AskDong

I didn’t lose my wallet, but my girlfriend did.  There are few things in life I hate more than replacing the content of a wallet.  I hate being without my cards (credit cards, debit cards, and ID), but what I hate even more is getting everything replaced.  I hate the uncertainty of not knowing if I will find the wallet or not.  Of course whenever I’ve actually do find a lost card, it’s always when I’ve already replaced it - sometimes that’s the most frustrating part of it all.

So, I didn’t lose my wallet, but I am directly affected beyond just being collateral damage.   My girlfriend has two credit cards that are mine that I’ve given her to use so she can buy groceries and such when I’m not there.  Her losing her wallet is a direct impact on my credit cards.

I called immediately to put holds on the accounts, and was disappointed to learn I could only place a hold my entire Chase account rather than on any single card.  Given that I use this card, and my parents carry another for emergencies, putting a hold on the entire account is less than ideal.

My American Express is another story.  I was able to individually put a hold on a specific card rather than the entire account.  Each card has a different number.   Given that this card is my primary credit card - the first card I plunk down to pay a bill - I really appreciate not having to put a hold on the entire account.  I am surprised to learn that not all credit cards would implement such a system for extra cards.  I guess it’s just another reason my American Express is my preferred credit card.

I’ve been an investor in VMATX which is Vanguard’s Massachusetts Municipal Tax Fund over the last 2 years. A few years back, I had thought about constructing my own bond portfolio, but found it too much of a hassle. The commissions were expensive, researching bonds were difficult, and it was unclear what benefit I really gained.  Certificates of Deposits yielded similar rates.  Bond funds such as VMATX performed better but not that much better.

In the last 9 months, the pros have begun to outweigh the cons.  CD rates have plummeted as the economy has soured, and the fed has lowered rates. VMATX is intermediate term bond fund meaning it holds assets on average with a maturity of 5-10 years. The current climate of fear and potential budget shortfalls have made municipal funds risky, and this risk translates into lower prices on the underlying bonds that make up VMATX.  This risk is real, but I think it has been somewhat unfairly applied across the board on all bonds, regardless of issuer.  As a result VMATX and many other bonds funds have taken a hit in price.  VMATX continues to steadily make it’s dividend payments.  The price of the fund has however been uneven over the last year.

Fixed income instruments vary with the general interest rate environment or with the individual risk of the debt issuer.   Typically as interest rates decline as they have over the last year, bonds increase in value.  This is not what has happened this past year.   Bonds of all varieties, corporate and municipal, have decreased in value.  The only exception have been Federal treasuries.

People have fled to the safety of Federal debt, fearing that corporations and municiplalities will end defaulting on their obligations.  Some of this fear is rational, and some overdone.   As a result corporate bond yields have widened.  Safe bonds such as 6 Month Bell South bonds yield less than 1% while Citigroup bonds of the same duration (6 months) yields nearly 33 percent.   I’ve quoted those based on the offer side, yields based on what sellers of the bond are will to take.   If anything the bigger issue currently is the very wide bid/ask spreads.  The bid is what someone is willing to pay and the ask is what someone else is willing to sell at.  For example the bid ask spread on the Citibank bond I cited above is 48%/35%.   The buyer demands a yield of 48% while the seller is only willing to give 35 percent.

The high yields, and the wide bid ask spreads are reflective of bond market that remains uneasy.   There is fear on the street.   Bonds and stocks have both taken a beating, and there are opportunities in both.   I’m still trying to figure out how to best construct my own portfolio.  How to pick bonds that will pay good returns without defaulting.  In this light, it’s very similar to my foray on prosper.com

Over the course of the last month, I’ve paid $30 in overdraft fees to Citibank. I would’ve bounced 3 checks if not for the overdraft protection. I’m madder than a rabid raccoon about it. No, I’m not in any kind of financial trouble. I actually have a healthy emergency stash in my Citibank account.

The problem is in November, Citibank changed its overdraft policy.   Apparently I was notified by an insert in my account statement.  I read my statements online, and rarely look at the printable version.  I was caught unaware.  In the past they would draw from my overdraft credit line of $2400 to cover any account debit that exceeded my balance. This was perfect for me as I generally keep very little in my checking account. It’s a non interest bearing checking account. I have been much better off keeping the majority of my money in the attached saving account or money market account. As I check my account directly or indirectly through an agregator such as Yodlee on daily basis, I tend to notice my over-extensions, usually day of. I would then be able to quickly transfer money from my savings account, and everything would be good. Over the course of the last three years, I paid less than a $1 in total interest associated with me drawing down my line of credit.

My system has come to a screeching stop. Citibank now charges me $10 each time I dip into my overdraft line of credit. Citibank had been unusual, and now it’s following what has become standard overdraft “protection” policy. Bank of America has charged $25 for each (which has been raised to $35) for as long as I remember.  One of the reasons I bank(ed) with Citibank was the overdraft policy.   It was a feature that made sense instead a “feature” intended to extract more dollars from the customers.

Most banks offer overdraft protection, and most offer it by linking your checking account with your savings account.  When a debit exceeds the balance in the checking account, the bank automatically funds that debit via funds from the savings account.   For this privilege, the bank charges you, the customer, a $25 fee in the case of Bank of America.

Citibank had been above the fray, and for this I have a been a loyal customer.   This new change makes me question if my loyalty is still deserved.   The problem is Citibank’s new rule is standard practice rather than the exception.

I got another letter last week from Barclay’s bank telling me they were closing down one of my credit card.  It’s the only credit card I have with that particular bank.  This is the second credit card company that has decided to the shut down my account.   Three weeks ago, it was Washington Mutual.  The credit card closing are widespread, or so it seems.  I only agree somewhat with the CNN article.  I think the credit card companies are only minimally motivated by the desire to reduce cost.  The bigger issue is risk.   These unused credit cards represent looming and potentially risky liabilities.   Credit card companies spend much money marketing balance transfer offers, and insurance protection.   The cost of maintaining a credit card that gets no mail pales in comparison.

In the end, I’m not all that upset some of my credit cards are getting canceled.  I have too many, and many of them serve no real purpose.  I don’t need the credit, and have been thinking about canceling some of the cards on my own.    The critical factor of course is not allow my oldest credit card to fall by the wayside.    Luckily my oldest credit card has a balance from a balance transfer offer that I will continue to payoff for the next few years.   There are other credit cards that you shouldn’t close or allowed to be closed.

After reading this from one my favorite personal finance blogs, I hurried to check my account. Same Account, and same results. Like Jonathan, I have kept the Washington Mutual account because I find the credit scoring useful. The account is otherwise pretty much useless for me. I don’t earn any rewards, nor does the account have a great APR (not that I keep a balance). Given the comments on My Money Blog, and the cancellations amongst my friends, Wamu has clearly decided to cut off many of it’s “customers.”

Personally, I don’t blame them. Given the current credit environment, why would any credit card company want potentially risky line of credit out in the ether? Even though the accounts are unused, it still cost something to service these unused accounts. Washington Mutual has spent at least a few dollar, mailing me new cards. More importantly, these lines of credit represent potential risky liabilities. Why would someone start tapping a credit card they haven’t used in a year? The best reason would be because they’ve run out of credit on their other cards. If I were in desperate situation that’s certainly what I’d attempt to do to stay afloat.

The problem of course if someone is tapping every line of credit, that person is not a good financial risk. Washington Mutual doesn’t have the option later that such person is a bad credit after he or she has already charged $3000. What they can do now is to cut out all the tumors many of which are benign (like myself and Jonathan) instead of waiting and finding out which ones are actually malignant.

What’s happening to people personally is very similar to what’s happening in the corporate world with more dire consequences. Banks have withdrawn lines of credits, and many companies who depend heavily on the ability to borrow have found themselves in situations where they can’t. While I may personally be miffed that I don’t have a free credit score anymore, I didn’t need the line of the credit to expand business. Corporations are not so lucky.  The economic pain of credit tightening is here and very real.   We won’t even feel the full effects until many months later.