Archive for the ‘Financial’ Category

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Would You Take A Bailout?

June 16, 2009

I know I would not take a bailout. The government likes do do things like cap executive pay, force your top executives out, and even put you into bankruptcy. I am not really seeing an upside to getting emergency money from the government.  I do not think GM or the banks are either, since the banks are in a hurry to pay the TARP money back and GM is going into bankruptcy, the situation it was trying to avoid.  There is a lot smaller moral hazard there than I thought there would be.

The one upside to all of this I see is that creditors are probably going to be more open to negotiating with their debtors.  If the GM and Chrysler creditors had been willing to cut a deal, they would probably be getting a bigger return than they are now.  After all, once the federal government got involved, it is going to protect its interests first.  It is kind of like taking money from a loan shark.  The federal government will make sure it gets paid first.

So, remember all of this before you try to get bailed out by the federal government.  Taking money from them comes with a LOT of strings attached.

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“Falling Home Prices Don’t Help Anyone”

February 23, 2009

I heard someone say that today.  I just felt like yelling at them.  Falling home prices do help some people, people like me.  Right now I can afford to make a good-sized house payment, but I don not own a house.  I do not own one because I am still saving up to make a large downpayment.

The other day I also heard someone ask, “What will it take to get the buyers on the sidelines to buy?’  They were wondering if it was things like lower interest payments.  It is not.  Lower home prices are what are going to bring more buyers to the table.  No one wants to admit that, though.  They want to keep believing their home prices should not be falling.

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Maybe The Market Needs A Bank Nationalization

February 23, 2009

I keep hearing that the bottom of a bear market is when everyone just gives up and sells off. However, the market has been vacillating up and down with a downward trend, but we have not seen a huge sell-off.  We just keep on sinking.

Maybe what the market needs to capitulate is a major bank or two to be taken over by the government. Maybe that is the straw that will break the camel’s back and plunge the market to its lowest point. Then we can start to recover.

Just at thought, not an edorsment. (Or a sermon for those of you familiar with a certain mega-church.)

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The Economics of Micro-Finance

February 16, 2009

In its simplest form, micro-finance is the loaning of small amounts of money to people.  It is usually done in developing countries in order to help fund and fuel development.  Small amounts of money are loaned to entrepreneurs and paid back within a year or two, usually.  Repayment rates are usually high and highest among female borrowers.

Now I will start to speculate.  I think micro-finance works better than just a hand-out because the need to repay the loan pushes people to succeed.  If you give someone $500, they take it and do what they will with it.  If you give them $500 and require it to be repaid, they need to make sure that $500 helps them to earn at least enough money to cover the principal plus interest.  Then, after the loan is repaid, they can continue to earn that money.

So, how does one get involved in micro-finance?  Well, I have two suggestions:

The first is Kiva.org.  It is a charity, and it accepts $25 donations and gives them to micro-finance organizations in various companies.  You get to choose the loan to fund.  The drawback, as far as I am concerned, is that you do not get a return on your money.  You get your money back if and when the loan is repaid, but you do not earn any interest on your money.  You also cannot claim your donation as a tax-deduction.

The second website is microplace.com.  It is a for-profit site, and allows you to give money to support micro-finance loans.  The difference from Kiva is that you do earn a return.  The highest return I have seen is 5%, which is pretty low considering there is a fair amount of risk involved.

So, until micro-finance starts providing returns commesurate to its risk, it will mostly be the domain of charities.  I am waiting for the day it does start returning the proper rate.

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Bailout Trade-Offs

January 31, 2009

I am pretty sold on the idea that, for long-term economic growth, tax cuts are one of the best things.  They keep more of the money in the economic machine.  However, short term, I do not think tax cuts have any real stimulating effect.

So, what do we do?  Do we spend our way out of the problem?  I believe a large spending stimulus package will stimulate the economy in the short term.  Throwing that much money into the economy and money will start flowing through the economy.  What remains to be seen is how far and how fast it will flow.  If it flows fast and far enough, it might just get us out of this downturn.

The downside to the large stimulus package is the large increase to federal debt.  It prevents larger future tax cuts because that debt needs to be paid back with interest.  So, it appears the cost of stimulating the economy now may be slowing the economy’s long-term growth.

Is it worth it?  I do not know.

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Who’s Afraid Of The Big Bad Prosper?

January 22, 2009

The SEC is, according to NPR’s Planet Money Podcast.  That is why Prosper.com is going through its quiet period.  Apparently the SEC does not know quite how to classify peer-to-peer lending networks like Prosper.com, so it closed Prosper down pending some filings and discussions.  Hopefully Prosper will come back in a form similar to when I started investing, because I really want to keep increasing my number of loans.

P.S.  Planet Money is a great blog and podcast and pretty accessible for those without a financial background.

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Getting On Top Of Finances

January 14, 2009

One of my resolutions this year was to be more active in the finances.  Right now my wife pays all the bills and keeps an eye on the accounts.  All I really do is contribute money from my paycheck.  So, I have begun accounting for us in a nifty little program:  KMyMoney2.  Even though I run GNOME, I like KMyMoney2 better than HomeBank and GNUCash.  So, I am running a KDE application on GNOME.  It is another of the features I like about Linux and Ubuntu.

This will also fit in nicely with the accounting class I am taking this semester.