You Can Economize Yourself Right Out of Business

This is a pretty familiar scenario. I’ve heard small business owners say it and I’ve heard Fortune 500 CEOs say it and I don’t see the logic in it. “Due to lower revenue/sales, we are taking measures to reduce costs.” Huh?

A lot of finance people will say that the companies in this position must get their expenses below their income in order to get profitable again and survive. That’s not entirely inaccurate. It’s just backwards. They need to get their income back up above their expenses. This is not to say that some reduction of expenses might not be in order, but the emphasis must be on reverting revenue back to its previous range.

Let’s look at this with some example numbers. The numbers are intentionally kept small (maybe unrealistically so but the the principle they illustrate is correct). Let’s say a small business owner was routinely making $5000 per month in revenue. Let’s say payroll is $1500 per month. Rent is $1250 per month. Phones, supplies and other necessary operating expenses are $1100 per month. Marketing/Advertising expenses are $700 per month. Profits are about $450 per month. There’s not a lot of wiggle room here.

Now if the revenues slump down to $4000 per month for a few months, this business is in trouble. The $50 per month in profit is gone and it’s in the red by $550 per month. If you go the economy route, you have to cut either payroll, marketing/advertising or other business expenses. Assuming this business’ employees are productive, cutting payroll either means less production or that the owner is going to be overloaded and will have to put in much longer hours. Cutting marketing and advertising will almost certainly depress revenue further so that doesn’t seem to smart. Cutting other necessary expenses means only that those things will eventually come up as financial stresses on the business. By definition “necessary” means that it is needed. It’s not a luxury or a frivolous expense. Now here’s the problem with trying to economize your way out of this slump: it could get worse

Another slump: Let’s say the business owner in my hypothetical company managed to get “profitable” by cutting payroll and is now working with $4000 per month in revenue and $3800 per month in expenses. He picked up the slack of the person(s) who were let go and is working longer hours, say 55 hours per week. Now 8 months later, revenue slumps from $4000 to $3500 and does not come  up. The owner could extend his hours from 55 per week to 80 and let someone else go in order to regain profitability. Alright, let’s try that. There are no more employees. The owner’s working 80 hours per week, which is roughly 12 hours per day every day of the week. No time for himself or his family.

If revenues slump below expenses again, he doesn’t have much more room for cuts. In fact, chances are that if this business owners is working 80 hours per week with no staff, he’s not getting as much done as he did when he had his whole staff. This means production is falling behind. This alone can hurt business and trigger another decline of revenue. No matter the cause, let’s say revenues fall again. He’s now got to cut rent, or advertising or some other vital expense in order to get “profitable” again. Hmmm. OK. He finds a cheaper location for his business and moves it. The location isn’t as good as his original one but the rent savings are sufficient to get him back into the black.

Unfortunately, the lesser location resulted in loss of customers and revenues slump again. Advertising is cut. I’m sure you can see that eventually this guy is out of business.

Now let’s rewind to the first slump. Revenue was $5000 per month and dropped 20% to $4000 per month. Something changed. The exact cause of the slump needs to be isolated. It could have been a change in marketing, a change in delivery of the product or service, etc. What if the business owner can’t figure out the cause of the problem? That’s possible. There is still something that can be done. Review past marketing and advertising actions and figure out which of those was most successful. Repeat that with higher volume without reducing current marketing actions. In other words spend a little more on advertising actions in order to get those revenues reverted. This might require communicating with the landlord or vendors to buy yourself time paying them while your advertising is gotten out and is given some time to bite. If it worked before it will work again. Belt tightening can occur once the promotional actions are taken care of.

If promotion is considered the first priority and then any needed economizing is done. The business has a chance to pull out of it and maybe even grow. However, if the only thoughts are to economize and some how make due with less money, then the business will continue to shrink and will eventually cease to exist.

If I Had Won The Mega Millions

I figure if I’d been one of the three Mega Millions winners I’d have netted about $50 million in a lump sum after the split and taxes were taken out. For all you math geeks out there I know this isn’t necessarily accurate but since I didn’t win I don’t care.

What would I do with that much money?

Here’s what I would not do:

  • Buy a bunch of expensive crap I don’t need.
  • Have big stupid parties for “friends” and “family” that come out of the wood work.
  • Use the money for down payments on stuff that I’d have to pay off later.  That’s a trap, even if the payments would be affordable on my current salary.
  • Quit working. I enjoy working and having a bunch of money wouldn’t change that. I might change what I do or how I do it but I wouldn’t simply retire.
  • Listen to “investment” pitches from every Tom, Dick and Harry who think they can make a fat commission on me or who think I’m they guy who’s going to help them get their nuclear powered can opener business financed.

What I would do:

  • Pay off everything I owe anyone anywhere, after ensuring the amount is accurate, etc.
  • Move to a better neighborhood and pay cash for the house this time.
  • Make a large donation to my church.
  • Carefully consider where to invest the rest of the money so that I can make more money. Two investments I would definitely make are in myself and in my business. Further education/training would be a good investment of both my money and my time. Reworking my business plan in such a way that it utilizes my new found capital to create growth and additional profits would be my primary investment. Beyond that ?
  • Keep playing the lottery. Heck that’s where my mythical windfall came from in this little fantasy so I would repeat that action. I might not win again for a long time (or ever) but if it worked once it could work again.

What would you do with the money if you won the Mega Millions jackpot?

Life…

Wow. It really has been a long time since I posted anything at all. The tone of this post is going to be a bit different from previous posts. In the past I’ve tried to make my posts informative, even educational. Think I’m going to change that from now on. I’ll still inform and share successful actions for straightening things up when you’re in a financial mess. But I’m also going to be throwing my opinions around a lot more and on broader subjects. Hopefully folks stumbling onto my posts will enjoy them.

Life has taken several interesting turns in the last few months to say the least. Not sure how much detail I want to go into on that last statement other than saying that there have been both good and bad turns.

It’s always a good thing to try to help other people. However, sometimes your efforts to help don’t turned out the way you or the other person (people) involved thought they would. It really sucks when that happens. The people you were trying to help get mad at you and so on… I may post more about this subject later on.

Family is very important. Now you might say, “Come on, everybody knows that.” Maybe so. But you gain new appreciation for your family when life throws you a few wild curves in rapid succession.

Rule of thumb, the government sucks. People make rules and pass laws that benefit some people and screw up the lives of the rest of us pretty effectively. In the last year new government regulations have messed with a few areas of my life, not the least of which was my business. We’re not done with that yet because Obamacare hasn’t taken full effect. It’s bad enough that the stat legislated mandatory auto insurance. Now it’s mandatory health insurance. Who do I talk to about getting laws passed that require people to buy stuff from me? Just need a law that says something like every business that’s having cash flow problems must enroll in a business debt settlement program.

I’m doing a lot more volunteer work than I ever have and really enjoying that.

I’m going to be posting more often again. Maybe not every day. I’m busy building a custom application for a volunteer group I’m part of in my spare time but I’ve kind of missed writing too so I’m going to try to find a way to do both.

Emergency Funds – How Much is Enough?

Financial experts and advisers may not agree on much but they all tend to agree on one thing. You need to have an emergency fund. Common advice is to have between three and six months’ worth of expenses in your emergency fund.

The question of the day is how much of an emergency fund is enough it today’s economy? There’s no easy answer. In fact this is one of the areas where the subject of personal finance gets very personal.

There are a lot of people in this country who are long term unemployed. When I say long term I mean they have been unemployed for well over a year. When you’re in that position and your unemployment benefits have, or are about to run out, you need to have an emergency fund left. Most people don’t.

Let’s face it – unemployment benefits don’t cover much. Depending on the state in which you live your benefits would probably be between 35% and 50% of your average weekly wages. Let’s start there to try to work this out.

Here are the things you need to assess:

1. What are your prospects for re-employment at a similar wage to what you were making before you lost your job? This is the primary factor determining how long your emergency fund needs to last. If you work in an industry that’s been decimated by the current economy or by off-shore out-sourcing, your prospects might be slim and your emergency fund will need to last longer than if you are in a high-demand profession.

2. Let’s say your unemployment benefit is 35% of your average wages. If you’re a single income household, your first action must be working out how much you can cut from your spending. If you can achieve a 65% reduction in outgo, you’ll be able to save your emergency fund for the unhappy possibility that you might still be unemployed when your benefits run out. If you’re in a two income household the amount you need to reduce your expenses will depend on how much of your expenses the other income plus your unemployment benefits will cover.

3. If you can’t achieve an adequate reduction in your expenses, that means you’ll need to be able to tap into your emergency fund from the get-go to cover the portion of your reduced budget that your unemployment benefits can’t cover. From there you can figure out how long your emergency fund will last.

Here’s what we know about the current economy. The unemployment rate remains high. There are millions of people who have been out of work for well over a year. Unemployment insurance benefits have run out for many of those people and things still look pretty bleak as far as the job market turning around. Those circumstances present a pretty grim picture.

Here’s another scenario that made me re-think the whole emergency fund concept. It’s something that happened to me personally. Being self employed is a great thing when your business is working and you’re covering your expenses and have disposable income to boot. When technology, regulatory changes, the economy or just a few bad decisions put you in the red, you need to have an emergency fund to get you through the process of fixing the problems you’re having with your business (if they can be fixed). If the problems you’re having can’t be fixed for some reason your emergency fund needs to last long enough for you to “reinvent” yourself and your business if you choose to go that route or to make the transition from business owner back to employee if you choose to go that route. The problem is that its difficult or impossible to predict how long the emergency fund needs to last in those circumstances. Once that emergency fund cushion is gone, you’re going to have problems. Been there. Done that. Even if you want to make a go of your business, if you can’t fix the issues in time you may have to close it down and drastically change your lifestyle anyway.

So the question is, how big an Emergency Fund do you need?

Do you need an emergency fund that can cover eighteen months to two years of income loss? I’d say most people don’t. That’s a pretty extreme set of circumstances.

I’d also say that you need to take a look your profession/industry you work in. Are the prospects for landing on your feet either as an employee or a business owner good? Are there factors out of your control that could prevent you from landing on your feet before your funds run out?

As I said earlier this is where the subject of personal finance becomes very very personal. There is no definitive answer that fits everyone.

Here are my opinions on the matter after talking to several people who’ve been unemployed for a long time.

In today’s economy three months’ worth of expenses is only adequate if your profession or your skills are in such high demand that you’re able to rebound from a loss of income quickly.

Six months’ worth of expenses in your emergency fund might be adequate if you are a two income household and you’re quite good at budgeting your money and feel you can weather the storm for a while. Nine months is probably better. Nine months worth of your current expenses could be stretched to Twelve months or longer once you slash your budget and if you have some replacement income coming in, such as unemployment benefits.

What do you think? How big should your emergency fund be in today’s economy?

Tax Day

Tax Day – the day our income tax filings are due – is tomorrow.

Normally I grumble a lot around this time of year about how screwed up this system is. You have to scramble to get all your crap together so you can fill out some paperwork to send to the government about the taxes, which in most cases they’ve already taken from you, by a deadline that’s more than 1/4 of a year after the end of the year you are reporting on. That all by itself sounds dumb. Even dumber is the fact that there is a whole industry based on the preparation of this paperwork and doing it in such a way as to convince the government that it should give you back some portion of the money it’s already taken out of your paycheck. It’s a government system after all so a certain amount of dumb is to be expected.

Worse than the dumb part is the infuriating part. The government is ridiculously in debt. That means despite the fact they have their hands constantly in our pockets, our elected officials and their appointees can’t seem to get their spending under control. It also means according to a few reports over the last few years, that they’re not even ensuring they’re collecting all the taxes that they should be. When I say “should” I mean it in a sense of what’s logical or rational, not in the sense of what’s required by law. As we will see the two are not the same thing.

According to this 2008 NY Times blog post, two thirds of Amercian corporations pay no income tax and it’s apparently perfectly legal.

This blog post from the Chicago Sun Times covering a press release by Senator Bernie Sanders names ten very large companies that have paid little or no income tax over the last several years.

This Thnk Progress blog post from February covers similar information.

I’m not going to say these companies are doing anything illegal. The fact is that they can afford an army of accountants and lawyers whose only jobs are to ensure they pay as little in taxes as possible. No matter how many billions of dollars these companies have in sales, the first step for them in terms of reducing the amount of taxes they pay is to make sure their expenses are so high that their net income strikes the delicate balance of being low enough to reduce tax liabilities but not so low as to worry Wall Street investors. The next step is to find and take advantage of every deduction, tax credit and loophole they can find in the more than 71,000 pages (as of 2010) of the US Tax Code.

Of course the individual tax payers and small to medium sized businesses can’t afford to pay these armies of experts to do this stuff for us. The best we can usually do is pay a CPA, maybe a tax attorney or just H&R Block. The result is that the little guys bear the bulk of the tax burden. More than a little annoying, don’t you think?

On Capitol Hill they’ve been talking about tax reform for over a decade. They haven’t done anything of any real substance on this subject, but they’ve talked about it a lot. Typical.

What are the options/ideas/proposals for tax reform? Not surprisingly there are a few.

This US News article from 2008 lays out a Plan to Junk the Income Tax. Well, actually the title’s a little misleading. It doesn’t junk the income tax. It proposes a change to a combination of a Value Added Tax and Income Tax. The idea is that the VAT applies to everyone and the Income Tax would be paid only by those individuals making more than $100,000 per year and by companies. If you make less than $100,000 per year you would not pay Income Tax. I don’t see how this is a better system, maybe it would be a little less complicated than the current progressive income tax but probably not.

Another proposal I’ve heard, which I don’t have a link to, is the idea of imposing a flat income tax with no loopholes, deductions or credits of any kind. There’s a certain appeal to this for me. There would, as I understand it, be a poverty level threshold below which you wouldn’t pay income tax but above that every individual, couple and company pays the same percent – say 15% – in income tax. That seems pretty simple and fair in my book. The problem I have with it is it still leaves the door open for accounting slights of hand to reduce the taxable net income that companies would have to pay. The other problem I have with it is the most basic one – it’s an income tax. The government gets paid before I do. I don’t like that. It also does not close the one huge loophole in our current tax system – illicit income. No taxes are ever paid on any kind of “off the books” business. It doesn’t matter if we’re talking about drug dealing, prostitution, illegal immigrants or the guy who pays his son-in-law “under the table” for odd jobs. None of that is taxed currently. The only taxes those people pay are state and local sales taxes when they buy stuff at the store like you and me.

In November 2010, the National Committee on Fiscal Responsibility and Reform issued this report, which among other things outlines three possible reforms of the tax system. These possible reform plans are summarized pretty well in this article on about.com. My take on all three of these ideas is simply this – they all stink. There are two things they all have in common – (a) changing the tax brackets and reducing the number of brackets in some way and (b) reducing the number and amounts of deductions and credits available. It all sounds suspiciously like complex ways if hiding tax increases.

By far the best idea for reforming the nations tax system is the one advanced in HR 25, sponsored by a pretty long list of congress men and women, it was introduced into congress in January 2011 and referred to the House Ways and Means Committee. The bill is rather simple. You can read the full text here. What does it do? Completely gets rid of federal income tax in its entirety and calls for a repeal of the sixteenth amendment. Replaces the income tax with a flat national retail sales tax. There are few tax compliance responsibilities for retailers. None at all for individuals. This effectively gives us all a 10-30% raise immediately. Since taxes are only imposed on retail purchases, you are rewarded for being frugal and saving money. Those folks who make illicit income would no longer be excluded from the tax base. They’re already purchasing goods from stores, so now they’ll pay their share of Federal taxes like everyone else. What it doesn’t do is eliminate or reduce any state taxes. State income and sales taxes would still exist and would be in addition to Federal taxes. Those exist now, so unless the states enact similar reforms that part of the status quo would be maintained.

Here’s a rather amusing post comparing Income Tax and the Fair Tax – Attention Tax Lovers!

Of all the proposals for tax reform the Fair Tax is the one that would get my vote. Will the legislation make it out of committee? I don’t know. Will the Sixteenth Amendment get repealed? It will if there’s enough support from the populous to do so. Prohibition got repealed didn’t it?

What do you think? What kind of tax reform do you support? Leave a comment and let me know.

What I’m Up To

If you’ve followed my blog for any length of time, thank you.

If you’ve wondered why I haven’t posted very much recently, I’m going to tell you. Some of this information is necessarily general, but I’ll fill in details as I can. First, it occurred to me when I wrote my recent debt settlement post that it would be helpful to find and confirm the legitimacy of various ways people can make extra cash on the side, or even start new businesses. I want to go beyond the usual dog walking, lawn mowing, etc. so I’ve dived into this project head first and hardly come up for air. Rest assured that I will post whenever I have somethings substantial to report on this project going forward. If have a a favorite way of putting extra dollars in your bank account, leave a comment and let me know what it is. If you’ve started a business in the last year and you’re willing to share things like start up costs and so on in exchange for the opportunity to be featured in a post here, send me your info via my contact form and I’ll get in touch.

I’ve also kind of dived off on a tangent a bit. I’ve decided to really dig into the guts of the WordPress, Joomla and Drupal content management systems (CMS) so I can bend them to my will. This idea came up partially as an offshoot of the above extra cash idea (lots of freelance programming gigs available for those with technical know-how) and partially from the need to build a site with certain functionality that I’ve had some trouble with when using Drupal 6 in the past. Since the trouble I had was partially from lack of an existing module that did what I needed in Drupal, I never took the time to actually write a module to get exactly what I needed. Drupal 7 is out and it brings some pretty significant changes to that platform, so I decided to really roll up my sleeves and get dirty with all three platforms. I’m chronicling the whole experiment at http://www.cmschallenge.info. That site is set up with a more or less static home page and each CMS is set up in a sub-directory under that. Click the link to whichever platform you’re interested in and you can read about where I’m at with that platform. Who knows, this might even spawn a side business for me.

So that’s what I’m up to over the last few weeks. I haven’t gone away, and I don’t plan to.

Rebuilding Credit

If some change in your circumstances such as serious illness, loss of your job, divorce, etc. sends your financial life into a tailspin your credit score is likely to suffer. How much it suffers of course depends on how bad your circumstances get before you get on track. Some things are easier to recover from than others. I’ve seen financial nose dives so deep and lengthy that emergency funds and other savings were wiped out long before things started turning around. I’ve been through a couple of them myself.

Once you do get things turned around how do you go about rebuilding credit? It’s actually more difficult in these times of tight credit than it was a few years ago. I’d recommend starting with a secured Visa or MasterCard credit card. The credit card is secured by a Certificate of Deposit at the bank. Usually if you maintain the credit card properly (no late payments, etc.) the bank releases the lien on the CD after a year or two and the card becomes an unsecured credit card. With some secured credit card issuers releasing the lien is automatic, with others you have to request it.

How long does it take to have good credit again? That depends. Liz Weston includes a table in her article “Bounce back from bad credit” on MSN that gives different lengths of time for different negative events. I’m not sure if Ms Weston is deliberately being conservative or what, but my experience is that the time frames are a year or two less than her estimates for recovering from things like foreclosures and bankruptcies, if you put some work into it.

Ultimately none of us who are outside the inner circles of Fair Isaac Co and the credit reporting agencies can know for sure what will raise credit scores the fastest but I can offer up what I’ve found to be a pretty good formula.

1. Make sure there are no errors on your report. This is particularly important with bankruptcies. Sometimes debts that were discharged in bankruptcy are incorrectly reported as collection accounts that are still owed on credit reports. Errors can cost you quite a bit in terms of your credit scores.

2. If you have credit accounts in good standing, keep them that way and keep them open.

3. Gradually build up to 3 or 4 credit card accounts. Use them sparingly. You shouldn’t carry balances on them, but you must use them and show activity on them. Spread your applications for credit out by about four months when you are establishing these accounts.

I have seen these actions raise credit scores to acceptable levels within two to three years after a bankruptcy. I do not recommend taking out an installment loan just for the purpose of rebuilding credit. It can be costly and it’s unnecessary. If you need a new car, a car loan will help your credit score and that’s fine. Just don’t spend the money on loan fees and interest for a personal installment loan just to add the line item to your credit report.

A Debt Settlement Example

I’m often asked how debt settlement works and whether or not it’s a good way to get out of debt. The answer to the first question is yes. Debt settlement does in fact work. The answer to the second question is that it depends on your financial circumstances. If you’re current on your debts and just want to speed up the process of paying them off, debt settlement isn’t such a good option for you. However if you’re behind, financially hanging by a thread and want to avoid bankruptcy then debt settlement is a good choice.

Here’s an example of a debt settlement along with a little background on the debtor.

The debtor is a small business owner whose business has suffered over the last few years. As a result his income declined and he had some tough choices to make such as whether to try to get his business back on track or close it and go out and get a job working for someone else, try to keep his house or move into a much cheaper apartment and so on. He was faced with the problem of too little income to cover all of his expenses and bills. He cut back expenses as much as possible but could not stay current on his unsecured debt, so he let those accounts fall behind and go to collection vowing to get them paid off as soon as his business started to turn around. To make a long story short his business has struggled for a long time. He’s barely hanging on, but his situation is slowly improving, and he’s starting to deal with his unsecured debts through debt settlement.

After he fell behind and couldn’t get caught up again, a few of his creditors sued him for the outstanding balances on his credit cards with them, among those suing were Chase and American Express. Even after these creditors were awarded judgments against him their efforts to collect were sporadic. Recently, a large collection agency acquired one of the accounts with a judgment on it and they started calling him frequently to get payment. They also employed typical collection agency tactics of using veiled and not so veiled threats to get him to pay up, “If you don’t pay we’re going to …” Right. Whatever. Then they started the kind of funny practice of offering a settlement and saying, “If you don’t take the settlement, we’re going to …” Again, whatever. The outstanding balance on the account with interest and legal fees was about $11,000 or so. About two months ago, he had about $600 put aside that could be used to settle the account so the next time the collection agency called and did their bit, he said he could offer them the $600 to settle the account in full right then and there. His offer was declined. Not exactly politely either. He wasn’t surprised.

I coached him not to even bother talking to them for at least a month. Then, even if he had more funds to work with at that point, repeat his $600 offer and negotiate up to however much he had available at that time.

About 6 weeks later a different representative from the collection agency called him and recapped the status of the account: outstanding balance with interest and legal fees a little over $11,000, principal a little over $4,600, last conversation he’d offered $600 to settle it. Then the representative told him that he still could not take just $600 to settle the account but he could waive all the interest and legal charges and settle the account for about 25% of the principal – $1155.00 as long as the transaction could be completed by the end of the month. The debtor asked for the offer in writing exactly as described and said he’d pay the settlement amount only after he received it in writing. He did a little scrambling to put the remaining funds together that he needed to settle the account. After a lot of phone calls back and forth, the account was settled for roughly 10% of the total balance and 25% of the principal balance.

He gave me permission to post a copy of the settlement letter (with all personal information masked of course) so here it is.

Debt Settlement Letter - NCO Financial on American Express account

Debt Settlement Letter

 

A Little Right and A Little Wrong

Woohoo a new post! A lot going on for me the last few weeks. Starting a new business. Had a bit of a snafu with my hosting company. If you tried to get to the site and found it was down, I apologize. I’ve switched hosts and everything is stabilized and working correctly. I’m going to try to get back to posting daily.

Some good news, I was quoted in an article that appeared on Creditcards.com a few weeks ago. Well, about a week and a half ago that article was picked up by MSN. Got a nice bump in traffic from that. :)

I was looking through different finance sites and came across this article and video on Yahoo.

I found it really interesting in a few different ways. First the guy makes some good points about the financial aspect of owning a home. Your primary residence is not a good investment. That’s absolutely true. Mr. Altucher isn’t the first one to say this and I’m sure he won’t be the last. In fact the first time I came across this idea was many years ago in “Rich Dad, Poor Dad.” Robert Kiyosaki’s wording was slightly different in that he said your home is not an asset. Nonetheless, there are very strong arguments in favor of these statements: lack of liquidity; high cost of ownership in the form of property taxes, maintenance and repairs; money used for down payment is tied up indefinitely.

What Mr. Altucher has totally wrong in my opinion is that he feels there are no arguments in favor of owning your own home. The key to the discussion is the fact that personal finance is personal. I did not buy my house as an investment. I bought it for the many other things I perceived to be benefits of home ownership: not having an upstairs neighbor that stomped around early in the morning disturbing our sleep, the ability to paint whatever colors I wanted to, choose the carpet I wanted, garden, entertain, the list goes on and on. When you own your own home you can create your environment your way. You can even remodel if you feel like it and can afford it. You can’t do that when you rent.

My take on home ownership in a sentence or two: Don’t buy your primary residence as an investment, buy it because you want to freedoms and the pride that come with home ownership. Owning a home is more expensive than renting so make sure you don’t take on more than you can afford.

If you’re a home owner, what were your reasons for buying a house? If you’re not a home owner, do you want to buy a home? If so, why?

Weekly Roundup

Another crazy week for me. It’s after 11 PM Sunday and I’m just getting this done. (Though I made a big goof earlier. I started working on it 12 hours ago and when I had to leave to go run errands with my wife I hit publish instead of save draft. So this post was up with about three sentences a little earlier today. I took it down when I discovered it but because I had a bunch of stuff to do around the house and family coming over for dinner, I didn’t get to finish it until now. So, here it is.

Bankruptcy and Marriage – Should You Marry Someone Who Went Bankrupt? on fivecentnickel.com struck a chord with me and not in a good way. I’m sorry, marriage is not a business decision. If you love someone enough to get married you take them as they are – warts, bad credit and all.

Five Ways to Find Money (Sometimes Lots!) in Less Than an Hour gives some resources you can use to find money that might belong to you but is being held by the government.

The main thing I want to talk about his this video: http://www.youtube.com/watch?v=ssl5yb7FewA

They talk about One West Bank in the video but what they’re describing isn’t unique to One West Bank. Does anyone think that Chase didn’t get a similar deal when they gobbled up failed Washington Mutual? What about Wells Fargo’s purchase of Wachovia when it failed? Bank of America swallowing up Countrywide? They all got a similar deal. They can’t lose money no matter what happens with the mortgages they acquired in those purchases. If the mortgages perform, those guys make money. If the loans default, the FDIC pays and those guys make money. Now before we all get our knickers in a wad, ask yourself this question: if you were in charge of any of the banks that ended up buying one of those failed companies, would you do it if there was a chance it would kill your company? Hell no. You wouldn’t. The only way those deals occurred was because of the backing and money from the Federal Government in the form of the FDIC. The alternative would have been the FDIC taking over the those banks, which might have caused bigger problems.

I don’t have a problem with the FDIC stepping in and making up the difference on actual losses considering the 11th hour deal making that got done with some of these mergers. Let’s the big fish paid $75,000 for a mortgage with a face value of  $250,000. Then they have to accept a short sale on the property for $150,000. Well, the bank just made $75,000 on that loan. What I have a problem with is anyone, whether it’s bank executives, the FDIC or anyone else saying that the bank lost money on that transaction. No they didn’t get the $250,000 that the borrower owed, but they made money. That being the case they would not be entitled to government money. Now if they paid $75,000 for a loan and the property later sold for $70,000, then they lost money and I don’t really have a huge issue with the FDIC stepping in and covering the loss under the circumstances.

I don’t wonder why it’s so difficult for people who need loan modifications to get them. It may be that modifying the loan is the last profitable thing for them to do with a delinquent mortgage. I definitely think this is a distinct possibility when the loan in question is one that was acquired as part of acquiring a failing bank.