Dow enters bear market as stocks slide [Reuters]

Patience Pays Off [Kiplinger] "Whatever your style of investing, the lesson of the millenium is clear: It pays to keep investing through market slumps."

A Real-Life Example of How to Save $1,300 in Less than Two Hours by Shopping Around for Car Insurance [Free Money Finance] "I just recently got married so changing insurance was on the endless list of things to do, so I explored my intuitive feeling, of being screwed, and here is what happened."

18 ways to beat inflation [CNN Money] "Cut out some waste and take advantage of a few overlooked deals, and you can rein in your budget without feeling like a penny-pincher."

How We Organize Our Coupons and Execute Our Coupon Strategy [The Simple Dollar] "Here's how we maximize our coupon value, from top to bottom."

— FREE MONEY FINANCE
(Photo: Artnchicken)

*A blue-chip U.S.-stock fund
*A blue-chip foreign-stock fund
*A small-company fund
*A value fund
*A high-quality bond fund
*An inflation-protected bond fund
*A money-market fund

CNN also includes recommendations for each investment option. The keys to their plan: good returns over the long term, low costs, and a diversified portfolio. Doesn't get much simpler than that.

The only 7 investments you need [CNN Money]

— FREE MONEY FINANCE

FYI, this is test data, not my money.

PREVIOUSLY: Mint.com - A New Free Personal Finance Management Site

From the Star-Tribune:

The couple and their three children, ages 2, 3 and 5, were living in a crowded trailer park in Blaine, when Bradley saw a newspaper advertisement touting real estate as the next quick way to make money.

"I didn't want to paint the rest of my life, and the trailer park scene was about as bad as parts of north Minneapolis," Bradley said.

Over a steak dinner at a Perkins restaurant, the couple met with two salesmen from Executive Premier Management Inc., a firm in Wayzata that described itself as a "property management company."

With no money down, they could buy properties in a fast-growing new subdivision in Otsego known as Otsego Preserve, near Interstate 94 and the Albertville outlet mall. They would get $5,000 in upfront cash for each house they purchased.

The Collins were also told that home values in Wright County were appreciating at 8 percent a year, much faster than the national average. At that rate, the Collins could make $24,000 a year for every $300,0000 house they bought in the county. They were told that rental income would cover their mortgage payments until the houses were sold.

Collin said the management company helped him apply for four mortgages within days of each other. The firm used a different lender each time, a way to hide from the banks the debt he was taking on and wouldn't be able to afford on his net income as a contractor, which averages about $60,000 a year. The "no documentation" and "no down payment" loans carried a much higher interest rate than conventional mortgages.

The couple purchased four houses — each for about $300,000 — hoping to quadruple their profits. The Collins received a $5,000 check after each closing. The cash payments were not disclosed on the mortgage statements sent to the bank, which Collin says he has since learned is illegal.

Executive Premier Management is not registered with the state, and the telephone number given to Collin no longer works. The two salespeople, Nathan Nordvik and Jonathan Matheson, do not have listed telephone numbers and could not be reached for comment.

Housing Bets Gone Bad [Star-Tribune] (Thanks, Rob!)
(Photo:Glen Stubbe, Star Tribune )

Tricks of the trade [Dateline via AllFinancialMatters]

n+1: So can you tell me what happened with Bear Stearns? What were the steps?

HFM: Bear was a bank that was very involved in the asset-backed and sub-prime market. Both as a principal and as an agent.

What happened this summer was funds managed by Bear Stearns—not things on their own books, other people's funds that they manage, other people's capital—those funds were heavily leveraged and invested in asset-backed securities. Those funds blew up—they went into uncontrolled combustion. They failed very quickly. One day they were there, the next all the assets were marked down, then they were insolvent and folded up. Now that's not Bear Stearns' capital, but there were guys sitting in the Bear Stearns office.

n+1: Which is where?

HFM: On, uh, 47th and Madison. Just down the street.

n+1: And they were sitting there; they had a little hedge fund—

HFM: Which means they raised money form outside investors—they get paid based on how the fund does, they get a percentage of the profits. And they traded in sub-prime assets where the capital was given to them by outside investors.

n+1: These were 10 guys?

HFM: I don't know the size of the team, but they were sitting there, buying asset-backed securities backed by sub-prime mortgages, they were borrowing a lot of money, they used the capital they had, they borrowed outside money, they bought sub-prime mortgages. They were highly, highly leveraged. 50:1 leverage.

n+1: Why was Bear Stearns in particular doing this?

HFM: Bear Stearns supposedly had an expertise in sub-prime and asset-backed securities; it is an expertise of theirs. They're still alive.

n+1: Really?

HFM: You know when somebody falls off a motorcycle, and they want to harvest their organs, they're still alive until they harvest the organs. Right now Bear Stearns, there's an EKG, it is pinging, they're technically still alive and JPMorgan is waiting for the healthcare proxy to sign and say they can start harvesting the organs. This is where Bear is right now. They had an expertise.

n+1: So it was 100 billion dollars? How much money?

HFM: I don't know. It was not huge. 1-2 billion dollars each. In that range. Which doesn't make them huge funds. Modest funds.

But from that moment forth, people on the market speculated as to how many similar kinds of assets Bear Stearns must own on its own books. There was a cloud of suspicion over Bear Stearns. As it turns out, I don't know that they were in that much trouble. They were probably much more careful with their own money than outside money, but once there's a cloud of suspicion the information asymmetry that exists between people outside the firm who don't know what's going on, and inside the firm, can create a crisis of confidence.

n+1: Can't the firm say, "Look, we have this, we have that..."?

HFM: What are they going to do, are they going to show you every instrument they have on their books? People don't know what these instruments are worth. Like an asset-backed bond—what's it worth? Nobody knows what's it worth, there isn't a market for this anymore. It's not like there are three bond issues, and that's it, there are thousands, and each one is backed by thousands of mortgages, it just becomes an information-processing problem. You simply can't prove to me in a reasonable amount of time that everything's fine.

n+1: They don't have other instruments besides mortgages?

HFM: They do, they have their building, that's one of the things that is probably worth the most. But Bear was involved in a lot of the asset classes that had problems. First it's sub-prime mortgages, then it's leveraged loans—they're exposed to all these things, 30 times levered, so a very small diminution of the value of these assets could mean that their equity is worth nothing. And it's just going to be impossible for these guys to prove to everyone's satisfaction in a short period of time with a high degree of precision that their assets are worth what they say they're worth. There's been a cloud over Bear Stearns for 8 months and in retrospect people were critical of their management for being insufficiently aggressive in trying to persuade people that everything was fine. They simply asserted that everything was fine.

n+1: Wouldn't it have been better to let them go bankrupt?

HFM: And let their counterparties face the music? Maybe, but the parlous condition of the financial system as a whole I think persuaded the Fed that this is not the time to experiment and see how interconnected the system has become.

If we were in a calm economic environment and Bear, for non-systematic reasons, failed—say they put all their money into cheesesandwich.com or something, and they failed for that reason, then it might be appropriate to let them go bankrupt because the rest of the financial system would be stable. Even if it inflicts losses on the rest of the financial system and causes a lot of brain damage for me, it won't be a risk to the system as a whole.

But every bank out there to some degree or another is suffering the same problems that led to the cloud of suspicion over Bear. So this is not a great time to test a proposition that the financial system can cope with disorderly unwinding of all these contracts.

Financial Meltdown [n+ 1]
(Photo:Getty)

At Best Buy, our most important asset is our people. We place a high value on learning and growth, and we encourage our employees to excel in their fields. We offer a rich array of benefits that help contribute to balanced lives, general well-being, and supportive personal and professional relationships. We also offer competitive pay, employee discounts, and excellent career opportunities

In order to be considered for this position, you must complete an online application

Equal Opportunity/Affirmative Action Employer

Best Buy Capital is a newly created function to support minority investments across the enterprise. Best Buy Capital will have 2 main initiatives in supporting minority investments in the enterprise:

1. A program ('Core Fund') supporting investment opportunities for current business units consistent with our past investment activities; and
2. A new strategic initiative ('Alpha Fund') which provides a market-based mechanism for Best Buy to proactively participate in and encourage consumer innovations and disruptions by making direct investments in companies that are early on in its lifecycle.

The combination of the Core Fund and the Alpha Fund investment programs will:

* Create a portfolio of option in emerging, disruptive technologies and innovations that impact consumers;
* Hedge against Best Buy's current mass-market oriented business which is largely dependent on traditional development patterns and cycles;
* Enhance Best Buy's brand value proposition to be the consumers' trusted advocate for innovations and disruptions;
* Enhance Best Buy's positioning in the ecosystem to be the partner of choice for emerging consumer innovations and technologies;
* Provide real-time, market based insights into emerging innovations and disruptions that could have an impact on Best Buy's current and near-term business; and
* Catalyze outside-in, market-based innovations and thinking through-out the enterprise

The Principal is responsible for supporting and leading, under the direction of the Managing Partner, many activities of Best Buy Capital's Core Fund including deal-sourcing, due diligence, negotiations, structuring, and portfolio management as well as supporting some activities of the ALPHA Fund. In addition, the Principal is expected to stay engaged with Best Buy's enterprise, understanding business strategies, objectives, and organizational context to make better investment decisions for Best Buy Capital.
The Principal will need to maintain strong personal and professional relationships across the enterprise, actively leveraging internal networks and resources to optimize investments
Best Buy Capital will serve as a source of innovative growth options for the enterprise rooted in smaller, more innovative, and potentially disruptive opportunities.
The Best Buy Capital team will therefore need to possess:

* An exceptionally high level of business sense, strategic aptitude and agility
* A 'close the deal', 'get to done' attitude
* Outstanding financial skills
* Outstanding analytical skills
* Outstanding negotiation skills
* Individuality and an entrepreneurial mindset

An Ideal Candidate will possess:
# Demonstrated passion for new and growth-oriented technologies
# Demonstrated track record of leadership in a variety of scenarios
# Candidates should have experience in making venture investments, preferably with a personal network of contacts in the venture industry.
# Candidates should be able to demonstrate a wide range of successes and learnings from business experience (such as sales, marketing, finance/accounting, consultancy, entrepreneurship, investment banking, etc.)
# Candidates must possess the knowledge, experience and foresight to identify, quantify and qualify transaction opportunities which enhance business strategies
# Candidates must be able to take an investment from deal-sourcing to successful closure including due diligence, term negotiation and post-investment portfolio management
# Candidates must possess a great deal of strategic agility and the ability to effectively synthesize insights from complex data

Basic Qualifications:

Bachelor's Degree
4 or more years of significant financial, business, and strategic analysis, including valuation work experience
Familiarity and comfort with accounting concepts, issues, and analyses.
End to end exposure to and familiarity with investment and / or M&A processes.
1 or more years of prior experience working with new technologies, business models, and the venture industry

Preferred Qualifications:

MBA or other advanced degree
6 or more years of significant financial, business, and strategic analysis, including valuation work experience.

(Thanks to Lee!)

Because you need to diversify and you already have your most valuable financial asset invested with the company — your job. The Street outlines why this guideline makes sense:

People must realize that company loyalty should be demonstrated in ways other than having a large portion of their net wealth invested in their employer's stock. 'If the company goes under, they're already going to lose their source of income; they needn't lose their life savings as well,' says Tim Maurer, director of Financial Planning at the Financial Consulate in Baltimore, Md. 'Diversifying away from too much concentrated publicly traded stock exposure is not disloyal; in most cases it's just smart.' The very best way to prevent crumbling with your company is not to have too much invested in it.

He told viewers: "Don't move your money from Bear! That's just being silly! Don't be silly!"

Cramer and CNBC have defended his statements, arguing that Cramer's assertions on the bank were in reference to a viewer's question on Bear Stearns' liquidity, not its stock prices.

CNBC spokesman Brian Steel said that on the Friday before Bear's meltdown, Cramer presciently called the bank's stock worthless. Cramer could not be reached for direct comment.

"I think that anybody who has a fundamental understanding about capital markets knows the distinction between [a] question about stocks and liquidity," Steel said.

Whether Cramer's viewers understood that the host and former hedge fund manager was not talking about Bear Stearns' stocks is unclear. Meanwhile CNBC's defense of Cramer has not insulated its heavily promoted star.

In recent days, finance and news blogs have blasted Cramer, and Comedy Central's news parody "The Daily Show" gave him a not-so-gentle ribbing: "I love the way Jim Cramer breaks down really complex financial issues into ones that are wrong," host Jon Stewart said.

Upping the snark factor was Fox Business News, which took out half-page ads Monday in The New York Times and The Wall Street Journal, comparing Cramer's words to some of the most infamous quotes of the last century, including Neville Chamberlain's famous statement after conceding Czechoslovakia to Adolf Hitler's Germany: "I believe it is peace for our time."

What do you think? Is Jim Cramer bad for you? Has he turned you into one of those losers from the E*Trade commercials? Wow, man. I just bought a stock from Hong Kong.

Should You Stay Away From Jim Cramer? [ABCNews]

These days it's helpful to remind yourself of this: In the long run the risk of missing stocks' upside poses a graver threat to your wealth than taking hits on the downside does. There's no denying that the big one-day drops we've seen recently are no fun, but if you hang in, the math works in your favor. "Stocks go up and down,' says Stephen Wood, senior portfolio strategist at Russell Investment Group. 'To make money you need to capture their upward movements. The only way to do that is to stay invested in dicey times."

...they go back proportional to the account balance. So whoever has the biggest account balance, gets the most money back. David says:

The net result here is if your CEO with a large balance uses an index fund with no kickbacks for his 401k, and other participants use expensive funds, they are in essence making a contribution to their CEO's 401k because his higher account balance gets the brunt of the revenue share "kickback."

For more about the dirty secrets in 401ks, check out our post, "How Your 401(k) Is Ripping You Off."

(Photo: Getty)

Although PayPal earns interest on the money it holds, it's not very much when compared to the rest of the company's revenue streams. PayPal doesn't release data on how much it earns in interest, but outside analysts estimate it's less than $10 million per quarter—"a drop in the bucket" compared to the $1.8 billion PayPal earned in 2007.

None of that matters for sellers, though, who will now run the risk of losing access to funds for up to three weeks, even though they still must ship the sold item.

What is sparking reactions ranging from annoyance to panic among some of eBay's sellers is the company's criteria for determining what transactions fall into the "high-risk" category. Factors beyond sellers' control, including the number of "feedback" comments they have from previous buyers and how many of those comments are positive, can trigger the freeze.

"It's like a bad dream, really," said Dana White, an eBay seller who lives outside Ocean City, Md., and deals in used clothing, shoes and accessories. "I'm a small seller. All I need is two negatives in a 30-day period, and they will hold funds."

PayPal's representative tells CNN Money that the one way you can put that held money to use for yourself is to enroll in PayPal's Money Market Fund (download a PDF of the prospectus here):

PayPal's Pires said accountholders should be aware that they have the power to collect interest for their own use on delayed funds. It's as simple as enrolling in the company's PayPal Money Market Fund, Pires said.

For enrolled accountholders, any funds earmarked for a hold are diverted into the Money Market Fund rather than PayPal's corporate bank account, Pires said. The dividends earned are credited to user accounts on a monthly basis.

"Every U.S. accountholder has the ability to invest in the Money Market Fund," Pires said.

PayPal's Money Market Fund is run by Barclay (BCS)'s Global Investments. No minimum balance is required, and the fund's current interest rate is 3.46%.

"What PayPal does with your money" [CNN Money]
"EBay's PayPal funds freeze plan draws fire" [CNN Money]

RELATED
Basic Fee Changes [eBay]
"eBay raises seller fees 67% on the cheapest items < $25.00" [eBay Forums]
"PayPal's 21-Day Hold Policy for eBay Sellers" [Auctionbytes]
"Putting The PayPal 21 day Hold Into Perspective" [Skip McGrath]
"5 PayPal alternatives" [CNN Money]
PayPal Money Market Fund [PayPal]
(Photo: St0rmz)

I'm 27, looking to start planning for retirement. My company has an arrangement through The Hartford group for our 401K and I read your article on Fund Level Expenses and how the broker will be earning compound interest on MY compound interest. I also ran across this article while researching:(and it also links to a Mutual Fund Expense Analyzer that might be handy for other Consumerist readers). The article is talking about getting yourself involved in an Index Fund that would have fee's of around .19% or so and going it alone.

Most of the 16 investment options I have through The Hartford have a fee of over 1% (many over 1.25%)...

But to undertake the medium-high risk plan I've devised, I am able to keep my fee's around .91%. I'm about 30-35 years from retirement, and of course I'd like to get the most bang-for-my-buck. But I'm really REALLY green in this area. Now, my company DOES offering matching up to 3% of my wage, and will then match HALF of what I contribute up to 5%...so for every 5% I invest, they'll match 4%.

I don't know how to calculate all this, but I need to know if I'm better off sticking with my matching plan in my company, or if I should go it alone with something that has a much smaller fee? I don't have a lot of up front capital to invest, so maybe that means I wouldn't even HAVE the option of going it alone. But I'm also hoping to move in about 4-5 years from where I live, and I would have to change companies to do so...so I doubt I'd be fully vested by then, but I figure that starting something now is better than nothing.

If you don't feel able to point me in the right direction, I've read a lot of comments about other investors on the site and was hoping you could pose this to them as well so I could get some feedback.

Thank you!

Matching policies vary by plan so you'll have to read the plan documents very carefully to figure out what's up. UPDATE: But you should probably take the match while you work there, then roll it over into a 401k after you leave and invest it in whichever low-fee fund you like. I'm going to go ahead and assume that your employer won't continue to match after you don't work for them. Since you think you'll only be around there for 4-5 years, you're probably better off going with a low-fee fund. While the employer won't keep matching your investment, the fund will still keep chomping away at your capital through its compounding fees.

For more information on how seemingly innocuous fund fees can devour most of your retirement fund, read our previous post, "How Your 401(k) Is Ripping You Off."

(Photo: Getty)

Sensation Seeking, Overconfidence, and Trading Activity (PDF) [via NYT]
(Photo: Getty)

How To Save A Million at 25:
To reach one million by age 65 you need to save $286 per month.

How To Save A Million at 35:
To reach one million by age 65 you need to save $671 per month.

How To Save A Million at 45:
To reach one million by age 65 you need to save $1,698 per month.

How To Save A Million at 55:
To reach one million by age 65 you need to save $5,466 per month

(Photo:Tracy O)

Fees are often disguised and given funny names, like "administration fee," and "marketing fee" (apparently you have to foot the cost of selling the fund to other investors?). Fees are lumped together into the vague euphemism of "expense ratios." In the chapter, Bob describes how these fees can hit workers investing in their 401(k) plans the hardest as the funds sometimes have trumped up expense ratios because that they include "revenue sharing payments." This is another euphemism, and it stands for the kickbacks that the funds pay some 401(k) administrator for pushing you towards these funds (ever wonder why there's often such a limited set of funds to choose from? Sometimes the administration company only wants to steer you towards those funds they're getting paid off from). How bad can these expense ratios get?

A 2006 study by Congress found that increasing fees by 1 percentage point results in you having 17% less money money when you retire.

In their example, put $20,000 in a 401(k) for 20 years and you end up with $58,000 if the fees are 1.5%. But if they were .5%, you would have $70,500. That's a lot of money. Increase the time to 35 years and what would be $220,000 drops to $163,000.

If you invest $1,000 at age 20 with an 8% return and 2.5% expense ratio, and just leave it there like that until you're 85, you will come out with $35,250, while your fund manager rakes in a cool $126,432.

How is this possible? Well we all know how great compounding interest is, right? This is the same thing in reverse, the costs are compounding. Quietly. Rapaciously.

Before putting your money in a mutual fund, especially one in your company's 401(k) program, do your research. Punch the funds into Google Finance first and, under "key statistics," and compare the expense ratios. Oftentimes an index fund is the best choice. These funds are managed by computers and track broad market segments. Their expense ratios are low, like .18%. Vanguard is a good place to look at for index funds.

What happens if you find your company's 401(k)s have high expense ratios? Bob recommends staying away from funds with over 1% expense ratios and says,"Ask about the last time your plan was "put out to bid." If it's been a while, encourage your human-resource department to ask for bids again. The industry is getting more competitive, and a new third-party plan administrator might offer cheaper funds."

(Photo: Getty)

n+1: What's a paradigm shift in finance?

HFM: Well, a paradigm shift in finance is maybe what we've gone through in the sub-prime market and the spillover that's had in a lot of other markets where there were really basic assumptions that people made that, you know what?, they were wrong.

The thing is that nobody has enough brain power to question every assumption, to think about every single facet of an investment. There are certain things you need to take for granted. And people would take for granted the idea that, "OK, something that Moody's rates triple-A must be money-good, so I'm going to worry about the other things I'm investing in, but when it comes time to say, 'Where am I going to put my cash?,' I'll just leave it in triple-A commercial paper, I don't have time to think about everything." It could be the case that, yeah, the power's going to fail in my office, and maybe the water supply is going to fail, and I should plan for that, but you only have so much brain power, so you think about what you think are the relevant factors, the factors that are likely to change. But often some of those assumptions that you make are wrong.

n+1: So the Moody's ratings were like the water running...

HFM: Exactly. Triple-A is triple-A. But there were people who made a ton of money in the sub-prime crisis because they looked at the collateral that underlay a lot of these CDOs [collateralized debt obligations] and commercial paper programs that were highly rated and they said, "Wait a second. What's underlying this are loans that have been made to people who really shouldn't own houses—they're not financially prepared to own houses. The underwriting standards are materially worse than they've been in previous years; the amount of construction that's going on in particular markets is just totally out of proportion with the sort of household formation that's going on; the rating agencies are kind of asleep at the switch, they're not changing their assumptions and therefore, OK, notwithstanding something may be rated triple-A, I can come up with what I think is a realistic scenario where those securities are impaired."

Interview with a Hedge Fund Manager [n +1 via Kottke]
(Photo:Getty)

As we look up at CNBC, the down is currently down 179 points. From the NYT:

"There can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," Joshua Shapiro, chief United States economist at MFR Inc., wrote in a research note Tuesday morning.

"At this stage, you can say there is panic selling in the market," said Kwong Man Bun, the chief operating officer of KGI Asia Ltd., a large Asian futures broker. "We don't think the Hang Seng index has found its bottom yet; the index will continue to go down and will only find its bottom when external markets — namely, the U.S. market — stabilize."

"I'm not going to close the door, but I'm not suggesting that anyone believes it has to be bigger" than the $150 billion figure already discussed.
...Perino said the White House is not proposing an even bigger economic package at this point, but she declined to rule one out, either. The sharp decline of markets in the United States and around the globe is tied in part to the perception that Bush's outlined stimulus package would not do enough to avert a recession.

Perino said the White House does not comment on daily fluctuations in the market. But she did say that people should have confidence in the underlying strength and long-term prospects of the U.S. economy.

"We are not forecasting a recession," Perino said. "Clearly there is a slowdown."

White House Flexible on Stimulus Plan [AP]
U.S. Markets Open With a Steep Fall [NYT]
(AP Photo/Richard Drew)

From the Wall Street Journal:

Chieftain Capital Management Inc., which manages 60.5 million Comcast shares, or about 2% of stock outstanding, this week wrote to Comcast calling for the ouster of Chief Executive Brian Roberts, describing his management as a "Comcastrophe" for shareholders after a decade of "zero return."
Chieftain also wants Comcast to return cash to shareholders, including a "meaningful" dividend; revise its executive compensation and dismantle its dual-class voting structure, which allows Mr. Roberts's family to effectively control the Philadelphia company despite owning only a small percentage of the stock.

Chieftain's call for action reflects intensifying frustration on Wall Street with Comcast's performance. Comcast, the biggest cable operator in the U.S. by subscribers, has seen its stock fall 40% in the past year as a growing number of cable customers defect to new TV services offered by phone companies like Verizon Communications Inc. Comcast's stock took a particular hit after third-quarter earnings showed a slowdown in its ability to add customers.

"We don't think the company is well-run and our view is shared by many others," Chieftain managing director Glenn Greenberg said in an interview. "We hope this will be a wake-up call to the board."

Comcast Holder Seeks CEO's Dismissal [WSJ]

After taking write-downs totaling $16.7 billion, the firm posted a $9.7 billion fourth quarter loss and a yearly loss of $7.78 billion.

For comparison's sake, Merrill Lynch made $7.5 billion in 2006. So that's, like, really bad.

So what do you say when you're the new CEO of a company that just lost almost $10 billion in one quarter?

John Thain, who took over as Merrill's chief executive officer in December, called the firm's results "unacceptable"...

Merrill Lynch Posts a $9.8 Billion Loss [NYT]

The money transfer services provider's stock lost half its value Jan. 15 after the company disclosed a plan to recapitalize its balance sheet that depends on its ability to shed its risky loan portfolio.

While the company has been a relatively conservative play on money transfer services to consumers, its other business of transferring money between banks and other financial institutions has turned sour. MoneyGram now faces larger losses after reinvesting money it receives for bank transfers in risky investments such as subprime mortgages.

MoneyGram Rescue Plan At Risk [BusinessWeek]
(Photo:stirwise)

According to Lereah, home owners who pay off their mortgages are bad at managing their money and are "very unsophisticated." He told the LA Times in 2005,

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

When suspicions began to arise that residential real estate was experiencing unsustainable growth and that a correction was inevitable (and disastrous, considering the amount of mortgages that were financed with the assumption that the home owners could sell the house at a substantial profit in only a few years), Mr. Lereah's book was retitled. The new title read Why The Real Estate Boom Will Not Bust—And How You Can Profit From It . That was February of 2006. We think enough time has passed without a title update.

What should Mr. Lereah's book be called now?

Home Equity at Risk [LA Times]
David Lereah [Wikipedia]

1. Open a custodial account using your state's Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
2. Put some dollars in it.
3. Contribute a certain amount in lieu of gifts.
4. Sit down and explain the basics—you need to understand what a share is, why dividends are paid, what unrealized and realized gains and losses are. If you don't understand these terms, study.
5. Don't just buy a "how to" book, though—read about investing, not "how to" invest.
6. Choose investments together; involve them.
7. Go over it every month or quarter or year to review what went right and wrong.
8. If your teen makes some money, ask them to reinvest at least 10% of it, even it's a single dollar.
9. Teach them not to touch principal.
10. Consider alternative ways of investing.

Steve Carrigan is in charge of economic development for Stockton. He says bank loans made it a party every day.

"People went to the bank and got a loan on the increase in the price of their home. They went out and spent all that money," he explains.

"Price of the home went up again, they went back to the bank and got another loan. They went out again and spent that money on cars and jewellery and furniture - whatever they wanted."

With the help of the banks, Mr Carrigan says, people in Stockton "spent their house".

Banks had got round regulators' rules by selling off their risky loans, but because so many of the securitised loans were bought by other banks, the losses were still inside the banking system.

Loans held in SIVs were technically off banks' balance sheets, but when the value of the loans inside SIVs started to collapse, the banks which set them up found that they were still responsible for them.

So losses from investments which might have appeared outside the scope of the regulators' 10:1 rule, suddenly started turning up on bank balance sheets.

No-one knows how big the losses from investments based on American mortgages will eventually prove to be - estimates now range from $200bn upwards.

It was the largest drop in more than 16 years and marked the 10th consecutive month of price depreciation and 23 months of decelerating returns.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert J. Shiller, chief economist at MacroMarkets, in a statement.

According to Schiff, one factor that will drive prices lower is a change in buyer psychology. "The prices that existed were completely artificial, a function of speculators who are no longer in the market," he said. "Some buyers thought they were going to get rich."

Today, however, that demand has all but disappeared. "More people want - or have - to sell," said Schiff, "because prices aren't going up, so buyers have to look at the actual cost of owning a home."