Money's on Obama - The Financial Team

AS SEEN IN THE ETOWNIAN

Throughout the current mortgage and loan crisis, much attention has been paid to George W. Bush-appointed treasury secretary, ex-Goldman Sachs chairman Henry “Hank” Paulson. The Secretary of the Treasury holds influence over the allocation of government funds, and as such Paulson has developed a “rescue” or bailout plan for the U.S. economy, including certain major corporations. This important individual and their staff members, along with the Federal Reserve Bank (or “Fed”, our country’s central bank), maintain a major influence upon the regulations and planning of our economy. For example, former Fed chairman Alan Greenspan has been credited with overseeing the economic growth of the late 1990s.

It is customary for an incoming president to appoint their own cabinet of secretaries of the constituents of the executive branch. By inauguration day, President Barack Obama had finalized all of his selections for his Cabinet with the exception of the void left by embattled commerce secretary nominee Bill Richardson, and has made his selection for treasury secretary in New York Federal Reserve Chairman Timothy Geithner. Geithner is credited for his diplomatic dealings with the governments of Asian countries during that region’s 1997-98 financial crisis, in addition to his orchestration of the early 2008 buyout of investment bank Bear Stearns by J.P. Morgan and development of the proposed $800 billion “troubled assets relief program”. He also appointed former Harvard University president and Clinton Administration official Lawrence (Larry) Summers head of the National Economic Council, Christina Romer as Council of Economic Advisers Chair, and Melody Barnes as Domestic Policy Council Director. Each of his selections are accomplished in their fields - Romer and her husband are well-regarded economics professors at the University of California at Berkeley, and Barnes has served as a counsel to Massachusetts Senator Ted Kennedy as well as the Executive Vice President for Policy at the Center for American Progress.

Pundits on both sides of the political spectrum have lauded President Obama’s selections for his financial team, with Geithner being widely recognized for his diplomacy in Asia to improve economic value of the affected countries and Summers being complimented by Blackstone Group co-founder Pete Peterson, who said “if there’s a more brilliant economist in the United States, I wouldn’t know who that is.” The Bush Administration also praised the new Treasury Secretary, with deputy press secretary Tony Fratto calling Geithner “exceptionally talented” and Paulson lauding him for his “understanding of markets, his judgment and leadership, and his ability to meet the challenges that lie ahead”.

Fed Chairman Ben Bernanke, who has become a familiar face to news viewers throughout the recent economic downturn, will remain in his position under the new administration. We can expect him to work cooperatively with Geithner to develop strategies for dealing with the market slump. It is the Fed’s responsibility to control the money supply and set interest rates on federal loans, factors which will be important in resolving the current situation. Bernanke has three years experience in this position, so he is well poised to continue to handle the current recession. While Obama has warned that economic conditions are likely to worsen over the next year or two before recovering, only time will tell if his “dream team” of economic hard-hitters will pull a miracle or perpetuate the downturn.

NOTE: Since this post was originally published, scrutiny has arisen over the failure of Treasury Secretary Tim Geithner to pay his annual tax returns while he was chairman of the New York Federal Reserve during the early part of this decade. However, Obama has voiced his full support for Geithner, and it now appears likely that he will remain in his current position.

How to "X-out" X-pensive Xmas Gifts

As seen in the Etownian.

Because of the commercialization of Christmas, department and discount stores have been seemingly displaying their holiday decorations and hot-ticket toys earlier every year. Toys and other anticipated popular gifts are often given high price tags which are reduced almost immediately following the holiday season. Due to the economic downturn in recent months, retailers are growing understandably uneasy about the coming holiday season – which some researchers predict will be the least lucrative for retailers since 1991. They are trying to counteract this by placing holiday items on the shelves even earlier than normal, a trend which has been ongoing for several years but is exacerbated during economic downturns such as the current one.

The great majority of retailers’ sales are seen during the period from the day after Thanksgiving (“Black Friday”) through the middle of January. Due to investment difficulties and job strife, many consumers have been forced to cut back on holiday spending and consequently are expected to frequent discount big-box retailers such as Wal-Mart and Costco this year. Traditional department stores, long the domain of holiday shopping, have been suffering in recent years due to a trend toward wholesale buying. Due to the fact that these goods are purchased in bulk directly from the manufacturer rather than through a wholesaler less expensively, they can be sold for lower prices, although some question the quality of such apparel and appliances.

Following Christmas Day, retailers begin offering clearances on the seasonal high-ticket toys, Christmas decorations, clothing, jewelry, and electronics. Gifts of a check, cash, or gift certificates can provide the opportunity for someone to obtain the gifts they desire at a lower cost to you. Most stores offer such sales to clear out merchandise, with the exception of discounters promoting consistently low prices who advertise that their items are “always on sale”. Coupons can also provide great savings at department and big-box stores during the holiday season, and they can be found in newspapers, coupon books, online, and on purchase receipts. While the congestion and hustle of Black Friday can be daunting, stores promote some of their biggest discounts on this day. It is wise to arrive early to find big-ticket items which may become sold out early on in the day, and to develop a list of what you are searching for prior to embarking on your shopping trip.

If your budget is constraining your discretionary income, do not feel pressured to buy expensive gifts for everyone on your list. Many people may actually feel inconvenienced by extra gift items, and would instead prefer a get-together such as a special dinner or holiday party. “Homemade coupons” can also be given to promise a favor, gift, or outing redeemable a later time if you do not have the ability to give these things at the present moment. Also, homemade gifts are practical and can be made from inexpensive materials in one’s own house. If you are not interested in going about the Christmas shopping routine at retail stores, which consumes time and gas, the websites of many large retailers allow you to order similar items at discounts from what you would find in-store. Also, shopping websites such as Amazon.com offer similar products, and the shipping-and-handling costs are often cheaper than the gas which you would expend driving to the store. Another convenient strategy is to shop year-round for gifts during other shopping trips to avoid having to make an extravagant outing specifically for the holidays.
With the right strategy, which involves shopping at the right stores at the right time, one can keep everyone on their holiday gift list satisfied for the next year. The most expensive gifts are not necessarily the ones which receive the most attention, as even personal artwork or stories can be a treasured present. Keep in mind the preferences of those for whom you are shopping, and try to find cost-efficient ways of giving them a gift to remember.

Wall Street's Out on Bail - But Not Quite For Free

Full-length SIFE Sense article from week of October 20

Across the country, the common citizen has been struck with uncertainty regarding a bailout bill which would provide financial capital to investment banks and mortgage originators who approved thousands of defaulted subprime loans. Although many were skeptical about providing money to those corporate officers and firms responsible, most felt that some government assistance was needed to abate further bankruptcies and protect embattled homeowners. On September 22, President Bush proposed a $700 billion “rescue plan” in the wake of Lehman Brothers’ and Merrill Lynch’s failings, and the Dow Jones Industrial Average declined below 9000 points for the first time since 2003 on October 9. However, due to apparent political maneuvering in the House, the bill failed there on September 27 by a vote of 228 to 205 (with one representative abstaining). The Senate came to a resolution on Wednesday, October 1, approving an immediate $250 billion rescue package by a 74-25 vote and an additional $100 billion for use by Bush at his discretion as well as an additional $350 billion on hold for future consideration, and the House followed on October 3 by approving the reworked package by a vote of 263 to 171.

The package was passed on several conditions, including the provision of stock warrants to the government from companies selling bad securities and the renegotiation of mortgages issued by these companies. In addition, in order to receive bailout money, corporations would be required to limit “golden parachute” packages for departing corporate officers. The executives of firms receiving aid of greater than $300 million would also face steeper income taxes. The issue at the forefront of the “toxic loan crisis”, as it has come to be known, is the solicitation and approval of subprime loans, which are loans and mortgages provided to those with bad credit or little collateral. While the mass media has stoked the flames of the crisis by largely broadcasting images of despair, only 2 percent of U.S. mortgages are currently under default. Consumer and investor fear is counterproductive to market stabilization because it discourages investing and reduces purchasing, therefore reinforcing the market slack.

While it is tenuous to conclude what the ultimate solution may be, individuals can lessen the effects of “toxic lending” by ensuring that their loans and mortgages equate to no more than four times their annual income and ensure financial security against stock market dips by diversifying their assets. A general rule of thumb to follow is that one should hold no more than fifty percent of their net worth in common stocks, placing the remainder in savings accounts, bonds, property, and other low-risk securities. As you grow older and near retirement, your stock assets including those in a 401(k) plan should gradually be divested into more stable securities such as bonds and money-market accounts to protect against market fluctuations. Historically speaking, amongst types of securities common stocks have been the most variable and therefore the riskiest.

Recently, Congress repealed a long-standing regulation requiring a minimal credit rate for loan and mortgage applicants, resulting in many who would have previously been unqualified for such provisions receiving them. Many of these people later defaulted on their credit due to their inability to finance them, and ultimately found their property repossessed. Credit ratings exist for a reason – to ensure that people pay back their debts and do not cost the government or businesses excess funds to finance “toxic loans”. You can protect your ability to receive loans by paying credit card bills on time, repaying student loans, and avoiding excessive credit card purchases which you will have difficulty repaying on time. While mortgage originators and loan financing institutions may hold ultimate responsibility for the current credit crisis, we can each play a role in preventing future economic pitfalls.