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Money 101:

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Money 101 
DECEMBER 8, 2012
Howdy!  
Gary Silverman, CFP
It's a busy time of year, and, I hate to be the bearer of bad reminders, but tax time is just around the corner. To get your mind primed and ready, I am co-hosting a free seminar with Curtis Cannedy, CPA, on Thursday, December 13. It will be at the Homewood Suites (2675 Plaza Parkway, Wichita Falls) from 5:30 to 7:30 p.m. We will discuss issues to help you wrap up this financial year and start 2013 on the right track. RSVP on our website or call 940-692-6885 to hold your spot.

Have a great week! 

--Gary
Gary's Soapbox

 

As of right now, how or even if we will avoid the "fiscal cliff" is still being debated. Last year, I ran a series about the state of the economy, and thought one part of the discussion, mortgages, would be interesting to revisit. Here's part of an article from May of 2011... 

 

The U.S. debt as a whole is a big part of our current troubles and will be a big part of our future ones as well. Today I'll be discussing the dream of home ownership as the history and current conditions of mortgages serve as a good example of problem debt. (I'm going to be pretty loose with the history here...concentrate more on the effect.)

 

At the end of World War II, we had two issues: a lot of men coming home without work, and a lot of families getting started. Why not jump-start the housing industry to provide construction jobs for those men, and homes for those families? Incentives to continue doing just that have continued to this day.

 

Of course, buying a house costs money...a lot of money. Most people don't have the cash necessary to buy a fixer-upper, let alone a nice house in a nice neighborhood. So we the people decided to do something about that and develop a system that could create more mortgages. This system was outside the scope of what would have been available if normal supply and demand dynamics were left to themselves.

 

One way to accomplish this was to make more loans available. Banks have only so much money and once it's loaned out, they have to wait until it gets paid back to lend it out again. Thus, we started to depend on Fannie and Freddie. They would buy the loans from the banks, keep some, and sell the rest to investors. In turn, the banks could keep making more loans.

 

A second way was to make it cheaper to borrow. We took care of this by making the interest payments on a home mortgage deductible.

 

And last was a wide variety of incentives to get banks to write more loans.

 

The intentions behind all of these were good, but they were all based on the same tenet: that it was desirable for as many Americans as practical to own a home. Once we decided that, it was easy to expand our good intentions.

 

Yet the effect was that the people creating the loans weren't the one left holding them, part of the borrowing costs were shifted from lower income earners to more well-to-do folks, and more loans were made to people who were less credit worthy.

 

While we know what ended up happening, it was not obvious at the time that each of the thousands of steps we took were leading us to the abyss of the credit crisis.

 

Still, though creating the American Dream caused some problems. Fixing those problems is actually quite easy. Easy, that is, if you don't mind lower and middle income American families not being able to afford homes. And for those who can afford one, forget about that deduction. Oh, and if you make your living building single-family dwellings...well, your life has already been turned upside down. 

 

Gary's Latest Articles 
From Times Record News and Biz to Biz

Free? No Thanks. 
Back in October, Gary offered a day of free financial advice to celebrate Financial Planning Week. One brave soul attended. Why was attendance so low? It's not that surprising...

Firm Policies, Unhappy Customer

Gary takes the opportunity to rant about a recent hotel visit. As a business owner, when does it make sense to be flexible? Do your employees know? Read more...

 

 

 

Money 101: Monthly Market Monitor

 
Each month, Eaton Vance produces this Market Monitor to keep us up to date with many investment and market topics. Here's the latest...


Holiday Humor

"The Tree is Always Greener"
I found this joke on the internet and thought I would share...

Searching through row upon row of Christmas trees, my wife Leslie and I picked one we liked. Then I noticed the one being held by a woman nearby "the" perfect tree. I watched as she carried it around the lot and couldn't believe my eyes when she set it aside.

 

I ditched ours and ran over to grab the coveted tree. "Aren't we lucky?" I said to Leslie. "I do feel a little guilty, though, for taking it before she could change her mind."

 

"Don't worry," she replied. "She just ran over and snatched ours."



Ho-ho-ho!

Sincerely,

 


Gary Silverman
Personal Money Planning
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