Finally! Glass-Steagall like plan coming to the UK

June 14th, 2011

The WSJ is running a story saying the UK Treasury is going to announce a plan to force banks to separate their risk taking side (investment houses) from their safe and sound deposit (banking) side.  This dear reader, is good news!

Of course, you might be saying – “wow that seems like a really good idea, why didn’t that rule exist before”?  In fact, it is a really good idea and it did exist before.  For it was from the very hard learned lessons of the Great Depression that such a good idea was born. An idea that helped keep our banking system safe, secure and sound for 80+ years.  That is of course, until it was repealed!

Here are some highlights of what this will mean in the UK:

“The goal of ring-fencing is to insulate risky activities, such as trading, so that deposits won’t be put at risk by banks’ investment-banking operations. Proponents say it could also make a failing bank easier to unwind in a crisis. In backing ring-fencing, the British government is going much further than its counterparts in the U.S. and Europe.”

[sarcasm] Well that’s just crazy! Why on earth should deposit-taking banks that we trust to keep the foundation of the economy running (savings, checking, payroll, mortgages, ATMs, etc.) be prevented from making risky Vegas style bets on with our money?

“Mr. Osborne is also expected to reveal that he will require deposit-taking banks to hold additional capital, which could signal that the U.K. will go beyond tough new global rules on the amount of capital banks must hold to protect against losses—another example of how the U.K. wants to position itself as a leader on financial reform.”

[sarcasm] Again, this is just nuts!  Do we really want our risk-adverse deposit-taking banks be on solid and sound financial footing?

If you are not familiar with the Glass-Steagall Act you should beWe desperately need this act reinstated here in the US.


Plan to Rope Off Bank Peril | The Wall Street Journal

Below Your Means Favorites of the Week

June 10th, 2011

With so many great posts in the world of Personal Financial Blogs, it is hard to keep up with them all.  Here are a few of our favorites from the week:

Personal Finance / Etc.

Economics / Investing

If I Had One Financial Do-Over, What Would It Be?

June 10th, 2011

Today, we are taking part in our first Yakezie Blog Swap.  This swap’s topic is:

If you had one financial do-over, what would it be and why?

When I saw the topic, I instantly knew what my “do-over” would be.  My financial do-over is about missed investment opportunity.

Like many bears, I tuned in to the impending collapse of the financial market last decade.  My wife and I sold our home in the fall of 2007 and rented for two years as home prices collapsed.  My family and I also believe strongly in living below our means and as such are very prudent when it comes to spending, debt and investing.  Although I able to see the crash coming,  I was inaccurate on two very important accounts.

The first, the crash happened about 18 months later than I thought it would.  I mistakenly believed that enough people would see the fundamental problems sooner than they did.  This, of course, is the root of the old investing adage “the market can stay irrational longer than you can stay solvent.”

Second, the crash didn’t go as low as I thought it would.  Reflecting back, I got a little too caught up in my own doom-saying.  I was fixated on the DOW going down to around 4,000 and didn’t acknowledge that government was literally going to print trillions of dollars to make sure the price wouldn’t go there.  I thought that since printing all that money would ultimately make things worse, they wouldn’t do it.  Unfortunately, just because the government shouldn’t have done it, didn’t t mean they wouldn’t.  In fact, I should have known from history that the government was most likely to try to intervene in the short term at the expense of the long term.  I was naive to think otherwise.

This leads me to my financial do-over.  While this is a lot easier said than done.  If, I was able to do it over again, when the market crashed in 2009, I would have started to make small investments in the market.  I would have then continued to dollar-cost-average into these investments. Looking at the chart below you can see where, in hindsight, I should have considered “buying the market”.  The chart is of the DOW Jones Industry Index and the trend lines you see are drawn based on key tops and bottoms of the 1930’s.

If I had a do over, stock chart

The reasons I didn’t is that I was convinced of a few things:

  • Any stimulus or bailout plan the government came up with would only make things worse (it has)
  • None of the core reasons that caused the financial crisis would be fixed (they haven’t yet)
  • Ultimately the market will “re-test” (go down) to touch the middle trend line again and may / should go down to re-test the bottom trend line.
  • Only after touching the bottom trend line, will governments resolve to fix real structural issues and hold those responsible for this mess accountable.  From there, we can re-build and enjoy many years of true prosperity.

So there you have it, my financial “do-over”.  Fortunately we live and learn.

Budget with Adaptu and Mint – One Blogger’s Review

June 9th, 2011

With our current Below Your Means Basics focus on Budgets, we thought it would be interesting to comment on a few of the major pieces of tracking and budgeting software in the market today.  The editors at Below Your Means currently use Quicken Deluxe 2011 for all of our personal finance tracking and budgeting.  However, there are cloud-based solution such as or Adaptu.  These have the advantage of having no software maintenance you have to do on your own computer, and they’re free, which makes them a great value.  If keeping track of some very complex financial situations is important to you, or you’re leery of having your data in the cloud, Quicken Deluxe may be worth it.

The Narrow Bridge Personal Finance Blog has a excellent review of these two products. If you are looking to jump into either one products, I recommend giving the article a read first.

Eric, over at Narrow Bridge Finance, reviews each product in the following categories:

  • Interface & Navigation
  • Account Management
  • Analysis and Reports
  • Investment Tracking
  • Community
  • Overall

Based on the review, both and Adaptu are tied for first place, each having their own strengths and weaknesses.

I have used for a long time and have no plans to leave it behind, but I now have two aggregators in my bookmark list. I use Mint for my overall quick view, but I have Adaptu for more in depth looks into my investment and my travel reward tracking.

I would recommend reading the full review to determine which site works best for you.  The Narrow Bridge also has other good reviews of vs. Thrive and vs. Pageonce. Alternative – Adaptu: The Showdown of Mint vs. Adaptu | Narrow Bridge Finance

Read the Fine Print: Lesson in Saving Becomes Lesson in Getting Shafted

June 7th, 2011

A few weeks back, we posted about Youth Savings Accounts, which can be a great way to get above market rates for relatively small amounts of money.  Personally, I have set up one for my son and it allows him to earn 6.17% on $500, which is much better than the national average savings account rate.  Of course, leave it to Bank of America to find a way to screw people and their kids.  This case over at The Consumerist caught my eye:

In 2007, a mother of three thought she would introduce her kids to the world of banking by having them each open up passbook savings accounts at the local Bank of America branch. But rather than learning how savings earn interest over the years, the kids found themselves schooled in the finer points of bank fees and the need to check your statement.

The big issue was that the account started out as a “free” youth account, but quietly turned into an “anything-but-free” account in 2008.

The mom tells San Francisco’s KGO-TV that when she opened the accounts for the children, she had believed there wouldn’t be any fees associated with them because they were all tied to her existing BofA account. Alas, starting in 2008, each account was hit with a monthly fee of $3. In 2009, that fee went up to $5 per month.

Banks change terms and conditions all the time.  These changes are often buried within pages and pages of fine print.  As far as I know, all the recent laws such as the CARD Act only apply to credit cards and not deposit accounts.  Additional, the new overdraft protection rules only apply to overdraft fees.  This means banks can continue to add fees to savings, checking and other such accounts with little notice.  If you are going to take advantage of Youth Savings Accounts, be sure to read the fine print and be on the look out changes to the terms including:

  • Monthly Fees
  • Changes to minimum balance requirements
  • Changes to maximum balance that earns bonus interest rate
  • Changes to interest rates (this is a big on, because savings rates can change without notice)

I  do not bank with Bank of America.  Here are just a few reasons why:

Why anyone would bank at Bank of America is beyond me.  Jump over to The Consumerist to watch a video and to read more.

Mom Tries To Teach Kids Value Of Saving, Kids Learn Lesson About Bank Fees Instead | The Consumerist

Apple market cap now greater than MSFT + INTC combined

June 6th, 2011

With Friday’s close leaving Microsoft (MSFT) down 1.45% to $23.87 and Intel (INTC) down 1.38% to $21.78.  The total combined “market cap” or market capitalization of Apple (AAPL) is now greater than that of Intel and Microsoft combined.  (Market capitalization is a measure of what all outstanding public shares of a company are worth.)

With a market cap of of approximately $317.6 Billion, the market is telling us that Apple is the second most valuable company in the world, second only to the oil giant Exxon Mobil (XOM).

The article notes:

With the Worldwide Developer’s Conference fast approaching (June 6th-10th), it would appear that Apple has nowhere to go, but up. As a result, according to Yahoo! Finance, the current market cap for Apple is $317.54 billion USD. Additionally, Yahoo! estimates that the 1 year estimated stock value per share will be at $448.33.

No doubt, the author is pretty bullish on the stock.  And why shouldn’t he be? After all, analyst James Altucher thinks Apple’s will be the worlds first $1 Trillion dollar company.  You can see this video here:

This same analyst is so confident and bullish, he actually raised his estimate again, not even 2 weeks later, to $2 trillion.

In the same video, he actually says $3 trillion is reasonable.  Your take is that if and when Apple’s stock does hit $1000, it will not be because Apple is able to sustain 90% year over year ad infinitum, but because the value of the US dollar will drop by 50% or more in the future.  If a dollar is worth 1/2 of what is today 5 years from now and nothing else changes at Apple, there is no reason the stock price won’t be $700 or more in nominal terms.

Regardless, I recommend Apple investors proceed with caution and consider setting some stop orders in place to protect any gains they have realized in the last couple years.  After all, the market may be due for a correction.


Apple surpasses Microsoft + Intel in market cap |

Peter Diamond Withdraws – Partisan Politics and the Federal Reserve

June 6th, 2011

Economist Peter DiamondOver the weekend, Federal Reserve Nominee and Nobel Prize winner Peter Diamond withdrew from consideration in an op-ed column in the New York Times, citing strong Republican opposition.

… I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?  The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy.

The question of whether or not senate approval committees know enough about the field of policy for which they approve is an interesting one.  One thing is certain, however.  The state of economy, the skyrocketing of the national debt, and the devaluation of the dollar are the central political questions of our time.  We can expect a more dogmatic approach as experts from different schools of thought or political affiliations are discredited out of hand.

We believe that rising government debt and continued destruction of the dollar has to stop.  Honestly, we’re not so sure the Federal Reserve is a good idea to begin with.  If there is going to be a Federal Reserve, though, we’d prefer it be stocked with economists that don’t think we can print our way out of the current problem.  The interesting question for anyone in a time of crisis: do we believe it enough to reject, without consideration, the merits of any argument (or in this case, nomination) that is embraced the position we oppose?  More on this subject, and on the Fed in general, in the weeks to come.

When A Nobel Prize Isn’t Enough | The New York Times

Photo: Donna Coveney/MIT