Has the Economic Recovery Started?

From the Hoss's Mouth

Just like you, Hoss Cents Free Financial Money Magazine watched with great interest this week as stock markets around the world soared as Treasury Secretary Timothy Geithner released details of the administration's plan for financial recovery. Does this mean the economic recovery has started?




The Hoss does not have a crystal ball and cannot answer that question, but it certainly is a positive sign of a possible start to economic recovery. However, stock market performance is only one indicator among many that we must consider when looking at the overall economic stability.

Other factors that must be taken into consideration are consumer spending, housing sales and the unemployment rate.

Feb. 2009 housing sales in the United States increased from Jan 2009 but are still down year to year (Feb. 2009 over Feb. 2008). California was the exception, which showed a year to year increase primarily because of low record interest rates and the fact that the market was previously greatly overpriced. But it does appear that at least the bleeding has stopped, and once that happens, can full recovery be far behind?

With regards to consumer spending, Wal-Mart had a good year, while high-end retailers did not. When we see an increase in sales at these high-end retailers it is a positive sign for the economy.

Other positive consumer signs are an increase in car sales and increased movie attendance. Both of these indicate the consumer has some disposable money. To date, both car sales and movie attendance is down.

Now we come to the most important factor concerning economic recovery: jobs. In a consumer driven economy, if the people do not have jobs they will not have money to spend. So far, the jobless numbers continue to increase, which of course could be interpreted as a negative sign. But one must remember that businesses let employees go as a last resort in an economic downturn. However, when it comes to an economic upturn, employers are reluctant to reinstate those who were laid off until there is clear evidence of an economic recovery. So even though the jobless numbers are increasing, that does not mean the economy has not turned around.

Since Oct. 2008, the Federal Government has introduced several initiatives designed at stimulating the economy, creating jobs and thereby increasing consumer confidence. (TARP [Troubled Asset Relief Plan] $700 billion; Stimulus Package $787 billion; Housing Plan $75 billion; Federal Mortgage|Bond|Debt buy up and the Toxic Asset Relief Plan). Historically, initiatives such as these take six months to work their way through the system. This may also explain why we have, as yet, to see a decrease in the jobless rate.

So, even thought the Dow Jones Industrial Average has climbed 20% since its March 9th lows, we cannot assume this is the start of a full economic recovery, but we may have reached a bottom.

Sure there may be more ups and downs, but initial indications are the people have confidence in President Obama's administration and the plan they have put forth. Let's hope so, because without consumer confidence we will not see an economic recovery.


Next Hoss Cents Free Financial Money Magazine Post: April 05, 2009
Previous Post: AIG Too Big To Fail

AIG Too Big To Fail?

From the Hoss's Mouth

Hoss Cents Free Financial Money Magazine watched with interest yesterday (March 24, 2009) as Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and President of the Federal Reserve Bank of New York William Dudley testified before a subcommittee hearing of the House Financial Services Committee. The Hoss was particularly interested in the testimony concerning AIG.

There has been much debate about whether or not AIG should have been permitted to fail. Federal Reserve Chairman Ben Bernanke said, "Its [AIG] failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs."

Mr. Geithner in his opening remarks said, "The collapse of AIG could cause large and unpredictable global losses with systemic consequences—destabilizing already weakened financial markets, further undermining confidence in the economy, and constricting the flow of credit. A disorderly failure of AIG risked deepening and prolonging the current recession."




Let's take a look at the reasons for Mr. Bernanke's and Mr. Geithner's concern.

AIG has 74 million insurance policies in over 130 countries. AIG insures personal items such as your home, car, travel and life. AIG also insures 401Ks that contain stocks, mutual funds, index funds (Dow Industrial Average and S&P 500). AIG insures banks, movies, oil rigs, and airlines including the plane that successfully ditched in the Hudson River.

One of every three Americans work for companies that are either insured by or backed by AIG.

Given this information, The Hoss agrees with Mr. Geithner and Mr. Bernanke that AIG was and is too big to fail. The effect on the economy, American and worldwide, would have been devastating.

In his opening remarks, Mr. Geithner advised the committee that the Administration is going to propose legislation that would give the Federal Reserve powers over non-banking financial institutions similar to those powers the FDIC (Federal Deposit Insurance Cooperation) has over banking institutions. This would be in order to prevent another AIG type collapse.

Hoss Cents Free Financial Magazine agrees with this concept, but reserves judgment until we see the actual legislation.

Complete text of opening statements at the links below.

Statement Geithner
Statement Bernanke

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: March 29, 2009
Previous Post: AIG Retention Bonus Scandal

AIG Retention Bonus Scandal

From the Hoss's Mouth

Today, Hoss Cents Free Financial Money Magazine discusses the AIG retention bonus scandal. Unless you have been totally deprived of news reports, by now you know that top executives of AIG Financial Products Division are eligible for $165 million in so-called retention bonuses.

The Financial Products Division is the arm of AIG that caused this successful insurance company to fail. As a result of their incompetence, 73 top executives became instant millionaires. One received a bonus of $6.4 million, seven received bonuses of $4 million, numerous others received more than $2 million, and still others received $1 million.




Apparently in 2008, based on a successful year in 2007, the board of directors of AIG decided to write bonuses of $450 million in employee contracts for 2009. No regard was given to whether or not 2008 would be a successful year.

AIG then experienced severe financial difficulty, resulting in near collapse of the company and a bailout from the US Government totaling close to $200 billion to date with possibly more to come.

The US Congress Bill approving the bailout contained a clause that permitted these bonuses to be paid.

Senator Chris Dodd, after initial denials, admitted his staff was responsible for inserting the clause that permitted AIG executives to retain their bonuses. He did so at the request of the Treasury Department. In fact, in an interview, Treasury Secretary Tim Geithner said that his department asked Senator Dodd to include an executive pay provision in the stimulus bill. This loophole allowed AIG to pay out the controversial bonuses.

As outrageous as these bonuses are, you may be surprised to learn that The Hoss agrees with this decision. Why? Because, as in Mr. Geithner's own words, it was aimed at making sure that the bill was "strong enough to survive legal challenge." Many of these executives may have sued the government over deletion of their bonuses and the resulting litigation would have probably cost more than the bonuses. We may never know for sure what the true cost of litigation would have been, but we do know the true cost of these bonuses. In fact, eleven have already returned some or all of their bonuses.

Now, The Hoss is fully aware that before the auto makers received their bailouts, they were forced to renegotiate union contracts, and that the unions cooperated. Where is the fairness or equal treatment with regard to AIG? What's the justification?

The simple fact is that AIG is just too big to fail. The result would be devastating to the economy. And not just the American economy, but worldwide.

More on this aspect of the AIG retention bonus scandal in the next edition of Hoss Cents Free Financial Money Magazine.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: AIG Too Big To Fail
Previous Post:Madoff Pleads Guilty, Jailed

Madoff Pleads Guilty, Jailed

From the Hoss's Mouth

Hoss Cents Free Financial Money Magazine is ecstatic that U.S. District Court Judge Denny Chin revoked Bernard Madoff's bail (for details see Madoff remains free on bail). Madoff, who engineered the largest Ponzi Scheme in history, pleaded guilty to all eleven charges against him:

• Securities fraud
• Mail fraud
• Wire fraud
• Investment adviser fraud
• Three counts of money laundering
• False statements
• Perjury
• False filing with the Security Exchange Commission
• Theft from an employee benefit plan





Judge Chin ruled that Madoff not only had the means to flee, but also an incentive to do so. Madoff's lawyers indicated they will appeal this decision, but The Hoss believes Judge Chin is correct to jail Madoff.

Madoff admitted he never invested the funds in securities as he had promised and told investors. He also admitted to lying to the Security Exchange Commission when they questioned him.

Reports indicate that to date the firm's bankruptcy trustee has located about $1 billion in cash and securities. This is nowhere near the estimated $65 billion owed investors.

"I am actually grateful for this opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed," Madoff said in a public statement.

Three investors spoke at his hearing, and not once did Madoff look them in the eye. In fact he did not look at them at all.

The Hoss wonders if anybody out there believes Madoff could have pulled off such a huge scam without the help of others. Of course not, yet Madoff refuses to co-operate with investigators. He will not implicate his subordinates or relatives, one who worked with the Securities Exchange Commission at the time of his questioning.

Hoss Cents Free Financial Money Magazine sincerely hopes that this fraud, and others now being discovered, will encourage the authorities to improve and enforce stricter regulations.

Stay on track,

The Hoss


Next Hoss Cents Free Financial Money Magazine Post: AIG Retention Bonus Scandal
Previous Post: Collision Deductible

Collision Deductible

From the Hoss's Mouth

In today's tough economic times many insurance blogs and money magazines suggest that one way to reduce expenses is for insurers (that's you) to consider increasing the deductibles on some of their insurance policies. The most popular money magazine suggestion is to increase the collision deductible on your car insurance.

The Hoss and Mrs. Hoss have two vehicles: a 1991 Ford F-150 and a 2005 Chevy Blazer. Currently, we carry no collision insurance on the Ford F-150, and on the Chevy Blazer we have a collision policy with a $300 deductible. The logic behind these widely differing collision policies is simple. The Ford F-150 does not have a high cash value, and in the event of an accident, in all likelihood the insurance company would, rather than repair the vehicle, write it off and give us its cash value. The Blazer on the other hand does have considerable value and would probably be repaired.

Recently it was time to renew the insurance on our Chevy Blazer. The Hoss seriously pondered whether or not to increase the collision deductible to $1000 or higher. To do so would be against the advice of Mrs. Hoss, as she strongly believes items of value should be fully insured. But The Hoss thought what does she know? We could save a few dollars just by increasing the collision deductible, after all we have no fault insurance and we are both good drivers and would never cause an accident. We could go out to dinner with the money we save. The Hoss is wise.

For some unexplained reason, while in the insurance broker's office, The Hoss changed his mind and decided the best course of action would be to follow Mrs. Hoss's instincts and stay with the $300 collision deductible.





Two weeks later, The Hoss was involved in a minor fender bender causing over $1000 damage to the Blazer. Do I have to tell you that The Hoss is thankful to Mrs. Hoss for her foresight?

The moral of the story is twofold. One, increasing your insurance collision deductibles is not always the best choice. Two, listen to your wife.

Stay on track,

The Hoss


Next Hoss Cents Free Financial Money Magazine Post: March 15, 2009
Previous Post: Home Insurance

Home Insurance

From the Hoss's Mouth

For most of us our home is not only a place of comfort and security, but also our largest asset. Today Hoss Cents Free Financial Money Magazine discusses protecting that asset with a home insurance policy.





Purchasing homeowner's insurance can be a stressful and intimidating event for those who do not understand the world of insurance. With this in mind, The Hoss has listed below some of the elements of a standard home insurance policy. Please note this list may not contain all the insurance you require, and insurance coverage varies from company to company. To determine what is best for your insurance needs talk to a trusted insurance broker.

• Dwelling Building: Covers the dwelling and attached structures.

• Additional Buildings: Private buildings or structures detached from the dwelling and which are on your premises.

• Personal Property: Covers the contents of your dwelling and other personal property you own, wear or use while on your premises and which are usual to the ownership or maintenance of a dwelling.

• Loss of Use of Your Dwelling: If your dwelling becomes unfit for living as a result of damage by an insured peril, any necessary increase in living expenses are covered.

• Personal Liability: Protects against damage or injuries caused by you or your family.

• Voluntary Medical Payments: If you unintentionally injure another person or if they are accidentally injured while on your premises, reasonable medical expenses are covered.

• Voluntary Payment for Damage to Property: Covers payment for unintentional direct damage you cause to property.

Please note that damage that is the result of floods, earthquakes and poor home maintenance is generally not covered in a standard home insurance policy and may require separate riders to provide that protection.

The Hoss reminds you that the total dollar amount for each of the above coverages should be clearly shown in your home insurance policy. You should also receive a pamphlet that details all the items covered and not covered by your policy. It is up to you to ensure your broker fully explains the details of your home insurance package. If s/he fails to do this, find another insurance broker.

The Hoss sincerely hopes you never have to make a claim on your home insurance policy, but if you do you will be truly glad you took the time to obtain proper coverage.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: March 8, 2009
Previous Post: Auto Insurance