Anachostic

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Tag Archives: finance

Too Big To Fail, Too Big To Succeed

I was browsing my old posts and found a semi-promise to relate a story about a massive keyboard I didn’t want anymore.  And the thought of that coincided with something I’ve given thought to in the past with collections.

But first, the story.  At one point in my studio, I had five keyboards.  Two 88-key and three 61-key synths.  On one rack, behind my desk, I had the General Music Equinox and the Casio CZ-1.

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On the wall to the right of my desk, I had the Roland RD-600 and a CME UF6.  The CME did not have any sounds; it was just a performance controller.  Sadly, the computer drivers went out of date before I could ever use it.  I’ve actually forgotten where it went or what I did with it.

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And in storage was an old Ensoniq ESQ-1, my first professional-grade keyboard.  It was awesome to the end.  That keyboard was eventually sold for a pittance to a guy I was in a club with.  I should have just kept it in storage.

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Anyway, I didn’t have a real use for all these keyboards, especially two 88-key controllers.  The Equinox had to go.  I wasn’t looking to make money on it, I thought it would be a fair trade for a mixer, which is something I did need at the time.

I have a Guitar Center in my town, so I loaded up the Equinox in the GF’s car and we headed down to make a deal.  This keyboard is a beast, all metal case, weighted keys, hard drive, floppy drive, sequencer, the works.  But when I get to the equipment guy at Guitar Center, he looks it over and just says, “nah.”  Not literally, but he said as politely as possible that they did not want it.  I explained that I didn’t want cash for it, I wanted to do a trade.  That didn’t change his mind.  So I was bummed out and got ready to pick the monster back up to haul it outside again.  But then the guy asked, “What were you looking to get for it, anyway?”

And I can’t definitely explain why that question caused me to see red.  Maybe I thought he was mocking me after telling me my keyboard was worth nothing to them.  It was a pointless question, completely unnecessary.  Like, if I said, 50 bucks, he would change his mind?  Did he want to see just how desperate I was?  Was he looking to either take advantage of a low price or laugh at me for an unrealistic price?  All these thoughts rushed through my mind and I just snapped at him.  “Nothing, if you’re not interested in taking it!”  And things got awkward, partially because my outburst didn’t really make any sense.

I stormed out of Guitar Center carrying my massive anchor under my arm and the GF followed me out, silently and probably sheepishly.  I’m not one for making a scene (unless someone forgets my SPOON), so it was just bad all around.  And you know what kind of hurt the most?  I bought that keyboard used from the Guitar Center in Plymouth Meeting before I came to Florida.  They’ll sell it, but they won’t trade for it.

So fuck Guitar Center.  After calming down and reassessing, I decided to try the other option, Sam Ash Music.  This would require a longish drive, like an hour away.  So I loaded the Equinox up and headed out solo.  This sales guy tried to set my expectations low.  He said that nobody really wanted these old synthesizers anymore and the best he could do is try to sell it as a MIDI controller.  Yeah, yeah, I hear ya.  He said he could give me $150 for it.

As insulting as that was, I pressed on.  I asked if I could do a trade for a mixer and he warmly agreed.  We walked over to the mixers and I reviewed what I could get for $150.  There was an ok model, but a much better one was there for $200.  So I asked him if I could get the $200 mixer.  He said yeah, we could do that.  We had a deal.  (Spoiler: we didn’t.)

The sales guy gets the mixer, does up all the paperwork for the keyboard trade and he sends me off to the cashier.  She punches everything in and says that’ll be $54.  Excuse me?  This was a trade.  She says yeah, the keyboard is a $150 credit and your mixer is $200.  The sales guy gets called back over.  I ask him what’s going on and he reiterates that we agreed the keyboard would be $150.  I explain that I thought when we were looking at mixers and I asked if I could get the $200 mixer, we were negotiating.  Nope, we were not negotiating at all.

I didn’t want to storm out of a second store in a blind fury, so I sucked it up and bought my $200 mixer for $50 and unloaded an anchor.  In hindsight, I should have kept the keyboard in storage.  I could have gifted it to someone who really wanted to play music.

So that’s the story of the Equinox.  I said that that the circumstances of that story made me think of collections.  The other night I did a quick Craigslist search for CDs and found someone selling his collection of “over 750” CDs.  First of all, you don’t have an accurate count, that’s strike one.  You don’t have a list of albums or even artists, strike two.  You can’t make out any titles from the photos you posted, strike three.  And for your strikeout, what were you looking to get for it, anyway?  $2,250?  hmmmm. Ok.  $3/CD is fair, if I want ALL the CDs.  But at this point, from what I know about the collection, I want zero.

This is the curse of all collections, that the bigger they get, the less aggregate value they have and the more individual value they potentially have.  It’s the same problem with thrift shops and many flea market dealers.  They make the incorrect assumption that every CD is worth the same.  Any intelligent person would agree that is not true at all.  And as the valuable CDs are snatched up, you are left with nothing but junk that is worth far less than the price you are asking.

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Tip Fraud

Again.  Fucking AGAIN.

A restaurant altered my credit card charge post-sale.  This time, it wasn’t the usual $1 tip added on.  This time, they took a $2 tip.  Just for the record, this bullshit happened to me only 3 months ago.

Ok, ok.  Calm down.  After talking to the restaurant manager, it turns out that it wasn’t a case of theft, just incompetence.  Another person’s tip was put on my card.  But it still remains that tip fraud is a very real and a very easy-to-do form of credit card fraud.

I have an issue calling out these restaurants for this fraud.  The places certainly have a small hand in the problem in that they’ve hired a piece-of-shit thief, but it’s not their policy to hire thieves and I’m sure they would be fired once exposed.  So, you know, I can dispute the charge with my CC company, but that just hurts the restaurant.  The thief gets away with their scam.  I could write a yelp review calling the place out, but again, that just hurts the restaurant.  I need a name.  I want to expose this person and make it difficult for them to just move on to another restaurant and continue their scamming operation.

As I’ve said multiple times in the past, I log my receipts then reconcile them with downloaded transactions from the bank.  If you aren’t doing this, you will be unaware that you are being stolen from.

There is a way to retroactively check and see if you have been ripped off.  But it will require that you remember how much you tipped, if you tipped at all.  First, you need to enable alerts on your credit card so you get an email or a text message for every charge on your card.  I originally had mine set to alert me for charges over $20, but now I’ve set it to $2.  When you have this alert set up, you will then have a record of the pre-tip amount.  You can then compare the amount in this notification to your CC statement to see if it differs from your finalized amount.

I have an idea to assist in exposing cases like this for people who do not log their receipts.  With many people relying on online-only solutions like Mint or their bank’s website, there needs to be a way to capture the tip amount prior to finalization.

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My Capital One card shows me pending transactions.  What if I could view the details of the transaction and enter the tip amount I charged, then that new total could be used when the transactions settles to see if there was a discrepancy?  Sounds pretty wonderful right?

But I know that many people aren’t going to log in to their CC website and enter their tips any more than they would use MS Money to track their transactions.  So here’s another idea.  Bots are the new hotness in the programming world.  People are also very responsive to talking with computers now.  What if Capital One texted me with new transaction notifications?

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Doesn’t that sound amazing?  So if the transaction settles for anything other than $14.48, you would get an alert of the discrepancy.

The Haves And The Have-Nots

There’s something I want to bitch about.  It’s nothing new or profound or even really interesting.  It’s the issue with income inequality in America.

The people in charge of America recently made a change to the taxes applied to corporations.  They lowered the top tier from 35% to 21%.  This was promised intended to save a lot of money for businesses and help save jobs and keep business strong and profitable.  Then, recent news says that the corporation Kimberly-Clark is going to eliminate 5k jobs.  And even more recent news say that they are using the money saved from taxes to pay for the costs of downsizing their business, including the layoffs.  That doesn’t sound like the expected result that was sold to us.

For all the bitching that could be done on that specific case, what I want to focus on is the fact that when KC announced they were cutting jobs, their stock price went up.  This is a double-insult to the working class.  I am fortunate to have a 401k plan, but I am acutely aware that many do not.  And those people are not reaping any – ANY – of the growth that has been going on in the last decade.  And that really pisses me off.

Some people, who are oblivious to the pains of the working class, would ignorantly say, “All you have to do is put some money in the stock market and you’ll get the benefits.”  Sure, it doesn’t matter whether it’s a 401k, Roth IRA, or simple mutual fund.  They are correct.  But the part they ignore is “What money?!”

Wages aren’t going up for the working class.  Expenses are going up, though.  Think about that for a minute.  If there was some available money, that money could be growing.  But because there is none, there is no growth.  It has to be the most painful thing ever to see someone making only slightly more than you pull away in net worth because they have that small bit of extra income.  You either have money to invest or you do not.  And there is a world of difference between the two.

That’s my biggest sticking point is that corporations are holding back prosperity from their employees.  They are making changes that only enrich the already-established instead of considering how to enrich everyone. 

Somehow, we need to increase access for everyone to be able to take advantage of growth opportunities.  Increasing pay is the easiest, most direct way for that.  “But, the company will suffer because it’s an additional cost!  The stock price will drop!  My monies!”  But, with more people being able to put money into investments, the stock price will rise from the additional demand.  There is a common aphorism for this: “A rising tide lifts all boats.”

It’s not difficult.  All it takes is is a little less greed.

The End Of Credit Cards

https://www.msn.com/en-us/money/personalfinance/the-age-of-credit-cards-may-be-ending-and-thats-a-good-thing/ar-BBGMvem

It’s been a while since I’ve done an article commentary.  This one really set me off, so it’s been in the queue for a while.  I’ve said that journalism is dead many times and that many new articles you read are either opinion pieces or are sponsorship pieces to promote one thing or another or to detract from someone’s competitor.

This article is not really any of those.  It feels to me that the author had an idea and just thought up reasons as to why that idea might be true.  It’s actually not too far removed from the bullshit I post here on my blog.  I could be getting paid for this fuckery?

So let’s start, then.  The article is saying that credit cards are going to disappear and people are going to stop using them in favor of other forms of payment.  And that other form of payment isn’t cash! 

These are the reasons why:

  • Credit cards often aren’t 100% secure.  It’s going to be anticlimactic to provide the whole reason why every other payment option pitched by this article is inferior.  A credit card has consumer protections in place in case you are hacked or have your card stolen or lost.  You are not liable for fraudulent charges.  I’m going to harp on this quite a bit.
  • Credit cards have high fees.  Where the fuck are you getting your credit cards from?  There are many, many, many credit cards with no annual fee.  Any other fees you would incur would be from transactions that you couldn’t even accomplish via other methods, like cash advance or balance transfer.
  • Credit cards are rarely accepted worldwide.  Yes, they are.  Nothing else to say here.
  • Digital payments are more convenient than credit cards.  PayPal, Venmo (who?), Amazon Cash, PayTM (who?) are somehow easier to use than a credit card.  In the case of Amazon and PayTM, you have to add cash to your digital wallet using an online application.  If you want to add cash to your Amazon account, you can go to a store and they can add the balance to your account with a special barcode.  This is more convenient?  HOW?
  • It’s easier to exchange money between friends, and for an employer to pay employees digitally than using a credit card.  This isn’t even a valid scenario for a credit card, so how is that any sort of proof that credit cards are obsolete?
  • Unbanked/underbanked individuals can’t get a credit card.  So that means credit cards are obsolete?  No one else needs them?
  • You don’t need a wallet anymore, only your mobile phone.  Sounds wonderful, except for the need to carry ID cards, reward cards, and insurance cards.  Then there’s the small problem of losing your phone, which has all your eggs in one basket.  Or dropping your phone, or running out of battery, or not having cell signal in a building with a steel roof, or whatever wonderful things happen in the digital world that just never seem to happen in the physical.
  • Bitcoin and other cryptocurrencies let users stay anonymous.  Yes, because when you order something online, you don’t give out any personal information.  That’s how sales transactions work.  Who fucking cares if you’re ordering a case of dildos?

Now, here’s some statements that I really want to punch in the face:

“This points to an important truth: Even for most online payments, cards simply aren’t necessary.” – Cards are absolutely necessary for online payments because of the aforementioned consumer protection.

“Since so many people already use smartphones for day-to-day payments like ordering food or hailing an Uber, ditching wallets altogether seems like the logical next step.” – The ability to do two things (neither of which I’ve done) means we should just eliminate wallets.  That’s totally logical.  Now I can hear you, “just because you don’t do it doesn’t mean it shouldn’t be done.”  Well, just because some people do do these things, doesn’t mean that’s the eventual solution.

“[Bitcoins,] Unlike credit cards, they have low transaction fees and don’t require sales tax.” – Your payment method has zero bearing on how you are taxed for a purchase.  And what transaction fees?  Currency conversion is even free with my no-cost Capital One card.

And the summary: “After all, for consumers, the motivation to ditch the card is simple: lower fees, improved convenience, and increased financial independence.

If you are ditching a credit card because of the fees, you’re doing it wrong.  If you think any other payment form is more convenient (and safer) than a credit card, I don’t know what to tell you.  If you think you are somehow going to succeed financially by ignoring a significant source of credit history that can determine how you can afford to purchase a house, lease or buy a car, get an apartment, get utilities turned on without a hefty deposit, or get a better insurance rate, then by all means, try it.  Then complain at how difficult it is to not have a solid credit file.  Also, you can enjoy not getting any rewards for using credit cards for your daily purchases.  If you have the self-control, you can utilize credit cards to get significant cash-back rewards.

Call me old-fashioned, but the mindset set forth in this article is foolish.

Innocent Villains

It’s in the news today that Toys R Us executives are going to be granted bonuses, despite the company entering bankruptcy.  It was a little over a year ago that the same thing happened with Sports Authority.  In the case of Sports Authority, there were going to be bonuses, then a judge said no, then another judge said yes.  There was lots of public outrage.  Why should executives get bonuses for a failed company, especially when all the floor workers just lost their jobs?

I’m going to take an unpopular position and say that the bonuses should be awarded.  I can’t address the loss of employment for the rank and file workers.  I am also very sensitive to income inequality and I would hope that somehow we can curb outrageous executive pay in the future.  The only thing I am focused on is putting the blame where it belongs.  And that blame is actually not on the executives.  The fault is higher up than them.

Both Toys R Us and Sports Authority are victims of leveraged buyouts.  You can expect that Guitar Center will soon be joining them, because Guitar Center has the exact same situation stemming from its own leveraged buyout.  This article has a very succinct description of how the bought-out company is doomed after a leveraged buyout.

Private equity firms like Bain take mid-sized companies and pump them full of debt with the express intent of making them industry-dominating competitors, selling them to the stock market as a candidate for massive growth, and cashing in. To make this possible, private equity’s stake in the company is usually represented by “payment in kind” (PIK) notes, a type of bond that pays crushing interest – in this case 14.09% – but requires no cash outlay until the bond’s maturity. So that 14.09% is accruing, but it isn’t due for years, ideally after the company has been sold to what is often charmingly referred to as “the dumb money,” the retail investors who buy a stock without knowing the company’s true financial position. Before any of the company’s real problems are revealed, the private equity firm receives its payback in the form of stock, since PIK notes can be paid back in any medium of exchange. If all goes to plan, the stock price shoots up after the IPO and the PE firm makes a tidy profit – all in about three to five years.

The end result is that the company has enough money to pay the daily bills, but has no reserve cash to pay off this growing obligation.  It’s a lot like interest-only mortgages back before the last housing crisis.

But back to the executives.  These guys didn’t write up the buyout.  They weren’t able to stop it from happening.  When the buyout did go through, they kept the machine running.  They kept the company viable, if not spectacularly profitable.

So, how much at fault are they?  They did their job and fulfilled the duties in their job description to receive their full compensation package, which would include defined bonuses.  You can very easily protest, “They didn’t earn it!  The company went bankrupt!”  The company didn’t go bankrupt through their actions.  That card was cast long ago by people much higher than them.  These executive’s only fault was hitching their wagon to a falling star.

My point in taking this controversial stand is that the blame needs to go where it deserves.  It’s not with the executives, it’s with the companies that are executing leveraged buyouts and destroying perfectly valid corporations for their own gain.

Slow Bleed

Do you have a credit card?  I’ll bet you do.  Do you use that credit card at restaurants?  You probably do.  Do you check your receipts against your credit card statement?  Well…  Do you even take your receipt when you leave?

Why go through all that hassle?  When I explain that I log every receipt into MS Money, then download my transactions from my CC company and match them all up, you might be thinking it’s a colossal waste of time.  Maybe you’d relent a little if I explained that I can track spending habits and trends.  I can see that I’ve been spending more on gas.  Are gas prices going up or am I driving more or is my car in need of a major tune up?  I’m spending more on food.  Is it because I’m eating more expensive meals, or is it something a little more sinister?

It could be something more sinister, and you could be subject to it too.  You may never even know it’s happening.  And the culprits are banking on it.  It’s illegal.  It’s fraud.  It’s theft.  Do you want to be on the receiving end of that?  And yet, at the same time, when it happens to you, you might just react with a shrug.  Meh.

This is something that has happened to me about a half-dozen times, and I used to shrug it off, but not anymore.  What I am talking about is credit card charge modifications, post-sale.  When you go to a restaurant, you are presented with a bill.  You give your credit card and then are presented with a charge slip to fill in a tip, total, and sign.  Then, the tip is added to the original sale amount and the transaction is finalized.  Does this finalization happen in your sight?  No, it does not.  Can you be assured that the tip entered is what you wrote on the paper charge slip?  No, you can not.  Can you verify that the tip entered matches what you wrote?  Only if you keep your receipt.

Shitty employees are getting wise to the fact that many people don’t keep their receipt and even fewer verify the charge later.  So, these assholes simply add a dollar to the tip.  It’s such a small amount that few people would notice it and those that would notice might not be inclined to make a fuss about it.  These dollars add up for them. 

The first couple of times it happened to me, I was annoyed, but didn’t think complaining was worth the hassle.  Then it happened at a place I trusted and the feeling of betrayal compelled me to act.  And now, I’m not ever letting it happen again.  You want to steal a dollar from me, I hope you get fucking fired for theft.  Because I know I’m not your only mark.  Beware the victim mentality.  You might think (and I had moments, too) that your tip was modified because it was an unfair tip amount.  You should have tipped more, and you should feel bad for that.  You should consider the extra amount an education in proper tipping etiquette.  No.  Fuck that.  It is your choice entirely on how much to tip.  No one else has a right to make that choice for you or to demand that you give a different amount.

I just caught another instance today.  A local pizza place that I go to weekly put a dollar on my tip for a dine-in order.  Tipping for dine-in and carry-out orders (and the proliferation of tip begging in general) is for another post, but suffice to say, I don’t tip for counter service.  So, having my transaction differ at all at this establishment is highly suspicious.  And tonight, I will handle it.  Again, it is a major breach of trust for a place I’ve been visiting for over 10 years to do that to me.  It’s infuriating.

You should not let it happen to you.  It’s a major change in habit if you haven’t done it before, but you need to do it.  At a minimum, you can take a picture of your receipt and check it later.  But ideally, you should begin tracking your transactions.  MS Money Sunset Edition can be used without registration and is freely available from Microsoft.  Don’t feel like you have to pay for Quicken every year for the same basic functionality.  Get started now and stop the bleeding.

Farewell Half.com / Dream On

Yesterday, I learned half.com is closing.  I had one day of notice, essentially.  I had just purchased two things the previous day.  How did I not know this beforehand?

Today, I’m searching for news stories about the closure.  There aren’t any stories of significance.  Maybe 2 or 3 in second-tier tech news sites.  Then there’s a few stories about 6 months ago when the announcement was first made.  Included in those stories is a posting about someone who only found news of the closing in the help section of half.com, and no contacts at half or eBay would confirm the closing.  How weird.  Supposedly, the sellers were notified of the closing, but for whatever reason, the users and buyers were not.

So, the expected plan is for everyone to move their listings to eBay.  But as far as I can tell, eBay is not designed for the sale of media.  The whole design of half.com was that you searched for media, then you see who is selling it.  On Ebay, you would search for media and you get a bunch of listings selling that media.  Every listing would be created by each person, so there would be little to no consistency between them.  Amazon is better suited for sales of that nature, since they have a product, then they have sellers of that product.  It’s the same way that Amazon is not well suited to sell things that eBay excels at, like collectables and one-off unique items.

At some point in the future (not near or far future, somewhere in-between), I was planning on opening an online presence to sell my excess CDs.  Half.com was the frontrunner.  Now I have to choose between eBay and Amazon.  Or maybe Discogs, but I think the buyers would be more discerning there, which would require more effort.

Well, in the meantime, I have plenty enough going on to not worry so much about it, but it is sad to see one of the few physical media marketplaces close down.  You know what would be cool?  What if… Barnes and Noble, who isn’t doing all that well themselves, resurrected the Borders brand (which they bought in bankruptcy court) and re-launched it as a used media outlet. (I hate the word outlet in this instance, but juggernaut is a word that has to be earned).  I’m going to call this idea “Boarders” to prevent any confusion or lawsuits.

So here’s how I would see it operating.  We have to recognize that used media, whether it be books, CDs, DVDs, VHS, or cassette, has a low value – except to collectors.  So, understanding this, margins will be low across the board, no one is going to make a real killing at this.

So you’d start with an online store, structured mostly like half.com.  That’s the cheapest way to get things started.  People make their listings, sell their products and life goes on.  Admittedly, getting the momentum started so it looks like you have lots of items will be difficult.  To help in this, the tools to create listings will have to be top-notch.  Something like having a pre-populated database of UPC codes with product descriptions and stock photos.  Maybe have automated imports of structured files to batch add items.

That’s all well and good, but it’s just another vanilla ecommerce platform.  How’s that going to be an Amazon?  So let’s go to phase two.  Amazon is already at phase two, so nothing earth-shattering here.  Phase two is having Boarders warehouse the inventory.  The sellers use the site’s control panel to create a shipment of product to the Boarders warehouse.  This submision includes the item and the price at which they want to sell the product.  Then they box everything up with a printed submission sheet and send it.

When the shipment arrives, the warehouse worker scans the code on the submission sheet, then begins scanning barcodes on the incoming products.  The items get added to the sellers listings immediately.  I’m no logistics expert, but I’d assume the warehouse manages the inventory in the most efficient way.  The warehouse also gets notified when items sell and would ship them out efficiently as well.

I’m not going to downplay the expense of shipping and processing hundreds of books or CDs or DVDs for both the seller and Boarders.  That’s something that would need to be overcome by the beancounters.

Since we’re still having fun with this, let’s move on to phase three.  Phase three is physical storefront.  These could be built into existing B&N stores or could be standalone.  Stuff that was sent to the warehouses is bundled up and sent to various locations.  Why would the seller care where the product actually is?  All brick and mortar stores become warehouses.

Since these are low-margin sales, you need low-margin maintenance.  You also need to know your potential customers.  So for CDs and DVDs, what is needed is a clamshell container that holds the CD/DVD case and the disc separate, so they can both be inspected for condition without needing an associate to assist.  I would have to think about how books would be handled because buyers would want to see inside the book.  But anyway, back to disc-based media.  You also don’t want to have cashiers deal with opening clamshells and ringing customers up, so you would have a self-checkout machine that accepts the clamshell in a slot, scans the barcode, completes the sale, then releases the unlocked clamshells for the customer to remove and bag up their purchases.  The money goes off to the original seller and life goes on.

It’s just kind of a pipe dream.  Realistically, there isn’t enough potential profit to engineer a checkout machine like that, plus manufacture tens of thousands of cases to hold media that is selling for $1.00 or so.  Not to mention the cost of processing other people’s inventory and shipping it to storefronts.

Or maybe there is, somewhere.  Or maybe, there can exists a company that makes enough money to survive, and doesn’t have to make its owner a multi-billionaire.

May The Odds Be Forever In Your Favor

I ran across a letter recently that was addressed to the participants of a company’s retirement plan.  From what I gathered, it seemed like a pension plan.  You know, those old-fashioned things where you work X number of years and they will pay you Y dollars for the rest of your life?  Well, if you haven’t paid attention to that, (and if you haven’t, that’s excusable, because pensions are pretty rare anymore) you would find that companies are doing anything they can to avoid having to pay out those Y dollars.

I read a book a while ago that explained the multiple schemes that were being performed to avoid any sort of pension plan funding.  That book is Retirement Heist.  It’s a good book and you should read it.  This letter to pensioners was just an illustration of those exact cons, and the letter was selling it like it was the greatest thing ever.

Here’s the gist of the letter.  Because of two laws, and I need to write these laws out because they are totally insane, the Moving Ahead For Progress In The 21st Century Act and the Highway And Transportation Funding Act of 2014 (blahhhh), pension plans are allowed to calculate their numbers differently.  Differently in that they can make the badness go away.

So, in this example, before the laws, in 2016, the pension plan was short $8.3M dollars to cover the costs of the members’ retirement.  After the laws?  $0.  Percent funded before the law?  86%  After the law? 104%  The law completely fixed the problem of not having enough money!  Amazing!!!

How was this done?  The projection of how much money would be needed was based on interest rates for the last two years.  Why are they looking at interest rates?  Because that’s how the fund stays solvent while money is being withdrawn, through investments with interest.  If the plan doesn’t make enough money in interest, the corporation has to pitch in extra money to keep it going.  Hmmmmmm.

If you have a savings account in the last couple of years, you know that you’re not making any money off of it.  And a pension fund wouldn’t be making any money either.  So because the fund is not sustaining itself from its investments, that means the corporation would have to supplement it with additional money.  Corporations everywhere collectively said, “Fuck that” and instead spent the money on lobbyists to change the laws. 

They succeeded.  Now, instead of considering that interest rates in the future will be the average of two years, now it’s going to be the average of 25 years.  25 fucking years.  Fortunately that range includes the late 90’s and early 00’s, where interest rates were around 5%, instead of 0.1%

So, do you get it?  They refuse to accommodate current market conditions and instead want to pretend the future is going to be as great as the past.  But here’s the thing, if these corporations would just fucking suck it up and pay into their pension funds now, like they are supposed to, when things get awesome in the future like they CHANGED THE LAW to reflect, they wouldn’t have to pay anything then, because the funds would be fully funded or even overfunded.

Now the infuriating part.  This letter says all of this.  It doesn’t hide anything.  They can tell the truth because a) lots of people won’t understand what just happened, and b) it’s the law; it’s all perfectly legal now.

Whole-Life Hatred

If you follow any financial pundits, eventually you will hear them say that whole-life insurance is a bad choice, how it is a poor “investment”, and sometimes, how you’d be stupid to buy it.  Well, I was just reviewing my numbers and I’m not sure I understand what all the hatred is about.

First off, you need to think about why you have life insurance.  The purpose of life insurance is to make things easier on the ones you leave behind.  Primarily, in my case, it is to pay off my mortgage.  Whoever I leave behind should not have to be saddled with a mortgage payment when that was my responsibility.  Other assets like cars could be repossessed, so what?  My credit score doesn’t matter anymore when I’m dead.  The secondary purpose of insurance is to replace whatever income I was contributing to the family until whoever is left behind can get back on their feet.

So these two reasons are enough to have life insurance unless you are a total loner and have nothing you want to pass on to someone else.  But that’s only good when you’re dead.  What if you keep living?

If you don’t know anything about life insurance, here’s some quick info.  You typically buy a “term life” policy, which is effective for a period of time (a “term”).  If you buy a Term 30 policy, it is active for 30 years.  Buying it today, the policy will expire in 2046.  If you die in 2047, your beneficiary gets nothing.  But, by that time, I would expect your mortgage would be paid off so there’s no burden on your heirs.

Whole-life policies have no expiration.  As long as you keep paying the premium, you get the benefits.  However, they are vastly more expensive (I’ll share my numbers in a bit).  Additionally, whole-life policies have a cash value, which can be accessed as needed, either through an expensive loan or as a retirement account when/if you get to retirement age.

That’s the part that finance people hate.  Whole-life is so expensive, but your cash value is locked up and there’s little way to access that money without spending a lot in interest or waiting until you’re old.  They call it a savings account for people who can’t discipline themselves to save.  It’s almost like a 401k, but without the tax advantages.

Whole-life insurance is a hard sell and brokers will push on you pretty hard to sell it.  As such, there’s some salesman-ish stuff that gets promised.  For example, I was sold on the idea that the dividends from my whole-life policy would eventually pay the premiums for my policy, then I’d basically have free life insurance.  Awesome, huh?  Well, it will happen, eventually.  I just have to be really patient.

Ok, let’s look at some real numbers.  I have $250k in life insurance.  $100k is in a Term 20 policy and $150k is in a Whole-life.  I pay $118/mo for the whole-life and $16/mo for the term.  Now do you see why people freak out about whole life?  It’s almost 10x more a month. 

There’s not much to say about the term policy.  It has no cash value and expires in 2027.  In 2028, I will only have $150k in life insurance.  Hmmm, that sounds like a good thing.  I’m not dropping to zero, and I don’t have to worry about qualifying for a new Term policy at such an old age.  It almost sounds like a “plan”.

So how about this Whole-life policy?  Well, since 2007, the cash value has grown to $9500.  The value is growing at about $1300/yr.  But wait, I’m paying a little over $1400/yr in premiums.  So my net cost is about $100/yr, which is actually almost half the cost of my term policy.

So, what am I glossing over?  For one, the $1300 in cash value increase hasn’t always been that high.  Four years ago it was $1200, and since 2007, the average rise has been $1055/yr.  But, the value should continue to climb through the magic of compounding.  But, I just want to say that I’ve got 9 years into this, and you wouldn’t see numbers like these right off the bat.

You could argue that I’ve spent $12,771 in premiums to gain $9500 in cash value.  That sounds horrible.  But that also works out to getting a 150k life insurance policy for $363/yr or $30/mo.  And that average cost is over 9 years.  That number is going drop over time as the cash value increases relative to my constant premium payments.

One more number to give consideration to.  After 9 years, my annual dividend is $781.  My annual premium is $1400.  I’m a little over halfway to the point where my dividends will pay for my premiums.  That’s going to coincide well with the expiration of my Term policy (which would also reduce my premium by almost $200/yr).

Let’s recap the whole scenario.  I have $250k in life insurance now, when I am most vulnerable with the most mortgage debt and the most to lose if I die.  If I had a family, that money would be needed to pay bills and help replace my income.  11 years from now, my Term life expires.  I have less life insurance coverage, but I also have less financial burden.  If I had a family, they would be grown and on their own by then.  The insurance would just pay my reduced debts.  I would also have $200/yr less in expenses because the policy expired.  Looking even further ahead, when I don’t have any reason to have life insurance because all my bills are paid, then I can start withdrawing money from my whole-life policy.  And guess what?  I still have the life insurance policy.  By then, my dividends will probably be paying my premiums, too, and I won’t have that $1400/yr expense anymore.

When you hear financial people trying to sell you on a “plan”, it can be hard to swallow all that information and difficult to see what the future will look like.  It was hard for me as well, but I took a leap of faith and now that I’m a significant way into the “plan”, I can see further ahead and understand that yes, it was a good choice.  Early on, it would have been easy to say, “I’m throwing away my money!” But like any investment, it takes time to grow.

Coming Soon, Housing Crisis 2.0

This guy I know, well, I know him because he’s the one who used to own my house, but anyway, he keeps me around to do computer work for him.  And I do it.  And I get compensated handsomely, despite me telling him I don’t really need the money.  Well, anyway, I was at his house the other night doing computer stuff and he and his GF were having a conversation in hushed tones.  But I was right there beside them, and I was the only other one in the room, so I don’t know exactly why they were talking like that.  Except, I kinda do.

But let me first say this about the guy.  He’s successful.  Quite so.  He runs his own business in a subset of an industry where there is little to no competition and he is sought out for that skill and expertise.  He’s down to earth, but at the same time, he’s got plenty of money to spend.  You name it, he’s got it.  Boat, Corvette, camper, truck, huge house on a large plot of land, huge TVs everywhere.  Just got a divorce and is swallowing multi-thousand dollar alimony payments without slowing down.  Has someone who runs over right away when he has a computer problem and pays them much more than necessary.

And he’s pretty business smart.  I mean, he has a very successful business of his own, but he also had the sense to buy the land his house was built on when it only had a couple of trailers on it.  He now rents out the trailers and that pays his mortgage and then some.  So, I guess you would say he’s a successful landlord as well.

But now, in whispers, he’s talking to his GF in front of me about an opportunity to become a house flipper.  He has heard of an opportunity to buy a distressed house and he thinks he can flip it without investing any time or effort and learn how to do it correctly.  He may be right or he may not be.  But when I hear, “I just want to be the middleman”, it kind of rubs me the wrong way.  Maybe he’s been watching too much Flip or Flop.  Maybe he’s been inspired from stories from his GF (who’s a property appraiser).  Maybe he’s just got too much cash lying around (what a problem to have). 

The thing is, experts say that when the rabble starts acting like experts, it’s time to make for the exits.  I’ve been reading stories about the increase of flipping and I’ve seen the HGTV shows that are promoting this more and more.  It doesn’t seem like it was that long ago that we were here.  But here we are.  I’m going to have to get myself prepared for this.