Comments for The Smart401k Blog http://blog.smart401k.com News, Views and Education on Retirement Investing and the Financial Markets from Smart401k Thu, 04 Dec 2008 02:10:29 +0000 http://wordpress.org/?v=2.5.1 Comment on Economic Crisis – Mortgage Backed Securities by Tom http://blog.smart401k.com/2008/10/27/economic-crisis-%e2%80%93-mortgage-backed-securities/#comment-1714 Tom Tue, 28 Oct 2008 14:17:57 +0000 http://blog.smart401k.com/?p=122#comment-1714 I know we keep pointing to the FHA for encouraging the sub-prime market but it would seem to me that there is a lot of blame to go around. I still hold the Hedge funds who were insuring the MBS at fault. They started insuring them in an unregulated way by selling credit swaps and holding them in companies that had no assets. So when the market tanked, their losses were limited and everyone else took on the pain. The poor smuck who just wanted a house like everyone else is not to blame. I know people who were buying 5 and 6 houses with no money down -- they helped fuel this thing too. I even got sucked in and closed the deal on a new house before I sold my old one. I have taken a heavy hit to my personal wealth because of it but like 95% of other Americans, I am meeting my obligations because integrity matters. I know we keep pointing to the FHA for encouraging the sub-prime market but it would seem to me that there is a lot of blame to go around. I still hold the Hedge funds who were insuring the MBS at fault. They started insuring them in an unregulated way by selling credit swaps and holding them in companies that had no assets. So when the market tanked, their losses were limited and everyone else took on the pain.

The poor smuck who just wanted a house like everyone else is not to blame. I know people who were buying 5 and 6 houses with no money down — they helped fuel this thing too. I even got sucked in and closed the deal on a new house before I sold my old one. I have taken a heavy hit to my personal wealth because of it but like 95% of other Americans, I am meeting my obligations because integrity matters.

]]> Comment on Economic Crisis – Mortgage Backed Securities by Charles Brownell http://blog.smart401k.com/2008/10/27/economic-crisis-%e2%80%93-mortgage-backed-securities/#comment-1705 Charles Brownell Tue, 28 Oct 2008 01:15:04 +0000 http://blog.smart401k.com/?p=122#comment-1705 You are absolutely correct. You've hit the nail on the head regarding your description. i have a better solution than the current fiasco. Ok here's the plan. Have a government sponsored loan available for every homeowner up to $100,000 - provided the outstanding mortgage is more than $100,000. The loan would be available at 0% interest plus the rate of inflation. The catch is that the loan would be personally guaranteed and would survive foreclosure and bankruptcy. As part of this deal the lending institution would agree to reset the balance of the loan to the prime rate. The $100,000 would go to the bank to pay off part of the mortgage. How much would this cost? Well we have 70 million homeowners and 50 million with a mortgage. Since this isn't limited to subprime it may be that all 50 million would take advantage of this offer. However, those who have a lower interest than current prime probably wouldn't take advantage. Also those who have nearly paid off their mortage probably wouldn't take advantage. Let's say 50% of of the 50 million homeowners take the government up on the deal. That would cost $2.5 trillion. Three thoughts on that $2.5 trillion. First it would immediately solve the liquidity crisis because it would flow back into the banking system immediately. Second, since the $2.5 trillion would be a loan it would eventually be repaid. Third, the original value of the mortgage wouldn't change. This is an important point. Only those people who truly want to keep their homes would take advantage of this plan. There's no uncertainty of how to value the bad loans. There's no buying distressed loans. There's no threat of the bailout causing housing prices to spiral downward like the existing plan. What's wrong with buying the distressed assets? You can't reasonably value them. If you pay too much the taxpayer doesn't get their money back. If you pay too little you cause downward pressure on housing prices. Price tag too high? Ok, limit it just subprime or limit it to ARMs or limit it to geographic areas - there are many many ways to limit the price tag. You are absolutely correct. You’ve hit the nail on the head regarding your description. i have a better solution than the current fiasco.

Ok here’s the plan.

Have a government sponsored loan available for every homeowner up to
$100,000 - provided the outstanding mortgage is more than $100,000. The loan
would be available at 0% interest plus the rate of inflation.

The catch is that the loan would be personally guaranteed and would survive
foreclosure and bankruptcy.

As part of this deal the lending institution would agree to reset the
balance of the loan to the prime rate.

The $100,000 would go to the bank to pay off part of the mortgage.

How much would this cost? Well we have 70 million homeowners and 50 million
with a mortgage. Since this isn’t limited to subprime it may be that all 50
million would take advantage of this offer. However, those who have a lower
interest than current prime probably wouldn’t take advantage. Also those
who have nearly paid off their mortage probably wouldn’t take advantage.

Let’s say 50% of of the 50 million homeowners take the government up on the
deal. That would cost $2.5 trillion.

Three thoughts on that $2.5 trillion.

First it would immediately solve the liquidity crisis because it would flow
back into the banking system immediately.

Second, since the $2.5 trillion would be a loan it would eventually be
repaid.

Third, the original value of the mortgage wouldn’t change. This is an
important point. Only those people who truly want to keep their homes would
take advantage of this plan.

There’s no uncertainty of how to value the bad loans.

There’s no buying distressed loans.

There’s no threat of the bailout causing housing prices to spiral downward
like the existing plan.

What’s wrong with buying the distressed assets?

You can’t reasonably value them. If you pay too much the taxpayer doesn’t
get their money back. If you pay too little you cause downward pressure on
housing prices.

Price tag too high? Ok, limit it just subprime or limit it to ARMs or limit it to geographic areas - there are many many ways to limit the price tag.

]]> Comment on Economic Crisis – Mortgage Backed Securities by Scott http://blog.smart401k.com/2008/10/27/economic-crisis-%e2%80%93-mortgage-backed-securities/#comment-1704 Scott Tue, 28 Oct 2008 01:00:11 +0000 http://blog.smart401k.com/?p=122#comment-1704 There is a principle called Ockham's razor which is attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It basically states that – "All other things being equal, the simplest solution is the best." The following are two simple ideas that effectively create the ideal social construct. Simple Idea #1 1. Socialize ALL Land 2. Charge leases on ALL Land based on demand. 3. Return 100% of the resulting revenue to every man, woman and child in the form of a yearly dividend check. 4. Make the Universal Birthright of Land an Everlasting Standard in the education of every Child. This effectively makes the average piece of Land Free for every Living Soul and restores our Natural Birthright as well as coupling our social construct to the Principles of Life. Simple Idea #2 1. Remove ALL FORMS of taxation 2. Implement a Tax on ALL new goods based on the resources they contain and the resources they use in production and delivery (this can easily be implemented with the current barcode system used at the checkout) 3. Use this system to encourage/discourage various resource usages (High tax on non-renewable/ecosystem damaging products and low/no tax on renewable/ecosystem enhancing products) and to encourage purchasing of local products. 4. Use the resulting revenue to fund infrastructure expenses and the restoration of ecosystems.. This effectively encourages the creation/use of longer lasting, high quality products as well as encouraging recycling and reuse of existing products. Idea #2 effectively constrains the ravaging appetite of the capitalistic consumer society within the Boundaries of Sustainability while Idea #1 effectively encloses both Sustainability and capitalism within the Principles of Life. That's it!!! The path to True Democracy. Simple and Effective Scott There is a principle called Ockham’s razor which is attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It basically states that – “All other things being equal, the simplest solution is the best.”

The following are two simple ideas that effectively create the ideal social construct.

Simple Idea #1

1. Socialize ALL Land

2. Charge leases on ALL Land based on demand.

3. Return 100% of the resulting revenue to every man, woman and child in the form of a yearly dividend check.

4. Make the Universal Birthright of Land an Everlasting Standard in the education of every Child.

This effectively makes the average piece of Land Free for every Living Soul and restores our Natural Birthright as well as coupling our social construct to the Principles of Life.

Simple Idea #2

1. Remove ALL FORMS of taxation

2. Implement a Tax on ALL new goods based on the resources they contain and the resources they use in production and delivery (this can easily be implemented with the current barcode system used at the checkout)

3. Use this system to encourage/discourage various resource usages (High tax on non-renewable/ecosystem damaging products and low/no tax on renewable/ecosystem enhancing products) and to encourage purchasing of local products.

4. Use the resulting revenue to fund infrastructure expenses and the restoration of ecosystems..

This effectively encourages the creation/use of longer lasting, high quality products as well as encouraging recycling and reuse of existing products.

Idea #2 effectively constrains the ravaging appetite of the capitalistic consumer society within the Boundaries of Sustainability while Idea #1 effectively encloses both Sustainability and capitalism within the Principles of Life.

That’s it!!! The path to True Democracy. Simple and Effective

Scott

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by Mark B. http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1626 Mark B. Fri, 24 Oct 2008 00:46:04 +0000 http://blog.smart401k.com/?p=113#comment-1626 I accept your challenge and have increased my 401k contribution by 2%. I have been toying with the idea anyway, so this will give me the incentive to go ahead and do it! I accept your challenge and have increased my 401k contribution by 2%. I have been toying with the idea anyway, so this will give me the incentive to go ahead and do it!

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by RED B. http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1608 RED B. Thu, 23 Oct 2008 06:48:07 +0000 http://blog.smart401k.com/?p=113#comment-1608 I have increased mine by 1%. Scary as it is, I think right now is the time to do it! I have increased mine by 1%. Scary as it is, I think right now is the time to do it!

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by Jeff S http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1585 Jeff S Wed, 22 Oct 2008 13:33:11 +0000 http://blog.smart401k.com/?p=113#comment-1585 AJS, Even when you max out on your contributions of $15,500 you still have options available to you. The $15,500 limit only applies towards pre-tax contributions. If you are over the age of 50, an additional $5,000 can be contributed pre-tax as a catch up contribution (resulting in a pre-tax contribution of $20,500). If you max out in either case, you will want to see if your employer allows after tax contributions. The total that can be contributed to a 401k plan in 2008 is $46,000 or 100% of your compensation - whichever is less. This means if after-tax contributions are allowed, you can continue to contribute to your 401(k) and possibly continue to receive the company match. In 2009, the pretax contribution limit will go up an additional $500 and the total 401k contribution limit will be increased by $1,000. The other option would be for you to contribute to a Traditional IRA or Roth IRA. For 2008, those under 50 can contribute an additional $5,000 in an IRA while those over 50 can contribute $6,000. Both the Traditional IRA and Roth IRA are good platforms to continue putting money aside for retirement. AJS,

Even when you max out on your contributions of $15,500 you still have options available to you. The $15,500 limit only applies towards pre-tax contributions. If you are over the age of 50, an additional $5,000 can be contributed pre-tax as a catch up contribution (resulting in a pre-tax contribution of $20,500). If you max out in either case, you will want to see if your employer allows after tax contributions. The total that can be contributed to a 401k plan in 2008 is $46,000 or 100% of your compensation - whichever is less. This means if after-tax contributions are allowed, you can continue to contribute to your 401(k) and possibly continue to receive the company match. In 2009, the pretax contribution limit will go up an additional $500 and the total 401k contribution limit will be increased by $1,000.

The other option would be for you to contribute to a Traditional IRA or Roth IRA. For 2008, those under 50 can contribute an additional $5,000 in an IRA while those over 50 can contribute $6,000. Both the Traditional IRA and Roth IRA are good platforms to continue putting money aside for retirement.

]]> Comment on Economic Crisis – The Players and the Initial Factor by dan http://blog.smart401k.com/2008/10/12/economic-crisis-%e2%80%93-the-players-and-the-initial-factor/#comment-1575 dan Wed, 22 Oct 2008 07:03:14 +0000 http://blog.smart401k.com/?p=115#comment-1575 While PMI insurance may be a contract between the lender and the insurance company, the borrower is the one paying the premiums for it. Not to mention that the fed has made it an insurance premium that is tax deductable as of a couple years ago. True enough, if someone is defaulting or is otherwise loosing a house, the PMI supposedly protects the lender from loss and the borrower is no doubt realing from other headaches as well. So why are there millions of mortgage lenders crying that they've lost out... the 80%+ borrowers don't even have a choice in the matter; money was paid for PMI premiums in their escrow accounts. In short, a lot of banks are crying they've lost on defaulted mortages, yet even in the wild-west days as recently as a year ago, the mortage companies, while not even requiring proof that a borrower could service a mortgage, did require that borrowers getting mortgages for 80%+ loans on their houses had to get PMI. Where did all the coverage go? If PMI, as an insurance vehicle in general, can default on its obligation to policy holders, what's to say other types of insurance don't follow suit? Aren't insurance compaines required, by state law, to have, on an escrow-type, ultra-conservative deposit, certain %'s of every policy they write to avoid just such a fiasco as we all saw a few weeks go? If you haven't gathered it allready, I'm not a big fan of insurance, for this very reason. All the premiums were made off with and the insurance companies were left to go under while grossly overcompensated Joe CEO basks on a warm sunny beach. This is not really an investment issue either, I just have not heard any other folks bringing this topic up. Probably has nothing, at all, to do with retirement investing. But it is an issue I see a need for resolution to. We're talking billions of $'s in premiums. Thanks for replying. While PMI insurance may be a contract between the lender and the insurance company, the borrower is the one paying the premiums for it. Not to mention that the fed has made it an insurance premium that is tax deductable as of a couple years ago.
True enough, if someone is defaulting or is otherwise loosing a house, the PMI supposedly protects the lender from loss and the borrower is no doubt realing from other headaches as well.
So why are there millions of mortgage lenders crying that they’ve lost out… the 80%+ borrowers don’t even have a choice in the matter; money was paid for PMI premiums in their escrow accounts.
In short, a lot of banks are crying they’ve lost on defaulted mortages, yet even in the wild-west days as recently as a year ago, the mortage companies, while not even requiring proof that a borrower could service a mortgage, did require that borrowers getting mortgages for 80%+ loans on their houses had to get PMI.
Where did all the coverage go?
If PMI, as an insurance vehicle in general, can default on its obligation to policy holders, what’s to say other types of insurance don’t follow suit?
Aren’t insurance compaines required, by state law, to have, on an escrow-type, ultra-conservative deposit, certain %’s of every policy they write to avoid just such a fiasco as we all saw a few weeks go?
If you haven’t gathered it allready, I’m not a big fan of insurance, for this very reason. All the premiums were made off with and the insurance companies were left to go under while grossly overcompensated Joe CEO basks on a warm sunny beach.
This is not really an investment issue either, I just have not heard any other folks bringing this topic up.
Probably has nothing, at all, to do with retirement investing. But it is an issue I see a need for resolution to.
We’re talking billions of $’s in premiums.
Thanks for replying.

]]> Comment on A Week in the Rearview - week ending 10/10/08 by SEverhart http://blog.smart401k.com/2008/10/11/a-week-in-the-rearview-week-ending-101008/#comment-1549 SEverhart Tue, 21 Oct 2008 12:58:11 +0000 http://blog.smart401k.com/?p=114#comment-1549 I, too, took Scott up on his 1% challenge and am encouraging my friends and co-workers to do the same. This is a time to take advantage of today's market, not by panicking, but by buying low! I think the discount Scott offered is a great incentive as well and hope more take advantage of it. The blogs have been very reassuring and appreciated in times like this. SE I, too, took Scott up on his 1% challenge and am encouraging my friends and co-workers to do the same. This is a time to take advantage of today’s market, not by panicking, but by buying low! I think the discount Scott offered is a great incentive as well and hope more take advantage of it. The blogs have been very reassuring and appreciated in times like this.

SE

]]> Comment on Economic Crisis – The Players and the Initial Factor by Scott H http://blog.smart401k.com/2008/10/12/economic-crisis-%e2%80%93-the-players-and-the-initial-factor/#comment-1535 Scott H Mon, 20 Oct 2008 23:24:14 +0000 http://blog.smart401k.com/?p=115#comment-1535 Dan, I believe you are talking about PMI or Private Mortgage Insurance. This an insurance contract between the lender and the insurance company. In theory the contract protects the lender in the event that the borrower defaults (stops payment) on the loan and the lender is unable to recoup 100% of the loan after foreclosing and selling the property. The insurance is often required when the borrower is putting down less than 20% of the value of the house, as you point out, and is typically paid for by the borrower. What I think you are describing is when the property is foreclosed on, the lender is unable to recover 100% of the value of the loan and the lender is then unable to collect the difference from the mortgage insurer. In this case the it would be a dispute between the lender and the mortgage insurer. The individual borrower will have lost the house before this occurs and to my knowledge will not be subject to any additional penalities than they will already face because of the default. For this reason, I don't think the average borrower who pays for PMI will be able to apply for a refund of the payments they have already made. As far as who will be held accountable... I'm unsure at this point who, if anyone, will be punished. Dan,

I believe you are talking about PMI or Private Mortgage Insurance. This an insurance contract between the lender and the insurance company. In theory the contract protects the lender in the event that the borrower defaults (stops payment) on the loan and the lender is unable to recoup 100% of the loan after foreclosing and selling the property. The insurance is often required when the borrower is putting down less than 20% of the value of the house, as you point out, and is typically paid for by the borrower.

What I think you are describing is when the property is foreclosed on, the lender is unable to recover 100% of the value of the loan and the lender is then unable to collect the difference from the mortgage insurer. In this case the it would be a dispute between the lender and the mortgage insurer. The individual borrower will have lost the house before this occurs and to my knowledge will not be subject to any additional penalities than they will already face because of the default.

For this reason, I don’t think the average borrower who pays for PMI will be able to apply for a refund of the payments they have already made.

As far as who will be held accountable… I’m unsure at this point who, if anyone, will be punished.

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by Paul G. http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1534 Paul G. Mon, 20 Oct 2008 22:31:04 +0000 http://blog.smart401k.com/?p=113#comment-1534 I've accepted the challenge and increased my contribution 5%. As Warren Buffet wrote last week, if he's bullish on US equites then who am I to not follow his wisdoms. I’ve accepted the challenge and increased my contribution 5%. As Warren Buffet wrote last week, if he’s bullish on US equites then who am I to not follow his wisdoms.

]]> Comment on A Week in the Rearview - week ending 10/17/08 by Eugene http://blog.smart401k.com/2008/10/18/a-week-in-the-rearview-week-ending-101708/#comment-1531 Eugene Mon, 20 Oct 2008 19:25:50 +0000 http://blog.smart401k.com/?p=118#comment-1531 Nice article. Thanks. :) Eugene Nice article. Thanks. :) Eugene

]]> Comment on A Week in the Rearview - week ending 10/10/08 by LMcCormack http://blog.smart401k.com/2008/10/11/a-week-in-the-rearview-week-ending-101008/#comment-1528 LMcCormack Mon, 20 Oct 2008 16:52:46 +0000 http://blog.smart401k.com/?p=114#comment-1528 So, I decided to take Scott H. up on the 1% challenge. I increased the amount going into my 401k by 1% - that's up from 22% to 23%. A 1% increase is nothing, I won't even notice it. The rewards in the long run will be worth it. And since I'm a long-term investor, I have 25 years before I retire, this is a good time for me to continuing buying. I'll be dollar-cost averaging the purchase price of my stocks over time. And while I do think the market will continue to go down some more until we start seeing the effects of the bailout, I'll be ready for when it starts heading back up! LM So, I decided to take Scott H. up on the 1% challenge. I increased the amount going into my 401k by 1% - that’s up from 22% to 23%. A 1% increase is nothing, I won’t even notice it. The rewards in the long run will be worth it. And since I’m a long-term investor, I have 25 years before I retire, this is a good time for me to continuing buying. I’ll be dollar-cost averaging the purchase price of my stocks over time. And while I do think the market will continue to go down some more until we start seeing the effects of the bailout, I’ll be ready for when it starts heading back up!

LM

]]> Comment on A Case Against Market Timing by Jane http://blog.smart401k.com/2008/06/04/a-case-against-market-timing/#comment-1526 Jane Mon, 20 Oct 2008 15:35:56 +0000 http://blog.smart401k.com/?p=62#comment-1526 I belive you were talking about me in your first paragraph. I thought about it for awhile, then left 55% into the money market account I have here at work and distributed the other 45% accordingly. The first day I lost almost $2900, first day! But I kept it in those accounts and now am moving back to having my original investment. Since I have 4 or 5 years til retirement, I will keep it diversified as you state, but only part of it.....I am still extremely nervous about the market. Here at my Federal job, 401K is at least 75% of my retirement. I belive you were talking about me in your first paragraph. I thought about it for awhile, then left 55% into the money market account I have here at work and distributed the other 45% accordingly. The first day I lost almost $2900, first day! But I kept it in those accounts and now am moving back to having my original investment. Since I have 4 or 5 years til retirement, I will keep it diversified as you state, but only part of it…..I am still extremely nervous about the market. Here at my Federal job, 401K is at least 75% of my retirement.

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by Jeff http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1510 Jeff Sun, 19 Oct 2008 23:20:14 +0000 http://blog.smart401k.com/?p=113#comment-1510 I plan on increasing my 401K contribution tomorrow by 1% and would like to take advantage of the advice from smart401k.com I plan on increasing my 401K contribution tomorrow by 1% and would like to take advantage of the advice from smart401k.com

]]> Comment on Why I’m Buying into the Market and My 401(k) Challenge by Jim A http://blog.smart401k.com/2008/10/10/why-im-buying-into-the-market-and-my-1-challenge/#comment-1508 Jim A Sun, 19 Oct 2008 22:28:03 +0000 http://blog.smart401k.com/?p=113#comment-1508 I accept the challenge also. I have experienced the bad choice of selling when I should have been buying, in the past, so I'm maxing out my pre-tax limit while the funds are basically "on sale" I hope it's a short bear market! I accept the challenge also. I have experienced the bad choice of selling when I should have been buying, in the past, so I’m maxing out my pre-tax limit while the funds are basically “on sale” I hope it’s a short bear market!

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