Most Popular Posts in 2007
2007 is my first full calendar year blogging. Thank you so much for your support. According to Google Analytics, these are the 5 most popular posts on my blog in 2007 (by "page views"):
- Which Vanguard Money Market Fund?
- What Happens When a Bank Goes Out of Business
- Best Checking Account Which Is Not A Checking Account
- Estimate Your Overall Personal Rate of Return
- Personal Rate of Return: Dollar Weighted Or Time Weighted
Looking Inside a Credit Card Portfolio
I was searching for some information about my credit card the other day and I accidentally stumbled upon a collection of interesting documents. They are the offering documents for Bank of America's borrowing backed by its credit card receivables. Bank of America lends money to credit card holders. It borrows the money from the capital market for the funding. The instruments they issue for the borrowing are the so-called Asset Backed Securities (ABS). While I'm not interested in or qualified for purchasing these particular securities, the offering documents offer a great under-the-hood view of a credit card receivable portfolio.
There are many documents. I'm just using a recent prospectus for BAseries Class A(2007-13) Notes as an example. It's a huge document, 232 pages. Most of the interesting data start on page 24. Here are some of my observations:
- 55 million credit card accounts owe Bank of America $94 billion. The average balanced owed is $1,719. 60% of the accounts don't carry any balance. Another 28% of the accounts have balance under $5,000. The average balance owed for accounts which carry a balance is $4,311. (p. 29)
Better Gift Cards
It's holiday time. Many stores are pushing gift cards and gift certificates. I heard a radio ad for a lottery gift card! You give someone a gift card so they can buy lottery tickets. Isn't that insane? The lottery has long been said as a tax on the poor. You give someone a gift so they can pay more taxes? Makes no sense.
I wrote about gift cards last year. I still think a check beats a gift card in many ways. There is value in the freedom to spend the gift amount anywhere someone wants. When you lock that down to a particular store, especially to a high-priced store, you lose that value. Also, a check encourages savings — you deposit a check. A gift card requires spending — you buy something with it.
I said last year if one must give a gift card, an Amazon gift certificate probably comes up as the next best choice because Amazon sells many things at good prices. Once a gift certificate is added to an Amazon account, it will be selected as the default payment option when you buy something the next time. It will be spent first. You won't have this forgotten or misplaced gift card breakage problem.
Giveaway: Free 1-Year Subscription to Bon Appetit, Domino, or Gourmet Magazine
[Update on 12/17/2007: The giveaway is closed. The randomly selected recipient has been notified.]
Because of a recent purchase at Amazon.com, I'm eligible for a free one-year subscription to a choice of "Bon Appetit," "Domino," or "Gourmet" magazine. I'm not interested in any of them. If any of you is interested, please send me an e-mail. If I receive multiple e-mails in the next 3 days, I will choose a random recipient. Don't send me the delivery address yet. I will contact you when I need it.
Terms from Amazon:
A Different World
I'm traveling on business again. I read this interesting letter from a reader in the US Airways Magazine. I added the link so you will see what he's talking about.
"On my US Airways flight, I would typically call my situation "unfortunate" -sitting on the runway for over an hour waiting for take-off. However, I opened up your magazine and started reading. I fell in love with the Mercedes-Benz CLK63 AMG Black Series that you wrote about so cleverly in the front section of your magazine. After reading, I knew this was my next car. As soon as we landed, I got to my hotel, called up my local dealer, and placed a deposit on the vehicle. After reading and talking to the salesman, I seemed to know more about the car than he did. I’m hoping I’ll be the first person in my area to own the new Black Series – too bad for everyone else who missed it in the magazine. So thanks for the heads-up. I’m excited about getting the car. I’ll be able to tell my friends and neighbors how I found it when they come over for a ride.
How a Callable Bond Worked
The Federal Farm Credit Banks (FFCB) bond I bought in February finally got called. For more info about federal agency/GSE bonds, see my previous post Agency Bonds for Higher Yield Over Treasury.
A callable bond means after a certain date, the bond issuer can redeem the bond early, before the bond's stated maturity date. When the issuer exercises that option, the bond is "called." It's similar to refinancing a mortgage, only in this case I'm the lender while the bank is the borrower. It makes sense for them to call the bond because they can borrow money at a lower rate now. Actually I'm surprised they didn't call it sooner. My 9-year 5.81% FFCB bond became callable after May 22, 2007. Since then, the 10-year Treasury yield went down from 4.8% to 4.0%. Yields on money market funds and online savings accounts also went down. Through this time, my bond was earning 5.81%, state income tax free, until it was called last week.
Why Banks Push Debit Cards
The Wall Street Journal reporters at FiLife started a series of "Why Don't They …" blog posts making suggestions about services and practices which seem to make sense to the customers but not offered by the financial institutions. I gave a one-word answer — economics. If you think they should do something but they are not doing it, first think about the economics. More likely that not, it's because they make more money by not doing it. Companies are driven by ROI — return on investment. They also compete with each other. The companies are NOT stupid. If something provides a benefit to the customers and it delivers a good ROI, you bet some companies will do it. If you don't see it happening, it means there is no good ROI or they are pursuing something else with a better ROI.
In Why Don’t They… Let Me Have an ATM card that Isn’t a Debit Card?, Ron Lieber asked why the banks give their customers a debit card bearing a Visa or MasterCard logo (also known as a Check Card) instead of just a plain ATM card which can also be used as a debit card but only with a PIN. In a follow-up post, Ron found out that many large banks actually do give out plain ATM cards but they don't make it the default option. Nor do they make it apparent that the customers have that choice. You have to specifically ask for it. It goes back to my previous post Opt In or Opt Out: The Power of the Default Option. The default choice is designed to benefit the business offering the choices.
A Visa/MasterCard debit card can be used with or without a PIN. When you use it with a PIN, it's called "PIN debit." When you use it without a PIN, it's called "signature debit." If you lose the debit card, whoever found it can use it in any store by doing signature debit. The cashier is supposed to check the signature but we all know they don't do a good job at that. A plain ATM card can only use PIN debits. Therefore it's more secure. If you lose it, nobody can use it without a PIN. You would think the banks should prefer a more secure card, but they don't. They push for the less secure card because they make more money if you use signature debit instead of PIN debit.
Salute to the American Consumers
If you read financial stories in the media you must have come across the talk of a forthcoming recession, like this article on Bloomberg, Recession Hits U.S. Profits; Economy Might Be Next. The lead paragraph reads
"U.S. corporate profits are in a recession, and the entire economy may not be far behind."
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