We wanted to share this short video from PBS NewsHour about how Goldman Sachs has been working the system and milking a profit from tax payers.
They essentially are borrowing money from taxpayers, buying federal reserves, and making a hefty profit. If that isn’t corruption then I don’t know what is. Why don’t more people know about this, and why does our government let this happen?
Check out the video below, but here is part of the transcript that is most incredible:
Paul Solman: So you mean Goldman Sachs borrows money from the Federal Reserve at a tenth of a percent, a quarter of a percent, takes that money, invests in US Treasury securities at 3.5%, 4% //
DAVID STOCKMAN: 3.5%. Exactly.
Paul Solman: And they make the money just…
DAVID STOCKMAN: On the spread.
Paul Solman: and the money is simply being re-circulated from the Fed back to the Treasury?
DAVID STOCKMAN: That’s exactly right.
SIMON JOHNSON: Goldman Sachs recently was borrowing between 100-150 basis points, that’s between one percentage point and 1.5 percentage points above what the government was borrowing. In the aftermath of the greatest financial crisis since World War II that’s incredible! It makes no sense unless Goldman Sachs is almost as good a risk as the US Government, then it makes complete sense and that’s what the market is saying and the market is thinking, and the market is right!
Paul Solman: And so it can borrow at 1.5% interest for short term money, make bets with that money and if they pay off it can make a fortune and pay big bonuses?
SIMON JOHNSON: Yes, absolutely.//Make money, get the bonuses, take the money and do it again, don’t even bother running because nothing’s going to happen to you!
NARR: Or as David Stockman puts it:
DAVID STOCKMAN: There has never been more of a, you know easy money scam that I can remember in modern economic history.
Its Saturday in the nations capital. We are both taking care of some personal business, but we wanted to turn you onto an article in MSNMoney looking at some of the reasons couples fight about finances.
The main insight the article offers is that most of the time people don’t actually fight about money itself. Usually there is some sort of underlying difference in values or communication that can drive the conflict. While not exactly earth shattering, its an important insight that bears repeating.
Is it possible to make millions playing poker, or is it just a pipe dream? If you think poker is just gambling and winning millions is a myth, you obviously haven’t met Chris Olson.
Chris Olson is only 23 years old, but he isn’t your average 23 year old. He is an online poker professional, playing the game as his sole source of income for over three years. His biggest cash was for a quarter of a million dollars.
I went to school with Chris and amazingly he is not the only professional coming out of my small private high school (average graduating class is around 100). Mickey Pickett graduated a couple years before Chris (who graduated in ’04) and has also had a tournament cash of a quarter million. What is it that Chris and Mickey understand about poker that makes them able to play it for not only an income, but an extremely high income?
The reason why they are set apart is that they realize that poker is not your typical form of gambling. It is a game where you play against other players instead of the house (like in slots and blackjack). If you are more skilled than the competition you will win over time. That does not mean these players will win every single game and every single tournament; anyone can get lucky. But playing for thousands of hours and consistently winning is an entirely different story.
Without further delay, here is an interview I had with Chris just a few days ago:
David
First off, can you tell me a little about yourself and how you got started with poker?
Chris
I started playing in 2002 just playing with guys in high school, I wasn’t very good but I really enjoyed playing. I usually lost $ when I played but then I decided to start researching strategy and reading some books on it.
David
When did you start getting serious about it?
Chris
My freshman year of college I had read a few books about holdem’ and had started reading some online strategy forums and I decided to deposit $500 and give it a try
I started playing and was able to win a little bit just playing very conservative, at the time no one really knew what they heck they were doing, so it was easy to win.
David
When did you start playing full time?
Chris
After my freshman year, I got fairly poor grades for my standards and decided to take a year off and just try out playing poker full time. I took the year off and rented an apartment in white bear lake and just played and played and played. Most weeks at least 60 hours a week.
In addition to time at the tables I spent a lot of time reading strategy on forums like twoplustwo which is the biggest poker strategy forum in the world.
David
How much money were you making? (I have to ask, you don’t have to tell)
Chris
that first year I made just over 100k
David
What stakes were you playing?
Chris
At the time I was playing mostly sit and gos which are one table tournaments in which the top 3 players get paid. I usually played between8-12 of them at a time. $109 and $215 buy ins.
David
Now some people will read all this and say “but isn’t it gambling? Won’t you just end up losing it all eventually?” How would you respond to people who say that poker is just gambling?
Chris
My parents felt the same way when I told them I was dropping out of school to play poker. There are a lot of pre-conceived notions about what people who play poker are like. I would say 99% of people are not cut out to play poker full time. It takes a special person who has the ability to separate results from their daily life, and has the ability to not be a degenerate. When I play poker I don’t play for the “rush” I play to make the best decisions I can with the information given and go from there. I also don’t play a stakes I don’t have plenty of money to play. The general rule of thumb for cash games is 20 buy ins I never play a game I don’t have at least 100 buy ins for.
So if a game is a $1000 buy in I would have at least 100k. My risk of ruin is extremely minute. Risk or ruin means the risk that I were to go bust playing a given game.
David
Would you advise people to look into playing poker for a side income?
Chris
It is much harder to get into then 5 years ago. Most people have a grasp of the basics of the game even at the low stakes games. I would only advise someone to start playing if they were willing to put a lot of time, effort, and some money into getting good.
David
Just from a “casual” player standpoint (whose goal is to make money) I would agree with that.
Now that poker has progressed, do you still play full time? or have you pursued other things?
Chris
Its my only source of income, I have returned to school, but I still play poker probably 25 hours a week. I am going to law school next fall.
David
Do you see yourself still playing 5, 10 years down the road?
Chris
Probably, definitely, if it becomes regulated in the US and more poor players flow into the sites once again.
David
Do you play in any bigger tourneys, such as the World Series Of Poker?
Any last words of advice for people who hope to make that kind of cash playing poker?
Chris
Study hard and keep your emotions in check at all times. Anyone can have a grasp of how to play but those that execute it day in and day out are the ones who will succeed.
As you can see, poker is a game where you need to be dedicated, driven, and disciplined. It must be treated as an investment. It’s not impossible to win at the game, though it is definitely not easy.
Should you consider playing poker for a side income? Only you can make that decision.
I kinda get the impression that the folks are Kiplinger are a little nerdy. That said, the media they produce usually gives solid advice.
Here is one video that caught my eye. It is on the topic of things couples can do to improve their shared financial situations. Its valuable because most personal finance information for couples isn’t all that good or useful. At 2:04 its a quick watch, so give it a spin.
I’ve been told numerous times by a number of people that the most important tool for developing and maintaining a positive romantic relationship (or any relationship for that matter) is communication. I certainly believe this to be the case; any problems that my wife and I have been forced to deal with usually either get resolved or at least dealt with at an acceptable level through talking it out. This is actually not a difficult process for me (when the conversation is about money that is, feelings and emotions are more difficult subjects entirely) but even so, we all could use a little help at times.
Having a productive conversation about money can be difficult at times. Discussing hopes and dreams are easy, but the discussion is much more complicated when you actually start bringing up numbers. It’s at that time when it can be helpful to have a few resources at hand to help guide financial discussions with your significant other.
1) The first resource that we’ve use is Quicken, 2010 edition. I’m a very visual-oriented person, so for me it’s one thing to be told that we brought in ‘x’ amount of money and spent ‘y’ amount, but if I can see it in a pie chart, I can digest the data a little bit easier. Having colorful graphs is a good way to summarize data and display it in a very readable format. I started using Quicken simply because I knew that my dad used it and liked it so my experience with other software products is a bit limited. I did dabble a little bit with Mint.com and liked it but Quicken works for me and my wife, so I have continued to use it. There are plenty of products out there that do the same type of thing, so I would suggest trying a couple of them out and picking the one you like and using that.
Second, I think it’s an interesting characteristic of the personal finance community, but it seems like we like our books. Normally, I don’t like “couple’s books”, but I had the opportunity to read one that I really liked. It’s called “Get Financially Naked: How to Talk Money with your Honey” by Manisha Thakor and Sharon Kedar. I was pretty trepidatious when I first started reading the book, but I really started to like it. The book is divided into three sections, each tackling a different aspect of discussing finances. The first helps you get cement some of your personal beliefs on money in a way that will help you communicate them to a partner. The second deals with having the money talk with your significant other, and the third is about sustaining your financial plan and planning for the future. The book pretty much covers all the questions you should be asking yourself and your partner about financial philosophies, as well as things to keep in mind as you progress in your relationship (for instance, planning for children). Like I said, I enjoyed it a great deal and found it very useful. There are numerous books out there on planning your life together as a couple from a financial standpoint, and I suggest you browse some of the more popular titles and find one that both you and your partner enjoy and find useful.
Third, an essential financial resource for couples is a retirement calculator. They are all pretty close to the same thing, but I like Kiplinger’s the best. Retirement is often what people refer to as the “ultimate goal”. Utilizing a retirement calculator can help you set your goals as well as make sure that you’re on track to achieving those goals.
There are all sorts of tools that you can use to start a conversation with a loved one about money; those are just the three that I have found to be useful. Readers: how do you talk about money with your significant other? Have you found other tools to be helpful?
I love my credit card, and I use it for everything. I love the rewards and the convenience of using a piece of plastic instead of carrying around cash. Cash to me is too much of a hassle. There’s no protecting your money if your wallet gets stolen, and since most employers use direct deposit instead of issuing a check, going to the bank or an ATM can be a potentially expensive annoyance.
Many people, however, don’t share my point of view on this issue. Using credit cards relies on a strong sense of self-control, and if you’re unable to pay off the balance each month, you could be entering a seemingly never-ending cycle of interest payments and expanding balances. So those would espouse a cash-only system certainly have good reason to do so, but there are some drawbacks to approaching your finances in this way.
Whether you agree with it or not, the concept of credit and credit-worthiness is interwoven with our modern economy. While you may be able to buy a car without financing it, there aren’t many people who can buy something like a house with cash, the terms of which are determined by your credit rating. Places such as apartment complexes and even employers run credit checks. From the perspective of someone working in the Washington, D.C. area, many people out here work for or with branches of the federal government, and many of those positions require some level of a security clearance. Part of that process is a credit check as well.
So despite your personal feelings towards credit, having a credit card is the easiest way to build a strong credit history. But if you are against having one, you’re going to have to find a way to build a positive credit rating while not compromising your beliefs. Fortunately, there are some ways you can do that.
If you need to secure credit but you don’t have a credit history, perhaps the easiest way to do this would be to enlist a co-signer who does have a credit history. This is the method most commonly used by young people looking to secure their first credit card. This is risky for other reasons, however. Financial transactions and personal relationships often mix like water and oil. I don’t feel comfortable asking friends or sometimes even family for lunch money. I would have to be in some dire straits to ask someone to co-sign a loan with me. And it’s hard to imagine a situation where I would be on the other side of that transaction. I value my personal relationships too much to place that amount of risk on them.
Fair Isaac might be able to help you out if you don’t have a credit history but are looking for a loan such as a mortgage. They have developed their “Expansion Score”, which takes into account other non-credit recurring bills, such as rent or utilities payments. A lack of a credit history but a strong showing in the Expansion Score – along with verified income – might convince a loan officer that you’re good for the money you’re attempting to take out. If a traditional bank refuses to lend you money, then you might want to look into exploring your options with a credit union. All credit unions are different, but across the board they’re known for their flexibility when working with their customers.
If none of those options are suitable for your needs, you can try borrowing money from yourself. You can open up a CD with a bank, then take out a loan against the money in that CD for the same amount that’s in the CD, for the same time period. With this method, you’ll be simultaneously paying interest on that loan as you’re earning interest off the CD. The obvious downside to this is the fact that the interest you’ll pay on the loan you take out will almost certainly exceed the interest you earn on the CD. But if you’re dead-set against any other type of loan, you will build a strong credit history based on that loan.
Building a strong credit history without having a line of credit can be complicated, but it also can be done. Do any of our cash-only readers have experience with this?
Obviously the world is not a perfect place. So, in the unhappy event that your husband or wife leaves you, there are some things you need to immediately.
1) Remove your name from everything. Where possible, get your name off the credit cards, bank accounts, etc. etc. The way to do this is to call the card companies or send a certified letter.
2) Close the joint accounts immediately. If you have joint accounts with your spouse close them. Take your half of the money and have the bank cut a check to your spouse for the other half.
These actions may seem somewhat extreme but sometimes people deal with their emotional conflicts through money. Due to the emotional difficulties involved with divorce some people may feel inclined to act out at their partners via their checkbooks by racking up big bills. You don’t need to be on the receiving end of that.
Also, if you reconcile you can always open up new accounts or credit cards. So if you do these things it doesn’t mean your marriage will be over. You are just protecting yourself.
Its the eve of whats supposed to be one of the biggest snowstorms of the season here in DC, so I’m hunkered down at home with some hot coffee.
Following our posting yesterday, today’s theme is putting your money abroad. By putting your money abroad, we mean putting your US dollars into investments that are not inside the United States, but may be dominated in US dollars.
Why would you want to do this?
1) Returns: Countries like China, Brazil and Russia have seen stronger growth than that found here in the U.S. Stronger growth can mean more returns for you. More returns means more money, fewer hassles and less stress.
2) Diversification: Most of the time when people say diversification, they refer to owning a wide variety of U.S. stocks. But, diversification can also mean having holdings across asset classes and across countries as well. So, if you own outside of the U.S. you’ll build some additional safety into your portfolio.
Okay, so you’re sold, but how would you go about investing abroad? Well, there are huge regulatory differences between the US and the developing world, so while its generally better to do investing yourself, in this case you might want to consider a mutual fund. In looking a funds, you have several options:
1) Single Country Funds: These are essentially mutual funds which confine themselves to a specific country. If you want to get started on this, Seeking Alpha has nice list of funds to look at. With this class of assets you’ll want to be sure that you’re getting the assets a discount to the funds portfolio value. The reason here is that markets in some developing countries can be thin (e.g. not a lot of buyers and sellers) so you want the extra safety of a built in discount.
2) Global, International and Regional Funds: The main idea between this class of funds is they invest your money back and forth between US and other stock indexes depending on the fund manager’s judgement of how well local markets are performing. Global funds can buy both US and international stocks, whereas international and regional funds tend not to buy American equities. The USA Today has some a list of some suggestions if this asset class looks right for you (click here).
3) Foreign Bond Funds: Most people buy foreign bond funds to lock in a higher yield than currently paid by US bond funds. The major problem with this is that foreign bond investors often get bitten by fluctuations in the value of the dollar. When the value of dollars go up then your international bonds are worth less. For Joe and Jane average its difficult to invest successfully in this asset class because you have to predict the value of interest rates, currency and international trade patterns! This is hard enough in one country, let alone two or more.
4) Foreign Currency Funds: These are basically mutual funds that buy foreign currencies. While these funds do earn interest, they make their money when the dollar declines. This means, they tend not to do as well when dollars increase against other currencies. Foreign currency funds also tend to charge higher fees than other funds. If you want to a good foreign currency fund, check out fidelity.
As a closing note, you may not have to buy a specialized fund to get international exposure. Many US companies operate internationally. Blue chips like Coke, IBM, Procter and Gamble and McDonald’s all operate outside of the United States and are impacted by foreign economic conditions and currency fluctuations. Also, you can buy stocks in many Canadian companies directly just like you would any US equity. Finally, some banks offer foreign currency accounts. So, you have lots of options to chose from if mutual funds aren’t for you.
Its another brilliant day in America’s capital. Unlike the sun shining outside, the fiscal news in Washington is somewhat more gloomy. As you are probably well aware, the Federal government is projected to rack up an additional $1.6 billion dollars in debt this year.
If you’re watching the red ink, you may be somewhat concerned about the impact this could have on your own personal finance. A recent article in the Wall Street Journal covered this topic in some depth. The WSJ comes out with some pretty good stuff, so I’ll share the main points:
To protect your finances against rampant government debt, they recommend doing the following:
1) Be Wary of Long Term Bonds: A possible policy response to a large debt level might be to increase the supply of money to make the deficit more manageable. While the relationship between the supply of money and inflation from a scientific standpoint is still somewhat unclear, inflation remains a very real possible policy option. If you are holding long term bonds you’ll be at the wrong end of the inflation stick. One possible way around this is to buy shares in an inflation protected mutual fund. The Vanguard group generally sells good financial products and has an inflation protected securities fund, check ticker symbol, VIPSX.
2) Diversify: The Journal recommends that you put some of your wealth outside of the United States. The way they recommend doing this is buying shares in U.S. based multinationals like Exxon Mobile or Kraft foods. This is sound. American equity markets have good laws governing disclosure and financial reporting. Also, if you buys shares in a US multinational, you get defacto exposure to international markets and currency. In addition to Exxon and Kraft, you might consider the General Electric corporation (GE) and the Coca Cola Corporation (KO). Both of these are established blue chips with a high degree of international exposure.
3) Maximize Your Sheltered Investments: A concern with the debt is sooner or later Washington will be pressured to raise taxes. In light of recent headlines regarding the middle class “stealth tax” in recent White House budget proposals, this argument makes sense. So, if you have access to a 401k, Roth IRA, regular IRA or other sheltered account, you should make use of it. Provided that you aren’t worried about inflation, you might also consider some type of tax free investments such as various classes of municipal bonds. Schwab had a good write up on the pros and cons of this strategyhere.
In addition to the WSJs recommendations, you could also consider:
1) Gold and Silver: Being a respectable publication, the Journal piece didn’t advocate buying precious metals. That said, consider getting your hands on this asset class. Gold and silver tend to hold their value during inflationary times and you only have to pay taxes on these metals when you buy and sell. These asset class have historically been good stores of value as well. That said, don’t go overboard on gold, you’ll never get rate of growth you will with stocks.
2) Deferral: To the maximum extent possible, you should consider ways to defer taxation on your investments. Deferral is tricky, but there are several ways to do it. Three are: 1) transferring your wealth to a lower earning family member. 2) Maxing out specific accounts which allow deferrals and 3) purchasing assets than can be tax deferred. For 3, some master limited partnerships have tax deferrable dividend payments. Get more info (here).
What to avoid. Provided the Feds to start to inflate the currency and raise taxes, here are some retail assets you DON’T want to be holding.
1) Series EE savings bonds. The EEs are great because you can get them for only $25 dollars. On the other hand, they aren’t inflation protected, so you’ll see the value of these bonds decline if there is any real inflation. The interest on EEs is taxed as regular income, so if income taxes increase, you’ll get stuck with a higher bill.
2) Cash. Balances in money market, checking and savings accounts will get a double whammy of both higher taxes on interest and suffer from the effects of inflation. Obviously you need some cash to run your life but that $10,000 in your savings accounts should probably be allocated elsewhere.
Its never easy to predict the future, but in an era of high deficits, its a fair bet that government will come looking for more tax revenue or will try to inflate the currency to pay for the borrowing. In either case, it pays to consider how you can protect yourself.
Best,
James
Disclosure: the author owns shares in both GE and KO.
America worships celebrity. As a society, we tend to view celebrities as having better judgment, as being more ethical, more attractive and more worthy of attention that average people.
If you search for financial information on the internet, you’ll come across some interesting links on the relating to celebrities and their financial lives. It seems that if you take a closer look at the finances of many celebrities, some have done incredibly well, others have failed and filed bankruptcy.
While its undoubtedly easier to become wealthy if one is famous, it would seem that process of making money shouldn’t matter based one’s celebrity status (e.g. the stock market doesn’t care who ownes shares, its about supply and demand). I’ve given the matter some thought, and although I’ve by no means thoroughly considered all angles, its seems that regardless of ones celebrity, some principles for building wealth still apply:
1) Living below one’s means
2) Building and maintaining a business
3) Making sound and well reasoned investments
For example, MC Hammer went bankrupt due to the cost of maintaining a 40 person entourage. He seemed to have spend more than he was making. Oprah has grown from being a successful actress to being one of America’s most powerful women through her publishing and multimedia business. Finally, Toby McGuire got taken to the tune of $187,000 because he failed to research his investment advisor. Something tells me he didn’t look into what products he was buying.
If you’d like to read more, click here for Bankrate.com’s series on celebrity financial profiles. Its got some useful and insightful articles.
Otherwise, have a great day and happy web surfing!
