AskDong

I really liked your saving priority list. I found it very helpful and have a
saved it to my desktop as a reminder. In addition, I have had two questions
I’ve been meaning to ask you.

QUESTION 1
I recently heard about credit cards offering a percentage back towards funding
529 plans. Fidelity offers one that give 1.5% back. I am interested in this
type of card but wanted to know (1) can I fund a 529 account for children that
are not yet born? Perhaps I put the fund in my name till I have children? (2)
Is there a card that you recommend? (3) Can I still claim a tax credit for
contributions made to the 529 via the credit card?

QUESTION 2
Have you used mint.com? What are your thoughts about the utility of this
website?

-m

I’ll answer the 2nd question first because it’s more straightforward.  Yes.   I do use Mint, but not that much.  I’m still more of a fan of Yodlee as it has better overall coverage.   What Mint offers is a simpler view, and pitches of money saving alternatives.   For some individuals the offers are useful, but not me.  Generally speaking, I’ve already done my shopping when it comes to accounts.  The simplified view is nice, and I would be more apt to use if I were just starting with account aggregation.

In truth however, I’m looking at PageOnce.   PageOnce offers a very similar service to Mint, but like Yodlee is much  comprehensive.  In addition, PageOnce also offers an iPhone App.

529 Accounts

Yes, you can still can claim the tax (state) credit even if it’s funded from you Credit Card. I don’t believe the source of funding matters.  For the tax deduction it has to be a state sponsored plan for your state of Virginia.  I don’t believe Fidelity runs any of those plans, so it’s unclear in reality how you would be able to fund the 529 plan with a credit card.

While you cannot sponsor a 529 plan in the name of child that yet to be born, you can sponsor a plan under the name of another relative, and switch the plan’s beneficiary at another date.  The age of whom can be named beneficiary vary’s state by state.

As the Chinese say may we live in interesting times. It’s without question interesting times on Wall Street.

Fed backed buyout of Bear Stearns by JP Morgan Chase
Fed Takes Over Freddie Mac and Fannie Mae
Lehman File Bankruptcy
Bank of America Buys Merill Lynch
Fed Takes over and lends 85 Billion to AIG

I certainly have never seen these type of actions unfold over such a short period time. The question is what does this all mean? The most obvious is that alot of people are losing a lot of money. This is true of shareholders (Bear, Lehman, AIG), and investors in general. The stock market is well into Bear territory. Some of the biggest losers are the employees at these firms. Many of them will lose their jobs, a number will lose big bonuses. Bonuses are more often than not paid in stock rather than cash. Those shares are virtually worthless. I’m not feeling too sorry for the fat cats who have profited handsomely in the last few years. However, most employees are not fat cats.

Ultimately the problem with Wall Street has been one asymetrical risk. Too many people on Wall Street are rewarded enormously for taking risk and making money. In the good times, everyone is happy. However, when the times turn sour, these high flying risk takers are left without a job, and forgo some bonus amount, but they still keep the money they earned in the past, nor do they take the losses because they’ve bankrupted the company. Pay packages are great at lining up short term interests, but absolutely awful in lining up long term interest. Someone else is left holding the bag.

I have no complaints about Bernanke or Paulson stepping in and doing what they feel like they need to do. I doubt either relish the idea of the Government effectively nationalizing AIG, but the damage was done much earlier. Regulation has been too slack. None of these financial institutions should’ve been allowed to take the amount risk that they did. That is the great failure.

While I don’t commute daily, I’m big proponent of FastLane, Masschusett’s version of EZ-PASS.   In the past year I’ve paid over $250 in tolls, and in the process saved an estimated and estimated $75 this past year in tolls.  That savings easily pays for the $20.95 I paid for the transponder.

Fastlane is great.  I love the convenience and the savings.  However, Fastlane must have one of the worst online systems that I’ve ever seen.  Funny, given it’s technological nature.  Not only does the fastlane system have an account website that looks like it was designed as high school project from 1999, but offers no meaningful information.   I only logged into the account this past week for the first time in probably over 2 years.

I had gotten an email a week ago saying that my credit card had expired, and I needed to update the account.  Of course, because I haven’t logged into the account in 2 years I didn’t know what my account number to login was.   Luckily today, I was sent a letter with instructions on how I could update my account information my mail.  That letter had my account number. With that number in hand, I was able to log into my account.

In the two years since my last login, the website has not improved one ioata.  I still get no account details.  It still looks like it was designed by an elementary school student, a talented elementary school student but a 2nd grader none the less.  Very disspointing.

I got back from Vacation in Costa Rica last week.   I didn’t go into the vacation with any expectations.   I was a passenger on this vacation, so I hadn’t done of the planning that went into it.   As a result, I set foot in Costa Rica barely knowing anything about the country or what the vacation would be like.   What I found was beautiful country with friendly people, all at very attractive prices.  Before I go anyt further I will breakdown what the cost of the trip was.   I’ve had to make some estimates as accomodation were provided by girlfriend’s mom who traded her timeshare for a week at Villas Sol.

These costs are quoted as per person costs.   I estimated the hotel cost as that was not actually paid directly.  I got a quote for 1 bedroom hotel room at the Villas Sol and divided that by two to get the person cost.   At Villas Sol they charged $50 for the all inclusive option.   This included all food and drinks.  Excursion consists of tours arranged through a tour operator, Swiss Travel.  The average daily cost of my trip at $310 per day is not low.   At the same tiem at $310/day is actually quite inexpensive given that there was really no effort on my part to minimize costs.  The single biggest line item was lodging, and that for me a was a given.   Given what I was I able to do, I have no complaints about the cost.  Below are some pictures, none of which include me, but does include my horse (or at least the one I rode to the spa).

Tomorrow, I’ll explore how I might have done this trip cheaper.

On Sunday, Federal Government officially took over Freddie Mac and Fannie Mae.   Secretary Paulson had previously called this possibility, firing the bazooka in the pocket.  Fannie and Freddie had been under intense financial duress as result of the U.S. housing slowdown/meltdown.

For those who don’t know what Freddie and Fannie are.  Let me first describe them as best I can.   While Freddie and Fannie are two different entities, they serve an identical function.   Both are Government Sponsored Entities (GSE) charted to buy and securitize mortgages.   Both corporations buys individuals mortgages and then sell bond like securities that backed by those mortgages.  Each collects small fee for guaranteeing the principle and interest payment of those securities they sell.   While explicity those guarantees are only as good Freddie and Fannie themselves, it has always been assumed standing behind the curtain was the full faith of the U.S. Government.   It has been widely and correctly believed that Federal Government would not allow either Fannie or Freddie fail.

Why have Fannie and Freddie at all?  Can’t private corporations serve the same role?  They have and they do.   Commerical banks routinely securitize mortgages.  Bear Stearns certainly got into alot of trouble doing that.   The benefit of having GSE serve that role is that a GSE can do so more cheaply because of the government guarantee.  Fannie and Freddie pioneered the mortgage back security industry, creating a viable liquid market.   They still own or guarantee over half of the 12 trillion U.S. Mortgage market. Most people who have any kind of mortgage can thank Fannie and Freddie, and implicitly the U.S. Government for making borrowing cheaper.   And until now, that implicit rat subsidy had no cost.

So what does the bailout meant?

Because Freddie and Fannie have been under such duress as of late, neither entitity had been able to do much of what they were created to do, buy mortgages.  With the bailout, the cloud over their business should lift.  The conventional wisdom is that mortgage rates will be lower as the implicit guarantee on the bonds issued by Fannie and Freddie has become explicit.  Personally, I’m doubtful how large that impact will be.  Some speculate that it might be as much as 1% decline.  I find that hard to believe as that implict guarantee was almost universally accepted truth.   That said I do think there will be some loosening.  Fannie and Freddie were capital depleted previous to this move and were unable to do as much business as they probably should’ve.

Who Gets Bailed Out?

It’s still early, but the intial evidence indicates that shareholders will be wiped out as it should be.  Bond holders should benefit. Taxpayers in the end will have the foot the bill for delinquent homeowners.   While unfortunate that many of those responsible for current problem will have pay for the excess of thew few (greedy bankers, greedy home flippers, uninformed homeowners), I guess I believe in the end we are our brother’s keeper even as much we may choose not to be.   If things work perfectly, responsible taxpayers will fair OK.   The federal government is actually taking an ownership stake via preferred shares and even has a right to buy  common shares.