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Visa Black Card - The Look of Luxury

Wed, 16 May 2012 21:39:37 -0400

We've all seen the wistful and dreamy commercials for the Visa Black Card, featuring a lovely-figured model in a very obvious black-covered theme. Black jets and black boats, and even a black helicopter to whisk the fair maiden off to a life of leisure. The makers of the commercial for the Black Card knew exactly what they were doing; these visions of wealth and relaxation appeal to most people, and more than would care to admit it appreciate and desire status and prestige.

How did the black card come about, exactly? Well, the original black card was the AMEX Centurion, which was virtually unknown by the general public, and available to even the rich only by invitation. It could literally purchase anything the card-holder desired, and there were outlandish reports of magnificent and quixotic purchases made. The AMEX still exists today, and has such requirements as an annual expenditure of $250,000 before an invitation is forthcoming from American Express, as well as a $10,000 activation fee, with a $2500 annual fee thereafter. Clearly, this is the kind of true black card that Maybach owners use.

The Visa Black is Advertising 101; it capitalizes on the mystique and prestige of the AMEX, offering luxury, although nowhere near the same level as the Black Card. Generally, the Black Visa is intended for those who spend between $50,000 and $150,000 per year on credit, which comes out to around 1% of Americans. It has several outstanding attributes that serve notice:

- For the first 6 months, they give you 0% APR on balance transfers

- For every purchase, you get to choose between 1% cash back and airfare reward points

- A crisp, cool matte black Patent-pending Carbon card - no cheap plastic

- An all-day, all-night concierge service

- Luxury gifts from the rewards program, sent by mail to your address multiple times throughout the year

- A Priority Pass to over 600 exclusive airport lounges in almost 100 countries worldwide

- Restaurant dinner reservations for two at top eateries, steakhouses, etc

The benefits that the Visa Black Card offers don't stop there, either; multiple avenues of insurance are offered with the card, from travel and purchase security, to luggage and even automobile security. There is a $495 annual fee, which comes out to just $42 monthly. With the cash-back and rewards program gifts, this amount is easily recouped by card holders.

The Visa Black Card is really just a luxury card for the rest of us, whereas the Centurion is virtually inaccessible. What if you are the type of person who makes enough to spend $100,000 per year? The AMEX black card is way out of reach even so; the Black Visa exists to take up the slack, and serve as an emblem of prestige, status and access for those that can afford it. It isn't recommended that you carry a balance on this card, however; it's main attraction are all the perks it offers, especially for a frequent traveler. Get a low-interest card to act as a supplement for those months when you wish to carry the balance on the Visa Black, and you'll be able to benefit greatly from using the Black Card.

Knowing Me, Knowing You: Finding Your Audience

Thu, 19 Apr 2012 22:57:21 -0400

During times of financial instability it is important that a business's approach to targeting their audience is not only successful but also cost effective too. How can I gain return of interest with spending the least amount of money? How can I reach my audience or attract new clients whilst spending a minimum sum of money. There is only one answer and that is by knowing your audience and how best to reach them.

By knowing your audience you are able to establish how best how to reach them. By knowing their interests, their social life, their jobs, where they go? What they do? You have the necessary information to know how to target your audience. Such is the importance of customer satisfaction and brand loyalty in modern day business that companies are investing large sums of money into customer satisfaction research in order to guarantee their customers are happy and to ensure that their customers return.

Through customer satisfaction research and customer feedback surveys companies can better relate to their client or customer and therefore increase their chances of customer satisfaction and thus a returning customer, establishing in many cases, brand loyalty in a shorter period of time. Brand loyalty is a consumer's commitment to a brand which they continue to repurchase or a continual use of a service. This is just an example of how in business, keeping customers or clients satisfied can guarantee return of business and therefore return of investment.

Companies use research methods such as online market research in order to gather data to help evaluate how they can develop better strategies in order to help target their audience, for better footfall, disregarding what type of business they are in. In the same way staff surveys gage levels of employee engagement (the relationship an employee has with the company they work for) customer satisfaction research establishes customer satisfaction levels and better understand the relationship between a customer and their product or a client and a business. Customer feedback surveys are more important than ever, in a time of recession where every penny counts.

Should I opt for a credit card that offers benefits?

Mon, 16 Apr 2012 16:32:34 -0400

QUESTION: If I pay off the balance on my credit card every month, which cards offer benefits and what are they?

ANSWER: During the 90s, people using credit was often seen as a sign of economic stress, as people used credit cards as long term flexible loans, paying off only the minimum each month. However, in recent years, there has been an increase in the number of credit cards holders paying their balance off in full each month.

For people who pay off their card in full, cashback or rewards cards are an ideal way to get something back on your everyday spend.Of the many cards on offer at the moment, American Express offers the strongest reward package, however it's worth bearing in mind that AMEX is still not as widely accepted a credit card as say Visa or MasterCard.

So if a fair chunk of your credit card spending is to be done at the corner shop, you may want to consider a Visa card instead. That said, most of the major retail chains accept Amex, so if you use your credit card mostly at high street shops, then Amex is probably right for you.

As the name suggests, cashback cards offer a certain percentage of the transaction value back as cash. This is a good reward, as cash can clearly be spent anywhere, unlike points, but there are less cashback cards on offer compared to rewards cards.

Rewards/points cards offer different deals, often depending on the issuer (i.e. airline cards offer airmiles, supermarket cards offer shopping rewards) - it is down to the individual to decide which rewards are most applicable to them.

If airmiles are your thing, the BMI American Express card from MBNA, available through confused.com, offers a bonus 20,000 airmiles if at least £250 is spent in the first 90 days, and 1.5 airmiles per £1 spent overall. Therefore, if you spend £250 a month on your card, after a year, you would have nearly 25,000 airmiles!

Whichever card you choose, it is important to remember that these cards only give a net benefit if you are strict in paying off the full balance each month - otherwise the interest paid will eliminate any benefit. Setting up a direct debit can be the best way to ensure you get the rewards you are looking for.

So to summarise:

· Always pay off the balance in full

· Pick the rewards most useful to you

· Amex provide good rewards but check you can use it in the stores you spend most

The Cost of Renting - What to Look Out For

Wed, 14 Mar 2012 00:40:20 -0400

Taking the time to identify all expenses and allowing for them as part of the budget will go a long way toward determining if a particular property is really the best deal.

One of the first issues to address is the location of the property. Whether looking for a business site or a place to call home, it is important to make sure the cost of the monthly rental is in line with similar properties in the area. The goal is to make sure you are not paying more for that ideal spot than others in the same general area.

Considering the type of utility expenses that will be incurred as part of the lease arrangement is also important. When the terms of the lease call for the owner including all utilities in the basic agreement, take some time to compare that bundled rate with the average utility rates for the area as well as the average rental rates for spaces that do not bundle the utilities into the lease agreements. This will provide perspective on just how good that bundled rate actually is, given what others in the area are paying.

Don't forget to consider the presence of amenities that may or may not be of use to you. Unless you plan on putting the garden to good use or actually need a flat with three bedrooms, there is no real need to absorb the extra cost of having those features. If you are not a fan of large open rooms or many windows in each room, there is no point in paying for what a different tenant would consider desirable. If a ground floor unit costs more than one on the second floor and you don't mind using the stairs or a short ride in the life, then save the money and take the upstairs unit. Focus on renting space that will be sufficient for your needs, but not require paying for features and amenities that you are not likely to enjoy.

One way to make sure the cost of renting is reasonable is to work with a property leasing agency. For example, potential renters in Scotland would want to identify agencies in the local area that have screened properties and can match them with your particular needs and interests. A property leasing company Aberdeen, for example, could save anyone searching for commercial or residential properties in and around Aberdeen with several choices, providing plenty of opportunity to identify the ideal property and rental terms.

Term Life Insurance Quote Online

Thu, 01 Mar 2012 00:10:09 -0500

There is ample opportunity to get a term life insurance quote online if you are in the market for life insurance. Term life insurance is offered by many carriers online, universal life to a lesser extent and whole life even less. The interesting thing is that industry wide permanent life coverage is purchased more than term. Permanent life insurance includes whole life, variable life, variable universal life and universal life insurance.

Term life insurance premiums are considerably lower than premiums for permanent policies, they are also much easier to explain. You pay a very small premium and you get a policy for a specific period of time. The death benefit usually remains level for the duration. What could be simpler than that?

Available policies are 5 year, 10 year, 15 year, 20 year, 25 year and 30 year term insurance. Some buyers agonize over the decision as to which is best. Let me give you a few thoughts that may help you when you decide to get a term life insurance quote online as a prelude to actually buying the policy.

5 Year And 10 Year Term

These are short term policies designed for short term needs. You get a loan from a bank or any organization that is in the loan business, they may insist that you have sufficient life insurance to cover the loan. They have confidence in your ability to repay but what if you should die, how will the bank be repaid. You buy a 5 year or 10 year level term, depending on the duration of the payment period, and all is well.

There are other reasons to buy these short term policies. You have a child or a grandchild that you assist with college costs, you want to be certain this young person graduates even if you are not here to see the event. A 5 year or 10 year term policy would certainly help in this situation. The premium costs are very low. Go get 5 year or 10 year term life insurance quote online and see for yourself.

15 Year, 20 Year, 25 Year And 30 Year Term

You buy these longer term policies if you have a need to protect loved ones in the event of your premature death. Your family depends on you financially for their support, you therefore need to have sufficient life insurance to provide for them in the event of your premature. You want to be assured that they can live in the same house, they can drive the same car, they have sufficient food to eat and clothing to wear. In a nutshell, you need to make certain that your income continues. Term life insurance can do that.

The length of the term policy would depend on how long you need the protection. If, for example, your youngest child is age 3 and you want to protect the family until that child graduates college you would probably need a 20 or 25 year term policy. You may also want to guarantee an income for your spouse for the rest of her life. You could start out with a term policy and convert it to a permanent policy later on. This would provide coverage up until age 100.

Business people also should get a term life insurance quote online. Term policies are used to fund buy-sell agreements if a partner or shareholder should die. They are also used for key-man life insurance. This policy would soften the blow in the event of the sudden death of a key employee.

Why get a term life insurance quote online? You get an opportunity to compare the rates of different companies and you also learn a little about life insurance on some sites.

Fighting Rising Costs With Energy Comparison Sites

Sun, 05 Feb 2012 21:48:04 -0500

Recent news is pretty grim for British consumers. Energy prices went up last year and tariffs literally jumped. It seems to be almost a devil's bargain that if a person reduces the amount of domestic consumption, there still is a problem with the rising tariffs. Granted, an individual can be a part of fixed tariff program but once the agreed time period ends, there is a definite chance to be hit with a double digit increase. It can all seem hopeless but really there is an opportunity for improvement. It requires a person to use as much information as possible to make cost efficient decisions. That is why energy comparison sites are such valuable weapons in the war against inflation.

A number of highly reputable energy comparison sites have been identified by the Consumer Focus Confidence Code and anyone can easily visit one of them. Accuracy is critical and those energy comparison sites accredited by Consumer Focus have been proven to show consistently reliable data. Energy comparison sites allow for quick inspection of a number of options. But in order to make the best use of them, an individual has to be fully aware of his or her current consumption patterns. The evidence of existing usage can be quickly obtained from the current energy bill. Equipped with this data, a consumer can input the specifications into the search filters on any of the energy comparison sites and come up with the list of possibilities. Depending on the site, that list can be pretty extensive. A person has to take the time to gradually narrow down the options to arrive at the most affordable energy provider. The rest of the process is not much more than contact and negotiation with that company. Energy comparison sites make the entire procedure that much simpler.

These sites are meant to help the average person stay ahead of the game. The information contained on energy comparison sites enables a consumer to make more educated decisions about which energy producer should provide essential natural gas or electricity for the home. It isn't all just about shopping for prices. Energy comparison sites also provide useful tips about how to efficiently use any energy in the home. A number of sites have information about Green energy solar panels. Though it is true it will be a while before alternative energy fully replaces fossil fuel, the use of energy equipment like solar panels can serve as a means of supplementing energy already used. The result is less use of conventional energy such as natural gas for heat, while still remaining comfortable.

A smart consumer quickly understands the value of energy comparison sites. It isn't very likely that the total cost of home energy is going to drop anytime soon. Being able to switch energy providers before sudden tariff raise helps the consumer better manage what has to be paid for natural gas or electricity. The information that energy comparison sites will provide makes this possible. They were originally designed to help the average citizen and their performance so far proves them to be extremely beneficial.

Want to Rent an Office in London? Make Sure You've Covered Your Costs

Sun, 05 Feb 2012 21:12:37 -0500

If you're looking to rent an office in London, chances are you'll already have found yourself a reputable commercial estate agent who can explain all of the logistics and potential obstacles involved in your relocation - they might even help in the planning and execution of the move. Your estate agent should also clearly explain all of the costs involved when you rent an office in London - but to double-check that you've got everything covered, use our checklist below.

1. Rent - Naturally, when you rent an office in London, the rent itself is going to make up the majority of your spend. Rental rates vary considerably depending on where you rent an office in London - you'll pay the most for prestigious office spaces in Mayfair, Belgravia and St James, whereas Paddington, Waterloo and the fringes of the City of London offer cheaper rents whilst still providing a central location.

2. One-Off Costs - The moving process can involve the use of a fair number of services, all of which can take bites out of your budget. Make sure you've factored in surveyors' fees and legal costs when organising your move - and the moving process itself will require money to be spent on removal and fit-out services. You can save money by choosing to rent an office in London that has already been designed and has been fitted out with everything that you need to start work straight away. An additional one-off cost is stamp duty - you'll have to pay this on leaseholds over a certain value.

3. Ongoing Costs - Once you rent an office in London and your business is settled in, you'll have to pay for the continued use of the space. Costs could include bills and service charges - make sure you're aware of what you're paying for. Bills for gas, electricity, water and internet usage may or may not be included in the rental price. You'll also have to pay property tax which is charged by the local authority - as with rent, the cost of property tax when you rent an office in London can change considerably from area to area and from office to office. It can set you back as much as £20 per square foot every year.

4. Value Added Tax - Because most buildings are VAT registered, when you rent an office in London you'll be required to pay tax on the price of your lease. For companies that cannot reclaim VAT, such as banks, there are non-VAT buildings available, but these tend to be rather scarce.

Hopefully, this guide should help you to rent an office in London without getting stung by unexpected charges. There are many costs involved in your relocation, not to mention a great deal of time and planning, but fear not - there are still ways to save money. One of the most economical but overlooked methods is to simply find the right commercial estate agent - an estate agency that works on behalf of landlords is naturally going to try to drive the price up to please its clients. Try to find a commercial estate agent that works on behalf of tenants, this way you are more likely to be given a good deal when you rent an office in London.

PPI - Millions Affected, Billions to be Claimed

Sat, 21 Jan 2012 00:21:24 -0500

It's nice to claim back PPI compensation. The money to be claimed back never belonged to the banks and lenders in the first place, and hefty compensation is the least a person can expect after being fleeced by trusted, reputable financial institutions.

The whole mis-sold PPI debacle looks like a premeditated attempt by financial service providers to separate unsuspicious customers from their money, the customers unaware that they would never get anything for their regular payments to the policy.

Many hard done by people were denied their right to claim when it came time to do so because they were deemed ineligible, the policy seemingly constructed to be utterly unfair and unreasonable in most cases.

The banks initially fought the High Court ruling, which sternly told them how they should deal with PPI complaints back in April 2011 - mainly because they found it unfair that they were ordered to pay back PPI compensation to aggrieved customers that dated back many years - but they eventually succumbed by May 2011, unable to deny the evidence that justified the High Court's decision.

PPI Victory
This is a huge victory for consumers. Banks have since set aside billions of pounds to sort out customers, and it is now a great time for anyone who suspects they have been diddled by the banks to claim back PPI. The money is literally waiting to be claimed and collected.

Claiming back PPI can be incredibly simple, but this is not always the case. A PPI claimant should first of all collect any documents relevant to the PPI policy that was sold to them fraudulently and contact their bank. They should write a letter, keeping a copy for themselves, and make sure they detail how they believe they are eligible for a PPI refund and are the victim of mis-sold PPI.

A person would need to know the date they took the policy out and the policy number, while it is integral to write down the reason why they have been mis-sold PPI. Once this is done, a person should politely demand that the bank or financial service provider give them back all their premiums plus interest.

There are a plethora of reasons pertaining to why a person has a rightful claim, all involving how the policy was implemented alongside a loan, mortgage or credit card agreement. Some of the main reasons a person can claim back PPI include:
• their age (retiring during the lifetime of the policy, or retired already means they cannot claim)
• the type of work they were involved in (e.g. a self-employed person cannot claim)
• The policy was added without the customer's knowledge
• The policy was not explained properly

When a person makes a claim by themselves, one of two things will happen:
1. The bank or lender will accept their claim and either give a person the full amount they are entitled or to persuade them to accept a minimal settlement
2. They will deny the claim, and send the claimant packing.

In the event that a person is denied by their bank and still wish to pursue the claim (which could be utterly valid even if the banks have dismissed it), then contacting the Financial Ombudsman Service (FOS) or a claims management company could take the claim to the next step to the ladder of happiness.

Without a shadow of a doubt, a person should definitely start claiming back money taken from them due to mis-sold PPI. It is the right thing to do and banks should be made to feel accountable for their dubious, unethical mis-selling of PPI policies and pay back what they wrongfully took from their customers.

In Defense of Alan Greenspan

Fri, 20 Jan 2012 23:25:46 -0500

It has become commonplace to hear claims that Alan Greenspan actually caused the real estate "bubble" and subsequent credit crisis by reducing interest rates to 1%. The following article challenges that claim widely stated as fact but without a shred of evidence.

The American Industrial Revolution was one of the greatest examples of free market capitalism in world history. Yet, it was accompanied by the panics of 1814, 1819, 1837, 1857, 1873, and financial crisis of 1907. At that time there was no Federal Reserve to blame. Even on the gold standard, where money, credit, interest rates and inflation remained stable in this country for a century, we still had financial panics. Why?

The panics of the 19th century together with the 20th century panics like the stock market crash of 1987, the "Asian Contagion," the Long Term Capital debacle in the 1990's, and the dot com stock market crash of 2000 all have one thing in common: the business cycle. We've had more than two centuries of prosperity produced by the greatest economy mankind has ever known, and through it all, from the gold standard to the fiat standard, we have always had a business cycle that leads to panics, bubbles, booms, and busts.

It is fashionable to blame Alan Greenspan for the housing problems and credit crisis. The charge is that Greenspan took interest rates to an artificially low level that created wild speculation. On the face of it, the argument seems reasonable. After all, aren't 1% interest rates, one of the lowest rates in modern history, artificial? Surely this unleashed waves of new home buyers and ignited artificial credit creation that couldn't exist otherwise.

This is only an assertion however—not a complete argument. In science, statements of fact must not be contradicted by other evidence. To arrive at truth, one must eliminate all other possible explanations and all contradictions. Do that, and one has arrived at proof. I submit the following facts, which if just one were true would refute the contention that interest rates were held down artificially.

The facts are as follows:

1.) The fed funds rate was generally in line with the inflation rate.

The CPI actually fell by 4.47% in April of 2003. It then fell .65% in May, .65% in October, and 1.3% in November of that year. The fed lowered the funds rate to 1% in September of that year after the price level fell. This was the period when many economists were warning of a Japanese style deflation and recession occurring here. Inflation and the housing boom were the least of our problems. The Fed's job is to keep prices stable for the entire economy, not just a sector. Greenspan did that. He prevented a continuous deflation that may have otherwise taken hold. That is what he was mandated to do. It is not the Fed's job to regulate the economy.

2.) The fed funds rate was generally in line with other market rates.

When the fed funds rate was lowered to 1%, the 3 month T bill was at .90%, which means the free market rate had already fallen dramatically before the Fed lowered its target rate. The 10 year bond was 4.15, also unusually low. There was nothing in the interest rate structure that indicated an easy monetary policy. All interest rates across the board were in simultaneous free fall due to the deflationary trend. This was also true worldwide as the long rate fell to the lowest worldwide rate on record.

3.) Money supply grew at normal historical levels during the period.

M1 declined 2.2% in 2001 then grew in 2002-2004 by 8.4%, 3%, and 6.4% respectively. The CPI grew by 2.9% in 2004, 3.4% in 05, and 2.5% in 06. Once again, we see no sign of artificial stimulation throughout the economy after the funds rate was dropped, except for the booming housing industry.

4.) The housing boom was worldwide.

At the time of our housing boom there were booms in 26 other countries, each with varying degrees of economic and monetary policies, all with much higher interest rates than the US. We were somewhere in the middle of the pack in terms of home price appreciation and duration. We were not the first to turn up or the last to turn down. Major housing booms occurred all over the world simultaneously. Obviously the worldwide housing boom transcended US interest rate policies.

5.) Japan had 1% rates for over a decade, yet not only was there no housing boom, there was a generalized deflation.

If low interest rates caused the housing boom, then why wasn't there a housing boom in Japan? During the Great Depression interest rates were 1% and deflation reigned for a decade—no housing boom. Is it possible that Alan Greenspan is responsible for keeping America out of a deflationary depression such as the US and Japan suffered through? I believe so, and I believe historians will argue the same years from now.

6.) A 1% interest rate is not cheap when you have a 2% deflation rate.

If you are running at zero to 2% deflation rates, a 1% rate is a positive rate, which is to say it is a penalty rate. There are times when high nominal rates are lower than 1% rates. For example, in 1975 the CPI was 8%. But the Fed funds rate ran between 5 and 6% that year. This was a real negative interest rate. The prime rate was also negative at 7.5%. This is what real artificially low interest rates look like and the result was double digit inflation in the 70's. Greenspan only took the Fed funds rate negative temporarily in periods of extreme financial stress. But Greenspan also raised the discount rate for the first time in modern history to a penalty rate in the last years of his Chairmanship. It was Greenspan that took away the artificially low interest rate subsidy banks enjoyed for decades.

7.) Most mortgages around the world are tied to the Libor rate, which ranged between 4 and 5% during the boom years.

There was a greater housing boom in most of those countries than there was here in the United States at 1% rates. US 30 year fixed mortgage rates are tied to the 10 year bond rate—a rate the Fed had no control over. If you think otherwise, explain why nations that experience high interest rates don't simply force them lower. Why? They can't. The 10 year bond is set by investors throughout the world. The Fed can only influence short-term rates, like the prime rate. Zero percent teaser rates and artificially low adjustable rates which are what supposedly caused the real estate "bubble" are the domain of private lending institutions.

And while the fed does have a certain influence over the prime rate, it has no control over the lending practices that exist in financial institutions regardless of what the interest rates are. The Fed certainly has no control over fraud, abuse, false home appraisals, false mortgage ratings, the marketing of these loans, ignorance, or incompetence. The credit problems that have occurred are a private market creation. This happens from time to time as part of the business cycle. The resulting problems should be met with free market solutions wherever possible, and handcuffs wherever appropriate. Instead we looked for a scapegoat.

8.) Finally, during the Greenspan years, the price of gold, which is usually associated with cheap money and inflation, remained stable and even declined during most of his tenure.

Gold was 461 on August 11, 1987 when Greenspan took office and fell to about 250 during his term. Eighteen years later, the day he left office, it was 569. These prices are consistent with sound monetary policy. Also during his term the dollar hit modern day highs and its strength became a factor during his term. Deflation was an issue during his term, but never inflation. This also is consistent with sound monetary policy and inconsistent with alleged inflationary finance.

No matter who or how many say Greenspan set rates artificially low creating easy money, the housing bubble, and the subsequent credit crisis; they cannot get away from the evidence above. Every one of the points above contradicts these allegations. Greenspan was in line with all other market interest rates and the inflation rate, which is to say, he followed the market. If it was indeed low interest rates that caused the real estate boom and credit crisis, the market that was the cause, not Alan Greenspan.

The Real Cause of the Real Estate & Credit Crises

The cause of the real estate boom was a combination of irrational exuberance among investors and home buyers mixed with demographics. Baby boomers started positioning themselves for retirement and bought second homes throughout the world. The baby boom happened in every nation that fought in WWII. In addition to the 77 million boomers in the US, foreign boomers were also buying real estate around the world, a large part of why 26 other nations experienced real estate booms at that time.

The greatest appreciation of real estate occurred in vacation areas such as San Diego, Miami and Las Vegas. Very little, if any, appreciation occurred in Kansas, Nebraska, or Minnesota. This was also true in other countries where people wanted homes near their favorite mountains and beaches.

Investors, especially retirement focused boomers, had shifted away from a "risky" stock market due to the tech crash of 2000. They moved their investment money into "safe" real estate where prices were less likely to fall. Many home builders and professional investors soon became real estate speculators. The general population that actually needed to move to another home simply got caught up in the frenzy.

Years before when Greenspan was asked why we were not experiencing recessions as in the past, he answered, "To my knowledge, the business cycle has not been repealed." He was reminding us it's when things look rosiest we should prepare to duck. But it is not the job of the Fed to prevent booms. Their job is to ensure a stable national price level, provide liquidity in times of financial stress, and act as a bank of last resort to protect against systemic failure.

The business cycle is a product of free markets. It's inherent in capitalism. Since markets are the reflection of all individual's values, emotions, perception, and expectations, it follows that these factors will always be in flux. It has been said that the stock market moves between greed and fear. Well, all markets do that. Markets act like a pendulum, and swing back and forth over long periods of time between complacency and optimism, exuberance and panic, and then after a long healing process they swing right back to comfortable complacency. This arises from human nature. The business cycle is as natural as the changing seasons.

The period we've just come out of is typical. We went from the pessimism created by the dot com crash (no one wanted to touch a stock out of fear), through a five year stagnant stock market (complacency), replaced by a period of real estate investment (optimism), and then just as you'd expect—we dove into real estate speculation (euphoria). Investors jumped from the stocks they'd just take a beating in, to real estate, something that they "knew" could not go down in value.

Since default and bankruptcy rates were nil and investment gains were unusually high, lending and borrowing practices grew lax. The use of leverage increased and fraud and deception grew unchecked. In effect, good times begat bad times. Complacency led to stability, and because things were so good for so long, stability led to euphoria and, of course euphoria led to mal-investment, over-consumption, and the misallocation of resources. This kind of market behavior can be a product of government's ability to create artificial booms, but it can also result from human response to any kind of boom--real or not. Hence, the business cycles of the 19th and 20th centuries.

Add to this one more unusual factor. China and the other emerging markets were in their greatest period of growth in history. Wealth was being created at an unprecedented pace. As wealth increased, savings increased. This new supply of savings helped finance the world real estate boom. The money supply in the US was growing normally but the world money supply was exploding. Interest rates fell to their lowest level in history.

But the credit crisis in the US was unique and the cause was massive nationwide fraud, incompetence, and ignorance, combined with unprecedented leverage. Fraudulent mortgage underwriting by financial institutions and applicants, false appraisal values by appraisers, buyers en masse ignoring the terms of their adjustable rate contracts, and sellers enticing them with teaser rates and liar loans, all set the stage for systemic failure. But the death blow came from a recent marketing invention in the form of packaging sub-prime loans by banks and non bank institutions. In the past loans were made by the banks that kept the loan. But the packaging of loans became popular during the boom and soon prime loans were sold together with sub-prime and fraudulent loans. Normally the market would re-price suspect loans and they would be discounted to a price that would clear the market. But because they were bundled into a package and sold as AAA loans, they were not visible to the market.

In effect, there was no effective market to deal with bundles of loans. There was no way that the market could identify and price these suspect loans. The loans were not transparent. There was no way for the market to know how many bad loans there even were, or to what degree they should be discounted. The market hates uncertainty, and that's what we got. The market for all mortgage backed securities dried up. What cannot be seen or defined cannot be dealt with. The credit markets froze. In a nutshell this is what caused the financial panic and contagion that ensued.

For a more in depth explanation of what caused the crisis please see The Elephant in the Room at paulnathan.biz.

Greenspan the Gradualist

The Fed is charged with maintaining price stability and that it did during Greespan's tenure. However, there is one charge against Alan Greenspan that may be true. It has been suggested that the Fed took too long raising interest rates and that it should have moved faster to raise rates from 1% to the 5.25% that Greenspan eventually moved them to. Greenspan is a gradualist. He believes in allowing the markets to adjust gradually to monetary policy, hence, he raised the federal funds rate one quarter percent at each fed meeting.

It is possible that rates were kept lower than they would have been if they were free to float. It is possible that a free market in the fed funds would have led to a quicker return to the 5 percent range Greenspan eventually took the fed funds rate to. Yet, given the fact that almost all rates immediately turned down again and are back at the levels that prevailed during the Greenspan period, and less, only history will judge the merits of that argument.

Economics in general and monetary policy in particular are as much an art as a science. Gradualism may need to be debated. Floating fed funds rates may need to be debated. Terminating the Federal Reserve Board, and even the system, may need to be debated. Economic historians will eventually revue the Greenspan years and the causes and effects of monetary policy on the housing boom and the ensuing credit crisis. I believe the facts will show Alan Greenspan acted reasonably during his term and in the end preserved monetary stability while preventing a deflationary depression. I think history will look kindly on the Greenspan years.

And finally I want to defend Alan Greenspan's character. I challenge anyone to show me a more honest government official. Especially one with the power and influence Greenspan wielded. Has anyone said "I was wrong" more often than Greenspan? And he did so without having to be cross examined or pressured into taking responsibility for his mistakes. Greenspan openly admits anytime he's wrong. Do you know any other politician who has consistently admitted his surprise and astonishment at events when they went differently than he expected?

Yet, this man of great integrity and honesty is accused of creating bubbles, manipulating the money supply, interest rates and the economy to the point of bringing America to its knees. And all without showing even a hint of remorse.

Why has Greenspan become the nation's wiping boy and scapegoat accused of being responsible for the greatest financial crisis of our times? I believe it's because of his views on capitalism. He is for true free market capitalism, which means deregulation, monetary stability, and fiscal responsibility. Both the left and the right condemn him. The left accuses him of being an extremist for free markets and the right claims he violates them.

I've presented my evidence here and Greenspan has presented his. He's publicly stated that he has gone back and re-checked the record and the actions he chose and see's nothing to support accusations against him. I concur. His critics will claim he is either stupid or dishonest. Perhaps it is the reverse, and his critics are either stupid or dishonest? You judge, but before you do, consider the opinion of Milton Friedman, the foremost authority on money supply, inflation, capitalism, and freedom:

Over the course of a long friendship, Alan Greenspan and I have generally found ourselves in accord on monetary theory and policy, with one major exception. I have long favored the use of strict rules to control the amount of money created. Alan says I am wrong and that discretion is preferable, indeed essential. Now that his 18-year stint as chairman of the Fed is finished, I must confess that his performance has persuaded me that he is right—in his own case. His performance has indeed been remarkable…There is no other period of comparable length in which the Federal Reserve System has performed so well.

…It has long been an open question whether central banks have the technical ability to maintain stable prices. Their repeated failures to do so suggested that they did not -- whence, in part, my preference for rigid rules. Alan Greenspan's great achievement is to have demonstrated that it is possible to maintain stable prices. He has set a standard. Other central banks around the world, whether independently or by following his example, are following suit. The timeworn excuses for central bank failure to stem inflation will no longer do. They will have to put up or shut up. -Milton Friedman WSJ essay Jan 31, 2006

-PN
paulnathan.biz

Who Cares About PPI?

Fri, 20 Jan 2012 22:16:43 -0500

Many people have now heard of the Payment Protection Insurance (PPI) scandal and have begun claiming for PPI refunds from banks. However, while the scandal has had much news coverage, particularly over the past year, there are still people who have yet to make a claim for money that was unjustly taken from them by this corrupt banking practice.

A person may think they don't have any power over what the banks do with their money. For instance, banks seem to have this ubiquitous control over how customers are treated- such as dictating the amount customers are fined for going over their overdraft limit or managing how credit card charges and interest rates are governed and applied.
The banks are in a position of power over their customers, held there by their professional knowledge, their reputation and the trust people place in their services.

Because people don't think they have any control over much of the way banks do business, many do not pay attention to news about them, particularly since many headline-worthy stories to do with banks are usually isolated incidents involving a select few individuals who have been scammed or duped into losing their money.

As it turns out, there has been a momentous issue that has affected millions of people who should most definitely pay attention to what is going on.
Consumer watchdogs, like the Financial Services Authority (FSA) and Which?, are in place to protect consumers from banks which pull the wool over their eyes by implementing unscrupulous banking practices which can hinder a customer's financial circumstances.

They are there specifically to regulate financial institutions so that any dubious or illegal activity is found out and dealt with and they have done their part to uncover the PPI scandal after responding to a number of complaints by hard done by customers.

Understanding PPI
Payment Protection Insurance was, and continues to be, a form of cover that is used to help people who have taken out a mortgage or loan, or applied for a credit card from a financial institution. While incredibly useful in certain cases where they were sold to customers who were eligible for the cover, PPI has become a highly controversial issue as it has in a majority of cases been completely mis-sold.

Mis-sold PPI has been a dominant issue for banks which have now had to concede that they are liable for any mis-selling of PPI that occurred at their branches. Millions have been affected and PPI claims have shot through the roof over the last year and will continue to be a burden on the banks for a few more years to come as more and more claimants step forward.

PPI complaints sky-rocketed in 2011 when the High Court Ruling in April of the same year found that banks were indeed liable, and were told to seriously deal with the matter - given the job of informing customers who were victims of PPI mis-selling and told to deal with claims in a fair and efficient manner.

Despite numerous people coming forward with PPI complaints and claims, many others are still unaware of the issues surrounding PPI mis-selling, tired of hearing of financial matters and banking problems that have been afflicting the country since the recession began.

However, this isn't just news that affects only a select few - the banks have had to set aside billions of pounds to repay customers who they either contact, or who come forward to reclaim PPI that was sold to them despite being ineligible for the policy in the first place.

So far, they have had to pay back over a billion pounds to aggrieved customers and it could reach a figure of £9 billion when the whole situation is over. No aggrieved consumer should delay in claiming back what is rightfully theirs - the banks should not be allowed to keep what they had no right to take in the first place.