What do you think of Obama’s foreclosure bailout plan? It’s a whole separate plan that’s not part of the stimulus package details.

The issue of bailouts has always been a pretty contentious topic, with some people thinking it’s the only way to save our toppling economy while others insisting to let the dominoes fall where they may.

With all the rhetoric, arguments and debates I’ve been reading about this, I am no longer entirely sure where I stand on this either. On the one hand, I am a fiscal conservative who believes in the natural selection process that filters and shapes our financial and economic landscape, even if it means having to be subjected to the vagaries of our capitalistic society. Que sera, sera.

But that was before I realized just how bad things could get when capitalism goes awry. All the deregulation that went on in the boom years and all the stuff that’s happened unchecked in big business and the markets are what we’re now blaming for the deep mess we’re finding ourselves in.

There have been lots of casualties in this financial crisis — and one of the most unfortunate groups hit have been those homeowners in the grip of foreclosure. If you’ve read about stories of financial loss due to foreclosure, it’s hard not to feel badly for the victims.

Fixing this problem has become Obama’s current obsession. Let’s see just how he plans to do it.

Obama’s Foreclosure Bailout Plan

President Obama wants to allocate $75 billion to aid the approximately 9 million troubled homeowners who are still “salvageable” and who can conceivably still benefit from some assistance. Here are some of the main points from the plan:

• The government is taking a “sharp departure” from how things were done under Bush, who left it to the service sector to voluntarily decide whether to readjust bad mortgages.
• The plan will use billions to “entice” loan agents to rework mortgages for those people who’ve stopped paying. The lenders and mortgage holders get money if they modify bad loans and if borrowers stay current.
• Those homeowners typically ineligible for refinancing since they owe more than 80% of their home’s value, may now qualify for refinancing based on some new regulations.
• The plan will subsidize another sector of the financial industry — it will allow lenders to reduce loan balances and interest rates to make mortgages more affordable.
• A $10 billion insurance fund will be set up to protect mortgage holders (e.g. banks!) from certain losses and housing declines.

Should There Be Help For Homeowners?

From this article, Can A Housing Assistance Program Prevent Foreclosure?, we find the personal story of someone who’s actually gone through the difficult experience of trying to resolve their housing and mortgage loan issues. Apparently, past housing assistance programs haven’t been very effective in helping out too many people, since lenders have been very resistant to working out loan modifications.

So will the foreclosure plan begin to grease the system a little more, and get things going down the right path, or are we simply sending out the wrong message to transgressors and villains of the subprime mortgage fallout?

Check out the Republicans’ response to Obama’s foreclosure plan. They ask some good questions — any expensive plan deserves some questions, checks and balances, after all.

• Is this fair to the 90% of homeowners who play by the rules?
• Isn’t the plan rewarding banks for setting up bad mortgage loans?
• Will those homeowners who misrepresented themselves on their mortgage applications qualify for some of the bailout funds? (see Casey Serin)
• Mandatory debt counseling programs notwithstanding, how can we be certain that debtors who are experiencing financial problems today won’t be in trouble again later, after receiving bailout help?
• Obama’s foreclosure bailout plan simply shifts the debt to taxpayers. How will borrowing more money to pay for bad loans solve the problem?

I read Obama’s reassurance that this plan isn’t going to reward unscrupulous and irresponsible people, but how exactly can we ensure this? I wonder just how well the bailout plan will be managed. Like any other massive government backed plan out there, there will no doubt be inefficiencies, errors and things that slip through the cracks, so much so that the money may not all be put to their intended use.

So how do you stand on this? Do you think bailouts are the way to go? Which causes deserve funding and which don’t? Do you believe that this bailout will work?

Obama’s Foreclosure Bailout Plan: Should There Be Help For Homeowners?

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Still looking for your stimulus check? I dissect Obama’s stimulus package and weigh in on the government’s money plan which covers tax cuts and government spending.

The 2009 economic stimulus package is the big news out of Washington over the last few weeks (or days). You can’t escape the buzz about it. And while the people in power sit, stew and argue about all this, all we can do is wait to see what kind of huge price tag emerges from all their negotiations.

But I’m fascinated. I want to see what it is that the American public will be paying for, for decades to come. So I’m planning to keep tabs on the plan details right here.

Cost of Obama’s Stimulus Package

How much are taxpayers going to be out for? As it goes, I’m finding it hard to grasp the enormity and meaning of spending in the trillions. My brain can’t wrap itself around numbers like this:

• $790 billion for the Obama administration’s stimulus bill.
• $700 billion for the Bush administration’s bailout plan.

Already, that’s almost $1,500,000,000,000. All those zeroes get me dizzy. Add the trillions to an already massive deficit and the future looks stunning. I’m not surprised that there’s some heavy opposition here by the Republicans, particularly John McCain, who would have stonewalled on this (if not vetoed any plan) if he were voted President.

If you think about it, this just means that we’re out this money over the long term as we hope and scramble to find ways to pay this back. Banks who borrowed from TARP funds should pay those loans back with interest. Future generations are going to be paying this back through tax hikes when times are (probably) better. But for the short term, we can only focus on that “stimulus check” in the form of tax cuts that will alleviate the current financial pain most of us are facing.

House vs Senate Economic Stimulus Package Proposals: The Spending Plan

Here’s how the package breaks down: 35% of the bill will be allocated to tax cuts while 65% will be for spending.

Because I like pretty pictures very much, I’d like to present CNN’s pretty pie charts on how the taxpayers’ money will be spent. Things will morph over time and if they do, I’ll make updates as I find them. So here’s where the 65% of the $790 billion is supposed to go, as per dueling plans in Congress. The missing one third of the stimulus plan (not illustrated in the charts) is supposed to cover tax cut provisions (more on this later).

Obama’s Plan: No Stimulus Check, But Tax Cuts

So what’s in it for us? The 35% of $790 billion is reserved for us working folk. Lots of people are looking for an economic stimulus check, but we’re not getting a physical check this time around. We’re getting a bunch of tax breaks, the main item being this one: a tax credit for workers.

The original plan was to give out a $500 tax credit for individuals and a $1,000 credit for earning couples, but these amounts have been reduced by 20% as Congress wrangles on. The revised tax credits are now for a whopping $400 for individuals and $800 for couples. And you’ll only get full credit if you earn $70,000 or less per person.

Here are the final details of the package.

Criticizing The Plan

Here’s what the critics are saying:

“More than one-third of this bill is dedicated to providing tax relief for middle-class families, cutting taxes for 95 percent of American workers,” says the Senate Majority Leader.

Supporters say that this will turn our economy around. The critics (e.g. Republicans) b**** that there’s not enough here for us working families, while the funds are being shoveled into wasteful government spending programs. Well, from what I’m seeing there could be some truth to that.

My Biggest Concerns: if you look at the charts above, it shows how the big money is going to general spending, with a large chunk reserved for “federal and state government”. And if you look into the details more carefully, you’ll see funding going to things that don’t necessarily promote economic revival.

Is this fat stimulus package supposed to include spending for pandemic flu research and the purchase of green, fuel-efficient government vehicles, with between $300 million to $600 million earmarked for this? I’m all for supporting those goals, but do these belong in a STIMULUS plan? Fine and dandy, while we await our $800 tax break right?

Can We Revive This Ailing Economy?

This stimulus package is something they all say we need right now….desperately. The US economy is like a comatose patient who needs to be revived. The economy needs the stimulus bill like a dying patient needs critical health-restoring treatment and nasty-tasting medication. We’re told that we need this spending to create and save millions of jobs and to avoid an “economic catastrophe” (Obama’s words, not mine).

And when our comatose patient finally reawakens and gets back on track, he’ll be haplessly saddled with massive bills for a long time to come: the price he pays for making the biggest financial mistakes he’s ever done in his life.

What do you think of the economic stimulus package?

Obama’s Stimulus Package: Details On Tax Cuts and Spending

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Finally… if a company wants its version of a stimulus check (what amounts to bailout funds from the taxpayer), they’ll need to cap executive pay, according to Obama’s executive compensation plan.

It looks like President Obama is taking steps to get us down the right course while we weather this recession. Capping executive pay for the time being makes total sense to me, since rumor has it that more companies will be begging for more funds, including those that have already previously received loans. These guys need to learn how to conserve!

Image by The Reputation Doctor

I think that with the way the recession is shaping up, additional government handouts seem to be likely in the future, which is why we sorely need this pay cap. Unfortunately, earlier bailouts are not subject to this policy, so it remains to be seen if earlier bailout recipients will bother to conform to the new rules.

Consider this as a follow up to my post on how Wall Street jobs pay out big bonuses: from the New York Times, this just gets my goat:

Five of the biggest companies to get help — Citigroup, Bank of America and the American International Group, General Motors and Chrysler — were all facing acute problems. And top executives at those companies made far more than $500,000 in recent years.

Some defenders of executive pay are using the term “draconian” to describe this policy, as they continue to present the excuse that with pay caps, “key executives” will now just want to up and leave and go elsewhere where pay is better.

Hmmm…. okay, so I didn’t realize we were swimming in jobs out there that offered more than $500,000 in pay, all for the taking. I want to call out their bluff and say, “tough”! I’d love to see these executives *really* earn their pay — if they were so exceptional and worth the millions of dollars they were making, then they should be brilliant enough to be able to turn their ailing companies around without having to get help. Don’t you think?

To Get A Stimulus Check, A Company Needs To Cap Executive Pay

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Wall Street’s investment bankers are out to defend their jobs, salaries and their stratospheric bonuses. This would be fine if they didn’t have to require us to bail them out!

I found this to be pretty obnoxious: Wall Street guys defending their bonuses during a time when the economy and the nation are hurting! At least, President Obama has acknowledged and has criticized the $20 billion in bonuses given out during the economic crisis as highly irresponsible.

But the Wall Streeters aren’t backing down — some are saying that their bonus is part of their pay, and without a bonus, it’s like getting a pay cut. Well duh! I guess I’ll state the obvious here and say that in case these people haven’t realized, we’re in the midst of a serious recession that can really cripple the entire country. While the rest of us languish by getting laid off and going into foreclosure, certain individuals can only think of protecting their status quo and comfortable lifestyles.

I believe that at a time like this, we all need to give a little and sacrifice a little to get this economy back on track. You know…. take one for the team?

Wall Street Jobs With Big Bonuses: How The Taxpayer Will Pay Out

This video made me weep.

Rumor has it that changes will need to happen in Wall Street or we’ll be facing the possibility of having the government step in to put a damper on the financial industry’s compensation structure.

5 Arguments For Preserving The Investment Banker’s Salary

Allow me to summarize their defense points from the video:

1. Taking away bonuses is like cutting your salary in half. So you mean going down from $400K a year to $200K constitutes hardship?

2. Slashing bonuses will slow down the economy further. Why? Because the elite will stop buying yachts, expensive jewelry and luxury cars. There are already less of them frequenting high-end restaurants. The horror!

3. Companies need to pay for talent. AIG defends giving out $450,000,000 for 400 of its top employees. That’s about $1 million per person — the bounty needed to keep the “Michael Jordans” of the insurance industry on the AIG team.

4. It’s not entirely Wall Street’s fault; they’re being scapegoated! So we’re pointing fingers now — there’s lots of blame to go around and some of the accountability should land squarely on the American public because of our pathetic long-term 0% savings rate.

5. Bonuses have already been slashed, in case you haven’t noticed. Apparently Wall Street bonuses were down 44% in 2008; yet even without a bonus, a typical employee in the financial industry continues to rake in 3x to 4x an average American’s salary.

Why One Senator Called Them Idiots

Well here’s what we’re not happy about: if we’re living in a capitalistic society then we should all be riding the markets down in the same way we rode it up. If your company collapses, you’re out of a job, so demanding a bonus should be farthest from your imagination at this point. Here’s what truly bothers me — it’s the financial industry’s sense of entitlement and arrogance that grates on me to no end (I say this even as someone who has worked in the industry before). Problem banks are not the only ones in this predicament of course, as there are many other troubled and mismanaged companies out there requesting bailouts, to which we should apply the same treatment.

Is Wall Street really so far removed from the average reality that the idea of belt-tightening and cutting costs has become pure sacrilege? But maybe it’s more basic than that: you see, it’s a dog-eat-dog world out there and lots of people are simply thinking it’s “every person for themselves”. It just so happens that this time, it’s become the latest group think, the collective mentality of a few industries accustomed to largesse and the good life.

Wall Street Jobs Pay Out Big Bonuses: The Investment Banker Defends His Salary

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The financial bailout plan got scrapped. This “rescue package” failed and the stock market didn’t like it.

I won’t lie — what happened yesterday with the stock market has made me nauseous, and it doesn’t help that I’m trying to recover from a nasty bug. The stock market is being fueled by fear at the moment, sparked by the failure of our government’s “rescue package” for troubled financial institutions.

The market’s behavior tells me that investors want the bailout to pass. And in the absence of any approved fiscal solution, we instead get the worst point drop for the Dow Jones index in its history. Note of course, that the absolute point drop here is only around 7%, and does not qualify as one of the worst days in terms of percentage loss.

Seeing that the market is unhappy about this turn of events, you may wonder why the overall consensus here by the investing public is for the bailout to pass. I’d say it’s because the market wants resolution of some sort and would like to move on from the uncertainty brought about by debate and wrangling in Congress. The public wants the ongoing drama to be over and believe this artificial solution is the ticket. The dire warnings of some of our political leaders — about how the financial contagion going on unchecked could raise the potential for a terrible recession (and us hurtling towards the next Great Depression) — may have riled up the markets sufficiently. And I’m sure the media coverage and hype help quite a bit too.

Arguments Surrounding the Financial Bailout

But where do we stand in all this? One thing’s for sure: that we won’t all agree. Personally, I actually find myself agreeing with many of the points made that support the rejection of this bailout. Here’s a sampling of what I’ve read:

• Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bailout insurance companies, investment banks, hedge funds and foreign companies.
• It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?

And here is a short list of arguments for and against the bailout:

For the Bailout

• The bailout will help quiet the global financial system and markets.
• It will instill confidence in investors. Even Warren Buffett is for the bailout.
• It may help circumvent the threat of recession.
• It will prevent job losses, especially in downed institutions.
• It will keep liquidity in the markets.
• Bank assets bought by the $700 billion bailout may be worth more in the future.

Against the Bailout

• The bailout can be pretty costly to taxpayers, if bought assets don’t recover.
• It can cause the budget deficit to balloon as the bailout will mean more government borrowing.
• Who knows what the true bailout will cost when the plan is finally executed.
• Bank and financial company leaders will get away with their mistakes. No lessons learned.
• Do we want more government intervention? The state may obtain a stake in bailed out firms.

I won’t be the first nor the last financial blogger to review these matters, but for what it’s worth, here’s my .02 on this: I’m not sure I buy into the ongoing fear-mongering we’re being subjected to at this time. I’m also one of those who’s fine with letting the cards fall where they will, even if it means working out the pain in the near term (though many folks would prefer anything to arrest their pain right now). I believe the bailout is expensive, and yet comes with no guarantees; worst of all, it sends the message that there’s no accountability among the higher ups.

I’m all for bailing out of the bailout and letting the financial industry find its own footing out of this quagmire.

So how about you? How do you feel about this failed rescue package?

Failed Financial Bailout Leads To Worst Point Drop In Stock Market History

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The Consumerist just reported that apparently, Toys R Us discriminates against young grandparents. The toy store is offering a 20% discount coupon for grandparents, except that you need to be 50 or older to be eligible for the discount. Tut tut.

So if you’re thinking of using this coupon to buy goodies for your grandkids, it will only be effective if you’re way over the hill. Maybe the coupon should say “We Love OLD grandparents?”

Shockingly, I have friends my age who are already grandparents (but I’m certainly not going to be one for a good long while) and some of them are even attending that alumni reunion I’ve been trying to avoid.

The coupon thing doesn’t really bother me though — I’m a little bit more perturbed by the fact that I’ve got peers my age who have grandchildren. That’s just too weird a thought for me to absorb right now as I think it’s still quite a stretch to think of myself in such a role, given that I feel stuck in a time warp sometimes and forget that I’m no longer in my 20’s. I’m still busy trying to fund some 529 plans here….

Let’s move on right along then — how about joining me in absorbing these financial articles instead?

Recommended Personal Finance Reads

• Free Money Finance talks about the tipping point for buying a new car.
• Get Rich Slowly brings to our attention some budget killers in the form of some of our favorite foods!
• Lazy Man and Money has a guest post on reverse mortgages. Here are some pros and cons.
• Frugal Dad points out that half of us are living paycheck to paycheck and urges us to start saving!
• Money Smart Life: Changing jobs? Find out what expenses are associated with your job change.
• Gen X Finance compares some big-named financial web sites. For another review, you can check my own comparisons between Mint and Wesabe.
• The Sun’s Financial Diary ponders whether small-cap stocks are making a comeback. Is it time to buy small caps? Sun thinks it may still be too early.
• Million Dollar Journey wonders what should be considered as savings. For instance, should you consider only your liquid assets as savings?
• Brip Blap reflects on the events of 9-11. Though I somehow missed ruminating over its anniversary this year, I consider this event as one of the most traumatic that I’ve ever had in my life, and one that has changed how I live and think in many ways.
• My Dollar Plan, one of our resident retirement experts, shares a great strategy to avoid taxes when you do a Roth IRA conversion. Since we don’t have any deductible IRAs around, then I’m guessing we won’t have much in the way of taxes when we do a conversion!
• Rich Credit Debt Loan offers some recommendations for saving without even trying. Great suggestions!

Additional Financial Articles I Enjoyed

• The Top Five Pre-Baby Money Matters to Discuss with Your Partner Now @ The Prosper Blog
• My Timer @ Remodeling This Life
• Carpool Your Way To Happiness @ My Daily Dollars
• Woops, Bought a Lenovo IdeaPad S10 Netbook @ Stop Buying Crap
• The Next Great Company @ Dividends4Life
• Why Do I Need A Will? @ Quest To Be Debt Free

Recent Carnivals

• Over Contributions To Your 401k, High Unemployment Rate
• Carnival of Financial Planning
• Finance Fiesta
• Kids and Money
• Working at Home Blog Carnival
• Carnival of Cities
• Carnival of the Vanities

Toys R Us Coupons and Age Discrimination @ The Roundup

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A look at people living outside our financial system.

Photo by diaper

We already know that we have between 10 and 15 million people who work in the U.S. illegally. Do they have a bank account? Very few do. Most fear without reason that banks will report them to the authorities. Many don’t speak English and don’t understand the intricacies of the banking system. We also have another 10 to 15 million Americans who simply don’t believe a bank account will help them. And here’s a revelation: it’s believed that the population without a bank account earns more than 500 billion dollars annually.

Check Cashing Businesses

People who do not have a bank account take their checks to a specialized institution. They use check cashing businesses and must pay a fee between 3% and 5% of the total amount. As they walk out the store, somebody may be waiting to rob them of the hard-earned cash. Still other fast growing businesses offer to loan them money — normally no more than $500 — in advance of payday. In this case, the fees are exorbitant; it can reach over 500% the annual rate. The Merriam-Webster dictionary gives this definition of usury: “an unconscionable or exorbitant rate or amount of interest.” Unfortunately, no authority has offered to curb these abusive practices, which are just some of the many other traps that financially vulnerable people fall into (along with predatory loan schemes such as risky mortgage loans and subprime borrowing activities).

New Ideas To Capture the Illegal Immigrant Market

USA Today recently reported that Bank of America is planning to issue credit cards to illegal immigrants. According to Ruben Navarrete, editorial writer for the San Diego Union Tribune, the bank has already started a program called SafeSend to allow illegal immigrants to open checking accounts and send money safely to Mexico. All this created quite an uproar among those who believe that we should not encourage undocumented workers to stay in the United States. Of course, the motive for the program is not altruistic; it is simply an effort to cash in on this previously untapped resource. The credit card charges over 21% a year, a rate that is considered high by most standards.

Efforts To Bring People Into the Banking System

“We know that many of these individuals live from paycheck to paycheck and remain unbanked for reasons ranging from problem credit histories and debt burdens, to distrust of financial institutions, to the lack of financial education.”

~Chairman Donald E. Powell Federal Deposit Insurance Corporation, March 2003.

Then FDIC chairman Donald Powell added that it would be quite profitable for banking institutions to penetrate that market with tools designed specifically for customers living in fringe financial services. Some employers have solved the problem of delivering checks by creating direct deposits in debit cards that the workers may use in restaurants, supermarkets and other places. Many of these employees don’t have Social Security numbers.

A nonprofit organization in Southern California has created SiGo Money MasterCard, a reloadable prepaid card affiliated with MasterCard which allows people who don’t have bank accounts to pay bills, to call and text message family, and to perform money remittances to other countries; it promises to be a step up from check cashing schemes. It’s not a credit card, but one you load with cash (for the convenience). All well and good, but as The Consumerist points out, it’s also loaded with fees and gives away your private information for marketing, research and so forth. Here’s a taste of the fees you’ll pay for the privilege to use SiGo:

What a deal!

Finally, Wal-Mart announced recently that it will sell a card for $8.94, a prepaid Visa debit card, targeted specifically at those who don’t have a bank account.

We may or may not agree with those who facilitate financial services for illegal aliens, But what’s appalling here may be some of the types of financial products made available to them and others outside our financial system. We should also realize that those outside our financial system include millions of Americans who run considerable risks by stashing hoards of cash under the mattress or slipping banknotes between book pages. Their financial resources are not protected from criminal elements. Sure, the banking system and private enterprises are making huge efforts to bring them some degree of safety, but it’s also done in the name of more profit. And as we’ve seen in some cases, that too, can be just as scary as the risks some people make with their hard-earned money, as they take matters in their own hands.

 
Jacques Sprenger is a contributing writer to The Digerati Life.

No Bank Account? Big Problem

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A rising tide lifts all boats.

There was a time when the Bay Area was subject to that proverbial rising tide, where easy money chased opportunities and opportunities minted even more money. During the tech boom of the previous decade, the rich got richer, the less rich got a bit richer, and most everyone was doing well. Little did we know how much this would be contributing to our ever escalating cost of living, whose effects we keenly feel today.

After the bubble burst in 2003, things have gone the other way somewhat. There’s still a lot of money floating around, but it’s cautious money, and distributed a bit differently. I just read an article in the San Jose Mercury News that brings up a concerning trend. Is there something really happening to our local middle class?

Reported data seems to show that our middle class is shrinking ever so gradually. The bigger question I have is this: how reflective is this of what is happening elsewhere around the nation? And is this something we should care about?

More interestingly, who is doing something about this?

Tuition Break For The Working Class

Well some out there care enough to do something about it. Some influential institutions out there are taking steps to address the typical costs that plague everyday working families. For instance, that Stanford University has announced free attendance for kids whose families earn less than $100,000 has given me some assurance. This is a way to ensure that upward mobility remains alive and well, even as the middle class is feeling the squeeze from high cost of living, crazy property values and seemingly diminishing mid-level jobs. Such a move will make a positive impact to some middle class wallets, given that a third of Stanford families earn below $100,000 annually.

Cost of Higher Education

“The elimination of loans is also a good thing, but one that merely catches us up to Princeton and Harvard,” said Hyde, from Potomac, Maryland. “And the continued consideration of home equity is problematic. I know of students whose parents refinanced their houses to continue to afford tuition.”

Throughout the nation, top schools have been seeking ways to end tuition anxiety. Until recently, top colleges offered little or no aid to average families.

Three years ago, Harvard waived all costs for families earning less than $40,000 per year. A year later, Stanford and Yale followed suit for all families making up to $45,000.

In December, Harvard declared a plan to cut costs for families earning under $180,000. Harvard families earning $120,000 to $180,000 pay no more than 10 percent of their income toward college. At Princeton, families who make $120,000 to 180,000 contribute 16 percent of their income, on average, toward school.

Swarthmore, the University of Pennsylvania and a growing number of other schools are also jumping on the no-loan bandwagon.

Wonderful as it is, I still consider this break that Stanford affords as some kind of a lottery. The catch is that your child needs to have an impressive academic record (and lots more feathers under your cap) to be part of the diverse lucky few who fit the profile for skipping out on tuition this way. It’s tough enough to get into Stanford, but even tougher for those who’ll grapple over the few spots that they’re giving away for free. It may not be enough that you make less than $100,000 (lots of people here are in this boat), and have a kid who’s brilliant. There are too many other factors that figure into their admissions calculation.

But, it’s good to know that the Ivy Leagues are recognizing the middle class pinch and are addressing them in some capacity, and helping to level the playing field for those smart and ambitious folks who are aspiring to acquire a top education and highly coveted diploma.

Still, I continue to wonder how much this’ll influence larger socio-economic trends. Or is it just the case that we’re simply waiting for the next tide to come by to lift us up again?

 
Image Credit: ABC News; Data Source: San Jose Mercury News

Free College Tuition To Soothe the Middle Class Pinch

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Most of us want to get further along in life, financially speaking — to grow, improve and develop ourselves further while hopefully finding prosperity in the process. I can only name one person I’ve ever met in my life who didn’t want to go down this well-beaten path as he reveled in a much more austere way of living which included months of hiking in the Appalachian trail and involvement in interesting “basic living” communes. But for everyone else I know, I’ve seen them heed the familiar call to wealth building, with some more eager about pursuing this than others.

I’ve also seen people get ahead of themselves quite a bit with money making opportunities, and that’s why I’ve decided to devote a few posts on this topic. Earlier on, I’ve described the profile of the “get rich quick” lover; this time, I’d like to discuss what’s behind these schemes.

Now there will always be people who will make money through such ideas, which could actually be profitable and legitimate. If we have open enough minds, you’ll see that some of them may actually work for certain people — especially those who are skilled in the fields these ventures operate in. But the problem is that there are also schemes that are outright scams, or that entice people to join in these operations even if they’re clearly not a fit for these activities. In fact, most people may not be “right” for these things but end up getting swept in by the promise of turning in a quick buck.

If you’re truly interested in building wealth, it’s not enough that you make money, it’s also about keeping that money and minimizing your costs, expenses and losses as much as you can.

So how do you know if a scheme is something you should avoid or at the very least, evaluated *very* carefully?

Spotting Get Rich Quick Schemes

• The scheme has a good amount of risk involved.
• It asks you to put up significant amounts of money up front.
• The scheme has no known track record or has a poor history of returns.
• It promises you a lot of money for little work.
• It promises you a lot of money quickly.
• It appears “viral” or tries to snare as many people as possible into the scheme.
• It sounds too good to be true, with a high payout.
• Over time, you’re getting poorer rather than richer.
• It banks on one’s emotions, particularly on one’s greed.

In many of these schemes, only a handful of people make money and everyone else loses their entire investment. I certainly wouldn’t call this a long-term plan for financial success. Here are a few examples that I came up with that are of this ilk:

Types of Get Rich Quick Schemes

Some examples:

• “investing” in penny stocks
• flipping houses
• MLM or network marketing
• day trading or compulsive market timing
• gambling
• purchasing lottery tickets on a regular basis

The worst of the bunch are identified as Ponzi or pyramid schemes and are fraudulent, but do note that not all these schemes are illegal per se, and not all are entirely unethical either. Some are merely very high risk ventures that people tend to do to try to achieve instant success. What makes them “get rich quick” is the promise of big returns for relatively little work and with quick turnaround, which can lure many into thinking that this is the way their fortunes can be built; and while there are those who are terribly lucky (see: buying lottery tickets) or those who rise up to become “experts” in these areas and who do succeed in building their wealth this way, most actually just end up with less than they started with.

So when evaluating an opportunity, just make sure you read through the fine print and understand the risks involved before jumping in. If you must get involved in something like this, start out small so that you limit your potential losses. Personally, these more adventurous and exotic opportunities aren’t my cup of tea.

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Get Rich Quick And Bust!

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Do “make money fast” schemes work at all?

Get rich from the comfort of your home! No strings attached, make a real income from home! Make money fast! Yadda yadda yadda. My instant reaction when I hear these claims is to scoff at them and ask questions. But it seems like there are people out there who can’t help but fall into temptation and the clutches of these schemes over and over again. Is there such a thing as a “get rich quick scheme” addiction?

A Get Rich Quick Story

I recently caught an episode of Dr. Phil that highlighted relationships that have gone on the rocks because of failed financial schemes. One of Dr. Phil’s guests happened to be Casey Serin, the notorious erstwhile real estate investor and blogger who ended up blowing his investments as the property market popped, thereby leaving him $2.2 million in the hole. In the show, Casey gives an update on his failing marriage, telling viewers how his wife now doesn’t want anything to do with him and has filed for divorce. The rest of Casey’s story is then dramatically narrated through scenes of him living in a motel room, alone and reflecting on how he plans to rebuild his life. And finally, it all ends with him claiming he’s now found a full time job while he goes about slowly getting his life back together and his wife hopefully back in his arms.

Not long after seeing that episode, I received email from Casey (I’m one of many on his mailing list) letting us know that he’s doing very well. This time, he’s working with penny stocks and would like to let people know about some of the great opportunities he’s been fortunate to have encountered. So his luck has turned?

Okaaaay. I can’t fault Casey for not trying. He seems like the little engine that could. Except… I have to profoundly disagree with his methods for moving himself forward financially.

Are there people who are really vulnerable to “Get Rich Quick” activities? Is there a profile for this sort of “victim”? I thought this over and came up with a few characteristics that may make one an easy target for this sort of thing:

The “Get Rich Quick” Profile

Someone unsuspecting or naive.
It isn’t a coincidence that many of those who fall prey to the get rich quick agenda fall on both ends of the age spectrum. Those who are older may feel trapped on fixed income, even as they own more (often illiquid) assets. Boredom may also contribute to a desire to seek exciting pursuits for that adrenaline rush. Younger people also tend to get into this type of thing, mainly because they feel there is less to lose; also, they are more tolerant of risk and are new to the money-making scene. Being ruled by the thrill of the game turns out to be costly for those who aren’t as well versed with the consequences of these financially thrilling opportunities.

Someone in trouble.
Being emotionally vulnerable can make someone a prime candidate for the “quick fix”. Those in a bind, especially financially, may end up turning to schemes and programs that may promise a prompt cure for their problems.

Someone who thinks they’re special.
Well, we all are special for sure. But there’s something about making a quick buck that strikes me as the kind of thing that may attract a certain kind of individual — maybe someone who thinks they may be smarter than the rest of us, or someone who believes they’re more deserving, more skilled and therefore capable of acquiring riches faster than everyone else. Surely, this isn’t the profile of many “get rich quick” followers out there, but it’s not a stretch to imagine how hubris can play a part with formulating this type of “success in the fast lane” mentality, either.

Greed plays a part.
Fear and greed are tightly intertwined with the investment world. These emotions govern what happens with the stock market and are responsible for the rapid rises and bubbles as well as the sudden slides or crashes that are part and parcel of market cycles. If you’re prone to making emotional decisions — both as an investor and as a spender, you could have a soft spot for higher risk plays. When we see others make it big through one of these schemes, it’s easy to think it could happen to us as well!

It could be an addiction.
I’ll bravely assume that majority of us has fallen for a “get rich quick” scheme at one time or another. You’ve probably heard that statement: “fool me once, shame on you; fool me twice, shame on me.” Sure, I’ve been hoodwinked before, but I’ve since taken the experience as a lesson to avoid further mistakes of the sort. Unfortunately, there are those who can’t stop making the same mistakes, or who don’t want to. Perhaps they are idealists or eternal optimists, always hopeful for the next chance to strike it big, for the next scheme to be “The One” to change their lives. It doesn’t help that they “win” some of the time despite having a record of massive losses, since this is precisely what makes them convinced that they’re on the right track.

Parting Thoughts

It seems to me though, that there’s a fine line between the get rich quick opportunist and the more intrepid entrepreneur or investor. Ultimately, all opportunities present with risk and it falls upon us to decide if a scheme we’re faced with is dicey or worth a shot. Clearly, some schemes are purely fraudulent, while others may be legitimate, though highly risky. So we should be asking ourselves what it is exactly we’re comfortable with.

As with folks like Casey Serin, could the beauty of “get rich quick” lie in the eye of the beholder?

 
Image Credit: Wikimedia Commons

They Want To Make Money Fast

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