The bailout bill and its failure to pass the House, coupled with the 777 point fall of the Dow at the beginning of the week, has really dominated the headlines recently so it’s not surprising that not many people have focused on this bit of news - the FDIC managed to broker the sale of Washington Mutual to JPMorgan Chase and parts of Wachovia to Wells Fargo (link) Citigroup and they didn’t bankrupt themselves (or go to the government for more money).

For weeks (if not months), people have talking about how the failure of Washington Mutual, the largest thrift with $307 billion in assets, and the failure of Wachovia, who had a loan portfolio of $312 billion, would bankrupt the FDIC. The FDIC isn’t entirely off the hook though, the FDIC is backing some of the downside loss on the bad debt, but as it stands right now they managed settle two big issues without much loss.

If you’re curious as to the details of both deals, here’s an article about JPMorgan Chase acquiring WaMu assets and here’s an article about Wells Fargo buying up Wachovia’s deposits and banking business. While it still remains to be seen whether everything involving these banks is OK, it definitely two headaches off the radar for now.

Do you think we should applaud the FDIC for dodging a huge bullet (at least for now)? Or did we just shuffle the deck chairs?

(Photo: Sërch)

Last week, the stock indices had both their single greatest losses and single greatest gains in the last six years. Despite all the insanity, the market as a whole lost little from Friday the 12th to Friday the 19th. We were short a few companies as Lehman collapsed and 80% of AIG went to the Feds but despite all that turmoil, the various market indices were OK. We also lost the last of the investment firms as Goldman Sachs and Morgan Stanley became bank holding companies. Oh, and did you hear? JP Morgan Chase is picking up a few pieces of WaMu yesterday.

A heck of a week huh?

What I’d like to know is what do you think about the last two weeks, what do you think about this $700B bailout bill (yeah, the one where one second there’s agreement and the next there isn’t?) and what have you been doing with your finances as a result of all this craziness?

Me? I haven’t touched a thing, fortunately I’m far enough away from retirement that I believe we can weather it. I don’t think we’re going into a Great Depression or anything like that (the central bank understands monetary policy and economics well enough to prevent that) but I wouldn’t be surprised if things were slow for a few years as a result.

As for that bailout bill? I only have eight classes of economics (that’s all I needed for that Econ double major, w00t w00t) and I am wholly unqualified to either justify or tear down the bailout bill. I understand the reasoning behind it but I don’t know if we’re going down the right path or whether we’re just signing yet another IOU. All I know is that the provision to snip the golden parachutes of executives at bail out firms better make it into the final draft. TGIF.

A few years ago I met with a financial planner who was probably the same age, or a few years older, as me. We chatted a little, discussed some of my future plans, and basically he tried to sell me on some products. It was all in all not exactly a valuable meeting but part of that was my fault, I didn’t really have future plans. I had just graduated college, started getting my first few paychecks, and I had no plans for anything. I was just living life as best I could now that I had some real money. If I met with a financial planner now, it’d probably work out a little differently.

This guy lost $6M overnight. David Shorr had been a long time employee of Lehman and amassed quite a little collection of shares, all of which were rendered worthless on Monday. David Shorr works as a “wealth adviser,” a senior VP, at Morgan Stanley now and it made me wonder if I’d actually want the guy being my adviser (not that I’d be able to afford him!).

What if you found out that your financial planner was bad about his or her own finances? Or a financial advisor or broker whose investment portfolio was a mess? Would that change your perception of his or her advice? Would you drop them if you discovered they were bad?

I probably would.

I agree with the argument that being a good financial planner has nothing to do with executing a financial plan. A good financial planner needs strong organizational skills, good analytical skills, and a whole host of other skills that have nothing to do with sticking with a plan. A good planner can establish a savings plan that can set you up nicely to meet your future needs, given some assumptions, but it’s ultimately up to you to save. The financial planner with bad finances could simply be bad at that last part, the saving part. I agree with all that.

But would you hire a landscaper if his front yard looked like it hadn’t even been mowed in a year?

Diamonds are commodities. They’re rated by organizations on the four “C’s” (clarity, color, cut and carat) and the “value” of the diamond depends on those specifications, nothing else. So why can Tiffany’s charge $16,600 for an engagement ring when a no-name store could only charge six thousand dollars less? (a 2005 ABC News story about this very subject) In my opinion, it’s all in marketing that robin’s egg blue box that Tiffany’s jewelry all comes in.

Nowadays, you can buy an engagement ring from a variety of sources including but not limited to warehouse stores like Costco and online sites like Blue Nile and Amazon.com. You can get them for far cheaper from these sources, but it begs the question… would it bother you if you knew your engagement ring came from a budget big-box type of store?

I think Tiffany’s is the only brand capable of charging such an exorbitant premium (there are a few others but Tiffany’s is the only one everyone knows about). So for many, if it’s not Tiffany’s, then it almost doesn’t really matter where it came from, right?

I’m fairly confident my wife wouldn’t care if the ring came from Costco. (it didn’t, but they were certainly in the running) While I would never receive an engagement ring, I don’t think I’d care about the name of the store listed on the receipt.

How about you? Do you think it changes anything?

(Photo:nancyhedy)

I’m not asking because I want to rob you, though if you carry more than a grand I would be tempted (just kidding! ), but cash seems like such an outdated way to stay financed.

How much do you have on you right this very second? I just checked my wallet and I have $142, which is far higher than what I normally carry. It’s that high because two weekends ago we took a trip to Ocean City, MD with some friends and I did one of those “pay with credit card, take the cash” moves at a restaurant (Citi mtvU offers 5% cashback and I have student loans to pay off!) so that boosted the amount.

A few months ago, I remember reading an article in a major men’s magazine that talked about how carrying a fat roll of cash gives you a sense of power, confidence, and bravado that you don’t have carrying a couple pieces of plastic. I believe the author likened it to a power suit. Anyone who has put on a nice suit can attest to this. Suits boost your confidence because you look good in them. You look professional, smart, and powerful. Does a roll of money do the same?

Normally, I don’t carry much cash on me, maybe forty or fifty bucks at any one time. I don’t really see the advantage in carrying a lot of cash. Plastic offers so many more protections on so much more money that credit cards are really my primary source of funding. If you lose cash, it’s gone. If you lose a credit card, you cancel it and get a new one. The combined credit limits on the cards in my wallet is easily over ten thousand dollars but I would never ever even consider putting more than a few hundred in my wallet.

How much cash do you have on you right now? How much cash do you usually carry on you? Why so little or so much? Do you think I need to carry more or less? Do you think I’m insane?

My wife and I once discussed getting genetic testing done to figure out whether our kids would be grow up to become NBA superstars and fund our lavish retirement plans. Anyway, with that plan in mind, I originally planned to spend tens of thousands of dollars to get myself tested by a plethora of different genetic testing companies, but Discover Magazine, with their deep pockets and journalistic pull, beat me to the punch and saved me a bunch of money. (whew!)

Boonsri Dickinson was genetically tested by three different firms (Navigenics, 23andMe, and deCODE genetics) and the results were… eh, anticlimactic. What I learned in Dickinson’s article was that genetic testing was at best still an imperfect science. The data we have on the human genome simply isn’t deep enough to give us a clear and accurate picture of even our own future, let alone the future of the children of couples being tested.

One surprising factoid was the importance of race. I had always heard that there was really no genetic difference between any two races, that individual variance was a bigger deal than racial variances. This was in direct conflict with the analysis methodology for interpreting the DNA testing results. Dickinson is half-European and half-Asian… and her 23andMe results would wildly fluctuate based on how she classified her ancestry.

While I can see the merits of genetic testing, it still sounds like it’s an imperfect science because we simply don’t understand it well enough. We often see media stories about how we’ve discovered the gene for this or that and the reality is that it’s just not that simple. I think genetic testing, for now, with its hefty price tag and inaccurate results, is out of any future plans.

How about you? Ever consider it? Too creepy (Gattaca, anyone?)? Too expensive? See no point to it?

(Photo: mknowles)

The price of gas has dropped by a significant amount the last month or so (though a barrel of oil popped up $6 yesterday!), we might be looking at the beginning of oil slipping out of the stratosphere (could be lowered demand, could be speculators running for the exits, who knows!?). This begs the question, will all of our energy consumption habit changes stick?

Whenever people think of high fuel prices, they think back to the energy crisis of the 70s. One big difference between this last energy crisis and the 70s was that in the 70s, there was rationing. If you wanted fuel, you couldn’t necessarily get any. In the energy crisis today, and I loathe to even call it a crisis, you can buy gasoline anytime you wanted to. It might have been close to four dollars a gallon but you didn’t have to wait in lines or wait for the right day to buy. I think that’s a huge difference.

Here’s the scary part. The last energy crisis should’ve been a wake up call … but we hit the snooze button. Here we are, dealing with our reliance on oil, and there’s nothing that says our changes and the presidential campaign rhetoric this will result in action. I never lived through the last energy crisis but the stories I’ve read show a time when that crisis had a greater impact on one’s life.

As a naturally frugal person, I didn’t make many changes to my life to conserve energy. I’ve always had an eye on the recurring costs of things like my car, so I’ve never had a gas guzzler. I own a Toyota Celica and my first car was an Acura Integra, both are efficient with fuel. I try to use as little energy as possible, even before electricity prices spiked dramatically in Maryland, simply because I didn’t want to pay for something I didn’t need to. Let’s be honest, I need the money more than the power company!

So I’m fairly confident that any changes I have made will stick because they’ve been so tightly integrated, I feel as though I never changed in the first place! How about you?

(Photo: notjake13)

I listen to the American Public Media’s Marketplace shows almost every day (this was before Lynnae, Steve and I were on last week, which was really cool!) and a few months ago there was a personal finance segment, in which a caller asked about annuities in their IRA. About halfway through the answer, the personal finance expert, Chris Farrell, describes “rich” as someone who has maxed out their IRAs ($5,000/yr) and their 401(k)/403(b)s ($15,500/yr) and still has discretionary income to contribute towards investments.

I thought it was a great definition of financially rich because it was both concrete (gives a set dollar amount and criteria) and financially responsible in its message (meaning rich people should max out their IRAs and defined contribution plans). Of course, rich is a much broader word than dollars and cents and I would extend that definition to include some comments about happiness, family/loved ones, and fulfillment (basically fulfillment of Maslow’s entire Hierarchy of Needs, in a sense), but I want to leave that out of the discussion for now).

I asked some bloggers earlier this week what it meant to them and here’s what they said:

• Plonkee
• One Caveman’s Financial Journey
• MoneyNing
• Bible Money Matters

I’d like to know, how much is “rich” to you?

(photo: christinasnyder)

It used to be that the measure of a recession was two consecutive quarters of negative GDP, something that we haven’t done yet. However, with all the bad financial news (enormous national deficit next year, 1 in 171 homes being foreclosed, record unemployment, stock market woes, financial companies taking massive writedowns, domestic car manufacturers tanking, etc), it’s sure feels like a recession despite the official measures telling us otherwise.

(As an aside, the two consecutive quarters rule is really a trailing indicator. You’re in a recession when the GDP is contracting but you don’t label it a recession until after two quarters, so you live it before you label it. Makes the term kind of useless, doesn’t it?)

I’m curious to know whether you think we’re in a recession. I posed the question to Chris Farrell, Marketplace Money’s personal finance guru, and he said:

I am in the camp that believes we are in a recession. Yes, government statisticians recently reported that the economy is expanding at a 1.9% average annual rate. And it takes the National Bureau of Economic Research–the official arbiter of when and if the U.S. economy is in recession–between 6 month to 18 months after a downturn begins to label it as a recession.

Still, the job market is weak, and getting worse. Layoffs are hitting more industries. Home prices keep spiraling lower, and we haven’t seen bottom yet. The credit turmoil in the financial system is spreading, most recently reaching the credit card market. Consumers are strapped for cash, with higher energy and food prices sapping budgets. Exports are one of the few bright spots in the economy.

What’s more, official history is being revised downward. It’s intriguing to note that when the government revises previously published statistics the figures are usually worse than initially reported. For example, the fourth quarter of last year was recently revised down to negative growth: -0.2% from the previous 0.6%. Mike Mandel, chief economist at Business Week, has been making a strong case over at his blog that the consumer spending figures are too high.

It feels like a recession. It looks like a recession. And eventually I think it will be labeled a recession.

(Photo: bobjagendorf)

The first company I worked for had a dedicated department, of maybe two or three employees, focused entirely on “employee wellness.” They offered services like body fat analysis but didn’t go as far as this company in requiring them. Personally, I think the motivations are good but I can see how people would think that’s invasive.

My company didn’t require you to participate in their programs but they did provide incentives for doing so. The medical insurance provider was called Lumenos and they offered a program in which you were given $1,500 a year to cover your medical costs. If you didn’t use the funds, it was rolled over into the next year. If you did and your costs exceeded $1,500, you covered the costs up to $2,000 (an additional $500), and then traditional health insurance would kick in (10% co-pays, etc.) beyond $2,000. It worked fantastically well for young professionals who, in general, have little in the way of medical costs. They incentivized participation in wellness programs by offering medical coverage money. Fill out a health survey and get $20. Participate in this program, get $25. It wasn’t required, you didn’t really get “paid,” but it boosted participation and got people thinking about wellness.

I think requiring it would’ve caused a backlash.

Either way, wellness programs are boosting the bottom lines at businesses by cutting medical costs. Everyone knows preventative care is cheaper than treating illnesses or conditions on the other end, everyone including prescription drug and treatment companies (fire away!). This was the topic of a Marketplace segment a couple weeks ago and they found that at Gilsbar, costs are lowered when you introduce preventative care measures. Here’s a quote from the segment:

Doug Layman (executive VP at Gilsbar): Our health plan costs are 6 percent lower than they were five years ago. Our prescription drug costs, which everybody complains about, is 45 percent lower than they were five years ago. And 85 percent say their benefits package is better today than it was five years ago. Yet we’re paying less, and we have happier, more productive people.

That’s one of the reasons why countries with nationally subsidized health care programs pay far less than we do - preventing something is cheaper than curing something. It’s a big joke that Americans pay the most for health care yet don’t find themselves with the best care (in fairness, I’ve heard the argument against that is that our best of the best is far superior to other countries but the “average” care received any one member of the population is below other countries).

Getting back to the wellness programs, does your company offer something like this? If so, do they require anything or is everything optional? What would you think about being forced to do a body fat analysis? What if you had to pay more based on the status of your health?