What Did Your Representative Vote On the Bailout Bill?
The United States House of Representatives voted NO to the $700 billion bailout bill, officially Emergency Economic Stabilization Act of 2008 (H.R. 3997). I was interested to see how my congress representative voted.
First, if you don't know who your representative is, there is a Write Your Representative service provided by the House of Representatives. You can find out who your representative is if you know your zip+4 zip code. If you don't know what your zip+4 zip code is, you can look it up using your street address from the U.S. Post Office.
Now, the votes are in Final Vote Results For Roll Call 674. You have to use the "find" function (typically Ctrl+F) of your browser to find your representative by last name. The first bucket under AYES are the Yes votes. The next bucket under NOES are the No votes.
Mortgage Loans Around the World
In so many articles about the housing and mortgage crisis in the United States, adjustable rate mortgages (ARMs) are invariably mentioned as one of the culprits. People can't pay when the interest rate on their loan resets. The words ARM and dangerous are often used in the same sentence. Should ARMs bear the blame though? I linked to the mortgage loans offered by a Canadian bank in a previous post. There are no fixed rate loans in Canada. All they have in Canada are ARMs. If ARMs cause mortgage loan defaults and foreclosures, Canada would be in constant chaos.
As a follow-up to my post two weeks ago about understanding the world, I decided to expand my horizon beyond North America and take a look at mortgage loans in some other countries. Thanks to the power of the Internet and Google translation tools, I can do this relatively easily. I only limited my primitive research to developed countries. In each country, I picked a random bank, which should represent the available mortgage products in that country. I got the names of the banks from List of Banks in Wikipedia. If you want to see more details yourself, click on the link for each bank, which links to the mortgage offerings by that bank (translated to English if the original page isn't in English).
Canada – CIBC. No fixed rate loans. ARM and hybrid ARM with rate fixed up to 10 years. Refinance or take variable rate after the fixed rate period is over.
Breaking The Buck Is Not a Big Deal
If you have read newspaper or watched TV, you probably heard that a big money market fund "broke the buck" last week. That means it was not able to maintain the stable $1 Net Asset Value (NAV). Investors in that fund lost 3% when the NAV dropped to $0.97. Another money market fund run by Putnam decided to shutdown and return the money to the investors because it didn't want to sell its assets in a difficult market. Later the federal government said they would guarantee the money market funds.
As the title of this post reads, I say breaking the buck isn't a big deal. Why? Because it happens all the time. You just don't know it because it isn't obvious. This is called money illusion. The before-tax, before-inflation value isn't that meaningful. You can't spend before-tax, before-inflation money. You can only spend after-tax, after-inflation money. When you factor in tax and inflation, money market funds lose money all the time.
Here are the returns of Vanguard Prime Money Market Fund, one of the best money market funds in the U.S. At a marginal tax rate of only 15%, the fund's after-tax, after-inflation return was negative four years in a row from 2002 to 2005. It's also negative so far in 2008. If the tax rate is higher, it gets worse. If you are interested in seeing the numbers for a different tax rate, you can use the online spreadsheet I created.
Crime and Punishment
There is no doubt the financial market crisis is perpetrated by Americans. American homeowners decided to speculate on housing prices. American lenders lent irresponsibly. American borrowers decided not to honor their debt. American financial institutions packaged and sold mortgage backed securities to other American investors and to investors around the world. American bond rating agencies rated those garbage bonds AAA. American companies went bankrupt or had to be rescued by the American government. With all that said, it's ironic the American stock market isn't the most severely punished.
Far from it. If you look at this chart published by New York Times, the American stock market was one of the best in the world in 2008. Other countries are down much more. In case New York Times removes that chart in the future, let me write down a few numbers (all numbers are Jan 1, 2008 through Sept. 18, 2008):
| United States | -16.4% |
| Canada | -21.0% |
| Japan | -21.4% |
| Germany | -31.2% |
| Brazil | -31.4% |
| Russia | -53.3% |
| India | -47.9% |
| China | -47.9% |
Update for My Price Match Experience
This is an update to my price match post on Wednesday. A quick recap: A online store matches competitors' prices but it requires that price match requests be made within 7 days. I goofed and I didn't make my request until 15 days after I placed the order.
Most of the comments sided with the store and said I shouldn't get the price match. Although I was hoping for more sympathy, I actually agree with the comments. The policy is clearly posted. If I couldn't follow it, I can only blame myself. The higher price I paid was for convenient and reliable service. Reliable service is worth something.
What did this store do? They gave me the refund, no question asked. Now that's what I call exceeding the customer's expectation. In the world of gotcha's, a business that under-promises and over-delivers should earn praise and loyalty from its customers. I know this store will have me as a customer for a long time.
Price Matching Policy and Time Limit
There are enough chaos in the financial markets. I'm not going to post anything related to investing this week. There's plenty to read and digest about Lehman Brothers, Merrill Lynch and AIG. I believe all eyes are on WaMu now.
Should a business stand firm on its price matching policy? That's the question for today.
I have been buying a certain product from an online store. I never had a problem with them. They filled my orders accurately and delivered them fast. They also have a price matching policy. If you find a lower price for the same product elsewhere, they will match it and even beat it by a small amount. So I usually find the cheapest price on the Internet and then order from them. That way I get both a good price and a trusted and familiar service.
Our Knowledge of the World and the World's Knowledge of Us
I chatted with a visitor from France last week. We were talking about the fuel efficiency of our cars. Here in the United States the fuel efficiency is measured in miles per gallon (mpg). The higher the mpg, the more fuel efficient a car is. In Europe, it's measured in liters per 100 kilometers (L/100 km). The lower the number, the more fuel efficient a car is. He told me a good car in Europe consumes 6.5 – 7 liters per 100 km. How does that translate into miles per gallon? It turns out the relationship between the two measures is
miles per gallon * liters per 100 kilometers = 235
Nudge: Econs, Humans, and Choice Architecture
At the end of a previous post, Stories from Strapped: Debt, I asked,
How do you make people do the right thing for themselves?
SmartyPig Finally Got Smart
When SmartyPig first came out, I was negative about it. I wrote in March 2008 SmartyPig: A Simpler Way to Save Or a Fee Trap? To recap, SmartyPig works like labeled piggy banks. You first create a goal for what you are saving for. Then you set up automatic monthly transfers from your checking account to your goal account at SmartyPig. Money in your goal account earns a competitive interest rate. You can have multiple active goals at the same time. SmartyPig provides some tools which let you publish and track your progress toward your goals. You can also solicit contributions from your families and friends or even from the general public.
I had two major objections to SmartyPig when I looked at it last time. The first objection was that they charged $5 if you wanted to contribute to someone else's goal or a family member or friend wanted to contribute to your goal. Think Grandma giving money to grand kids. Or parents giving money to a Little League team. Because the contribution is likely to be under $50, charging $5 seems excessive. SmartyPig quickly changed that. If the contributor also opens a SmartyPig account and uses the linked checking account, a transfer from the checking account to another SmartyPig user's savings goal is free. That's great, but the contributor still has to open a SmartyPig account. If Grandma is not saving for some goals herself, Grandma may find it not worthwhile to open a SmartyPig account. If the contributor pays by credit card, SmartyPig charges 2.9%. For a $50 contribution, that'll be $1.45. While not free, it's much better than the old $5 price tag. SmartyPig also has to cover its own credit card processing fees too. I still wish SmartyPig accepts checks or sets themselves up as a payee with CheckFree. Then Grandma can simply use her bank's online bill payment and send $25 to the grandkid.
The second objection I had was that SmartyPig did not allow withdrawal to the linked checking account when the goal is reached. The only way to get the money you saved up in your piggy bank was using a prepaid debit card, a retail gift card, or requesting a check which SmartyPig charged $25 (!). I'm glad to see SmartyPig changed that too. They announced in late July you can transfer the money back to the linked checking account by ACH when your goal is reached or when you close your goal. That's the way it should be in the first place. Although it still isn't listed as the first choice, at least the choice is there. ACH transfer isn't listed as the first choice because SmartyPig doesn't make money if you do that, whereas SmartyPig makes some money if you use their debit card or buy a gift card. So I understand why they put that option at the bottom. It's a good compromise between satisfying the users and generating revenue.
Recession and Wii
I want to buy a Wii. I played a Wii at my sister's place and I liked it. Now I want to buy one but I can't find one. Except on eBay, where it's sold above MSRP, the Wii is out of stock everywhere. When they come into stock, the units are sold out immediately. There are even quite a few Web sites which specifically track when and where Wiis become available. Amazon has a special "Wii watch" text message service. They will send me a text message when they have Wiis in stock. They actually paged me a few times but every time by the time I got to the site they were sold out again. But wait, I thought we are in a recession. How come a toy is so hot in a recession? Don't we hear in the news people are pulling back their consumption to only the essentials? Apparently that's not true. They are still buying Wiis. And iPhones. Life goes on well, even in a recession.
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