The Congressional Budget Office is reporting that the balance sheets from the Fannie and Freddie takeover may have to be added to the federal budget. Provided this is correct, the US will have an additional $5,400 BILLION in liabilities.
“The two mortgage companies have between them $5,400bn in liabilities, equal to the entire publicly traded debt of the US, alongside mortgage-related assets of about equal value. These will now all be accounted for by the CBO, although public accounting rules mean that its tally of US government debt may not necessarily increase by $5,400bn”. (Financial Times, 9/9/08).
The reporting here is a bit equivocal, but the situation may soon become very good for a tax increase.
Whats most bothersome about this situation is that, provided a tax increase is necessary, the little guy will bear the brunt of the mistakes of a few CEOs. Why should taxpayers suffer the losses in bad times and CEO’s take the profits in good times?
Today is pretty busy for us DINKS, so this posting is a quick video from MoneyTalksNews. It’s a listing of some practical suggestions for determining whats a luxury and whats a necessity. Among the areas they suggest you cut out of your budget:
1) Bottled water 2) Video rentals 3) Cable television 4) Lattes 5) Buying books
If you’re like me, you probably have tried a calculator or two to see how much you will need for retirement. If you’re like me, you’ve probably found some of this a bit difficult to work with.
The biggest issue, in my book, is that retirement calculators don’t take into account real life. They act as if you will be a work horse that continues to steadily plod along – contributing the same amount month after month, getting your annual increase, until one day you retire and eventually kick the bucket.
Reality, however, is often very different. As we all know, there may be periods of unemployment (by choice or otherwise) from one spouse or another. We are also likely to change around a bit on the job market, making salary increases less than an exact science.
Even given all of these realities, I still find it help to see if you are on the right track. If you aren’t on track it will certainly give you a reality check!
I’m in the process of changing over retirement carriers, and thus was fooling around with a few calculators recently.
The thing is, no matter what I did to bring the calculations to what seemed like a reasonable number, they almost always shot off the charts. For instance, even with having our starting salary lower than it currently is (considering that we are likely to end up in Portland where salaries are lower – and also accounting for the possibility of self-employment with some type of entrepreneurial endeavor), and putting salary increases at a mealy 3%, and saying that we would need 100% of income at retirement, and retiring later at 70 and living until a 100…
We still came out with $46 Million left over after we both kick it at 100!
The interesting thing is that almost every scenario I ran put us at having $4 Million somewhere between 58 and 62. Considering that this is the life long goal we DINKs have to reach by retirement, I found it excellent that we were so close to the mark.
While I find doing retirement calculators good in some ways, I think that at the end of the day it is best to just put away what you can now, just in case you aren’t in as good of times later. Your efforts today will have compound interest in their favor, so you are much better off to put away early.
Most people are interested in financial security. A great way to study the processes of building wealth is to look at the biographies of people who have managed to achieve financial greatness. One of those people is billionaire businessman and philanthropist: Andrew Carnegie.
At the height of his fortune, Carnegie was worth approximately 298 billion in today’s dollars. His story does illustrate at least two principles that you can bring to your own wealth building processes.
1) Focus:
Carnegie generally argued that individuals should focus on a single industry, instead of spreading investments across multiple sectors of the economy.
“I believe the true road to preeminent success in any line is to make yourself master in that line…I have rarely if ever met a man who achieved prominence in money making…who was interested in many concerns“.
Carnegie’s biography represents this point. He was primarily focused on investing in railroad and steel industries during and before the civil war. The defeat of the confederacy and the westward expansion during the 1870s created a massive demand for steel and transportation, thus generating titanic profits for his investments in northern steel mills and railroad companies (1). The main point here is that Carnegie’s focus in certain industries allowed him to profit from contemporary economic trends.
2) Invest In Yourself:
Carnegie was a self made man – and spent a great deal of time building his social and intellectual capital. Carnegie’s views on the importance of building social and personal capital are best shown in his 1889 article “The Gospel of Wealth” (1). In it, Carnegie argued that a philanthropists capital should be best used for providing opportunities for people to better themselves. Among his many accomplishments Carnegie, built thousands of libraries worldwide to improve public knowledge.
Carnegie also spent a great deal of time befriending interesting people. His circle of acquaintances included British politician William Gladstone, American President Benjamin Harrison, Author Mark Twain and philosopher Herbert Spencer. This was done party to help Carnegie’s business interests, but also because Carnegie seems to have viewed knowledge as an important aspect of self improvement.
The main point here is that investing in your social capital can both help others and improve the quality of your life. We may not all achieve Carnegie’s level of wealth, but these principles would seem to help nevertheless. We can build our own wealth by investing in ourselves and our skill set.
Best,
James
P.s. thanks to Tom Butler-Bowdon‘s 50 Success Classics for the inspiration for this post.
There is some good news for everyone who is a Washington Mutual shareholder. The New York Times is reporting the company’s CEO, Kerry Killinger has been forced out by the companies board.
Now, we’ve had a great deal of problems with Washington Mutual, and have even speculated that the company might go bankrupt. With the ouster of Killinger, this seems increasingly less likely. It is indeed good news for its shareholders.
“Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment, it insures the possibility of satisfying a new desire when it arises“.
Folks, this is hot off the press, the NY times is reporting that the Federal government will seize control of mortgage giants Freddie Mac and Fannie Mae (here).
This is big news and its BAD.
This means that these institutions, whose role is regulate and provide a market for mortgage loans have FAILED. The Federal government will now have to assume the debt for these companies. This means the taxpayers will be on the hook for potentially tens – if not hundreds of billions of dollars worth of bad mortgages. The worst case scenario is that this will cause the Federal governments credit rating to decline, ultimate resulting in tax increases.
The reason this was released at 10:00pm on Friday is because its bad, very bad news.
Some of our postings are more nuts and bolts, some address aspects of finance that pertain to softer topics – like the interaction of money and ethics. Both are important for coming to terms with your financial situation. This posting is on one of the stickier topics: morality and profits.
Can Corporations be Judged Morally?
In 1970 Milton Friedman wrote a classic essay in which he argued the sole responsibility of corporations was to increase their profits (here). Friedman argued that only individual people, NOT corporations, have an obligation to act in an ethical manner. Others – like the classic German philosopher and social thinker, Max Weber say that collective organizations take on a life of their own – and by extension these organizations are therefore subject to ethical judgments about their behavior. In the view of this author, Weber makes the stronger argument – to argue that corporations have no obligation to act in an ethical manner is to invite moral cretinism.
How Do You React?
Assuming that you agree with Weber that corporations are capable of being judged and you own stocks – then you’re left with a choice. Do you choose to profit when your corporation engages in unethical behavior? There are plenty of companies that do unethical things – and make a ton of money doing it. For example, companies like Taser International Inc. and Altria (a.k.a Phillip Morris) have been roundly criticized – in Taser’s case for producing electrical weapons suitable for torture and in Altria’s case for degrading the health of America via mass tobacco sales.
Be An Advocate.
One way to react to this is to be a pro-active advocate. If you don’t think a company is behaving in a ethical manner then you are free to sell your shares – and to use your 1st Amendment rights to encourage others to do so. Or alternatively, you can take a position in a company and exercise your traditional rights as a owner to insist that management change their business model. In any case, you should not buy into the moral cretinism that many on wall street believe in.
While it isn’t very sexy, James & I are plugging along towards our goal of maxing out our ROTH IRAS before moving on to other more exciting goals of saving for real estate and redoing our website.
Thus far James has managed to make it up to $2,650 in his 2008 ROTH account. Six hundred fifty of this has come from extra savings on his behalf, and another $2k has come from extra savings from Miel. James will need another $2,350 to max out on his ROTH IRA contributions.
Miel has been set up for a long time to plunk away at $25 a month towards her ROTH, and then topping it off before tax season. Now she has just added another $1,000 in a one time payment and upped her regularly contributions to another $200 per month (in addition to the other $25). This should mean that she will need another $3,400 to finish off her yearly contributions.
Ideally we’d like to start next year with an automatic deduction plan that will make contributions to maxing out our ROTH IRAs a bit more like doing the same with 403(b). This will mean that we’ll need to auto deduct $917 a month to max out on both of our accounts. While we’ve managed to max out on our ROTHs over the last several years, this will hopefully make it a bit more seamless and easy to not notice big chucks of money missing.
Hi All, probably you’ve heard of this already, but a great way to save money when going shopping is to buy generic brands. For example, today I went by Giant – a supermarket local to the Washington DC area – and was able to get generic ginger ale for .69 cents. The name brand was going for $1.99 for a comparable sized bottle. A savings of 1.30 isn’t a whole lot, but it can add up.
