This is my most recent minyanville.com column
Ten Ugly Fees and Service Contract Traps
By John Wasik
The fine print is getting worse.
Whether you have a cable, phone, or credit-card contract, you're going to get overcharged unless you're vigilant.
I wish I could say that you're being nickel-and-dimed to death on these abuses, but we're talking hundreds or thousands of dollars of unnecessary fees.
Bob Sullivan, author of Stop Getting Ripped Off (Ballantine, 2009), which chronicles how companies use hidden contract language, calls pricing schemes "the death of the price tag" -- where companies play games to get you to ultimately pay more than you originally were told.
Here are some common snares that catch millions:
1. Cell Phone Pricing Plans. Are you able to intelligently compare one company to another? Probably not. They're designed to confuse you. "There are a million permutations for cell phone pricing," Sullivan notes.
It's hard to tell which is best unless you keep track of how much you use your phone. Often times, the best plan is prepaid. A related ruse is to only offer the best smartphones with two-year contracts. Only the cheaper phones allow you to save money.
2. Credit Card Fees. Banks will do anything to layer on fees. If you don't pay on time, go over your limit, or use cash advances, you'll pay dearly. The best use of a credit card is to pay within the grace period. If you have trouble keeping track of the due date, use auto-billing that's linked to your checking account.
Also look for cards that pay you back. Because I never carry a balance from month to month, my cards reward me with college savings and airline miles.
3. Auto Dealer Financing. This is the last step of buying a car. You're ushered into the finance office and offered "great" deals on a loan or are pressured to buy a warranty or other extras that are pure profit for the dealer.
Get pre-approved for financing before you walk into the dealer. Some of the best deals are from credit unions. And be ready to walk if you're mistreated. By the way, the new financial reform law offers no protection in this area.
4. Cell Phone Upgrade Fees. You're excited when your phone company allows you to upgrade because you can get a unit with more features, but ask if they'll hit you with an upgrade fee, which can range from $18 to $36. You can always refuse to pay it or jump to another company that doesn't charge.
5. Excess Minutes Charges. If you exceed the number of minutes allotted in your cell phone plan, you'll be charged at a rate 600% to 800% higher than the contracted rate. Make sure you give yourself some fudge room when you select your plan. Some half of cell phone users say they don't use all of their minutes every month, so choose your plan carefully.
6. Insurance Isn't an Investment. Agents love to sell policies and variable annuities that are indexed to the stock market or carry guarantees. These plans are among the most expensive available and pay agents fat commissions. If you want a pure investment
, select an index mutual fund or exchange-traded fund. If you want pure insurance, select level-premium, no-load term-life or immediate annuity.
7. 401(k) Fees. These are among the most-hidden expenses. You'll have to ask your employer to find out how much fund managers and middlemen are getting paid. It's important because the "annual expense ratio" is deducted from your retirement account. Stock-index funds shouldn't cost more than 0.50% annually; bond funds shouldn't charge more than 0.25%.
8. Low Credit Score Costs You. If you have a low credit score, you'll be charged higher loan rates. Always check your score before you apply for credit. You have a right to see your report and make any corrections. You can also raise your score by not spending more than half of your credit limit on credit cards.
9. Cable TV Charges. Cable companies want to sell you everything -- phone, TV, Internet, and movies. They will offer you all kinds of incentives to get you into the largest bundle possible, but you should set a budget for how much you're willing to pay before you sign a contract. Also keep in mind that movies are free at your local library.
10. Negotiate! I've lost track of the number of times my credit card company has tried to slap on a late fee or finance charge when they knew full well my payment came in on time. I just call them and tell them to remove the charge or I'll move my business elsewhere. It works nearly every time.
John F. Wasik is author of "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream".
Monday, June 28, 2010
Tuesday, June 22, 2010
Time to Reduce Your Debt
Here's my latest minyanville.com column:
Savings Rates Dismal, But Good Time to Borrow Money
By John Wasik
Right now, your motivation should be to repair your household balance sheet by saving. But you may have to borrow to get back on track.
I was shopping around for a decent rate for my daughter's savings account last week. Slim pickings.
I'd have a better chance of getting a deal on a car than finding a decent savings yield. You're lucky to find something yielding 1% now.
When you subtract taxes and inflation, your real return is negative on most saving vehicles these days. Here's a sampling of last week's average savings yields, courtesy of www.bankrate.com:
* Money-Market Account: 0.78%
* Checking Account with Interest: 0.56%
* One-Year CD: 1.37%
You're almost a chump for even trying to save money, although saving is what we need to do after the worst financial crisis since the Great Depression.
It's palpable anger time. Why should we give the banks our hard-earned money -- after a massive $12 trillion bailout -- when they reward us with such awful savings rates? After all, the banks are paying almost nothing for the money they borrow from the Federal Reserve. They get to use our cash to lend it out at a tidy profit while we scrounge to make 1% on our savings.
This sounds counterintuitive, but your motivation now should be to repair your household balance sheet -- just as the banks are doing. You may have to borrow to get back on track.
While savings yields may be dismal, it's an incredibly good time to borrow money. I refinanced late last year into a 30-year fixed-rate loan at 4.9%. I think that was a lower rate than my parents paid in 1955 when they bought their first home. Mortgage rates are even lower now.
Even if you're shopping for a new or second home, mortgage rates are still appealing: 4.8% for a 30-year fixed and 4.18% for a 15-year loan. Even a home-equity loan could be considered for debt consolidation.
Need a new car? Not only are dealers offering myriad incentives, the average rate for a three-year auto loan is about 6.6%.
I'm not suggesting that you go into debt for the sake of buying something you think you need. I still advocate saving money every month rather than going into debt for a car you don't need or a home you can't afford.
My own rule is that you're not getting ahead unless you're saving. A new car and home don't matter if you don't have a cushion for the future.
Think like the banks. They’re fixing their balance sheets courtesy of, well, us. Taxpayers and regulators ensured their survival so that the global financial system would survive.
While I certainly don't believe everything is "fixed" -- the housing market is still a train wreck in many places -- savings should be part of your repair strategy. The guidelines are simple:
1. You should be saving at least 10% of your salary for retirement. Even more is better because medical expenses will be higher in the future.
2. You need at least six months' salary set aside in savings for emergencies and unemployment. Jobs are slowly trickling back yet some industries will still be shrinking.
3. Save for college and any other big-ticket items (cars, second homes, boats, etc.)
4. Any money you gain from refinancing or reducing credit-card bills should be plowed into a rainy-day fund.
5. Check and clean up your credit record. Don't spend up to the limit on your credit-card accounts. That will lower your credit score. Correct any errors in your file. Pre-qualify for any new loan you're considering before you sign the purchase contract (with a homebuyer or auto dealer).
Those who save are buying themselves rather precious: A bit of financial security. It won't stop markets from collapsing, politicians from overspending, or reduce the national debt. Yet it will ensure that you won't be a chump when the next crisis comes around.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Savings Rates Dismal, But Good Time to Borrow Money
By John Wasik
Right now, your motivation should be to repair your household balance sheet by saving. But you may have to borrow to get back on track.
I was shopping around for a decent rate for my daughter's savings account last week. Slim pickings.
I'd have a better chance of getting a deal on a car than finding a decent savings yield. You're lucky to find something yielding 1% now.
When you subtract taxes and inflation, your real return is negative on most saving vehicles these days. Here's a sampling of last week's average savings yields, courtesy of www.bankrate.com:
* Money-Market Account: 0.78%
* Checking Account with Interest: 0.56%
* One-Year CD: 1.37%
You're almost a chump for even trying to save money, although saving is what we need to do after the worst financial crisis since the Great Depression.
It's palpable anger time. Why should we give the banks our hard-earned money -- after a massive $12 trillion bailout -- when they reward us with such awful savings rates? After all, the banks are paying almost nothing for the money they borrow from the Federal Reserve. They get to use our cash to lend it out at a tidy profit while we scrounge to make 1% on our savings.
This sounds counterintuitive, but your motivation now should be to repair your household balance sheet -- just as the banks are doing. You may have to borrow to get back on track.
While savings yields may be dismal, it's an incredibly good time to borrow money. I refinanced late last year into a 30-year fixed-rate loan at 4.9%. I think that was a lower rate than my parents paid in 1955 when they bought their first home. Mortgage rates are even lower now.
Even if you're shopping for a new or second home, mortgage rates are still appealing: 4.8% for a 30-year fixed and 4.18% for a 15-year loan. Even a home-equity loan could be considered for debt consolidation.
Need a new car? Not only are dealers offering myriad incentives, the average rate for a three-year auto loan is about 6.6%.
I'm not suggesting that you go into debt for the sake of buying something you think you need. I still advocate saving money every month rather than going into debt for a car you don't need or a home you can't afford.
My own rule is that you're not getting ahead unless you're saving. A new car and home don't matter if you don't have a cushion for the future.
Think like the banks. They’re fixing their balance sheets courtesy of, well, us. Taxpayers and regulators ensured their survival so that the global financial system would survive.
While I certainly don't believe everything is "fixed" -- the housing market is still a train wreck in many places -- savings should be part of your repair strategy. The guidelines are simple:
1. You should be saving at least 10% of your salary for retirement. Even more is better because medical expenses will be higher in the future.
2. You need at least six months' salary set aside in savings for emergencies and unemployment. Jobs are slowly trickling back yet some industries will still be shrinking.
3. Save for college and any other big-ticket items (cars, second homes, boats, etc.)
4. Any money you gain from refinancing or reducing credit-card bills should be plowed into a rainy-day fund.
5. Check and clean up your credit record. Don't spend up to the limit on your credit-card accounts. That will lower your credit score. Correct any errors in your file. Pre-qualify for any new loan you're considering before you sign the purchase contract (with a homebuyer or auto dealer).
Those who save are buying themselves rather precious: A bit of financial security. It won't stop markets from collapsing, politicians from overspending, or reduce the national debt. Yet it will ensure that you won't be a chump when the next crisis comes around.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Thursday, June 10, 2010
Getting Back on Track & Saving Money
This is my minyanville.com column from June 7.
Aren't you tired of seeing surveys where Americans say they aren't keeping up with their financial obligations?
How about this one from TD Ameritrade: Some 57% of those surveyed said they were behind in their retirement savings.
Although TD Ameritrade's survey has suggestions for investors, many of these press releases fail to mention that there are a number of things you can do to improve your financial condition that aren't terribly complicated.
The majority of these polls are designed for folks like myself, who are often more attracted to bad news than positive developments. It's like a moth circling a streetlight. It works nearly every time, even though it's common knowledge that most Americans are hurting financially.
Midyear is a good time to take some action. Here's where you can start:
Avoid the Sucker Credit Bait.
The first and most important thing is to stop falling for the sucker bait that banks are giving us on credit.
The best credit isn't necessarily based on the lowest-rate card or the best introductory offer. If you have a no-fee card that you pay back within the grace period, the credit is pretty much free. Even better is a card with a fee that pays you back.
If you can live within your means and aim for a monthly payment that you can cover in full every month, that's the absolute best use of credit. Of course, that means spending less and avoiding discretionary purchases you can do without. Each month take a look at your bill and do a quick audit. What was on your statement that you didn't need?
Monitor Your Deductibles, Adjust Your Insurance.
With insurance, it's the biggest risks you want to cover -- home damage, autos totaled, catastrophic health costs -- not the little stuff. That means living with deductibles you can afford.
My rule of thumb is having money in the bank to cover deductibles on all of my policies. In general, the higher the out-of-pocket cost you assume, the lower the premium.
My family carries a $1,000 deductible on auto and home policies. I've placed coverage with one insurer to save even more. Our second car is 15 years old, so years ago I dropped collision and comprehensive coverage, leaving only liability, which is essential.
On our major medical policy, we carry a high deductible ($5,950 this year) to keep premiums down. Because I'm self employed, I put money in a savings account to cover the out-of-pocket costs.
The other option is to put that money into a health-savings account, which is funded with tax-deductible contributions. If you don't use the money in the account for health bills, it can compound tax deferred. It's yours to keep.
With this high-deductible approach, you can cover your largest costs and save thousands. Yet this approach only works if you have sufficient savings to cover your out-of-pocket costs. On the car and home insurance, if you can live with not fixing minor storm damage or fender dents, you can save even more.
Health insurance bills, on the other hand, need to be paid. The drawback here is that by yourself you have little or no negotiating power. Find a high-deductible insurer who will "reprice" health bills that you have to pay.
That means if the health provider is within an insurer's network, they will apply a discount to your statement before you pay (for amounts under your deductible).
Also keep in mind that in addition to major medical, you'll need disability insurance and life insurance if you have dependents. You have a far greater likelihood of becoming disabled than dying during your working years. This is essential if you're self employed.
The sweetest deals I've found on disability and life are through group pricing. In many cases, I found the best prices from my college alumni association. Trade and professional groups also offer low-cost policies.
It's All About Saving.
I know how tough it is to save when you don't have money coming in the door or your monthly bills exceed your income.
Obscured in all of the dour economic news is a time-tested reality: You can always adjust your spending to your income and start saving money. Do you need cable TV? Can you cook more meals at home? Can you automatically invest more in your 401(k)?
The beauty of auditing and paring down expenses is that this process creates savings. That's money you can put into an emergency money-market fund, which will help you keep up when bad times come around and fund your own recovery plan when things perk up.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Aren't you tired of seeing surveys where Americans say they aren't keeping up with their financial obligations?
How about this one from TD Ameritrade: Some 57% of those surveyed said they were behind in their retirement savings.
Although TD Ameritrade's survey has suggestions for investors, many of these press releases fail to mention that there are a number of things you can do to improve your financial condition that aren't terribly complicated.
The majority of these polls are designed for folks like myself, who are often more attracted to bad news than positive developments. It's like a moth circling a streetlight. It works nearly every time, even though it's common knowledge that most Americans are hurting financially.
Midyear is a good time to take some action. Here's where you can start:
Avoid the Sucker Credit Bait.
The first and most important thing is to stop falling for the sucker bait that banks are giving us on credit.
The best credit isn't necessarily based on the lowest-rate card or the best introductory offer. If you have a no-fee card that you pay back within the grace period, the credit is pretty much free. Even better is a card with a fee that pays you back.
If you can live within your means and aim for a monthly payment that you can cover in full every month, that's the absolute best use of credit. Of course, that means spending less and avoiding discretionary purchases you can do without. Each month take a look at your bill and do a quick audit. What was on your statement that you didn't need?
Monitor Your Deductibles, Adjust Your Insurance.
With insurance, it's the biggest risks you want to cover -- home damage, autos totaled, catastrophic health costs -- not the little stuff. That means living with deductibles you can afford.
My rule of thumb is having money in the bank to cover deductibles on all of my policies. In general, the higher the out-of-pocket cost you assume, the lower the premium.
My family carries a $1,000 deductible on auto and home policies. I've placed coverage with one insurer to save even more. Our second car is 15 years old, so years ago I dropped collision and comprehensive coverage, leaving only liability, which is essential.
On our major medical policy, we carry a high deductible ($5,950 this year) to keep premiums down. Because I'm self employed, I put money in a savings account to cover the out-of-pocket costs.
The other option is to put that money into a health-savings account, which is funded with tax-deductible contributions. If you don't use the money in the account for health bills, it can compound tax deferred. It's yours to keep.
With this high-deductible approach, you can cover your largest costs and save thousands. Yet this approach only works if you have sufficient savings to cover your out-of-pocket costs. On the car and home insurance, if you can live with not fixing minor storm damage or fender dents, you can save even more.
Health insurance bills, on the other hand, need to be paid. The drawback here is that by yourself you have little or no negotiating power. Find a high-deductible insurer who will "reprice" health bills that you have to pay.
That means if the health provider is within an insurer's network, they will apply a discount to your statement before you pay (for amounts under your deductible).
Also keep in mind that in addition to major medical, you'll need disability insurance and life insurance if you have dependents. You have a far greater likelihood of becoming disabled than dying during your working years. This is essential if you're self employed.
The sweetest deals I've found on disability and life are through group pricing. In many cases, I found the best prices from my college alumni association. Trade and professional groups also offer low-cost policies.
It's All About Saving.
I know how tough it is to save when you don't have money coming in the door or your monthly bills exceed your income.
Obscured in all of the dour economic news is a time-tested reality: You can always adjust your spending to your income and start saving money. Do you need cable TV? Can you cook more meals at home? Can you automatically invest more in your 401(k)?
The beauty of auditing and paring down expenses is that this process creates savings. That's money you can put into an emergency money-market fund, which will help you keep up when bad times come around and fund your own recovery plan when things perk up.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Thursday, June 3, 2010
Want to Dump Your Big Bank Account?
Here's Where to Put Your Checking and Savings Account Funds
An "important notice" came in the mail from my bank the other day.
They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.
If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.
Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.
Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.
Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.
What about that federal credit card protection act that went into full effect recently?
While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.
Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.
Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.
Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!
While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.
In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.
To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.
I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.
Still, I know I can get a better deal, and I'm going to search for one.
There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)
After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).
Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:
Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.
Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.
Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.
The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.
This was my 6/2 Minyanville.com column
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
An "important notice" came in the mail from my bank the other day.
They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.
If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.
Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.
Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.
Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.
What about that federal credit card protection act that went into full effect recently?
While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.
Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.
Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.
Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!
While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.
In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.
To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.
I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.
Still, I know I can get a better deal, and I'm going to search for one.
There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)
After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).
Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:
Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.
Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.
Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.
The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.
This was my 6/2 Minyanville.com column
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Friday, May 7, 2010
Oil Spills, Greek Debts
The Right Kind of Reaction to Ecological Disasters
Like most of the civilized world, I was troubled to see oil gushing out of an exploded oil rig in the Gulf of Mexico and threatening to become yet another catastrophe for beleaguered gulf residents. It's just too much.
The knee jerk reaction was to condemn BP, formerly known as British Petroleum. BP sports green and yellow gas stations that give the impression they are on the side of nature somehow. As many sources have discovered, BP has not only used its incredible economic power to soften safety regulations, it can pay for lots of lobbyists to make Congress look the other way. The recent wretched Supreme Court decision opening up the spigot for campaign contributions from corporations didn't help.
While BP deserved public revulsion for its safety and environmental practices, excoriating the company is a bit like shooting the messengers. It brings to mind that lyric in the Rolling Stones's "Sympathy for the Devil." Who shot the Kennedys? It was you and me.
We're the ultimate enablers of BP and the entire resource depletion system behind them. That includes coal, natural gas, metals and uranium mining corporations. If we -- and most of the developing world -- didn't want oil and its hundreds of by-products, they wouldn't be drilling in 5,000 feet of water.
It takes a tremendous amount of energy to run a modern, industrialized state. Less than 1 percent comes from clean sources such as wind and solar, which are not yet competitive with oil, gas and coal on an economic basis. Ever been to eastern Wyoming? They can scoop coal out of the ground with giant bulldozers. Nearly all of the coal in Australia goes to China, which is burning more of it than any country.
And petroleum? It's the feedstock for fertilizers, plastics, pesticides and pharmaceuticals. How do you think farmers can plow, seed and harvest their megafarms? There are no solar-powered combines yet. How did you get to the mall?
Even if you sit around a room with devoted conservationists -- as I did the other night -- most just don't get the big picture. The ecology of our society is based on economic benefits and fossil fuels are still providing them.
Until we find cheap ways of making fuel cells, solar panels and other forms of alternative energy, we will be drilling deep into the gulf and elsewhere. Even if we discover some technological breakthroughs in clean energy, China, India, Brazil and the rest of the developing world will want big, energy-consuming homes and vehicles.
In the interim, the scenario is bleak. In E.O. Wilson's "The Future of Life," he lays out what's happening to the natural world as we carve up the planet:
* Diseases related to lifestyle and environmental hazards of our own making are on the rise since 1980. They include cancer, asthma, melanoma, obesity, diabetes, hip fractures and depression.
* There are more than 80,000 synthetic chemicals in the environment and few of them have been tested for toxicity. Many of them cause cancer.
* There are from 3.6 million to 100 million species on the planet that exist but haven't been discovered or named. We are killing them off every day.
Wilson estimates that $30 billion of of $30 trillion in world gross domestic product could be used to preserve land for conservation purposes. If every cup of coffee served across the globe were taxed one cent, that would cover this fund. Only about 10 percent of the world's surface is protected at present.
In addition to conserving land, we need to take a good, hard look at changing Western lifestyles. Do we need to deplete resources to produce clothes that are ultimately thrown away? Do we need petroleum for chemicals that are killing us? What about making our homes more efficient? They account for 30 percent of global warming gases and use incredible amounts of water and energy.
While walking to the train in Chicago (I use public transportation whenever possible), I stopped by to talk to a homeless woman selling newspapers. I have always heard her on the same corner, standing there most of the day, yet I've never stopped to acknowledge her, as most of the thousands who walk by her every day fail to do.
What captivated me about this woman is that she is always singing and you can hear her a block away. When I stopped to buy a paper from her, I told her how much I enjoyed her singing. I suspect it did little to improve her life, although it halted me in my thinking and made me pay attention to an ignored songbird in my midst.
Sometimes we can't see the birds in the forest, even in the midst of a natural disaster. But we shouldn't stop listening or looking for them. They can save us from ourselves.
Like most of the civilized world, I was troubled to see oil gushing out of an exploded oil rig in the Gulf of Mexico and threatening to become yet another catastrophe for beleaguered gulf residents. It's just too much.
The knee jerk reaction was to condemn BP, formerly known as British Petroleum. BP sports green and yellow gas stations that give the impression they are on the side of nature somehow. As many sources have discovered, BP has not only used its incredible economic power to soften safety regulations, it can pay for lots of lobbyists to make Congress look the other way. The recent wretched Supreme Court decision opening up the spigot for campaign contributions from corporations didn't help.
While BP deserved public revulsion for its safety and environmental practices, excoriating the company is a bit like shooting the messengers. It brings to mind that lyric in the Rolling Stones's "Sympathy for the Devil." Who shot the Kennedys? It was you and me.
We're the ultimate enablers of BP and the entire resource depletion system behind them. That includes coal, natural gas, metals and uranium mining corporations. If we -- and most of the developing world -- didn't want oil and its hundreds of by-products, they wouldn't be drilling in 5,000 feet of water.
It takes a tremendous amount of energy to run a modern, industrialized state. Less than 1 percent comes from clean sources such as wind and solar, which are not yet competitive with oil, gas and coal on an economic basis. Ever been to eastern Wyoming? They can scoop coal out of the ground with giant bulldozers. Nearly all of the coal in Australia goes to China, which is burning more of it than any country.
And petroleum? It's the feedstock for fertilizers, plastics, pesticides and pharmaceuticals. How do you think farmers can plow, seed and harvest their megafarms? There are no solar-powered combines yet. How did you get to the mall?
Even if you sit around a room with devoted conservationists -- as I did the other night -- most just don't get the big picture. The ecology of our society is based on economic benefits and fossil fuels are still providing them.
Until we find cheap ways of making fuel cells, solar panels and other forms of alternative energy, we will be drilling deep into the gulf and elsewhere. Even if we discover some technological breakthroughs in clean energy, China, India, Brazil and the rest of the developing world will want big, energy-consuming homes and vehicles.
In the interim, the scenario is bleak. In E.O. Wilson's "The Future of Life," he lays out what's happening to the natural world as we carve up the planet:
* Diseases related to lifestyle and environmental hazards of our own making are on the rise since 1980. They include cancer, asthma, melanoma, obesity, diabetes, hip fractures and depression.
* There are more than 80,000 synthetic chemicals in the environment and few of them have been tested for toxicity. Many of them cause cancer.
* There are from 3.6 million to 100 million species on the planet that exist but haven't been discovered or named. We are killing them off every day.
Wilson estimates that $30 billion of of $30 trillion in world gross domestic product could be used to preserve land for conservation purposes. If every cup of coffee served across the globe were taxed one cent, that would cover this fund. Only about 10 percent of the world's surface is protected at present.
In addition to conserving land, we need to take a good, hard look at changing Western lifestyles. Do we need to deplete resources to produce clothes that are ultimately thrown away? Do we need petroleum for chemicals that are killing us? What about making our homes more efficient? They account for 30 percent of global warming gases and use incredible amounts of water and energy.
While not connected to energy consumption, the Greek debt crisis works with the same metaphor. When money -- in this case from the rest of Europe and US -- was cheap, they gorged on debt, ballooned their public sector and skimped on taxes. Europe is bailing them out, but Spain, Portugal and Ireland may be next. It's the buffet effect: When any commodity is offered in large quantities at a relatively low cost, we consume too much of it. Oil is still cheaper to extract from the earth than energy is from photons. I hope that formula will change soon, but the economic reality is that we're addicted to oil because it's still relatively plentiful, well distributed and easily transformed into something else.
If you want to take away anything from an ecological world view, look at it this way: If we changed the economics of energy production, we'll change our relationship with fossil fuels. We need new technologies to transform biomass (waste and living things) into energy. We need better, more efficient ways of tapping the energy from the sun and moving it around. This will all take money and, more importantly, political will.
Here's where you come in: Contact your Senator now to push for climate change/energy legislation that taxes carbon and provides incentives for clean energy production. I'm not talking about tax breaks that expire in a year. We need a long-range plan to create a clean-energy system that will displace fossil fuels in an economic and cultural movement. This is our space race, our call to change.
Yes, it's still cool to be green, but you need to be politically active to walk the talk.
While walking to the train in Chicago (I use public transportation whenever possible), I stopped by to talk to a homeless woman selling newspapers. I have always heard her on the same corner, standing there most of the day, yet I've never stopped to acknowledge her, as most of the thousands who walk by her every day fail to do.
What captivated me about this woman is that she is always singing and you can hear her a block away. When I stopped to buy a paper from her, I told her how much I enjoyed her singing. I suspect it did little to improve her life, although it halted me in my thinking and made me pay attention to an ignored songbird in my midst.
Sometimes we can't see the birds in the forest, even in the midst of a natural disaster. But we shouldn't stop listening or looking for them. They can save us from ourselves.
Thursday, April 22, 2010
Five Surprising Things to Do for Earth Day
Well, it's been 40 years since Gaylord Nelson and his band of earth warriors launched the modern environmental movement.
What have we learned since? Global warming is a threat. We're still polluting the planet. More people means more loss of species, deforestation, desertification, groundwater loss and a host of other environmental maladies.
While the developed world has improved on these issues, emerging economies are really struggling. Yet I don't live in Asia. I live in America, the home of overconsumption and bad environmental stewardship. What can we do? Here are five surprising steps:
Stop Drinking Soft Drinks
You've probably seen the ads promoting how environmentally responsible Coca-Cola the company and product have become. They are promoting recycling, using more hybrid vehicles and using less aluminum in their cans. Yet Coke (and every other soft drink) is not green. It's still brown. Very brown.
One way Coke is green washing is through a collaboration with Ecoist that seeks to reuse misprinted bottles and cans. The new cans use 5% less aluminum, saving 15,000 metric tons of aluminum every year. That's welcome, since the mining, smelting and transportation of aluminum is energy-intensive and creates a lot of pollution. The truth of this breakthrough: the new cans are being used in the UK only.
What about their new “eco-friendly” bottle made in part from molasses and sugar, which they plan to test in their Dasani water line? Bottled water is one of the biggest wastes of resources in the 21st century. Most municipal water supplies in the US are perfectly safe. When you calculate all of the energy needed to make the bottles, package them, transport them and dispose of them, it's never a good deal for the environment.
While we're on the subject of water, let's get back to the process of making soft drinks in general. Making the sugary, carbonated liquid is highly water intensive. It takes 2.47 liters of water to make one liter of Coca-Cola. This depletes local water supplies and pollutes local rivers.
Coke claims to have reduced water consumption by 9% since 2004. Reducing 9% of water usage in only 6 years saved them plenty of money, but it still obscures the fact that they are one of the biggest industrial consumers of water on the planet.
And that doesn't include the fact that it takes billions of gallons to grow the sugar for their beverages. Keep in mind that more than a billion people on the planet don't have access to clean water. Soft drink makers are consuming it to make something that contributes to obesity and diabetes.
In Atlanta, where Coke makes its headquarters, the area has perennial water shortages. The city and state are fighting neighboring states over the rapidly diminishing watersheds that feed the sprawling metropolis.
It's well known that most ground water aquifers are not being replenished. According to the US Geological Survey, more than 30 states have serious drinking water shortages.
It's clear that Coca-Cola and its many competitors are taking myriad steps to clean up their operations, reduce their pollution output and energy use. Yet it will be a long time before they can claim their product is green. Their true colors are unlikely to change anytime soon. If you stop your consumption of these products, it will also be good for your health.
Produce Your Own Food and Soil. Buy Locally!
Even if you live in a city apartment, you can grow some food in a window. Consider a hydroponic system. Most food travels a 1,000 miles or more to get to your table. By supporting locally grown food, you become a "locavore" and support local farming and healthier consumption of food.
Why buy local? You cut down on the tremendous amounts of energy it takes to transport your fruits and vegetables. Ships burn highly polluting bunker fuel. Trucks burn diesel. And fresh food is healthier food.
Making your own soil -- by composting kitchen waste -- gives you fertile compost for your garden. That way you can avoid synthetic fertilizers, many of which come from petrochemicals or natural gas. With the huge amounts of topsoil being lost across the world, you'll be making a difference.
Don't Just Plant a Tree, Plant Edible Landscaping.
Trees are great. They soak up carbon dioxide, anchor the soil and give us oxygen and timeless beauty in return. Yet why not grow trees that produce fruit or nuts? They will reduce your grocery bill and give you fresh fruit that you're able to can or freeze. That's what we did on our small lot.
The same goes with open areas that you want to landscape. Consider native bushes that produce berries. There are many varieties. Pick something suitable for your climatic zone.
Don't Buy a Car, Even a Green One. Walk, Bike and Hike More!
Even if you have a fuel-stingy car, the greenest car is that one that's not driven. Try getting on your bike if you have local errands. That's what I did last summer. I discovered that taking quick trips to the grocery, hardware store, library and ice cream parlor are all much more ennervating by bike.
Our second car has 140,000 miles on it. I'd love to replace it with an electric -- coming on the market later this year. But I'm in no hurry. Rather than consume more resources -- even the electricity used to recharge the car creates pollution -- I will consume more calories. I'll get on my bike more. As for now, I just got that old car an oil/air filter change and pumped up the tires. It will last longer, get better mileage and produce less carbon dioxide.
Stop Getting Suckered into Green Consumption.
Everything from paper towels to gas stations have some green labeling on them. There's so much "greenwashing" that it's impossible to tell which is green and which is not.
You have to consider the life cycle of a product. For example, take the spate of bamboo products on the market now. Are they any greener than other fibers?
There's a lot to admire about bamboo.It grows fast, isn't hard on the environment, is incredibly durable and can be used for hundreds of purposes. Have you ever seen that great Alec Guinness World War II movie "The Bridge over the River Kwai?" British army prisoners build a railroad bridge with the stuff. Lately you've probably seen a lot of bamboo products on the market. The versatile plant has been used in everything from flooring to clothing. I recently bought a bamboo cutting board for my kitchen.
When it comes to clothing, though, a lot of what's advertised in clothing as bamboo isn't. It's rayon. Like most green products, it's not that simple to say that the source material is "natural." After all, petroleum is a natural product and look what it does to the environment after it's processed and burned.
The same shallow thinking can be applied to rayon, which is a generic term for nearly any natural cellulose fiber that's processed to make fabrics.
Rayon undergoes some nasty chemical treatments before it becomes that sweater or jacket. (Think caustic lye in hair-care products). The substances used to break down cellulose are environmentally toxic and are released into the air.
Naturally, manufacturers and retailers don't count on you asking questions about the life-cycle of the product.
Since bamboo has attained a certain cachet among green consumers in recent years, a flood of products claiming to be bamboo have emerged on the market. They go by brand-names such as "eco-Kashmere," "Pure Bamboo" and "Bamboo Baby."
Although green products undergo less scrutiny than food or animal treatment, when advertising claims are misleading blatantly false, it can catch the attention of the newly active Federal Trade Commission.
The FTC recently sent warning letters to 78 retailers to stop the labeling of rayon products as bamboo-based. The merchants included Wal-Mart, Target, Kmart, Costco and Nordstrom's. The agency also sued several companies last year for selling mis-labeled rayon products. Four companies have settled with the FTC and have changed their labeling thus far.
In the interim, if you see a product with a bamboo label, how do you tell if it's the real thing? Actual bamboo should be labeled as "mechanically processed," as opposed to chemically processed rayon. It's also helpful to see if a third-party has certified the claim such as the Forest Stewardship Council. A third party can run tests, inspect the manufacturing and run life cycle analyses to determine how much pollution is created in the processing of the fabric.
In the meantime, not only should you be wary about any green claims without seeing a life-cycle analysis of the product, the best green product is one not consumed. Reuse what you can. Rescue what you need from a thrift store, flea market or garage sale. Recycle profusely.
If we're doing the green lifestyle right, ultimately we become "prosumers" instead of consumers. We are producing our own energy, food and soil and wasting less.
What have we learned since? Global warming is a threat. We're still polluting the planet. More people means more loss of species, deforestation, desertification, groundwater loss and a host of other environmental maladies.
While the developed world has improved on these issues, emerging economies are really struggling. Yet I don't live in Asia. I live in America, the home of overconsumption and bad environmental stewardship. What can we do? Here are five surprising steps:
Stop Drinking Soft Drinks
You've probably seen the ads promoting how environmentally responsible Coca-Cola the company and product have become. They are promoting recycling, using more hybrid vehicles and using less aluminum in their cans. Yet Coke (and every other soft drink) is not green. It's still brown. Very brown.
One way Coke is green washing is through a collaboration with Ecoist that seeks to reuse misprinted bottles and cans. The new cans use 5% less aluminum, saving 15,000 metric tons of aluminum every year. That's welcome, since the mining, smelting and transportation of aluminum is energy-intensive and creates a lot of pollution. The truth of this breakthrough: the new cans are being used in the UK only.
What about their new “eco-friendly” bottle made in part from molasses and sugar, which they plan to test in their Dasani water line? Bottled water is one of the biggest wastes of resources in the 21st century. Most municipal water supplies in the US are perfectly safe. When you calculate all of the energy needed to make the bottles, package them, transport them and dispose of them, it's never a good deal for the environment.
While we're on the subject of water, let's get back to the process of making soft drinks in general. Making the sugary, carbonated liquid is highly water intensive. It takes 2.47 liters of water to make one liter of Coca-Cola. This depletes local water supplies and pollutes local rivers.
Coke claims to have reduced water consumption by 9% since 2004. Reducing 9% of water usage in only 6 years saved them plenty of money, but it still obscures the fact that they are one of the biggest industrial consumers of water on the planet.
And that doesn't include the fact that it takes billions of gallons to grow the sugar for their beverages. Keep in mind that more than a billion people on the planet don't have access to clean water. Soft drink makers are consuming it to make something that contributes to obesity and diabetes.
In Atlanta, where Coke makes its headquarters, the area has perennial water shortages. The city and state are fighting neighboring states over the rapidly diminishing watersheds that feed the sprawling metropolis.
It's well known that most ground water aquifers are not being replenished. According to the US Geological Survey, more than 30 states have serious drinking water shortages.
It's clear that Coca-Cola and its many competitors are taking myriad steps to clean up their operations, reduce their pollution output and energy use. Yet it will be a long time before they can claim their product is green. Their true colors are unlikely to change anytime soon. If you stop your consumption of these products, it will also be good for your health.
Produce Your Own Food and Soil. Buy Locally!
Even if you live in a city apartment, you can grow some food in a window. Consider a hydroponic system. Most food travels a 1,000 miles or more to get to your table. By supporting locally grown food, you become a "locavore" and support local farming and healthier consumption of food.
Why buy local? You cut down on the tremendous amounts of energy it takes to transport your fruits and vegetables. Ships burn highly polluting bunker fuel. Trucks burn diesel. And fresh food is healthier food.
Making your own soil -- by composting kitchen waste -- gives you fertile compost for your garden. That way you can avoid synthetic fertilizers, many of which come from petrochemicals or natural gas. With the huge amounts of topsoil being lost across the world, you'll be making a difference.
Don't Just Plant a Tree, Plant Edible Landscaping.
Trees are great. They soak up carbon dioxide, anchor the soil and give us oxygen and timeless beauty in return. Yet why not grow trees that produce fruit or nuts? They will reduce your grocery bill and give you fresh fruit that you're able to can or freeze. That's what we did on our small lot.
The same goes with open areas that you want to landscape. Consider native bushes that produce berries. There are many varieties. Pick something suitable for your climatic zone.
Don't Buy a Car, Even a Green One. Walk, Bike and Hike More!
Even if you have a fuel-stingy car, the greenest car is that one that's not driven. Try getting on your bike if you have local errands. That's what I did last summer. I discovered that taking quick trips to the grocery, hardware store, library and ice cream parlor are all much more ennervating by bike.
Our second car has 140,000 miles on it. I'd love to replace it with an electric -- coming on the market later this year. But I'm in no hurry. Rather than consume more resources -- even the electricity used to recharge the car creates pollution -- I will consume more calories. I'll get on my bike more. As for now, I just got that old car an oil/air filter change and pumped up the tires. It will last longer, get better mileage and produce less carbon dioxide.
Stop Getting Suckered into Green Consumption.
Everything from paper towels to gas stations have some green labeling on them. There's so much "greenwashing" that it's impossible to tell which is green and which is not.
You have to consider the life cycle of a product. For example, take the spate of bamboo products on the market now. Are they any greener than other fibers?
There's a lot to admire about bamboo.It grows fast, isn't hard on the environment, is incredibly durable and can be used for hundreds of purposes. Have you ever seen that great Alec Guinness World War II movie "The Bridge over the River Kwai?" British army prisoners build a railroad bridge with the stuff. Lately you've probably seen a lot of bamboo products on the market. The versatile plant has been used in everything from flooring to clothing. I recently bought a bamboo cutting board for my kitchen.
When it comes to clothing, though, a lot of what's advertised in clothing as bamboo isn't. It's rayon. Like most green products, it's not that simple to say that the source material is "natural." After all, petroleum is a natural product and look what it does to the environment after it's processed and burned.
The same shallow thinking can be applied to rayon, which is a generic term for nearly any natural cellulose fiber that's processed to make fabrics.
Rayon undergoes some nasty chemical treatments before it becomes that sweater or jacket. (Think caustic lye in hair-care products). The substances used to break down cellulose are environmentally toxic and are released into the air.
Naturally, manufacturers and retailers don't count on you asking questions about the life-cycle of the product.
Since bamboo has attained a certain cachet among green consumers in recent years, a flood of products claiming to be bamboo have emerged on the market. They go by brand-names such as "eco-Kashmere," "Pure Bamboo" and "Bamboo Baby."
Although green products undergo less scrutiny than food or animal treatment, when advertising claims are misleading blatantly false, it can catch the attention of the newly active Federal Trade Commission.
The FTC recently sent warning letters to 78 retailers to stop the labeling of rayon products as bamboo-based. The merchants included Wal-Mart, Target, Kmart, Costco and Nordstrom's. The agency also sued several companies last year for selling mis-labeled rayon products. Four companies have settled with the FTC and have changed their labeling thus far.
In the interim, if you see a product with a bamboo label, how do you tell if it's the real thing? Actual bamboo should be labeled as "mechanically processed," as opposed to chemically processed rayon. It's also helpful to see if a third-party has certified the claim such as the Forest Stewardship Council. A third party can run tests, inspect the manufacturing and run life cycle analyses to determine how much pollution is created in the processing of the fabric.
In the meantime, not only should you be wary about any green claims without seeing a life-cycle analysis of the product, the best green product is one not consumed. Reuse what you can. Rescue what you need from a thrift store, flea market or garage sale. Recycle profusely.
If we're doing the green lifestyle right, ultimately we become "prosumers" instead of consumers. We are producing our own energy, food and soil and wasting less.
Thursday, April 8, 2010
Greenspan Knew Everything, Did Nothing
By John F. Wasik
Just for the record: Alan Greenspan knew about the housing/debt bubble and did nothing to prevent it from bursting.
Not only did he know how the bubble was inflating, but how Wall Street and Americans took advantage of it to buy real estate in a mass frenzy.
On top of that knowledge, he had documented how homeowners were looting their false wealth through home-equity loans – tapping whatever illusory dollars they could after two stock-market crashes in a decade.
The home-equity story is rarely told. Yet it was Greenspan who actually wrote a paper for the Fed in 2006 at the height of the bubble quantifying how much Americans were taking out of their homes to buy boats, cars, vacations and yes, more real estate. I profiled this free-for-all in my book on the housing crash The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Greenspan also documented that Americans were becoming dangerously overleveraged – it was a long-term trend -- and were heading over the cliff during the bubble years.
In a paper he co-authored with Fed economist James Kennedy, they noted “since the mid-1980s, mortgage debt has grown more rapidly than home values, resulting in a decline in housing wealth as a share of the value of homes.”
The home price mania convinced millions of homeowners that the bubble years were the prime time to borrow against the over-inflated values of their homes. Home-equity loans accounted for four-fifths of the rise of home mortgage debt since 1990, Greenspan’s paper stated.
It’s often easy to blame consumers in this whole mess. After all, why did they get in over their heads? Nobody was forcing them to leverage up. With the onus of the American Dream and “maestro” Greenspan’s cheerleading to take advantage of cheap credit, Americans were following a script. “You can have that dream home and everything else now – just sign on the dotted line!” Real estate agents, bankers, builders and mortgage brokers all read from the same cue cards. “Get as much house as you can afford! You won’t have to pay it off for a long time. Why wait?”
The massive borrowing, unfortunately, meant Americans were becoming poorer in a real sense. If another recession came, which it did after the bubble exploded, they’d be in no shape to revive the consumer-dominated economy. Hence our anemic economic recovery, allegedly underway.
That’s why Greenspan’s testimony on April 7 before the Financial Crisis Inquiry Commission sounds like a snake-oil salesman insisting that his products and sales pitches were always legit.
Greenspan’s flaccid response to a question on why he didn’t do anything to stop the financial carnage?
"When you've been in government for 21 years, as I have been, the issue of retrospective and figuring out what you should have done differently is a really futile activity," Greenspan said, "because you can't, in fact, in the real world, do it.”
How about at least admitting that predatory mortgage lending was a huge problem, which the Fed knew for years? How about saying that it was the Fed’s job to police debt securitization and they dropped the ball? And why didn’t the Fed just raise interest rates when it was clear that cheap money was blowing up another bubble?
As for his recent amnesia as to how big the bubble was at the height of the mass delusion, here’s Greenspan from a May 21, 2005, New York Times piece:
"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern," Mr. Greenspan told the Economic Club of New York at the Hilton New York hotel in Midtown.
In his typical argot, the Fed chairman would only admit that he saw some “froth” in the mortgage markets, while completely missing the blitzkrieg that would nearly take out the global financial system in 2008 and leave some of the major players like Goldman Sachs, Citi and Bank of America virtual wards of the state while taxpayers bailed them out.
"Even if there are declines in prices," Greenspan said in 2005, "the significant run-up to date has so increased equity in homes that only those who have purchased very recently, purchased before prices actually literally go down, are going to have problems."
As Greenspan morphs into the Neville Chamberlin of finance, let’s move on. Break up the biggest banks and deep-six the “too big to fail” doctrine. Create transparent, regulated markets for derivatives and toxic debt. Let homeowners who were damaged by the bubble write off their mortgages in bankruptcy to equalize the $12 trillion in help from American taxpayers.
What Greenspan knew for certain is that the financial monsters who benefited from his bubble would have his back when he retired to the lecture circuit and write his memoir.
Let history record that when Greenspan fully exits public life, he should be recognized for what he neglected to do and his misdeeds go far beyond sins of omission. Just ask the millions who are trying to claw back into the middle class.
John F. Wasik is an author, columnist and speaker. His Cul-de-Sac Syndrome profiled the housing bust.
Just for the record: Alan Greenspan knew about the housing/debt bubble and did nothing to prevent it from bursting.
Not only did he know how the bubble was inflating, but how Wall Street and Americans took advantage of it to buy real estate in a mass frenzy.
On top of that knowledge, he had documented how homeowners were looting their false wealth through home-equity loans – tapping whatever illusory dollars they could after two stock-market crashes in a decade.
The home-equity story is rarely told. Yet it was Greenspan who actually wrote a paper for the Fed in 2006 at the height of the bubble quantifying how much Americans were taking out of their homes to buy boats, cars, vacations and yes, more real estate. I profiled this free-for-all in my book on the housing crash The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Greenspan also documented that Americans were becoming dangerously overleveraged – it was a long-term trend -- and were heading over the cliff during the bubble years.
In a paper he co-authored with Fed economist James Kennedy, they noted “since the mid-1980s, mortgage debt has grown more rapidly than home values, resulting in a decline in housing wealth as a share of the value of homes.”
The home price mania convinced millions of homeowners that the bubble years were the prime time to borrow against the over-inflated values of their homes. Home-equity loans accounted for four-fifths of the rise of home mortgage debt since 1990, Greenspan’s paper stated.
It’s often easy to blame consumers in this whole mess. After all, why did they get in over their heads? Nobody was forcing them to leverage up. With the onus of the American Dream and “maestro” Greenspan’s cheerleading to take advantage of cheap credit, Americans were following a script. “You can have that dream home and everything else now – just sign on the dotted line!” Real estate agents, bankers, builders and mortgage brokers all read from the same cue cards. “Get as much house as you can afford! You won’t have to pay it off for a long time. Why wait?”
The massive borrowing, unfortunately, meant Americans were becoming poorer in a real sense. If another recession came, which it did after the bubble exploded, they’d be in no shape to revive the consumer-dominated economy. Hence our anemic economic recovery, allegedly underway.
That’s why Greenspan’s testimony on April 7 before the Financial Crisis Inquiry Commission sounds like a snake-oil salesman insisting that his products and sales pitches were always legit.
Greenspan’s flaccid response to a question on why he didn’t do anything to stop the financial carnage?
"When you've been in government for 21 years, as I have been, the issue of retrospective and figuring out what you should have done differently is a really futile activity," Greenspan said, "because you can't, in fact, in the real world, do it.”
How about at least admitting that predatory mortgage lending was a huge problem, which the Fed knew for years? How about saying that it was the Fed’s job to police debt securitization and they dropped the ball? And why didn’t the Fed just raise interest rates when it was clear that cheap money was blowing up another bubble?
As for his recent amnesia as to how big the bubble was at the height of the mass delusion, here’s Greenspan from a May 21, 2005, New York Times piece:
"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern," Mr. Greenspan told the Economic Club of New York at the Hilton New York hotel in Midtown.
In his typical argot, the Fed chairman would only admit that he saw some “froth” in the mortgage markets, while completely missing the blitzkrieg that would nearly take out the global financial system in 2008 and leave some of the major players like Goldman Sachs, Citi and Bank of America virtual wards of the state while taxpayers bailed them out.
"Even if there are declines in prices," Greenspan said in 2005, "the significant run-up to date has so increased equity in homes that only those who have purchased very recently, purchased before prices actually literally go down, are going to have problems."
As Greenspan morphs into the Neville Chamberlin of finance, let’s move on. Break up the biggest banks and deep-six the “too big to fail” doctrine. Create transparent, regulated markets for derivatives and toxic debt. Let homeowners who were damaged by the bubble write off their mortgages in bankruptcy to equalize the $12 trillion in help from American taxpayers.
What Greenspan knew for certain is that the financial monsters who benefited from his bubble would have his back when he retired to the lecture circuit and write his memoir.
Let history record that when Greenspan fully exits public life, he should be recognized for what he neglected to do and his misdeeds go far beyond sins of omission. Just ask the millions who are trying to claw back into the middle class.
John F. Wasik is an author, columnist and speaker. His Cul-de-Sac Syndrome profiled the housing bust.
Subscribe to:
Posts (Atom)
