The Urban Roots of the Fiscal Crisis

David Harvey... a take on the current economic crisis that you won't see on CNBC....

Ladies Night at the Car Wash

You know I've crossed the frugal freak line when I wash my car on Wednesdays only. Two bucks off for the ladies, why that's almost a gallon of gas...

Top Ten List of Reasons Why You Know These Times are A-Changing

As President Obama gears up for his first State of the Union Address, I was going through the gazillion (appropriately enough, not a real number) economic and financial issues at hand. I don't even know where to begin, and after not blogging for a while this is one helluva time to just jump in. So I'll start with something easy.

Top Ten Reasons You Know Times are A-Changing

1. American Express offers some credit card holders a$300 pre-paid card to pay off their balances in full and close their accounts. Funny, it was just a short while ago credit card companies were happily feasting off those who carried a balance from month to month.

2. Housing prices fell 18.5% this past year, a record breaking rate of downward return. I won't rub lemon juice in a paper cut, but we all know what the housing market used to be like...

3. Joining the ranks of the unemployed, Harvard's endowment management team will layoff a quarter of its staff, after losing 20%. Harvard's endowment returns made Warren Buffet look like Joe Shmoe. Well, not really, but they have been jaw dropping until recently.

4. Speaking of Warren Buffet, Berkshire Hathaway slumped on Friday to a 5 1/2 year low, kind of like everyone else's accounts. (Okay, maybe everyone else is at a 30 year low).

5. The nationalization of US Banks is an actual debate.

6. A US President calls for a fiscal responsibility summit. Americans owe $35k each towards the federal debt, and with entitlements like Social Security and Medicare- all just plain old not funded at all- that obligation per person balloons to $135k. I think we're so late on the fiscal responsibility summit that it would be a joke if not for the fact that we're in such dire straights we need to reverse the course of stupidity. So while I can be like oh, I don't really owe the Feds $135k so who cares!- I shouldn't kid myself. That level of debt is not theoretical, it reflects how much needs to be made up for each of us in taxes or cuts.

7. You know times are tough when a bill tries to waft its way to a state's Assembly floor-- proposing to tax marijuana! Oh, those silly Californians...

8. eBay used to sell used books and clothes. In times of desperation, people will try to sell anything. $80,000 for 212-867-5301 is my personal fave. The antonymous auction would be the one involving losing one's virginity to the tune of $3.7 million. In a word, eww.

9. Americans are saving more and spending less, a sharp contrast to saving nada and spending wildly beyond one's means.

10. And last but not least, change is definitely in the air when Manhattan's luxury real estate market is, of all things, on sale.

And of course, it goes without saying, things are not quite the same old same old when a recession hits all classes, the US is in danger of having no American car company, banks are going belly up, the interest rate is near zero, and inventory- from cars to homes, exceeds not only demand, but access to financing for what little demand there is. The list is endless, and a top ten list could easily go on to a gazillion.

A Baby!

After a many month long hiatus from blogging, I'm gearing up for a comeback. My utmost apologies, but M and I had a bouncing baby boy late November, and life has been, well, just a tad bit chaotic. An absolute joy, but the sleep deprivation has been biting into my blogging time. Until I start to sift through an attempt at understanding the economic carnage, I leave you with a recent article in the NY Daily News that declares it takes $123,322 a year to be middle class in NYC. Class is a wiggly beast, and while M and I fall far short of this article's vision of middle class, I think it would be unfair to exactly call us the working poor. So I'd like to declare myself part of the sub basement middle class...

Tracking November's Grocery Spending

I just finished renovating our monthly budget, and under Groceries I have $400 per month (covers both M and I). I am going to hazard a guess and say that this is a nice blend of wishful thinking and total denial.

Since New Year's resolutions are right around the corner, I figured I might as well find out. So for the month of November I'm going to save all grocery/bodega/food co-op receipts and see what the final tally is. I figure that we should be able to eat in on $100 a week, so one of the interesting things about going through the receipts will be finding out what the budget breakers are. If I was a betting budgeter I'd place money on it being my obsessive purchase of blocks of cheese...

photo by Cpt. Obvious via flickr

New York State's Budget Gap

New York Governor David Patterson was in Washington this week testifying before Congress regarding New York State's projected 3.5 year budget deficit of $47 billion dollars. Egads.

New York State has long paid more in federal taxes than it gets back in aid from the Feds. While I agree in principle that the wealthier states should shoulder more of the financial burden than, say, Alabama, it is also ironic that it's the blue states who pick up the tab and are then held hostage by the red states' conservative politics. If pro-American is pro-rata, then Palin is on the wrong side of the fence. But I digress, which is understandable given that Tuesday is right around the corner. Thank god.

Back to my home state's woes. In 2007 New York state sent the Federal government a nice big fat check for $86.9 billion. What we got back from the federal government in return was a lowly rank of 40th in the nation in federal funding per taxes received. Of course, New York State would do well to take note that New York City paid $11 billion more in state taxes than it got back in state aid, essentially making all of upstate New York our welfare ward. Again, in principle I support the idea of the big guy supporting the little guy, but New Yorkers (the five borough kind) are constantly held hostage by New Yorker's (the rest of the state kind), so my enthusiasm for fairness is tempered every time things like congestion pricing get shot down. Like Western New York even has a rush hour (don't mind me, I can say things like that since I grew up in Buffalo).

All of which is to say, we have good reason to be freaked the frack out. Twenty percent of New York State's revenues come from Wall Street. Ditto for the city. And even the Wall Street Journal doubts Bloomberg is right for the self coronation job.

So when Patterson says he doesn't want to raise taxes, it's because New Yorkers already pay more in state taxes than all other states except one (that would be New Jersey, believe it or not). It's not the taxes, it's the inane New York State Legislature's spending spree that goes unchecked year in year out. If they manage to come back after the election and actually suck it up and cut spending, it would be a miracle of near biblical proportions.

Is there a way out? New York Magazine recently did a cover article on David Patterson that looks for some answers. None of which come easy.

Fiscal irresponsibility from all levels of government and capitalism have put us at risk. So I would like to take a moment to point out the most obvious, something that someone with piggybank blues knows all too well. Your budget-making abilities suck donkey derrier.

photo by Wayan Vota via flickr

Credit Card Crunch

The NY Times article, As Economy Slows, Lenders Begin to Curb Credit Cards brings the credit crisis from Wall Street to, you know, your street. If you want a pretty decent primer on how to protect yourself, check out the San Diego Union-Tribune piece here.

Either I have sucker written in halogen across my forehead, or my credit must be pretty good because the past few weeks I've seen an uptick in credit card offers stuffing my mailbox. That isn't exactly the norm right now, and the Times article lays out some basic ways that we'll start to feel the squeeze.

First, the why:

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

After years of profiting off of us losing our shirts, lenders are now taking enormous losses. And make no mistake about it, even creditworthy consumers are going to feel the pinch, just like creditworthy mortgage seekers are having a hard time right now. If the financial and banking industry is broke enough to get bailout after bailout, then rest assured they're broke enough to extend any kind of credit to the likes of you and me. And that includes the plastic kind.

The how:

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

Some other notes from the article:

* Even Amex is pushing some creditor's interest rates up 2 to 3 percentage points.

* Rewards shmwards. That "free" flat screen went from a Sony to an Insignia.

* Anticipating the regulation that's headed their way, credit card companies are pulling back on zero percent credit card offers to everyone under the sun, eliminating teaser rates, and chopping up the length of time a zero percent rate is good for.

* Our mailbox will get 13 fewer pieces of junk mail a year. See above.

All of which may inspire a how-dare-they-! kind of response. Aside from the fact they scrod the pooch when they were making bank off of crazy credit limits, high fees, and trap doors for the average Joe and Jane, they now have some pretty legitimate reasons why they're doing this. The credit crisis is trickling down.

To summarize from the article:

* The credit card market is shrinking. It's not like people are exactly banging on the door to get even more credit cards and the debt that goes along with it.

* Credit card companies' profit margins are shrinking. Credit card companies have their own financing-- credit card bonds. Companies live and die on borrowing money, and the credit card companies are no exception. I touched upon this in an earlier post Why We Need the Bailout. So when investors stop investing in the tools that companies use to make money flow, like credit card bonds, companies lose flexibility to take risk (on the likes of you and me, for example, and our comfy interest rate).

* I don't know about you, but I curbed my spending like there's a bread line in my near future. That means less money for the credit card companies.

* Before, credit card companies could make up for a loss in profits by jacking up the fees. This isn't exactly the political climate to be attempting such shenanigans.

And that, folks, is why shite trickling down just never feels good when you're at the bottom.

photo by paalia via flickr