Universities Sell Out Their Students to Credit Card Companies

A recent study reported by CNN states that the average credit card balance of those students polled was $18,800.00. This is a staggering amount of debt for students just trying to start out.

How does this happen? Well just look to the universities who support these credit card companies and you will get the number.

Consider these annual revenues that colleges make off of arrangements with credit card companies:

University of Tennessee - $ 10 million a year with Chase
Ohio State – estimated $ 20 million a year through credit card arrangements

In turn for these big profits, “universities are pursuing these sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit,” says Robert Manning, Director of the Center for Consumer Financial Services at the Rochester Institute of Technology.

Credit card companies want to sign up people. They in turn want to charge big fees for doing so. They want the college students to rack up big amounts of debt. In most cases, they give the student way more credit limit then the student can financially support. These cards come with huge fees and high interest rates. So, they came up with this ingenious idea.

Let’s pay college campuses millions of dollars to allow us to use the university name on the credit card and maybe a picture of the administration building or mascot. This gives the student the feeling that they are doing this through the school and that the school would take care of them. In order for the credit card companies to pay these huge kickbacks to the colleges, they charge enormous fees to the student. It is a typical credit card trap.

The universities who need the revenue stream put their students at risk by allowing the vultures onto the college campuses to look for prey.

The universities and credit card companies say that they are providing a win/win for the college student. It is more like a conflict of interest by universities and college alumni associations who often negotiate these deals selling their souls.

LifeLock Aggressively Advertising – Know the Truth Behind the Product

LifeLock is at it again with his aggressive advertising on cable television. In the middle of what looks like downtown New York or one of the major metropolitan cities, CEO Todd Davis stands in front of a van with his social security number plastered on it and screams it out over a microphone.

He is free to give out his social security number because he is not concerned about identity theft. His service guarantees that his identity will never be stolen. Now he wants you to sign up with his service so that you will get the same advantage. He even gives you a million dollar guarantee.

What is the catch? Quite simply he is taking advantage of a law that was put into effect by Congress that allows any consumer to place a fraud alert on their credit report. A fraud alert is a 90 day lock put on a credit file that will prevent any attempts by an unauthorized individual to steal a person’s credit.

If a fraud alert is on a credit file, authorization has to be obtained by the consumer for access. Thus, an identity thief cannot get credit when a fraud alert is in effect.

Every 90 days, LifeLock will renew that fraud alert on your behalf.

So, what is my issue with this service? First, this is something that you can do for yourself every 90 days. Why pay someone monthly for 4 calls a year that you can make yourself? That is my issue from a practical standpoint.

From an ethical standpoint, there is a much bigger issue. The law clearly states that a fraud alert is to be issued only if the consumer SUSPECTS he or she has been a victim of an identity theft. Funny, that is not in the advertisement anywhere. Todd David is randomly issuing fraud alerts for consumers who do not suspect that they are identity theft victims.

Here is what the law says so to back up this claim:

"Upon the direct request of a consumer, or an individual acting on behalf of or as a personal representative of a consumer, who asserts in good faith (bold for emphasis) a suspicion that the consumer has been or is about to become a victim of fraud or related crime… "

Technically, a very broad interpretation of the law is that this applies because we are all "about to become a victim of fraud" at some time. We are always at risk. I don't think that was the intent of the law. If you lose your wallet, you are in a situation where you might become a victim. You are not in danger just because you get up in the morning and walk outside the house and get into your car.

Lifelock does include in their terms and conditions that you are signing up for this service under the assumption that you might become a victim of identity theft. Just like most offers in the credit industry, the details are not in the marketing program but buried in the fine print.

So, you need to know that basically you might be paying LifeLock to misrepresent you to the credit reporting agencies. This is no different then the other businesses in the credit industry that use smoke and mirror marketing to sell their product. Whether it is rent a credit score, consumer credit counseling, etc. they are all marketing the same way.

A Contract is a Contract!

What does it really mean when you sign on the dotted line? Whether it is a monthly membership to a health club or the signature on a mortgage, it means obligation. So what happens when you walk away from a contract?

There is a tendency to think “Oh, it is just a lease” or “This is just a gym membership” or even “I can just give this car back and the problem will go away.” Anytime you sign your name on the dotted line, you are obligated to pay a certain amount of money for a certain of time. Any attempts to get out of that will result in big problems. The bottom line is that the company that has your signature - your promise to pay.

Here are some things to consider:

1) Be realistic and know that you have to pay – there is no way out of a contract unless the company wants to give you a free pass.
2) Don’t make assumptions. Assumptions are our way of rationalizing away reality. Just because you voluntarily give a car back doesn’t mean that you are going to get out of it.
3) If you can legitimately get out of a contract, document it. Oral agreements don’t work. Get everything in writing.
4) Make sure that you have a good system in place where no mistakes can happen – those payments need to be made like clockwork.

It is so important to have a good system in place. One mistake or false assumption will potentially ruin your credit and send you to a debt collector.

Paying for Christmas in Advance

One of the biggest mistakes that I see people make with their money happens every December. I have to confess I have been one of those people in the past. Does this sound like you? Do you start preparing Christmas lists in December? Are you rushing around buying gifts without much of a budget in mind? Are you taking the time to closely watch your spending during a time when it is easy to overspend? Do you buy presents on credit, rationalizing you will pay for it later? Do you go into shock in January when you get that card statement?

If you answered yes to those questions, we need to talk.

Out of all of the months in the year, December has to be the toughest on the checking account. There are the gifts that you buy for loved ones. There are the unexpected gifts that you have to buy. There are gifts that you have to buy for people in the office or for friends. Then there is the money that is spent on Christmas parties. It all adds up in a big way.

I have found that most are very unprepared for Christmas. As a result, the credit card becomes the convenient solution to lack of preparation. If there is one month that needs some advanced planning, it is December.

So here are some tips to planning for Christmas:

1) Determine how many presents that you have to buy – family, extended family, friends, co-workers, kids’ teachers, etc.
2) Determine how much you are going to spend on each person.
3) Determine any extra expenses that you might incur – Christmas cards, postage, etc.
4) Realistically look at how you are going to pay for it and start saving.
5) Stay disciplined.

If you are not prepared, you create debt. It is that simple. Think about it for a moment. It is Christmas time. There is a lot emotion. We want to buy our loved ones gifts (especially kids). I also think we know deep down inside that we are going to spend more than we have – I call it fantasy budgeting. It is easy to just ignore the problem and use plastic.

This year do things differently. A little planning today and a lot of discipline over the next few months will go a long way.

Remembering 9/11

This week we remember the ones who died 6 years in that tragic and senseless terror attack on our country. It is easy to put this out of our minds, being thousands of miles away from where that tragedy took place. It is easy to feel unconnected and without emotion. We are just watching scenes on television. For most of us, we don’t even know anyone personally who lives with the pain of loss from 9/11.

However, 9/11 stands for so much. In the very least, it shows us that life is fragile and that we are not guaranteed tomorrow. It should show us the importance of family and friends and living in the moment. Most importantly, it should be a symbol of the importance of being right in your relationship with God and focusing on His will.

I hope that you will take the time to remember 9/11 and re-commit to what is truly important in your life.

The Danger of Trying to Play "Catch Up" with your Investments

Over the past 15 years I have had countless discussions on risk and investments and have found that the concept of time is misunderstood.

In those discussions about risk, I have had many tell me that they only have a small amount of time before retirement and they need to play “catch up.” So, what is the best way to make up for lost time? You just have to invest aggressively.

You always have the probability (although low) of selecting a high flying investment, making a big fat return, and getting caught back up quickly. Unfortunately, the higher probability is that you take on all of this risk and it ends up in big losses.

Prudent Rule 1 when it comes to investing – Aggressive investments can lose money as fast as they can make money. However, losses from aggressive investments are much tougher to make up. For example, if you lose 50% of your money it will take a 100% gain just to break even.

And history would show that you can easily lose at least 50% in an aggressive investment (see internet and technology stocks 2000 to 2002)

To illustrate this concept of loss versus gain, I went to http://www.morningstar.com/ and took a look at some of the mutual funds that they characterized as aggressive. A good example is a fund that Morningstar classifies as aggressive.

In 1999, this fund returned 291.15%. With that type of return, many investors probably invested in 2000 hoping for the same type of growth. Let’s say that you were behind in obtaining your retirement goals and decided to invest money into this fund right before that big year. You started off with $ 10,000. By the end of 1999, you turned that $ 10,000 into $ 39,115.00.

However as of June 30, 2007, that $ 10,000 would be worth $ 4,828.00.

Now that is an extreme example. However, it does illustrate how dangerous aggressive funds can be and trying to utilize them to get “caught up” for retirement.

Just keep in mind that all investments go through good and bad cycles or time periods. The problem with the aggressive type fund is that the bad cycles have a greater impact on your money than good cycles do on the positive side.

Mr. Irresponsibility

The problem that we are in today is a result (my opinion) of the adjustable rate mortgage (ARM). Alan Greenspan back in 2004 made the comment that people should look into adjustable rate mortgages because they would save money. He basically was encouraging people to take on risky loans.

He was trying to fuel the fire. Adjustable rate mortgages make it much easier for people to buy homes that they cannot afford. The economy definitely benefits from people buying more real estate due to the advantage of the ARM.

Now look at our problem. Today we learn that we had negative job growth in the economy for the past month. In Greenspan's latest quote he states today that our environment looks a lot like 1987 when the stock market crashed.

These comments are very irresponsible on his part.

Loan Sharking

Loan Shark - someone who lends money at excessive rates of interest; someone who take advantage of the misfortunes of others – see US credit card companies

There is not much of a difference between loan sharks and credit card companies. They both set up unreasonable terms accompanied by high interest rates. They both take advantage of personal misfortune. Loan sharks send out Guido to break your legs. The Credit Card industry uses foul mouth harassing debt collectors. Really, it is the same pain just two different types.

Well Credit Card Companies are looking to take advantage of a hurting segment of the population – sub-prime borrowers. Mintel International Group recently conducted a study and found the following:

Direct mail credit card offers to sub-prime customers in the United States jumped 41% during the first half of this year.

Direct mail offers targeted at customers with the best credit fell more than 13%.

So, it appears that the credit industry is aggressively pursuing people who are classified as having poor credit or sub-prime credit.

The study shows that the fees charged for late payments would exceed the interest rate charges. This fits the mold of the credit industry. They want people who are going to make mistakes so that they can charge higher penalty rates and charge high fees.

Their target market often just makes the minimum payments. Thus, the credit card companies make big money by accepting these minimum payments and charging high interest rates.

Offering credit to sub-prime borrowers is a risky, irresponsible action that prays on those who are in vulnerable situations. Who ever thought that there would be a day that the best customer for a credit card company would be one with the worst credit?

Incidentally, the study cited HSBC, Washington Mutual, and Capital One as some of the main companies practicing this irresponsible lending.

There are no good solutions to the Real Estate Crisis

Many of the solutions being offered by Washington and the financial media will do little to solve the real estate bust. Let's look at the root of the problem. The source of the problem is that consumers can no longer afford to make their payment. The low payment that they enjoyed for a period of time has changed to a much higher payment. As a result, many homeowners risk foreclosure because they are falling behind.

Most of these solutions involve helping homeowners stay in their homes by allowing them to qualify for a new fixed rate loan. Unfortunately, it doesn't solve the problem. If the homeowner couldn't make the higher payment on the adjustable rate mortgage, they will not be able to make the payment on the fixed loan. It is the payment that is the problem.

The mortgage industry wrote irresponsible loans to consumers who bought a house based on getting the lowest payment possible. As a result, we are all going to pay for this irresponsibility. This is not a problem that just goes away. This is debt plain and simple. Someone has to pay for it.

I have an idea. Why don't we use some of Greenspan's money that he is receiving for his books that he is writing and his enormous speaking fees he receives? After-all, he was the person on watch when this happened. He was also the one who encouraged people to take out adjustable rate mortgages.

The Political Smoke and Mirrors Solution to the Real Estate Crisis

I was very interested to hear what President Bush was going to say this morning concerning the mortgage crisis we are facing in America. I figured it would be more of a political answer than a real solution.

He actually identified the real problem being the adjustable rate mortgage. He also made a point of saying that it was not the government's job to bail out speculators. (read: we are not going to bail-out the homeowners who are in trouble)

The Government cannot just step in and bail out the mortgage crisis. It would be rewarding mortgage companies and banks for being irresponsible and greedy.

He made some references to a few changes that really would not help all of the homeowners who are facing this ominous situation in the future. He basically offered up the political smoke and mirrors solution.

He made a big speech acknowledging the problem. Then assured the America people that they were going to implement some changes that will help solve the problem. It is the political smoke and mirrors answer. In politics, you just have to look like you are solving the problem when really you are just crossing your fingers and hoping it will blow over. (read:Irag)

The mortgage crisis in America will have to work itself out over time. This is the bursting of a major debt bubble with the mortgage crisis being the final phase of the bubble. You don't just take 25 years of debt accumulation and expect that the problem is just going to go away. We will have to go through the "de-tox" process.

An Open Letter to Senator Dodd

Dear Senator Dodd,

I have been listening to your sound bites over the past year and have become quite confused. It appears that you are very concerned about everything that has happened to the homeowner. You have been quick to scream for reform and imply that the Federal Reserve Board should clean up this real estate and mortgage crisis. You seem to be positioning yourself as the Champion of the people during your run for a Presidential bid.

Last week there was a lot of hype over your meeting with Federal Reserve Board President Ben Bernanke and Treasury Secretary Paulson about the foreclosure problem. You held a press conference telling of your position and even suggesting that a hot line has been set-up for people who are in trouble. I will comment on that latter in the letter. First, I want to take a step back and talk about your role in the Senate.

You are currently serving as the Chairman of the Senate Banking Committee. Banks are in trouble. Banks have been at the heart of a great deal of this irresponsible lending. Maybe I am a little uninformed. Wouldn't the Senate Banking Committee have some oversight over the banking system? Are these problems a big surprise to you? Is it reasonable to think that there might be a future problem when lenders are lending money at 100% of the value of the home to people with horrible credit, lending money without verification of income, using teaser rates, and writing loans whose interest rates change over time? Well, maybe I am just taking advantage of the use of hindsight. However, it seemed years ago that this was a train wreck in the making.

It just seems like the Senate banking committee has some role in the supervision of the banking system. Thus, is it reasonable to suggest that a little responsibility could be taken by you and your committee for this mess since it was on your watch?

Now back to this solution. You talked about a number consumers could call. It is a program put together for those who are facing foreclosure. It was a number that had the word HOPE spelled out. After further investigation, I discovered that this number takes the consumer to a hot line for consumer credit counseling. Statistics, personal accounts, and even Congressional testimony conclude that these organizations just make the debt situation much worst.

Senator Dodd, how about some real solutions? How about you and the rest of your colleagues taking some responsibility for this mortgage mess. For those of you elected to the Senate, you are elected to protect the people from this type of thing. Yet, you allowed it to happen for a number of years.

Your ideas are at best band aid approaches. Your HOPE idea is nothing more than leading consumers to the lions den. It sure does sound good as you attempt to secure a bid as Democratic nominee for the President of the United States. Once again, how about some real leadership in Congress? That is the best thing that you can do for the American People who are struggling because Congress conveniently ignored the creation of potentially one of the biggest real estate busts on record.

Senator Dodd Turning Desperate Homeowners over to the “Sharks”

Congress is really scrambling. They just realized (or so they would like for you to believe) that we have a real problem in the housing markets. They are just now acting on the huge foreclosure problem that we are facing in America.

Of course, beyond bailing homeowners out, there is not much they can do to solve the problem. This problem could have been prevented had Congress acted years ago and set up proper regulations for the mortgage lending industry. However, that would not have been a good political solution . After all, those loose lending practices fueled economic growth. So the “party now and worry about the consequences later strategy” is now taking effect.

In a symbolic gesture, Senator Dodd held a press conference to discuss the foreclosure problem in America. He also suggested that the Federal Reserve Board should in a sense bail everyone out of this problem. He also announced that they have set up a program to help people out. He wants to make sure that no one goes through foreclosure. So, he announces a program for anyone that is going through this mess. Just call, 1-888-995-HOPE. This was a hotline for those facing foreclosure.

I called the number. To my disbelief, it was a number for an organization that feeds people into companies in the credit counseling business. Yes, the same industry that Congress investigated in 2004 and came to the conclusion that this industry needed reformed. (which little reform actually occurred following the announcement of their findings)

Senator Norm Coleman who headed up that investigation had this to say in his opening remarks:

“Over the past several years, however, the credit counseling industry has undergone significant changes. New and aggressive credit counseling agencies have changed the manner in which consumers are treated. These changes have resulted in consumer complaints about excessive fees, pressure tactics, non-existent counseling and education, promised results that never come about, ruined credit ratings, poor service, and in many cases being left in worse debt than before they initiated their debt management plan.”

“Make no mistake, these credit counseling agencies were designed to sell a product –the Debt Management Plan—not to deliver a service of education or counseling. “ He even referred to this industry as a bunch of "sharks."

Consumer Credit Counseling is just a part of an industry that markets HOPE and sells problems. I have a numerous examples of how in many cases these services not only make the problem worse but rip people off through the use of excessive fees.

So, this is the solution. The industry that Congress said needed reform and is ripping off consumers is now the answer to the country’s foreclosure problem. Although Senator Dodd has presented many bills to Congress and positioned himself as the Champion of the people when it comes to predatory lending, it appears that all of those presented bills as well as what he is currently doing is nothing more than political positioning and resume building. Talk is cheap until he can actually get something done in Congress. A true consumer champion would never have offered this as a solution.

This "solution" should be viewed as an insult to one’s intelligence. The list is a mile long of why these credit fix solutions are dangerous for consumers. These companies are of no value unless they can actually get the mortgage lender to re-structure the mortgage. It will take an act of Congress for that to happen. (literally and figuratively speaking)

Further Evidence of the Damage in the Credit Markets

Countrywide, your checks are no good! The Cuyahoga County in Cleveland Ohio said that they will no longer accept checks from Countrywide because they are concerned about their financial problems. "We're just trying to protect the assets of the county."

The biggest problem that we have regarding everything that is financial related is loss of confidence. This is how a bear market starts. I talked about this on my radio show yesterday. There is a big category 5 financial hurricane brewing. It might weaken and the damage to the economy and financial markets might be minimal. It might also hit the financial system hard (bear markets and recession)

You just need to know that it is brewing and risk is high.

There is a huge loss of confidence in the system. With the bursting of a debt bubble, you never know what news will come each day. Just be careful with your investments right now.

Ultra-Short Bond Funds in Trouble

This is what happens when debt bubbles burst. The problems start out with the low quality or riskiest debt first. Then it spreads to the higher quality debt.

Ultra-short bond funds also known as money market substitutes, are used by investors who want to attempt to make more interest than a money market or savings account. A little more risk is assumed through the use of these investments. However, they are generally considered to be pretty conservative.

Over the last four weeks, this has been the worst place to be. Apparently, many of these funds are have as part of their portfolios investments in sub-prime debt. How could that have happened? They placed client's money into investments that were rated high quality. How sub-prime debt could ever be rated high quality is beyond me.

One fund in particular is -6.26% over the last 4 weeks. This particular fund which has been opened since 1992 has never lost money.

Just when you think you are playing it safe, you find out otherwise. It is a real good idea to check out your money market account as well as your ultra-short bond funds to make sure that you are not taking unattended risk.

Shades of 1929

Some people get a little irritated when I make references to the great crash of 1929 because:

a) It is different this time.
b) Something like that could never happen again.
c) We are in a super bull market
d) Our economy is much different than in 1929

You can pick your own answer. I keep going back to 1929 because of all of the similarities. This morning Goldman Sachs announced that some wealthy individuals were going to pump in about 3 billion dollars into their failing funds in an effort to save them. It is a "great buying opportunity."

If you go back and read the history books, the exact same thing happened in 1929. The markets were getting into big trouble and a "pool" of investors would go in and buy tons of stock to prop up the stock market. Investors in the 20's would get a feeling of relief knowing that this group of wealthy individuals were pooling together to save the markets. It was the big name people back then and it is the big name investors this time around as well. Besides, what is a few billion among friends?

Now my favorite part of the press release about this influx of capital was the highlights from the Goldman letter sent to the clients (read: individuals losing a lot of money) into their funds. (read:ponzi schemes). Here is the excerpt:

....according to an Aug. 10 letter to clients from Clifford Asness, the firm's founder and managing principal. Asness blamed the losses on the ``strategy getting too crowded,'' rather than the models not working.

In other words, it wasn't our fault that we invested all of your money into sub-prime debt. I would argue the model was terribly flawed from the start.

This is the problem with Wall Street, politicians, the Federal Reserve Board, _____ (fill in the blank) - No one will take responsibility for the irresponsibility that has taken place.

This Isn't a Sub-Prime Problem

The headlines read that the stock market is heading for trouble because of the "sub-prime" mortgage problem. Ben Stein said last weekend that the sub-prime problem is grossly overstated. He points out that sub-prime mortgages make up such a small part of the entire mortgage universe. (I still cannot figure out how an actor turned economic commentator is qualified to give economic analysis.)

Well, that is a relief! That makes for a great soundbite and something that the fox commentators can argue over for an hour while whipping its television audience in the process.

This is a credit problem resulting from a 25 year busting of a credit bubble. This stems from lenders writing irresponsible mortgages to consumsers who could not ultimately afford them. At the root of the problem is the adjustable rate mortgage. These mortgages come due and consumers cannot make their new higher payment. Consumers are dropping like flies and homes are going into foreclosure. Incidentally, 120 billion dollars these loans are coming due the second half of the year.

AIG and Countrywide (the biggest of the biggest mortgage writers) both said in a statement that this is spreading to the prime loans. Adjustable rate mortgages were written on ALL types of loans and in great number. Mortgage lenders were (and still are) selling the American Dream for the low monthly payment.

Now these consumers are in a world of hurt.

So follow the smoke and you will see the problem. Irresponsible lending equals Consumer problems equal high foreclosures equal a worsening of the real estate bust equals problems problems in the credit markets equal problems in the stock market equals problems for the economy.

Good credit, not so good credit, and bad credit. It is all about the bursting of a credit bubble that has been building for 25 years. That is the problem.

My problem with pop culture analysis is that it has no substance. No one on financial television is brave enough to tell the real story. Many of these analysts work for big brokerage companies and have taken the creed. Repeat after me....We are always in a bull market and there are no problems ever. Even when there are problems we are still in a bull market. Bear markets don't exist.

Then some of them are just actors.....Bueller, Bueller, Bueller??

Dow Jones Drop of 387 points - A Mini-Panic?

I really get amused as to what the media writes about the stock market. The AP refers to the drop in the market as a "mini-panic." 387 points sounds like a big drop. That is about a 3% drop in the Dow. If the Dow was extremely negative for the year, I would start using words like panic. However, the Dow is well above normal averages and is positive for the year.

No, I have not turned bullish on things. I think that want we found out this morning in the news concerning banks in France is not good. The credit problem is a global problem. Unfortunately, this is a problem in the credit markets. Every day we can wake up to a new negative surprise.

I cannot stress enough the importance of understanding risk and making sure you are not in a situation where you could lose a ton of money. There are ways to invest in a declining market and make money. If you want more information, send me an e-mail at bob@prudentmoney.com.

My concern is everyone who is listening to financial media such as CNBC or Fox news (which is fair and balanced with everything except for the stock market) who is saying this is no big deal. This is a big deal.

Sub-Prime Mortgages (Predatory Lending) Still Being Marketed

I received an e-mail from a listener about an offer that he received. Now keep in mind, he has a 6.5% 30 year fixed mortgage. This is a good note. However, he called the number on the marketing piece because it sounded like a good deal. This what the note said:

Veterans's Savings Program
You DESERVE the lowest possible payment!
Recent purchase or refinance, OK! (Ask about Cash-Out Options!)
NO APPRAISAL! NOCREDIT QUALIFYING! NO HASSLE!
NO PAYMENTS UNTIL OCTOBER!
YES, WE WILL REPAIR YOUR ESCROW ACCOUNT AND REFUND YOUR CURRENT ESCROW TO YOU!!
NO OUT OF POCKET COST TO YOU!
CALL IF RATE IS HIGHER THAN 5.%

*CALL US TODAY AND SPEAK TO A VA LOAN SPECIALIST!

This has all of the qualities of a sub-prime loan. Plus, they were recommended that he go from a fixed note to an ARM where the interest rate changes in 3 years.

The listener asked the "loan specilist" (read:salesperson) if they had anything dealings with sub-prime loans. He actually denied that they even exercise such practice or suggest such loan to any one.

Predatory lending continues.......

One of the Most Anticipated Fed Meetings in a Long Time

Today the Federal Reserve Board met to determine the direction in interest rates. Due to all of the problems in the credit markets written about week after week on this web-site, the bulls were betting on the Federal Reserve Board bailing out the markets.

Although highly unlikely, they were hoping for an interest rate cut. If not, at least there was hope that the Federal Reserve Board to acknowledge that there is a problem and state that they are open to lowering interest rates.

Unfortunately for the bulls, none of that happened. In fact, the Federal Reserve Board is still aggressively fighting inflation.

Jim Cramer has been screaming every night on his stock show that the Federal Reserve Board should bail everyone out. He literally threw a 3 year old fit on television today following the fed announcement.

There is something that the bulls do not acknowledge in the desperate plea for someone to bail out these problems so the party can continue. The fed has every right to be concerned about inflation. However, it is not the type of inflation that they typically worry about during the meetings. They are worried about ASSET inflation getting out of control.

They cannot afford to lower interest rates here. If they do, the real estate markets will ignite again and a good possibility exists that all assets (Stocks, bonds, real estate, etc) would morph into an incredible out of control bubble environment. (See China) Remember bubbles don’t end very well. It would only be putting off the inevitable.

They cannot afford to ignite the speculative spirits of the markets. Thus they are forced to stay on the sidelines and do nothing.

Unfortunately, the economy is weakening and the real estate markets are making it tougher for the Federal Reserve Board to sit on the sidelines. They have to take the lesser of two evils. They are between the ultimate rock and a hard spot. So, they do nothing.

Only a very desperate situation will motivate the Fed to lower rates.

Desperate for Business?

Every morning the first stop of my business day is http://www.minyanville.com/. In fact, I am at this site all day long. It is the best market analysis site available.

I found this article on the site this morning and just looked at my computer with disbelief. This was the ultimate "insult to intelligence" article. The Overstock.com CEO has an ingenious business plan and motto. "Buy it on overstock, then sell it on E-Bay."

“Our motto is buy it on Overstock, sell it on eBay,” Byrne said on a conference call Tuesday with investors.

"If you compare the prices of the stuff on Overstock, it is cheaper than on eBay for commodity goods and such. In fact, there are people — there are lots of people who make their living buying on Overstock and selling on eBay.”

Let's take a step back for a minute. I want to let you in on a little secret. Instead of buying the merchandise on E-bay, you can buy it direct from Overstock.com and avoid paying the additional money.

This guy is getting paid big bucks for coming up with this game plan. In a conference call to investors, is this the best that he can do? Could this be sign of the times? Is business this tough? If I were a shareholder, I would be concerned.

On a side note, the writer of the above article points out that the advice to buy it at overstock.com and sell it on ebay doesn't even work. Apparantly, the prices are lower on e-bay.

Consumer Confidence at 6 year high? Foreclosures up 58%?

Something doesn't seem right. I acknowledge that I have a negative bias on the stock market and the economy and desperately try to stay open minded. At the same time, how in the world does consumer confidence report a 6 year high with the mess that is occurring in the real estate markets?

Well the CNBC analysis says that it is because employment is so strong and the sub-prime mortgage crisis is well contained. Well, that explains that one to me. I guess??

Countrywide the nation's largest mortgage lender says that the defaults are spreading to the prime loans. The sub-prime loan crisis (clearly in the early innings) doesn't sound so "well-contained." The estimated 2 millionj foreclosures this year should stay "wel-contained."

What about that strong employment? The government actually estimates a good portion of those created jobs each month through their own analysis. In other words, they make up job growth. John Mauldin reports that 86% of the jobs that have been reported this year have been created out of thin air by the government.

The bottom line is that the government can spin the numbers at will and create a fantasy economy. The CNBC analysts can tell you don't worry about it and just go back to sleep. One analyst actually said last week that there was clearly "no reason for the sell-off." As Gordon Gecko said in Wall Street," The whole world must be off its rocker." By the way for all of you Wall Street movie fans, there will be a sequel.

Has I have written many times on this site, there are clearly big problems in the markets right now. These are foundational problems. It pays to think differently and not follow the advice of those who clearly have a lot to lose in the event that this bull turns into a bear. That would be every politician, every fund manager who can only invest for a bull market, every financial advisor who thinks that we are in a perpetual bull market, and anyone on CNBC.

Just a Correction in the Stock Market or Something Else?

With last week's stock market decline (largest in weekly drop in the Dow in 5 years), the forever bullish are claiming that this is no big deal. It is a "correction." Let's first define correction. A correction is a pause in a bull market. It is a normal decline that should create any worry.

This is the mantra of Wall Street. They made that claim through the bear market in early 2000. The problem as I outline this week in the Stock market outlook is structural. It is within the credit system. The credit system has been the foundation for this stock market bull rally that started back in 2002.

We are talking about foundation problems. If this problem worsens, there will be big problems on Wall Steet. I am not in the business of making predictions. I am looking at the data and see the problems. I just don't see how Wall Steet dodges this mess. A good proxy for this credit problem can be found in the mortgage market. The sub-prime loan crisis has been noted and written about many times. It has been a prime reason for the foreclosures.

Last week it was announced that Alt-A loans (the next level of loans up from sub-prime) are now producing more foreclosures. Then Countrywide (nation's largest lender) said last week that the PRIME loans are now starting to have problems. Prime loans are supposedly the high quality mortgages.

Be very careful and weigh the facts in the argument of correction versus the start of a bear market. For a good read on the reasoning behind the problemsm go to his link:

http://www.msnbc.msn.com/id/19935772/

Have no fears – the group who calls itself the Invincible American Assembly says that everything is under control. They are meditating calmness into the world and the stock market. I really cannot make this stuff up.

Another Bank of America Complaint

Between paying.5% on their savings accounts to offerring credit cards to illegal aliens, it also seems that Bank of America is getting a little fee happy. An over the limit fee on a savings account? That one is a new one for me. Read more.......

Thank you for the information on Bank of America. I have had an account with them for 10 years and today I think I will switch banks. Today I discovered they assessed me a $27.00 over the limit fee from my savings account. I did not know I had a withdrawal limit from my savings account. I don't recall signing or agreeing to anything that would limit the amount I could withdraw from my savings account. Can you tell me if anyone else you know has had this problem or concern? I had a previous problem with them before when I agreeed to sign up for overdraft protection. I thought what this meant was that if I had insufficient funds in my checking account it would be covered with monies from my savings account. Appparently this wasn't the case because on one occasion I was assessed a $30.00 insufficient funds fee. I don't know what to expect next from this bank. I would appreciate any advice you could give me. Also, I know you cannot indorse or recommend another bank to me but what type of services (free checking, etc.) do good banks usually offer?

From Bob - Century Bank is an excellent local bank.

Just Plain Bad Advice - Nothing Always Works All of the Time

I was reading an investment periodical that I received at my office. It was from a real estate mutual fund company. The title of the article was "The Importance of Remaining Invested." They were talking about the importance of buying and holding investments for the long-term.

The article is talking about helping your clients feel comfortable with the risk in their portfolio. If your client doesn't feel comfortable with the traditional stock/bond/cash portfolio, consider adding real estate to make it more diversified. The article was making the point that by adding real estate to the mix "the correlation between real estate and stocks, bonds, and cash may help manage the volatility in a portfolio." In other words, reduce the risk.

That might have worked decades ago. Today, that is bad advice. The average year to date return of real estate funds is -7.25%. The fund that this article promotes is down over -9% year to date. (through 7/25/07)

The problem is that a stock is a stock whether it is international, domestic, or real estate. We are in an environment that traditional diversification might just not work. Stocks have all classifications are carrying the same type of risk today.

The flaw in this line of thinking is that traditional diversification and buy and hold ALWAYS work. Just remember that nothing always works. That is why you have to think differently when investing.

Reply to my Chase Post about On-Line Bill Paying

Paul from Chase Card Services/Communication & Public Affairs wrote me in response to my blog on the listener who had problems with the on-line bill paying. In all fairness, I wanted to post his response.


Just saw your blog posting about a problem a Chase customer had making a payment and wanted to follow up with you.

We recently rolled out an initiative we are calling "clear & simple" that is designed to provide customers with information and tools to manage their credit better, avoid fees and protect their best rate. You can learn more about this at http://www.chaseclearandsimple.com/.

On the topic of payments, I'd like to point out that Chase offers a number of tools to help customers always make on-time payments:

1. Setting up free phone/text/e-mail alerts that let them know when their payments are due and/or when a payment has been credited.
2. By setting up automatic payments, customers can choose to make payments in full or minimum payments on their due dates, ensuring that their payments are always made on time.
3. By using online payments, customers can schedule their payment in advance so that it is made on the due date, maximizing use of their funds and ensuring their payment is made on time.

I hope this is helpful. Thanks for your time, and please feel free to contact me if you have questions or would like additional information.

Bob - your information is always appreciated

Who Monitors the Politicians?

I always find Congressional testimony interesting. You have a panel of elected politicians grilling someone who has taken the stand on some issue. The politicians ask the tough questions and seek to lay blame.

As I write, Federal Reserve Chairman Ben Bernanke is on the stand. The Federal Reserve Chairman has the responsibility to report to Congress two times a year. The politicians are grilling the Fed Chairman on consumer debt and of course the crisis known as sub-prime loans.

One democratic politician just made the statement that the Federal Reserve was a sleep at the wheel. They allowed this to happen. There should have been safeguards built into the system to prevent predatory lending.

Our political system is a joke as are these hearings. The blame lies with our politicians. They conveniently ignore all of these lending practices and allow them to happen for two reasons. First, it gives the economy a short-term boost. It produces economic growth. Second, these banks pay their bills. I might add that MBNA is President Bush’s second largest campaign contributor. You certainly don’t want to bite the hand that feeds you.

Even more frightening is the lack of knowledge that these politicians have regarding these issues. Much of the questioning makes absolutely no sense.

When do we get to put the politicians on the stand and ask the tough questions? When do they take responsibility? They all look shocked that this sub-prime crisis is happening. You could see this train wreck coming a mile away.

Another Example of Being Careful Making a Credit Card Payment

Dear Bob,

- In August of '04, I was moving from California to Dallas, TX and I lost my checkbook in the meantime so I couldn't send my payment to Chase Credit Card. I called them to let them know the situation and they said I can make payment by phone but they'll charge $10 to do so. Well, I was a college student at the time so $10 goes a long way. I refused and told them that I'll make the payment on-line. They said okay. I made the payment on-line and it was a done deal. Well, the next months statement said that I didn't make a payment and they charged with a late fee and everything else they could think of. I called them immediately to find out what happened. Well, they had the wrong acct number that I had originally entered. I confirmed with them that if the internet system works and they said yes. So I tried again and it showed an accepted payment. Unfortunately, the situation occurred again and the payemnt quadrupled. Every assistant I talked to did not help me at all and gave no grace, but just demanded the payment. There was no solution. Eventually the payments were so high that I couldn't make it. I left it alone and they handed my acct to the collection agency. I talked to an agent and he himself was surprised because I've had perfect credit since '98 and all of a sudden there was a tragedy. I had to transfer all funds to one credit card and continue making high payments with that card. Is there anything that I could have done, or anything I could still do in that/this situation? Thanks.

Henry

You are not going to like this answer. The bottom line is that the payment (regardless of the issue) did not make it to the account. My assumption is that the payment was never drawn from your account. If it was drawn from your account and credited elsewhere, then that would be a different story.

They look at it from the standpoint that the payment never arrived. From their standpoint you could use any excuse as a reason for not making a payment. It is unfortunate. It is a sleazy system set out to damage credit for the smallest of mistakes.

Keep the Faith

Bob

True Credit Lock Very Different from LifeLock

I had a question come up regarding the new Truecredit (http://www.truecredit.com/) credit file lock. I have commented in the past on how Lifelock (http://www.lifelock.com/) works. Lifelock is simply putting fraud alerts on your credit reports every 90 days in order to help you fight identity theft.

As a review, the law states that you may only issue a fraud alert in the event that you are a victim of identity theft or you think that you might be a victim of identity theft. It doesn’t say that consumers should just apply a fraud alert because of general identity theft concern. So, this is a company taking advantage of a gray area in the law. If you don’t have an ethical issue with it ( I do by the way) then you can do it for free for yourself.

I have always stated that Truecredit is an outstanding company. So, I don’t want you to get these two programs mixed up. Truecredit are just stating that the company will put a lock on your TransUnion credit reporting agency credit report and not all three. They are not issuing fraud alerts.

TransUnion owns Truecredit. They can easily offer this program due to the ownership. Thus, TransUnion can elect to lock a consumer’s credit file outside of whatever the law says. Is it a benefit? Truecredit doesn’t charge for it. Locking up 1 of the 3 in a sense is a false sense of security. An identity thieve can still access the other two credit reporting files. In a business of aggressive marketing, it is probably Truecredit’s way to stay up with the competition without taking the low road like Lifelock.

The Gut Feel of a Terrorist Attack

This is not the typical Prudent Money post. However, I watching Fox News and the ridiculous commentary on Michael Chertoff. Homeland Security Chief Michael Chertoff made the statement on Wednesday that he had a "gut" feel that a terrorist attack was imminent. He has caught a great deal of criticism for making these statements. The argument is that someone in his position shouldn't make these types of "fear based" statements without any factual information. He should make statements that are credible based on fact. If there is specific information, give the American public the information.

First, the homeland security agency cannot give specific information. They have to stay very vague. Think about it for a second. Let's make public everything that they know so the terrorists can be a bit more informed. They cannot share everything that they know. Second, I think that you have a guy who is bombarded with all of the risks. At the least, he wants to send an indirect warning.

I would take his "gut" very serious. This guy sees what is happening. We don't need to know the details. We just need to know that the risk is higher today than usual.

Unfortunately, people in politics want to take this and use this to their own agenda. Terrorism is a very real thing. To just pretend it is not there is the risk.

I felt led to talk about financial crisis today on the radio show. I discussed point 1 of my 3 point plan that I feel is important to have as a foundation for the journey back to prudent stewardship. As a result of that topic, I heard some gut wrenching stories today. People are facing some tough situations. If you are one of them, follow along the next few days as I talk about this plan.

Some of this is going to sound obvious. However, it is the obvious that we many times miss.

Point 1 of 3 - The first and most important place to start is in prayer and a re-commitment to God's financial will for your life. This is the starting place. It is very important to get back into the middle of God's financial will for your life. The safest place for you to be is in God’s financial will.

Fortunately, it is a process that has simple beginning. James 4:8 perfectly illustrates the process.

"Come near to God and he will come near to you."

It is that simple. The hardest part is to commit. Keep one thing in mind. You can go through this crisis in or outside of His perfect will. The crisis began when we attempted to do things outside of God's financial will. At least I know that to be true for myself. I would suspect it is true for you as well. It is important to get back to that place of peace and relationship. From there, allow God to direct you through the journey.

That journey might have trails and challenges. Fortunately, that is not bad news. It is all workable because He is guiding you while you learn and grow and become closer to Him. As you stay obedient to Him and committed to his Will, there is nothing that you cannot get through.

It is the power of relationship, belief, and prayer that ultimately heals a financial crisis.

Another Bank of America Bait and Switch

I am trying to think of how many stories that I have written about Bank of America and their slight of hand marketing tricks. From their keep the change program that pays only .50% on their savings account to their "no fees" mortgage (but you pay higher interest rates), this is a Bank that should not be trusted.

What I am writing about today, is really not new news. However, I just stumbled upon it and wanted to warn my readers about yet another bad BOA deal. Last year, Bank of America was offering a free checking account. However, free ended up being for a limited time and not as advertized. Come to find out, they started charging $ 5.95 a month for the account in February of this year. The "good" news is that they would waive the fee if you would just transfer over
$ 25 to their savings account each month which only pays .50% while a good rate for a money market pays 5%.

It is unbelievable.

A Band Aid Approach to the Sub-Prime Mortgage Crisis

We need real leaders who are going to look out for the American consumer. The banking regulators just put together new "tough" regulations to help consumers who have fallen prey to the sub-prime predatory lending practices. This was a recent headline in a CNN money article:

Subprime loans get new standards

Principles issued by bank regulators include new consumer protections; lenders should only offer loans to those who have proof they can repay.

Now that is revolutionary..... How about lending money to people based on the ability to repay it.

These new regulations do nothing but allow predatory lending to continue. One of the main components of a sub-prime loan is the adjustable interest rate. After a period of time, the interest rate can be adjusted upwards. One of the reasons for the adjustable rate mortgage in the first place is to offer a strategy to the consumer to reduce the payment.

Adjustable rate mortgages in some circumstances make sense. However, it should be used only in certain circumstances. The average everyday homeowner has no business getting involved in a loan that one day they will not be able to afford. When that rate re-sets, the mortage payment increases. Most of the time it increases past the point that the consumer can pay it.

How about some real regulations for the mortgage industry?

1) Make it tougher to get an adjustable rate mortgage
2) Make the underwriting standards very black and white - don't give lenders the ability to make the determination whether someone is credit worthy or not.
3) Stop allowing banks to issue these exotic loans

Most importantly, figure out what is going to happen to the 1,000,000's of people who are about to face this nightmare. Studies show that we are in the early innings of these loans resetting. The high foreclosure rate in America is mainly a result of these sub-prime mortages.

With all due respect to the politicians in Washington, how about doing something that helps the people who vote you into the White House and not for the people who pay for it. The finance industry are HUGE contributors to political campaigns. It woul be a setback for the industry if politicians implemented REAL solutions to the sub-prime/foreclosure crisis. (which they allowed to happen on their watch)

"Junk Mail" and why Consumers are getting a Raw Deal with Auto Insurance Rates

Auto insurance companies can raise your rates on your auto loans without informing you ahead of time. This has been a practice that federal regulation has done nothing about. The Fair Credit Reporting Act requires most companies to send a letter called a notice of adverse action to the consumer if the consumer was penalized due to a low credit score.

A group of consumers sued insurance giants Safeco and Geico and won based on this unfair practice. The case appealed all of the way up to the Supreme Court was recently reversed.

Now the reasoning for reversal really leaves you scratching your head. Justice David Souters' reasoning was that it created too much “junk mail.” He did admint it was a loophole in the system. However, he stated that the cost of closing the loophole was way too high.

So, our Supreme Court is protecting us from junk mail and allowing auto insurance companies to get away with raising rates on insurance based on some obscure credit scoring system? The cost for making it a fair system is too high? Who is it to high for?

It is a good thing that the Supreme Court is there to protect the insurance industry. It would be a shame for the industry to be forced to make a little less money sending out those “junk mail” notices to make the system work better for the consumer.

They did allow for a system to where a certain group of people would be notified. However, the system is determined and controlled by the insurance industry. Thus this is more of a smoke and mirrors fix.

Why would it be beneficial for consumers to know about the credit scoring? First, consumers should know the benchmark. A consumer should know that insurance rates would come down if credit scores were below a certain level. Second, many credit scores are low simply due to error. Statistics would show that a high percentage of consumers have enough mistakes on their credit reports to adversely effect their credit scores.

Politics are a way of life. Blatant politics are another story. When the reasoning for reversing a case that would help consumers was based on a “junk mail” problem, something else is obviously going on.

Rent -a- Credit Score - Legal Yes Unethical Yes

There is a new scheme in the credit industry that is gaining a great deal of press as of late. There are companies that "loan" you the good credit of other people in order to increase your credit score. The company has the authorization from consumers with good credit history to make people with low credit scores authorized users on their accounts.

So Joe (who has bad credit) becomes an authorized user on Sally's (who has good credit -who he doesn't know) credit card (which has an excellent track record). Sally's excellent credit history now appears on Joe's credit file thus increasing Joe's score.

As you can imagine, this has lenders in an uproar and for good reason. One company's website, http://www.instantcreditbuilders.com/, states the following in their application:

This service is not sold to defraud or scam past, current, or future creditors.

Seasoned trade lines (credit history) are NOT sold as a quick fix for those who want to cheat the system.

...inherent in the service is the potential for abuse. We will not allow it! Credit Builders will report to the authorities ANY applicant attempting to defraud the credit bureaus or creditors in any way, shape, or form! At the end of the day, if we all play by the rules we all win.

ARE YOU KIDDING ME?

This system gives consumers the ability to lie to creditors. This system is a quick fix to bad credit problems. This is an attempt to defraud the credit bureas because a consumer who is using someone else's credit is misrepresenting themselves as a person with good credit. That my friends is fraud that is created bt this company.

Unbelieveable that there are companies that will go this far to take advantage of the system.

Fortunately, FICO, the company that developed the credit scoring formula, announced today that they are making changes to put a stop to this fraud.

Look Realistically at the Price of Gas

The national price for unleaded gasoline hit a record $ 3.22 a gallon last week. That is up $ 1.05 since February of this year.

There are numerous reasons for this rise in price. There is a large amount of oil refining capacity currently offline. There is strong gasoline demand. Finally, there are lower fuel inventories.

It is estimated that this rise in price is costing Americans an additional 20 billion dollars to drive.

What can you do about it?

There are the obvious solutions such as find ways to carpool, cut back on driving, make sure that you car is running effieciently etc. You don't need me telling you the obvious. However, there is something that is very obvious that people forget to do.

Look at this rise in prices realistically and plan for it!

This is the problem. People don't plan for this additional cost each month based on the notion that prices will go down soon and or it is just ignored until the bill comes. Look out over the next 3 to 4 months and accept it is going to cost you more to drive. Figure out how you are going to adjust. Remember when you don't adjust your spending, you will create debt. Debt is the replacement for the income that wasn't there to pay the bills.

The US Government reported that we are going to se up to 10 active hurricanes this season with 3 to 5 being major. We could just be in the early innings of these high gasoline prices.

Make sure that you aware of this and make sure that you plan for it

The Barefoot Boss Promises you Riches - Don't Fall for this scheme

This irresponsible marketing award goes to www.barefootboss.com. They advertise very aggressively on satellite radio. I have found that the majority of radio advertising on satellite radio falls into the irresponsible category. It seems that they are desperate to take on advertising and anything will do.

This one goes through the story of how they will make you millions. Of course, they claim making millions is very easy. Just take these steps (claims the commercial), and you can be working barefoot from home.

They appeal to your emotions by talking about how boring and uneventful your life is right now. They talk about how big business is just using you. "You can free yourself from this life," says the ad. The good news is that they have a "free" book and DVD set to help you. It is 100% absolutely free claims the ad. You can read about the program and see if it is a fit, then they charge you 39.95 so that you can access the rest of the program.

So, you are going to pay them 9.95 for this "free" book and DVD. They call it shipping and handling. If you don't cancel by 14 days, then you are charged the 39.95 for the rest of the program. However, you never get back the 9.95.

What a deal...... for them! They are probably making somewhere in the neighborhood of 3 to $ 4 an order from shipping and handling. That is not a bad spread.

The reality is that they are peddling a multi-level marketing program for Herbal Life. I am not saying anything negative about these programs. I am simply saying that this type of advertising is misleading and a huge rip-off. You can go to a herbal life meeting for free and get all of that information.

Always be leary of the "free" consumer offers. Most of the time, they are selling you something. The problem is that the consumer just thinks it is shipping and handling.

Banks Writing Mortgages for Illegal Immigrants??

I really wish that I could make this type of thing up. Let's see..... mortgage lending is getting tougher because of the real estate bust. Lending standards are getting tighter because of all of the irresponsible lending by the mortgage business over the years. So, business is not as good and standards for lending are going up. So, what is a bank to do to make money?

Well, they can go after the illegal immigrant market. Yes, they can lend money to illegal immigrants so that they can own a piece of the American Dream while illegally residing in this country. Now, let's look past the illegal immigrant debate and issue. I just want to focus on profit motivated banks and how even for them this makes no sense.

They are going to give credit to someone without a credit score who could easily take out the note and go back to their country at a moment's notice. The bank gets stuck with the property in a real estate market that is in the beginning to middle stages of a bust. That makes no business sense at all. However, they do get to charge outrageous fees and very high interest rates to the ones who make the program work.

In Maricopa County the sheriff whose office has arrested hundreds of illegal immigrants, said banks providing these loans are taking on a risky proposition.

Well at least they are not writing sub-prime loans. After all the definition of a sub-prime loan is a loan that is given to someone who is a credit risk and has a very low credit score. Maybe in the interest of fees and high interest rates the rationalization is that the sub-prime issues don't apply here because after all the illegal immigrants don't even have a credit score.

The saddest part of the irresponsible lending practices of banks is that a legal residing resident with poor credit cannot even get a loan today.

Someone really needs to regulate these big banks.

Tricks of the Trade - Marketing Secrets of Financial Advisors

The ad reads:

Financial Playbook is a 68-page glossy magazine packed with entertaining and informative content. It is published semi-annually and is customized to feature individual agents/advisors on the cover and inside as Financial Playbook's featured financial professional.

• Your Photo Ithe advisor) is placed on the front cover
• Your article is published inside
• Generate Quality Leads
• Enhance Credibility
• Use the Power of Print

The best part is that Federal Reserve Board Chairman Ben Bernanke is on the front cover right by your (the advisor) picture.

All the advisor has to do is write a big check and they will put the advisor's picture on the front cover and publish their article inside the magazine. Incidentally, they will do this for anyone willing to pay for it.

A little misleading? It is just another example of irresponsible marketing by the financial services industry. What is irresponsible marketing? It is marketing that creates something that isn't true.

Financial Playbook is not a credible published magazine. It is not like a Wall Street Journal or Fortune Magazine. However, the public doesn't realize that to be true. The advisor is putting themselves out there as someone who is published by request of a major magazine because of their expertise.

So what would the advisor say when asked how this major magazine article came about?

Well the honest answer would be, "It is for marketing. I look credible being in a major magazine. It especially looks good with a picture of me next to Ben Bernanke. No, you can't find a copy of this magazine anywhere else. I just paid for this marketing stunt."

Do you really think that would be the answer? Be careful of the illusion.

The Reality of the Widget Salesman

Are you getting your opinions about the stock market from unbiased reousrces? Do the Wall Street cheerleaders really believe their opinions or are they just hoping eveyrthing works out?

As I sit here watching CNBC (financial television), I just stay amazed at the run away bullishness of this market. Should it be a real surprise? Just ask all of these money managers who talk about the markets on CNBC. They see nothing but clear sailing the rest of the year. Just keep in mind about the opinions of money managers.

The majority of these money managers can only purchase stocks. A bear market would be the worst case scenario. Thus, it will always be a bull market regardless of what the tape says. Besides, why would they shoot themselves in the foot and offer anything negative?

For example, let’s take the story of the widget salesman. The only thing that he can sell is widgets. Besides the money that he makes selling widgets, he also makes plenty of money as long as his clients hold onto those widgets. Well, let’s say that something happens to the widget market. Widgets lose some of their popularity. People don’t want them as much.

As a result, he will go announce that this weakness is temporary. After all, he doesn’t want to lose any current customers. Second, he will talk about what a bargain widgets are so that he can still sell them.

The take away from that story is that the salesperson can only sell stocks. The salesperson depends on widgets always being a good deal because that is his only income source.

The same applies to money managers or financial advisors who depend on stocks. Remember the opinion that you here in the media might just be desparate hope rather than a solid opinion.

Congress Proposing Legislation to Once Again Protect the Credit Industry

Let's take a look at this nonsense. First, the mortgage industry is allowed to make big bucks writing these sub-prime loans for the past 3 or 4 years. Anyone with common sense would recognize that a problem is going to be created by allowing a mortgage to be written for 100% of the home value, no money down, and no documentation nor income verification. It is a very risky loan that posses potential problems for the consumer.

Now we pay the price for the greed that has been displayed by the mortgage business. Of course, this type of borrowing has been great for the economy on the short-term. As a result, why would Congress ever step in and tighten the lending standards?

Now, Senator Schumer wants to bail out these sub-prime loan holders with hundreds of millions of dollars. So, what is he really doing? Is he proposing something to protect the American Dream or is he proposing something to protect the mortgage industry?

Think about it for a minute. This legislation will keep subprime lenders solvent by helping these mortgage holders pay their monthly mortgage payments.

How about another idea to consider. Force the sub-prime lenders to go in and reconstruct these loans for the borrower at reasonable fixed interest rates. In addition, force them to do it for free. If needed, Congress could subsize the costs of this process. How about the sub-prime lenders coming in and paying the price for their greed? As taxpayers we should not take on the burden of bailing out these home buyers. Thes subprime lenders should pay the price.

Another example of Congress watching out for big business when they should have been regulating big business a long time ago.

RENT-A-CREDIT SCORE

So, you need a higher credit score to qualify for a mortgage loan?

An internet company will increase your credit score by making you an authorized user on another person’s credit card. By being an authorized user on a person’s card with excellent credit, all of the good credit information will be transferred to your credit file.

As a result, your poor credit score will get an increase due to borrowing the credit history of someone with good credit.

There is also big dollars in it for the people who are willing to allow this company to use their credit cards by adding add authorized users. They get a hefty fee for each added authorized user.

Although the Federal Trade Commission is looking into, they have not filed any legal claims against the company. However, the Nevada Mortgage Lending Division states that anyone associated with this scheme “will be subject to administrative action and potential criminal penalties.”

Adam Wheeler who runs this unethical scheme states his business is “legal” but he conceded that “some people might say it’s unethical.” He also said he does not “condone fraud against mortgage institutions.” If clients are going to lie to lenders, he says, “that is not good.”

Well, Mr. Wheeler it is probably not good if you help those people lie to those lenders either. That is a story from the “I just can’t make this stuff up department.”

Let's Just Give Them Some More Money.....Again

Senator Dodd said this week that Congress needs to provide aid for about 2.2 million sub-prime borrowers. So, let me get this straight. Senator Dodd wants to use our tax money to bail out someone who took out a mortgage that they couldn't afford, enable them to live in a house that they shouldn't be in, to help those who were casulties of a horrible mortgage system that Congress has enabled, and to help those who don't read the fine print.You know let's not give them aid.

Let's just pay off their mortgage. In fact, let's help out those poor sub-prime lenders because they might be in jeopardy of loosing the billions of dollars that they made while practicing predatory lending.

The problem starts at the top. We don't have leaders in Congress that work to protect the people of this country. We have politicians who close their eyes when it is convenient and point fingers when situations come unglued. It was convenient for politicians to close their eyes to a mortgage industry that through predatory lending was helping to pump a great deal of money into the economy and increase economic growth.

When did it make sense to throw credit underwriting standards out the window and issue mortgages without even verifying income or looking at tax returns. Senator Dodd, where were you 3 years ago. Could you not see this coming?

I really do regret that millions of sub-prime borrowers are going to be hurt in this mess. My heart goes out to anyone in this situation. At the same time, Congress is suppose to enable laws that protect consumers from their greatest enemy....themselves.

This is why gambling is not legal in every state. This is why pot is not legal. This is why there are speed limits.What we need is reform on all levels. The debt industry is out of control. Until we get politicians that think like leaders and not like politicians, these problems will continue to surface. Maybe I am being a little ldealistic. It just seems that most of these problems are real easy to fix.

Jim Cramer Doesn't Have a Bearish Bone in his Body

Dear Bob:

Just wanted to say thank you for your sanity. I was listening to Cramer on MSNBC (not sure why)and he is calling everyone suckers who are bailing or getting out of stock and of course his advice is to buy now. Might be good advice for some or really bad for others depending on where you are. Just made me want to look to see what you had to say and sure enough, you had a response. Always the voice of reason.

I always appreciate the kind words. Sanity is a strong word. My wife might disagree with the sanity remark.

The only thing that I am doing is looking at market risk. You can have high levels of risk in the stock market for a long time and nothing bad happens. However, high levels of risk always have a reckoning day. Until then, it only matters when it matters.

Are we starting to see risk matter? It is a little to early to say. As I have said many times, one week of stock market declines does not make for a bear market. On the other hand, it is prudent to know your risk level and be realistic about what stock market investors will face at some point.

When listening to people like Jim Cramer, always remember one thing. It is all about the ratings and being bearish is a ratings killer! Plus Cramer works for a company that is owned by GE (a publically traded company)

Although Cramer with all of his screaming and drama can be bearish on a particular stock, I guarantee you that you will never hear him be negative about the stock market in general or the stock of General Electric. At the end of the day, he has to be a yes man and do everything that supports the parent company that hosts his show!

The Bank of UnAmerican

Until the other day, nothing surprised me when it came to the credit industry. Well, that all changed after reading an article in the Wall Street Journal about the Bank of America's newest credit card.

The article reads:

"The new Bank of America program is open to people who lack both a Social Security number and a credit history, as long as they have held a checking account with the bank for three months without an overdraft. Most adults in the U.S. who don't have a Social Security number are undocumented immigrants."

This has many thing wrong with it on so many levels. For the record, I am for giving anyone a chance in this country to become an American citizen and lay claim to the American dream. Further, I support a program that deals with the illegal immigrants in this country fairly providing them with the opportunity to become American citizens.

I had so many titles for this article.

"The New Payday Loan from Bank of America."

"The Crime Rewards Card from Bank of America."

If they are giving out credit when no credit report or social security card exists, then there is something in it for them. Just like every other player in the credit industry, they are depending upon human nature to take over. Human nature is to make mistakes when it comes to dealing with your money. As a result, the credit industry makes you pay dearly for it. Just try being one day late, and you will pay the maximum interest rate penalty forever.

It is difficult enough for English speaking Americans to understand the credit system. As far as illegal immigrants, I would imagine it is even tougher to understand. This is a system that is setting up good people to fail. As a result, the bank makes the money on higher rates and fees.

Is this really about helping an "underserved community" or about making money by in a sense issuing payday loans?

I was curious as to the terms and conditions on the account. In an attempt to find out, I called Bank of America. The first lady argued that they would never have a program that gave credit to someone without a social security card. The next lady said she knew what I was talking about and would send me to someone for more details. The next lady said the same and then cut me off.

I finally called a branch in Los Angelas where they are starting the pilot program. In her own words she said, "We don't have terms and conditions for this program. We set them up when we set the account up for each person." She couldn't tell me how high the rates would be or the fees and penalties.

However, she said that the bank was "trying to serve the underserved community." Bless her heart, she really believes that to be true. Of course, they have the perfect person there to set up these accounts. She said she understands the market because she is married to an immigrant.

This is just another aggressive scheme put together by a Bank that is more about excessive interest rates and penalties and the almighty bottom dollar.

Oh and did I mention..... They want to help out those who are breaking the law. The irony is that the common day criminal couldn't walk into the Bank of America and get a credit card. The common day criminal has a social security card that reports a crime. As a result of a crime reported on a credit file, their credit is shot with no options to getting a credit card.

However, if you are an illegal allien living in Las Angelas, it doesn't matter.

Letter to Texas House Representative Charlie Geren

Dear Representative Geren,

I understand that you were denied an insurance policy due to the inaccuracy of your credit score. Due to a low credit score, the insurance company that you applied felt you were too much of a risk and as a result would not accept your application.

That actually surprises me. I thought that most politicians had a way around the system. Well, since you are experiencing the same problems of your voters and getting a taste of how the world works outside the capital, let’s take this opportunity to let this unfortunate mishap turn into a positive for all of us.

You might not be aware of some of the problems in the system of credit and credit scoring. As a State Representative you potentially yield a lot of power. Your colleagues in Washington have passed the buck to the states to pass the tough laws against the credit industry. This way they can still sit in the even more unrealistic world of career politician land and not have to do anything that disrupts their relationships with the credit industry who like to pay lots of money in campaign contributions. It is quite the cozy relationship.

Being a Republican you especially have a great opportunity to make a difference. Unfortunately, at least in Congress, it is the Republicans that love the political contributions from the credit industry. Unfortunately, they have lost power and now the Democrats (who have no love for the industry because the industry shows them no love) are actually starting to do something on a Federal level.

While that taste of reality is still fresh, take this opportunity to start a movement on the Texas state level that shuts down the anti-consumer practices of the credit industry. How about some new legislation that helps us out with unethical debt collectors? How about some help with usury laws on interest rates? How about some action on credit scoring?

You see in the real world consumers are struggling to get out of the debtors jail that politicians have helped build through the years.

You had mentioned that your score was low only because of inquiries of 4 major credit transactions. There is a low probability that those inquiries that you had during that time period would have done enough damage to lower your credit score to the levels were people are denied based on credit scores. Thus, you probably have many mistakes on your credit report that are bringing that score down. Of course, with better legislation, that also might not have ever happened.


Sincerely,


Bob Brooks

How you Can Lower Your Credit-Card Rate

"How you can lower your Credit Card Rate" headlines the personal journal section of the Wall Street Journal. This article makes it sound easy. Just call the card company and tell them that you are going to move your transfer your balance and take your business elsewhere.

This was the meat of this headline article. Well, unfortunately, that is not the whole truth of the matter. Yes, if you have a good credit score, you have options. If your credit score is the 700's there is no reason why you should be paying anything higher than 6% on a balance transfer. The programs are out there. Of course, be careful of the 0% transfers. Those are filled with loopholes.

Yes, you should call them and tell them you are going elsewhere. They don't want your business to go because they know you can move it with ease.

Unfortuantely, it doesn't work that way with a lower credit score. They know that a consumer with a lower credit score does not have transfer options. Thus, there is no incentive to do the consumer a favor.

So, if you are in that unfortunate situation, here are a few tips:

1) Go ahead and call and make the request anyway- you never know someone might just lower it for you and you never have anything to lose.

2) If not, tell them you are committed to improving your credit score and your interest rates. Ask them what needs to happen to lower your interest rates. Some companies will lower your rates based on future good credit behavior. Time ends up being the real cure when it comes to high interest rates!

Above all, never attempt to negotiate the balance of the debt. The only thing negotiable with a credit account that is current is potentially the interest rate. If you ask about the balance, they will consider you a risk and you might end up in collections with a charge-off. I have known that to happen.

Finally Regulators are Going After the Equity Indexed Annuity Market

I have said for many years that the equity indexed annuities are one of the worst products for investors on the market. They represent the epitimy of irresponsible marketing. Below, is a note from the COO of Allianz Insurance Company. They have made billions of dollars selling these irresponsible products to unsuspecting investors.

They are pitched as the solution to all problems. You can make stock market returns without ever losing your principles. The agents have been getting rich selling them with commissions as that are paid out as high as 9%.

This is a long time coming and much needed in an industry that needs more regulation.

Remember, if is sounds to good to be true it is to good to be true.

From the COO of Allianz


I want to inform you about a developing situation that is generating significant media coverage about Allianz Life Insurance Company of North America. Earlier today, the Minnesota Attorney General's office filed a lawsuit against Allianz for alleged sales of unsuitable deferred annuities to senior citizens.

We strongly disagree with these allegations. I want you to know that we are confident that we have complied with Minnesota law and will vigorously defend this position. In her press conference, the Attorney General stated that her office had been in negotiations with us. However, we made repeated attempts over the past several weeks to meet with the Attorney General's office to provide additional information that could have prevented this action and our requests were flatly denied.

We are communicating to the media that our annuities are high-quality products that serve a range of consumer needs. More than 99 percent of our annuity policyowners have never filed a complaint with Allianz - a consumer standard of which all of us can be proud. We value all of our distribution relationships and we are committed to supporting you and will keep you updated on this situation as it evolves.

Doug ReynoldsCOO

$ 8,680,224,380,086.18 Reasons Why Debt Should be Number 1

Truecredit.com commissioned Roper Public Affairs & Media to gauge Americans’ thoughts about New Year’s resolutions. Four out of ten that were surveyed chose losing weight and eating better as the number one resolution for 2007.

Debt reduction came in second.

It gets even better. 48% of those surveyed say that losing ten pounds would be very or somewhat difficult for them in 2007, while 31% say paying off all their credit dcard debt would be difficult. (According to the Press Release)

Denial has taken on a new meaning. Although surveys are a small representation of the opinions and feelings of a large population, it is in many ways representative of the biggest problem in this country. This is a country in denial. As of December 29, total debt in this country amassed $ 8,680,224,380,086.18. Yes that is trillions of dollars.

There was one other little interesting tidbit of information. The jump in debt from December 28th until December 29th was the largest jump on record. (www.minyanville.com)

Since September 2000, the National total debt has jumped 53%. Of that total, personal debt in this country for the same time period jumped 43%.

It just seems like everyone is living in a fantasy world where financial decision making has no consequences.

Maybe the rationale is less time at McDonalds means more money saved to pay off debt and less calories consumed.

When $6.95 isn't so Free!

I love to listen to sattelite radio. It is a great way to get caught up on the news on the way to the office. It is also a great way to listen to Prudent Money (Sirius) every Saturday morning at 10 am central. (sorry for the plug)

However, I don't like listening to the commercials. It seems that most of these commercials that are aired on Fox and CNBC tell you the lastest way to get rich. This latest and greatest program will give you financial freedom. It is fast and it is easy.

"I made $ 5,000 a month just working part-time. It was easy."

"I applied these techniques for buying and selling real estate and in a few short months was financially independent."

Now these ads are enticing. You desparately want to believe that they are true. I would love to believe that someone was going to plant a money tree in my backyard. However, that is probably not going to happen.

You decide to go ahead and order the book and tape because you have nothing to lose. IT IS FREE!! This is the best part. They are going to give you this tape and book.

However, there is a small shipping and handling charge.

So, I decided to call a few of these life changing program call centers to hear the sales pitch. I called two different call centers. Both of these call centers for two different programs said exactly the same thing and in the same order. Keep in mind, that they were supposedly two different gurus who had written two different books.

Here was the best part of the conversation - What is the shipping and handling? She replies, it is a small charge of $ 6.95. So, let me get this straight. I am going to pay them $ 6.95 for the free items that are worth $ 50?

Here is the real deal -

1) There is no magic solution that is going to make anyone rich over night. If so, everyone would be doing it.

2) Nothing is free

Finally and most important..... This is a heck of a method to sell product. It probably costs a 3 or 4 dollars to make and ship the product. After all of their advertizing is covered, they are probably making a pretty nice little mark-up on that product that they are giving to you for free.

In addition, the free book and tape probably ( this is pure speculation on my part) give you the opportunity to actually buy something from them.

When you hear this sort of thing, just know it is nothing more than a marketing gimic designed to conveniently put dollars in their pocket.

When Sales are Down - Just Put Christ back into Christmas

"We, quite frankly, have learned a lesson from last year," Linda Blakley, a Wal-Mart spokeswoman, told USA Today. "We're not afraid to use the term 'Merry Christmas.' We'll use it early, and we'll use it often."

Bill O'Reilly - November 2005 - "I am 100% convinced...that the policy of not advertising, using the words, "Merry Christmas: will hurt the bottom line of these stores. It will hurt their sales."

Is it just me, or is it just to convenient to not have a backbone and do whatever possible to save Christmas retail sales this year?

Wal-Mart has had a teribble year. They have had a tough time hitting sales forecasts. In fact, these are some of the worst sales numbers in 6 years. Last year, they thought it was a great idea to be non-religious specific and instruct their employees to not say Merry Christmas.

To begin with, it was a stupid idea to take this action. Regardless of your religious beliefs, Christmas is a national holiday event. They were very passionate about going this route. Now all of the sudden when sales are declining, Christ makes it back into the stores?

I hope that the rest of America sees this for what it is worth. A company that has no moral backbone. I would have much more respect for Wal-Mart if they had stuck to their guns and their original beliefs back in 2005. Now, they do whatever they have to make sure that sales come through the doors at Christmas. It is a sad representation of what is happening in America.

Maybe next year if sales are better, they can just instruct their employees to say

Merry X-Mas

The Irresponsible Mortage Industry

A recent advertisement read:

“Are you Paying to Much for Your Mortgage?”

Then they show how you can pay $ 1,698 for a $ 510,000 mortgage.

Most consumers don’t understand how mortgages work. In today’s cash crunched economy, consumers are nlooking for ways to reduce their expenses. There are also those who are buying into the real estate boom and attempting to buy more house than they can afford.

Well, there is a industry that claims to solve all of those problems. It is the Loan Shark Mortgage Industry. Since people don’t understand the ins and outs of mortgages, they go to the “professional” to get advice on mortgages. In reality, they walk into the sharks den and get sold a horrible product that will only make things worse in the future.

These companies are marketing these irresponsible mortgages and taking advantage of people who are in hopes of buying a house when they can’t afford it or people who are in cash flow trouble.

There are some good people in the mortgage business. Alice White is someone that I confidentally recommend for anyone who is need of a mortgage. The problem is that people like Alice are far and few between.

Keep this mind when thinking about a mortgage.

You don’t pay too much for a mortgage unless your interest rate is higher than the current market for interest rates is paying. Don’t fall for the “pick a payment” scheme

Be Careful the Headlines that you Trust

When reading anyone's opinions about finances, always have one question in the back of your mind. What is the agenda? For instance, here is an opinion made by an economist about the real estate market.

"The bad news is just about behind us. It appears that we have bottomed out."

That certainly is good news coming from the Chief Economist with the National Association of Realtors. I am sure that there is no agenda in that statement.

Let's consider another opinion about the United States Economy.

David Walker who is a comptroller has this to say about the United States Economy.

He describes the fiscal health of the economy as “a ship of state on a disastrous course that will flounder on the reefs of economic disaster if nothing is done to correct it.”

Credible? Agenda? Well, David Walker is the Comptroller General of the US Government. He is not an elected official. He has a secure 15 year term. He can speak the truth without reprucussions. He is one of the few Government officials who doesn't have to play politics. In fact he is going around the country warning people that we possibly are going to face a "financial tsunami."

He sees the real truth and he is the Chief Accountant/numbers cruncher for the US Government.

Now that we are out of the season of politics, make sure that you pay attention to the other side of the story. Beyond the agenda, there are some major problems that spell risk for your money.

Refinancing? Buying a New Home? The Big Banks want to be Your Friend

With the slump in real estate and increase in interest rates, the borrower/consumer now find themselves in the driver’s seat. Banks are seeing their revenues starting to slow and they want your business. So, they are willing to offer all types of incentives to gain your business.

Bank of America encourages you to apply with them and then go shop around. If you find a better deal, they will pay you $ 250.00 towards the closing costs of a loan with another company. Of course, it might take Congressional intervention to get that check. (Opps!! just thinking out loud and writing at the same time)

Charles Schwab said that they would give their current clientele a .25% discount on the rate for a new adjustable rate mortgage (awful choice) or home-equity loan. Amazingly enough they will give you a lower discount if you take out a fixed loan. Think through that with me. They will reward you more for taking out a loan that is not in your best interest and long-term better business for them and they will reward you less for taking out a loan that is much better for you.

Big banks (as I have stated many times) are not out to do you any favors. They are out to make money as fast as they can. This is evident through the way they take advantage of customers through credit cards and the bait and switch tactics used through many of their programs.

If you are buying a home or re-financing, go with someone that is not a marketing machine with dicey offers. Go with someone who can consult and be a trusted resource.

There are two ways to start. The smaller regional banks work hard at getting your business the right way. Many of the regional banks take the “hand shake” approach and treat banking customers the right way.

Go with a referral from a trusted resource. Alice White has been a frequent guest on my show. I have known her for over 25 years. Just last week she was able to save a Prudent Money reader almost a full percentage point off of what another broker was offering. She can be reached at alwhite@firsthorizon.com or 972-335-2252.

These are big decisions. Make sure that they are prudent decisions with a trusted resource. You don’t have time to over spend with another marketing ploy.

resources for this blog: www.minyanville.com and the Wall Street Journal