Melanie_Alnwick's Blog

Listening to President Elect Barack Obama's economic speech today, several lines had a familiar echo to them.  Let me run down a few:

Obama: "Then there are the years that come along once in a generation.  The kind that mark a clean break from a troubled past and set a new course for our nation."

Anyone else hear old Abe? " Four score and seven years ago, our fathers brought forth on this continent, a new nation..."

Obama: "More Americans will lose their jobs.  More families will lose their savings. More dreams will be deferred and denied."  Langston Hughes: "What happens to a dream deferred? Does it dry up like a raisin in the sun?  Or fester like a sore, and run?"

Obama: "The first question each of us asks isn't 'what's good for me?', but 'what's good for the country my children will inherit?"  JFK: "Ask not what your country can do for you.  Ask what you can do for your country."

And in closing, harkening back to the Great Depression.  Obama: "It is this spirit that will enable us to confront this challenge with the same spirit that has led previous generations to face down war, depression, and fear itself."  FDR: "The only thing we have to fear, is fear itself"

These are indeed unprecedented times.   It's understandable that Mr. Obama and his speechwriters would sprinkle in tinges of crises past, and crises overcome.  But the oratory bar has been set high by this team.   I personally would have liked to have heard a bit more originality, or perhaps, some attribution.

What do you think about this idea?  On one hand, I prefer it to the idea of a huge governmental board overseeing the taxpayer dollars.   On the other hand, do we really think there is ONE person who has some great knowlege of how the auto industry should use money to become a viable entity?    If there were, wouldn't the car companies already have put him or her in their employ?   I am a bit skeptical of how this is all going to play out.  I don't have confidence that all 3 automakers will survive.   But I do believe we should keep the sinking ships afloat, at least until there are enough lifeboats.   The costs to taxpayers in terms of unemployment insurance, pension benefit guarantees, and the impact on our economy would be far more than the money the automakers are asking for.

Automakers have spent the days leading up to, and during the holiday weekend on their assigned book report to Congress.   Can't wait to see what's in it.   Congressional leaders demand change.  They demand a plan for viability.  Will they know it if they see it ? (being that there are so many famed automotive engineers and experts on the House Financial Services Committee.)  So far there's been a lot of angry bluster from the benches about how the automakers failed to plan ahead for the future, and didn't build cars people wanted to buy.  Baloney.   Let's all climb down from the "I'm greener than you are" wagon for a minute and think back.    Detroit WAS building the cars Americans wanted to buy.  Raise your hand if there's an SUV or minivan in your family.   What?  You didn't spend 25% more on a smaller car just to join the nascent green revolution?  Families do what makes sense for them financially.  Our gas price shock didn't happen until this summer -- and even at 4 dollars a gallon the hybrid cars didn't pay off.  It takes several years to get a car from conception through the production lines. Now that the commodities market has crashed does Congress really think a "plan for viability" includes compact cars that cost $40,000?   The only way that works is for huge government subsidies.   Besides, if we were all to drive electric cars... that electricity still has to come from the grid.

I'm not saying that we don't need to build a more sustainable energy future.  Let's just stop the fingerpointing and hypocrisy.   Oh, and I expect our new "Congressional Motors" execs to fly coach, too.

First, let's consider the price tag.   Up to 300 Billion dollars.   This is now roughly 5 times the amount that Sen. Harry Reid first proposed.   The package, presumably, would have two parts.   

The first 150B covers 4 proposals that the White House 86'd out of the first stimulus package in February.   Right now, few people quibble with the need to extend unemployment benefits and increase food stamp eligibility.  This spending would go directly into the hands of people who need to spend it.  With food stamps alone, the extra spending on groceries might mean more revenue for the store -- which in turn would prevent the store from perhaps laying off a cashier or cutting back hours. 

The next two proposals are giving money to states to pay for health care and education, and the ever-present "infrastructure" spending that comes up on every wish list.  States are hurting for money right now because of falling tax revenues.   Everyone knows a road or a bridge that needs work.   The problem, according to some economists - is that money to states is not really "stimulus" spending, since it's just filling a budget gap, not increasing revenue to businesses.   And, as history has proven time and time again, construction projects drag on forever, and almost always go over budget.   And everyone agrees that for a stimulus to work, it has to meet the three T's.. "timely, targeted, and temporary."

Now, for the second 150B.  That would go to taxpayers in the form of more stimulus checks, and who doesn't want more money to spend?   But, it's a pretty good bet that the first stimulus checks provided only a small boost.  Many people saved the money, or spent it at big box stores on products made in another country.  So we have to ask ourselves -- is it a good idea to borrow another 300 Billion dollars for measures that may or may not work?

I hated roller coasters as a kid.  I can remember being on a little one in California, begging my mom to let me get off.  I was sure I could feel the wheels of the car running off the rails. Seems a lot of people can't take the roller coaster ride in the stock market right now.  Despite the advice of investment managers, despite the assurances from the President and the Treasury Secretary, they're pulling money out.   We're in the grips of a market panic.  How long it will last depends on how quickly Paulson and Kashkari can figure out how to value these mortgage-backed securities, start buying them up and get the program rolling.    How effectively we can slow the rate of foreclosures (but not all... some people do deserve to get foreclosed on)  and bring home values back up.   How much we can get Americans to believe in our economic ingenuity and our ability to recover like we've always done.  We can't afford to let the herd mentality take over.

By the way, I got over my fear of coasters...

Secretary Paulson and Chairman Bernanke have spent the last two days selling their rescue plan to Congress.  It makes sense to me, but then again I've been reading every explanation  I can get my hands on and talking to every economist I can find.

Mortgage-backed securites are basically bundles of loans.   Lenders need to sell them so they have more money to give to borrowers and keep the cycle of credit going.   But no one wants to buy those "bundles" right now because they're not sure what they're worth.  Why not?

Well, investors used to be able to count on a certain number of loans in that bundle that would default.  (around 3%)  Investors could cover that loss with the interest from the 97 other homeowners, like you and me, that DO pay our mortgage.  What's more, they could foreclose on the property and sell it.   BUT... now there's too much "junk".  Too many defaults = too many foreclosures.  Too many foreclosures make it harder to sell homes, which results in lower home prices.   Lower home prices mean an unknown number of OTHER loans could be in trouble.  (those are the loans that borrowers with good credit took out, but also have interest rate adjustments coming.  typically those homeowners had planned to re-fi or sell when their payments spiked, but now they can't because the home values have fallen.)   SO, if investors don't know how many loans in a particular bundle will default -- they don't want to buy them.   If investors don't buy these bundles, then lending institutions like banks and savings & loans can't get more money to loan for homes, for cars, for businesses or for education.

That's the situation we're in now.  But those bundles aren't all bad.  As I said before, the VAST majority of us DO, and WILL pay our mortgages.   So, the government says "we'll buy those bundles", and hold them until foreclosures taper off and home values rise.  Then we'll sell them and get our money back.   But the government needs the good loans as well as the bad loans to make the plan work.

The risk, is putting too many conditions on companies to sell us their bundles.   If companies with good bundles, companies that didn't do anything wrong, think it will cost them too much to sell to the government, then they won't particpate and taxpayers will only get the "junk".  That would mean for sure, we'd be paying for it, instead of having a chance to flip them and recover our money.

I do agree that there should be some oversight, and it appears that part of the proposal will stick.   But it doesn't help the situation to have every politician screaming about "main street" ... without taking the time to stop and explain to their constituents that there IS something in it for main street.   Consumer credit.  Business capital.  Jobs.

Bernanke and Paulson have to sell it to Congress.  Lawmakers have to sell it to the American public, and I don't think anyone's been doing a very good job of it.

 

Consumers aren't as gloomy about the future as they used to be, according to the Conference Board's Consumer Confidence index.    It's amazing what sticker shock will do to your perspective.   Now that gas prices have fallen to about 3.70 a gallon we actually have becomed conditioned to think that's a relief.  Actually, there's more to it than that.  The slide in home prices has lessened a bit -- leading many to believe we may be nearing the bottom and starting the long climb out.    I saw a townhouse for sale yesterday... assessed at 406K.. selling for 289K.   It's bargains like that, that are starting to tease buyers back into the market.  More consumers plan to purchase a house in the next six months than any time since March.  I've always believed in the power of positive thinking... and feel that cautious optimism is a far better approach than ducking as if the sky were falling.   

We've all heard the definition of a recession: " Two consecutive quarters of negative growth".  We haven't had that yet.   Last month, the economy actually grew.  And here in the DC area, the Greater Washington Board of Trade is predicting 3% growth for the next 5 years.  Yet consumer confidence is in the tank.  Why?  Because there is such a thing as a "mental recession", and I daresay we in the media are partly to blame.   When all we hear is bad news -- we eventually start believing the bad news -- and then we start behaving like the sky is falling.  If you think it's bad here... do a little research in to the high cost of living in entitlement and tax heavy European countries.  Unemployment is still at historic lows.  That's no comfort to people out of work right now (and i've been right there with them) but, change is hard. I believe our economy is going through a fundamental shift... and, just like building muscle, you have to break down the fibers to make it stronger.  

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Everyone has a story about getting "taken" by movers. Here's mine: When I was moving from Raleigh, NC back home to DC... I figured the drive time for the crew would take about 4 and a half hours. After all, it usually took me about 4. My stuff was loaded up in the truck, the guys drove out of the apartment complex, and I started the clock. I left about a half hour later ... but when I got to the storage facility in Alexandria... they weren't there. They actually didn't show up for another two and a half hours! The manager on the phone admitted to me that the guys didn't hit the road directly from my apartment, but went back to the office to pick up some stuff, then got gas before their journey. I ended up having to pay them for the extra time (several hundred dollars) because they said they wouldn't unload my things unless I did.

NOW I find out that's illegal, and I could have called the police to intervene. So, expensive lesson learned. I know there are honest, legitimate moving companies out there, but you have to approach this area with caution. You have to ask all kinds of questions up front -- and get it all in writing. I didn't specifically ask if these guys were leaving directly from my apartment, or whether they'd include any stopping times along the way.

We've added links on our Money page to local consumer protection bureaus where you can check out the complaint records of moving companies, and check to make sure they're licensed for your type of move. Interstate movers must be federally licensed. In Virginia, local movers have to be registered with DMV. Also, be wary of quotes you get from companies on the internet. Make sure they have a physical address in your state, so you have some state protection if things go wrong.

What are your moving nightmares?

Normally I don't like to advocate in my blog -- but this time, I'm going to make an exception.  Small businesses need your help.  In April, bankruptcies for small businesses hit their highest level since 2005.   We can't afford to let the little guys go under.   Small business accounts for 99 percent of non-governmental employers, and contributes 40 percent of our gross domestic product.    Partner America, a consortium that represents small businesses... says the government needs to do more to help them.   It's suggesting the same low loan rates that wall street companies can borrow at... economic disaster relief packages... and dramatic increases to the Small Business Administration budget.   Whether you agree with government intervention or not -- we can all make these tough times a little easier for the mom & pops by patronizing their businesses.    So the next time you want coffee -- go to the local cafe instead of a national chain.   Pass up the big box retailers now and then -- and visit the corner store.    You'll be doing our small businesses, and our retail landscape - a lot of good.

So, you get a great quote on that rental car this summer, and you're going to save lots of money by declining any of the company's expensive add-on insurance and waivers.  That used to be a smart move... but it may not be any more.   According to the Insurance Information Institute... rental car companies are increasingly pursuing "loss of use" and "diminished value" claims if your rental car is damaged.   Auto insurance companies in most states say they do not cover those claims... and customers end up getting stuck with the bills.    So now, insurance companies are advising their policy holders to actually BUY the collision damage waivers  -- at a cost of  $13 to $26 a day -- if they want total protection. 

Credit card companies have their own damage waiver products that are supposed to cover loss of use and diminised value claims -- but there's a catch.  Visa, MasterCard and American Express all say they require vehicle logs from the rental car companies to substantiate the claim of "loss of use" -- and rental car companies say, they don't give that information out -- once again, leaving the consumer with a potentially costly bill.

Michael LaPlaca, an attorney who represents rental car companies.. says there's a basic misunderstanding on the part of the credit card and auto insurance companies.  LaPlaca says the claim is not for loss of revenue, which would have to be proved, but for loss of use... which is a "common law" right for property claims.   Just the fact that the car isn't on the lot, at the company's disposal for anything..even just to LOOK at... is loss of use.   He says consumers should press their insurers to pay the bill -- and it seems that insurance companies would prefer you buy the collision damage waiver instead.  Still, I think it brings up the question... just because the companies CAN charge for loss of use, should they?   Should our insurance companies pay for claims that can't be substantiated? 

There are a few interesting things to consider:  Though it seems like a gouge... the Collision Damage Waiver may be a good idea if 1) you don't want your auto insurance company to ding you for a claim or 2) the total cost of the waiver is less than your auto insurance deductible.    We've done a lot of the research for you & it's here on our website... but you should always check with the rental company, your insurance company, and your credit card company first.

Got any good rental car insurance stories?  We'd love to hear them.

More and more working families are finding out that the calculation of moving further out to get a bigger, more affordable home -- isn't paying off anymore.    It's not just the high gas prices, but the decreased fuel efficiency because of traffic congestion.  Because of that, the Federal Highway Administration's cost per mile has tripled since 2000.   It' a bit of a complicated formula to explain... but it's now 20 cents per mile.   So how do you figure the cost of your commute?    I had Scott Bernstein of the Center for Neighborhood Technology explain it to me.    He says you take the number of miles you drive in a year... divide it by 20 (cents per mile) ... then multiply it by price per gallon.    For the average DC household, it looks something like this:

21,614 miles / 20 = 1030.7 

1030.7 x 4.00 = $4122.8

That's the variable cost.   Feds say the fixed cost of owning a car  is $5068.  So for the average DC commuter... the cost per year is $9130.     But if you drill down further and look city dwellers vs. exurb drivers... there's a several thousand dollar difference.   Someone in Arlington who drives only 14,230 miles spends $7914.. while a Loudoun county commuter at 25,155 miles spends $10,099. (double it if you're a two-commuter family)

So, you think you're saving money by moving further out, when the percentage of your income you spend for housing and transportation together... is much greater.  Not so great of a deal anymore.

Use this website... to look at all kinds of interesting factors related to commuting costs -- and to figure out what your cost for transportation & housing together are.

http://htaindex.cnt.org/map_tool

Whew! What an incredible day we had yesterday with Fox 5's Credit Survival Guide.   We had panels of experts here in studio and online, throughout the day taking your questions about credit.   The response was overwhelming, and I think it really highlighted how difficult it is for people to navigate the complicated credit world, and just how many people are in tough financial situations these days. 

A lot of people called to get information about how to check their credit scores and dispute errors.   Did you know that 1 in 4 people have "serious" errors on their credit reports that negatively impact their credit?    There were some really heartbreaking situations, too.  Families about to their homes because the payments had spiked so high -- unable to sell as they had planned when those ARMs looked like a great idea... because the home value has fallen.    Moms and dads on the brink of bankruptcy, because their child has a serious medical condition and they've maxed out their health insurance benefits.  Retirees on fixed incomes, using credit cards to make up for the high cost of living right now.... and students, just starting out into the working world... awash in debt.    

So what's your financial picture these days?   Do you think Congress should pass the Housing bill to mitigate the ripple effects from all these foreclosures?   And finally, if you called or logged in yesterday, did you get the help you were seeking?

My first experience with food shock was about a month ago... when I discovered that the organic milk I buy for my two kids... is now SEVEN dollars a gallon.   I had started to wonder why my grocery bills were steadily creeping skyward... but this finally sealed the deal.  Some grocery stores have even posted signs apologizing for the high prices of milk and eggs.   So who's to blame?   We've been told that the use of corn for ethanol... is taking grains out of the world food supply.    The United States supplies 75 percent of the world's corn.   We use corn for everything from human food to animal feed to corn starches and corn syrup used to produce other foods.  Now we also use corn, to make ethanol.   Today the National Corn Growers Association said yes, a small part of increased food prices is because of the bio-fuel boom.. but that's only part of the complicated equation.     Severe drought in Australia and Europe has brought short crops ... developing nations have also developed an appetite for corn & corn-fed foods.  But the Industry pointed the biggest finger at oil prices.    Corn is a very fuel-intensive crop.  It requires a lot of fertilizer.  Farm equipment uses a lot of oil.. and corn crops travel about 1,000 miles from the farm to the grocery store shelf.    That's also the argument against ethanol... that it takes too much fuel to produce it, to make it worth the energy we get out of it.

So perhaps ethanol is not the culprit.  But it may not be the answer, either.

The Economic Stimulus Check is in the mail.  The idea is that if you put money into the hands of people who need it, they'll spend it, and boost our economy.   Two thirds of our Gross Domestic Product is tied to consumer spending, and the government definitely wants you to spend it.  Now, I've heard some financial experts on TV... telling consumers to ignore the government's plan, and save the money.  The truth is, most of us, regardless of what we tell the pollsters... will end up spending it in one way or another.     Some of it will go to gas, some will go to groceries, and some will probably go to those little splurges that we feel we're owed while we stick it out through this downturn.   And even IF you use it to pay down credit card debt... economists say that just buys you some cushion to spend in the future.   What are your plans for the money?