it is not only vital, but imperative, that management create a culture where ideas can be shared. Otherwise, you would be flying in the dark. It should be noted at the same time GM was having these troubles, they missed a huge market opportunity. Why? Because they were not listening.

GM piloted the first electric car called the EV-1 in California in the early 2000’s. They did not sell them or market them, but a cult-like following was growing as people who wanted to make a difference started leasing them by the thousands. Eventually, the EV-1 was killed as the result of an alleged collusive effort chronicled in the documentary “Who Killed the Electric Car?” which can be accessed by the link below. The drivers wanted to buy the cars, but GM collected them and shredded them. They wanted no evidence. The Board of Directors of GM asked why the EV-1 pilot was being shelved at the same time they were building Hummers, and management said this is the direction America car buyers want. Hummers are no longer made as they were gas guzzlers.

Here in 2014, GM could have been the predominant player in the electric car market, which will grow as more power stations and better batteries become available. Yet, they chose a short-lived strategy, made other bad decisions and had to be bailed out and only now are seeing the failure of not having an open culture to communication. The lesson that was not said by Barra is we did not have an environment where people could offer input and we would listen to them. She needs to talk to Sully Sullenberger and Paul O’Neill and set a more open path for the future. It is not ironic, that both are known for safety. And, communication.

Pay me now or pay me later

Seeing what is transpiring in Texas with the lack of advance planning, it reminds me of painful history lessons. There is an age old problem in governing and public service. When things hit the fan, it is often due to problems that were not fixed due to budgets and were left to linger.

Politicians are good at blaming others and asking how can you let that happen? They tend to overlook their role in the process. Here are a few real life examples:

When some one in a social worker’s care has a horrible episode, the fact the social worker is serving 160 people versus the best practice 16 to one does not get enough consideration as a root cause. Think about it, due to budget cuts, one social worker is serving 10X the number of people which is ideal. That is drive by social work, not counseling.

When a train wrecks on an old trestle bridge, the fact the bridge has never been fixed and is only patched up does not get enough consideration as a root cause. When the next train derails, read the fall out from politicians and dig beneath the finger pointing at the actual causes, not who did what.

When Katrina devastated New Orleans, people forget the Army Corp of Engineers said the levees could not stand a direct hurricane hit a few years before. Nothing was done about it and the levees failed. We should also remember the Houston area has flooded twice with one-hundred year hurricanes that were four years apart.

And, In Texas, the vulnerability of their independent electricity system is a festering problem. So, when the system is overwhelmed like it has been with the icy storms, it fails.

Avoiding disasters by planning is a rare commodity in governance. No one wants to pay for it. Plus, so-called leaders do not get sufficient credit for pre-planning like they should. They get more credit for fixing a problem later after the fall out, if they ever get around to it.

As we speak, we have thousands of car and train bridges in need of repair, we have antiquated electrical grids, we have poor water piping (think Flint), etc. When the Olympics was not awarded to Chicago a few years ago, it was due to our aging infrastructure, even then.

A good example of pre-planning occurred in my home city of Charlotte. The city built an Intermodal distribution facility which was placed on the property of the international airport. Easily accessible to this facility are train and truck distribution centers and highways for trucks. They took advantage of shipping in/ out by plane, train and truck.

This is the kind of planning that is needed with infrastructure improvements. The fixes have to be holistic in evaluating the problems and hopefully make the process better in the end.

Class matters, socio-economic class that is – a revisit to an old post that remains pertinent

The following post was written in 2012, but it still remains pertinent. When I hear people chastise people in poverty for not working their way out, I think of this topic.

When you read this title, there are several interpretations that come to mind. While I am a firm believer in acting in a classy way, treating others like you want to be treated, the “class” I am referring to here is socio-economic class. There is a body of work spawned by research conducted by the New York Times, which led to the publishing of a book under this same title – “Class Matters.” It also led to a revolution of thought and I would encourage you to visit “www.classmatters.org for more information.

In essence, the term class matters refers to the tenet that your socio-economic class is a key factor in your ability to ask questions of those who are trying to serve you. The higher strata of socio-economic class is highly correlated with better education and more confidence. This translates into the greater ability and lesser reluctance to question things. On the converse, those in lower socio-economic classes tend to have lesser education and more self-esteem issues. They have a greater inability and lack of confidence to question those in power or who are trying to serve them.  As a result, those in the lower classes often make poorly informed decisions as they are:

• too scared to ask questions,
• feel threatened if they do so,
• feel they will show their ignorance if they do,
• do not know the right questions to ask, and/or
• fall into a trusting mode, whether legitimate or not, that the person serving them knows what they are doing as they are wearing a doctor’s coat or suit and tie.

To illustrate this concept using a real life occurrence, the current housing crisis we are facing has many areas of cause from the lenders to rating agencies to investment managers to developers to buyers. At the heart of the problem, we had too many developers and realtors selling houses to people who could not afford that price of house and mortgage lenders providing mortgages to people who should not have that level of mortgage or who did not fully understand the terms of the loan. The buyers did not understand what a variable mortgage is or, using one of the lender’s terms, what a “pick-a-payment” or flexible payment mortgage entailed. The concept of negative amortization is term that was not well-explained or fully understood. In “House of Cards” a line that resonates with me is lenders were providing money to people who could “fog a mirror.” Then, they packaged up all of these poor risks in collateralized debt obligations (CDOs) and sold them to investors who thought they were buying a less risky product. The rating agencies did not help by stamping these CDOs with a AAA rating.

There are some who firmly believe in the concept of “let the buyer beware.” In their minds, the people who bought these houses and took out these loans should have been more aware “like I would have been.”  As a consequence, they believe the buyers should be held entirely responsible for the housing crisis. This school of thought has some merit, but misses two greater issues. First, if you have ever bought a house, you are asked to sign more papers than in any other transaction. I would wager that an exceedingly high percentage of buyers do not read every word of what they are signing. The legalese is too complex. More often than  not, they will ask the attorneys to explain simply what they are signing. I would also wager that in these transactions people actually sign papers they do not fully understand.

Second, with that context, people in a lower socio-economic class will be even more trusting of those in suits and ties. They would ask even fewer questions and understand even less of what they are signing. When the American Dream is to own a home and people in suits and ties paint a picture that you can afford this home, the buyers believed them more times than they should have. In some cases, the seller put “perfume on a pig” to dress up the sale as best as possible. Individuals were shown monthly payment numbers and did not realize those numbers could dramatically change every two years. In some cases, their income and wealth numbers were inflated to show they could afford a house and mortgage they otherwise would not. The buyers trusted people showing these numbers and signed on the many dotted lines.

Two true stories will embellish these points. The poster child for one extreme end of what happened was a builder based in Atlanta. The CEO and CFO were convicted of criminal and unethical actions they helped perpetuate with home buyers. In essence, the company-realtors representing  new developments did not represent they would make an extra bonus if you bought in this new neighborhood. They did not represent the inspector was being paid off to inflate the price of the house and show no problems existed. They did not represent that the mortgage lender they recommended was affiliated with the developer. So, along comes the buyer who does not know this, does not know to ask these questions and who sees a financial representation that they can afford this house. Even people above the lower socio-economic classes were taken in by this criminal behavior, yet the lower class people did not stand a chance.

The other anecdote took down a bank of which I was shareholder. This bank bought  a mortgage bank who had developed the concept of the “pick-a-payment” mortgage. This flexible payment mortgage concept was geared for a very astute buyer, not the masses of people who bought it. Mortgage people at this bank wondered why the CEO of the acquirer was pushing these mortgages even up to six months before the bank was destined to fail.  A mortgage person for that bank said we are having “pick-a-payment parties” to promote the sale of these mortgages. We are selling these mortgages to people who do not know what they are buying. They do not understand when they do not pay enough, their mortgage principal increases. Like with the above example, the lower socio-economic class buyers did not stand a chance. The people in higher classes suffered as well.

Yet, the class matters concept goes beyond these examples. It happens in everyday life, whether it is visiting the doctor, buying a car or something on credit or being served by the bank on other issues. We have people who will go into debt as they do not know the exposure they are adding with each purchase. In today’s world, there is a dearth of customer service. You have to be the navigator of your own customer service experience. Many people do not realize this as the case and tend to delegate the responsibility to the customer service person. We don’t ask enough questions of doctors seeking alternative treatments or payment plans. We accept the terms of a store credit card without knowing that if we fail to make one of the 30-60-90 day payments, we will pay back interest to the point of sale. We do not understand that we need to pay more than the minimum credit card payment as it will take 30 years to pay off a washer and dryer purchase. We do not ask the question, do I really need yet another credit card? We do not realize we have the power to say “no.”

I tell my children “people want your money, so you need to understand that.” Sometimes, they want it by legitimate means. Sometimes they have enticing commercials which are too good to be true. And, sometimes they will try to steal it from you online or by lying to you in person. You have to guard against this. With this backdrop, someone in a  lower socio-economic class will not ask enough questions to be served. They will take that extra credit card that arrives in the mail. They will sign up for the 30-60-90 day store plan to get a 10% discount not knowing the full ramifications of the transaction. I have also witnessed in helping homeless families, budgeting skills could be improved and asking questions about “must have” purchases are not done often enough. Sometimes these “needs” are actually “wants” and could be postponed. They do not know how to zealously navigate the use of coupons or the best times to buy products. They do not ask for the manager or supervisor when being ill-served.

This week I read a series on the inability of hospitals to uniformly offer reduction or the abatement in cost to those without health insurance and in an impoverished state. Someone wrote in that they successfully navigated payment options from one of the studied hospitals asking why couldn’t others have done that. When I read the letter critical of the people short-changed, the concept of class matters entered into my head. The people in need did not navigate the system as they did not know or have the confidence to ask the right questions. They did not relentlessly pursue options. This is exacerbated by the lack of transparency of the payment system, so it takes a concerted effort to understand what is happening even for people in higher classes. There are other examples in our society where you have to make a concerted effort to understand the details.

In closing, my hope is for more people to understand that class matters in getting proper help and service. We have to make it easier for people to ask questions, search for answers and be better served or, at least avoid being ill-served. It is OK to ask questions. As the teachers often say “the only dumb question is the one not asked.”  Please help others remember that. Offer to go with someone to the doctor to help ask the right questions. Or, encourage people to write their questions down beforehand. Encourage people to not get into credit exposure beyond their means.  Share your wisdom of purchasing or not purchasing items. Sources like Consumer Reports, BBB , Angie’s List,  http://www.cars.com are vital tools, e.g. Yet, I guess the big take away is to not assume people are like you. You may have avoided stepping  in the hole, but you would have asked more questions. Not everyone will. Offer them your help and understanding.

The biggest lie – “I created this economy”

The incumbent president likes to take credit for all things good and blame others for all things bad. This is true regardless of the extent of his role in the outcome. He boasts that he created this great economy before the pandemic and will help us get back to it. Although the economy continued to do well, to say he created it is not truthful. Given his loud chest beating on this one issue, it qualifies as his biggest lie, although other lies are further afield from the truth.

When he took the oath to his office in January, 2017, the US was on its third longest economic growth period in its history at 91 consecutive months of GDP growth. That translates into just longer than 7 1/2 years. It should also be noted for the six previous years, we had 2 million plus in annual job growth and the stock market more than doubled under his predecessor. To Donald Trump’s credit, the economy continued to grow for 36 more months, the stock market continued to climb and job growth continued until it fell with the pandemic. The recession officially started in February of this year.

Now, I wrote during Barack Obama’s presidency that presidents get too much credit and too much blame for the economy. They can provide headwinds and tailwinds, but that is about it. The “headwinds and tailwinds” remark is courtesy of conservative pundit David Brooks. The same goes with the current president. But, if people want to lay wreaths at Trump’s feet for the economy before the pandemic, they must also do the same for Obama. Obama actually inherited an economy in recession due to the housing crisis in late 2007 through mid 2009. He was sworn in January, 2009.

The incumbent president has provided some headwinds and tailwinds to help keep it going, sometimes at the same time. Here is a look at a few of these wind currents:

Tailwinds

The economy got a temporary boost from the December, 2017 tax cut that increased the debt by $1.5 trillion over the next ten years. At a time when we should have been decreasing the deficit, we increased it. So, in essence, we borrowed from our future to make our economy a little better for a little while. One economist referred to it as a sugar rush. Before the pandemic, we fell back to growth at the same level as before the election. Overall, this growth period has been the longest, but the rate of growth under both presidents has lagged other periods. It has been a slow and steady climb, again before the recession caused by the pandemic.

Cutting through some regulations also provided some stimulus for businesses, but as noted below, these will cause future headwinds. People often mix bureaucracy with regulations. We need to constantly review regulations to see if they are working and how they can be improved or rescinded, if need be. So, regulations are not necessarily bad. Bloating bureaucracy is what we must guard against. I recall a story of Erskine Bowles, who eventually became Bill Clinton’s Chief of Staff. When Bowles headed the Small Business Administration, he reduced the application from 42 pages to one.

Headwinds

We must guard against debt. Dipping into debt to stimulate the economy dragging from COVID-19 is one thing, but the 2017 tax cut needed not be so severe that it increased debt. Note, many said this before it was passed, not just now. By the end of this decade, we should be beyond $40 trillion in debt on an annual revenue budget (during 10/18 – 9/19 FY) that is currently just less than $3.5 trillion, with expenses around $4.5 trillion. With the pandemic stimulus, the annual 2019-20 deficit will be around $3.7 trillion. Eventually, interest cost will rival the biggest budget items if we do not remedy this growing problem. Some poor president and congress will have to make some hard decisions as revenue is too low and costs are too high.

Letting polluting industries skate on fewer regulations will come back to haunt us. Chemical spills, polluted water and nuclear waste causes major environment concerns to people, animals, carbon eating trees/ plants and food crops. Even the best of developers and manufacturers would like someone else to pay for their shortcuts. Industries go to great pains to hide their dirty laundry. The laundry is there, it just needs to be more cleaned up. Relying on a company’s altruism is not an effective means of controlling pollution.

Tariffs on all partners cause echo tariffs from our trading partners. And, no one wins a tariff war, regardless of what the president might say. As we have become harder to deal with, buyers and sellers find other markets. The increase in farmer bankruptcies has been significant since the tariff wars started, increasing dramatically over previous levels. One farmer said, other countries sought out other sources of farm goods, so we lost a future pipeline for sales. And, just today, I read in conservative George Will’s editorial that trust in America to do the right thing has fallen to 24% and preference to America as a trading partner has fallen.

One of the business lessons I learned over the years, is if you become difficult to work with, your customers and clients will be forced to find other providers of services and products. It does not get any plainer than that. One of the best things a president can do is create new markets – Reagan, Clinton, Nixon, and Obama all were good at creating new avenues for trade. It is not surprising that Clinton had the most jobs created on his watch, with Reagan having the most jobs as a Republican president. And, Nixon for all his corruption, should be remembered well for opening up relationships with China. Trump should get credit for renewing a refined NAFTA agreement, but he hindered his efforts to compete with China when he pulled the US out of the Trans Pacific Partnership which went on without us and backtracking on deals with Cuba, Iran and the Paris Climate Change Accord, has placed the US at odds with others.

Global trade builds revenue. A country cannot shrink to greatness. And, what we are seeing today is other countries not wanting the hassles of dealing with the US as much as before. And, this is before the mishandling of the pandemic that has left the world aghast.

The primary focus on the economy is not just make believe

The coronavirus is a tough one. It may be less deadly than other illnesses, but it is still killing many and impacting others. And, while we have heard the young need to worry the least, the numbers indicate that people the ages of 54 and below are the largest group being hospitalized. One ER nurse said it surprised her how many younger folks were being stricken.

Yet, deal with it we must or it will overwhelm our healthcare providers. We simply do not have an abundance of free beds. We are still awaiting a workable vaccine. So, we must do what is asked of us to control its spread. We must “flatten the curve” of the virus.

But, this social distancing has caused our global and US economy to understandably grind to a halt. In essence, our economy is simple – people who need things buy them from people who have them to distribute and so on down the supply line. When people stop buying things, the supply chain grinds to a halt.

Focusing on the economy, people impacted by the virus and the companies that have had to furlough them, is not unwise. But, it cannot be the primary focus. It is an important one, but keeping people safe is the key. Getting them money to buy groceries, medicines and non-durable products is important. Making sure they have a job to return to is important.

But, we cannot lose sight of what this virus can and could do. One of my concerns that precedes the current tenure of the incumbent president, is the significant majority of his decisions can be traceable back to his fragile and large ego. He cannot tolerate looking poorly or accepting blame for anything. So, that has always been his top-of-mind mission. It is also one not conducive to solving problems.

Since the president thrives off the stock market (his main barometer for the economy) success, the fact it has tanked due to the virus reflects poorly on him. It matters not that any president does not have a huge impact on the economy good or bad, but as Warren Buffett said of the current president, “If he is going to take the credit for the rise, he must take blame when it falls.”

So, many fear that decisions will be made that prop up the stock market, but put us at risk. And, until people start buying more things, taking more trips, etc., the economy will still lag. Yes, the economy is important, but let’s focus on it from a people impacted lens. The article below is telling.

https://www.msn.com/en-us/news/opinion/trump-is-in-a-frenzy-over-the-economy—not-so-much-the-virus/ar-BB11Bkcf?ocid=spartanntp

The Fed needs to act independently

The Federal Reserve was set up to be a nonpartisan governing board over the money supply in the US, which impacts the economy. The president would only appoint members for Senate vetting when terms expired. The Fed is supposed to be independent from pressures from the White House.

Yet, the bull-in-the-china shop president wreaks havoc over what is supposed to be done. He acts regally in what is supposed to be a democracy with rules of governance. The Fed should not succumb to any president, but especially this one, who routinely places his self-interests above the country’s. And, that does not lead to good governance.

Presidents have little impact on the economy, only providing some headwinds and tailwinds. This president has done a little bit of both. But, he championed himself as a superior dealmaker and business person when campaigning and since elected. Yes, he has had success, but given his starting point, some financial people think he should be wealthier than he is.

He touts a $1 million loan from his father, but that is fable. An in-depth study was reported by The New York Times in the fall of 2018, that Trump’s father transferred tax free over $400 million to his son before he died. That is well north of a $1 million loan. Plus, there are Trump’s six corporate bankruptcies on failed projects. That caused US banks to stop lending to him, so he went to Deutsche Bank for money. But, there have been other failed investments – airlines, mortgage company, etc.

Trump has eagerly patted himself on the back about the economy. But, the economy was just over 7 years of economic growth and the stock market had more than doubled under his predecessor when he took office. But, as with Trump, Obama should not get too much credit for the economy either. He provided mostly tailwinds and a few headwinds. What is revealed by the stock market fall off due to global softening, falling oil prices and the coronavirus, is the president does not have much to do with the stock market. As Warren Buffett once said, if the president is going to take credit for the stock market increase, then he must take the blame for the fall.

So, the Fed would do well to ignore the president. Yes, the president is entitled to his opinion, but what has been shown over his history, is maybe his financial advice is not as sound as he (or his followers) think it is. My concerns are we are using tools that should be reserved for even tougher times. The stock and bond markets seem to be more jittery with moves like this. And, when people are staying home, traveling less and eating in, reducing interest rates may not be creating a needed salve, if less spending is occurring.

Yet, as noted earlier, what bothers me most is the president is interested in his own optics, not fixing a problem. He has and wants to trade short term gain for his benefit, at the expense of future problems. He did this with the debt and deficit and he has and will do it with the Fed. They need to tell the president, thanks but no thanks.