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  • Economics Analysis of Why Delhi’s Buses are so Deadly

    Why delhi’s buses are so deadly: an economic analysis

    At least 115 people were killed by Blueline buses in 2008. The Blueline’s grim numbers stem entirely from two perverse economic incentives: the driver’s salary is wholly dependant on how many fares he picks up, and each bus is in direct competition with every other bus on the route.
    …
    Which is why the last thing a Blueline driver ever wants to do is come to a stop. Every move he makes is done with the intent of keeping the bus in motion: slowing just enough so debarking passengers can jump off, then picking up speed as the new passengers run alongside the bus, swinging themselves up and in as the conductor screams at them to hurry.
    …
    But with an estimated 2,200 Blueline buses careening across Delhi on any given day, it’s no wonder the newspaper reports are almost identical every day. After an accident, the driver tries to flee, an angry mob beats him, the police impound the bus, the driver is thrown in jail, the owner of the bus is not mentioned. Sometimes the driver escapes, in which case the mob finds its release in setting fire to the bus.

    This is a good example of looking at problems economically. It also shows the problem with failure to regulate. I am perfectly happy to live with regulation that removes the economic pressure to risk human life.

    Related: Failing Infrastructure in the USA – International Development Fair: The Human Factor – China May Take Car Sales Lead from USA in 2009

  • Actually Free Credit Report

    Viewing your credit report is an important step to financial security. You should review your credit reports annually (at least) to correct and any errors. Also doing so can be a tool to help you spot identity theft.

    The real free credit report site, annualcreditreport.com, is provided by government regulation (so those that don’t believe in regulation would rather use one of the sites advertising “free” credit reports). But I suggest using the government provided reports and I would suggest spreading the requests out during the year (you get 3 a year, 1 from each of the nationwide consumer credit reporting companies).

    The site also has a large frequently asked question section including:

    How do I request a “fraud alert” be placed on my file?
    You have the right to ask that nationwide consumer credit reporting companies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you. It also may delay your ability to obtain credit. You may place a fraud alert in your file by calling just one of the three nationwide consumer credit reporting companies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place fraud alerts in your file.

    Where can I find out more about credit reports, my rights as a consumer, the Fair Credit Reporting Act and the FACT Act?
    Please visit www.ftc.gov/credit

    Related: Credit Card Tips – Personal Finance Basics: Long-term Care Insurance – Financial Planning Made Easy

  • Nouriel Roubini Believes Stock Market has Risen too Far, too Fast

    Nouriel Roubini is still worried about the US economy, though he does believe we are coming to the end of the severe recession we have been in.

    I believe, that if you were worried about your portfolio being overweighted in stocks late last year, now is a good time to move some money out of the stock market. In December 2008, when many were selling in panic, I invested more in stocks.

    The stock market has been on a tear increasing

    1 December 2008 the S&P 500 was at 816
    1 January 2009 – 903
    6 March 2009 – 684 (the lowest point since 1996)
    1 May 2009 – 878
    1 August 2009 – 987
    5 October 2009 – 1040

    In 6 months, since the market hit a low on March 6th, it is up 52%. Certainly the decrease in prices seemed overdone. The 50% increase in prices seems overdone also. But trying to predict short term moves in the stock market (say under 1 year) is very difficult and few people can do so successfully (even if you can find lots of people offering their guesses). Predicting the economy, while not easy, is much much easier that predicting the stock market.
    (more…)

  • House Prices Seem to be Stabilizing

    Home prices in the United States rose 0.3% on a seasonally-adjusted basis from June to July, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 0.5% increase in June was revised downward to a 0.1% increase. For the 12 months ending in July, U.S. prices fell 4.2%. The U.S. index is 10.5% below its April 2007 peak.

    The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. Read the full press release. The Case-Shiller Home Price Indices also have increased (10 and 20 city indices) for June and July.

    I am still not convinced we have seen the bottom of the housing price declines nationwide. The economy is still in very fragile territory. But the data does show the declining prices have been stopped in many locations, at least for a while. If job losses continue housing prices may well resume the decline. The commercial real estate market seems to be even weaker than housing.

    Related: The Value of Home Ownership – Housing Prices Post Record Declines (April 2008) – posts on economic data – real estate articles

  • Small Business Owners Angry at Big Banks

    Main Street vs. Wall Street by Kevin Kelly

    Small businesspeople I spoke to over the past few days feel little love for their bank, or the banking system. “Every time I turn around they’re raising their fees just for our business checking account,”
    …
    Fees are only one part of the problem. Several owners I spoke to talked about how difficult it has been to get loans, or how restrictive loan covenants had become. “My bank won’t even talk to me,” confessed the owner of one local eatery who had received a Small Business Administration loan nearly two years ago that financed an upgrade and expansion of his kitchen.
    …
    As for my relationship with Wells Fargo, it endures. Our line of credit comes up in six months, and I’m expecting the bank to try to boost our interest rate, especially given how much it has complained about how it’s too low. Where we once bundled many of our services through Wells Fargo—including our corporate, commercial, and equipment lending and our 401(k) plan, a policy the bank encouraged to deepen our ties—we’re looking to back out of some pieces…

    Good idea, big banks have shown over and over again they take pride in consistently raising fees, reducing service and treating customers as though they are a bother. It is annoying that the big banks are constantly buying out the little banks to eliminate competition (and that regulators allow this is a sad commentary on our disrespect for the principles of capitalism) but when that happens move your banking needs to a small bank and you will be much better off in the long run.

    Choosing to deal with big banks is bad idea. They have provided lousy service for quite some time. Obviously they do not chose to provide value to customers.

    Related: Small Business Profit and Cash Flow – Smaller Companies Grab Bigger Share of Surging USA Exports – Congress Eases Bank Laws – 1999 – FDIC Study of Bank Overdraft Fees

  • Health Care: Lessons for the USA

    Health Care: Lessons for America

    But unlike Clinton-era America, Switzerland got its medical act together.

    It switched to a system that separates insurance from employment. Each individual or family is required to buy coverage, and insurers must offer a basic package of benefits to all applicants. They can’t profit from selling basic coverage, but they can from supplemental plans. Premiums are deducted from paychecks; the unemployed and poor are subsidized.

    Despite opposition from insurers, drugmakers, and business, the plan passed by a bare majority and went into effect in 1996. Switzerland now spends 11% of its gross domestic product on health care, just as it did before. But everyone is covered, insurers are more profitable than ever, and its high-quality health care has been maintained.

    The lesson, as laid out in The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care, by T.R. Reid, is that “health-care systems can be changed, even in the face of powerful…interests.”
    …
    Many Americans boast about having the best health care in the world, even though the U.N. ranks the U.S. system 37th, based on a broad range of measurements
    …
    At the same time, he learned that almost all countries use one of four health-care models: Germany’s Bismarck system, in which hospitals and insurers are private entities and financing comes from payroll deductions; Britain’s Beveridge Model, with the government providing health care financed by taxes; the Canadian plan, where private doctors and hospitals are paid by the government through taxes; and the out-of-pocket care found in most poor nations, where those who can afford care get it, while the rest suffer or die. Unlike any other country, the U.S. combines all four models

    Related: posts on the economics of health care – Broken Health Care System: Self-Employed Insurance – Many Experts Say USA Health-Care System Inefficient, Wasteful – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – International Health Care System Performance

  • Minnesota’s Attorney General Suing 3 Debt-relief Companies

    Minnesota’s attorney general suing 3 debt-relief companies

    Until the phone call, Rossie Anderson-Howze didn’t think she needed help negotiating her $12,000 in credit card debt. But when the company promised to cut the retiree’s 12.9 percent interest rate and save her $4,000 or her money back, she agreed to let Moneyworks LLC charge $1,090 to her card.

    The company failed to deliver on its promises, she said, forcing Anderson-Howze, of St. Paul, to become one of hundreds of Minnesota consumers to seek help from Minnesota Attorney General Lori Swanson.

    Swanson sued Moneyworks LLC and two other debt assistance companies on Tuesday, alleging that the companies made unsolicited phone calls promising lowered interest rates, guaranteed savings and money-back guarantees. Swanson alleges that Washington-based Priority Direct Marketing, Clear Financial Solutions of Florida and Moneyworks LLC, based in Georgia, “charged financially strapped people a lot of money to lower the interest rates on their credit cards, only they failed to do so, leaving people even further behind on their bills.”
    …
    Swanson also sent a letter to the Federal Trade Commission asking it to adopt federal regulations to prohibit companies from charging consumers until services are delivered satisfactorily.

    Many organizations overing to help with debt relief are fraudulent. They are constantly being shut down for illegal activity. You must be very careful when you consider dealing with any of these organizations. Do not pay out money up front. Make sure the organization has a strong reputation and history of ethical behavior. Be financially literate: don’t get taken advantage of.

    Related: Manage Your Borrowing and Avoid Debt Negotiators – USA Consumers Paying Down Debt – Continued Credit Card Company Customer Dis-Service

  • How a Family Shed $106,000 in Debt

    How a Family Shed $106,000 in Debt

    Five years ago, the Hildebrandt family of New Richmond, Wis., was juggling more than $100,000 in credit card and personal debt. Through frugality, determination and hard work, they are now — other than a mortgage — debt-free.
    …
    Several steps were key to making the plan work. Kandy and Russell eliminated discretionary spending. Kandy began buying generic food and frequenting thrift stores for clothing purchases. They stopped exchanging Christmas and birthday gifts with each other and their relatives.

    Even with the drastic cutbacks, the Hildebrandts couldn’t cover the $2,000 they were sending to CCCS each month to be distributed to their creditors. At that time, the sum amounted to about half of Russell’s take-home pay. So Russell took on a second job cleaning a local grocery store several nights a week from midnight to 4:30 a.m. He would arrive home from his day job, eat dinner, catch a few hours of sleep and head to work. After his shift, he would go back home, sleep a few more hours and then get up for his day job.
    …
    By the fall of 2008, the Hildebrandts had one year to go on the payment plan. Russell even started daydreaming about a new home when he saw a three-bedroom rambler for sale in New Richmond. It had all that they were looking for, including a large yard and a separate bedroom for Joey. Russell let a real estate agent know that they liked the house, but added that the family would have to pay off their debts before taking on a mortgage.

    Several months later the agent called and asked if the Hildebrandts would be interested in a rent-to-own agreement. The current owner of the house had some health concerns and was eager to move. The monthly rent would be $1,000, which included $200 to be escrowed for closing costs. They could manage it.

    Earlier this year, the owner wanted to accelerate the sale process. In April, using the tax credit for first-time home buyers, the Hildebrandts were able to swing the purchase and pay off the remaining balances on their credit cards about six months ahead of schedule.

    It is certainly a daunting task to dig out off such a crushing debt load. It is much easier to avoiding getting in that situation in the first place (how not to get into trouble with credit cards). It is easy to get yourself in trouble by borrowing money. In many cases all it takes to not get into that trouble is just don’t buy what you can’t pay for.
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  • Retail Credit Card Fees Much Higher in the USA

    Retailers Ready for Fight on Credit-Card Fees

    Americans are being forced to pay significantly higher swipe fees whenever they use their credit cards than any of their peers in the industrialized world, according to a report by the Merchants Payments Coalition.

    The report, released Thursday by a coalition of retailers, supermarkets, drugstores and other businesses, found that Americans currently pay about $2 in “interchange” fees for every $100 they spend using credit cards. The fee is actually paid by retailers, though consumers feel it in a higher retail price. This rate is twice that charged in the U.K. and New Zealand, four times the rate levied in Australia and more than six times the cross-border rate charged in the European Union, the study says..
    …
    “If we paid the same low credit- and debit-card swipe fees as consumers in Australia pay, then the net benefit for American consumers would have totaled $125 billion over the last four years,” the report says.

    It truly is amazing how incredibly poor the banking services in the USA are. The banks have managed to provide mediocre service at exceedingly high prices. It sure seems to be due to unfair trade practices (allowed by poor regulation). See our tips on how to avoid getting ripped off by credit card companies, though it won’t help with these excessive fees.

    Related: Continued Credit Card Company Customer Dis-Service – More Outrageous Credit Card Fees – Hidden Credit Card Fees – Poor Customer Service by Discover Card

  • Buffett: Economy Stable, But Residential Real Estate Has Improved

    Warren Buffet on the economy:

    Warren Buffett tells CNBC that while the economy “hasn’t gotten worse” but also hasn’t “gotten much better” over the past three months, he doesn’t expect a ‘double-dip’ recession and sees significant improvement in residential real estate.
    …
    BECKY: All right. Let me go at this another way. Let’s pretend you’re on a desert island for a month. There’s only one set of numbers you can get. What would it be?

    BUFFETT: Well, I would probably look at– perhaps freight car loadings and– perhaps– and– and truck tonnage moved and– but I’d want to look at a lot of figures.
    …
    BUFFETT: Well, I think that– unfortunately, I think that the — what– what– we’re really talking about reforming health insurance more than health care. So I– the incentives that produce the 16 or so percent of GDP that’s going to health care, I think unfortunately they’re getting– they’re going to get changed. But– so I think that we really– and I’m talking as much about reforming health care as we’re talking about reforming the insurance. And I think that will be an opportunity missed if we don’t do more about looking at what– what the incentives are in the present system and what they would be in an ideal system.

    Related: Buffett’s Fix for the Economy (Oct 2008) – Warren Buffett Webcast on the Credit Crisis – Warren Buffett on Taxes – Many Experts Say Health-Care System Inefficient, Wasteful