Just Say No to Fee Surcharges
I was short on cash last week. There's an ATM here in my office building. It's from a credit union near us. Several times a year, I see this credit union promoting their services at a table near the cafeteria. Credit unions have a reputation for being "the good guys." They are said to play fair, giving you high rates for your money on deposit and low rates for the money you borrow. They tend not to charge you outrageous fees. Credit unions can do that because they are owned by members, as opposed to trying to make a profit for shareholders.
I was disappointed to see this credit union charged $3 for using their ATM because I'm not a member of their credit union. When Bank of America first raised their ATM fee for non-customers from $2 to $3 in 2007, there was a big consumer backlash against them. People were saying how evil Bank of America was. Now that the $3 price is established in the market, we see other banks matching it without hesitance. Even a supposedly consumer friendly credit union can't resist.
Charging fees for using their ATMs is not illegal. One can argue that charging fees to non-customers is logical: if you don't want to pay the fee, wait until you find your own bank's ATM. The fee is disclosed up front. The machine shows you how much you will be charged. It asks you if you want to accept the fee and proceed or decline the fee and abort the withdrawal. If you think the fee is excessive, all you have to do is decline and abort. Fair enough.
Intelligent Squared US Debate on Blaming Washington or Blaming Wall Street
I'm usually one week behind on my podcasts. I just heard a mention of an Intelligent Squared US debate on NPR's Planet Money podcast on March 18. The motion was:
Blame Washington More Than Wall Street for the Financial Crisis
Price Discovery in Public-Private Partnership Toxic Asset Purchase Plan
There's a good math example in an article in today's Financial Times about the new public-private toxic asset purchase plan. The announcement of that plan sparked the 500-point stock market rally on Monday. The author of the article is Jeffrey Sachs, director of the Earth Institute and professor of health policy and management at Columbia University.* Professor Sachs wrote:
The plan’s essence is to use government off-budget money to overpay for banks’ toxic assets, perhaps by a factor of two or more. This is done by creating a one-way bet for private-sector bidders for the toxic assets, then cynically calling it "private sector price discovery".
DOL Webcast on COBRA Premium Subsidy
The Department Labor and the IRS are still working hard on creating guidance on implementing the 65% COBRA premium subsidy enacted in the stimulus law. They held a two-hour webcast yesterday for employers, their third-party administrators, and insurance companies. Officials from the Department of Labor, Depart of Treasury, and the IRS presented. Although it's primarily targeted at employers, the webcast can be very helpful for the laid-off employees as well. If you or someone you know are potentially eligible for the COBRA subsidy, watch the webcast.
The webcast archive will be available from now through June 23. It requires registration, but you don't have to give your real personal information. You can just use tfbreader@invalid.com because I registered with that address already. If you don't have two hours for the webcast, read the slides.
The COBRA subsidy is a subsidy paid directly to the employers. It's not taxable to the employees.
Sunk Cost and Getting Your Money’s Worth
I went skiing last Saturday. The condition wasn’t great. It was windy and cold. I knew that before I went, because I read the weather forecast. I went only because I bought a season pass last year before the season started. If I didn’t have the season pass and a friend offered me a free ticket, I would’ve chosen not to go because of the bad weather, and because after a busy week at work and working on a new initiative in the evenings, I would prefer sleeping in. But I still went. I wanted to get my money’s worth. Did I not know the cost of the season pass is a sunk cost? I did, but I still wanted to get my money’s worth. It’s hard to explain rationally. I admit I’m not rational.
This reminds me a story about economist Harry Markowitz. Harry Markowitz is the father of modern portfolio theory. The concepts of portfolio diversification and efficient frontier came from that theory. He won a Nobel prize for it. When it came down to making the decisions for his own portfolio, he said,
A Low Stock Price Is Neither Cheap Nor Less Valuable
I heard a comment on a New York Times Weekend Business podcast saying that a share of GM stock can’t buy a gallon of gas for a Chevy and a share of GE stock can’t buy two energy-efficient compact fluorescent bulbs (as of a week and half ago before the bounce back). While true, I don’t know those facts alone tell us anything.
Here’s a small quiz. Suppose I’m interested these three stocks:
| Stock | Price |
| Berkshire Hathaway B (BRK.B) | $2,704.00 |
| Google (GOOG) | $335.34 |
| Microsoft (MSFT) | $16.90 |
The Finance Buff Meets The Incidental Economist
For the last two and half years, I have been the lone voice on this blog. I am pleased to announce I will have a guest blogger coming up shortly. He goes by the name The Incidental Economist, or TIE in short. He’s a real economist, with a background in physics and a Ph.D. in mathematics and statistics. I came to know him on the Internet. I love what he writes. He has also helped me tremendously with my posts. With a gentle nudge, TIE agreed to write some articles on my blog. It’s my honor to have him.
Here’s what TIE has to say about himself:
Bartering and Taxes
While catching up on old news, I heard a story about bartering on the Marketplace Money podcast. It's called a Time Bank. Basically you do something for someone else and earn some Time Dollars. Then you use your Time Dollars for services you want from another person. It's an indirect bartering system because direct bartering requires a coincidence of wants. In other words if you are a plumber and you fix a car mechanic's drain, but you need guitar lessons, not replacing the water pump in your car, you can't barter directly with the car mechanic, unless the car mechanic also happens to teach how to play a guitar. Time Dollars serve as a medium of exchange.
Bartering is apparently hot these days. The popular web site Consumerist recently quoted an Associated Press article Short on cash? Bartering making a comeback which said traffic to bartering web sites doubled in this weak economy.
2009 AMT Tax Brackets
The stimulus law American Recovery and Reinvestment Act of 2009 included a modest increase in Alternative Minimum Tax (AMT) exemption amounts for 2009 tax year compared to the same amounts for 2008. They typically do this kind of patch close to the end of the year. They were early this year. With the exemption phaseout, the AMT tax brackets for 2009 become:
| Married Filing Jointly | Single or Head of Household | AMT Income | QD & LTCG* |
| $0 – $70,950 | $0 – $46,700 | 0% | 0%/15% |
| $70,951 – $150,000 | $46,701 – $112,500 | 26% | 15% |
| $150,001 – $226,760 | $112,501 – $199,860 | 32.5% | 21.5% |
| $226,761 – $433,800 | $199,861 – $299,300 | 35% | 22% |
| $433,801 or more | $299,301 or more | 28% | 15% |
Book Review: The Little Book of Common Sense Investing by John Bogle
This is a catch-up review for The Little Book of Common Sense Investing by John Bogle. When this book first came out in 2007, I listened to the audio book version. I thought it's a great book but I never took the time to write a review for it. I read the actual book again last week.
I admire John Bogle. I thought he is the missing name on Forbes 400 List. He's the founder of The Vanguard Group. Vanguard is best known for its low cost index funds.
John Bogle has always been an advocate for investing in diversified, low cost index funds. The message in this book shouldn't be a surprise. It makes a great case for keeping it simple and buying index funds that own the entire market. The argument for not paying high expenses on mutual fund management is very compelling. The only reason for paying a high expense would be getting access to managers who beat the market. But there is no guarantee any manager can beat the market. Yes, some managers beat the market in the past, even after the high expenses were taken into account. But you are investing for the future. You don't have a time machine. Whether any manager is able to beat the market in the future is anybody's guess. Chances are not good because of high fees, turnover, and taxes. If you pay a high expense, you are paying for a hope, which may or may not be realized. Why gamble?
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