HOUSE MADE OF STONE- COULDN'T BE BLOWN DOWN!!!!!!!!!!POST 25

Hi,

Since mortgages are the straw that brought the "little piglets" house tumbling down, let's take a look at what was failed to be asked of the banker loaning the money.

A mortgage allows the buying of a home or property over time and there are all kinds. Some of them as many unfortunate home buyers have found out are totally risky and for the unwary are home owner fatal. Let's start with the riskiest which only an adventurous investor should even CONSIDER. However, in the recent past too many non-risk takers were encouraged to use these with a resultant loss of the home. KNOW WHAT THE AGREEMENT MEANS!

Option ARMs (ADJUSTABLE RATE MORTGAGES) are flexible and allow variations in payment, from small amounts to large but they also allow your interest rate to change or fluctuate. A lower starting rate is sometimes given by the lender (MORTGAGEE) because there's more acceptance of risk on the buyer's part (MORTGAGOR). Of course when rates go DOWN, WOW! WE CELEBRATE; when rates go UP, YIKES! WE SCRAMBLE as the monthly payment SOARS.

STAY AWAY FROM THESE unless as an investor who knows the ropes.

There's something called NEGATIVE AMORTIZATION loans also VERY RISKY. Allows payment of less than the interest that is due over a specific length of time and can be part of Option ARM loans. In this bad case scenario more is owed at the end of the month than the beginning of the month. Like the old "one step forward, two steps back." NOT GOOD.

INTEREST ONLY loans. Paying interest only means nothing is being repaid on the PRINCIPAL (loan) borrowed. The danger is there's no equity (ownership) in the home and if it loses value the original amount must be paid before it can be sold. This is definitely not for amateurs!!!!!!

Whether fortunately or unfortunately a banker is not a good friend. The banker is there to make money like a salesman in a TV or computer store (they're going to hate that analogy). His / her position and salary is based on the ability to do a good job of selling whatever makes the most income on the money being loaned. The same is true of the individual mortgage company and even more so.

Of course, there has to be some concern about other kinds of accounts and repeat business but it's grown to be less and less over time with many businesses taking the attitude that they are doing the customer a favor by selling them anything. And unfortunately consumers agreeing!Many personnel in banks in the last ten years have followed pre-ordained mortgage formulae and probably haven't known much more than the buyer about what they were suggesting as stand-ins for the lender. A very disastrous condition!!!!!!! The same kind of advice we find in computer stores where most of the help doesn't know their behind from a hard drive. Except in mortgages, a lot more is invested and can be lost.

THE BEST BET IS A FIXED RATE MORTGAGE (Interest is the same throughout the loan)hopefully with a low interest rate (6% or below) and with payments you can afford because you've put a GOOD SIZE down payment (10%) or above and are willing to stay in the home you've chosen for a long period of time. MAKING THE RIGHT CHOICE is an important part of purchasing with a mortgage to avoid loss when markets swing downward.

The advice is to shop around for the best fixed rate and get quotes from several lenders. Remember hating banks is no excuse for ignoring that they are the best chance of lender stability. Not all individual lenders are honest and fixed rate mortgages can have a number of built-in fees in the final payment. Ask what they are and get it in writing so while nervously forgetting to listen, the list can be referred to later. Ask questions and ask why. A lender may waive a fee or two if you appear to be a good borrower.

FIXED RATE MORTGAGES allow the mortgagor (YOU) to know what the amount paid monthly will be for the duration of the mortgage . When the home is sold whatever remains on the mortgage must be paid off and the rest of the equity (money) goes to the home owner's pocket. Although mortgages all used to include a prepayment penalty clause (can't pay it off before ending date) now most mortgages don't carry that and the borrower can make larger payments to reduce the loan and interest monthly if desired.

However, if the mortgage has a prepayment penalty, it is possible to make a deal with the lender that a windfall during the mortgage term, can allow the balance of the loan to be paid off without penalty and remaining interest forgiven (skipped). It not only shows "GOOD FAITH" (will return money) but expectations of better days ahead (such as an inheritance).

The current types of fixed rate mortgages are for fifteen years or thirty years according to your ability to repay the loan. Other time frames exist but aren't used as often. Remember that fixed rate mortgages generally have a higher monthly payment because of the safety factors. The higher monthly payment but it stays the same through bad interest weather and good and allows for greater payment of the principal. It's stability is its greatest ASSET! This the house of stone that the Piglets finally built and the Wolf couldn't blow down!!!!!

Second mortgages are available at a fixed rate and are recorded as a second lien on the property but are paid off only after the first mortgage is cleared in case of default so it's more risky for the lender (MORTGAGEE) and are mostly offered from five to twenty year periods and usually are secured by higher interest. It's not something to be used lightly but there are financial circumstances that may require further mortgaging of a home.

AMORTIZATION CALCULATIONS help show how a loan is repaid. It shows how a debt is eliminated over time with regular payments. How much principal and how much interest is paid each month. A portion of your payment on a FIXED INTEREST LOAN reduced your loan balance and a portion of your interest. At the start the interest is the majority of the payment made. In time the balance covers more of the loan thereby "amortizing" the loan. Here's an example:

Using a sale price of $280,000 with $30,000 Down (10%+) leaves $250,000. for an interest rate fixed loan at .0590 (5.9 %) over 30 years with a monthly payment of $1482.
Split of FIRST PAYMENT ON LOAN:

INTEREST: $1229.16 PRINCIPAL: $253.67 (1/1/10)

AFTER 30 YEARS!!!!!!!!!
Split of LAST PAYMENT ON LOAN:

INTEREST; $OOO.02 PRINCIPAL $1482.74 (1/1/40 )

FREE AND CLEAR!!!!!!!!!! If you pay the two cents!!

There was a rule of thumb on mortgages at 5% to see what they really cost many years ago. Multiply the principal by 3X and it comes out to in this case $750,000 .+ Prepaying balance in any way saves a tremendous amount of money and THE HIGHER the interest, the more the loan costs. This estimate does not include any other costs "OF DOING BUSINESS", the phrase from our company "Up Yours".

THIS MUST BE CLEAR!!! This is DOING BUSINESS JUST LIKE A COMPANY!!!! And so it is up to the buyer to learn what must be known or to have or hire someone to offer advice when making such a major purchase.

It's a pain in the galoshes I know but the purchaser is at a distinct disadvantage without the necessary knowledge to conduct mortgage business. The borrower is dealing with a BUSINESS person, equipped with the backing of lawyers, accountants and other gurus advising and consenting to the loan of this money. WHO THE HELL HAVE YOU GOT BEHIND YOU??????????????

CHEERS, CONNIE

DOUBLE YOUR INTEREST-DOUBLE YOUR DEBT!! NOT AT ALL THAT "FLAVORABLE"!!! POST 24

Hi,

Interest is only exciting if you are on the receiving end and making "bocoos" of interest income.

Interest is involving if you are borrowing money through a mortgage or on a credit card or in a loan from some source.

Interest is illuminating If you are a mathematician and enjoy the process of math and all its formulas.

Otherwise, most of us would prefer not to have to deal with it. Computers have made the job for those who must deal with interest regularly immeasurably easier.

Banks used to figure interest based on four months (before computers) and bank folks worked late into the night to figure out a quarter of the going interest rate on your account. My friend and banker, who ran several small banks, said that this was the much hated quarterly "interest" day when his employees worked overtime to correct everyone's balance. He said if someone was going to give up on being in banking, the resignations would come that week.

Computers compound interest almost continually so that bank balances grow continuously and resignations are based on other factors like salary.

Dislike a bank employee and want to cause a sessation of employment? Ask for a detailed compounding of interest on the loan itemized on a daily basis with a true total. That should simulate some of "interest days" hardships and cause pause for reflection about career choices.

Compound interest is paid on PRINCIPAL (that's what is borrowed) and on interest already earned (reinvestment of interest) which creates more wealth.

SAY WHAT???????????

Well , take $1000. and loan it to a friend (a GOOD and TRUSTWORTHY friend) at 10% interest for a year (this is not a charity event!!!!!!!!!!) and when that friend repays you, the amount he pays is $1100.

Now another friend wants to use the $1000. but encourage him to take $1100. (it's burning a hole in the pocket) and charge him 10% interest for a year . When (and if) he repays the loan, $1210. will be the amount. $210. has been made on the $1000. over two years and a compounding interest of two very close friends.

In other words, using the interest paid on the money increased the amount of money loaned and the amount repaid. You COMPOUNDED INTEREST. They have formulas for this. I will not bore you with them.

There is one interesting math formula for the lender AND borrower . If you want to know how long it will take to DOUBLE your loan money by ANNUALLY COMPOUNDING the interest :

DIVIDE THE INTEREST RATE INTO 72 (72 divided by 10=7.2 years)

This works when the interest rate is less than around 20% and is pretty true to fact if not completely accurate to the gnat's eyebrow!!!!!!!!!

If a lender for some reason wants to double money in eight years and wants to know what interest to charge:

DIVIDE THE YEARS INTO 72 (72 divided by 8=9%) NOW THAT'S FUN!!!!!!!!

There are many tricks in math and shortcuts. And for the life of me I do not understand why these are not provided in grade school beginning math classes. Kids love to learn by having fun! Obviously, we only want our mathematicians to have it easy not the math challenged folk.

The RULE OF of 72 was written down by an Italian mathematician in 1494. Those 1400's were really brilliant years for the Italians in a number of fields including math and art. No mathematician seems articulate enough to tell us verbally why this RULE OF 72 works--only give formulas. Again just accept that it works and is close enough for your purposes.

Borrowers who pay interest on charge accounts are involved in interest constantly and need to understand what the amount that is being charged actually means. In many cases the interest on money when one elects to simply make a payent is COMPOUNDED. If the card information says: "COMPOUNDED DAILY", the Credit company is charging interest every day, they add this interest to your previous balance every day then round it off.

Let's say the balance is $1000. and 23.73 interest rate (high but not unusual) $1000. x 0.0006501=.65

(They use formulas- this is one: 23.73%/365 = 0.06501% or 0.06501% or 0.0006501 when % means 100)

Sixty-five cents is added to your balance so on day ONE, you owe $1000.65; on day TWO, another .65 will be added so by day THREE, you owe $1001.30; on day FOUR, .66 is added and your balance becomes $1001.96. The COMPOUND INTEREST by day FIVE makes your total $1002.92 AND ON IT GOES through THE REST OF THE MONTH!!!!!!!!!!!

So by paying interest on interest (COMPOUNDING) the total is going up daily and the monthly payment may be too small to reduce the balance much if at all.

The other method of computing interest is: "AVERAGE DAILY BALANCE" which has a more complicated method: AT A CERTAIN TIME EACH DAY RECORD BALANCE. AVERAGE,THEN DIVIDE BY NUMBER OF DAYS TO ACQUIRE MONTH'S BALANCE, THEN MULTIPLY BY MONTHLY INTEREST RATE. (daily rate x NUMBER days).

Trust me it compounds. How do you think they stay in business in good times and bad. As I have said in the past the interest rates charged on credit cards today were considered USURY.

Definition of USURY: THE ACT OF LENDING MONEY AT AN EXCESSIVE OR EXORBITANT OR ILLEGAL INTEREST RATE. The information with the bill gives that companies' formula for figuring interest which they know won't be read. Get the formulas, use the calculator!!!Prove them wrong.

However, remember they have to "eat" (lose money on the deadbeats) all the defaulted debtors.That higher cost allows the higher interest. Banks used not to loan money to people with bad credit records or an inability to pay back the money. Credit Card companies changed all that. A fee is collected from businesses to offset the defaults.

Of course, your best bet is to pay cash. As they used to say in the OLD days: neither a borrower or a lender be. However, in 2010 that has become an OLD SAYING and all that goes with that feeling. So your next best bet is to pay the balance monthly in full. What can I say? There really isn't a next best bet.

Although our math trick doesn't really work on over 20% (and don't think they didn't think of that!) we can ASS U ME that the company will double its money in about 2-3 years. Which means my friend those bargains wound up costing twice as much!!!!!!!!!

Cheers, Connie

IS YOUR BANK PICKING OUT A SPOT IN THE BANK GRAVEYARD??!!! POST 23

Hi,

We touched on loaning money and paying interest briefly. Considering how many people were caught short by smart bankers, who SHOULD HAVE understood what multiple mortgages and compounding interest meant and failed to explain it clearly to consumers, perhaps this post and the next should give it a whirl.

Let's start with multiple mortgages. Let's say that you have some money you don't need and decide to loan it out. First and foremost, you want to invest the money in a mortgage. You want the money safeguarded so you insist on what is called a FIRST MORTGAGE on a home.

A FIRST MORTGAGE is THE primary contract or loan between an owner (MORTGAGOR) and a lender (MORTGAGEE) with specified payment periods and interest rates on a LIEN on the property known as COLLATERAL. Since this is the PRIMARY LOAN, it is first paid (has first dibs on the money in the case of default).

Thus far, this is well-known territory. After WWII, in order for returning Veterans to be able to buy a home after devoting their early earning years to the armed service, second mortgages were made popular. Veterans were able to finance their homes with a first and second mortgage by the Government run FHA (FEDERAL HOUSING ADMINISTRATION), who also offered low interest on the first mortgage loans with higher interest rates for the second mortgage.

Understand that the second mortgage was subordinate to the first mortgage (only paid after the first mortgage was paid off) and, therefore, lenders expected more interest paid for the risk. Any equity (Money) left after the First Mortgage would be used to pay off the second mortgage in case of foreclosure.

As the years went by second mortgages became popular with the public as short term home improvement loans when the first mortgage held a low interest rate and folks didn't want to refinance at higher rates. The equity paid into their home served as collateral.

NOW HEAR THIS!!! MORTGAGES AND LIENS ARE PAID OFF IN THE ORDER OF THEIR FILING. Therefore, if there are not enough proceeds from a sale, the last loaners are left holding an EMPTY BAG.

No one feels sorry for them because they took on high risk loans in order to get high interest. Still they lost their money--some going completely bankrupt. Our sympathies go mostly to the homeowners but the ignorance on both sides deserves some thought. Many of the new lenders following the lead of big banks were as ignorant in loaning their money as the borrower in taking it.

Obviously, when the mortgage banks and major mortgage lenders were handing out third, fourth and fifth mortgage loans, they knew the score. What happened to the voice of responsibility in the Government (BOTH PARTIES) and the Banking interests who were a large part of the current mortgage fiasco. All of this was playing out before the Market started gambling on bundled mortgage securities call Hedge funds.

Look at it this way: If a home is worth $100,000. with no down payment, the first mortgage at $90,000. the second mortgage at $10,0000. That is all of the EQUITY in the home (WHAT THE HOME IS WORTH). Another mortgage can be given without equity ( the COLLATERAL of the home) BUT WOULD BE simply based on what the home might be worth down the "road-a-piece".

If that sounds like GAMBLING--you got that right. The borrower can ASS U ME it'll be worth $200,000. and make a loan based on that assumption, charge VERY HIGH INTEREST and the borrower can ASS U ME that the lender knows what is right and both can take the risk. Often talks were aimed at reducing these risks by refinancing the extra money at a lower rate at a later date if the borrower and lender ASS U ME that the house's collateral will increase substantially.

The banker's gleeful! HIGH INTEREST ALWAYS MAKES A BANKER GLEEFUL. The borrower is gleeful! He's using someone Else's money for what he wants! But time goes by and he's got 3 mortgages and no equity. His payments are being used up by interest. What is owned is an assumption of value and the Tax collector taxes the homeowner on an ASSUMPTION. He's screwed all the way around.

The holder of the first mortgage is the only one who can hope to come out on top and that's only if the first mortgage was based on REAL VALUE and where would that REAL VALUE come from? The TAX RECORDS of course, which reflect an assumption of what a buyer will pay NOW. In good times the tax value of a property is less than the ordinary appraised value for a loan. Hopefully, the educated guesses are correct.

In dim and distant days tax collectors had to base their taxes on THE PRICE SET BY A SALE of THAT particular property. Not on BLUE SKY or the neighborhood house sales. If you chose to stay in your beloved home, your taxes remained the same for the property portion. Not a bad system but considered unfair when homes started gaining value. Nothing about any system is completely fair but it seems to me that now that taxes have been apportioned to various other expenses, a property system that rewards long term ownership might be good in these bad times.

Do you feel like you just got on a merry-go-round from which there's not exit. YOU GOT THAT RIGHT TOO.

There's another mortgage idea as well. BANKERS ARE VERY CREATIVE WHEN IT COMES TO OBTAINING THINGS OF VALUE. It's called a REVERSE MORTGAGE and is a loan made to couples over 62 on their equity in their home (preferably mortgage free or almost-so. They receive a lump sum or a check each month and the loan must be repaid when the home is sold, no longer used, or the home owner dies. IF YOU DON'T LIKE YOUR KIDS, THIS GIVES THE MONEY TO A BANKER OF WHOM YOU MAY BE VERY FOND when he sells the property!

Although the foreclosure situation seems horrendous and is; it was long overdue. Any banker worth his salt will not lend his customers' money in such reckless fashion. If your banker does then your bank will soon be picking out a site in the BANK GRAVEYARD and you'll be out whatever the government couldn't insure.

It's been said and said and said: THERE'S NO FREE LUNCH. What you postpone paying today will have to be paid tomorrow with interest!!!!!!!!!!

HAVE A SEAT ON THE STOCK EXCHANGE!!!!!Post 22

Hi,

I suppose we can try to demystify Wall Street with some definitions and why it's important to our system of government.

Wall St is primarily the name of the financial District in New York City and where the New York Stock Exchange and banks and brokerage houses are located.
In other words it's the heart and lungs of America's finances. And in this blog we've discussed factors of this institution like Corporations, Hedge funds etc. but here we'll explore the language of the "street".

When our Corporation "Up Yours" went "Wall Street" it had to have CAPITAL STRUCTURE which is simply a plan for securing the capital necessary for its activities. See, you knew that!!!!!!!!!

Stock is the shares in "Up Yours" Corporation and others on THE MARKET. The word SHARE means a COMPONENT PART OF THE CAPITAL STOCK ISSUED. Usually in denominations
OF $1.,$5.,$10,$25, OR $100. AND THE STOCK CERTIFICATE the stockholder receives represents the number of shares bought to be held.

A JOINT STOCK COMPANY applies to a partnership whose business is conducted by officers chosen by Stockholders-Perhaps YOU. Rare now, they sponsored settlement in America during Pilgrim times.

Stocks like "Up Yours" that are listed on the Stock Exchange are required by the SEC
(Security Exchange Commission) to have a registrar and transfer office as means of checking and balancing, eliminating fraud, and for quick transfer. Cash sales are sales of securities that must be delivered the same day.

The fun with stock price begins with the BID OFFERED PRICE; MARKET PRICE is the actual price when sold; firm price is a quoted and held to price for a given period of time; NOMINAL PRICE is the estimated price. GOT THAT??????????GOOD!!! BECAUSE IT'S JUST LIKE THE LOCAL Antique dealer down the road.

The language of the Street gets creative with PUT AND CALL which is simply an option to either buy or sell an "UP YOURS" stock at a certain price within a certain time. You know if the Antique Dealer knows you, he'll agree to that!? If you put up a deposit! Put and Call has a fee for one month but you don't have to exercise the option but of course you lose your fee. AND YOUR DEPOSIT AT THE ANTIQUE DEALER. There's a lot of creative activity with PUT AND CALLS including HEDGING YOUR BIDS, BETS, TRADES AND OTHER TERMS.

OLD (Not aged) stockholders Of "UP YOURS' can benefit if new stock is issued at a given price during a limited time that is lower than the market price. This is called RIGHTS.

DIVIDENDS a portion of the earnings that the "Up Yours' Corporation distributes among the stockholder(s) of their corporation. GOOD!!!!!!!

EX-DIVIDEND Means you don't get any tonight!! Dividends are closed for a particular period. NOT GOOD!!!!

NEGOTIABLE PAPER is any document transferred between folks by endorsement or delivery. Promissory notes (letters of credit issued to people traveling overseas including travellers cheques), drafts (Order for specific monies to a 3rd party), bills of exchange (written orders of all types permitting payment in distant places) are included here. Those who travel have been to EXCHANGE CENTERS in foreign countries to get the local currency with travellers cheques.

Interest is certainly familiar but is USURY? Not so much nowadays. It is the rate of interest in excess of the legal rate. The rates charged presently by Credit Card companies used to be TERMED USURY. How times do change!!!!!???

Simple interest is the interest allowed for the use of the loaned principal. Other forms of interest must be specifically designated.

THIS IS A SUBJECT THAT SHOULD BE STUDIED BY ALL FOLKS GETTING ANY KIND OF LOAN INCLUDING MORTGAGES and CREDIT CARDS!

PERIODIC INTEREST is the inclusion of simple interest on the unpaid balance while COMPOUND INTEREST is the interest paid on the PRINCIPLE AND SIMPLE INTEREST at regular intervals. INTEREST ON INTEREST gets expensive!

Jokes about WALL ST. always involve BULLS AND BEARS. A BULL MARKET is when stock prices move UPWARD (A BULL GORES YOU UPWARD) and a BEAR MARKET when the market prices go DOWN (BEARS SQUISH YOU!). The $1000. downturn the other day in the overall market (due to some strange happenings) can be said to have been "GRIZZLY BEARS" (my term). And could have caused a CIRCUIT BREAKER (Explained later).

Stock brokers engage in buying, selling, and distributing stocks and bonds. SEC says anyone who can do transactions must be a licensed broker.

What is a SEAT on the STOCK EXCHANGE? My father-in-law had one. No, it was not a special armchair but was originally a wooden seat!!!!!!!! Seats sold on the New York Stock Exchange for $80,000. even in the 1800s and offered special privileges. In 1929they carried a price of $625,000 just before the market crash.

A "seat" on the market represented an equity interest in the Exchange and the privilege of accessing the trading facilities of the market. It officially ended on 12/30/2005 and the last price paid was four million dollars.

In the old days members did sit in assigned seats in the hall of the Exchange where daily the employees called out the trading of stocks at set times so those with seats knew at what price their stocks traded. This was before continuous trading and after licensed professionals were allowed to sell the securities on the floor (no, they did not roll dice on the floor) of the EXCHANGE.

Later the TICKER TAPE became available for those not able to visit the stock market and folks visited Brokers' offices to watch the ticker tape and find out how their stocks were doing. Now it's so easy on TV!

Stock options originally known as "the Curb" began in the 1800s and folks began meeting on the curbstone at Broad St. near Exchange Place and moved indoors in 1921 but didn't become the AMEX (American Stock Exchange) until 1953.

There's also a trading curb which is known as a CIRCUIT BREAKER and is the point stocks will stop trading for a period of time in response to substantial drops in value. Levels are set at the beginning of each quarter of trading.

A FLOOR TRADER can be that human you see scurrying around the cluttered floor of the Stock Exchange who ACTIVELY buys and sells stocks rapidly for himself or others.

An Arbitrager is a group of traders who buy in one market and sell rapidly in another. It's for a quick advantage of temporary price differences. Like taking advantage of the old 2 hour sales K-MART used to run!

There's more but that's it for today. These terms can help clarify the MAD MAN OF TV,the local newspaper's articles as well as offer a better insight into the important functions of our market system.

All of these functions of the Stock Market allow companies that provide the United States with the necessities and luxuries of life to function smoothly and legally and provide the companies with needed capital.

We are called a MARKET ECONOMY because the financiers originally established parameters to conduct business honestly, logically and ethically.

Those parameters have since the MARKET crash in 1929 been interfered with by the government. It has not been successful-witness the present day problems the laws passed were supposed to have resolved.

China although governed by communism has learned the value of freeing up the market system and in a record amount of time has turned its economy and society into a modern day miracle.

Maybe it is a lesson to be learned by our government. Let the financier finance and the Government govern and make their divorce a welcome day in court.


Cheers, Connie

RUSSIAN ROULETTE WITH 401-Ks and 401(b)s ???!!!POST 21

Hi,

I think a clear definition of 401Ks might help to clear up the misconception of some investors that they are guaranteed to retain their contributions.

It is a tax-deferred retirement savings plan often offered by employers on a shared employee-employer basis. The savings are invested mostly by employers and deferred from current income taxes on savings and earnings until withdrawal. The employee elects to contribute to the 401K.

A 403(b) is a tax-deferred plan for nonprofit organizations like public schools and municipal agencies and follows the 401 K rules and payroll deductions as above but funds can be withdrawn at age 59 without penalty and must be withdrawn by age 70. Funds can also be borrowed. Investment choices are more limited, safer, and often funded as annuities although some may be put in not so safe mutual funds because it's up to the employer, who may or may not be a contributor.

Unfortunately, what is unclear to many of the folks involved is that the funds are not FDIC (Federal Deposits Insurance Corporation) insured because they are invested funds. The FDIC covers IRA (Individual Retirement Accounts), Section 457 deferred Compensation plan accounts, self-directed defined contribution plan accounts, self-directed Keogh plans. But sorry not 401Ks or 403(b)s.

Annuities CAN be safer (unless the underlying company is plundered) than mutual funds or other more risky investments. The 401s and 403(b)s that are placed to generate more income are subject to the downturns in the market. If the more risky investment in which the 401K or 403(b) is placed goes belly up, retirement savings are GONE. All can be lost or if it is a diversified fund a portion MAY BE lost.

Many folks with these savings believe that they can't lose what they have invested. Sorry, but this is not true. These are not insured plans and are essentially invested in the stock market with all the ups and downs that means. Although more care has been placed in making retirement funds safe, there are no guarantees that someone managing the annuities or mutual funds won't get a wild hair and include some of the "bungled and bundled,and bombed out" hedge funds to try to boost income.

Unfortunately in acquiring wealth there is risk. To save for retirement with LESS risk, invest money where the FDIC insures it for up to $250,000. per person account.(UNTIL 2013 THEN A LOWER AMOUNT). Save in the above named FDIC accounts or a savings account which NOW pays almost nothing or even Government backed CDs or T-bills. This kind of security IS based on the government's ability to PUT ITS MONEY WHERE ITS MOUTH IS!

An account like the 401K and the 403(b) carries with it conveniently enforced savings, employer selected investments (some allow you to pick and choose), outside management, tax advantages, PLUS RISK.

As advised in Post 20, no one takes better care of personal finances with an incentive of protecting the future than "numero uno". Leaving it to an employer, his investment broker, and a random selection of equities is like playing RUSSIAN ROULETTE (one bullet in gun, spin the chamber, aim at head, and if lucky win, or if not lose life) Not a good option.

403(b)s are often a little better funded but to believe there is no risk to contributed money is a fallacy even though low in risk. If the employer allows input into a personal choice of investments, there is more control. Since annuities are mainly obtained through insurance companies that will provide stability as long as the insurance company remains viable. Annuities are very complex.

Just remember AN INVESTMENT CARRIES THE RISK OF LOSS. Don't assume (our favorite word) that your money is NOT at risk and you don't have to look after it. If that frightens you, transfer it to an insured IRA or the like and get more protection!

CHEERS, CONNIE

WOLF HUFFED AND PUFFED BLEW THE LOAN DOWN!!!

Hi,

We discussed hedge funds several posts back and I wanted to give you the definition for the bundled mortgage funds that caused so much damage to our economy and helped put us into a depression not unlike 1929.

CDOs are Collateralized Debt Obligations or bundled mortgaged bonds,(HEDGE FUNDS). These funds, sold privately, allowed folks to buy houses well above their means or ability to repay the loans. Goldman Sachs has been the sacrificial goat for the Security and Exchange Commission's fraud case but many firms practiced the art of EASY MONEY and BIG PROFITS. Since CDOs were not traded on the regulated market, Wall Street has absorbed blame that belongs with those involved and the government.

The problem with these loans was not just RISK on both sides but how the clever (or cunning)financiers handled them. Now remember participants in obtaining a mortgage believed that the Government (Fannie Mae and Freddie Mac) was backing the effort and they went to mortgage lenders who all looked on the up and up to the home buyer. Ruse or right??????? The best?? of these were bundled into CDOs.

Folks with BADLY impaired or no credit history were given mortgages with interest-only payments for several years on homes well above their means to buy with the promise of refinancing at a later date and these mortgages were bundled into SUBPRIME MORTGAGE SECURITIES.

Financiers ASSUMED (there's that word again-ASSUME = ASS(OUT of)U(and)ME) the SUBPRIME MORTGAGES would be refinanced in a few years at a higher monthly payment and all would be well. If the owners (actually renters without rights under these conditions) could not meet the terms (essentially a new mortgage deal with high payments) this would cause default. And WOW!!!!!did it! All over the country and into a deep depression.

Prior to the market's fall, the not satisfied financiers bought their own mortgage companies, relaxed standards, created unlimited synthetic CDOs with no hard assets behind them. They then sold TRANCHES (slices) instead of shares as you would in other funds. The riskier the TRANCHE the higher profit yield to the investor. Again this was all done outside the Wall Street Market Place.

Still not satisfied other types of securities were created that were SYNTHETIC CDOs (Sounds like LAS VEGAS again) based on betting against the housing market.

We're now looking at deals that are considered fraudulent and for which the financiers and their companies may be potentially liable. Since Fannie Mae and Freddie Mac were totally involved-WOULD THIS BE CONSIDERED A GOVERNMENT SPONSORED CON GAME?????????????!!!!!!!

These CDOs though not publicly traded, were traded privately to many of the same clients, who bought stocks and bonds through firms that represented Wall St. There was no so-called transparency that is required by the SEC of Wall St. stocks. Although buyers were given a humongous list of included documents, few took the time necessary to investigate, trusting their broker to steer them right. The broker probably hadn't had time to read them either. An unknowing stock holder might buy what looked like a potentially secured investment of tranches that held some totally risky combinations. Although, one would expect someone buying large amounts of CDOs to at least have done some investigation!!??

The estimated sales reached 500 billion but not being public trade put it outside all the market rules and regulations. I'm not really sure why the SEC has to investigate something outside their parameters but I suppose it helps to calm those investors taken in by their blind greed.

Firms like Merrill Lynch (the most CDOs), UBS, JPMorgan Chase, Citigroup among others were large players in this gambling both in the US and overseas. The SEC has also been investigating how mortgages were sliced and by whom.

What also seems to be the case is that the firms were possibly allowing some investors to bet both ways-by buying CDO tranches then buying SYNTHETIC CDOs so betting against the tranches and allowing them to win either way the market went. A mitigation of risk called HEDGING. Sound familiar? Seems as if the only real losers in these schemes were the ignorant.

This house of cards came tumbling down as more and more home owners originally priced out of the housing market but let in by RISKY MORTGAGES AND CDOs finally defaulted and lost the homes that they never should have been sold in the first place.

The three little pigs listened as the Wolf said "I'll huff and I'll puff and I'll blow your house down." and he did. The houses were made of the straw and sticks of bad loans and were blown down. No wolves can blow a house down when its made out of the bricks of good finance

That sounds harsh but making credit easy is a BOOBY TRAP (yes, they think you are an ignorant boob) for a lot of folks. Credit cards carry the same risk. There is only one way to purchase what you want or feel you deserve--BE SURE YOU CAN PAY FOR IT BEFORE YOU BUY IT. That's fundamental all over the world.

There are two old sayings: LET THE BUYER BEWARE! and IF IT SEEMS TOO GOOD TO BE TRUE--IT IS! and of course add to that "THE THREE LITTLE PIGS". All teach the rules of good personal business.

There really isn't anyone out there who will take as good care of you and your money as you will. No matter how sincere or dedicated that someone may be. If that person is successful, he or she has numerous clients to look after so you become ONLY ONE of many.

So learn what you are doing!!!!!!! Don't look to others to take care of your needs or wants. Depend on yourself and if you make a mistake, at least it's your mistake and not another person's carelessness. Then if you hire someone for the various transactions, you will know what's happening not just trust in dumb luck.

There are so many good books out there by people who have studied financial matters. So it's boring--we're talking about your money here! Read a variety so that you don't cave in to someone's bias. It makes no sense to work hard at whatever you do and not to know how to make your earnings from that labor be protected from harm. Trust yourself!!! You'll clearly be better at this than a well-meaning stranger if you learn the rules for taking care of your finances.

Cheers, Connie

GDP ALSO DEFINED AS "G.D. POLITICS" Post 19

Hi,

Some terms seen constantly in the news need defining. Remember, Economics is part of the Social Sciences and it is a major field of study and assumption so we will not be covering it all. However, there are many sites on the Internet you can use through Google, Bing, etc. that will fill you in on anything I don't cover. One list of definitions that I favor is "A Journalist's Guide to Economic Terms" because the definitions are short and sweet. It does not cover all of them.

Most often seen in the newspapers: GDP (I define it as G.D. POLITICS, not in the economics dictionary) GROSS DOMESTIC PRODUCT is the value of all goods AND services within the United States (or any other country) during (usually) a year. It is a government measurement by output and reported by the US Bureau of Economic Analysis.

There is also REAL GDP (also called CONSTANT GDP) which is the total market value, measured by constant price, of all goods and services with the US (or any other economy) usually in one year.

Why the difference? Well again we are dealing with assumption here. The difference is that REAL GDP is measured in CONSTANT PRICES FOR THE YEAR and ADJUSTS FOR INFLATION for the year. You might want to compare both if checking on them.

SEE! That's why my definition of GDP is better. It's all based on G.D.POLITICS and the POLITICIANS who ARE doing the analysis???!!!!!!!!!! What to believe??? My Dad used to say when listening to a salesman (and believe me the Government is just that) take what the salesman says, halve it (or double it as the case may be) ADD OR DOUBLE 30% then factor in how fast talking and glib the salesman appears and deduct 10% (or add 10%). Seems reasonable. As reasonable as some of these figures.

GDP DEFLATOR: A PRICE INDEX based on the calculation of (RGDP) real gross domestic product and used as an indicator of average prices in the economy in REAL dollars and NOMINAL dollars (dollar amount without inflation adjustment). PULEEZZZ.....NOMINAL DOLLARS???? I ASSUME that's what's left after the IRS (Internal Ruining Service) gets through with you????!!!!!!!!!

This more fun than usual!

GNP (GROSS NUMDUM PREDICTORS) GROSS NATIONAL PRODUCT was the total market value of all goods and services produced by the citizens of the US economy (or any other) in a year, until it was replaced by GDP in the 1990s. Obviously OUT OF FAVOR like the ELECTORATE lately.

We should review HYPOTHESIS: a reasonable proposition about the workings of the world inspired by supposition which may or may not be true. It's essentially a prediction or theory from observation. It is supposedly tested against REAL? WORLD data and if supported over and over again becomes a principle. The key to this is the QUALITY of the TESTING.

SCIENTIFIC METHOD is called into discussion to sway folks who are dubious. It is a STRUCTURED method of investigation by testing and verification of a HYPOTHESIZED RELATIONSHIP. It is an act of discovery for exploring phenomena so that they can be better understood.

That's like what is nominally called the SEX act before marriage; considerable testing may prove unrelated to understanding the MARRIAGE act. After all it is still theory.

ECONOMIC ANALYSIS is using the scientific method in a systematic manner for an end result which may lead to combining concepts that leads to an analysis of the combinations ad infinitum (LATIN for never ending).

COMPARATIVE STATISTICS is the primary analytical technique used in the study of Economics. Used a great deal in observing markets and demand and supply curves. A tool used for Stock market ANALYSIS and you know the consistency of the stock market.

YOU'RE PROBABLY SAYING BY NOW: Why should I learn this if it's not about REALITY?????!! because YOUR POLITICIANS LIVE BY IT and so your bread and butter is gained or lost by their actions. PAY ATTENTION to their methods and you can gain through understanding the WHY and WHEREFORE!!!!!!!!!

STATISTICAL DISCREPANCY: The OFFICIAL (do you like that admission???) adjustment done to help equalize an income and expenditure approach to measuring the GDP. Balancing those "supposed" figures is a problem. It's a budget with an arbitrary percdentage left open for miscellaneous. That way the budget is always met.

Like having a checking account where the bank out of the goodness of their heart provides you with an open account amount and the flow of money is endless????!!!! No budget problems there!

The aforementioned (BEA) BUREAU OF ECONOMIC ANALYSIS. A Government agency in the Department of Commerce compiles and reports all the assorted measurements and data including national income and production as well as good old GDP. The problem here is that Economists rely heavily on BEA for data in their analysis. Does a MISTAKE here mean BEA (BAD ECONOMY ABUSE)???!!! UH OH.

In the event you learn all this stuff on Economics, be prepared for terms to OBFUSCATE (befog) you more. One is CETERIS PARIBUS (Latin) means OTHER THINGS BEING EQUAL. It is used to isolate one factor from all others in order to observe the results. It is supposed to "un-obfuscate" (lift the fog from) whatever theory they have. Feel free if you want to apply CETERIS PARIBUS to this blog to find out if you learned anything??????!!!!!!!!

Cheers, Connie