Financial Answers “IN SIMPLE LANGUAGE”

This is really disturbing news for our economy which is already having massive problems.  It was announced by Citigroup, Inc., the No. 2 U. S. bank; it is going to eliminate approximately 15%-50,000+-more jobs this year.  This is in addition to approximately 23,000 jobs already eliminated between January and September of 2008.

Setting a Record?

Here we have the second largest bank in the United States, which by the way, is one of the recipients of the Emergency Economic Stabilization Act of 2008, to the tune of  $25 billion, trying to rein in expenses.  The 50,000+ jobs being eliminated added to the 23,000 jobs lost in the first nine months of the year may be the all time record of job losses by any one company.  It seems that IBM may have held that record when in 1993 they let go of 60,000 employees.  Well move over IBM.  Here comes Citigroup, Inc.  Not a real admirable record to obtain.

In 1998, Sanford “Sandy” Weill, the Chairman of the Travelers Group Inc., merged the Travelers Group and Citicorp to form the new bank, Citigroup Inc.  The history of these companies and Sandy Weill is very interesting.  If you want to learn more about them Google each name and there is a ton of information.

Worldwide Cuts

Citigroup, Inc. is cutting many of its international expenses by eliminating and selling many of its regional and business lines.  In addition to cutting jobs and expenses it plans on selling many of its businesses such as its German retail banking business.  All of these moves seem to be reasonable and make economic sense since the stock value of Citigroup, Inc has dropped by 68% as of this writing.  Something has to be done and it looks as though senior management is taking the bull by the horns and directly addressing the problem through prudent actions.

Bull

Now that I have taken you this far with a little history of our country’s second largest bank and some praise for what they are trying to do, let me tell you what this post is really all about.  If you have been following In Simple Language for the last couple of weeks, you have read about the arrogance and greed and total disregard of the American taxpayer, you, by the insurance giant, American International Group (AIG).  Well faithful readers, hold onto your hat because here we go again.

Not only are Citigroup, Inc. senior executives such as Vikram Pandit, CEO and his cronies grabbing the bull by the horns they are also throwing the bull at us the taxpayer.  These typical arrogant, greedy bankers have not only been planning to eliminate 73,000 jobs during this time of crisis but they are also discussing when they should be paying themselves bonuses.

Are these people nuts?  Is the arrogance and greed so deeply imbedded in the financial industry that these idiots have the gall to believe that no one would pay attention to what they are doing?  Obviously so.  They are talking about eliminating tens of thousands of jobs and reducing expenses by 20% with a loss in value of company stock of 68% and they are still talking about giving themselves bonuses.  Maybe I’m nuts but is this out of control or what?  Is anyone with any authority going to rein in these people?  When is sanity going to return to the financial segment of this country? 

President Elect Obama please have a talk with President Bush and this stupid bunch we call congress and bring common sense back to the greatest country on the face of this planet. 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

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If you have been watching any financial news programs lately you have seen the recent mention of AIG (American International Group) the behemoth insurance based company that is being loaned $85 Billion by the Federal Reserve Bank.  This loan was supposed to help the financially teetering company from going belly up.  Because of the size of AIG this was probably a necessary move by our government to prevent financial chaos.

However

The rules have changed for AIG and now the Federal Reserve Bank is reducing the original loan of $85 Billion to $60 Billion of your money.  The Federal Reserve Bank is also replacing a part of the original loan of about $38 Billion with an “aid” package of $52.5 Billion dollars.  This almost sounds like a good thing.  But is it?  Do you have to pay back an “aid” package?  Where’s your “aid” package?

This is the first time since the $850 billion bailout package, called the Emergency Economic Stabilization Act of 2008, in which money has gone to anything other than a bank.  I guess that shows the importance that our government is placing on this one company.

Because of this special treatment by our government for this one company, we keep seeing things in the news about how the executives of AIG are squandering this money to maintain their executive lifestyles.  This is the part that bothers me.

I’m Better and Smarter than You

This arrogant attitude of I’m better and smarter than you otherwise you would be running this company is the thing that gets to me.  These are the same arrogant jerks that got this company, AIG, in this mess in the first place.  Yet, they continue to thumb their noses at us as the government uses our hard earned dollars to bail their arrogant asses out of this mess.

Many of the mystifying arrays of complex financial products that helped directly or indirectly to create this financial mess were structured by AIG.

The problem is that AIG is so large, with operations in over 130 countries and with assets of over $1 trillion; the U.S. Government doesn’t know how to handle this situation.  This is a perfect example of how Wall Street is really running this country.

 It is a perfect example of how things have gotten out of control with our politicians. Our inept congress, being under the influence and direct or indirect control of a bunch of arrogant, greedy, out of control executives that have such a major influence on the lives of the people of not only the United States, but many other countries, is unconscionable.

It’s as though these executives are living the life of the villain in a James Bond movie, seeking world domination, only the reality of the situation is what they are doing is real and it is working.

A Recent Letter to the Editor

In a recent letter to the editor in my local community, I talked about when I was a financial advisor with a major insurance company whose name I know you would recognize.  I wrote about how at a meeting with 600+ other financial professionals, the president of this major insurance company walked out on the stage, which was about six or eight feet above us, and paced back and forth across the stage.

When this man began to speak he started to chastise us like we were all children.  Here is a guy in a lofty position with a major insurance company being paid tens of millions of dollars and he starts ranting and raving about how we all failed “him”.

He began his rant by saying you people promised me that you would hit “the numbers”.  And you people have disappointed me because you haven’t hit “the numbers”.  And I am disappointed because you promised me.  This insanity went how for a couple of minutes and was very uncomfortable for everyone in the audience.  I looked around and saw a lot of people squirming in their seats, rolling their eyes and covering their faces.

I tell this story to drive home the point I make about the out of control arrogance that pervades the financial services industry at many top levels of management.  I have seen it.  I have been there.  We need to constantly remind “our” congress about how these arrogant jerks use “our” money.  When was the last time you called or sent an email or snail mail to your congress person expressing your wishes?  It’s your money!  What are you waiting for?  Do it now!

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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With all the commotion going on in the financial markets; with venerable old financial institutions going out of business and the stock market dropping and skyrocketing almost every day, no wander everyone is nervous about their financial futures.  It’s funny though how things have a way of working themselves out. 

Sooner or later this mess we are in will turn itself around.  Maybe it’s just the toughness of the American spirit or luck or hard work or being optimistic or all of these things.  Whatever it is it will get us through this.  Then we can sit back and relax and wait for the next financial disaster to happen. 

I’m not trying to be pessimistic but this next financial disaster, unlike the one we are currently in, can be predicted with certainty.  It will happen and there is nothing we can do about it.  Or is there?

Growing Older

One of the natural consequences of growing older is our health starts to diminish whether we want it to or not.  We will need glasses or eye surgery to fix our eyesight.  Some of us will need dentures for one reason or another.  Some of us will need a hearing aid and others will lose their hair.  Some will have all of these problems.  If that is all that we have to worry about then we will be among the lucky ones.

What happens when one out of two people 65 and over, based on many studies and statistics over the last twenty years or so, will need to have some kind of long term care.  It may be care at home or a nursing home or assisted living facility but it will be necessary and it will be expensive.  This is the next financial crisis awaiting some 78 million baby boomers over the next 20 years.  The question today is what are you going to do about it?

Financial Implications

Beside the health problems a lot of us will face, what about the financial implications?  You have just spent the last 40+ years working to accumulate a sizeable retirement fund.  Your house is paid off.  You only have the normal utility bills that come every month. All significant debt is gone so now you can sit back and enjoy life in your golden years.

And then it happens.  The dreaded statistic of 1 out of 2 people will have a long term health issue begins.  You find out that your current medical insurance will not cover your health issue or maybe you are already covered by Medicare and you find out that that doesn’t cover your current health issue.  So there you sit with your medical issue and watch as your hard earned savings and investments start to be depleted to pay the enormous cost of long term care.  Wait!  What about Medicaid.  That won’t help you unless you are broke or destitute.  Exactly what you are trying to prevent.

The average annual cost in an assisted living facility today, 2008, is $36,000 for a semi-private room.  If you don’t want a roommate than double that to $72,000 per year.  These are the averages and may be more or less depending on where you live.  If you are in New York, California, or Alaska you will most likely be looking at well over $100,000 per year.

But you are going to stay home and keep the costs of medical care to a minimum.  Don’t bet on it.  Studies have indicated that a person who needs 24/7 medical care at home is looking in the neighborhood of upwards of $200,000 per year. 

Now you may say that your spouse or children will take care of you so $200,000 seems way out of line.  I thought so too until it happened in my family.  Amyotrophic Lateral Sclerosis commonly known as ALS or Lou Gehrig’s disease struck someone in my family and it has been devastating and expensive. 

It Can Happen To You

If you think these things only happen to others think again.  I have seen it and am living it through my stricken brother and I wouldn’t wish ALS on my worst enemy.  All of us know someone who has experienced some tragic health issue with family, friends, neighbors, or co-workers.  Maybe you will be one of the fortunate one out of two that never has a long term care issue.  Plan for the worst.  Expect the best.  Check out your long term care options through your state’s Department of Insurance.  Do it today!

I wanted to get more into this topic over the next couple of posts but it is very personal for me and I don’t think I want to go any further.  If you have any questions on this post please contact me through my email mailto:rsowa@insimplelanguage.com and I will be happy to discuss it with you.

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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Our last post talked about banks and FDIC insurance and how you can protect your savings and certificates of deposit.  But what about the money you have in your investment account?

Securities Investor Protection Corporation

SIPC-http://www.sipc.org- covers your investment account up to $500,000 in securities and $100,000 in cash.  Unlike the FDIC (Federal Deposit Insurance Corporation which insures bank deposits), SIPC is a non-profit, membership corporation that is funded by its securities broker dealer members.  This makes it neither a governmental agency nor a regulatory authority.

You may say that it sounds like both the FDIC and SIPC are really both like insurance companies. Their similar but very different in what they cover. The FDIC reimburses depositors of “failed banks” up to $250,000.  The SIPC is designed specifically to protect investors from “dishonest or unethical” financial brokers.  FDIC deals with poor management decisions destroying the bank and SIPC deals with thieves stealing your securities and/or cash.

The SIPC coverage kicks in if a financial advisor were to steal money from your account.  It would not cover you if you were sold a worthless investment or the value of your investments was to decline.

Investment Firm Turmoil

The SIPC coverage is especially important today because of all of the changes with so many investment firms.  Case in point is the takeover by Bank of America of Merrill Lynch recently. This has caused a lot of anxiety with many investors because they are wondering who their investment advisor will be.  Not that there is a problem with any of these financial advisors but people are being bombarded with negative news day in and day out.  Caution is the word of the day unfortunately.  You need to ask yourself these questions at a minimum:

• Will it be the same person I have been dealing with for so many years? 
• Will it be someone from Bank of America who I do not know? 
• Will my current financial advisor leave both Merrill Lynch and Bank of America and go somewhere else and ask me to move with them? 
• How will this affect my account(s)? 
• How do I know I should or shouldn’t move to another investment firm with my current advisor? 
• Should I just move my account(s) now and not go through any hassles later?  
• Where should I move since no investment firm seems to be immune from all this turmoil?

These are some of the questions that people should be asking themselves.  The SIPC coverage should give you some peace of mind your account(s) will be covered up to $500,000 for securities and $100,000 in cash just in case someone tries to pull something during the time various firms are being merged or bought out.  If stuff didn’t happen then there would be no need for SIPC or FDIC coverage.  But things do happen and you need to be aware of your options.

Educate Yourself

I would highly recommend that you spend some time looking at the SIPC website at http://www.sipc.org and becoming familiar with your options.  I have said many times in the business classes that I teach that knowledge is power doesn’t go far enough.  Knowledge is power when it is put into action.  We all know smart people, many with advanced degrees, who are unemployed because they have the knowledge but are not putting it into action by “actively” seeking employment.  Put what you learn to work for you today.  Action is the key.

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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I’m hearing a common question from some of my friends and business associates.  Their asking about where they should be keeping their money when all of the banks are having so many problems. They don’t want to keep their money with a bank that may be taken over or go out of business.

FDIC Insurance is Now $250,000

When you deposited your money into a bank prior to all of this financial meltdown , the FDIC- Federal Deposit Insurance Corporation-insured your deposits up to a total of $100,000.  That has now been revised upward to $250,000. If you look near any bank’s teller window or where you fill out your bank deposit or withdrawal slip you will see a gold sticker that states that this bank, as a member, provides FDIC coverage up to $250,000.

What most people are remembering is the failure of California’s Indy Mac Bancorp this year. This was the third largest bank failure in U.S. history.  Indy Mac was also the 11^th failure in the first eight months of 2008.  This is scary since there were only three bank failures in all of 2007.  I can see why people would be concerned.

However, no one with an account of $100,000 or less-the increase to $250,000 was not yet in effect-lost any money because of the FDIC insurance.

How Much Money Does The FDIC Have To Cover Loses?

The FDIC does not have enough money to cover loses if banks start to fail all over the country.  However don’t panic because they do have upwards of $45 billion and if they need more the U.S. Treasury has already stated that they would lend the FDIC the funds.  Also, the FDIC could raise the premiums that they currently charge their member banks.  There are still a lot of healthy banks in the country.

Most of the local community banks that I am familiar with where I live are in very good financial shape.  It seems they had the wisdom to stay out of the subprime mess to begin with.  It’s the big boys who got stupid and greedy and are now in trouble. 

I Have More Than $250,000

$250,000 sounds like a lot of money and it is.  But not when you take into consideration your regular savings, CDs, retirement accounts and pension.  So what happens if I have regular savings and CDs (Certificates of Deposit) that exceed the new FDIC insurance amount of $250,000? 

There is an organization called the Certificate of Deposit Account Registry Service-http://www.cdars.com - that provides up to $50 million in coverage for your certificates of deposit. CDARS is a network of banks that spreads the risks around to each member bank just like an insurance company spreads the risk around to other insurance companies so that not one institution would be in danger of failing.  This is very good news for banks customers.  Remember the CDARS insurance covers your Certificates of Deposit only.  Ask your bank if they are a member or you can go to http://www.cdars.com, click on the “Where to Find CDARS” tab at the top of the webpage and see a listing of the member banks.

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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Now that the presidential election is over and all the rest of the politicians are slinking back into their snake holes maybe we can get on with getting this country cleaned up and headed in the right direction once again.  Enough talking.  Let’s see some doing.

Retirement

In several of my previous posts on retirement-click on the retirement category to your left- I have talked about how some of the government’s “experts” want to change the way you fund your private retirement.  It seems there is another new report out there talking about what has happened to our retirement account monies.

The Center for Retirement Research-http://www.crr.bc.edu-at Boston College in Newton, Massachusetts has shown some interesting statistics regarding defined benefit plans and 401k plans.  In previous posts I have talked about defined benefit plans- a pension plan in which your employer contributes and then defines the amount of benefit you will receive when you retire.  Whereas, the 401k plan is a defined contribution plan in which you contribute most of the money-the employer usually matches a part of your contributions- and when you retire you decide on what your retirement income is going to be based on what your account has grown to.

Hard Hit

This study has shown that between October 9, 2007 and October 9, 2008 both defined benefit and defined contribution plans declined in value by a little under $2 trillion.  They dropped in value from $4.7 trillion to $2.7 trillion over that 12 month period. 

Because of this enormous drop in value-42.55%- some members of congress and some educators are talking about getting rid of the 401k program.  Alicia H. Munnell, Director of The Center for Retirement Research has said she is not sure what affect this huge drop in value for 401k plans is going to have on the way 401k’s are currently set up but changes will be coming.  Maybe that will be a good thing?  But I don’t think we should be getting rid of the 401k plan any time soon.

Work Together to Win

What I don’t want to see is intervention by the government.  You all know how good the government is in keeping our financial programs running smoothly.  Case in point is the efficient and effective way the government handles our Social Security system.  Need I say anymore?

What I think we do need to do to protect our current and future retirees from going through such a financial bloodbath in the future is to better educate our 401k plan participants, that’s you.  You need to understand more clearly how your situation should be matched with the types of investments that you have access to in your 401k plan. 

This education has to come from your employers, your trusted financial advisors, trusted financial web sites such ashttp://www.insimplelanguage.com, and a continuing effort on your part to keep yourself up to date and knowledgeable on what is happening with your 401k money.  It is your money and if you don’t have the time to educate yourself then don’t complain when your account balance goes down.  That’s like complaining about our politicians but never taking the time to vote.

An all out joint effort is needed.  Anything less will fail.  Talk to your employer and ask them what information is available to you to get an understandable picture of what your 401k plan is all about and what investments it offers.  The key here is an understandable picture.  That may not be easy.  Most of this information is not written “In Simple Language”.

Take your 401k plan statement to your trusted financial advisor and let s/he explain if your current investment setup matches what your retirement objectives are.  Ask questions of sites like this one and others.  You have to take the bull by the horns now!

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

·         Please ask your questions of In Simple Language.

·         Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.

·         Like what you read?  Send it to a friend.  Click on “share this post” right about leave a comment below.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

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So the voting for the president of the United States is over and we have a new president to be sworn in on January 20, 2009.  Our new President elect of the United States, Barack Obama the 44^th president, has the most powerful job on the face of this planet.  And yet he will be paid a measly $400,000 per year.  A measly $400,000 a year you say.  That’s a lot of money!  Is it a lot of money for the most powerful man on Earth?

This Is a Lot of Money!

Think about this. The President of the United States is the most powerful man on the face of the planet and makes $400,000 each year with responsibilities second to none.  Yet, men who don’t have anywhere near the power or responsibility make the president’s salary look like peanuts.

Let’s take a look at who I am talking about *.

• Angelo R. Mozilo, CEO of Countrywide Financial Corp, whose base salary in 2007 was $1,900,000, although his total actual compensation was $124,695,191.  Isn’t this the same Countrywide Financial Corp. that was caught up in the subprime mortgage mess?

• Lloyd C. Blankfein, CEO of  The Goldman Sachs Group Inc., whose base salary in 2007 was $600,000, although his total actual compensation was $76,725,461..  Isn’t this the same Goldman Sachs that almost went into bankruptcy and asked for a government bailout?

• Richard D. Fairbank, CEO of Capital One Financial Corp. whose base salary in 2007 was, let’s have a little drum role on this one, $0, although his total actual compensation was $73,182,560.  Capital One was not involved in the subprime mess as far as I know.

• Richard D. Fuld, CEO of the now defunct, bankrupt, out of business, down the toilet, Lehman Brothers Holdings Inc. whose base salary in 2007 was $750,000, although his total actual compensation was $71,924,178.

• Mario J. Gabelli, CEO of Gamco Investors Inc. whose base salary in 2007 was, let’s have another drum role here also, $0, although his total actual compensation was $70,931,633.  I’m also not aware of this company being involved in the subprime mess.

*Information derived from The Corporate Library’s-http://www.thecorporatelibrary.com 2008 CEO Pay Survey.

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