» Posted by Martin Weil on December 01, 2009

It's that time of year when I like to reprint this basic message - gift cards are generally a consumer rip-off. Let's count the ways:
1. Many cards impose fees - sales fees, service fees, monthly fees. This is money that is gifted to the company, not your recipient
2. Some cards expire- all the money goes to the company
3. Lose your card? Likely that money is in someone else's pocket
4. Some companies go bankrupt - good luck with that
5. An enormous percentage (25-35%) of gift cards are never used at all. Again all your gift goes to the company.

If you want to support the economy, go out and shop. If you want to give money, try cash. If you have to give a gift card after all this, think one more time. After that, if you still have to go this route, make sure it is one with no fees or expiration date and that your recipient will have a use for it. If it doesn't say "no fees" right out front, walk away. Amazon, iTunes and Starbucks (no endorsement implied) are among the major retailers who offer no-fee, no-expiration cards.

» Posted by Martin Weil on October 18, 2009

When I went to business school (way back when), one of my classmates was an actuary whose main complaint was that public policy, by encouraging a move from guaranteed pensions to IRAs and 401ks, had transferred too much risk to individuals and that many would end up losing. Now come Time magazine and Doug Short on the same bandwagon.

Says Short, "Unfortunately, a substantial portion of the population isn't dealing effectively with this transfer. ... I see the IRA, 401(k) and the like as a social experiment of staggering proportions. A few decades from now history will tell us whether these plans generally succeeded or failed. Unfortunately, failure will not be limited to the households living in poverty. It will impact the entire economy. Thus, regardless of our personal values, beliefs and politics, the risk is indeed a shared risk."

» Posted by Martin Weil on October 17, 2009

So says Mick Watson, chair of Brandeis University's Department of Psychology, in this Planet Money Podcast. According to Watson, children were once (and in many places, still are) considered economic contributors to the financial security of the family. With the rise of industrialization in the west, child labor became superfluous. Thus, economically speaking says Watson, "we no longer need children. They have become luxury items."

Median total cost of raising a child on the west or east coast, last I checked, was north of $250,000, not including a private university education that can easily add another $150,000. Seems like at least a mass luxury item to me.

» Posted by Martin Weil on September 22, 2009

Apparently folks at HSBC are worried that some of their clients might.

A businessman... arrived at a branch of HSBC in Manchester to be met by what he was told was a new risk management strategy. This involved the bank staff being required to take personal alarms into meeting rooms. The man asking why this was necessary was told: "I guess there will be some difficult conversations with clients happening at the moment."

From The Daily Mail

» Posted by Martin Weil on August 05, 2009

Turmoil in the housing market has led to fears that home prices will drop precipitously, particularly if foreclosures force large numbers of homes onto the market in the coming year. Recently, these fears have driven financial stocks down and led to the government rescue of Fannie Mae and Freddie Mac. But the projected losses have been wildly exaggerated. Most Americans have not experienced any significant decline in the value of their homes - nor are they likely to . . .

But fears of a huge loss in home values for most homeowners ... and fears of the devastating losses by financial institutions that would accompany them, are greatly overblown.

Three economists writing in the Washington Post, Aug 2008.

» Posted by Martin Weil on June 18, 2009

Morningstar has a great summary of questions anyone should be able to answer in the event of a death or disability of a spouse. Tops on the list: "Whom to contact?" 'Where is everything?" and "Which assets to tap first?" If you or your spouse do not know the answers, now would not be too soon to get up to speed.

» Posted by Martin Weil on May 19, 2009

In September 2007, I made my first loan through Kiva, a nonprofit that matches micro-lenders in the developed world with entrepreneurial borrowers in the developing. I remember being slightly nervous and disoriented when I clicked on the $100 I was lending Dr. Sykes Ally, a pharmacist in Tanzania. Dr. Ally repaid on time. And I have been making loans ever since.

Since 2007, I have made 17 loans of different sizes through Kiva, 11 of which have been fully repaid, 5 of which are in repayment, and 1 which defaulted. The defaulter did manage to repay 40% of the original principal.

Kiva says that my portfolio default rate is 3.74%, more than the average user's 1.76% (so much for my acumen as a micro-banker). However, I am fairly certain I am still ahead of Countrywide's mortgage default rate by a comfortable margin. My personal portfolio and lender page is at Kiva here. I recommend the experience and Kiva highly.

» Posted by Martin Weil on November 06, 2008

Birds flock, wolves pack, and people buy generic.

From a good overview of what happens to spending, and why, in an economic slowdown in Free Exchange, The Economist's economics blog

» Posted by Martin Weil on November 01, 2008

The market can stay irrational longer than you can stay solvent

John Maynard Keynes

» Posted by Martin Weil on October 23, 2008

From CNBC, two S&P officials discuss mortgage backed security ratings:

Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right...model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it.

A former executive of Moody's says conflicts of interest got in the way of rating agencies properly valuing mortgage backed securities. Former Managing Director Jerome Fons, who worked at Moody's until August of 2007, says Moody's was focused on "maxmizing revenues," leading it to make the firm more "issuer friendly."