A friend emailed me a link this evening. This happens to me all the time, of course, as I'm sure it does to you. We know people, you and I. And those people send us links.

But do they send links which ask us to read brand spankin' new speeches by Federal Reserve officials?

Typically, no.

So this link seemed different. Yes. Right off the bat.

I read it.

I heartily suggest you read it also.

Richard Fisher, President, Dallas Fed: Storms on the Horizon

Oh my.

Labels: Debt, Statistics

Recently a new reader emailed me, asking for an Excel (or OpenOffice) spreadsheet that could tell him what payment would be required in order to retire a loan within a certain time period. I figure I can help him out and present a very basic Excel tutorial, all in one shot. So here goes!

Calculating a Payment in Excel

Excel just so happens to have a function to calculate the payment of any loan that has (1) a constant payment, and (2) a constant interest rate. This blessed function is called PMT.

In Excel, function PMT returns a loan's payment (principal and interest) and looks like so:

=PMT(Rate,Nper,Pv,Fv,Type)

1. Rate: The interest rate of the loan;


2. Nper: The number of periods (or payments) of the loan;


3. Pv: The present value (or principal, or current balance) of the loan;


4. Fv: The future value, or balance you'll have when the last payment is made;


5. Type: Designated by either 1 or 0 (zero). Tells Excel whether payments are made at the beginning (1) or end (0 or blank) of the period.

Actually, in our example, function PMT requires only three of these inputs. You can leave "Fv" and "Type" blank; Excel will assume both to be zero.

So let's say we've been good patriotic customers of GWB National Bank (a purely fictional entity, of course). We have a loan with them which shows a current balance of $5,800. That's our loan's "present value," which means it's the "Pv" in the PMT function. GWB Nat'l Bank charges us an annual interest rate 16.99 percent; this (with a tweak) becomes the "Rate" in the PMT function. But we're on a debt-paydown kick, and now we'd sure like to have this loan paid off in 14 months (the "Nper"). Exactly what payment would be required to get this done?

Here's how I set things up in Excel:



Cells B1, B2, and B3 contain our data above — the Pv, the Rate, and the Nper, respectively.

Cell B5 is where the PMT function resides. Remember that the function is:

=PMT(Rate,Nper,Pv,Fv,Type)

... so in our spreadsheet, the function should be:

=PMT(B2/12,B3,-B1,0)

Watch Rate and Nper!

Astute readers will note that the PMT function doesn't simply refer to our "Rate" of 16.99% (Cell B2). Rather, to get "Rate," we must divide Cell B2 by 12. Why's this? Well, since we're interested in a loan term that denoted in months, and since our loan uses monthly payments, we have to convert the APR (that's Annual Percentage Rate) in Cell B2 to an equivalent monthly periodic rate. So we divide Cell B2 by 12. That gives us the monthly periodic rate. Now the relevant variables — Rate and Nper — are on a "monthly" basis, and Excel's PMT function can do its thing correctly.

All Worked Out

As we can see in Cell B5, a payment of $459.62 would be required to retire our loan in fourteen months. Just for kicks 'n' giggles, we can also have Excel show us how much we'll pay (in total) during those fourteen months. That's what you see in Cell B6, where the formula simply multiplies our monthly payment (B5) by the loan term (B3).

From there, it's a snap to see how much interest we'll pay during the term. In Cell B7, I simply take the total amount paid (B6) and from it subtract the starting balance (B1). The difference between those two figures is all interest, baby.

Get the Spreadsheet

You can get the spreadsheet shown above by downloading it here.

Labels: Debt, Excel

I know, I know. You guys are out there thinking, How can Michael let that story of the foreclosed Congresswoman go by without comment? Surely he's got something to say about this?

Yeah, I do. And that something is:

Friends, our taxpayer dollars are in serious, serious trouble.

For the uninformed out there, here's the latest newslink I can find:

L.A. Times: Richardson Says Foreclosure of Her Home Was 'Improper'

I'll tell you what's "improper." Improper is witnessing pathetic-ness like this in an elected official.

Perhaps my wife summed it up best: It could very well be that our elected officials are more "representative" of us than we care to admit.

Labels: Debt, Homeownership

Excellently readable (and dare I say entertaining) article from the New York Times:

NY Times: "Times Are Tough, Except in the Repo Biz"

Just between you and I, you know, being a Repo Man is not something I'd want to do. Whilst there'd definitely be something soul-satisfying about repossessing a yacht named "Bally Hoo," the threat of violence and/or gunfire from Downtrodden Dave and Misunderstood Mary as I absconded with their stuff — the bank's collateral — well, it just doesn't suit my personality.

The guys who do this gig — and I've run into a few of 'em over the years — are a different breed. They tend to be burly, determined, and gruff. And they wear ill-fitting Grateful Dead t-shirts.

Here's a clip from the article. Truly, I dig this. We hear about this uber-consumer, a guy by the name of Robert Dahmen, whose silly spending contributed mightily to the Bush Economy. "He is one of the millions of reasons the consumer-powered American economy did so well for most of this decade," we're told, "and one of the reasons its prospects look so bleak now."

And this, which boxes it all up so nicely:



Yeah. Yeah.

Anyone wanna bet that Dahmen's boat salesman called that boat "investment" no less than five times during the sales deal?

What a world.

Labels: Debt, Spending

A dose of linkage for anyone interested in H.R. 5830: FHA Housing Stabilization and Homeownership Retention Act of 2008...

OpenCongress.org: HR 5830: Homeownership Retention Act of 2008

MapLight.org: HR 5830: Homeownership Retention Act of 2008

I find it mostly insane that in order for my wife and I to have qualified for assistance via this bill, we'd have had to have bought (by my nebulous calculations) a home somewhere in the $400k range. Which, by extension, would mean that we'd be carrying a payment of at least $2,400 per month (principal & interest only).

Would such a payment cause us "financial hardship?"

Uh ... yeah.

From the bill:



A wee bit vague there (sounds like the "35 percent" means "payment as including principal and interest" to me, though I could be wrong) but still a face-slap. As a means of comparison, given that (1) Oklahoma never contracted Property Fever, and (2) my wife and I have basic budgeting and math skills, our current house payment is a nudge under $700.

That is principal, interest, taxes, and insurance.

On a 15-year fixed-rate note.

Please don't tell me all about how "It's different in [Cali / Ariz / Fla / Nev]" or any of that. I'm totally not interested in the (admittedly vast) differences between a $400k house in Oklahoma City and a $400k house in San Diego.

If yuo cannot afford $400k in Oklahoma, then yuo cannot afford $400k in Cali. 'Tis not my fault you couldn't do math. Or read the fine print. Or question the motivations of your mortgage broker and/or relitter (that's "realtor" for the non-Calculated Risk readers out there).

Or move.

Once more, color me against any and all taxpayer-backed, bubble-inspired mortgage assistance.

Labels: Homeownership

To all the proud guys who read this blog: You only thought you had accomplished something in life. Well, it now appears that you and I have been one-upped.

By a 13-year-old kid.



Yeah, that's right. Wipe the coffee off your computer screen and keep reading. I couldn't make this stuff up.

Money.co.uk: 13yo Steals Dad's Credit Card to Buy ... Entertainment



Kid was playing Halo in a hotel room with a couple of $1k/night ladies.

It occurs to me that maybe — just maybe — one of the sorrier points of getting old is that you lose your imagination.



On the other hand, one of the finer points of getting old is that you understand when there are chunks of your imagination which are best recounted only on a future episode of Dr. Phil.

By someone else.

Labels: Credit Cards, Odd 'n' Fun

Turns out Casey Serin had a soulmate:

Reuters: California Man Losing Nine Homes

Actually, if he sheds the home his family's living in, then by my math it's ten homes. But these days, who's counting?



Lemme guess: At least several of these homes were signed for as "owner-occupied," too, right?



Actually putting money down? How archaic is that?

Ah well. What the stock market giveth, the real-estate market lately taketh away. Sure sounds like someone's in need of a bailout. Congress-folks in the audience, can we get right on this, please? I sure would hate to see Mr. Forgaard get left out of the benefits of any current pending legislation.

After all, we need rising house values, and this guy was front and center in the glorious runup. No way should financial dumbassery of this magnitude go unrewarded.

Labels: Homeownership, Investing

I haven't spent much time talking about gas prices on this blog, mostly because I'm fairly tired of hearing about them 24/7. But Tuesday I came across an article on which I'd like to comment:

UPI: "Gas price stress lowers work productivity"

Some quick points:



A few more stats from the article:



What this article seems to tell us — aside from the fact that this country has too many researchers — is that lots of households apparently have a tough time coping when any one expense increases $125 per month. Not a surprise, of course, but a telling point nonetheless. The paycheck-to-paycheck crowd is alive and well. Or alive and suffering, as the case may be.

Where'd I get that $125 number?

Easy. I was just playin' with Excel:



Using the survey's 30-mile-per-commute-per-day average, and factoring for some other assumptions (2 drivers per household; 17mpg average from vehicles; and so on) I estimated that having gas prices at $3.50 per gallon (where they are in my town) costs our Average Survey Family roughly $125 per month more than does $2 per gallon gas.

If you'd like to see the (very basic) spreadsheet I used, and perhaps play with the numbers a bit, you can get it here:

Spreadsheet: Cooking with Gas Prices

I enjoyed changing the variables (like commute distance and mpg) and watching the effect these changes had on monthly fuel costs. Makes me glad my household owns two four-cylinder, decent-mileage vehicles (Nissan truck and Honda Accord). However, it also makes me wish I had my '95 Accord back. That little scooter had a five-speed standard transmission, and got FANTASTIC mileage (upper 20s to lower 30s mpg) all around.

Bothered By Higher Fuel Prices?

Am I bothered by higher fuel prices? At this point, not so much. Certainly it doesn't interfere with my workday — except for that part about having to listen to coworkers b*#&h and moan about $80/tank fill-ups.

Now, I don't like spending $40 or $45 to fill up our tanks, but the increased fuel cost hasn't destroyed my budget. In fact, at the end of the month, I don't notice it too much at all. My commute is less than 20 miles per day, and my wife's (stay-at-home mom) driving is largely "to-school-and-back" or "to-store-and-back." We're terribly lucky in this regard.

If you're a paycheck-to-paycheck family, however, whose monthly cash flow is already redlining, then current fuel prices could be a zinger. Throw higher food costs on top of that, and yes, you're talking significant stress.

Labels: Automobiles, Spending, Spreadsheets

In case anyone's interested, I'm offering a second budgeting spreadsheet over at the main site:

IYM: SimpleBudget Spreadsheet

This one's (hopefully) a simpler alternative to my Spending Plan spreadsheet.

Labels: Budgeting, Excel, Software, Spreadsheets

Well well well ... look at the fine mess we've created.

I picked up Charles R. Morris' 2008 book The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash a few weeks ago not because I think our entire financial system is on the brink of implosion (though I wouldn't automatically discount anything at this point). Rather, I simply wanted to learn more about our current economic situation.

Let's face it: As good a book as Naked Economics is, when circuses like Bear Stearns and You Walk Away splatter the headlines, well, standard macroeconomics can take a curious soul only so far.

How'd We Get Here?

Morris spends the first five chapters (106 pages or so) of Trillion Dollar Meltdown enlightening readers with a brief retelling of the last thirty-five years of American economics and finance. From Nixon to GWB, Morris revisits the missteps and miracles concocted by politicians, investment bankers, economists, and other zoo animals over the last generation or so.

Here's my attempt to sum it up in three words:

Credit.
Quants.
Deregulation.

Peering Over the Edge

It's in Chapter 4, "A Wall of Money," that things start getting good. Join me, won't you, for a quick jaunt through the three- and four-letter jungle of financial Scrabble:



Of course it did! Can't have all those Harvard MBAs sitting around all day playing Yahtzee, can we?



Oh goodie. This new toy has the "D" word in it!



So pretty soon everyone was credit-default-swapping with everyone else. You have parties, counter-parties, and counter-counter-parties. And no one involved, of course, thinks his firm will be The One Left Holding The Bag. You could always sell the shaky stuff to the next guy in line, right?

Aw, what the heck. It's not like there'll ever be any "shaky stuff" anyway.



Nope. No shakiness there.



All of which Mr. Morris sums up succinctly:



And off to the races, we are.

Summary

I found The Trillion Dollar Meltdown to be a fun read — well, as "fun" as reading about your country's systemic financial collapse can be. I came to it, though, looking more for information — looking to pull together a better understanding of just where the weaknesses are in our credit- and debt-centric system.

The book's delivery is a bit jerky in places; its progression, just a tad disjointed. This suggests to me that TDM was rushed into publication. Given recent events, that wouldn't be a surprise, would it?

At 169 pages, the book is a fast read. But then we're back to that "rushed" thing again. Often I felt as if I were being pushed through it too quickly — as if there were more that Morris could divulge and clarify regarding certain topics, but which a fast-track-to-press caused to be omitted.

Too bad.

For what it's worth: I came in expecting a fair amount of fear-mongering from TDM. I suppose it's there to some degree. But folks who steadfastly believe that there's JUST NO WAY our financial system COULD EVER collapse, or that there's JUST NO WAY we could see another Great Depression (or a Greater Depression), will come to the book with that view locked-in. So every word of TDM will seem to them like fear-mongering dribble.

Just so you know, I'm not in that camp. While I appreciate all the safety valves in place with our system, I also totally respect the ability of greedy bankers, brokers, and politicians (and oh yeah — dumb-as-broken-rocks consumers) to really muck things up beyond all repair.

Who's to say what could happen? We Americans sure seem to let a lot of our "very smartest" run amuck in the financial sandbox...

Labels: Book Reviews