Wise Money Decisions

Ben Stein writes a biweekly column on the “Experts” section of the Yahoo Finance page. 

Ben Stein is an intelligent man (have you seen Win Ben Stein’s Money?  He’s a knowledge reservoir).  He also has the right big picture approach to investing. 

But yet I see his column as more ”celebrity” than “expert.”  Perhaps that’s just the point:  wise investing doesn’t require ”expert.”  Oh, and it doesn’t require “celebrity” either.  It requires clear thinking, a little know-how, and a lot of discipline. 

I like to read his column for a couple reasons: 1)  He has some wise things to say about investing, and 2) His celebrity undoubtedly brings in readers that wouldn’t normally read personal finance columns.  It’s interesting to see what kind of advice those people are getting. 

There’s a third reason.  Stanford Law School puts on a Jeopardy-like quiz show event as an annual fundraiser for a local legal aid society.  Ben Stein agreed to serve as the guest host for the 2004 event. 

I had a classmate, a close friend, who was a huge Ben Stein fan.  It was a dream come true when she was asked to pick Mr. Stein up from the airport, chaueffer him to the Friday night event, and take him to his hotel afterward.

When I saw her the Monday after the event, I asked her how awesome it was to drive Ben Stein to and from the airport.  I was pleasantly shocked when she said she not only showed Ben around town, but she also hung out with Ben in Santa Cruz over the weekend!  An hour of Ben Stein stories followed.

Ever since then I’ve maintained a casual interest in all things Ben Stein.

His Latest Column 

The latest Ben Stein column is short and sweet.  As usual there is not necessarily any unique insight or deep analysis, but there is a big picture idea that hits the proverbial nail on the head: 

Years ago, I received a letter that asked a brilliant question. The writer essentially wrote, “I read many business publications including the well known ones like Business Week and The Wall Street Journal. I observe that not only are they often at odds with one another. But they often have columnists within each publication who vehemently disagree. Moreover, they often turn out to be mistaken in their observations and predictions. How then do I know who to believe and what I should read to know the truth?”

The man’s question haunts me. The older I get (I am now 63 and feel every hour of it), the more clearly I see that much of what is in the media and in the financial media about investments, in particular, is simply nonsense.

I couldn’t have said it better myself.

I came across this article from Jack “the Mortgage Professor” Guttentag discussing the difference between wholesale and retail mortgage prices. 

Guttentag has formed an alliance of sorts with Amerisave, an online mortgage broker.  I read just about everything Guttentag has ever written before I got my first mortgage.  His writings convinced me to limit my search to Amerisave or another up-front mortgage lender that would guarantee their fees.  I ended up going with Amerisave.  I’m glad I did, despite a small mistake made by Amerisave that would have cost me $300.  After a few months of prodding and a quirky turn of events I finally got Amerisave to make good on the $300.  I’ll post about my Amerisave experience sometime soon.

Back to the article.  Now Guttentag has teamed up with Amerisave to provide wholesale mortgage price information on his website.  Without the Amerisave data on Guttentag’s site it is difficult for retail mortgage borrowers to obtain wholesale data.  By comparing wholesale data with the retail data quoted by brokers or lenders, the retail borrower gets an idea of the broker’s or lender’s markup.

The most interesting thing about the article is the data Guttentag gives about the average difference between mortgage rates for:

• Conforming and non-conforming loans.  Before the so-called sub-prime crisis the difference was 0.278%.  A few months into the crisis it had risen to 0.745%.  That extra half percent for a non-conforming loan is a big deal for those of us in high-cost areas.  Note that Guttentag’s article was written before the new higher conforming loan amount was approved.  I would expect there would still be a difference, but it occurs at a different loan amount (up to $729,750 depending on where you live) rather than the previous limit of $417,000.
• Full-doc and No-doc loans.  Difference was 0.525% before the sub-prime crisis and 1.022% after.  Ouch.
• Good credit and not-as-good credit.  Before the sub-prime crisis a FICO score of 620 cost you 0.3% on your loan compared to a 720 score.  Five or so months into the crisis the lower credit score cost you 1.37%.  Ouch.  Even worse, loans were no longer offered to borrowers with 620 scores after the first five months.

The numbers show that bad credit is much more costly than getting a non-conforming loan or a no-doc loan.

What to do with this information?  First, figure out what is the new conforming loan amount for your area.  If your loan amount now qualifies whereas it didn’t before, you should watch rates to see if it makes sense to refinance.

Second, do a full-doc loan if you’re able.  For most people the only difference between getting a full-doc and a no-doc loan is convenience.  It takes a little more time and organization to get everything together for the full-doc loan.  Getting the no-doc loan is easier, but an extra half percent on your mortgage is a hefty price for convenience, especially if you have the mortgage for many years.

Finally, establish good credit.  If you don’t have much of a credit history, begin to establish one by getting a credit card.  If you have a bad credit history, make the decision to change your credit habits.  It will take time to build a good credit file and raise your score, but it will pay for itself many times over.

A month ago I wrote about the $2/bag skycap fee at American Airlines.  At the time I thought American was out ahead of the industry, charging more than everybody else just like with the $15 fee for checking a first bag.

But it turns out Delta is one up on American.  I flew Sunday morning out of Salt Lake City and paid $3/bag to skycap.  The gentleman at the skycap helpfully pointed out that the $3 goes to Delta and not to him, just in case I didn’t see the sign that said the $3 fee didn’t include a tip. 

So I paid him another $1/bag, for a total of $16 to check 4 bags.

Was it a lot?  Yea. 

Was it worth it?  Probably not. 

But it saved my pregnant wife and me a short walk carrying a lot of bags, an extra wait in line at the check-in counter, and the risk of missing our flight (we had arrived late at the airport, as always). 

Maybe it was worth it.

But the story doesn’t end there.  My $16 bought me a precious piece of knowledge worth oh so much more than $16.  The skycap guy pointed out that had I checked in online I could skycap my bags for no fee.  I wasn’t sure I heard right so I asked him to clarify.  Apparently it’s true.  If you check in online before you leave for the airport, you can check your bags at the Delta skycap for no fee.  Be a nice guy though and still pay a tip of at least $1/bag.

I usually check in online.  I didn’t this time because I was at my brother’s house and his printer was broken so I couldn’t print the boarding passes.  Maybe I’ll see if I can bill through the $16 to him.  Just kidding Rob.

I mentioned the broken printer to the skycap guy, and he said you don’t even need to print out your boarding pass.  Just check in online and skycap your bags for no fee. 

I am operating under the assumption that it only works with Delta, until I hear of other airlines doing the same.  If you are aware of other airlines’ policies, please leave a comment.

ABC has an article on their website titled, “They Earn $200,000 and Pay No Taxes: Find Out How These Rich Folks Avoided Paying Any Income Taxes.” 

The title is provocative and seems to be an attempt to appeal to a “class warfare” or “class jealousy” mindset.  What can be more unfair than wealthy people getting away with paying no taxes while the rest of us are stuck paying our fair share?

However, as I read through the article I discovered it’s all bark and no bite.

Here’s the story in a nutshell.  Each year the IRS releases aggregated data about federal tax return filings.  In 2005 (the most recent data available) there were nearly 7,400 returns that showed adjusted gross income (”AGI”) greater than $200,000 but reported no tax liability. 

How can someone earn $200,000 and have no federal tax liability? 

Two ways, according to the article.  First, in response to Hurricane Katrina Congress made rule changes to encourage charitable giving during the last few months of 2005.  The 50%-of-AGI limit on charitable deductions and the overall limit on itemized deductions was lifted for charitable donations made between August 27, 2005 and January 1, 2006. 

Second, in 2004 Congress began allowing taxpayers to claim a full, 100% credit for foreign taxes paid against the Alternative Minimum Tax.  Previously the credit had been limited to 90% of federal tax liability.

To sum up, there are a few thousand wealthy people that, in response to law changes made by Congress, decided to increase their charitable giving in latter 2005 or were allowed a full 100% credit (instead of the previous 90% credit) for foreign taxes paid.

It’s hardly the kind of unfairness that leads to revolution, or even hastily written letters to Congressmen.  As hard as I try, I just can’t imagine Patrick Henry getting upset about laws that encourage charitable giving.  And I did try.

There is a long list of things in our creaky old tax code that one could rightfully complain about.  Laws that encourage charitable giving or allow a credit for foreign taxes paid are not at the top of that list.

One of the unanticipated blogging difficulties I’ve had is deciding what to do when I’m traveling or on vacation.  I faithfully read a handful of blogs and it’s always a disappointment when there’s no new post.  I don’t like the idea of being the source of that disappointment for someone else.  I would like to let my readers know not to expect posts for a week or two. 

But my mother would be aghast if I broadcast to the world that my house is uninhabited and undefended for the next two weeks. 

It’s not like I own anything valuable.  Let me put it this way.  Do you remember a few years back when the grand prize for all contests was a 60-second shopping spree at some store in the Midwest?  Well, if I sold you a 60-second shopping spree through my house for $100, I’d likely come out ahead. 

But even so, why let 0.000023% of the world know that I’m out of town?

So if you have any bright ideas how to handle the blogger’s travel dilemma, I’d be happy to hear about it.

Now we return to our regularly scheduled programming…