Wednesday, March 24, 2010

Move over Kiva, MicroPlace helps the working poor and gives an investment return

Microlending is a great concept. Kiva provides a way for average American consumers to participate and fund microloans for the working poor around the world. But, Kiva does not offer any financial return to investors. Zero. Zilch. Zip. Nada. Nothing. Sure, as a charity, Kiva is great. But it doesn't fit into any investment strategy. Lending Club and Prosper do provide decent investment returns, but focus on lending to creditworthy consumers in America who are a number of rungs higher on the economic ladder than the working poor in third-world countries. What was missing was something in the middle, offering a modest return for microloans for the working poor. Enter MicroPlace, which does exactly that. I do not know a lot about it yet, but I just got an email from PayPal alerting me to its existence. PayPal is part of eBay and MicroPlace is part of PayPal. So, it is not some fly-by-night operation. I will be checking into them over the next few weeks.

From their web site:

MicroPlace Mission

MicroPlace's mission is to help alleviate global poverty by enabling everyday people to make investments in the world's working poor.

Our idea is simple.

Microfinance institutions around the world have discovered an effective way to help the world's working poor lift themselves out of poverty. These organizations need capital to expand and reach more of the working poor. At the same time, millions of everyday people here in the United States are looking for ways to make investments that yield a financial return while making a positive impact on the world. MicroPlace simply connects investors with microfinance institutions looking for funds.

The result: more microfinance in the world, satisfied investors, and above all, fewer people living in poverty.

Also, this is another GREAT way to thumb your nose at all of those big Wall Street banks with their giga-billion bailouts. You don't need their 1% interest while they use your money to make speculative bets that churn the stock market and push commodities prices higher. Put the same money in MicroPlace, get a higher rate of return, and actually do some good in the world! At least that's the theory. Stay tuned for details.

-- Jack Krupansky

Reinvested ongoing Lending Club cashflow in a new investment loan at 17.19%

Cashflow from my portfolio of Lending Club investment loans ("notes") over the past eleven days has given me enough cash this morning to invest in yet another consumer loan. My current Net Annualized Return is now at 15.02%, which is still a bit short of my goal of 15.5%, so I picked a pre-approved loan at 17.19% that is already 78% funded with nine days left in the two-week funding period. I expect that this loan is likely to reach full funding within a couple of days.

The loan grade for this loan is E3 (on an "A" to "G" scale), which is moderately risky. Lending Club says that the historical default rate for loans such as this one is about 3.74%, so that my projected return is about 12.73%. That includes Lending Club taking 0.72% as a servicing fee. In truth, my goal of 15.5% should factor in a default rate of about 3.5% or so, giving an expected return of about 12%. That is still quite respectable, especially in this economic and financial environment.

My goal is really a 15% return, but I figure I need a little buffer so that repayments (and maybe even defaults) don't push me below my goal too frequently. I may in fact keep pushing upwards with loans in the 16% to 18% range until I get my return up to 16% and then gradually work the average back to 15.5%.

So far, my Lending Club portfolio has been perfect, with no delinquencies or even late payments. I started investing with Lending Club back in June.

This is still just an experiment for me since I have no prior experience with this type of investment, but so far in has been very encouraging. I intend to double the size of the experiment in April (assuming my work income continues.)

-- Jack Krupansky

Thursday, March 18, 2010

Dude, what's my bank's routing number?

Not sure what your bank's routing number is so you can do an ACH transfer? No problem. Just go to, enter in your bank's name and there you have it. What could be more convenient? Well, yeah, sure, you can look at the bottom of your checks or deposit slip, but if you're away from home or haven't gotten your checks yet, that doesn't quite work.

I just used the web site today to look up the address for a bank. And also to verify the routing number that I had gotten over the phone for a new account.

-- Jack Krupansky

Monday, March 15, 2010

Latest Lending Club investment loan fully funded and issued

Only Friday morning I put in an order to use recent cashflow (and an early repayment) from my portfolio of Lending Club investment loans to invest in a new loan. Over the weekend that loan reaching full funding and early this morning Lending Club issued the loan. Wow, that was fast!

My current Net Annualized Return remains at 14.47%, but it should rise as I start to receive payments from the new batch of loans I made in February. My goal is to hit 15% (or maybe 15.5% to keep the average above 15%.)

So far, my Lending Club portfolio has been perfect, with no delinquencies or even late payments. I started investing with Lending Club back in June.

This is still just an experiment for me since I have no prior experience with this type of investment, but so far in has been very encouraging. I intend to double the size of the experiment in April (assuming my work income continues.)

-- Jack Krupansky

Saturday, March 13, 2010

Are you comfortably prepared for retirement?

There is a timely article on MarketWatch by Howard Gold entitled "Retirement, what's that? - Commentary: Americans are woefully unprepared for their golden years" (similar data in article entitled "43% have less than $10k for retirement".) It's not really new news and not anything that I haven't been painfully aware of for quite some time, but it is an excuse to comment on the topic myself, piggybacking on his commentary. Gold tells us that according to the most recent Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) a mere 16% of workers are very confident they would have enough money for a comfortable retirement and only 19% of retirees said the same thing. In short, more than 80%, four out of five, are not looking forward to secure comfort in their "golden years." I am in that 80% and have been for quite some time. The way I put it recently, the best I have to look forward to is near-poverty, with Social Security and only a very modest level of additional investment income from my very meager retirement plans. The really scary thing is that as weak and fragile as my own personal financial situation is (and even presuming that I will have to work until I am 70 before retiring and work part-time, if I can, in retirement), I am actually much better off than the average American. That is truly scary. Gold tells us that EBRI says that over a majority (54%) of Americans (well, the surveyed workers) have less than $25,000 in total savings and investments (besides their house.) As lousy as my own situation is (by my own admission), I am actually in the top third of the EBRI savings range (above $50,000).

One caveat: These numbers include younger workers who are just starting out, so they may dramatically skew the results. I would have preferred to see a survey of workers within 20 years of retirement. Sure, it is true that saving for retirement needs to start at an early age, but I really think there should be two separate reports with rather distinct focuses: 1) A report for younger workers focused on how to get on and stay on a track for comfortable retirement, and 2) A report for middle-aged and older workers who are hopelessly off-track and have no realistic chance of ever getting back on track no matter how long they work or how much they save. Confusing these two distinct classes of workers does a disservice to both.

One highlight of the survey is that despite the fact that a lot of people acknowledge that they will need to "work a little bit longer" before retiring, a hefty percentage of current retirees (like 40%) were effectively forced to retire early due to illness or job loss and extreme difficulty finding work.

My own "solution" is to continue saving as much as I can, but at best thinking of such savings as a very modest "supplement" to Social Security, and to simply accept that I will be living at a near-poverty level in retirement. Sure, there is always the one in a thousand chance that I might have some financial windfall (such as winning the lottery or some technology business success) and suddenly have the extra million dollars needed to assure "comfort" in retirement, but you simply cannot plan on a one in a thousand fantasy outcome.

The main focus for me is simply the ongoing struggle to maintain a semi-decent income. You can't save for retirement without current income, but maintaining steady income is a very difficult proposition for many of us.

I will continue plodding along, making maximum allowable contributions to my ROTH IRA and SEP IRA retirement plans and saving some extra along the way as well. Ultimately, that is about the most that I can even hope to do.

-- Jack Krupansky

Friday, March 12, 2010

Reinvested ongoing Lending Club cashflow in another investment loan

Recent cashflow from my portfolio of Lending Club investment loans coupled with early repayment of one of the loans gave me enough cash this morning to invest in yet another consumer loan. My current Net Annualized Return is only 14.47% (it dropped with that early repayment), below my goal of 15%, so I picked a pre-approved loan at 16.45% that is already 76% funded with five days left in the two-week funding period. I expect that this loan is likely to reach full funding within a couple of days.

Lending Club says that the historical default rate for loans such as this one is about 3.78%, so that my projected return is about 11.94%. That includes Lending Club taking 0.72% as a servicing fee. In truth, my goal of 15% should factor in a default rate of about 3.5% or so, giving an expected return of about 11.5%. That is still quite respectable, especially in this economic and financial environment.

So far, my Lending Club portfolio has been perfect, with no delinquencies or even late payments. I started investing with Lending Club back in June.

This is still just an experiment for me since I have no prior experience with this type of investment, but so far in has been very encouraging. I intend to double the size of the experiment in April (assuming my work income continues.)

-- Jack Krupansky

Thursday, March 11, 2010

Why are companies still cutting jobs?

Although the U.S. economy is clearly recovering from "The Great Recession", companies are still cutting jobs. Why is that? There are a bunch of distinct causes:

  1. There are still plenty of weak companies that formerly thrived on overly-easy and overly-cheap credit. That credit has evaporated and will not be coming back. The weaker companies vanished quite quickly. The stronger companies, especially those with cash in the bank or optimistic investors, have lasted longer. Some of them will successfully restructure and adapt to lower amounts of more-expensive credit. Many will not, but they will try. As their remaining resources gradually drain away, they continue to shed workers. Eventually that process will end, but there was simply a huge amount of that easy and cheap credit over a significant number of years.
  2. Ongoing commercial construction projects shed workers as they near completion, with few new projects to employ those workers, even with all of the federal "stimulus".
  3. State and local governments do not have the federal government's ability to issue vast amounts of debt, so they continue to lay off workers as they struggle to close budget deficits as tax revenues fall short of expectations. They may have held off with many layoffs in the hope that the economic recovery would be stronger or sooner, but the reality of lower tax receipts forces their hand and the pink slips continue to flow and will continue to flow until the private sector starts creating enough new jobs to lead to net growth of tax receipts at the state and local level. Falling home prices will also be a drag on property tax revenues.
  4. Many vendors had been getting a significant portion of their revenues from state, local, and federal governments. Spending cuts (including the federal government) result in layoffs at these vendors.
  5. Productivity improvements. Newer technologies and more-focused management enable companies to deliver the same level of product and service output with fewer employees. So, even as the economy recovers and output increases, that does not necessarily mean an immediate increase in employment. Offshoring of work is a drag on domestic employment as well.
  6. Incremental population growth soaks up "new" jobs with little room for accommodating workers who have lost jobs. Although experience has some value, companies are eager to sign up young, flexible, energetic, healthy, and enthusiastic kids.
  7. Ongoing pressure to improve operating margins force companies to shed workers that they ordinarily might have been seeking to hire. Cost of benefits, including health insurance, is a distinct drag on operating margins.
  8. Intense uncertainty about the near and medium-term economic outlook forces companies to have a more pessimistic attitude towards hiring and firing, resulting in an extreme bias against hiring and keeping workers.

How long before these negative factors end or at least moderate? Actually, these factors will continue for some time, maybe even several years, but the hope is that as the overall economic recovery gains traction, "new" jobs, especially at new companies pursuing and employing new technologies, will gradually be created at a faster pace than the ongoing shedding of "old" jobs.

In the near term, we are seeing weekly unemployment insurance initial claims in the 475,000 range. That is over two million jobs lost every month. Two million. The good news is that recently the net of new minus lost jobs has been less than a net loss of 50,000 jobs, so we actually are seeing quite a few new jobs being created, or at least companies rehiring for positions that they shed over the past two years. Unfortunately, we are also seeing a lot of discouraged workers dropping out of the workforce as they encounter extreme difficulty finding jobs.

To be sure, the U.S. economy is creating lots of new jobs, but the net of creation minus shedding is still not strongly positive and probably will not be for months to come.

-- Jack Krupansky

Wednesday, March 10, 2010

$185,000 for health insurance?!?! (well, for 10 years)

I currently do not have any health insurance. That actually works out fairly well since I happen to be healthy. But just out of curiosity, I decided to check to see how much health insurance costs. After all, if so-called "health insurance reform" passes, people such as me will supposedly be "required" to purchase health insurance (or pay a "fine.")

So, I go to Google, enter in the keywords "health insurance", and the first result is for I click to that site, enter a little info and it shows me some results, ranging from $176 (junk insurance?) to $1,228 (Cadillac plan?).

Actually that $176 is for a hospital-only plan that does not include doctor visits or treatments or prescriptions outside of the hospital. Interesting. That is actually a very interesting data point about where health care costs go or don't go.

Both plans are from Empire Blue Cross Blue Shield. The hospital-only plan is called "Tradition Plus Hospital Program." The expensive plan is called "Empire Direct Pay HMO." Hmmm... "HMO"... that's considered evil, right? ("Empire... evil", "Evil... Empire", oh, I get it!).

I had to enter some personal contact info somewhere along the line here and a rep called me to ask if I had any questions. I just said I was doing research for health reform and she left me alone. But she also emailed me some info and links. One link takes me to a table showing three plans, those two, and a third plan, even more expensive, called "Direct Pay HMO/POS" for $1,549 per month that has lower copays, limited out-of-network coverage, and some other extras.

Now, in truth, I have no clue as to how to evaluate and compare all of these plans. My goal here was to focus on the price of the Cadillac plan. After all, if I were to get health insurance, I would want it to cover, well, everything.

So, $1,549.30 per month works out to $18,591.60 per year. Gulp. Ummmm... last year I earned only $19,000 from work. Hmmm... the math doesn't seem to "work" for me.

And, $18,591.60 per year works out to $185,916 over ten years. YIKES!! And that is assuming premiums don't go up -- right!

I am sorry guys, but there is no way that I am going to pay $185,000 over the next ten years, for services that I probably won't need.

Actually, I probably only need nine years of insurance since I'll turn 65 in just over nine years and get admitted to the promised land of Medicare, but that does not change the overall picture here.


That is a very big number, to me.

I do not even have that much money put aside for retirement.

Granted, insurance may be lower under health reform, but even half or a third or even a quarter of this amount is still way too much.

So, how much will the "fine" be if I don't buy health insurance under "health insurance reform." Actually, that is still up in the air, and depends on how the House and Senate Bills are "reconciled." Given the president's latest proposal, if my income was low, it would be a fixed dollar amount (increasing each year), in the range of $325 to $695, but for a reasonable income level it would be a percentage, currently 1% in 2014, 2% in 2015, and 2.5% in 2016 and after. So, if I had $100,000 of income in 2014 and beyond, I would pay an "assessment" (technically, not a "fine") of $1,000 in 2014, $2,000 in 2015, and $2,500 in 2016 and beyond. And, key point, I would pay this money to the U.S. government for whatever purpose it deems fit, not to some insurance company.

At least to me, right now, paying $2,500 to Uncle Sam is infinitely preferable to paying even $0.01 to any insurance company. The insurance companies of America need to radically rethink their approach to customers before they can get my attention, even under health insurance reform with "mandatory" insurance.

-- Jack Krupansky

Trying for 3.51% APY high-interest checking

I posted on Monday about for finding community banks offering FDIC-insured high-interest checking (2-4%) and just this morning I took the plunge and opened a new bank checking account through their web site for a community bank in Texas. I still need in get the bank's welcome kit in the mail and send back the signature card and other documents, but within a few weeks I should be on my way to earning 3.51% APY on a bank checking account. What could be more exciting (in banking)?

I did see a bank offering 4.09% on Monday, but they were no longer listed this morning. 3.51% APY was the highest listed rate for my zip code this morning. Still, this is a fantastic rate compared to just about anything else available.

First I had to call the customer service number to clarify exactly what qualified as an "automatic payment". I make several payments each month by ACH debit from the web sites of my electric company, telephone/Internet provider, and credit card, but they are all "manual", so I wasn't sure if they qualified. Customer service picked up quite promptly and indicated that each bank had its own quirky rules, so it would be best to speak directly to the individual bank. I had already selected my preferred bank from their list and customer service gave me that bank's direct number. The bank picked up promptly, redirected my call and quickly answered my question, stating clearly that to get the special rate I needed "one ACH debit or credit" each month. Many consumers see ACH debits as part of "automatic bill payment" and only overly-cautious people such as me want to manually check my bill before it gets paid.

That so-called "automatic payment" was the worrisome "qualification" for me, but now I know that it is a no-brainer. There were three other specific qualifications for this particular bank (which many of the listed banks also had) in order to get the juicy 3.51% APY rate:

  • Minimum of 12 debit-card purchases each month (does not include ATM withdrawals). No minimum, so breakfast, lunch, snacks, fast food, etc. easily satisfy this requirement without impinging on my desire to use my 2% cashback credit card for larger purchases.
  • Must agree to receive e-statements rather than paper statements. No problem.
  • Must sign on to the online banking web site at least once a month. No problem since I believe in checking my credit card and other financial accounts at least one if not twice a week.
  • And that requirement for at least one ACH debit or credit each month.

Note: Some of the banks also have a bill-pay requirement, but this bank did not.

The sign-up process requested my current bank checking routing and account number so that the initial funding can be done via an ACH debit. This funding will not actually occur until after the bank receives the signed signature card and other sign-up documents needed to satisfy government regulations. My chosen bank bad a $100 minimum initial deposit. I chose $250 for the sign-up deposit. I intend to put a moderate pile of cash in the account to earn that 3.51% APY ASAP, but I want to see that the account gets all set up and working as advertised before committing more cash.

The sign-up process also asks a serious questions about your financial history similar to those you see when requesting your credit history to verify your identity. Usually not a problem, but having a copy of your credit history handy couldn't hurt. Some people claim to have had difficulty signing up due to questions about things they had forgotten or gotten confused about.

The bank is HCSB in Plainview, Texas. They have been around since 1934, formerly operating as "Hill Country State Bank."

Some other info on the account:

  • 3.51% APY applies to the first $25,000.
  • Rate is 1.51% APY on balance above $25,000. Still quite decent compared to... most other banks.
  • Rate is 0.05% APY if qualifications are not met in a given month. Still better than Fidelity. Some listed banks have base rates of 0.1% or even 0.2%, but I have no intentions of ever being in a position to get that rate.
  • No minumum balance.
  • No monthly fees.
  • Unlimited checks. [Note: I forgot to ask whether the check order is free or not.]
  • Refund of ATM feeds up to $20 per month.

So, now, I am just impatiently waiting for the paperwork to arrive via pony express.

In practice, the way I will use this account is in tandem with my local TD Bank account. I will deposit checks in TD Bank and then ACH transfer the bulk of the cash to HCSB. I'll write checks against HCSB. I'll keep a modest balance in TD Bank for "just in case" contingencies. I think I'll use HCSB for ATM withdrawals, but I could use TD as well.

-- Jack Krupansky

Monday, March 08, 2010

Made another payment on the public debt of the U.S. government

I just made my third monthly payment to pay down the public debt of the U.S. government. Not much, just another $25, but it is a matter of principle. It may take me another 502 billion years to pay it all down all by myself at this rate, but, as I said, it is matter of principle.

According to the U.S. Treasury web site, the total public debt outstanding was $12,544,703,929,352.50, as of March 5, 2010.

Coincidentally, the Bureau of the Public Debt sent me another "thank you" form letter for my "contribution" (last month) that happened to arrive today as well. They wrote that "Your contribution will help ensure that we do not burden future generations with a huge debt."

What I wrote back in January when I made my first donation/gift/payment:

Everybody is whining and complaining about the ballooning debt of the U.S. government, but who is actually doing anything about it? Well, for starters, ME! Yes, that's right, I, Jack Krupansky, just did something to reduce the U.S. government debt. Really. No kidding. I actually paid down a small slice of this debt. Granted, it was a rather small slice, but a slice nonetheless. Okay, sure, it was only $20, but the point is that at least I am one of the very few people willing to stand up and DO something about the problem, rather than be one of the whiners and complainers who refuse to acknowledge that it is their debt and their problem, not just the fault of mindless politicians in Washington, D.C. After all, every politician ultimately answers to voters and most of the so-called wasteful spending of the U.S. government is simply politicians responding to the demands of their consistituents (voters.) Maybe my one small contribution to paying down the debt won't really make any difference to any of those whiners and complainers, but for me it is a matter of principle. I consciously choose action rather than the inaction of the whiners and complainers.

If you have any sense of principle, you too can pay down a slice of the U.S. government debt yourself at You can pay via credit card or debit transfer from a bank account.

So do the right thing and show all those whiners and complainers (including so-called "tax protesters") how mindless and spineless they really are. PAY DOWN THE DEBT! And that has to start at the grass roots with us individuals before politicians will ever pick up the lead.

-- Jack Krupansky

Try for 2-4% APY high-interest checking

I noticed an ad for (on some web site which I do not recall) which promised 3.25% interest on a checking account. I starting looking into that web site and the deal is basically that you need to do a minimum of 10 to 15 debit card transactions, use e-statements, and possibly one or more direct deposit, automatic payment, and/or bill-pay ACH transfers every month. Enter your zip code and the web site will give you a list of local, non-major, community banks that are offering these deals at rates in the 2.00% to 4.00% APY range on balances up to typically $25,000. For my Manhattan zip code I got a list of 16 banks, including one as far away as California.

As an example, the Bank of the Sierra in California (Fresno County and vicinity) is offering 4.09% APY on balances up to $25,000. They pay 1.01% on higher balances and 0.12% if you fail to meet their "qualificiations" in any given month. As they say, "To meet these qualifications do each of the following each month:"

  • Minimum of 12 debit card purchases (ATM usage does not count toward the 12 purchases)
  • 1 Automatic Payment (Automatic Payment must be at least $0.00) or Direct Deposit transfer (Direct Deposit must be at least $0.00), and 1 Bill Pay transfer
  • Receive your monthly account statement electronically

Personally, I have no direct deposits, prefer not to make automatic payments or bill-pay (I pay some bills via ACH debit, but only after carefully checking each bill), and prefer to use my 2% cashback credit card, but still this offer looks quite appealing. In fact, very tempting. I could live with the first and third "qualifications", but I am not sure that I could meet the second one.

As another example, you can get 3.51% APY from Liberty Bank in Illinois with these monthly qualifications:

  • Minimum of 10 debit card purchases (ATM usage does not count toward the 10 purchases)
  • 1 Automatic Payment or Direct Deposit transfer
  • Receive your monthly account statement electronically
  • Sign in to your online banking account at least once

Or, earn 2.00% APY on up to $35,000 at Malvern Federal Savings Bank in Pennsylvania with these qualifications:

  • Minimum of 10 debit card purchases (ATM usage does not count toward the 10 purchases)
  • 1 Automatic Payment (Automatic Payment must be at least $0.00) or Direct Deposit transfer (Direct Deposit must be at least $0.00)
  • Sign in to your online banking account at least once

Typically, these banks will reimburse up to $25 in ATM fees as long as you are meeting their monthly qualifications.

Obviously the banks are looking to make a bundle of money collecting fees from merchants for all of these mandatory transactions, but at least they are willing to "share the wealth" with us mere mortals.

I will seriously consider this approach, but I do need to seriously question whether all of these qualifications might be too onerous for some of us who do not naturally meet the qualifications.

Nonetheless, the availability of these offers from these smaller, community banks and ths marketplace portal from are a breath of fresh air after all of the recent banking scandals and the nickel and diming of consumers that banks have traditionally engaged in.

And, of course, all of these bank account are FDIC-insured. (Make sure to check each offer though to be sure.)

Besides, use of a debit card is a great way to thumb your nose at the evil credit card companies.

Please let me know if you have had recent experiences with or any of the banks it works with.

-- Jack Krupansky

Sunday, March 07, 2010

How to cope with runaway end-of-life health care costs

There was an interesting article this week on Bloomberg by Amanda Bennett entitled "End-of-Life Warning at $618,616 Makes Me Wonder Was It Worth It" which chronicled her personal saga with dealing with end-of-life health care for her husband. The article also appears as the cover story of Business Week entitled "Lessons of a $618,616 Death - Two years after her husband's death, Amanda Bennett's cover story examines the costs of keeping one man alive".

Ultimately she seems to conclude that spending all of that money was worth it since she believes that it bought her husband another 14 months of life beyond the three that his doctors expected:

... those 17 months included an afternoon looking down at the Mediterranean with Georgia from a sunny balcony in Southern Spain. Moving Terry into his college dorm. Celebrating our 20th anniversary with a carriage ride through Philadelphia's cobbled streets. A final Thanksgiving game of charades with cousins Margo and Glenn.

She also tells us how it was a very personal struggle for both her and her husband. In other words, different people might have dealt with the same situation in a different manner.

Was it really worth it? She tells us:

Would I do it all again? Absolutely. I couldn't not do it again. But I think had he known the costs, Terence would have fought the insurers spending enough, at roughly $200,000, to vaccinate almost a quarter-million children in developing countries. That's how he would have thought about it.

Lucky for her, she had good insurance:

Terence and I didn't have to think about money, allocation of medical resources, the struggles of more than 46 million uninsured Americans, or the impact on corporate bottom lines. Backed by medical insurance provided by my employers, we were able to fight his cancer with a series of expensive last chances like the one I asked for that night.

How expensive? The bills totaled $618,616, almost two- thirds of it for the final 24 months, much of it for treatments that no one can say for sure helped extend his life.

In just the last four days of trying to keep him alive -- two in intensive care, two in a cancer ward -- our insurance was charged $43,711 for doctors, medicines, monitors, X-rays and scans. Two years later, the only thing I know for certain that money bought was confirmation that he was dying.

Some of the drugs probably did Terence no good at all. At least one helped fewer than 10 percent of all those who took it. Pharmaceutical companies and insurers will have to sort out the economics of treatments that end up working for only a small subset. Should everyone have the right to try them? Terence and I answered yes. Each drug potentially added life. Yet that too led me to a question I can't answer. When is it time to quit?

This is a difficult issue. On the one hand we don't want the insurance companies (or the government) deciding when to "pull the plug on granny", but if it is really true that a significant number of Americans will incur upwards of $500K to $750K for end-of-life care, how is that expenditure to be financed? And people wonder why health insurance companies would dare to raise rates by 40%.

So, who is to pay for all of this? Ultimately, all of us do, one way or another.

In my view, sooner or later we as a society are going to have to draw a line and give a hard answer to that question of "When is it time to quit?" In Ms. Bennett's case, they quit only when no other options were available, at any price. I do not see that as a sustainable approach. As a society we need to come up with a robust model for when and how to "pull the plug" in terms of when to simply let nature take its course and fall back on simple palliative care. To my mind, the focus should be more on moderation and moderate measures and less on extreme and extreme measures. In my view, desperation should not have any role in any stage of health care.

Nonetheless, Ms. Bennett's article does put both a personal and human as well as financial face on the issue of end-of-life care.

-- Jack Krupansky

Friday, March 05, 2010

Options for interest checking

Since my Fidelity brokerage account, which I have been using as my default "checking" account, is paying me only 0.01% interest, I have been looking around at what options are available for interest checking.

My default savings account is which pays 2.01% APY, but without checking. This is where I keep all cash that I will not need over the next month or so. Given the tentative nature of my income, I need to keep a fairly large pile of cash as liquid as possible since I never know whether I will be working in three or six months and then how long I might be without work, so even a six-month CD is out of reach for me at this time.

Here are the interest checking options I have identified:

  1. Normal bank checking accounts: typically either no interest or maybe 0.01%. Hah! Enough said.
  2. My TD Bank 50 Plus Checking account (if you are over 50 years old): 0.12% APY. As normal bank accounts (with local branches and ATM machines) go, this looks attractive (in a relative sense.)
  3. Schwab Bank: 0.60%. That's appealing, but limited branches. Does reimburse all ATM fees.
  4. EverBank: 0.61% and with a 3-month 2.25% bonus rate. Very limited branch deposits, but ATM reimbursement for minimum balance of $5,000. Rate is tiered and increases modestly above $10,000: 0.70% for $10K to $25K, 1.15% for $25K to $50K, 1.19% for $50K to $100K, 1.25% above $100K.
  5. Ally Bank (nee GMAC Bank): 1.15% for $15,000 balance, 0.50% for less. Reimburses all ATM fees, but no local branches for deposits.

There are other options that pay more than my TD Bank account, but I already have that account so that is why it is now my default option.

My typical usage is intended to be a place where I can deposit any incoming checks and keep the amount of cash I need every month to pay recurring expenses such as rent, credit cards, utilities, and modest ATM withdrawal. On a good month I could have more than $10K come in, but usually less and my monthly expenses are usually below $5,000, unless I have a major purchase, travel, estimated taxes, etc.

If I had $15K of monthly cash flow, Ally Bank would be more attractive, but if on an average month I would need to keep less than $5k in the checking account (transferring excess deposits to as soon as they cleared), Everbank looks more attractive.

But, since EverBank does not have branches for depositing checks, Schwab looks like it would come out ahead. But, it turns out that even with Schwab I would have to deposit checks in a Schwab brokerage account and then have to wait five days before I could transfer it to a linked Schwab Bank account.

So, maybe I will just deposit checks in my local TD Bank branch, wait five days and then ACH transfer to SmartyPig and EverBank (or Schwab), use the TD Bank ATMs, and write checks on EverBank/Schwab. I probably wouldn't bother writing checks on TD Bank, except when I needed to do so before the five days it would take to settle and transfer to the other bank.

I haven't made any final decisions yet, but this is where I am right now.

There might be options for limited check writing on online money market accounts that I need to look into.

-- Jack Krupansky

Thursday, March 04, 2010

Is Washington really dysfunctional?

The general sentiment seems to be that our federal government in Washington is "broken" and "dysfunctional", but I disagree. Yes, there is plenty of conflict between the major parties and interest groups in Washington, but that by itself does not mean that the government is dysfunctional. The government mirrors the people of the country. America is a very diverse country with a lot of strong and often divergent interests. Sometimes these divergent interests can come together and compromise and agree to changes in laws and regulations, and sometimes not. Compromise can sometimes be a very good thing, but sometimes interests are too far apart and compromise cannot be achieved at any given moment of time. That is a real part of real life, and neither necessarily good nor bad nor even "evil."

People throw the term "gridlock" around as if it were necessarily dysfunctional in government, but it simply means that there is not agreement sufficient to pass a particular legislative agenda. Sure, maybe some particular compromise might have prevented gridlock, but maybe that compromise would not necessarily be what is best for the country. Not all change is necessarily good or appropriate. The function of government is to balance and moderate change and the status quo. Even if "change" is expected or perceived as needed, that does not mean that any particular legislative agenda is necessarily "good" or "best" compared to maintaining the status quo.

Not everybody is happy with the speed (or lack thereof) at which Washington operates, but that is not necessarily a bad thing, and rapid action is not necessarily an indication of the quality of an action. Remember the Gulf of Tonkin resolution?

Instant gratification and "the urgency of now" or labeling a given initiative as "the change we need" should never be used as excuses to short-circuit the balancing mechanisms built intentionally into our system of government in Washington. Maybe some people would prefer a dictatorship or even a monarchy. Fine, but that is not the system we have. Deal with it. Accept it.

Sure, the sight of a single Senator holding up some very needed job and construction money can be disheartening, but it would be even more disheartening if there were no way for a lone voice to appeal (briefly) against a perceived tyranny of the majority.

Looking at it up close (as one might inspect a sausage factory) on a daily basis is a very, very poor way to judge Washington. Washington, as any large institution, should be judged by the test of time, over a very extended period of time, judged over decades and even generations. Besides we, the people, have a strong say every two, four, and six years as to whether we are content with our congressional representatives, senators, and even the president.

We have a representative democracy, so let our representatives do their jobs and let Washington do its job of balancing competing interests. Come November 2010 and November 2012 we can all "vote" our displeasure if needed, but otherwise we should all just back off and let our elected leaders and representatives do the jobs we pay them so handsomely to do.

Sure, we can all imagine an "ideal" government which all sorts of wondrous things, but we live in a real country, not some perceived ideal country.

So, much of the anxiety and "voter anger" is simply hyped, generated, and incited by the media (and quasi-media commentators, like us bloggers and representatives of political parties and interest groups) for their own profit and agendas. By all means, please let your elected leaders and representatives know how you feel and what you expect on all issues that you care about, but DO NOT allow the media or these quasi-media commentators to dictate to you what those issues should be or what your positions on those issues should be. And just remember that if you do allow the media to define or control or in any way influence what you believe or how you feel about any issue then you have effectively abdicated your primary responsibility as a citizen and a voter since Washington will ultimately be no better than the voters who send leaders and representatives to it.

Washington is us. So if you still believe that Washington is dysfunctional, maybe it is you yourself who is dysfunctional or at least out of sync with the rest of the country. There is a lot of conflict and uncertainty around, between, and within us, and that will be reflected in our government. Deal with it. Accept it. It is you. It is us.

Even in the best of times, on our best days we each encounter and deal with conflict and uncertainty. It's what we do. It is what we are designed to do, both as individuals and as a country. It is what we do best. Maybe in some limited cases our response is simple, but frequently it is not so simple even if mentally we paper it over and brush it off. But, then, sometimes we struggle and allow others (the media, et al) to con us into believing that all hope is lost. What nonsense.

At least from where I sit, I see a Washington that is truly a thing of awe. That so many interests can be brought together and achieve anything at all is, to me, truly amazing.

Sure, various groups struggle for power and control in government in the near-term, but that in no way detracts from the overall vision and mission of what Washington is really all about, serving the long-term needs of the people.

-- Jack Krupansky

Are we in a mini-depression?

With all of the talk about "The Great Recession", "worst since the Great Depression", the "recovery" (still "nascent"?), and the ongoing "soft labor market" (still "improving"?), where are we really? I would say two things: 1) we are in the early stages of a slow recovery, and 2) on the unemployment front we are in what I would now call a mini-depression. Put simply, we have 8 million people who were gainfully employed at the low of unemployment in March 2007 but who are now unemployed and the majority of whom will not find work in the near future. Even if we somehow manage to create 100,000 new jobs every month (1.2 million a year), it would take almost 7 years to put them all back to work. No matter how you slice it, that is far worse than any mere recession. Granted, it pales in comparision to a full-blown depression, but it is bad enough to qualify as what I will now term as a mini-depression, at least in terms of unemployment.

Some data (my calculations from monthly BLS data):

  • Low-point of unemployment in the dot-com boom in April 2000: 5.481 million
  • Peak unemployment while "recovering" from the dot-com bust in June 2003: 9.266 million - loss of 3.8 million jobs
  • Low-point of unemployment during the housing boom in March 2007: 6.725 million - gain of 2.5 million jobs
  • Peak unemployment after the housing bust and credit crisis in October 2009: 15.612 million - loss of 8.9 million jobs from the March 2007 low-point
  • Current unemployment as of January 2010: 14.837 million - gain of 775,000 jobs since October

A loss of 8.9 million jobs. That is staggering.

The numbers are even worse if you include full-time workers who can now only find part-time work, but that only further affirms my conclusion that we are in a mini-depression.

How do we get out? Government stimulus? Some. But ultimately we simply have to wait for business to recover and new businesses to be created that create jobs for those workers. Government can also help by reducing government obstacles to starting new businesses and creating new jobs, but ultimately it is the creation of new jobs by the private sector that will determine when the mini-depression displaced workers are put back to work. Also, as tax revenues recover at the state and local level, state and local employment will also begin to recover, but that will only happen as businesses first recover.

How long will this last? I would say another three to ten years depending on so many variable factors. Best case, three years from now the economy is booming again and fewer than three million of the mini-depression displaced workers are still unemployed. Worst case, it will be another ten years, with a double-dip recession in there somewhere. Nominally, my hunch is that that five to seven years from now the bulk of those mini-depression displaced workers will be back at work and productive and paying taxes to enable state and local governments to recover.

But even five years is a dog's age in economics and politics. There will be plenty of calls for additional stimulus, job training, social safety net improvement, political leadership changes, etc. that will keep the issue of these millions of workers who will remain unemployed for much of the next few years.

Sure, GDP is already "rebounding" and employment will rise nicely as the economy continues to recover, but a lot of the newly-employed will be kids just out of school, immigrants, and older workers reentering the workforce due to investment deterioration, leaving a lot of those eight million adrift without hope in sight. In fact, at various points we are likely to see an increase in unemployment as former workers who had dropped out of the unemployment counts since they gave up looking for nonexistent jobs over the last two years reenter the workforce as more jobs start opening up in the coming years.

-- Jack Krupansky

Wednesday, March 03, 2010

The Big Short - Great article/book excerpt by Michael Lewis on the mortgage mess

Noted financial author Michael Lewis has a new book coming out about the recent mortgage mess entitled The Big Short: Inside the Doomsday Machine. A long excerpt from the book is in the latest issue of Vanity Fair in an article entitled Betting on the Blind Side. It essentially gives a very detailed view of one of the financial niches that actually came out ahead in the crisis.

The intro to the article tells us that:

Michael Burry always saw the world differently--due, he believed, to the childhood loss of one eye. So when the 32-year-old investor spotted the huge bubble in the subprime-mortgage bond market, in 2004, then created a way to bet against it, he wasn't surprised that no one understood what he was doing. In an excerpt from his new book, The Big Short, the author charts Burry's oddball maneuvers, his almost comical dealings with Goldman Sachs and other banks as the market collapsed, and the true reason for his visionary obsession.

A passage that gives you the flavor of Lewis' narrative:

In 2004 he began to buy insurance on companies he thought might suffer in a real-estate downturn: mortgage lenders, mortgage insurers, and so on. This wasn't entirely satisfying. A real-estate-market meltdown might cause these companies to lose money; there was no guarantee that they would actually go bankrupt. He wanted a more direct tool for betting against subprime-mortgage lending. On March 19, 2005, alone in his office with the door closed and the shades pulled down, reading an abstruse textbook on credit derivatives, Michael Burry got an idea: credit-default swaps on subprime-mortgage bonds.

The idea hit him as he read a book about the evolution of the U.S. bond market and the creation, in the mid-1990s, at J. P. Morgan, of the first corporate credit-default swaps. He came to a passage explaining why banks felt they needed credit-default swaps at all. It wasn't immediately obvious--after all, the best way to avoid the risk of General Electric's defaulting on its debt was not to lend to General Electric in the first place. In the beginning, credit-default swaps had been a tool for hedging: some bank had loaned more than they wanted to to General Electric because G.E. had asked for it, and they feared alienating a long-standing client; another bank changed its mind about the wisdom of lending to G.E. at all. Very quickly, however, the new derivatives became tools for speculation: a lot of people wanted to make bets on the likelihood of G.E.'s defaulting. It struck Burry: Wall Street is bound to do the same thing with subprime-mortgage bonds, too. Given what was happening in the real-estate market—and given what subprime-mortgage lenders were doing--a lot of smart people eventually were going to want to make side bets on subprime-mortgage bonds. And the only way to do it would be to buy a credit-default swap.


Neither Lewis or Burry was technically a Wall Street insider, but the book/excerpt gives an upfront, detailed view of what was happening before and during the mortgage crisis.

(I do get a very modest commission if you buy the book from Amazon by clicking on my link:)

-- Jack Krupansky