The Boardcast

The “It Could Be Worse” Department

My grandmother was a young adult with a family when the depression began in 1929. Her husband went from job to job and finally settled into a position helping his father-in-law run a fish market about 25 miles from New York City. It was during this time that my grandmother began using an expression which became one of her mantras. Pop’s (my grandfather) employer would reduce his work hours and she’d say, “It could be worse”. Car tires were unavailable causing the family to have to sell their primary means of transportation and she’d shake her head and observe, “It could be worse.” This became her strategy to overcome adversity and put her life and what was happening around her in perspective. Some might think that this life view disregarded the acute difficulties of others and showed a lack of empathy. Far from it. My grandmother used this saying throughout her life as an expression of gratitude and a signal to her family that they were not the only ones suffering deprivation and hard times. “It could be worse” was also used as a reminder that helping others was a responsibility that she embraced.

 

The economic crisis we have been experiencing has brought my grandmother's expression to mind. Here are some news items from throughout the world that remind me “It could be worse”:

Independent.ie quoting a study done by a European Union Commission predicts that Ireland is headed for an unemployment rate of about 16%.

The NASDAQ site reports that 13 out of the 16 countries having the highest GDP to debt ratios are in Europe.  

The largest parking lot on earth can be found off the coast of Singapore. The graphic above was taken from vesseltracker.com’s Google Earth file. It represents all the cargo ships idling off the coast of Singapore. According to International Economy magazine, 

“The world's busiest port for container traffic, Singapore, saw its year-over-year volume drop by 19.6 percent in January 2009, followed by a 19.8 percent drop in February. As of mid-March 2009, 11.3 percent of the world's shipping capacity, sat idle, a record.”

Money Mystification Part Three (Adam Smith Meets Common Craft)

One of the discoveries I've made on the internet are courses and other educational sites sponsored by colleges and universities throughout the world. It seems like most prestigious schools now have online courses open to the general public that cover almost any topic of interest. A series that has caught my attention is a blog Econlog and the corresponding podcast EconTalk which focus on economics. The blog and podcast are sponsored by the Liberty Fund, Inc., which is dedicated to funding the study of economics. Interviews and articles feature prominent economists and historians throughout the country. A new feature on both the blog and the podcast is an Econtalk Book Club. The book club provides listeners with an opportunity to join Robert Russell and Dan Klein, professors at George Mason University, in reading one of Adam Smith's most famous works "The Theory of Moral Sentiments". Adam Smith was an 18th century philosopher and the first economist. His work provides the basis for most of our current theories of economics. Econtalks guided reading has made it possible for me to begin to understand Smith's work. Podcasts can be saved and repeated. Listening to Adams Smith's complex ideas, with the opportunity to repeat the listening, has helped to expand my knowledge and understanding of economics.

The first two parts of Money Mystification covered how gathering facts from our own lives and from books, articles and web sites can help us formulate our approach to money management. Gathering facts isn't enough, though, we need time to reflect and synthesize this information so that it can be used in our own circumstances. Most of us do not easily find reflection time in our busy schedules. Work and family demands give us little time to weave facts into understanding and understanding into practical application. Using current tools to help simplify the complexities of fiscal concepts developed by others can ultimately help us to avoid the pitfalls which have become so common today. 

Here's a short video from a company called Common Craft which has synthesized complicated ideas into an entertaining format. These short videos are available both on their site and on You Tube. Here is the one that they designed to explain Saving Money .     

The Boardcast Is Back

There are times when life's activities and concerns get the best of you. That has been the case for me during the last month. The Boardcast has had to take a back seat to my full time job and other daily responsibilities. I value my time as a credit union blogger and apologize for this hiatus. I'll do my best not to return to a more regular posting schedule.

 

Money Mystification Part Two

(Money Mystification Part One)

Part One of Money Mystification suggested that unraveling saving and spending decisions may begin with a personal fiscal assessment. I made some suggestions as to what this self-examination might involve and how it could be the basis of our own financial decision-making process. Personal reflection may be the start but most of us need to look outside of ourselves for resources which can help. 

Learning From Others

The internet provides many excellent resources for those formulating their own approach to financial management. Most of these sites are easily accessible and well trusted. The sources can range in depth from explanations of our current financial crisis to basic tools like budget and spending templates. I have my own favorites that I follow and return to on a regular basis.

One site I recommend provides information and analysis of the efforts being made to prevent further erosion of the US economy. Simon Johnson, a former economist for the International Monetary Fund and fellow bloggers Peter Boone and James Kwak use an online forum called Baseline Scenario to provide information and their own insights into key issues affecting national and global financial concerns. A featured series they have created called Financial Crisis for Beginners provides readers with an excellent overview of the challenges we face today. They update this explanation periodically and it is both readable and comprehensive. The concepts described in The Baseline Scenario are complicated but Johnson and his fellow bloggers make every effort to give clear explanations that don’t sacrifice the depth required to explain these complex events and issues.

Other media sources have tapped into Johnson’s expertise. I have read articles he has written for The Atlantic Monthly and heard interviews with him on NPR. One show that has featured Simon Johnson is NPR’s Planet Money which can be heard on the radio as well as downloaded as a podcast. Planet Money is broadcast from 3 - 5 times per week. It features current economic news in an entertaining format including interviews and explanations from a wide variety of experts. Virtually every point of view is represented. In a recent interview, Adam Davidson, one of Planet Money’s journalists spoke with Timothy Geithner on the stress test being  applied to financial institutions. Each of these resources includes links to other sites and sources so that readers (and listeners) can examine topics in depth or get diverse opinions. It is helpful for anyone who is developing their own financial plan to have an understanding of today’s economic climate. These resources give this overview in a balanced and clear way.

Much of the material discussed so far is designed to expand both knowledge and understanding. It also helps to provide the basis for decisions we make in our financial lives. There are many online resources which are more practical in their focus. Each website provides a menu of resources which can give specific help in areas that have a particular focal point. Mymoney.gov is a a site sponsored by the Financial Literacy and Education Commission. This group has representation from 20 US government regulators, interest groups and departments. The site provides a coordinated effort to address areas of financial literacy which will help individuals and families with household and fiscal management. Consumer.gov has a topical focus. A variety of assistance is offered from tips on digital conversion to help with career and educational decisions. Financial Regulators like the Federal Deposit Insurance Corporation and the National Credit Union Association have consumer sections which are designed to give specialized advice and resources for consumers who may have questions about institutional and individual fiscal safety and soundness.

These resources are a few of the many available online. Financial information on the internet abounds but additional sources can be found in classic and recently published books. Paul Krugman, a Nobel Laureate and columnist for the New York Times, provides his analysis of the history and cause of our current economic crisis in “The Return of Depression Economics and the Crisis of 2008”. “The Subprime Solution” by economist Robert Shiller details the creation and unwinding of the housing bubble as it developed over the last 10 years.

Developing our knowledge and understanding of the economy provides the basis for managing our own financial resources. In the third post of this series, Money Mystification, I’ll examine the importance of using this information to formulate our own personal approach to money management.
  

(Look for the third post in this series next week.)

Money Mystification (Part One of Three Blog Posts)

The Message

“For our $14 trillion economy to recover and thrive, hoarders must open their wallets and become consumers...”

Daniel Gross, Newsweek, March 18, 2009

“Stop the insanity!

The problem with the American economy is simply that We the People have been living high on the hog and are paying for it with borrowed dollars.”

Guy Petroziello, PhillyBurbs.com, March 15, 2009

“Andy McQueen, Nationwide’s savings director, advises people to try and save, particularly as job security in the recession is not as great as most would hope for.”

Richard Kilner, Banking Times, March 10, 2009

"What you're now seeing is ... profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."

President Barack Obama, Oval Office, March 3, 2009

These quotes represent just four perspectives being discussed by political and financial leaders in response to the crisis we are now experiencing. No wonder many of us are mystified by the choices we must make in the current economic environment. Managing money has become both more challenging and more complex in today’s world. We have learned, the hard way, that unquestioning trust in those who claim to be fiscal wizards is both foolhardy and dangerous to our financial health. The temptation may be to conclude that no one can be trusted or we are helpless when faced with the vagaries of the global economy. I would suggest that what is required is our own personal fiscal reorientation that involves assessing, reading, communicating, thinking, planning and acting. This process is more circular than linear. It’s more like recycling than it is an assembly line. I’ll use this post and the next two to outline a way to assume the responsibility for our own financial health. This is also an open invitation for readers to add their own insights into this process.

The First Step

Any learning process requires that we take time to examine what we know. This is usually a very personal process and our conclusions will be unique. Examining and evaluating our own economic status is no exception.  The key elements in this process are time, discipline and honesty. It’s hard work and we can often find distractions that will undermine our good intentions.  A budget will provide us with a concrete picture of how much money we take in and what is spent. Income and expenses may vary from month to month. We are interested in what is our average (or fixed) income and our fixed expenses. A simple budget can help us make decisions about spending, borrowing, saving and investing. Budget development will provide the ground work for any financial decisions we need to make. The budget provides us with how we look to ourselves, financially. We also need to know how we look to others. A yearly credit report provides us with information on how we look to our creditors. Since it is possible for credit bureaus to make mistakes, these reports also provide us with an opportunity to correct the record which may save us time and money in the future. It is also helpful to do an inventory of our assets. We need to know what can be translated into cash and what is not as readily accessible. An overview of our savings, investments, valuables and fixed assets would provide a start. Finally, what I would call a “State of Life” examination would be helpful. This would include speculating on what we can expect to owe, spend and save in one year, 5 years and ten years. You may have other ideas to complete your personal financial assessment. Please feel free to use blog comments for additions to this list. 

As part of the UFirst Strategic Plan we have made member financial education a priority. The process outlined above is not easy. If you need help or guidance with this process please speak with a UFirst Account Representative who will assist you in getting help. In addition, watch for upcoming educational programs which UFirst plans to sponsor and will be designed to facilitate this parts of this process.

(Look for the second post in this series later this week.)

The Credit Crisis Visualized

We've been immersed in news about the credit crisis for almost two years. Concepts at the heart of the crisis have been discussed and explained in articles and blogs but they remain difficult to understand. Jonathan Jarvis has written, designed, animated and produced a video summarizing and explaining the factors that have combined to cause the financial crisis we are in now. Jonathan is a graduate student at the Art Center College of Design in Pasadena, CA. He developed this video, The Crisis Credit Visualized, as part of his masters thesis and has very generously put it on You Tube for our viewing pleasure. 

A Modern Drama - The Fall of AIG

Those of you who have the Washington Post RSS Feed on your favorite reader have probably seen the three part series on the rise and fall of American International Group written by Robert O'Harrow Jr. and Brady Dennis (with contributions by the now famous Bob Woodward). This piece of investigative journalism traces the fall of AIG from it's days of AAA ratings to it's collapse and takeover.  The article reads like a Dickens novel with a head-spinning cast of characters and circumstances. The article introduces readers to the people who created, fostered and warned against the investment instruments which are at the heart of our current financial crisis. Some of the people who played a prominent part in the story are well known and need no introduction. Some are hidden personalities whose names are not household words and who have disappeared as stealthily as they surfaced. As I read the articles I noticed that the authors included a chart describing the important characters in the first article. The stories of many other people are intertwined with the fall of this powerful company and so I decided to create a timeline using a wonderful program called Bee Docs Timeline. This allowed me to give Boardcast readers a character chart similar to those found for novels like Our Mutual Friend by Charles Dickens. In order to keep people, places and descriptions straight I'd recommend that each article be read separately.  Below the article links you will find the cast of character chart for each of the three parts (click on the picture of the chart to enlarge it):

Part One - The Beautiful Machine

Part Two - A Crack In The System

Part Three - Downgrades and Downfalls

2009 - The Year of Saving?

The Wall Street Journal blog, Real Time Economics, recently featured a post entitled, "Will 2009 Be Year of Saving?". The article gave a preview on the economic outlook for 2009 as it relates to the earning, spending and saving outlook for consumers. It observes that unemployment threats, wage and benefits decreases do not bode well for workers. The Obama stimulus package is targeting this reality by planning infusions which are designed to create jobs. It is clear from holiday spending reports that consumers have cut down on spending. This is a threat to the national economy but has had the side effect of reducing the cost of goods. In addition, a big relief to individual families has been the reduction of gasoline and fuel prices. The post observes that: 

"Gasoline prices are down about $2 per gallon since the peak in July. Joseph LaVorgna of Deutsche Bank estimates that every $1 drop in gasoline adds about $100 billion to household cash flow — meaning households have an extra $200 billion to spend on items besides gasoline. That amount is bigger than the rebate checks sent out earlier in 2008."

Fuel prices have also decreased adding more expendable income to the pockets of families. The blog observes that in spite of the tight economy American families have not lost their ability to look forward. They have internalized the message urging them to save for reirement.

"A survey by the Investment Company Institute in October showed that despite market volatility, investors remain committed to saving for retirement. Only 3% of participants have stopped making contributions this year."

The UFirst Board of Directors took action at our December 16th board meeting to make it even easier and more advantageous for our members to save for retirement. The Board was unanimous in our support of a new Payroll Certificate program. This UFirst product is a 12-month CD that can be opened with a minimum deposit of $20. Member participants deposit at least $20 each pay period through direct deposit or payroll deduction. The interest rate on this CD is higher than our regular savings account but lower than our normal 12-month CD.

Dividends are earned beginning with the initial $20. The CD can be rolled into another savings or CD account at the credit union at the end of the year. We feel that this is a great way to offer our membership the opportunity to save for the future. We believe by allowing the smaller deposits into this certificate will contribute to the savings goals of members.

The Payroll Certificate Program will be launched on January 1, 2009 with a full explanation and disclosure.

Who Is Timothy Geithner?

Yesterday a source inside President-elect Obama's transition team reported to news agencies that Timohty Geithner was Mr. Obama's number one pick for Treasury Secretary. They indicated that this appointment could take place as early as Monday. Although Mr. Geithner, who is the president and chief executive of the Federal Reserve Bank of NY, has been mentioned as a candidate for Treasury Secretary, he is not as well known as some of the other names mentioned in connection with this position, like Larry Summers and Paul Volcker. I was curious about this 47 year old native of New York and decided to do my own research on him. 

Unlike Henry Paulson who is considered a Wall Street expert and Ben Bernanke who is professorial and is an economist, Mr. Geithner according to The American Prospect is... 

"...not a high roller from a big bank or investment house but a public-minded civil servant. He has neither a doctorate in economics nor an M.B.A. After receiving a master's degree in international economics from Johns Hopkins University, he worked as a research assistant to Henry Kissinger and then joined the Treasury, where he was posted as an assistant attaché in Japan. He came to the attention of both Larry Summers and Robert Rubin and quickly moved up the ladder. He was a key player in the containment of the Asian financial crisis of 1997-1998 and later went to the International Monetary Fund as a top official. Despite being a Democrat, he was named president of the New York Fed after two stronger and more conservative candidates withdrew."

Mr. Geithner is not an investment bank insider nor an economist but his position in the Federal Reserve Bank of NY has put him at the center, with Paulson and Bernanke, in reacting and making decisions in the face of the economic crisis. According to an article written in the NY Times recently, he was the person who "brokered the deal enabling JPMorgan Chase to acquire Bear Stearns, with the crucial help of a $29 billion loan from the Fed." He also called together the heads of the major financial institutions for emergency meetings in September when it was clear that Lehman Brothers was facing bankruptcy. Controversially, he joined other regulators in reversing the decision to allow American International Group (AIG) to follow Lehman's path by extending an $85 billion bailout so they would not fold. According to news reports Mr. Geithner was also a primary player in "...refereeing the dispute between Citigroup and Wells Fargo over the teetering bank Wachovia, a contest in which Wells prevailed."

Mr. Geithner came to the attention of Larry Summers, Treasury Secretary during President Clinton's administration, when he, "...played a crucial role in calming several global financial crises..., including the turmoil in emerging markets in the 1990s that led to the meltdown of Long-Term Capital Management." 

An unknown aspect for credit unions is what effect his appointment will have on the development of new regulations and a change, if any, in regulatory framework. Last June Geithner wrote an article for the Financial Times entitled, "Reducing Risk in Financial Institutions". This article outlined steps that Geithner thinks should be taken to strengthen the financial system in the future. Much of what he proposes involves mitigating risk and requiring financial institutions to have appropriate liquidity to withstand major defaults. In addition he says that, 

"...we need to streamline and simplify the US regulatory framework. Our system has evolved into a confusing mix of diffused accountability, regulatory competition and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion."

Is he proposing a change in the regulatory system that oversees credit unions? This remains to be seen.
 

Understanding Economic Complexities - Blogs That Can Help

Blogs can be a source of information and education on many topics of current interest. It is amazing the number of experts who are willing to dispense their knowledge online by blogging on a regular basis. I have found two blogs to be particularly helpful in navigating the complexities of the twists & turns as well as the ups & downs our economy has been taking daily since September. These blogs are designed to provide the most current information on a crisis which is being compared to the Depression.

I am a big fan of podcasts on iTunes. Much of the programing on National Public Radio can be downloaded through iTunes and listened to at a convenient time. Recently, NPR began a program called Planet Money which is both a blog and a podcast and is designed to unravel the mystery of the global economy. Contributors include Adam Davidson, David Kestenbaum, Alex Blumberg and Laura Conaway who travel all over the world to report on stories which highlight and explain the intricacies of the economic news affecting our lives each day. Planet Money bloggers post mulitple times each day. Posts include multi-media resources which provide information from a variety of expert resources. Comments are encouraged and give wide and eclectic views of readers throughout the world. 

Planet Money includes numerous links to additional resources drawing from the best of the web. The Baseline Scenario is a blog which is cited often on NPR reports. This blog was cofounded in September, 2008 by Simon Johnson, former chief economist for the International Monetary Fund and professor at MIT, and by James Kwak who is a student at Yale Law School. They are joined by Peter Boone, Associate at the Centre for Economic Performance, London School of Economics. According to the authors the blog is designed,

"...to present a considered view of the key issues facing the global economy that is rapidly updated as new information and events arise. To that end, we publish an extended Baseline Scenario position on a weekly basis. During the week, we use the blog to develop positions, comment on events, and highlight other perspectives that we find worthwhile."

One of the most helpful sections on The Baseline Scenario is the Financial Crisis for Beginners, a primer for people who want to understand the concepts and terms related to the stresses on our economy.  The authors of this blog cover all aspects of this crisis in a thorough, thoughtful manner.