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Monthly Archives: April 2008

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What’s Up With LendingClub?

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Hi All,

As frequent readers of our blog know, we do a little bit of money lending on the side. Mostly we do this through two websites, Prosper.com and LendingClub.com. Well, a few weeks ago, LendingClub.com put a cryptic announcement on their site saying they wouldn’t be accepting any new lenders for an unspecified period of time.

The general consensus around the blogsphere appears to be that LendingClub is undergoing some sort of official regulatory action as means of expanding their business.

In fact, LendingClub has applied for a waiver for Regulation D Exemption. If my reading of meaning of the regulation D exemption is correct, it means that LendingClub is asking the SEC to let them out of the requirement that that says one can only sell securities to accredited investors (e.g. rich people who have a million dollars in net worth or $200,000 in annual income).

What does this mean? Well, if the rather cryptic language on their website is any indication – ” Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. ” (Clicky), then LendingClub is planning on setting up a platform for buying and selling P2P loans.

If so, prosper.com should watch out. For example if you want to get out of your loans on prosper you essentially have to wait until your loans mature – there isn’t any way to access the value of your asset. However, if LendingClub is planning what I suspect, then you may soon be able to buy and sell these types of loans on an open market.

Buying and selling this kind of asset is an attractive feature. In our case we had a number of our loans on prosper default. If the option to sell our loans instead of holding them available, we probably would have done so and walked away with more cash. Instead, we were “left holding the bag”.

Of course, LendingClub still needs to get SEC approval. They also have several user friendliness and website navigation issues to work out. But, all in all, this could potentially be very exciting.

For more info on the regulation D exemption click here and here.

Best,

James

Minimalism

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As I wrap up my final few hours in the states, in the Boston Logan International Airport at 3am local time, I contemplate the value in a minimalist life-style.

There is a lot to be said for getting more out of less – by cutting out the crap in your life.

Heading out of Portland, Oregon this afternoon I reflected on what a green and progressive city it is. While it certainly isn’t perfect, folks do seem to be generally headed in the direction of less is more. This reinforces the feeling of home to me.

I think this whole rant came from flipping through David Bach’s latest book – Go Green, Live Rich: 50 Simple Ways to Save the Earth and Get Rich Trying. While I’ve liked Bach’s books in the past – and it certainly has a great deal of good tips – I couldn’t help but think that by buying the book you would in turn be contributing more stuff in the world and less green in your pocket. You’ve got to question buying something that goes against what it is you are trying to learn about.

Overall I do certainly agree with the general eco-trend of minimalism. Once you realize that you don’t really need so much stuff in your life it is easier to save more for stuff that really matters to you. This might mean that you cut back and lattes and have money to go to the gym and take care of yourself. Or it could mean being able to get by on working less and spending more time with your family. Or perhaps it means more security for you and your family as your retirement approaches. Whatever it is, chances are that buying less stuff will contribute in some way getting more out of life.

I’d love to hear from readers about what ways you’ve found to reduce your needs and what you might have discovered in freeing up that space.

Cheers,

Miel

P.S. Please forgive me my late night ramblings! ;-)

Lottery Winner Wears Disguise, Goes to Disney World

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Hi All,

Just saw this piece in the New York Post. Evidently the most recent winner of the New York lottery wore a disguise when he went to pick up his winnings. His disguise consisted of a fake beard and mustache drawn on his face with a sharpie pen. Fun!

The winner, Mr. Michale Perez of Queens, is quoted as saying “The first thing I want to do is take care of all my debts…But before I do anything serious, I’ve got to go to Disney World.”

The post story is here.

Best,

James

Money and Psychological Baggage

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Hi All,

One thing I’ve found about being married to my wife Miel is that its both complicated and enriched my financial life. When we first moved in together, I initially assumed that we both saw eye to eye on money issues. However, it soon became pretty clear that we had very different histories and attitudes when it came to pecuniary matters.

One incident comes to mind which illustrates our differences. When we first moved in together, it became clear that Miel had more than 10 thousand dollars in credit card debt. I almost blew my stack when I heard how much it was. For me, credit card debt reminds me of feeling powerless and ineffectual, largely due to an experience I had running up too much of it in graduate school.

To Miel’s credit, the debt was very quickly paid off. In fact, over the years I’ve gained a lot of respect for my wife’s ability to make appropriate use of consumer credit, so what this story illustrates is the wider point that people have psychological baggage around money.

This baggage tends to get in the way when it comes to couples managing conflict. That is, when people fight about money the argument is sometimes motivated by underling feelings about money, rather than the actual topic of conversation. Right, so in a conflict about overspending, a couple may actually be fighting about underlying issues like self esteem, security or love. In this case, my reaction to the credit cards was more about the fear of feeling powerless again, rather than the actual debt itself.

Best,

James

The Billionaire Who Wasn’t

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Inspiration often comes in strange places. My wife for example, loves Oprah. I tend to be motivated by stories of great achievers. This brings me to the subject of this posting: Charles F. Feeney. Feeney is one of America’s greatest philanthropists. Over the course of his life he has made and given away over 4 billion dollars.

Originally from New Jersey, Feeney was born into a blue collar Irish American family. After attending Cornell on a GI bill, Feeney became involved in selling duty free liquor to sailors in France in late 1950s. – The business took off and his company Duty Free Shoppers – DFS – began to yield huge profits. By the end of the 1970s he was receiving over $23 million a year. Finally, in 1996 he sold his stake in DFS to luxury goods company Louis Vuitton, for a price of $1.62 billion.

What did Feeney do with the money? – He gave it away.

In 1982 Feeney set up the Atlantic Foundation in Bermuda and started making the world a better place. Among his giving he’s included:

– $150 million for university research centers in Ireland
– Cash for a waste water treatment plant in DaNang, Vietnam
– Funding for the peace processes in Northern Ireland
– $600 to Cornell University
– Grants for home health care visits in the Bronx and AIDs clinics in South Africa
– $125 million to Stanford University
– Support for Amnesty International and Human Rights First

The big question now is if Feeley will be able to unload all his wealth before he passes away. His foundation has targeted disbursing all its funds by 2017, but his business investments have achieved an annual return of 29% – leaving them with billions yet to donate.

For more on Feeney check out the New York Times article.

His foundation is here.

Best,

James

Why Married People Are Richer

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Married people are richer. If you read much personal finance literature, you’ll have learned this by now. While it’s an interesting observation, what’s more interesting is why this is:

Speculation has involved a variety of topics:

1) Economies of Scale: In married households, there are economies of scale. Basically, its more efficient for two people to live together than for a single person alone.

2) Personality: Married people have personalities which are more conducive to building wealth. For example, if you’re a loser, an idiot or flaky it’s less likely that you’ll both get married or build wealth. In other words, it might be that married people are richer simply because they have personalities more conducive to building wealth (e.g. they aren’t losers). In this case, its a selection effect, that is people with personalities conducive to building wealth are also those who get married.

3) Expectations and Lifestyle Changes: Society values marriage. It might be that after people become married, they change their behavior to meet social expectations. As their behavior changes, they become more responsible, save for the future, etc. It may also be once married, couples receive more financial support from relatives, etc. Basically, social processes surrounding marriage make people get their act together.

If you’re looking to seriously understand why marriage builds wealth, you might consider the following links:

The Case for Marriage
Marriage, Wealth and Housing
Wealth Effects Differ By Race

Personally, I think the reason why married results in greater wealth is probably due to some combination of the three topics.

Most recently, a study last year by Jay Zagorsky has drawn a lot of media and blog attention to this topic. I’ve read the Zagorsky article. While it’s important, one should remember that it’s not exactly a new finding. Sociologists have known that marriage builds wealth for years.

For news on Zagorsky’s study:

Here

Blogland commentary regarding Zagorsky:

Free Money Finance
Young and Broke
Science Blog

In terms of my and Miel’s situation, we got married last July out in Oregon. So far, wealth has increased by 26% this year – From $300,000 at the start of the year of 07, to $380,000 when we added it up couple of months ago.

Hope you enjoy!

-James

p.s. Those long time readers of our blog will note this posting is a re-re-run. Our apologies, I’m prepping for a meeting and have a hot date at the library later on this afternoon!

Wedding Savings Tips

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Yesterday Miel and I attended a very nice wedding given by good old friends here in Eugene, Oregon. The ceremony was at a lovely Lutheran church with friends and family, with the reception at a nearby restaurant with a great view. Both the bride and groom are local business people so the food was good and they didn’t skimp on the decorations.

In honor of the wedding we attended yesterday, here are some tips you might consider when saving money in your own wedding planning:

1) Plan, Plan, Plan: If you sit down a year ahead of time and work out a budget as well as a way to cover your expenses, you’ll minimize the chances of having major expenditures crop up at the last minute.

2) Save on your Wedding Dresses: Consider paying less for the dress you want, borrowing one, or even renting one. Most of the time the dress just ends up in storage. If you’ve got good pictures you probably won’t miss spending the extra cash on the dress. One tip is to go dress shopping and bring a pad of paper to write down notes on your favorites. You can likely find one that the dress is available online or at an outlet wedding site. If you’ve already tried it on and love it, there is less risk in buying it from a cheaper place.

Miel found a fabulous one that was the cheapest – and nicest – dress she tried on. She found a big difference in where she shopped. Across the street from the boutique she bought it at, the dresses were nearly twice as expensive as they were in a more rural place near where she grew up. The dress she found was incredible, on sale and in her size. We didn’t miss having to spend hundreds more on a more expensive gown.

3) Have a Morning Wedding: Our friends did this yesterday. This was a smart move because it lowered their expenses for alcohol, since the reception was at 2:00pm. As a result, nobody really wanted to go back to the bar for a second or third drink. I’m not sure but their food and venue rental expenses might have been a bit lower because of the timing as well. So, if you are looking to shave a few dollars off your bar expenses, consider a morning instead of an afternoon reception.

Best wishes,

James&Miel

Adam Smith and True "Old Fashioned Pimping"

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Hi All,

As some of you know, we DINKs are originally from Oregon. To make a long story short we are home for our friends Todd and Celeste’s wedding. In Oregon, weddings usually involve bachelor parties. More often than not, bachelor parties involve drinking and visits to multiple bars. This trip was not an exception. Somewhere during the second stop of the night, I cornered one of the groomsmen and started waxing poetic about my love of Adam Smith and democratic capitalism.

Since Oregon microbrews are great, things started getting a bit hazy after the third beer. But now that the haze has worn off, I’m clarifying Adam Smith‘s ideas for our readers.

Just briefly Adam Smith was a 18th century Scottish enlightenment political economist who wrote a classic book called The Wealth of Nations. The book was tremendously influential. Smith and the ideas he outlined are generally acknowledged as having a tremendous impact on the field of economics. The Wealth of Nations has thousands of pages, but the ideas briefly summarized are as follows:

1) Self Interest: Smith argued that individuals acting in their own self interest end up benefiting the whole of society. Smith said that the “invisible hand” of the free market would allow each individuals honest labor to improve the good of all – e.g. the collective effects of self interest end up benefiting everybody. He has a great quote that it bears repeating here:

“ It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity, but to their self love and never talk to them of our own necessities, but of their advantages. Nobody but a beggar chooses to depend chiefly on the benevolence of his fellow citizens“.

2) Value: Smith said that value is determined by the amount of labor it takes to produce something. For example, our blog takes a couple of hours per day to maintain. In Smith’s analysis he would say that our blog has value because the labor we put into it saves time and trouble for our readers in researching these topics themselves.

You are reading our blog every day, right? Smith says it had a great value.

3) How Nations Get Rich: In a nutshell, Smith says countries get rich two ways. First, when their citizens save and invest and 2) when countries engage in free trade. A great example of these principles ias modern Switzerland. For most of Switzerland’s history the country has encouraged domestic investment on the part of its citizens and has engaged in expansive international trade. As a result, the Swiss are one of the most wealthy nations on earth.

4) Liberty: This is the best part of Smith’s analysis. In order for countries to get rich they have to cut red tape. Smith said that taxes were necessary for public safety, infrastructure and national defense, but that over-taxation and over-regulation were infringements on the natural freedom of each individual to follow their economic interests. If you’ve ever tried to start a business and been flummoxed by local bureaucracy you’ll immediately see what Smith ment.

Not everyone agrees with Smith’s principles – In fact a lot of people really don’t like free market capitalism. But, Smith was writing in the 1750s and you’ve got to admit that any book which has survived 250 years has got to provide some sort of enduring value.

And as my little brother likes to say, that’s the “old fashioned pimping”.

Best,

James

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