Finance International

Revisiting the lessons from deregulating derivatives is particularly important right now because Congress seems to have forgotten them. A report we just issued provides a road map of how derivatives wrecked the economy in 2008 and could do so again if Wall Street gets its way.

Nine bills that would roll back the derivatives reforms created in the wake of the financial crisis are moving in Congress. These proposals, most of which have already passed in committee, have been put forth in the name of furthering the competitiveness of U.S. companies and creating jobs for Main Street. These are quite brazen claims, since deregulating derivatives arguably did more to harm economic competitiveness and job creation than anything Congress has done for a very long time.

Here is the history, in brief: At the end of the Clinton administration, financial derivatives were relatively new and sat in a regulatory netherworld. In practice, they were not regulated. But they bore all the hallmarks of traditional futures, which by law must be traded on regulated exchanges.

Federal Reserve Chairman Alan Greenspan and successive Treasury Secretaries Robert Rubin and Lawrence Summers (a trio Time magazine dubbed The Committee to Save the World) argued that financial derivatives investors were too “sophisticated” to require oversight. Regulating derivatives would “cause the worst financial crisis since World War II,” Summers claimed.

In 2000, with the passage of the Commodity Futures Modernization Act, Congress established a regulation-free haven for financial derivatives. Derivatives soon became a petri dish for the growth of financial risk-taking, especially relating to the housing market.

In rough terms, derivatives dealers sold hundreds of billions of dollars worth of quasi-insurance policies (called credit default swaps) on mortgage-backed securities to holders of the securities. The illusion of protection provided by these insurance policies helped create a voracious appetite on Wall Street for mortgages to bundle into securities. This, in turn, led mortgage originators to adopt laughably low underwriting standards, causing housing prices to soar to unsustainable levels.

When reality intervened and mortgages defaults began occurring in droves, holders of defaulted mortgage-backed securities submitted claims to the providers of their credit default swap “insurance policies” (primarily American International Group, or AIG), only to learn that AIG could not make good on its promises. The absence of supervision of derivatives had permitted AIG to amass risks well in excess of its resources — and thereby put the entire economy in grave jeopardy.

AIG’s inability to pay its counterparties threatened to cause a ripple effect of institutional failures that could have thrown the economy back into the Stone Age. A $ 700 billion taxpayer-funded bailout was ordered up to prevent a total collapse of the financial system. Regular Americans were left to suffer through the deepest recession since the Great Depression.

Experts agree with the essence of the summary above. Each of the members of The Committee to Save the World, for instance, has recanted his advocacy for a laissez-faire approach to derivatives. Rubin now says he even favored regulation when critical decisions were being made in the late 1990s, but that “very strongly held views in the financial services industry in opposition to regulation were insurmountable.”

Which brings us to the present: The Dodd-Frank Wall Street Reform and Consumer Protection Act instituted a series of commonsense reforms, including requirements for derivatives trades to occur on designated exchanges. This key provision would ensure that prices are transparent and that a centralized clearing agency guarantees the credit worthiness of trading participants. This is how stocks and futures have been traded since the reforms of the 1930s. But because more money can be made trading on opaque, unsupervised markets, Wall Street objects to this reform. Once again, its leaders are attempting to subject Washington, and the country, to an insurmountable force.

Of the bills seeking to punch holes in Dodd-Frank, a few are comically ridiculous — and dangerous. One, H.R. 3283, cedes regulatory authority to foreign governments for the overseas activities of U.S. firms. Ask yourself, when was the last time Congress advocated submitting to foreign control of anything? Only Wall Street’s influence could convince lawmakers to favor such a thing.

Another bill is the cleverly titled Swaps Bailout Prevention Act. It does the opposite of what its title suggests. It would repeal Dodd-Frank’s prohibition against bailing out of major derivatives participants and, thus, allow federally insured banks to remain major derivatives players.

Last week brought news that JPMorganChase, the nation’s largest bank, suffered losses of at least $ 2 billion — which may climb above $ 4 billion — on bets on credit default swaps, the same scourge that led to the 2008 crisis. More alarming, the bank’s losses came on positions that may have been as high as$ 100 billion, meaning that a slight change in conditions had potentially enormous implications. This is exactly why derivatives, which financier Warren Buffett presciently labeled financial weapons of mass destruction in 2003, require vigilant public oversight.

The JPMorgan episode may be the warning that Congress needs to return to its role of protecting the public rather than coddling the banks. But it also raises a question: How many times does a lesson have to be taught before it is learned?

Taylor Lincoln is research director for Public Citizen’s Congress Watch division. @Public_Citizen.

From:The Blog

In the first in a series of POLITICAL Public Service Announcements (#PPSA), I take on the conservative myth that liberals hate wealth and success. Nothing could be further from the truth…

We progressives don’t hate money. We just want everyone to have more of it!

I hope you’ll watch this, share it, like it, spread it — and let me know what you think!

From:The Blog

Members of the Class of 2012,

As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you’re picking up today.

You’re f*cked.

Well, not exactly. But you won’t have it easy.

First, you’re going to have a hell of a hard time finding a job. The job market you’re heading into is still bad. Fewer than half of the graduates from last year’s class have as yet found full-time jobs. Most are still looking.

That’s been the pattern over the last three graduating classes: It’s been taking them more than a year to land the first job. And those who still haven’t found a job will be competing with you, making your job search even harder.

Contrast this with the class of 2008, whose members were lucky enough to get out of here and into the job market before the Great Recession really hit. Almost three-quarters of them found jobs within the year.

You’re still better off than your friends who didn’t graduate. Overall, the unemployment rate among young people (21 to 24 years old) with four-year college degrees is now 6.4 percent. With just a high school degree, the rate is double that.

But even when you get a job, it’s likely to pay peanuts.

Last year’s young college graduates lucky enough to land jobs had an average hourly wage of only $ 16.81, according to a new study by the Economic Policy Institute. That’s about $ 35,000 a year — lower than the yearly earnings of young college graduates in 2007, before the Great Recession. The typical wage of young college graduates dropped 4.6 percent between 2007 and 2011, adjusted for inflation.

Presumably this means that when we come out of the gravitational pull of the recession your wages will improve. But there’s a longer-term trend that should concern you.

The decline in the earnings of college grads really began more than a decade ago. Young college grads with jobs are earnings 5.4 percent less than they did in the year 2000, adjusted for inflation.

Don’t get me wrong. A four-year college degree is still valuable. Over your lifetimes, you’ll earn about 70 percent more than people who don’t have the pieces of parchment you’re picking up today.

But this parchment isn’t as valuable as it once was. So much of what was once considered “knowledge work” — the kind that college graduates specialize in — can now be done more cheaply by software. Or by workers with college degrees in India or East Asia, linked up by Internet.

For many of you, your immediate problem is that pile of debt on your shoulders. In a few moments, when you march out of here, those of you who have taken out college loans will owe more than $ 25,000 on average. Last year, ten percent of college grads with loans owed more than $ 54,000. Your parents have also taken out loans to help you. Loans to parents for the college educations of their children have soared 75 percent since the academic year 2005-2006.

Outstanding student debt now totals over $ 1 trillion. That’s more than the nation’s total credit-card debt.

The extraordinary rise in student debt is due to two related facts: the cost of a college education continues to increase faster than inflation, and state and local spending per college student continues to drop — this year reaching a 25-year low.

But this can’t go on. If unemployment stays high for many years, if the wages of young college grads continue to fall, if the costs of college continue to rise and state and local spending per college student continues to drop, and if the college debt burden therefore continues to explode — well, you do the math.

At some point in the not-too-distant future these lines cross. College is no longer a good investment.

That’s a problem for you and for those who will follow you into these hallowed halls, but it’s also a problem for America as a whole.

You see, a college education isn’t just a private investment. It’s also a public good. This nation can’t be competitive globally, nor can we have a vibrant and responsible democracy, without a large number of well-educated people.

So it’s not just you who are burdened by these trends. If they continue, we’re all f*cked.

Robert Reich is the author of Aftershock: The Next Economy and America’s Future, now in bookstores. This post originally appeared at RobertReich.org.

From:The Blog

The Baby Boomers are doing some serious retirement planning these days.

Just one problem. They forgot to plan for their parents.

They may be 55, but their parents now need their children more than ever before.

I have many clients that have at least one parent with Alzheimer’s disease — often in their 80s or 90s. The Boomers face many social, physical and mental challenges with their parents. These can be very difficult on their own.

In addition, there are several financial challenges that arise that must be faced and in every case, intergenerational or cross-family financial discussions are the key to a positive outcome.

Here are four challenges to deal with and possible solutions:

1. We saved for our retirement, but didn’t plan on paying for everyone else’s as well.

Every retirement planning discussion should include the following question: “Are your parents and in-laws likely to be a financial burden, fairly independent, or are you expecting a meaningful inheritance?”

While many people have a hunch about it, they really need to have a better handle on it, as it is key to their own retirement plans. In my firm, we recommend that, if possible, they have a conversation with their parents that starts with: “We are doing some personal retirement planning, and we were asked a question about our parents. We don’t need to get into huge detail, but we wanted to have a discussion about whether we might need to provide some financial support to you or whether we thought there would be a meaningful inheritance. (Wait for laughter to stop.)”

It is possible that this question will have a pretty short response and won’t go further, but in most cases it does open the door to a more complete discussion.

2. Why are we responsible for Mom and Dad? What about your brothers?

Sometimes life isn’t fair. There is always someone who shoulders more of the load. It doesn’t stop just because Mom is getting old and needs support.

Support for older parents is both in terms of time and energy, and also can be in terms of money.

In many cases, women in particular have to retire early and give up an income to look after parents. This in itself could affect their retirement plan. Should they be entitled to get paid by the parents? Should they get a larger inheritance?

In an ideal world, the child that provides most of the caregiving is not in need of any compensation, and the parents can pay for any needs that arise.

In the real world, sometimes there does need to be some financial compensation for all of the time that one child puts in. With siblings, you will likely never get full agreement on these arrangements. It is usually something that should be co-ordinated between the caregiver child and the parent, and other siblings should be notified of the facts. It isn’t a vote.

3. We should have had the insurance discussion sooner.

If you are 45 years old, do you know what insurance coverage your parents have? Do they have critical-illness insurance, long-term care insurance, individual life insurance, joint first-to-die, joint last-to-die life insurance? Did their insurance coverage expire at 65 or 75?

The reality is that this is your business. All of these insurance policies, other than joint last to die, will have an impact on your parents’ financial well-being. They may mean the difference between them being able to look after themselves financially or require your financial support.

This conversation is also a good eye-opener for the 45-year-old — and it may raise some opportunities.

Opportunity No. 1: It may be too late for your parents to be properly set up due to health issues, but now is the time that you should be ensuring that living benefits like critical-illness insurance, in particular, is explored.

Opportunity No. 2: If one of your parents is in reasonably good health — even if they are 75 years old — taking out a life insurance policy on a parent may be an important part of your retirement plan. I know this may not seem right at first glance, but if the 45-year-old is going to have to look after the parents financially, it can impair his personal retirement plan. If his insured parent dies in 20 years, the son will receive a tax-free insurance payout at age 65 — a perfect time from a retirement perspective. In many cases, the return on investment of this type of insurance policy can be 7%+ on an after-tax basis.

4. Do Mom and Dad have powers of attorney in place? What about their will?

Once again, what might not be considered your business can quickly become your most important business. They should have a power of attorney over personal care. This provides guidance on who can make medical decisions on the patient’s behalf, if he is unable to make his own decisions. It usually deals with items like whether you want doctors to make ‘heroic efforts’ to save your life, or not.

There should also be a power of attorney over property. This gives someone the ability to sign documents on another person’s behalf. Without it, many necessary financial transactions and decisions will happen at a snail’s pace.

As for their will, do you know where to find it? Has it been looked at in the past 20 years? Are the executors of the will up to date? Have the named executors died 10 years ago? These issues could become a nightmare for the survivors if they aren’t reviewed and clarified.

I believe the most important issue here is opening up the lines of communication with older parents. It is important to position the conversation in terms of your own personal planning, and addressing questions that you need to answer to complete your plan.

As the Baby Boomer children, you need to have these conversations with your parents. It will benefit everyone in the long run — and there is no day better than today.

Financial Post

Ted Rechtshaffen is president and chief executive of TriDelta Financial, a firm that provides independent financial planning and
investment advice.

From:Financial Post | Business » Personal Finance

NEW YORK – Tracy Repchuk’s three children are still in grade school, but she’s already got college funding figured out. The Repchuk kids are 14, 15, and 16 and when they head off to college in a few years, here’s how much their parents will be chipping in: Zero.

Not because they are being punished for something: Tracy calls all three wonderful, outgoing and well-adjusted. And not because the family is strapped for cash: Tracy, 47, is an author and social media strategist, and her husband David Repchuk is a mobile solutions developer.

Instead, the financial tough love is simply the way the Burbank, California, resident was brought up, and she sees it as the best way to foster the self-reliance that will pay dividends for the rest of their lives.

“I’ve told my children that if they’re interested in college, it would be their responsibility to pay for it,” says Repchuk. “This wasn’t a surprise announcement, since I’ve felt this way forever. It’s their life, not mine.”

It may seem a tad harsh, but Repchuk certainly isn’t alone in letting children fend for themselves once they’re grown. According to a new study from the University of Michigan-Ann Arbor, 62% of young adults (between the ages of 19 and 22) are getting some kind of financial help from their parents — which means 38% aren’t getting a dime.

Drill down further into the numbers, and just 35% of those kids ages 19-22 are getting tuition assistance. Sometimes that’s because parents don’t have any money to give, and sometimes it’s because their offspring are no longer in school by that point.

But other times, parents could potentially afford to help, but don’t. “We did three waves of interviews, ending in 2009,” says Patrick Wightman, the study’s lead author. “Over the course of the recession we saw even higher-income families cutting back on their financial support.”

It’s not surprising that some parents are turning off the spigot. According to the Department of Agriculture, which tracks expenditures, the inflation-adjusted bill for raising a child up to age 17 these days (not even including college costs) is almost US$ 300,000 for every single Sophia and Samuel.

Given the horrific state of savings in this country — 49% of Americans aren’t chipping in to any retirement plan at all, according to financial-services trade association LIMRA — it’s hardly shocking, and perhaps highly necessary, that parents should be thinking about themselves first. As we’re told on airplanes before every takeoff: In case of emergency, put on your own oxygen mask first, and only then help out your kids.

But even among those with the financial wherewithal to pay for their kids’ college, there are some who just don’t believe in the message it passes along. Without any skin in the game, the thinking goes, young adults won’t truly understand the value of their education — or the value of a dollar.

“I worked, received scholarships, and took out loans,” says Nerina Garcia, a psychologist and assistant professor at the New York University School of Medicine. “It made me more responsible and work harder at school, because I knew I couldn’t flunk out; it would cost me too much. Now I plan to do the same for my 10-month-old daughter.”

Of course, these are trying economic times that we live in, and college is less affordable than it was when many of these opinionated parents did their coursework.

Tuition is already at record highs and rising: The average student who takes out loans is graduating with around US$ 23,300 in debt, according to data from the Federal Reserve Bank of New York. While median incomes have stagnated over the last 20 years, tuition and fees have shot up 130 percent, according to the College Board. If your attitude towards your children is “sink or swim,” it’s entirely possible that some kids may drown.

Also, don’t think that just because parents aren’t footing the bill, that kids will magically be granted even more financial aid. Almost all students in their late teens or early 20s are still considered dependents, so parental incomes and assets will still factor into the equation.

If mom and dad aren’t contributing any money at all, it’s the student who’s going to have to come up with the difference — by dipping into any savings they might have, working part-time while pursuing their degree, or taking costly loans.

FIRST, DO NO HARM

Here are some guidelines for handling the tricky subject of tuition help while sticking to your parental principles:

— Don’t torpedo financial aid offers. Even parents who aren’t going to contribute should fill out what’s called the Free Application for Federal Student Aid (FAFSA), which is basically the gateway to all federal grants and loans.

If parents don’t intend on chipping in? “It doesn’t matter,” says Joe Hurley, founder of Savingforcollege.com. “The parents’ assets and income must be reported on the FAFSA.”

If they don’t fill it out, the student won’t get any federal financial aid, and their options become very narrow. In that case, their only shot at federal aid is if they’re officially classified as an “independent student” — which is highly unlikely unless they’re already married, have a kid, or are over age 23.

— Get creative. There are ways to give your kids a running start in life, without necessarily writing them a blank check. When children attend college in their hometowns, some parents let them stay at home rent-free for a while. That frees up the kids’ cash flow to be earmarked for other necessities like tuition or books, without putting a dent in the parents’ own savings. Or reserve the right to help out with student debt later on, after your own retirement-savings goals are further along.

— Find the right balance. College financing isn’t necessarily an either/or proposition. With an obligation to cover a portion of their education, kids will learn the value of the dollars coming in and going out, without being totally crushed by financial burdens.

“We contribute when and what we are able,” says Jacquie Whitt, co-founder of Adios Adventure Travel and mom to 21-year-old college student Keenan Whitt Linsly. “But should college students contribute to their own education? I would have to say ‘Hell, yes!’ Our son chooses to work and contribute, and we support his efforts. It’s good for him. It’s good for everyone.”

© Thomson Reuters 2012

From:Financial Post | Business » Personal Finance

(Third in a series. See part one: “Please, Sir, May I Have Another?” and part two: “How Wireless Hype is Hurting America.”)

After decades of demanding and getting rate hikes and tax breaks in return for promising to deliver broadband internet access to schools, libraries, hospitals and every home and business in their territories, Verizon is now making it clear that it is no longer expanding FiOS, its fiber optic cable service.

So what did they accomplish? What did they build? And how much did it cost? Verizon claims that the company spent $ 23 billion dollars in rolling out FiOS since 2004. (See, for instance, this message from Tim McCallion, President of Verizon’s West Region.) That’s a lot of money.

But as I stare at a decade’s worth of Verizon annual reports, I notice something odd. Where, exactly, is that $ 23 billion? Specifically, where are the construction budgets to support this claim?

This chart shows Verizon’s construction budgets for 2000 through 2011, taken directly from the Verizon annual SEC-filed reports. It also shows an imaginary “FiOS Bump” — about $ 3.8 billion dollars per year in addition to the baseline that should have been spent annually over a six-year period if the company had really been paying out $ 23 billion dollars for the construction. But the numbers show no bump in construction for FiOS; no major increases in capital expenditures in general. In fact, Verizon, on average, spent more on construction from 2000 to 2004 than from 2005 to 2011.

Another way to look at it is this: Construction budgets for wireline services historically equal about 20 to 25 percent of revenues. One could reasonably expect that building out a $ 23 billion network over seven years would lift that percentage to well over 25 percent a year.

But it didn’t happen. From 2000 to 2004, construction amounted to 22.2 percent of wireline revenues. From 2005 to 2011, it was only 19.7 percent. That’s actually a $ 5.9 billion reduction in construction spending in those latter years, compared to what would have been spent had they just continued spending at the same ratio as during the earlier period.

This chart compares revenue and construction costs for wireline services from 2000 to 2011, in millions of dollars..

So How Did FiOS Get Built?

Whatever amount Verizon did spend on FiOS — and obviously it was a not insignificant amount — would therefore appear to have come out of the standard construction budgets that were supposed to be used to upgrade the lines that most Americans are still using for their phone service: the Public Switched Telephone Networks, or PSTN. It would seem that customers, including seniors, low income families, minorities and municipalities have been funding the construction of a cable service through the hefty monthly fees they pay for a dialtone and ancillary services. In some states this is actually illegal.

If Verizon did actually spend $ 23 billion, then it appears to have come at the expense of the traditional maintenance and upgrades of the utility plant — and the PSTN got totally hosed. At the very least, prices for basic phone service should have been in steep decline as one of the major costs, construction, was dramatically lowered.

Instead, Verizon was also getting rate increases specifically to pay for FiOS. For instance, Verizon persuaded New York officials to increase rates for “fiber optic investments,” where the only service that could use the fiber optic service was Verizon’s FiOS.

For instance, when New York State Department of Public Service Commission Chairman Garry Brown announced the approval of a $ 1.95 a month rate hike for residential phone lines in 2009, he said “there are certain increases in Verizon’s costs that have to be recognized.” He explained: “This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.”

Of course the states weren’t told that everyone would be charged extra for a service that only some people were going to get. In New Jersey, for instance, Verizon made a firm commitment to rewire the entire state with fiber optics — capable of 45 Mbps in both directions. It was supposed to be 100 percent completed by 2010. Instead, Verizon claims to have “passed” 1.9 million homes, representing 57 percent of the households in its territories — but “passed” may or may not mean that they can actually get service.

Insult to Injury: Verizon Abandons FiOS for Wireless

What has become clear is that Verizon is going to stop deploying/upgrading the wired networks and is instead going to put its money in wireless. As a result, places that don’t have FiOS now will never get higher speed services and cable competition from Verizon.

A N.J. state commission report from June 2010 saw this coming, and noted:

“While it is possible for Verizon to extend service throughout its authorized territory, to an additional 155 municipalities in the state that are not included in its current application of 369 towns, Verizon has indicated it will now concentrate its capital expenditures, expected to be between $ 16.8 billion and $ 17.2 billion in 2010 on its wireless telephone network. Further FiOS expansion will be limited to increasing penetration in those communities where FiOS is currently available, according to the company.”

(The $ 16.8 and $ 17.2 billion are the companies’ total annual construction budgets, not New Jersey only.)

But as we discussed in our previous article, wireless is simply not a substitute for wireline services, especially broadband or cable service.

So, in New Jersey, one of the states I know best, here is the sequence of events: Verizon (in 1993) get changes in state law that allows them to collect billions of dollars in extra charges and tax perks in exchange for upgrading the utilities. Then, Verizon doesn’t roll out the fiber optic network until 2006 — which is a cable service, but which uses the same construction budgets that were allocated to do the utility upgrades. Then Verizon cancels FiOS, and does not upgrade the utility, leaving no upgrades of the current infrastructure in the state to compete with cable. Instead, Verizon now has its local-service customers paying for wireless upgrades, while more or less abandoning the wires and stranding millions of customers in New Jersey.

So what, at the end of the day, did all that ratepayer money actually pay for? Well, the massive excess profits were used to increase executive pay, pay for investments and losses overseas in hundreds of subsidiary companies, create massive foundations that try to buy off non-profits, and to fill war chests used for lobbying and campaign contribution. It’s clear the money didn’t go into upgrading the Public Switched Telephone Networks, where it was supposed to bring everyone a fiber optic future.

America is 15th or 33rd in the world in broadband, depending on which international or research group you believe. The failure to properly upgrade the PSTN, and the con of FiOS expenditures, has cost a large swath of America — from Massachusetts through Virginia and the old GTE territories, such as parts of California — a generation of technology, innovation and GDP growth.

From:The Blog

By Talbot Stevens

Borrowing to invest, or leveraging, is certainly one of the most controversial and poorly understood topics in all of financial planning. Although the situation should improve with the federal government’s financial literacy campaign, most of us were not taught about managing money.

For advanced investment strategies like leveraging, the lack of information, and misinformation, makes it even more difficult for both investors and financial advisors to objectively understand if, and how, leverage can be used responsibly as part of a financial plan.

One of the common myths is the view that all debt is bad. Ironically, many Canadians have no problem borrowing at expensive, non-deductible interest rates of 19% or more, to buy personal stuff that depreciates 20% to 40% per year. This type of “bad debt” should be avoided like the plague, as it is guaranteed to hurt you financially.

Last year, the private banking division of a Canadian bank revealed that 46% of their high-net-worth clients used leverage as an investment strategy. Yes, the wealthy often use “good debt” to borrow at low, near-prime interest rates to invest in things like businesses, real estate or the stock market, which generally increase in value over time. But leveraging is not restricted to those who already have lots of money.

Even the government recognizes the difference between “good debt” and “bad debt” with its tax policy. To encourage “good debt” and increase economic activity, borrowing for investments that have the potential to produce income is generally tax deductible. Borrowing for “bad debt,” of course, is not.

Occasionally, there are stories in the media about investors who have lost lots of money using leverage.

These serve as valuable cautionary tales about how greed combined with a lack of understanding can result in very costly “life lessons.” Before the market crash of 2008, the greed of some financial advisors to increase commissions and the greed of clients looking for big returns produced a dangerous combination.

If leveraging has a bad reputation, it has been earned. In the past, there was too little focus on client-first practices, too little regulation, and too little understanding of when and how leveraging should be considered.

The good news is that I believe we have entered a new Leveraging 2.0 era, one that is a much safer environment for everyone who contemplates borrowing to invest. Regulators have provided clear suitability guidelines for leveraging, and are holding financial planning companies accountable for enforcing them.
Financial advisors and their firms have learned that weak training, policies, and supervision of leveraging are bad for clients and their business.

The two 50% market crashes in the last 12 years have also helped both investors and financial advisors learn the cold, hard fact that leveraging implemented irresponsibly is much worse than none.

There are many leveraging strategies, with varying levels of risk and complexity. In this safer Leveraging 2.0 era, responsible leveraging means only considering responsible strategies, responsible amounts and responsible timing.

Almost all of us use vehicles to get us where we want to go faster. But what is the downside of using this strategy? Not only is there a financial cost, we can get hurt badly, or even killed. Like using a vehicle, leveraging is a strategy that can either help you or hurt you, depending on how it is used. Also like a vehicle, the strategy is very powerful, which means that returns can be magnified a lot, and more so in the negative direction. Because of this, it is essential to fully understand how to use the strategy carefully, responsibly, with all of the appropriate guards and precautions in place before you get in the vehicle.

The critical question to start assessing leveraging objectively is this: If you only drive or leverage carefully and responsibly, can you be confident that the strategy will help you instead of hurting you? Think about this, deeply. If you’re not committed to this approach, please stay off the road.

You don’t have to use the more powerful and dangerous strategies of vehicles or leveraging to get where you want to go more quickly. You can choose to walk and stick to safe, guaranteed investments. Or you can use a bicycle to go a little faster and invest in unleveraged equities and accept moderate long-term risk. If you do choose the much faster and riskier strategy of borrowing to invest, for your sake leverage responsibly or not all. Understand how to use the concept with confidence before you start.

Talbot Stevens is a financial speaker and author of Dispelling the Myths of Borrowing to Invest. TalbotStevens.com.

From:Financial Post | Business » Personal Finance

Amid pressure from the nation’s largest grain association and “significant feedback,” the CME Group Inc. backed off a proposed plan to extend trading hours in grain futures and options, but only by one hour. The amendment, which still has to be approved by the U.S. Commodities Futures Trading Commission before the Sunday start-up date, reduces the originally planned 22-hour electronic trading day to 21 hours.

CME Group’s expansion of electronic trading hours comes just weeks after its competitor, IntercontinentalExchange, began around-the-clock trading of grain products.

The National Grain and Feed Association has voiced concern over the extended hours, claiming there was insufficient time to close out and reconcile floor-trading activities and perform the required accounting and other back-office functions before electronic trading reopens.

In addition, the association and grain traders object to electronic trading at 7:30 a.m., when major U.S Department of Agriculture crop reports and other data are released. The group says the availability of electronic trading during the release of the reports could lead to “extreme volatility.”

“We look forward to continuing to discuss with the CME Group, other exchanges and other parties possible ways to address industry concerns about USDA reports being released during market hours,” said Randall C. Gordon, acting president of the National Grain and Feed Association.

Next month, CME Group plans to change the way grain futures contracts are settled by using prices from both the pit and from electronic trading.

With the news of extended trading hours in the grain and soybean complex and plans in June to incorporate both electronic trading and pit prices in daily price settlement procedures in, a growing number of traders on the floor are questioning the intent of the exchange.

“I would like to know if the exchanges are taking into consideration all the market participants,” said Greg O’Leary, owner of GX Trading.

Traders contend the exchange is concerned about retaining high-volume algorithmic traders in light of stepped-up competition from ICE.

“There is a feeling that the exchange [CME] has abandoned its original purpose… that they are driven solely by stock price and thus become beholden to the high-frequency traders, who provide “an enormously huge revenue stream,” argued Kelly King Taylor, who is an independent floor broker.

Two organizations have sprung up in protest of the CME’s proposals — protectagfutures.com and savethefloor.com.

The exchange initially planned a transition to the new settlement procedures for both grains and livestock futures in March and then in April but that plan was met with strong opposition from floor traders and the aforementioned groups.

“Initially when electronic trading started, it gave all players access to the marketplace with a computer, argued Heather Koch, director of protectagfutures.com. “It wasn’t supposed to be this mathematical model determining food prices.”

This article was first published at www.medillmoneymavens.com.

From:The Blog

Every family has its skeletons, but when you leave this earth, the last thing you’ll want to do is create more drama.

We spoke to AARP Bulletin columnist and personal finance expert Jane Bryant Quinn to find out why it’s so important to make a will that won’t disrupt family dynamics, or leave your children bickering long after you’re gone.

Here, we’ve highlighted the most difficult scenarios facing parents today and some key factors to consider.

The successful child vs. the unsuccessful child

All parents struggle with whether to leave their successful child less money, especially if the other child wasn’t as wealthy. However, Quinn says “the whole focus should be how the family will be after you die, and whether leaving unequal shares will make everything easier.”

If you choose to leave unequal shares, the wealthy child could end up feeling penalized for doing well, while the struggling sibling could feel slighted for not following in the other child’s footsteps.

What’s more, there’s always the chance one child’s successful business might go under, or that he or she may get a divorce or illness and lose all their savings.

“You never know what will happen,” says Quinn, so “it’s better to focus on the best outcome now.”

Family dynamics 

Some families see eye-to-eye on everything, while others can’t stand to be in the same room. If your family has any bad blood, leaving an unbalanced will could drive an even deeper wedge between them, says Quinn. Conversely, “a healthy family will have a healthy result” and be able to talk through any jealousies or slights.

The key thing to ask is “Can I help or can I hurt?” You can definitely hurt by “sticking to” members you didn’t care for, or by leaving someone out of your will entirely. For children, a disinheritance can leave a psychic wound they may never recover from, leading to an all-out war.

Step-children and special needs 

Not every situation calls for an even split. In fact, in some cases where step-children are involved, the inheritance may have already been determined in the divorce agreement. However, step-children typically come under the equal shares rule if no arrangements were made beforehand.

For children requiring lifetime care, Quinn says it’s usually best to leave that child more. Not only is this what the family members would typically want, it makes it the process of outlining care much easier when they money’s already accounted for.

Real estate issues 

The case for a fair will cannot be overstated when it comes to divvying up real estate, says Quinn. She recommends consulting with the children to see how they feel about taking on a beach house or condo, and if they’re not up to it, then selling the property and putting the proceeds toward other funds.

Now check out some reasons for making a will > 

From:Financial Post | Business » Personal Finance

As the euro zone crisis intensifies and global markets reflect investor concerns, we ask ourselves, is a Greek exit from the euro on its way? Crucially, preparations have already begun to protect shareholder interest, companies are robust and policy in the U.S. and China aims to maintain the upward momentum. To protect client capital, proactively positioning portfolios has been key. International exposure and dividend yields offer attractive opportunities.

A ‘Grexit’ on its way?

All eyes once again are focused on Greece. An inability to form a government has led to a renewed fear that the country could exit the euro and the wider European Union. Although only a small contributor to European economic output as a whole, contagion is the real risk. Concerns of further losses for external holders of Greek debt and a more widespread break-up of the euro have driven equity market weakness.

A self-perpetuating situation, investors are demanding more to lend to the likes of Spain and Portugal, driving their debt burdens to unsustainable levels. Furthermore, disappointing data from the U.S. and China over the last few days have further added to the uncertainty.

…but preparations are underway

However, preparations have already begun to protect shareholder interest. German and French banks, which were the largest holders of Greek debt, have been aggressively reducing their positions. Some, for example, have cut periphery debt exposure by as much as half since 2010. Banks in the UK have been making provisions since at least November when the Financial Services Authority’s top regulator, Andrew Bailey, told banks: “We must not ignore the prospect of the disorderly departure of some countries from the euro zone.”

On the corporate side, interesting anecdotes have highlighted the proactive nature of company management in the face of this turmoil. Last year, for example, Tui, one of Europe’s largest travel companies, was reported to have requested to reserve the right to pay in a new Greek currency should the country exit from the euro. Corporate balance sheets are robust, holding more cash than long term averages, dividend yields and the potential for merger and acquisition activity once the macro outlook starts to improve can offer an attractive upside.

Finally, although wavering slightly, the U.S. still successfully avoided falling back into recession. Keenly aware of both external and internal risks to growth, Chairman of the Federal Reserve, Ben Bernanke has made it clear he is not afraid to utilise further tools to protect economic growth. Especially with an election this year, policy is likely to remain accommodative. With respect to emerging markets, despite the recent wobble and an inevitable cooling of economic growth, with an estimated one billion of the population to join the consumer class by 2030, the long-term case remains strong.

Proactive portfolio positioning prudent

To protect capital, proactively positioning portfolios has been key. Reducing direct European exposure as Europe’s southern members showed severe signs of economic stress from an asset allocation perspective and via underlying fund managers has proved prudent. Fund managers have been able to maintain a zero weighting to Greece and a substantial underweight to the likes of Portugal and Spain relative to benchmark.

As equity markets reached new highs in the first quarter of this year, the substantial rally in share prices in the face of continued structural problems within the Euro zone, was a sign that the risk of a downward correction had increased in the short term. Caution was of course well-founded. A move to lock-in profits and redeploy capital to alternatives and property for a more attractive risk/return potential and hedge against inflation has been supported.

Assets which will help portfolio performance during these volatile market times are good quality companies with strong balance sheets paying an attractive level of dividends. Furthermore, in times of slow economic growth and persistent inflation, strong franchises with pricing power for protected market share and the ability to pass on increases in supply costs to the customer are very desirable attributes.

International exposure and dividend yields offer attractive opportunities

Looking forward, a resolution of key issues in Europe is required to gain confidence to add to equity exposure. Structural reform, greater fiscal consolidation, a focus on growth and long term support are required for stability in the region. At the same time, with a medium to long-term time horizon, it is more important to focus on the geographical location of a company’s revenue streams than where it is headquartered. Investor overreaction can offer buying opportunities with share price corrections providing attractive, cheaper entry points to high quality firms. Furthermore, the yield from dividends these companies pay out can provide a valuable income stream. With many investors holding back capital, the flow of money back into markets, buying into sell-offs at lower levels, could dampen these downward moves and provide a level of support. Therefore, although volatility could continue and market direction remains difficult to determine, it is possible to navigate the turmoil.

From:The Blog