Saturday, October 31, 2009

The New MBAs

I read an interesting article today in BW regarding how the Class of 2009 of the new crop of MBAs is doing and the situation was not pretty. Even the ones who graduated from top schools are finding it hard to locate Jobs. This is because most of them use to go the financial sector. But thanks to this recession two of the investment banks are gone for good, one has been acquired by another Bank and the remaining two are now bank holding Companies.

So the prospective MBAs are jockeying for jobs.

When I graduated from my Business School in the early 1990s, U.S. use to produce almost 60,000 MBAs per year. But now the figure has jumped to more than 140,000.

As anybody with even a minimum knowledge of Economics knows that the more of one thing makes it value goes down and this is what is happening in the MBA world too.

One question now which enters my mind is are we really producing more MBAs than we need?. MBAs were supposed to be the cream of the crop back a few years but now with the economic crisis and new criticism of how these Business schools have been focusing too literally on the theoretical side of the market and not enough on the humanistic side, we really need to evaluate the number of MBAs we are churning out.

I have another question as everybody knows the doctors study their ass off to become doctors studying for almost 10 years after High School to become one but their pay is so far less than the MBAs. I mean with so much education and so less pay as compared to the MBAs. I believe now that we should make it a bit harder for students to enter the Business school. To be sure I am not saying this just because I have an MBA (mind you I working towards my second undergraduate degree) but this may increase the value of the MBA in the eyes of the employer. More school does not mean more pay but just to make it a level playing field. Like the lawyers who spend three years in Law School and the doctors who study almost 10 years, we should at least make it a bit harder for people to attend business school by making it a three year school with a mandatory working experience of 1 year in between so that the future MBAs have an appreciation of what they are getting after they graduate.

The housing market crisis (collapse):-4

So my recommendation for the correction of the housing market and avoiding the next housing bubble will be as follows:

1.Have a minimum of 10 percent down payment for all federally backed loans and for Jumbo loans at least 20 percent down payment.

2. Have funds in the account equal to at least one (1) year of the mortgages payment for the federally backed loans and at least two(2) for the Jumbo loans.

3. Have complete documentation of all the funds they have and expenses they have occur for the last three years for the federally backed loans and for the last five years for the Jumbo loans.

4. Put a Ban on the exotic mortgages that have plagued the system like the one mentioned in my previous posts (LIAR, NINJA, interest payment only, adjustable rate optional interest rates etc)

5. Stick with the conventional 30 years and 15 years mortgages and only the adjustable rate mortgages with the same requirement of the down payments and documentation requirements (as mentioned above).
6. Credit Scores of at least 700 should be the criteria for the federally backed loans and at least 730 for the Jumbo Loans.

7. Borrowers should be asked to furnish the health of their finances every year for the federally backed loans and every six months for the Jumbo loans.

Although the above mentioned list is not all exhaustive but it can be start. Although I am absolutely positively 100 percent people will state that it is draconian but if people have vested interest in their houses they will be prudent enough to think twice before leaving defaulting on the payments even if it is not their fault.

These criteria can be modified for different borrowers. But the lenders should not be absolved from their responsibilities either. They should have the following rules to follows: (although it should be up to them if they mess things up):

1. They should make every due diligence effort to make sure that they are lending according to the above rules and following proper procedures.

2. There should be a requirement that every lender should have a dedicated 1-800 toll free numbers just to be dedicated to the problems of the mortgage holders (although I believe it is now also) like if they are going to fall behind on their payments or they are financially strapped to call the bank to let them know how to avoid falling behind.

3. The banks should on their part also require that the borrower should furnish every year their financial cushion for the mortgages payments for the federally backed loans and every six months for the Jumbo Loans.

4. They should be required to explain in plain layman terms what the borrower is signing and how much they should be expected to pay (although it is still done but I guess it is getting lost in the communication) in closing and monthly payments and should be given ample time (not more than 7 days) to examine if they should go ahead and sign on to the terms.

Again I am certain that not all the above rules will be followed since the excitement of owning your own place (Borrower) and making commission on it (lender) will be too much but at least if followed there will be less lawsuit claiming fraud. Thus the onus or burden of dealing with the house and mortgages will lie with both of the borrower and seller.

The housing market crisis (collapse):-3

When I bought my house I was also asked what kind of mortgage I was seeking, I said I will stick with the 30 year fixed-no ifs, buts, ands or maybes. Simple and Straight 30 year fixed rate. I don’t know what people were thinking when they went overboard with buying the houses they could have ill afford in the first place. If you need help even in scraping up a simple 5 or 10 percent down payment and closing costs, then it is better to rent and leave all the hassle of owning(mortgaging) the house to other people.

When you have the money and the will to accept that responsibility then you could go ahead and visit this American dream.

Since this housing crisis, lending for housing has gotten much tighter with myriad requirements and many hassles. Well it was bound to happen when you get drunk and get a hangover you get a big headache and try to correct what you have done during that state of mind. So now this hangover will last a lot while longer than many economists and experts are saying. Remember these were the same experts who were saying that housing prices historically has not gone down in the past so what ever time frame these experts tell you or say it, just be prepared to add at least 2 years to it. Since in the future you don’t know if you would be alive to bask in the glory of your prediction or bow your head down in shame for have that awfully wrongful prediction, so just keep in the mind that instead of following blindly the path of Financial experts, try to spend sometime looking at your expenses and figure out if you are likely to be a home owner in the future. It is not that hard, I believe everybody has a mind and a brain to think and budget their expenses and see what is good for them. Remember, every time the real estate agent sells or the broker or deal buys on behalf of you or sells on behalf of you, there is their commission also. So you better be prepared to look after your interests since nobody is best capable to look after you than you yourself.

The housing market crisis (collapse):-2

It first started with the subprime mess-the people who were supposed (I believe) not to have the house in the first place. You see people just see that they can just scrap together the down payment, closing costs, get the mortgage and the house is there. Well folks, the real deal start afterwards, the maintenance of the house the utilities bill, the furnishing, the different mortgages amount each year when the property taxes change. All these factors are not taken into account before buying the house. You see even if your mortgage rate is fixed at 30 years, your monthly payment amounts can change (either increase or decrease) depending on where you live based on the property taxes (it has happened to me). When we were done with the subprime mess –the people with poor credit. Now people with high credit are getting hit just because they are losing their jobs.

So the credit score can be predictor for how well you managed yourself fiscally in the past but can not be used as predictor of how well you will do in the future, since you don’t know what will happen in the future-there are so many unknown.

The way Wall Street came up with dizzying arrays of how the mortgages should be packaged is amazing and sad. LIAR loans (where you don’t have to specify your income or lie about it) NINJA (no income, no job, no asset) payment option loans, interest only loans and the like. It was like they (Wall Street and the assortments ) just wanted to put as many people in the houses as possible.Quite a few of them did made a lot of money but this party was going to coming to an end and everybody knew it, they just chose to ignore it.

Many people did get very rich but most of them ruined their credit scores in the process. I regret not getting in the game since I believe in the 30 year fixed conventional mortgage (old fashioned you can call me). I see so many heart wrenching stories regarding the foreclosures and the people who have lost their houses that it just scares the hell out of me. It also seems very mind boggling to me that most of people are now saying that they were duped by these financial people into buying what they could not afford. The excuse is that if they knew we could not afford it why did they shove it down our throats.
Well (correct me if I am wrong). If I know that I am not able to afford to buy a house why would have that kind of stress on myself and my family to buy something which I would have to give back in foreclosure of short sale or in bankruptcy later on. I don’t get it folks.

Thursday, October 29, 2009

The housing market crisis (collapse):

Let’s just decipher for a moment what happened to the housing market. Like the guy who keeps on drinking not know if he is drunk or not, the whole nation went on a credit binge without realizing what will happen in the future. First of all I refuse to believe that people did not know that the bill will come due when they will buy the house.

People bought the houses with less than 5.00 percent interest rate and some times less than two percent with adjustable rate mortgages. Now hear this if I am buying a house and I know that my interest rate will adjust in five years, would I be rational enough to buy the house and stretch myself thin. The problem here is that everybody said that historically the price of the house have not come down. So the people thought what the heck we buy the expensive house, pay less interest now and when the interest rate jumps in a few years we will sell the house for a higher amount. But when this interest rate got adjusted people found out that they did not have enough money in their kitty to pay for the higher rates. So they started to dump their houses.

But if everybody starts to dump their houses there will be more supply than demand and the classic economic situation will come to prevail. There will be an imbalance of supply and demand. Furthermore people kept on refinancing their houses and going on vacations and buying cars like it was just free money. As some economists have pointed out people used their houses as ATM. Instead of investing that money that they took out of house equity, most of the people splurged. Now when they interest rates reset they could not be able to afford the payments which they did not to begin with since the most mortgages were not conventional (with 10 to 20 percent down payment). When this ATM machine stopped, people started to cut back on their purchases but now they were stuck with their houses since the economy went south with the stoppage of American consumer binge and businesses started to cut back and the banks and financial institutions who abetted and were culpable ( I believe) in giving all kinds of loans they could devise started reporting losses by people who could ill afford to pay their mortgages, that’s when this trouble all started.

New GDP numbers and the real economy:

So here we are with the new GDP numbers saying the economy grew by 3.5 percent. Where did it grew I don’t know because I don’t see it anywhere near my house, or my town or my county or my state. People are still hurting with few jobs to go around.

Then this unemployment reports comes out today that the rate of application for unemployment benefits dropped less than expected . As it has been mentioned several times before that if people’s unemployment benefits runs out, he or she is not considered unemployed.

For example I was unemployed for three months last year I did not apply for unemployment benefits because I got a layoff package, so I am technically not considered unemployed. I am under the radar so to speak. So the unemployment numbers are totally out of sync with reality.

Another news came out that the Congress is set to extend the first time home buyers credit beginning December 1 and ending in April plus another $6,500.00 for people who already have the house (living in it for the last five years our of eight years) but wants to move out of the existing one to buy the next one. Since winter months are usually slow for the housing market, by the time spring arrives (usually the peak time for house buying) it may be extended again. Although the votes are not sure on this new piece of legislation but keep your fingers crossed about it. If I want to buy a new house (since I already have a new house for the last two years) where is my credit?

People will always buy houses whether there is credit or no credit. Let us just let this credit expire on November 30, 2009 and see what happens to the housing market. If people have jobs they will buy the house anyway and if not, no amount of credit will make them do it since they have scrap together the down payment and the closing costs, not to mention moving costs and taking time off from their jobs (which are hidden costs).

If the legislation is so near and dear to the legislators, let them extend it during the time when it will have the most effective (i.e. in the spring season).

Wednesday, October 28, 2009

Bailouts, Stimulus Money and the Like (continued):

Look don’t get me wrong on this one. I was also laid off but fortunately found a temp job and working on it for the last 14 months with no sign of permanency in that. But I feel that JOB creation policies should be done wisely and accurately. Just throwing money after money on a problem without any long term solution to it is not going to work.

For example whoever came up with the USD 250.00 check idea to send to seniors must not have been thinking very clearly. The most of people hurting right now are the young generation. If they have jobs they will be able to pay social security taxes to support the senior citizens. And second how come we are creating money out of thin air for all this stimulus. Remember the credit markets and our creditors are watching our very fiscal move. We should not be overdoing or spending something which will haunt us later.

I read another opinion in the NYT the other day that we should be having another stimulus to resurrect this economy out of recession. Now here is a great idea if I may say so. Since we have so many Czars to look after the affairs of the nation (as if the Secretaries and Under Secretaries of different departments weren’t enough), we should have another Czar called the STIMULUS CZAR just to make sure that the stimulus are handled correctly. Come on now I am now beginning to think that in order to solve a problem with this economy we should have keep on adding Czars left and right.

Whatever happened to all the advisers and think tanks working in Washington? Why can’t they figure out something or agree on something to get the economy moving on again.

Just blaming the previous administration for all the ills is so Third World Politics. Granted the things were not that great to begin with but find the problem as a challenge and attack it with all you have got (including the deft use of the money). Instead of thinking about in terms of what you can accomplish to get yourself reelected every two or four years. Just try to help people and if you are going to do a good job then the election will take care of itself.

I will be writing a great deal about the economy in my later posts so stay tuned!

Bailouts, Stimulus Money and the Like (continued) .

The most scarce thing right now in the U.S. is JOBS. All else is irrelevant until we get the job situation under control (manageable). As some of the economists have pointed out some of the jobs which are the casualties of this recession will not be coming back to the U.S. If there are no jobs, how can this economy has a jobless recovery or any recovery for that matter.

As somebody I talked to mentioned it to me that all this corporate reports showing earnings are due to the fact that the productivity of the American workers have risen not due to any improvement in technology but by the fact that people are getting laid off right and left but the remaining workers are doing double duty filling up for the laid off workers and out of fear of their jobs. That is why the economy is now showing signs of recovery.

But another report now states that foreclosures are beginning to accelerate due to the continuous job losses. The only stimulus that we now need is for the creation of the jobs and that is where the Government can help by devising policies to help small business owners (the main engine of growth mind you) get through these tough times but giving them incentives to hire, not burdening them with more taxes or cumbersome rules.

If you have noticed something that rates are at the lowest in a generation but nobody (I mean financial institutions) are extending credit since the borrowers have been so financially devasted by this economy that they can not put up with all the requirements of the credit application that the banks are putting up.

Banks are already devastated with all the bad loans that they gave out in anticipation of higher returns. That was one extreme when you just need a job and they (banks) could have extended you the loans or whatever amount you wanted. But this is another extreme that even if you have money in the bank and good job they still want more information because they fear (sometimes true) that you may lose your job.

When confidence returns to the market and the so called main street and everybody takes a breather and take stock of the ongoing situation then we will see a real recovery, until that time every body should hold on to their dear wallets and purses.

Tuesday, October 27, 2009

Bailouts, Stimulus Money and the Like

All these bailouts makes me dizzy. It started with the almost $800.00 billion Stimulus package designed to help the Wall Street and then Cash for Clunkers came and then the unemployment benefits extension (which I kind of favor) and then it is the first time home buyers credit, and then the $1,500.00 home appliances credit, the auto bailout and now there is talk of giving $250.00 to senior citizens since they did not get any raises in their Social Security checks. Man, when is this all going to end.

Granted we are in the worst recession since World War II but do have the money to pay for all this in the future. As far as I know we are selling IOUs to the investors in order to stimulate this economy and still only a portion of it is working.

Apart from some Federal Stimulus money, home buyers credit and Cash for Clunkers and the auto bailout, the unemployment is still a high 9.8 % (although I doubt it that it is that low since it is based on surveys of households).

Although it is too early to know what the ultimate impact will be of the government efforts to fix this massive recession, we can still decipher the ones which have been implemented thus far and showed results.

The Cash for Clunkers was a huge success but it ended too early and artificially raised the sales of cars. It was not that expensive or expansive to begin with and was done under pressure to help the car dealers who were left hanging in there when Car Companies announced that they will shut many car dealers.

First time home buyers credit helped to somewhat stabilize the housing market. But as the research showed most of the credit went to people who would have bought the houses whether they get the credit or not. Again it was done under the pressure of the real estate agents and housing industry. No doubt it helped but foreclosures are still coming and it will keep on coming until the housing market comes to terms with what I called a huge imbalance between what the houses are worth and what the average family or individual is willing to pay or have the means or earnings to pay for it. Remember it is now a Buyers market.

In order for the hosing market to stabilize the government has initiated a loan modification program, but it was designed for people who houses are under water(meaning they have more mortgage than the house is worth) and as some people say they took more than they could chew. But this loan modification is worthless if people don’t have jobs to support this lower interest payment. Ultimately it comes or boils down to this simple and true fact. WE NEED JOBS.

Monday, October 26, 2009


As per previous post, Health care costs can also be contained by cutting or containing or preventing wasteful costs. And also the cost can be considerably reduced if we can just offer the public option to people who have lost a job or who cannot afford to pay for the insurance by offering them subsidized rates. I believe that this would not cost billions and billions of dollars of health care costs and it can be done by the incorporating the existing bureaucracy of Medicare and Medicaid.

Again paying for the cost can be done by forcing high income individuals to contribute more to the medicare premium or even reducing the Part D of the Medicare program for which I believe the funds were not accounted for (correct me if I am wrong).

This health care debate is not going to go away anytime soon. So if all the facts and figures( which can be highly off the mark in the future) the better it is for both sides.

The future is always uncertain and so the accounting gimmickery accompanying it, so instead of ramming a bill through Congress without honestly knowing the costs and benefit analysis related to it, an open debate with all the stakeholders involved should be initiated forthwith.


(Just a disclosure: In order to protect my Mother, I have intentionally omitted the stocks that she still holds in some of the financial institutions that were covered previously without mentioning any names.)

Now with this Health Care debate going on, I am confused (I acknowledge that I have not read any of the bills working its way through Congress). Why doesn’t the White House come out with its statistics and information with how much this Health Care Insurance bill will cost without being seen as partisan and how are they going to pay for it honestly.

It seems that without sufficient knowledge people are being led to believe wrong assumptions about what will happen to their insurances or not if the bill passes. It seems that the Conservatives or whatever you call them are winning this seemingly elusive debate. There is no middle ground being debated in this Bill.

I am not for the public option (although it would be just fine as I have insurance through my spouse’s plan ) but if you can just overhaul the system there is no need for the bill to cost so much over the ten year period (last time I checked it was $900.00 Billion).

Just by reading the stories on the internet and other places, even families who have excellent coverage can be sent overboard (i.e. crushing debt) by a sudden emergency or some precondition that they thought would not effect their coverage.

Just my recommendations, if they can mandate a law regarding forbidding the preexisting condition on insurance policies maybe as far back as 10 or 20 years, many people will eventually be covered.

COBRA sucks here. I was offered COBRA when I was laid off but it cost me more than the premiums if I go out on my own alone. Why do they make it seems like COBRA is the next best thing after your health. Since COBRA continues with your previous employees for 18 Months, the unemployed person already without a job has to pay a regular premium plus administrative fees. How is that fair or better?

Again if it is the preexisting conditions that make people stay with it. We should forbid the preexisting conditions lasting as far back as 10 to 20 years.

Although the public option will be a good idea only as far as for people who lose their jobs or poor people. It should be only available (like Medicaid) with certain income threshold.

One thing is to make the public option available to people who lose their jobs so that once they are out of work this option (insurance )can continue to until they get another job so that they don’t have to worry about their insurance and food on the table.

The poor or low income people can continue to have this public option available to them under strict income guidelines so that it should not be abused as it is now with Medicaid.

One of the requirements in one of the bills is to penalize the people who will not buy insurance. WHY? How will they be able to get the coverage when the insurance is so expensive? Again the Public option comes into play like I mentioned above.

Small Business owners (irrespective of number of people employed) should be offered this public option also without mandatory requirements.

This public option can be offered with premiums based on some formula of previous year’s revenue. And if it is new small business then for a small premium they can decide to join in or opt out.

Now comes the hard part, How to pay for all this. One this is for sure, the premiums are not going to go down if the public option is not there.

One of the ways to pay (which will be highly unpopular) will be to force higher income recipients of Medicare to pay more for their premiums.

Another one is the more businesses join in the public option plan the more premium revenue the Government can generate and reduce the costs of the Health care Bill.

Sunday, October 25, 2009

Executive Compensation-Continued

The point i was making in my previous post was that how does the Pay Czar determine how much is too much for the executives of these financial institutions. Another point is that for example if we reduce the salaries of the Generals and the Judges of the Court as we may deem that they earn too much for example, are the going to abandon ship and go to another Court or Military. Although they may not have any choice but to continue, my point is that in this economy neither will these highly paid executives.
Even if these executives jump ship, there are enough talented people in these United States that can replace them and the economy would not collapse if they did go away in the first place.
But the Government should not interfere in the affairs of the private enterprise who have not taken any money from the tax payers, because as they say in Finance High risk leads to high return and it is necessary for the survival of the Capitalist or Market Based economy.
Rules and Regulations should be in place so that enough risk should be taken to exceed in the market place but not excessive or reckless risk. It is more easy said than done.
But i am sure we have enough experts to figure this thing out.
See you next time on Health Care.

Introduction- Compensation of Executives

Hi Everybody,
This is the first Blog i am posting . This blog is only my personal opinion and it just reflects that. No meaning or results should be taken out of it.
So here i am sitting typing my first post. It is in regard to the Compensation of the Executive that Pay Czar has announced regarding the limitations of pay that can be given out to the executives whose firms have taken Billions of Taxpayers money to bail them out.
I have no problem with that since it is tax payers money and they have to follow certain regulations regarding it. My problem is that how will the Pay Czar determine the amount of compensation the top executives should earn. He has slashed 50 Percent of the pay but what is the formula here. Anybody care to give a shot at it.
Next the Federal Reserve has stepped in to say that they want to regulate all the banks which comes under their jurisdiction regarding pay scale. Here again is the Fed stepping on the boundaries of the private sector.
One more like people say that if we are going to restrict compensation many talented people will leave since we need them to bring back health to these institutions. First of all if compensation is the criteria then i believe the Supreme Court Justices have more power and should be paid more than these executives and further more if their salaries are reduced will the judges or the General of the Armed Forces decide to leave their posts because they are being paid less.
Middle class is suffering and the compensation of the executives of these bailed out companies should be restricted but only them and not all of the top payers should be penalized for the fault of the few.
See you next time.