Tag Archives: Savings

5 Financial Scams That Target Your Money

Financial strain combined with busy lives can compromise the ability to make sound financial decisions. Are you a generous person with precious little time to research charities? Are you too busy to carefully monitor your online profile? If “yes”  to any of these questions is your answer, then I caution you: be aware of these five financial scams.

The financial scams that we will review can be categorized as either “get ahead” scams or “help” scams.

In nearly 20 years of law practice emphasizing bankruptcy, I have been very impressed by the generosity of my clients. At the same time, my clients are generally hardworking people, and are exceptionally busy. They often provide substantial financial help to family as well as support to charitable causes like disaster relief, religious groups, or charitable organizations—sometimes in combinations. Balancing families, commitments to others, and workplace responsibilities, it is no wonder that my clients sometimes don’t take the time to investigate whether an opportunity or a request for help is truly legitimate, or whether it is an exploitative scam.

The “help” scams that touch the hearts of my generous clients make me sad. Unfortunately, the best of intentions and most generous of natures are exploited from time to time by unscrupulous shysters.

When it comes to “get ahead” scams, I sometimes sadly learn that their efforts, and drive to get ahead financially have been exploited by equally shady characters.

Both types of scammers are very active now. They know that many innocent, good-natured people may have a little extra cash this spring. The scammers step up their efforts in late February, March, and April because their targets may receive federal tax refunds.

Even if you aren’t expecting a tax refund this year, you may still be a target for the scammers. The “get ahead” variety will attack whatever funds you’re willing to part with in the hopes of investing in bettering your life in some way.

We all remember the old internet email scams of yesterday; clumsily written, and misspelled email come-ons offering huge windfalls in exchange for helping some long-lost offspring of exiled monarchs move a still larger fortune from some small country to ours with your help. All you need provide is a complete personal dossier that enables identity theft and a raid on your bank accounts.

Today’s newer scams are often better written, and sound more plausible, than the offers of a huge commission for helping someone move funds from overseas. These new scams are still every bit as dangerous to your family’s finances and identity as those that originated in the mid-90s.

Three Questions

Let me ask you three difficult questions:

  1. If you are under either financial stress or have an unexpected need for income, would you consider an offer to “get ahead” quick?
  2. Has your good nature and willingness to sacrifice a bit of your worldly goods—perhaps feelings of guilt for the conditions that you see the needy in when compared to your own—led you to consider doing something—anything—that could “help”. You may feel that you are either too busy or that it is rude to question the veracity of those who make such plaintive entreaties for urgent financial help?
  3. Are you too preoccupied or does it seem too confusing to properly monitor your profiles on social media? Unprotected, open profiles provide scammers the best hunting grounds for opportunities and information.

If you don’t consider yourself at risk in any of the aforementioned areas, do you know of a friend or loved one who might be financially pressed or overly generous, and may more easily fall prey to one of the scams we described above? If under financial strain, you can always contact with us for a free and confidential consultation. If a friend or loved one is in need, we welcome you to accompany them so that you can provide moral support and encouragement. After all, that is why we have friends—for support and encouragement.

If you or a friend or loved one owes money on medical bills, taxes, credit cards, collections or court fines, by all means call us. If you or a friend or loved one is struggling under the weight of a costly mortgage or vehicle payment, then please come in for a consult. Don’t fall prey to the allure of a scammer’s “get ahead” story.

The Five “Big Ones”: The Hottest Scams of 2012-2013

  1. Over payment/Fake Check/Car Ad scams: – A “get ahead” scam. The online ad says: “Get Paid Just for Driving Around”—naming a prominent and reputable company offering $400 or more per week to drive around with the company’s logo on signage placed on your vehicle. The scammers are convincing; they even mail you a check with strict instructions to wire-transfer part of the money to the “appointed” graphic designer who will create, customize, and deliver the advertising banners which will be later mailed to you for placement upon your vehicle. When the check mailed to you bounces a week later, the “graphic designer” is long gone, you are out the money which you wired over to the “graphic designer”, and you have a nice overdraft situation to deal with at your local friendly bank or credit union. Exasperating!
  2. Emergency Scam: Grandchild or friend in trouble overseas! Help! I am in London and lost my wallet so can’t even pay for a phone call to explain, so I am contacting you by text message or email to send me $500 (or more) by wire transfer. Some nice person lent me their computer or this text messaging capable cell phone which can’t make nor accept overseas calls. That’s why—and how—I am able to contact you only by text message or through this new email account I just set up at the local Internet cafe. I need to pay an overdue hotel bill, and to make travel arrangements, so if you could please wire $500.00… You get the picture of course.
    Thanks to social media sites, the scammers can feed you back a more plausible story by extracting personal details from your social media profile. For example, you might receive a very factually specific “help” scam message like, “Yeah, remember the video camera Jane got me for Christmas? I was so excited to take that new video camera I received last Christmas on this spontaneous trip to Denmark. I am so bummed that just after arriving, I was mugged, lost my cash, credit cards, and phone, and I can’t even pay my hotel bill. By the way, not paying your hotel bill here in Denmark is punishable by imprisonment. They have given me two hours to get the funds to pay the hotel bill or else the Danes are going to imprison me along with a huge bail obligation I won’t ever be able to afford.”
    “Emergency” is an old “help” scam, but the new twist is that real events and names are used in the communication to make it more believable. This information is skimmed from unguarded social networking profiles.
  3. Mystery Shopping: a “get ahead” scam. Mystery shopping can be legitimate, but to learn how it really works, visit the Mystery Shopping Providers Association www.mysteryshop.org site. You might avoid falling prey to a scam.
    The mystery shopping scam is really just a variation of the over payment fake check scam described above. As a scam, the mystery shopping “employer” hiring you first sends you a check. As your first project, you are assigned to “evaluate” the customer service quality of a money transfer wiring service. You are supposed to cash the check on your own bank account, then you are to wire back some significant portion of the proceeds to the mystery shopping “employer”. They toss in a legitimate sounding requirement to complete a questionnaire about the money transfer wiring service staff—whether they were professional and courteous, etc.
    When the check you received from your mystery shopping “employer” bounces, and you are left holding the bag for a large overdraft obligation, you will realized that you are the victim of a scam. Good luck tracking down your mystery shopping “employer” to make good on the bounced check.
  4. Advance Fee/Prepayment scam: a “get ahead” scam. We all need a little extra cash from time to time to provide for family or household needs. The fraudsters know this. Watch out for “no credit check” or “easy repayment terms” for a loan advertised online. You will find there is a catch to such a great deal in that you have to first send in a payment for a “loan insurance policy” or to “secure” or “process” your loan.
    Of course, once you send in the payment for the “loan insurance policy” or to “secure” the loan or to “process” the loan, you learn that there was never any loan to be made, and you have lost the funds you paid.
  5. Charitable contribution to help those who suffered through tragic events: a “help” scam. Now, this one is really sick. While not necessarily a financial benefit/gain scam, it is among the lowest of the low. Reports abound of entreaties through social media and email seeking donations which are (falsely) dedicated to the suffering victims and their families. There has allegedly been at least one FBI arrest related to one of the many scams preying upon national sympathy for the Sandy Hook Elementary School victims.
    If you do wish to donate to Sandy Hook Elementary related causes, perhaps you should first review the Better Business Bureau’s Wise Giving Alliance site www.bbb.org/us/charity to help you confirm that a charitable organization that interests you is legitimate.

Incautious generosity, financial strain, and family/work time pressures can lead to scam vulnerability and potentially to a financial disaster. Take the time to think carefully. Am I or someone I know truly vulnerable to a “financial gain” or a “help” scam? You may still be confused about some aspect of these offers, or some other major financial decision that could have life changing consequences. If so, a free 30 minute consultation with me, consumer/small business bankruptcy attorney James H. MaGee may be of help. Every situation is different, and the options may vary according to the details of the case, but as it is a free 30 minute consultation, why not take advantage of my expertise with no obligation?

Rebuilding the financial foundation for your life after falling behind on bills, or after a life changing event, is complex, no two cases are exactly alike. I may be able to help you understand your situation more clearly; I can certainly help you by discussing certain trade-offs and options concerning your situation, including bankruptcy chapters and their applicability to your situation. You can email my scheduler through our website for your free 30 minute consultation at www.washingtonbankruptcy.com or e-mail directly at [email protected]. To schedule immediately, you can reach a member of our friendly staff by calling at (253) 383-1001. Our office hours are Mondays through Thursdays, 9 AM until 5:45 PM, and on Fridays from 9 AM until 12 PM.

Can you reach the max?

Retirement is coming, if it is not already here for you.  If you have income for which to fund a 401k or to contribute to an IRA, I would like you to think about these three questions I answered in this article, and the list of tips I also present in this article.

If you already have a 401k or IRA for retirement savings, you should read carefully, because a “game plan” concerning how you are going to use your retirement savings- or not use your retirement savings- is a very important foundational building block when it comes to retirement savings.  Decisions about your 401k and decisions about bankruptcy are intertwined for many people.

  • Question 1: Should I file for chapter 7 bankruptcy to wipe out debts? Or in the alternative should I not file for bankruptcy but instead cash out my 401k to pay off debts?
  • Answer:  With only a few exceptions, I strongly recommend a bankruptcy filing over 401k withdrawals.
  • Question 2:  Should I file for Chapter 13 bankruptcy reorganization over cashing out a 401k account with the purpose of staving off a foreclosure or preventing vehicle repossession?
  • Answer:  With few exceptions, I strongly recommend a Chapter 13 bankruptcy reorganization over cashing out a 401k account with the purpose of staving off a foreclosure or preventing vehicle repossession.
  • Question 3: Should I take out a loan or cash out a 401k or IRA in order to pay Federal Income Tax debt?
  • Answer: You can almost always pay back the federal income tax debt interest and penalty free through a Chapter 13 bankruptcy reorganization, or alternatively you often can enter into a very reasonable tax repayment plan with the IRS.  Sometimes, very old Federal Income Tax debt is even erased by bankruptcy.  Thus, for many people tax repayment though chapter 13 plan can make more sense than a 401k loan or IRA cash out.  There is an additional benefit: although most people don’t realize it, if your income is not super-high, you still can often wipe out credit card debts, eliminate second mortgage obligation and write off medical bills without any repayment of these debts by filing a chapter 13 case, so in many regards, a chapter 13 case can wipe out debt much like a chapter 7 case, with the added benefit of an easy cheesy Federal Income Tax repayment plan- and state tax can be repaid easily though chapter 13 too!

These are some more very important tips about how to handle your 401k, IRA, VIP, TSP or other tax deferred retirement savings, courtesy of a great article from Forbes.com which you can find here:

http://www.forbes.com/pictures/lmf45ekmg/can-you-reach-the-max/

Dating, Marriage and Credit Scores: A New Twist in the Road To A Happy Life

He was tall, religious, well employed in finance and had great teeth.  Even better, he came from a nice family background, and was brought up similarly to her.   She was attractive, peppy and fully employed as a flight attendant.

But Chicago’s Jessica LaShawn was dumped after a first date when somewhere between salad and dessert Jessica truthfully answered a question about her credit score.  Jessica’s FICO score was subprime (below 660), as she had paid late on some bills and had some lingering unresolved debts.  A couple of days later, Jessica received an apologetic text message from her potential prince charming – no second date –  it wasn’t Jessica, it was Jessica’s credit score which caused him to decline a second date with her.  Good bye prince charming.  Good bye, white picket fence…

Credit Scores are newly becoming a relationship metric, as many people are deciding who to consider and who not to consider for marriage based in part upon credit scores.  Dating site executives report that they are receiving more inquiries and interest about when and how to bring up the issue of credit scores when deciding whether to date or pursue a relationship with a potential suitor.

Similarly, many marriage counselors relate that improving credit scores is a frequent topic of discussion with marital and relationship counseling clients.  Dissimilar levels of concerns about maintaining an acceptable credit score can lead to significant friction in a long term relationship.
So how does bankruptcy fit into the universe of dating, marriage and credit scores?
Credit scores affect us all.  Credit scores are kept on about 200 million Americans by FICO.  More than 34% of these Americans (68.6 million) tracked by FICO have subprime credit scores of less than 660.  FICO is short for Fair Isaac Corporation.
About 18.5% of Americans (37 million) enjoy the highest credit score range of 850-900, another 19.0% (38 million) enjoy very good credit scores of 750-800.  About 16.0% of Americans (32 million) enjoy “good” credit scores of 700 – 750 and 12.2% of Americans (24.4 million) have borderline FICO credit scores of 650-700.

If unpaid bills, high credit card balances, lingering tax debts, old foreclosures and unresolved vehicle repossession deficiency obligations are keeping you in the “below 700” catagory with respect to FICO scores, what can you do?

How about a bankruptcy?  What? Doesn’t bankruptcy ruin your credit, you ask?

Well, sometimes you have to go down before you can go up.

Many experts recite that a bankruptcy will temporarily dump your credit score down to 550, but then in many circumatances you will automatically start a very steady and sure climb back to a level of 700 (good), 750 (very good) or maybe even higher.

The New York Time (April 12, 2012) reports that the car loan or credit card for which you were unable to qualify right before bankruptcy can very likely immediately be yours right after a bankruptcy filing.  This might suprise you, but after bankruptcy, many creditors will actively and very aggressively again solicit your business.  This sounds very counterintuitive and maybe even a bit crazy, but strangely it is true.
After almost 19 years, I keep thinking that some day I will have seen it all when it comes to Creditors.  However, the Creditors keep suprising me with new ideas and schemes, and these are often to your benefit, so check out this new shocking twist:  I have had a few Chapter 7 clients show up at Court bearing letters that recite in essece the following:
“Dear Newly Bankrupt Potentially Valued Client: We have reviewed that you have a vehicle financed with another lender.  We want you talk to your lawyer at court about giving up that old financed car in a voluntary repossession, thus giving the car back to your lender.  If you do this, then on your way home from bankruptcy court just stop by our car lot and secure quick financing for a newer and better car.”

How does that grab you?  Stop by the car lot on the way home from bankruptcy court and pick up a new car?  Strange, but often true.
If your marriage relationship is suffering the stress of not meeting financial and mateiral goals due to chronically low credit scores, then consider a bankruptcy filing to charge up the material needs which, face it, are an important part of living with some contentedness in a long term relationship.
We all like to say that love is enough, but we all know that every marriage has material needs and material aspirations.  Even if such material goals are modest, such as replacing that aging car, starting to save for retirement or college, moving up to a more suitably sized home, getting on a cell phone data plan instead of being stuck with an expensive “prepaid phone”  or maybe even renting a little nicer place to live – we all have needs and aspirations.  Chronically low credit scores can take away some of the material comforts that we look forward to enjoying with our mate in a long term relationship, and these disappointments can take a little of the joy out of your daily walk of relationship and marriage.
And in Jessica’s LaShawn’s date with Mr. Right, he had her at hello…but it was quickly goodbye due to Jessica’s chronically low credit score.  If Jessica had filed for bankruptcy well before her dream date appeared and had thus already started the amazingly quick post-bankruptcy credit score recovery process, she would probably have received that offer of a second date.  But she was not proactive and did not file for bankruptcy.  Jessica just ignored her declining credit situation because it was too uncomfortable to face.  The result?  Sadly, for Jessica the story is “white picket fence postponed”.
Get on with your life and start living now: Consider bankruptcy as a strategic tool for your long term dating, relationship and marital hapiness. You will be shocked at how quickly your creditworthiness is restored post-bankruptcy.
And while you are at it, spread the good news that there is hope for the future through bankruptcy- people need to know, and if you won’t tell them, they will never learn.
[Special thanks to Jessica Silver-Greenberg, for writing “Perfect 10? Never Mind That.  Ask Her for Her Credit Score.” NY Times, Page A1, Wednesday, December 26, 2012.]
Considering the need for a bankruptcy filing to get your credit back on track?  Contact us at 253-383-1001 for an appointment in Tacoma, Puyallup, Olympia, Chehalis, Renton or Bremerton.

If the best interest rates are from banks, credit unions, or savings and loans with low Bankrate.com Safe & Sound Ratings, does it make sense to go for high yields when the bank is potentially at risk?

Businessman Holding a Piggy Bank
An article I found on Bankrate.com discussed the truth about risky banks and their interest rates on certificates of deposit. When looking for the best CD rates, every tenth of a percentage point of yield makes a difference. This is especially true right now, when interest rates are at a historic low.












The answer is that it depends. “Technically, consumers have nothing to worry about as long as they stay under FDIC (Federal Deposit Insurance Corp.) limits, which are $250,000 through 2013,” says Robert Laura, a financial adviser and president of Financial IQ in Farmington, Michigan. According to the FDIC website, a CD that matures after Dec. 31, 2013, would have its insured limit reverted back to $100,000, except for certain types of retirement accounts.

The FDIC website states that if you have more than the current limits to invest, it may be better to break up your CD purchases by buying CDs from different institutions to stay under deposit insurance amounts. That being said, should you invest in a CD and the institution fails, the FDIC is required to make good on your investment as soon as possible. This can involve transferring your CD to the institution that acquired the failed bank or sending you a check for the balance due on your CD.

The FDIC website also has information on what happens if your CD is worth more than deposit insurance limits, and your bank fails. If this happens, you may receive some or none of that balance at a later date, depending on whether the FDIC is able to sell the failed bank’s assets and at what price. The FDIC provides frequently asked questions on federal deposit insurance.

Bryan Hopkins, CPA, CFP and president of Hopkins Wealth Management in Anaheim Hills, California states, while the FDIC generally makes good on insured deposits quickly, it’s wise to have other liquid funds in an insured checking or savings account elsewhere. “It could take as long as 90 days to get your money, so it’s a good idea to have funds elsewhere to cover day-to-day expenses,” he says.

Though deposits are currently insured up to $250,000, it does make sense to pay attention to safety and soundness criteria, such as Bankrate’s Safe & Sound ratings. These ratings evaluate a bank based on an individual institution’s capital adequacy, asset quality, profitability and liquidity.

“Psychologically, a bank’s ratings are important and consumers should use them,” says Bryan Hopkins. “Most consumers, especially older ones, remember the Great Depression. While bank failures are handled very differently now than they were then, nobody wants it to be the case where things don’t go smoothly, and have their money be in limbo for months.”

CD rates for banks with lower Bankrate Safe & Sound Ratings may be higher than those with higher ratings because those banks may be trying to build up their deposit base by offering higher yields through brokers to consumers. In early December, one-year CD rates varied from 0.5 percent from a bank with a four-star Safe & Sound Rating, to 2.08 percent from a bank with a one-star Safe & Sound Rating. However, there were several banks with one, two, three, and four star safety and soundness ratings offering CD rates from 1.7 percent to 1.99 percent.

Lower-rated banks don’t always offer higher rates than banks with higher ratings, so it is always a good idea to “shop around”. Some higher-yielding CDs may come with higher minimum deposit requirements, and some banks may be seeking deposits with a particular maturity. These banks may offer better terms on some CDs than others.

In many cases, the difference between higher yielding CD rates and lower yielding rates isn’t much. For example, if you buy a $10,000, one-year CD with a 1.9 percent interest rate, compounded daily, you’ll earn $191.81 in interest. If you buy the same CD at a lower rate, 1.6 percent, you’ll earn $161.28—a $30.63 difference.

Many experts believe that we may be headed for another recession. Don’t enter a second recession with mountains of debt. I can help you to understand the options available to you for dealing with your debts. I am sure that I can be of assistance to you, to a family member, or to a friend as we all know people experiencing trouble these days even if we are not experiencing our own financial troubles. Please do not hesitate to make contact with me. I emphasize courteous and discrete consultations that fill your time with useful information. The impact to your life after an in-person consultation with me may be substantial, and life-long. You will enjoy a new peace of mind and a fresh hope for the future with a new roadmap for financial success that we develop together. You can contact my scheduler through our website for your free 30 minute consultation. If you wish, you may schedule your free 30 minute consultation by phone by calling us at 253-383-1001 Monday through Thursday from 9:00 AM until 5:45 PM, and on Friday from 9:00 AM until 12 noon.

Public sector layoffs slow down recovery – private hiring slows – Nat’l official unemployment set at 9.6%

Companies added just 64,000 jobs in September 2010, down from 93,000 jobs in August and 117,000 in July 2010. Overall, though, the picture was more bleak for September 2010. The economy overall lost 95,000 non-farm jobs because there was a decline of 159,000 government positions.

"We need to wake up to the fact that the end of the stimulus has really hit hard on local governments," said Andrew Stettner, deputy diredctor of the National Employment Law Project. "There is much more of a slide in the job market than what we really need to clearly turn around."

With the waning of the $787 billion Recovery Act passed in 2009 and credited with increasing employment by millions of jobs, finding new policies potent enough to speed up the recovery has proved difficult, reports Catherine Rampell of the NY Times on October 9, 2010.

"We’re looking for companies to get more confident in the pace of recoery and start to hire around 150,000 jobs a month, which is what we need just to keep the unemployment rate flat," said John Ryding, chief economist at RDQ Economics. "But I just don’t see that happening between now and the end of the year."

Catherine Rampell reports: "Flat hourly wages, now at an average of $22.67, also threaten what fragile confidence American families may have in their household budgets. [] Government jobs have been disappearing the last few months as the census winds down. [ ](September), 77,000 Census Bureau employees were let go. But local governmetns cut 76,000 positions as well. State governments shed 7,000 workers."

For the 14.8 million people out of work, the picture is not brightening. The average duration of unemployment continues to hover at record highs. In september, the typical unemployed worker had been searching for a job for 33.3 weeks, reports Ms. Rampell.

See Ms. Rampell’s article at: http://www.nytimes.com/2010/10/09/business/economy/09jobs.html?scp=1&sq=Public+jobs+drop+amid+slowdown+in+private+hiring&st=nyt

Obama “pocket veto’s” robo-signer foreclosure bill – Interstate Recognition of Notarizations Act of 2009

According to the Wall Street Journal on October 8, 2010, Damian Paletta reporting: "The vetoed bill, written by Rep. Robert Aderholt (R., Ala.), moved through Congress without attracting much attention and appears aimed at a much broader target than the foreclosure process. It would have required state and federal courts to accept documents of many different kinds that are notarized by people or computers in other states. The House passed the bill in April 2010 by "voice vote" and the Senate passed it unanimously Sept. 27. The bill caught the attention of Ohio Secretary of State Jennifer Brunner, a Democrat who has battled banks in her state over foreclosure procedures. She raised concerns with the White House earlier this week, she said in an interview, and sent an email to supporters asking for help getting the White House to block it."

"The morgage-servicing process is a regulatory gray area in which dozens of state and federal agencies play a small rule but over which no one agency has primary responsibility. The new Bureau of Consumer Financial Protection, created by the financial industry overhaul law in July 2010, would have powers to act in this area, but it doesn’t ahve its full authority until next summer of 2011."

"The bill raised difficult policy decisions for government officials. Some argued it ought to be easier for banks and others to process documents electronically to help reduce the backlog of foreclosrues and aid the housing market’s recovery."

Insurable on parents’ health care policies until age 26? – Patient Protection and Affordable Care Act – Check with your insurance agent!

Harvard Law Professor and consumer advocate Elizabeth Warren has estimated that some 40%+ of family bankruptcies have a nexus with medical losses.

If you have young adult children struggling to make their way in the world, there may be a break for you and them.

The new health laws may enable to you add children to your policies up until they reach 26 years of age. Do not assume that such children are now "automatically" added – there is likely some paperwork that you will need to complete in order to ensure that your older children are on the policy. The older children may be eligible to be added immediately, but there may be a premium increase, so research the situation and be prepared.

This would end the policy of many insurers of booting children off of the policy once they reach 23 years of age.

Again, check with your insurance agent – the coverage may not be self-executing nor automatic – you probably have to affirmatively move in writing to extend or re-establish coverage for such adult children who have previously aged-out of coverage, but remain under age 26.

For more information, see the September 23, 2010, NY Times article by Jacob S. Hacker and Carl DeTorres, Jacob S. Hacker is a professor of political science at Yale University. http://www.nytimes.com/interactive/2010/09/23/opinion/20100923_opart.html?scp=1&sq=The%20Health%20of%20Reform%20Jacob%20S.%20Hacker&st=cse

See Also Kevin Sack’s NY Times Article of the same September 23, 2010: http://www.nytimes.com/2010/09/23/health/policy/23careintro.html?_r=1&scp=1&sq=For%20Many%20Families,%20Health%20CAre%20Relief%20Begins%20Today&st=cse

See Also Kevin Sack’s further articles – covers three "real life" stories about (1) the chronically ill, (2) lifetime healthcare caps and (3) insuring adult children to age 26 on parents’ policies: http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/health_insurance_and_managed_care/health_care_reform/index.html?scp=2&sq=For%20Many%20Families,%20Health%20CAre%20Relief%20Begins%20Today&st=cse

Underemployment rate 18.1% – much more telling than “official unemployment” Washington statistic of 9.1%

Nearly one in five Washington workers are unemployed. Their plight is like that of Seattle administrative assistant Lorilee Lines, who applied for more than 200 jobs before landing a meagre 30 hour per week job. This statistic was provided by Sanjay Bhatt of the Seattle Times, November 18, 2009, for the 12 months ending September 2010, in a page one article.

The national unemployment stood at 9.6% and the U.S. Bureau of Labor Statistics placed the "underemployed" statistic at 16.8%, but this is regarded as a very restrictive interpretation of underemployed.

Underemployment rates capture part timers, but they still leave out those working in full time jobs for which they are overqualified.

Through approximately October 2010, Washington has seen a net gain of only about 6,000 jobs. Overall, about 10,200 jobs were added in the private sector, but these were offset by a loss of some 4,200 government and public sector jobs.

Contrary to national trends, jobs continue to contract in Washington. Washington had 8,500 fewer jobs in October 2010 than it had in October 2009 – a decline of 0.3%. By contrast, there was a 0.6% increase in jobs nationwide over the same period. As reported in the Seattle Times, November 18, 2010.

Economy slowing down again, and Federal Reserve Bank is running out of traditional stimulus options says UCSC Economics Professor Carl E. Walsh

The economy is slowing down again despite interest rates being lower than ever: What is the government going to do next? Here is the answer, by NY Times Reporter Sewell Chan:

“The challenges the Federal (Reserve Bank) faces aren’t going to get any easier in the coming months,” said Carl E. Walsh, a professor of economics at the University of California, Santa Cruz. “The choices ahead are only getting worse as the economy seems to be slowing down.” Professor Walsh was quoted in the New York Times Thursday, August 12, 2010 edition, Section B1

Sewell Chan’s August 12, 2010 NY Times article introduces us to a new term, “Quantative Easing”, and says that after lowering short term interest rates, about the only thing that the Federal Reserve can do is to pursue a policy of “Quantitative Easing”. According to Mr. Chan, Quantitative Easing is a controversial and uncertain central bank tactic. There is little modern historical precedent by which Quantitative Easing can be studied and analyzed by economists to predict results.

Mr. Chan explains that because short term interest rates are already close to zero, that now the Federal Reserve Bank’s last and final option is more “Quantative Easing”. Will it work?

What is “Quantative Easing”? Simply put, it is the printing of additional money to purchase financial assets in the market place, by using government money to buy instruments held by investors. The instruments purchased by the Government Treasury in “Quantitative Easing” are things such as (a) mortgage backed securities (b) buying/cashing out debts owed by the government such as Fannie Mae and Freddie Mac obligations/bonds and (c) buying Treasury Securities like government bonds.

How does “Quantative Easing” seek to help the economy? My understanding is that Quantitative Easing intentionally creates some inflation as it increases the money supply, and thus with more money rolling around, there is an incentive to invest it by lending it to others. People and investors who now have this freshly borrowed cash then go on spending sprees, and it is these sprees which are supposed to stimulate economic growth by more lending to people who buy things with the newly borrowed proceeds.

In short, more people buying things with borrowed money increases demand for goods and services and such. Increased demand keeps prices for goods and services higher, which is supposed to offset the deflation of prices of goods and services that is occurring in this recession. (See following blog post describing why deflation is “bad”)

Shortly put, deflation is supposed to be “bad” during a recovery from economic recession because deflation will result in a further economic slowdown as people conserve their cash and do not spend it in order to wait for lower prices on everything from TVs to cars to houses to ocean cruises.

This would be a “Second Wave” of “Quantitative Easing” as the Federal Reserve Bank already took a first “Quantitative Easing” step between January 2009 and March 2010 by printing money in the amount of $1.725 trillion (that is 1,000,000,000,000!) dollars to purchase $1.25 trillion in mortgage-backed securities (essentially buying mortgages from private investors), $175 billion in debts owed by government-controlled entities like Fannie Mae (more mortgages) and $300 billion in Treasury securities.

Here are the pros and cons:

Pros of “Quantitative Easing” to buy mortgages and investment instruments held by private investors when lowering interest rates doesn’t seem to be getting the job done to stimulate the economy: Sewell Chan of the NY Times writes that the Federal Reserve Bank’s Chairman Ben Bernanke is an astute student of the Great Depression and that Mr. Bernanke has long argued that the central bank (The Federal Reserve Bank) has the additional tool of Quantitative Easing which should be somewhat readily used to avoid deflation in prices, as deflation will slow, stop or reverse a recovery as people look at cash as an investment in and of itself instead of spending the cash. For example, if you know that the $500 TV set will reduce to $475 in six months (a mere 5.0% deflation in price) then you are more inclined to wait six months to purchase. If you know that your $300,000 home you are looking at buying will decrease 5.0% in one year to $285,000 then you will keep in renting one additional year and will not buy the home, thus stagnating the housing market.

Cons of “Quantitative Easing” More conservative voices (according to the NY Times Swell Chan) propose that the Federal Reserve Bank should not go out into the marketplace to buy mortgages, and that the most aggressive steps taken should be to lower short term interest rates (please note that short term interest rates are almost zero!)

Problem #1: Those economists wary of “Quantitative Easing” say that in a “perfect storm” of circumstances, Quantitative Easing can lead to 1970s style “stagflation” as the government floods the economy with too much available money when it buys out the debt obligations of (a) mortgage backed securities (b) debts owed by government entities to investors such as Fannie Mae bonds and (c) Treasury securities, in an atmosphere when the economy is operating at a reduced level, because there is a surplus or bumper crop of money floating around, but not so much to buy.

Problem #2: According to economists skeptical of “Quantitative Easing” say that further purchases of mortgages, government debts and treasury bills by the Federal Reserve will undermine faith in the US dollar as an accepted stable world currency and the safety of the US Treasury bill as keeping ahead of inflation because it fosters “perceptions of monetizing indebtedness,” according to Mr. Chan’s analysis of economist Kevin M. Warsh, in that it looks like it is the printing of money to pay off the public debt. “On a very simple level [with Quantitative Easing], the Federal Reserve Bank is printing money so the Treasury can spend more than it’s collecting in tax revenues…these are highly unusual circumstances, so no one is too worried about it [right now]. But it is always a temptation to use the central bank to finance government expenditures.”

Mr. Chan writes that economist Kevin M. Warsh notes that the Federal Reserve already has purchased 2.3 trillion worth of debt which includes vast sums of Treasury Bills, perhaps too much. The Treasury Bills are essentially a large share of the national debt. (Note that the Chinese probably now hold the remaining balance. That is a none too funny note for another day). Mr. Warsh notes that the Federal Reserve Bank’s institutional credibility is at stake, if it threatens the currency’s stability to pursue domestic growth.

Problem #3: Economists wary of Quantitative Easing relate that economists “don’t have a lot of good historical episodes in modern economies to know exactly what the effects of quantitative easing are.” Mr. Chan quotes Professor Walsh.

Zillow.com chief economist and Yale Professor of Economics both say: “HOMES ARE NO LONGER GOOD NEST EGG INVESTMENTS” in Tacoma, Renton, Olympia, Bremerton and Chehalis.

“People [wrongly] think it’s a law of nature [that housing prices always go up so as to always beat inflation]” says Yale University economics professor Robert J. Shiller and economist Karl E. Case. Interviewed by the New York Times, Yale economist Mr. Shiller relates that there has been an overall “bubble” since the end of World War II that is unlikely to be repeated, but that even during that historically unprecedented 60 year post WWII boom, that housing values outpaced inflation by only 1.1% per year. Quite to the contrary of the 1947-2005 point of view, during the 1900-1946 time period people saw houses quite differently. They saw them like they were cars. Houses 1900-1946 were seen as a consumer durable that the buyer eventually used up says Yale economist Shiller.

According to Yale University economist Shiller, the first notion of housing as an investment first began to blossom after WWII, when the nesting urges of returning soldiers created a construction boom. Demand was then further stoked as the “baby boom” of post WWII babies grew up and bought places of their own in the 1970s.

Adding fuel to the post WWII housing boom, (1) the inflation of the 1970s (which increased the value of hard assets) and (2) liberal tax policies (like deductible mortgage interest and property taxes AND lack of significant capital gains on housing appreciation) both helped make housing a good bet to at least slightly beat inflation.

Nevertheless, Yale’s economist Shiller says that despite all of these accelerating economic “tailwinds” prices rose moderately for much of the period, providing a mere 1.1% annual increase in value after inflation. However, during the extraordinary housing bubble that began in the late 1990s, housing prices were beating inflation by an average of 4.0% per year.

Zillow.com chief economist Stan Humphries echos Mr. Shiller, saying housing prices will be lucky to beat inflation, as quoted in the New York Times on August 23, 2010: “There is no iron law that real estate must appreciate…all those theories advanced during the boom about why housing is special – that more people are choosing to spend more on housing, that more people are moving to the coasts, that we are running out of usable land – didn’t hold up.”

I urge all of my customers in Tacoma, Renton, Olympia, Bremerton, Chehalis, and throughout Washington state to please read David Streitfeld’s front page article in the Monday, August 23, 2010 New York Times , which provided the content for this blog post.