Archive for December, 2008

The Treasury Department is poised to try to lower mortgage rates to new lows, and on the surface, this appears to be a good omen for both this industry and the overall economy as well.  But does it leave existing homeowners out in the cold?  We’ve already witnessed the lowest mortgage rates in decades, and even though applications for refinancing existing mortgages are up, the question still remains as to the long-term positive effects.  Significant numbers of homeowners might not have the money to begin the refinancing process if they’ve already done so recently.  As for buying another home, there’s always that pesky task of selling the existing one first.  It contributes its own share of complications to an already difficult process.

Add to this the climate of uncertainty in the employment market.  Many workers are in fear over their jobs, and that doesn’t bode well for taking on new debt of any kind.  Not only that, the creditworthiness of many consumers is in the doldrums.  That means that the amount of benefit from a drop in rates might be minor, if there’s any at all.

Any move to lower interest rates is a good thing.  But the intended result is to open up credit products to those who were previously unable to take advantage of them due to their financial status.  With the current economic woes, those suffering the most in the lower and middle class may not be in a position to benefit.

Tough times bring out the clever, the creative and, sometimes, the “questionable” choices of many people searching for a way to bring in more money.

I came across the blog of Just Another Lab Rat, who offers a candid, insider’s view of what it ’s like to make a career out of volunteering as a human guinea pig.

According to the author, who’s been subjecting himself to prodding, poking, ingesting untried medications and what he estimates to be about 1,500 blood draws every year for four years, the average person who does studies “for a living” can earn from $18,000 to $28,000 a year. Since there’s a mandatory wait period of at least 30 days between studies to ensure that any drugs taken exit the body completely, he advises people who decide to embark on a lab rat career to find work in between studies (like temp agencies or hourly jobs) that give them blocks of time off to free them up for the lab studies.

Human guinea pig work is not for everyone. In-house patient studies can last up to 30 nights, during which time you have to stay at the medical facility 24 hours a day. You could earn $400 to $800 for a three-day study or $3,500 to $5,000 for a 30-day study. Outpatient studies, on the other hand, might test the efficacy of investigational drugs or medical devices, from a brain-imaging scanner to latex gloves.

The author goes into great details to answer questions like, “Do I have to pay taxes?” (Yes, for gross earning above $600 annually) and “How can I increase my chances of being selected for a study?” (It’s a young person’s gig. The cutoff for many studies is age 45.)

Subjecting oneself to the advancement of science is really nothing new, although I never considered making a career of it. As high school students, my friends and I, if bitten by the same cold bug, would skip going to bed and instead troop off to the local medical facility that tested various cold remedies regularly. They’d pay us $50 or so for our trouble as we killed four hours in their waiting room, hacking away, spreading our germs and generally feeling miserable.

If things got really bad, would you ever resort to such measures? What’s the most drastic measure you’ve taken to earn a little extra cash?

There’s nary an aspect of our lives that hasn’t been affected by the recession, and now it appears it’s even dogging us into the afterlife.

Funeral directors report a surge in the cremation rate as families short on cash opt for an alternative that costs less than half that of a traditional burial. A traditional ground burial with limo(s), a wake, service, embalming and a burial plot can easily cost $7,000 or more.

The rate of cremation has been steadily increasing all along ⎯ the national rate stood at 34% in 2006, according to the Baltimore Sun.

There are several reasons for this. Americans live more mobile lives. (Have urn, will travel. If you wish to visit your loved one after they’ve departed, you’ll have to commit to remaining within driving distance of the cemetery for the rest of your natural life.)

A growing environmental consciousness also favors cremation, which is a more eco-friendly choice than embalming with a toxic brew typically made up of formaldehyde, methanol, ethanol and other solvents; cremation also frees up open space that would otherwise be locked up by grave sites forever.

Now, though, the general trend favoring cremation is becoming even more entrenched, thanks to economic pressures that fail to spare even grieving family members.

If money was tight, would you consider paring back expenses, and possibly cremation, when handling a loved one’s funeral and burial arrangements? Or would you spare no expense?

It’s about time.

After receiving a record number of public comments — 65,000 — on proposed rule changes for credit card companies, federal regulators responded by adopting expansive new rules that clamp down hard on what many perceive as the cutthroat lending practices of credit card companies.

The move is a good start in leveling the playing field between credit card lenders and borrowers, although as far as I can tell, it doesn’t attempt to limit credit card interest rates, which can exceed 25%. (You might do just as well borrowing money from the man in the dark overcoat standing in the alleyway.)

The new rules, which don’t go into effect until July 2010, do stop credit card issuers from:

•    Hiking interest rates on existing balances;
•    Applying all payments to balances with lower interest rates when a borrower has balances with different rates;
•    Changing account terms after just 15 days’ notice; now, they’ll need to give 45 days’ notice;
•    Giving less than 21 days to pay before incurring a late fee; and
•    Making deceptive credit offers.

While consumer protection was the intent of the rule changes, federal regulators acknowledge that the changes may also end up making it difficult for millions of people who have either bad credit or no credit from getting a credit card.

Well, wait a minute. Whoever said that access to a credit card was an inalienable right?  If your credit history reflects a poor track record for holding up your end of the bargain — in other words, if you don’t always pay your debts responsibly — then why should any company feel obligated to loan you money?

After all, credit cards are an unsecured loan, meaning that, unlike a mortgage or a car loan, there’s no collateral the lender can reclaim if the borrower fails to pony up. So all they’ve got to go on is your credit history.

I have more sympathy for those with no credit. The people with a sparse credit history are usually young adults who may not have had a need or opportunity to borrow money. But paying off student college loans is one way to build a credit history, as is a car loan.

That’s what I did in my early 20s, a time when I hadn’t the foggiest clue about credit histories or why I should care about them.  Most student loans are federally administered with a built-in deferral period that lets recent graduates get on their feet before beginning repayments, and federal student loans generally carry reasonable rates.

While not everyone attends college, most young people will still need a set of wheels, and that’s another way to get started building your credit. In my case, I saved as much cash as a 16-year-old could, with my grandparents matching that amount. My grandfather, a mechanic and the owner of a small service station in Boonton, New Jersey, picked out a reliable used car for me, a Ford Maverick. After an unfortunate encounter with a deer, I ditched that car and got a $3,000 bank loan for my next used vehicle, a Datsun King Cab pick-up.  Repaying the loan wasn’t a problem, even on the modest salary of a newspaper reporter.

I think the many new protections the new credit card rules offer consumers far outweigh whatever inconveniences they may create for new borrowers. Credit, after all, should be a privilege that is earned.

What say you? Will the new rules affect you personally, and did they go far enough?

Call me naïve, but, given the rise in credit card defaults, you might think that credit card companies would try to make it easier for their customers, particularly those who are in trouble, to pay off their credit card debt. These companies should be working with their customers to lower the interest rates and restructure the debt — if for no other reason than to avoid getting stuck with the bad debt when consumers are unable to pay.

However, that is not what’s happening. Credit card companies are instead raising the interest rates on their credit cards. Take Citigroup, for example, which plans to raise interest rates on their credit card products for some of their consumers in an effort to help lessen the blow of the $1.59 billion in losses that they’ve seen in the third quarter of 2008 alone. Their strategy isn’t to make it easier for their cardholders to pay off their debts in these tough economic times; instead, they plan on leveraging their credit card business to make up for losses elsewhere in the company due to the tight credit markets, delinquencies and defaults.

On average, Citigroup is raising its interest rates three percentage points, and most consumers don’t realize that, by law, credit card issuers can make these changes at any time, provided they give the customer advance notice. A spokeswoman for Citigroup, Jeanette Volpi, said that the customers affected are those who haven’t seen an increase in at least two years and that they can opt out if they’d like and continue using their card under the existing terms until it expires.

This new policy directly conflicts with the commitment that Citigroup executives made to Congress in 2007, when they were testifying in opposition to legislation that would have imposed greater regulations on the credit card industry. During a hearing on Capitol Hill, they pledged not to raise any cardholder’s rates until after his or her account expired. (The legislation didn’t pass.)

Even still, Citigroup is hardly the only company moving forward with this policy. Companies such as JP Morgan Chase, American Express and others are moving forward with very similar interest-rate policies in an effort to manage their losses and ward off the problems that they see coming from the looming financial crisis.

Have your credit card interest rates gone up this year?

Nothing like hitting them when they’re down.

Florida’s unemployment office, also known as the Agency for Workforce Innovation, experienced a computer security breach on an external test server in mid-October, inadvertently making public the names and Social Security numbers (SSNs) of about 250,000 residents who used the services of Florida’s One-Stop Career Centers between January 2002 and November 2007.

While the information was never posted to a public website, it was accessible by search engines during the two-and-a-half weeks it was public, the Florida agency reported.

Looks like some Florida job seekers now have more to worry about than the lack of a paycheck (as if that weren’t enough). That’s because fraudsters who use the stolen SSNs to open up new lines of credit can quickly damage their victims’ credit by going on a spending spree. Even aside from any possible monetary losses, victims could be forced to spend countless hours contacting creditors to repair their credit, time that could be better spent on their job search. And if job-seekers fail to check for damaged credit, it could come back to haunt them later, possibly jeopardizing their ability to get a job offer should prospective employers do a routine credit check and come across an ID thief’s handiwork.

Florida residents who used the One-Stop Career Centers during the stated period are being advised to check the Agency’s website to see if their name appears on the list of compromised identities, obtain a copy of their credit report to look for unauthorized transactions and carefully review all credit and debit statements.

In a world where millions of personal records are stored electronically, one small glitch can quickly become magnified a thousand times over. Whether it’s our state and federal government agencies, places where you shop or your own online Facebook account, confidential details, once they’re made known, can at least embarrass us or at worst cost us deeply in terms of stress, aggravation and time spent undoing the damage.

Is identity theft on your radar and if so, what do you do to safeguard your credit?

Express Scripts, one of the country’s largest medical benefits management companies, has reached out to the F.B.I. for assistance investigating a threat to expose millions of patient records if money wasn’t provided to the writer of the threat. The threatening letter arrived at Express Scripts offices in St. Louis in early October, containing personal data about 75 members. The information revealed their names, birth dates, Social Security numbers and, for some, the types of prescriptions they were taking. The company notified the F.B.I. and data security experts, who have been thoroughly investigating the threat.

Express Scripts currently handles the prescription benefits for about 50 million people and health insurers, as well as employer-sponsored medical plans.

In an effort to assist consumers, Express Scripts has set up a website to keep you informed. To find out more about this investigation, you can visit esisupports.com.

Should you be the victim of identity theft due to this data breach, Express Scripts has also announced that they will offer their members free identity restoration services. George Paz, CEO of Express Scripts, said, “Express Scripts recognizes that this situation is concerning to our clients and members, and we want to assure them that they will have our constant support until their issues are resolved.

The economic downturn has succeeded in curtailing yet another ingrained American pastime ⎯ having children.

The Los Angeles Times recently reported that an increasing number of middle-class American families are deciding to postpone starting a family, or adding to their family, due to the economic crisis.

Baby boom and bust cycles do typically overlap the nation’s economic health; economic downturns often precipitate a drop in the U.S. fertility rate.

While there are still those who prefer that Mother Nature decide when they’ll make the celebratory announcement, young couples who may be saddled with new student loan debt and low starting salaries may have trouble taking care of themselves, let alone a new baby. For couples like these, the decision to delay parenthood until the economy improves is one that could ensure that parenthood, when it comes, will be more enjoyable and less stressful.

If you’re a parent, did you consider your own personal finances, or the general economic climate, before deciding to have children?

As the Big Three carmakers prepare to make like Winnie the Pooh and help themselves to a generous helping from the bailout honey pot, luxury electric sports carmaker Tesla Motor announced that if it doesn’t get a $350 million U.S. government loan, it will delay the launch of its Model S four-door sedan.

Tesla’s government loan would come from the $25 billion pot created by Congress in September to encourage carmakers to develop clean car technology. Lawmakers are poised to siphon off $15 billion of that money just to help Chrysler and GM make it through the year.

The Tesla loan would help develop an all-electric car with a $57,499 price tag (federal tax credits will reduce the price to $49,999) and a range of 250 miles on a single charge. Without the loan, Tesla says it won’t open a $250 million manufacturing plant in San Jose; instead, it will just wait for the financial crisis to play itself out.

If the Big Three carmakers can get $15 billion, why not loan Tesla $350 million? The technology seems more promising than what we’ve seen come out of Detroit for decades.

Speaking of electric vehicles, the Big Island has Big Plans to build a network of electric vehicle charging stations in the state of Hawaii ⎯ an estimated 70,000 to 120,000 charging stations by 2012. Hawaii is perfectly positioned to lead the charge on electric vehicle travel, thanks to a small landmass where most trips are short ones. Plentiful wind, wave and solar energy can supply all the renewable energy their electric grid can handle.

Which government loan has more merit ⎯ the $15 billion loan to experienced carmakers who have resisted making hybrids or electric cars for decades, or a $350 million loan to upstart Tesla, a company that’s placing its faith in a new and untried technology to make a vehicle that many middle-class Americans could never afford?

New York real estate developer and reality-TV star Donald Trump is hoping to persuade a court that the current recession should let him defer repayment of $334 million for a construction loan that was due November 7.

Before the sub-prime mortgage meltdown, Trump broke ground on the 92-story Trump International Hotel and Tower in Chicago. The tower, which will contain 339 hotel rooms and 485 condominiums, will be the country’s second-tallest building, after Chicago’s Sears Tower, when it’s completed next year. To finance the project, Trump secured a $640 million construction loan in 2005 from a group of lenders headed by Deutsche Bank AG. In his lawsuit filed against Deutsche Bank, Trump seeks to extend the loan indefinitely because the economic crisis is a “once-in-a-lifetime credit tsunami.”

Trump is relying on a “force majeure” clause in the loan agreement that would allow him, as the borrower, to delay completion of the skyscraper if riots, floods, strikes or “any other event or circumstance not within the reasonable control of the borrower” create obstacles. According to a New York Times story, Trump said the current economic downturn is not within his control as a borrower and that he should thus be able to defer payment of the loan until some time after the financial crisis ends.

Deutsche Bank claims Trump owes it $40 million that he personally guaranteed and is seeking to have Trump’s lawsuit dismissed.

If there’s one bottom line the sub-prime mortgage crisis has hopefully taught us, it’s that both lenders and borrowers alike must accept responsibility for their actions.

Do you think Trump’s “financial crisis” argument holds water? If so, what’s the difference between his circumstances and those of millions of squeezed homeowners who can no longer afford to pay their mortgage loans?