There is no question that the federal government, plus many lenders and financial professionals, shoulder a lot of the blame for our current economic crisis.
But many individuals who are overloaded with debt need to take responsibility for their bad choices, too. Take credit card debt, for example. Certainly there has been a tremendous push — for decades — by financial institutions to get people to view credit cards as indispensable.
And consumers gladly went along with no complaint, using other people’s money until life’s hardships — a job loss, illness or divorce — got in the way and they no longer could pay today for what they long since had purchased.
In a recent online discussion, my guest was Stuart Vyse, author of "Going Broke: Why Americans Can’t Hold On to Their Money," which was the March pick for the Color of Money Book Club. Vyse joined me to discuss why so many people can’t save. Here’s a partial transcript:
Do you think past generations had more discipline than we do now or simply less opportunities to get into debt, or both?
I think it is mostly the greater temptations we face today.
Earlier generations did not have to contend with Internet shopping, credit cards that are widely available, catalogs combined with 800 numbers, and a consumer economy that depends on everybody spending. At the same time, saving has gone out of fashion.
Do you think that Americans will be better able to hold on to their money in the future?
I think future generations will be able to do better if they begin to think differently about the things they want. They will need to think more about the value of money in the bank and activities that do not cost money. If future generations continue to watch lots of TV and continue to want the things they see on the screen, they will have trouble.
But many of the best things in life don’t cost money.
Why do you think it is so easy to slide into credit card debt?
Credit cards have the wonderful and dangerous quality of feeling like free money. With the card you can buy things you can’t afford and put the pain of payment off into the future. Furthermore, our psychology is such that we tend to think very optimistically about the future. We say, "It will be OK. I will be able to pay the bill when the time comes." But we forget that things can and often do go wrong. Other expenses crop up that we don’t anticipate. Before you know it, you are in trouble.
How can America get past this culture of consumerism? And I’m not throwing stones. Though I have no consumer debt, I’ve only recently started saving. There are examples everywhere, from the various housing crises to the wider advertisements of payday-advance loans to the introduction of even more eight-cylinder or otherwise high-horsepower, and thus gas-guzzling, automobiles.
It is going to be difficult to throw off the chains of consumerism. Much of the economy depends on it. But it is also clear that, with so many people in debt and barely making ends meet, millions of individual citizens are paying dearly. Limits on advertising and reasonable limits on credit would help. Also, it is very important that we begin to teach the value of saving and living within one’s means. Being in debt is becoming an accepted norm, but the anxiety and pain that it creates often are hidden. So many people would be much happier if they could live more simply and in the black.
Vyse hits it right on the head. Plastic separates us from the pain of paying with cash. I often ask people if they would withdraw $3,000 or $4,000 or $5,000 in cash to pay for a big-screen TV, furniture, etc. They cringe thinking about all that cash. It’s hard to spend the cash, easy to put down the plastic card.
This question came to me from a student attending Sabot at Stony Point in Richmond, Va.:
I want some advice on how to keep money and how to save it even though I want something really bad.
Do this for me, today, after class but today. Make a list of the things you really want in the future — maybe a car, or helping your mom and dad pay for your college education. A trip.
In other words, make a list of the things that really, really matter. And every time you want to spend on candy or something not really worthwhile, pull out that list.
That’s what I do. I keep my priorities in mind when I’m tempted to spend.
singletarym@washpost.com
2008, WASHINGTON POST WRITERS GROUP
Bank of America Corp (BAC.N: Quote, Profile, Research) agreed to pay David Sambol, COO of takeover target Countrywide Corp (CFC.N: Quote, Profile, Research), more than its own CEO received in 2007 to encourage him to lead the bank’s consumer mortgage business.
The pay, which vests over three years, is 37 percent higher than the $20.4 million Bank of America Chairman and Chief Executive Kenneth Lewis was compensated in 2007 to run the second largest U.S. bank.
Bank of America disclosed the amount in a filing on Thursday with the U.S. Securities and Exchange Commission.
“To me, it meant that they really need him and that they have no one else who could handle the job,” says Alan Johnson, compensation consultant at Johnson Associates, Inc. “It shows that BofA is making a serious effort to make a go of it.”
Paul Sorbera a president at Alliance Consulting said: “Compensation always reflects a company’s level of commitment. This deal shows BofA is very much interested in keeping CFC’s business intact and maximizing and monetizing the value of the franchise.”
Sambol, who is also Countrywide’s president, was named in January to run the mortgage business after Charlotte, North Carolina-based Bank of America completes its purchase of the largest U.S. mortgage lender. That transaction was valued Thursday at about $4.1 billion.
According to the filing, Sambol would be entitled to a $20 million retention bonus payable in equal installments on the first and second anniversaries of the merger, which is expected to close in the third quarter.
Sambol would also receive $8 million of restricted stock, vesting in three installments on the first, second and third anniversaries of the merger, the filing shows.
Monsanto Co. on Tuesday boosted its fiscal 2008 earnings expectation, excluding extraordinary items, by about 16 percent as a result of strong seed and herbicide sales coupled with fiscal discipline.
It is the second time this year that the Creve Coeur-based company has increased its earnings guidance.
Monsanto now says it expects full-year earnings from ongoing operations in the range of $3.15 to $3.25 a share, up from February’s guidance of $2.70 to $2.80. It will report second-quarter results on April 2, and projects earnings, excluding one-time gains, in that period of $1.75. The second quarter ended Feb. 29.
In addition, the company will receive a payout of 23 cents a share on claims in the recently completed bankruptcy case of corporate cousin Solutia Inc. That will bring annual reported earnings to $3.38 to $3.48 a share.
The news drove up Monsanto’s shares by nearly 10 percent Tuesday, to $114.54 from Monday’s close of $104.26.
Monsanto said gross profit from its seeds and traits business will be in the range of $3.6 billion to $3.7 billion this year, up 20 percent from 2007. It is selling more soybean seeds than last year, and use of its biotech corn traits also is increasing.
Global demand for Roundup herbicide is outpacing supply, and that business should deliver between $1.7 billion and $1.8 billion in gross profit this year, Monsanto said.
The company also noted it is holding spending on sales and general and administrative items to 20 percent of sales; and research and development costs at 9 percent.
Looking ahead, Monsanto said it expects to reach in 2010 its targeted gross margin in the range of 52 to 54 percent — two years ahead of schedule.
"Our growth over the next five years will be built on our seeds-and-traits platform, and we’ve already exceeded a number of milestones that put us ahead of our plan to deliver consistent, sustainable growth," said Hugh Grant, chairman, president and chief executive, in a statement.
rmelcer@post-dispatch.com | 314-340-8394
NEW YORK — JPMorgan Chase & Co.’s higher offer for Bear Stearns on Monday gave the investment bank control of nearly 40 percent of its ailing rival, blunting the threat that angry shareholders could scuttle the deal.
The $2.4 billion lifeline to rescue the investment house stands a strong chance of success — assuaging investors unhappy with a $2 per share offer by upping it to $10 apiece. JPMorgan has faced an outcry among Bear Stearns shareholders about the lowball offer, and faced the possibility that rival deals would begin to surface.
Most analysts said a higher bid was unlikely, but some bondholders reportedly have been buying the stock in order to ensure their right to vote for a deal and prevent a bankruptcy that would wipe them out. Bear
Toyota Motor Corp. said Thursday it will start selling the hybrid Prius and two other models in South Korea next year as it expands its offerings in the country beyond the luxury Lexus brand.
"It’s a big challenge for Toyota," Chairman Fujio Cho said of the decision to enter South Korea under the Toyota brand. The local market, which is dominated by domestic manufacturers including Hyundai Motor Co. and Kia Motors Corp., is "pretty tough," he said.
Toyota said it will begin selling the Prius, the Camry sedan in gasoline and hybrid versions, and the RAV4, a compact sport utility vehicle, during the second half of next year through a dealer network.
The world’s biggest automaker by production has set modest sales goals - initially targeting a total of 500 vehicles a month. It said, however, that it plans to quickly double sales to 1,000 vehicles a month.
Toyota has already had success with its Lexus brand, which it began selling in South Korea in 2001. Sales have risen every year, with 2007 the best to date at 7,520 vehicles.
That accounted for 14.1% of the imported car market, just behind Germany’s BMW at 14.3%, according to figures from the Korea Automobile Importers & Distributors Association.
Japan’s Nissan Motor Co. (NSANY), which markets its luxury Infiniti brand in South Korea, also plans to begin sales under the Nissan brand later this year. Mitsubishi Motors Corp. also has plans to enter the South Korean market.
Honda Motor Co. (HMC) sold 7,109 vehicles in South Korea last year, the third-largest total for foreign automakers.
Toyota previously sold the Camry and Avalon models in South Korea through a local sales agent from 1997 to 1999.
The company manufactured a record 9,497,754 vehicles worldwide in 2007, up 5.3% from the previous year, beating General Motors Corp. of the United States, which made 9.284 million.
Toyota, however, sold 9.366 million vehicles last year, about 3,000 fewer than its U.S. rival. GM (GM, Fortune 500) has been the world’s top-selling car company for 77 years.
Executive Vice President Tokuichi Uranishi said the strong Japanese yen, high costs for raw materials and slackening demand in major markets are casting a shadow over this year, for which Toyota has set an annual group sales goal of 9.85 million vehicles.
"Frankly speaking, the Japanese, U.S. and European markets are very soft … if the current situation continues I think that will be hard" to achieve, Uranishi said of the target.
Toyota (TM) hopes sales in emerging markets such as China and Russia will help cover weakness elsewhere, he said.
Facing record-high fuel costs and a weakening economy, Delta Air Lines and other carriers on Tuesday made moves to cut costs.
Delta said it will park twice as many planes as it planned and offer buyouts to 30,000 employees. Delta hopes to cut 2,000 non-pilot jobs in the United States, or 3.6 percent of its work force, through buyouts and voluntary retirements for which more than half of employees qualify, Chief Financial Officer Ed Bastian said. As many as 45 jets will be grounded as flights and routes shrink, he said.
Delta, which emerged from bankruptcy in April and has been in merger talks with Northwest Airlines Corp., is struggling with an 87 percent surge in fuel prices in the last year. The third-largest U.S. carrier said this year’s jet-fuel bill will be $2 billion higher than last year’s.
Other U.S. airlines disclosed less-dramatic moves. United Airlines parent UAL Corp. said it plans to pull as many as 20 older and less-efficient aircraft from its fleet to lower costs, and JetBlue Airways Corp. said it will sell four more Airbus SAS A320 aircraft, bringing the number of jets it’s shedding to 10.
Northwest said its U.S. passenger capacity will be "significantly smaller" this quarter and that further cuts may occur in August or September.
AMR Corp.’s American Airlines, the world’s largest carrier, said it’s reviewing 2008 capacity plans again, just a month after lowering them.
The moves come as airlines face a flood of red ink. The nine biggest U.S. airlines probably will lose a total of $1.5 billion this year, Merrill Lynch & Co. analyst Michael Linenberg said.
Delta plans to reduce its domestic passenger capacity 10 percent by August, double the 5 percent reduction the carrier previously targeted. The cuts include reducing the frequency of flights and cutting unprofitable routes. That will affect as many as 20 mainline jets and 25 regional aircraft, Bastian said.
About 1,300 of the jobs Delta plans to cut will be so-called frontline workers who handle ticketing, baggage and other operations, with the remainder coming from management, Bastian said.
Delta had the equivalent of 55,044 full-time employees at the end of last year.
A fire sale of Bear Stearns Cos Inc stunned Wall Street and pummeled global financial stocks on the eve of an expected U.S. interest rate cut aimed at preventing a meltdown of the financial system.
On a day marked by gut-wrenching drops of financial shares such as Lehman Brothers, U.S. stocks almost ventured into bear market territory — a drop of 20 percent from the October high.
The market staged a late partial recovery as optimism set in over an expected decision by the U.S. Federal Reserve to slash rates by as much as 1 percentage point on Tuesday to jump-start financial markets and prevent a recession. The cut would be the latest in a series that has brought down borrowing costs but hammered the U.S. dollar to record lows.
“They have spent some bullets. The Fed has a lot more bullets than we’ve seen so far,” said Brian Edmonds, managing director of fixed income at Cantor Fitzgerald in New York.
Things looked bleak on Monday morning.
Staff at Bear Stearns’ Manhattan headquarters were welcomed to work by a two-dollar bill stuck to the revolving doors — a spoof on the rock-bottom price of $2 a share that JPMorgan Chase is paying for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.
The combination of Bear’s swift bailout and the Fed’s offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.
And it scared market players worldwide.
We bought a house in Webster and moved in during March 2006 after moving from Houston. We were unable to sell the Houston house until April 2007. We had double house payments and expenses for more than a year, and we sold the house at a loss of more than $16,000 from the original price. What can I deduct on my 2007 taxes? Can I deduct the expenses required to maintain the Houston house? Is there still "income averaging"?
Unfortunately, any loss on a personal residence is nondeductible. The only instance in which it might be considered deductible is if you had attempted to rent it out as a rental property.
As a second residence, the only items considered deductible are the real estate taxes and mortgage interest paid on the property.
There is no longer income averaging. It was repealed approximately 15 years ago.
U.S. sales of video game hardware and software hit $1.33 billion in February, up 34 percent from a year earlier, with Sony Corp’s (6758.T: Quote, Profile, Research) PlayStation 3 topping Microsoft Corp’s(MSFT.O: Quote, Profile, Research) Xbox 360 for the second month in a row.
Nintendo Co Ltd’s (7974.OS: Quote, Profile, Research) Wii was still the best-selling console, moving 432,000 units and topping the 281,000 PlayStation 3s and 255,000 Xbox 360s, according to market research firm NPD.
“With several marquee titles still to come in the front half of the year, the industry is poised to achieve another year of record-breaking sales despite difficult economic conditions,” NPD analyst Anita Frazier said in a statement.
Software sales in February were up 47 percent year-on-year while hardware sales rose 19 percent, NPD said.
Microsoft, which outsold Sony every month up until January, blamed its weak showing on inventory shortages caused by stronger-than-expected demand over the holidays.
“Our manufacturing team guesses five months out. They made their forecast and didn’t have as high a forecast as they should have,” said Microsoft spokesman David Dennis.
“We’re doing everything we can, pulling all the levers” to boost output, he said.
Microsoft said it expects to have a healthy supply of Xbox 360s by April, when Take-Two Interactive Software Inc’s (TTWO.O: Quote, Profile, Research) “Grand Theft Auto 4″ hits shelves in what is widely expected to be the biggest game of the year.
The U.S. Federal Reserve and four other central banks on Tuesday teamed up to get hundreds of billions of dollars in fresh funds to cash-starved credit markets, allowing financial firms to use securities backed by home mortgages as collateral for central bank loans.
Stocks surged, bonds fell and the long-suffering U.S. dollar soared in reaction to the moves, a sign financial markets saw the plan as a step in the right direction to ease a crisis that has threatened world economic growth. The Dow Jones industrials closed nearly 3.6 percent higher.
In the latest effort to ease a credit contraction that has disrupted global finance, the Fed, Bank of Canada, Bank of England, European Central Bank and Swiss National Bank announced a series of aggressive measures to boost liquidity. It was the second time in three months that central banks from around the globe had launched coordinated efforts.
Wall Street economists were quick to call the new lending facility a step in the right direction, but what’s most needed is time for the de-leveraging of billions of dollars in loans globally.
“What we’ve seen is really a seizing of the money markets and it will help to alleviate this by injecting much needed cash,” said Kathleen Stephansen, director of global economics at Credit Suisse in New York. “It doesn’t take away the credit crunch because deleveraging will still have to take place. But this will make it a more orderly process.”
Policy-makers are particularly concerned that tightening credit conditions, sparked by the U.S. subprime housing meltdown, will curb the flow of money to the people and businesses that power the global economy.
The Fed expanded its securities lending program, offering up to $200 billion of highly liquid U.S. Treasuries to primary dealers, secured for 28 days, and said it could increase the size of the program if needed. It also significantly expanded the types of securities that can be used as collateral for the loans. In effect, the plan allows banks to exchange unwanted mortgage notes for easy-to-sell government securities.
“Is this going to cure what ails the economy? I would guess everyone realizes the answer to that is going to be ‘no.’ Is this going to be helpful in addressing the strains in financial markets? For sure, the answer is ‘yes’,” the first deputy managing director of the International Monetary Fund, John Lipsky, told Reuters.
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