Detroit’s been having a tough time of things over the past couple of decades. Industry closing, people leaving, rotting infrastructure, etc. They’ve even been taken over by an emergency manager appointed by the state. The problems are legion, the proposed solutions are all over the place. My humble proposal is short, and to the point.
A state tax holiday for people living in Detroit.
The specifics may be a bit up for debate (5 years? 10 years?) but at the core of Detroit’s problems is a lack of people, and specifically a lack of young people earning money. People don’t move *to* Detroit – they move to the suburbs. Why? Lower crime may be one reason, but typically the issue is jobs and lower taxes. You have to pay a city income tax to live in Detroit, on top of state taxes, and federal taxes. The state has a big interest in getting Detroit in the right direction – instead of being a resource drain. So… the state should give a tax holiday to anyone living in Detroit for, say, 5 or 10 years.
There are people who would move in to the Detroit city limits immediately to save a thousands of dollars in state income tax. Detroit would get income tax from those people to help fund the city improvements that are needed for those areas. The state would lose revenue from those people, but would, over the long haul, be required to spend less to sort out Detroit’s problems and prop them up when necessary – the residents themselves would be doing so.
More people moving to Detroit in the short term would probably mean more commuting – people may drive to Royal Oak or Ferndale for their jobs, but live in Detroit for the tax savings. But over time, more people living in the Detroit city limits would mean more demand for businesses and jobs to locate in those borders as well.
Why should *businesses* get tax abatements and deals to move in to Detroit (or any city) but not residents? Detroit needs more residents than it does businesses. The more residents that it has, the more businesses will follow to serve those residents. An extra 50,000 people living in an area of Detroit should be enough to get some Kroger stores to open up to serve those residents, right?
Yes, this is overly simplistic, but it’s also something that shouldn’t require a lot of planning. People fell over backwards trying to take advantage of the ‘new home buyer credit’ a few years back, which essentially just saved them a few thousand dollars one time, while generally saddling them with huge mortgages. People move to states at least in part because of income tax codes (obviously not always, but for many people it’s a factor). Detroit needs active, productive people to live there. Give them an incentive to do so and I believe they will.
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Radio advertisements for gold
I’ve been hearing radio ads for gold for some time now. The basic premise and message is something like
The dollar is going down the tubes. It’s lost 40% of its value in the last few years, and we’ll be facing massive inflation soon. You need to own GOLD! Buy our GOLD COINS NOW!
What do they want you to buy the gold coins with? Your dollars! That’s right! The dollar is such a lousy investment to have that these companies will take it on themselves to burden themselves with *your dollars* to give you access to those oh-so-valuable GOLD COINS!
Whatever.
If the economic woes of the past few years have taught us anything is that very little of anything has any intrinsic value (food? basic shelter?) Value is defined as what all concerned parties agree on – nothing more. When everyone stopped believe in tech stocks, they didn’t have any value. When everyone stopped believing in the myth that “real estate always goes up”, it stopped. Yes, I’m simplifying this perhaps more than I should. Someone will fight me regardless of how detailed I went anyway. Flame away.
Having gold coins will only be valuable as long as everyone agrees that they’re valuable. If people stop believing that gold is valuable, it will be worthless.
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Buy my carbon emissions
I was reading up on carbon offsets – buying, selling, etc. – and got to thinking that I could let people pay me to not pollute. I’m not sure I pollute all that much, but certainly between my wife and I we create *something*. So I’ll stop, or reduce my footprint as it were, for a price. Right now I’ll accept paypal – just paypal money to michael@kimsal.com and I’ll drive less, add more CFLs in the house and whatever else I can think of. But then I started thinking that this might be a viable “small scale” business to start, except I’m not sure how you’d police it exactly. But just like prosper.com and some other sites have gotten in to the micro-financing game, I could get in to the micro-carbon-footprint game. So if you see “BuyMyEmissions.com” any time soon, it’s probably me.
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UK Bank shutting off credit cards
This link
from the UK’s Daily Mail talks about a credit card company’s plans to
‘shut off’ 160,000 customers’ card because of ‘overspending’.
A banking giant is banning 160,000 debt-ridden customers from using
their credit cards. They will receive letters in the next few days
warning them their Egg credit cards will stop working in 35 days’
time…. They are being targeted because they have a “higher than
acceptable risk profile”, said the company. This typically means they are spending over their credit limit or failing to make even minimum repayments every month.
I’ve noticed this a lot in the past several years of following personal finance issues. Back in my
day (man, I’m feeling old!) if you had a limit of $500 on a credit
card, if you tried to charge over that limit, you’d be declined.
Simple as that. Perhaps slightly embarassing, but it kept people in
check.
Some time in the mid 90′s or so, I guess, banks stopped doing that,
opting instead to let you keep charging but charge ‘over limit’ fees
and add those to your balance. No doubt this has made banks enormous
extra profits – it’s almost a no brainer from their standpoint. But
then why have limits at all?
I heard a caller to a talk show explain how he got in to a credit card
mess. A large bank (might have been Citi but I can’t recall exactly)
offered him multiple small cards of $300-$500 limits, so he ended up
with around 7 of these things, and was constantly ‘over limit’ on each
one – $35 each month for each card, plus interest fees and such.
Surely this man was to blame, at least in part, for being in debt, but
the bank was either insanely stupid, or extremely predatory. Given the
number of smart and well paid people at the banks, I doubt it was
because they were stupid. They were banking on this guy to behave
exactly as he did. Given a combined outstanding total of around $4000,
they were able to charge him about 28% interest, PLUS legitimately
charge another $200+ in ‘over limit’ fees every month. Add that up -
$2400 in ‘over limit’ fees, plus 28% interest (ballpark average for
cards in default or ‘over limit’ for extended periods) is close to
$1200. That’s $3600 in interest and fees on a $4000 balance. These
banks know exactly what they’re doing.
So something must REALLY be going wrong in the UK if a bank is shutting off such a lucrative supply of fees. What might it be?
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401k debit cards?
Wow – I was just blown away reading this story @ Yahoo this morning. Debit cards you can use against your 401k. Borrowing against your 401k has traditionally been a ‘last resort’, because if you didn’t repay it within 60 days of leaving a company, you had to count it as regular income, pay tax, plus a penalty. This new scheme described gives you up to 5 years to pay the loan back, regardless of where you work, which is a good thing. But they’re also charging you for the privilege of borrowing your own money – 2.9% above prime, I believe.
I dunno – in general I think this is a bad idea. People will get themselves in trouble with this scheme, and *I* – and you – and many other people – will end up bailing them out in the next 20-40 years. Not something I’m looking forward to.
What do you think?
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Excessive interest loans
I just recently heard that Gary Coleman had done commercials for “cashcall.com”. I was not too surprised, but then bothered to watch the ad. I was horrified. The fine print mentions that “the APR for a typical $2600 loan is 99.25%”. 99%. So to borrow $2600 I’d need to pay $5200 in one year. I wasn’t even sure this was legal – I thought states had usury laws to prevent such things. However, a bit of digging turned up a reference to a law which exempts national banks from rate limits. From wikipedia:
However, there are separate rules applied to most banks. In 1980, due to inflation, national banks (banks that generally include N.A. in their name), federally chartered savings banks, installment plan sellers and chartered loan companies were exempted from state usury limits by the federal government through a special law. This effectively overrode all state and local usury laws.
99% APR is just horrific, and I’m not sure why anyone would ever use a service like that. What’s even more disturbing is that on their “rates” page, cashcall states that some people will still not qualify. If you don’t qualify for a loan at 99%, what’s wrong with you? Perhaps you’re in prison? Or dead?
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Maxed Out Movie
So, being a bit of a personal finance junkie for a couple years, I was anxious to see the movie “Maxed Out“. I’d heard about the movie at the start of 2006, and had been waiting for the DVD since then. It seemed like it should have been out much earlier – having the DVD release be basically 18 months after the movie’s contents were filmed made many of the topical issues feel more dated than they should have. Just seeing Alan Greenspan clips made the film feel dated.
I really wanted to love this movie, but couldn’t. It was good, but not great. There was far more focus on the banks and credit industry than I was expecting. I was expecting instead some more interviews with ‘average’ people, going over their budgets, spending, etc., which didn’t happen. The majority of the interviews with regular people were primarily extreme examples – people with mental problems, suicidal people, and so on. I think it’s going to be too easy for people with money issues to say to themselves “I’m not *that* bad off!” and blame the credit industry for their problems.
Banks *have* become far more predatory and/or lax in their lending practices in the past 20 years or so, and that point is pushed home in the movie quite hard. Some people in their 50s were mentioning that when first married, they worked hard and saved but could *not* get a credit card – continually denied. This was in the ’70s. These days an 18 year old college student making $100/week can get tens of thousands in credit with basically no financial history whatsoever. The fact that banks end up losing some money in bad loans is their own fault – don’t lend money to people with no ability to pay it back. If they didn’t do that, however, they’d lose out on their most profitable revenue stream – fees and high interest.
It’s still a movie worth watching, but be prepared that you’ll see more on banking and credit industry practices, as well as a decent chunk of time on federal spending and bankruptcy laws, rather than focusing on individuals.
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Investing strategy
I just finished the audio book version of “The Little Book That Beats The Market” from Joel Greenblatt. It certainly sounds compelling, and I’m interested in trying it out. As opposed to ‘trading’ strategies, which you can usually verify within a few days or weeks at most, this is a moderately long term approach, taking 3-5 years before necessarily seeing any results. That’s not to say that you won’t see positive results in the first few months or years, but Greenblatt goes to great lengths to warn that the ‘magic formula’ in the book can have stretches of ‘not working’, which is also held up as a main reason why it doesn’t matter if everyone ‘knows’ the formula – not everyone will have the patience to put it in to practice.
If you’ve used the ‘magic formula’ in the book for any length of time, and have anything to share, please comment here or just email mgkimsal@gmail.com. You can check out the barebones magicformulainvesting.com site to get a list of stock picks based on the given formula, or buy the book to learn a bit more.
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