March 24, 2009
Daily Mail signals that the worst may be over
Dan Sabbagh, Media Editor
Daily Mail and General Trust (DMGT) said that its recession-hit local newspapers were showing the first signs of recovery, even as the company announced that it would shed another 500 staff across its regional titles.
The publisher behind the Hull Daily Mail and Bristol Evening Post is closing printworks, rationalising sub-editing across regions and shutting a handful of titles, in cuts that will reduce the staff on its local papers to 3,500.
Despite the redundancies, Peter Williams, the finance director, struck a note of cautious optimism. “For the past six or seven weeks, revenues have been flat in absolute terms, which means that rates of year-on-year decline will start to improve significantly as the year continues,” he said.
DMGT has made 1,000 employees at its regional titles redundant this year, including the latest cutbacks, but Mr Williams forecast that the most recent round of dismissals would be the last needed if revenues continued to hold at their depressed levels.
Related Links
Advertising slump leaves UK local papers in crisis
Daily Mail and General Trust warns of advertising collapse at regional newspapers
The company is closing “some of the smaller titles we launched when times were good”, Mr Williams said. He added that, despite the cuts, the company was “taking on even more reporters overall”.
DMGT believes that the real area of trading uncertainty is now for national newspapers. Display advertising in the Daily Mail and The Mail on Sunday - about 40 per cent of turnover - was down 24per cent in January and February. “Five months into our financial year, and it's the one area we can't predict, because it is so volatile. We've had weeks when we are up year-on-year, before another sharp decline,” Mr Williams said.
The 24 per cent figure would have been “a couple of percentage points better” had the London Evening Standard been excluded. The paper was sold last month to Alexander Lebedev, a Russian oligarch, who has pledged to fund its losses, estimated at £15 million a year, for about the next three years.
At the Northcliffe Newspapers regional division, advertising revenues fell 40 per cent in January, but that decline slowed in February. The overall decline in January and February was 37 per cent and what the publishing group described as “stabilisation” has continued into March. “The fact that we are talking about stabilisation is about the most encouraging thing anybody has said about the regional newspaper business in the last 18 months,” Mr Williams said.
Northcliffe Newspapers is on course to make a profit for the financial year to the end of September, but the figure is expected to be well below last year's £68 million in operating income.
Numis, the brokerage, wrote in a note: “Although we recognise the market's concern over B2C [consumer business], we believe Associated is a robust business, while the more challenged [regional newspaper unit] Northcliffe now represents just 15 per cent of Ebitda.”
DMGT also sells business information, owns Euromoney, the business-to-business group, and runs international exhibitions and an Australian radio group. These other businesses accounted for 61 per cent of sales last year and should bring in 70 per cent of operating profit this year.
DMGT shares closed up 8p, or 3.4 per cent, at 241p.
http://business.timesonline.co.uk/tol/business/industry_sectors/media/article5962710.ece
Tuesday 24 March 2009
Don't be a victim of a bogus training scheme
Don't be a victim of a bogus training scheme
We explain how to spot the worthless courses and secure funding for the legitimate ones
David Budworth
Victims of Britain's jobs crisis are being duped out of thousands of pounds by dodgy training providers that offer worthless qualifications that carry no weight with employers. Retraining courses that claim to provide the skills and qualifications needed to secure a new job have become big business as unemployment has soared above the two million mark.
But people who are out of work or trying to improve their job prospects are being warned to take care before handing over money, after Citizens Advice reported an alarming rise in scam training courses.
Susan Marks, of Citizens Advice, says: “We have seen cases where people have paid course fees only to discover that the college does not exist, goes bust or cannot be contacted. In other cases, either the course or the qualifications promised failed to materialise. These scams are particularly despicable in the current economic climate, when so many people are being made redundant and are desperate to carve out new careers.”
The scams uncovered by the investigation cover careers as varied as IT, plumbing and healthcare. They appear to be respectable, with internet sites that often mimic those of legitimate training providers. Some have even been advertised in Jobcentres.
Related Links
Unemployment benefits explained
Beware of the debt traps
Alice Judd, of Which?, the consumer organisation, says: “Billions of pounds are lost to scams every year. The fraudsters are very inventive, so it is easy to be duped, especially if you are feeling desperate.”
Not all of the schemes are run by fraudsters who take the money and disappear. Others are simply of poor quality, fail to deliver the qualifications claimed or are mis-sold to people who cannot benefit. But whether they are set up with criminal intent or not, the impact on the innocent victims can be devastating.
One 25-year-old man, who asked not to be named, was persuaded to take out a career development loan to pay the £4,400 fees for a plumbing course. When he embarked on the scheme he found that it was poorly prepared and run and did not provide the skills he needed. By then it was too late to claim a refund. Ms Marks says: “He missed out on the plumbing qualification he was aiming for, is still out of work and bitterly regrets that he did not do more research to ensure that he got on a proper, accredited, course. He has been left with the burden of repaying a large loan with no job prospects in sight.”
In another case, a woman on disability benefits signed up for a two-year internet course on web design. The course promised all sorts of support that never materialised. To make matters worse, the course was cancelled before she had completed it. Though she was offered a refund of £1,200 on course fees of £3,950, she has still been left with a large debt and no qualification.
By the time people realise that they have been misled, they have usually lost the right to a full refund. Most courses demand that the fees are paid upfront, and pressure-selling tactics may be employed to encourage people to hand over their money. Some rogue providers will even turn up at people's houses to seal the deal. They often demand the victim's bank details, opening consumers to the danger of identity fraud.
Although consumers have cancellation rights, Citizens Advice says that these are inadequate and confusing. Courses sold over the phone or internet are covered by the Consumer Protection (Distance Selling) Regulations 2000. The cooling-off period, during which you have the right to cancel for any reason, ends only seven working days after you sign up or when the service starts, if earlier. For doorstep selling, the cooling off period is seven calendar days.
Ms Marks says: “By the time you realise that the course does not exist or that the teaching is not up to standard, it is usually too late.”
Legitimate providers may offer longer cooling-off periods. This should be spelt out in the terms and conditions that accompany the application form. If it is not, contact the provider and establish the time limit and how to obtain a refund.
There are some other basic steps that you can take to protect yourself. First, try to find out out as much as possible about the course provider and make sure that you at least have an address and landline telephone number that works. “A PO Box or mobile phone number is not enough,” Ms Judd says.
If the course claims to offer a qualification, check that the course is accredited with the relevant body - City & Guilds, for example. Chris Atkin, of Total Electrical Training, the training organisation, suggests that you also request references from previous students or, better still, go along to meet existing students.
Finally, never give bank details until you are convinced that the course is legitimate.
If you think that you have uncovered a scam, report it to your local Citizens Advice bureau, which will look into your claim and, if necessary, report the organisation to the Office of Fair Trading, which has the power to shut down and fine organisations that are operating training scams.
The Department for Work and Pensions, meanwhile, says that it will take action if it discovers that a scam is being advertised in a Jobcentre. It says: “All training providers we work with have to undergo rigorous checks before they can provide training on our behalf, to ensure that they provide a first-class service for our customers. Some Jobcentres have space to display job-related information, including information about training, from other organisations. If any customers have concerns about a programme, they should immediately notify an adviser and we will investigate.”
Before you embark on a course, make sure that it will be worthwhile. Ask potential employers what they think of a course or qualification and whether it will make them more likely to hire you. Alternatively, you can obtain free advice from the government-backed Careers Advice Service. Its telephone helpline (0800 100900) is open seven days a week. The service's website, at careersadvice.direct.gov.uk, also provides useful advice about the financial help available to help you to retrain.
Career Development Loans of between £300 and £8,000 are available to fund up to two years of learning. That is extended to three years if your course includes one year of work experience.
The loans, which are offered by Barclays, the Co-operative Bank and Royal Bank of Scotland, are interest-free while you study. However, a fixed rate of interest is charged from one month after the course ends. The typical rate on a Barclays Career Development Loan is currently 7.4 per cent.
Most of the banks also offer their own specialist loans for retraining. For example, the Professional Trainee Loan from NatWest allows customers studying full-time to borrow up to £20,000 - £25,000 for law courses - at a fixed rate of 7.9 per cent or 3.3 per cent variable. Repayments can be delayed until six months after your course is completed, and you have ten years to repay the debt.
Anyone who is retraining as a social worker, teacher, dentist or doctor may be able to submit an application for a non-repayable bursary from the Government. You have to be studying an approved course to qualify for this type of funding. Your university or college will be able to tell you if your course is eligible.
Other job-related scams
Homeworking - You see an advert claiming that you can “earn £2,000 a month” working from home. The catch is that before starting any work, you have to pay an administration fee. After you have coughed up, you find that there is no work to do or that you will not be paid for work done.
Pyramid schemes - You pay to become a member and are promised large commission earnings if you recruit others to the scheme. If enough new members join, the pyramid grows, possibly making money for some members. But when new members dry up, the pyramid collapses.
http://www.timesonline.co.uk/tol/money/consumer_affairs/article5946123.ece
We explain how to spot the worthless courses and secure funding for the legitimate ones
David Budworth
Victims of Britain's jobs crisis are being duped out of thousands of pounds by dodgy training providers that offer worthless qualifications that carry no weight with employers. Retraining courses that claim to provide the skills and qualifications needed to secure a new job have become big business as unemployment has soared above the two million mark.
But people who are out of work or trying to improve their job prospects are being warned to take care before handing over money, after Citizens Advice reported an alarming rise in scam training courses.
Susan Marks, of Citizens Advice, says: “We have seen cases where people have paid course fees only to discover that the college does not exist, goes bust or cannot be contacted. In other cases, either the course or the qualifications promised failed to materialise. These scams are particularly despicable in the current economic climate, when so many people are being made redundant and are desperate to carve out new careers.”
The scams uncovered by the investigation cover careers as varied as IT, plumbing and healthcare. They appear to be respectable, with internet sites that often mimic those of legitimate training providers. Some have even been advertised in Jobcentres.
Related Links
Unemployment benefits explained
Beware of the debt traps
Alice Judd, of Which?, the consumer organisation, says: “Billions of pounds are lost to scams every year. The fraudsters are very inventive, so it is easy to be duped, especially if you are feeling desperate.”
Not all of the schemes are run by fraudsters who take the money and disappear. Others are simply of poor quality, fail to deliver the qualifications claimed or are mis-sold to people who cannot benefit. But whether they are set up with criminal intent or not, the impact on the innocent victims can be devastating.
One 25-year-old man, who asked not to be named, was persuaded to take out a career development loan to pay the £4,400 fees for a plumbing course. When he embarked on the scheme he found that it was poorly prepared and run and did not provide the skills he needed. By then it was too late to claim a refund. Ms Marks says: “He missed out on the plumbing qualification he was aiming for, is still out of work and bitterly regrets that he did not do more research to ensure that he got on a proper, accredited, course. He has been left with the burden of repaying a large loan with no job prospects in sight.”
In another case, a woman on disability benefits signed up for a two-year internet course on web design. The course promised all sorts of support that never materialised. To make matters worse, the course was cancelled before she had completed it. Though she was offered a refund of £1,200 on course fees of £3,950, she has still been left with a large debt and no qualification.
By the time people realise that they have been misled, they have usually lost the right to a full refund. Most courses demand that the fees are paid upfront, and pressure-selling tactics may be employed to encourage people to hand over their money. Some rogue providers will even turn up at people's houses to seal the deal. They often demand the victim's bank details, opening consumers to the danger of identity fraud.
Although consumers have cancellation rights, Citizens Advice says that these are inadequate and confusing. Courses sold over the phone or internet are covered by the Consumer Protection (Distance Selling) Regulations 2000. The cooling-off period, during which you have the right to cancel for any reason, ends only seven working days after you sign up or when the service starts, if earlier. For doorstep selling, the cooling off period is seven calendar days.
Ms Marks says: “By the time you realise that the course does not exist or that the teaching is not up to standard, it is usually too late.”
Legitimate providers may offer longer cooling-off periods. This should be spelt out in the terms and conditions that accompany the application form. If it is not, contact the provider and establish the time limit and how to obtain a refund.
There are some other basic steps that you can take to protect yourself. First, try to find out out as much as possible about the course provider and make sure that you at least have an address and landline telephone number that works. “A PO Box or mobile phone number is not enough,” Ms Judd says.
If the course claims to offer a qualification, check that the course is accredited with the relevant body - City & Guilds, for example. Chris Atkin, of Total Electrical Training, the training organisation, suggests that you also request references from previous students or, better still, go along to meet existing students.
Finally, never give bank details until you are convinced that the course is legitimate.
If you think that you have uncovered a scam, report it to your local Citizens Advice bureau, which will look into your claim and, if necessary, report the organisation to the Office of Fair Trading, which has the power to shut down and fine organisations that are operating training scams.
The Department for Work and Pensions, meanwhile, says that it will take action if it discovers that a scam is being advertised in a Jobcentre. It says: “All training providers we work with have to undergo rigorous checks before they can provide training on our behalf, to ensure that they provide a first-class service for our customers. Some Jobcentres have space to display job-related information, including information about training, from other organisations. If any customers have concerns about a programme, they should immediately notify an adviser and we will investigate.”
Before you embark on a course, make sure that it will be worthwhile. Ask potential employers what they think of a course or qualification and whether it will make them more likely to hire you. Alternatively, you can obtain free advice from the government-backed Careers Advice Service. Its telephone helpline (0800 100900) is open seven days a week. The service's website, at careersadvice.direct.gov.uk, also provides useful advice about the financial help available to help you to retrain.
Career Development Loans of between £300 and £8,000 are available to fund up to two years of learning. That is extended to three years if your course includes one year of work experience.
The loans, which are offered by Barclays, the Co-operative Bank and Royal Bank of Scotland, are interest-free while you study. However, a fixed rate of interest is charged from one month after the course ends. The typical rate on a Barclays Career Development Loan is currently 7.4 per cent.
Most of the banks also offer their own specialist loans for retraining. For example, the Professional Trainee Loan from NatWest allows customers studying full-time to borrow up to £20,000 - £25,000 for law courses - at a fixed rate of 7.9 per cent or 3.3 per cent variable. Repayments can be delayed until six months after your course is completed, and you have ten years to repay the debt.
Anyone who is retraining as a social worker, teacher, dentist or doctor may be able to submit an application for a non-repayable bursary from the Government. You have to be studying an approved course to qualify for this type of funding. Your university or college will be able to tell you if your course is eligible.
Other job-related scams
Homeworking - You see an advert claiming that you can “earn £2,000 a month” working from home. The catch is that before starting any work, you have to pay an administration fee. After you have coughed up, you find that there is no work to do or that you will not be paid for work done.
Pyramid schemes - You pay to become a member and are promised large commission earnings if you recruit others to the scheme. If enough new members join, the pyramid grows, possibly making money for some members. But when new members dry up, the pyramid collapses.
http://www.timesonline.co.uk/tol/money/consumer_affairs/article5946123.ece
Don't be a victim of a bogus training scheme
Don't be a victim of a bogus training scheme
We explain how to spot the worthless courses and secure funding for the legitimate ones
David Budworth
Victims of Britain's jobs crisis are being duped out of thousands of pounds by dodgy training providers that offer worthless qualifications that carry no weight with employers. Retraining courses that claim to provide the skills and qualifications needed to secure a new job have become big business as unemployment has soared above the two million mark.
But people who are out of work or trying to improve their job prospects are being warned to take care before handing over money, after Citizens Advice reported an alarming rise in scam training courses.
Susan Marks, of Citizens Advice, says: “We have seen cases where people have paid course fees only to discover that the college does not exist, goes bust or cannot be contacted. In other cases, either the course or the qualifications promised failed to materialise. These scams are particularly despicable in the current economic climate, when so many people are being made redundant and are desperate to carve out new careers.”
The scams uncovered by the investigation cover careers as varied as IT, plumbing and healthcare. They appear to be respectable, with internet sites that often mimic those of legitimate training providers. Some have even been advertised in Jobcentres.
Related Links
Unemployment benefits explained
Beware of the debt traps
Alice Judd, of Which?, the consumer organisation, says: “Billions of pounds are lost to scams every year. The fraudsters are very inventive, so it is easy to be duped, especially if you are feeling desperate.”
Not all of the schemes are run by fraudsters who take the money and disappear. Others are simply of poor quality, fail to deliver the qualifications claimed or are mis-sold to people who cannot benefit. But whether they are set up with criminal intent or not, the impact on the innocent victims can be devastating.
One 25-year-old man, who asked not to be named, was persuaded to take out a career development loan to pay the £4,400 fees for a plumbing course. When he embarked on the scheme he found that it was poorly prepared and run and did not provide the skills he needed. By then it was too late to claim a refund. Ms Marks says: “He missed out on the plumbing qualification he was aiming for, is still out of work and bitterly regrets that he did not do more research to ensure that he got on a proper, accredited, course. He has been left with the burden of repaying a large loan with no job prospects in sight.”
In another case, a woman on disability benefits signed up for a two-year internet course on web design. The course promised all sorts of support that never materialised. To make matters worse, the course was cancelled before she had completed it. Though she was offered a refund of £1,200 on course fees of £3,950, she has still been left with a large debt and no qualification.
By the time people realise that they have been misled, they have usually lost the right to a full refund. Most courses demand that the fees are paid upfront, and pressure-selling tactics may be employed to encourage people to hand over their money. Some rogue providers will even turn up at people's houses to seal the deal. They often demand the victim's bank details, opening consumers to the danger of identity fraud.
Although consumers have cancellation rights, Citizens Advice says that these are inadequate and confusing. Courses sold over the phone or internet are covered by the Consumer Protection (Distance Selling) Regulations 2000. The cooling-off period, during which you have the right to cancel for any reason, ends only seven working days after you sign up or when the service starts, if earlier. For doorstep selling, the cooling off period is seven calendar days.
Ms Marks says: “By the time you realise that the course does not exist or that the teaching is not up to standard, it is usually too late.”
Legitimate providers may offer longer cooling-off periods. This should be spelt out in the terms and conditions that accompany the application form. If it is not, contact the provider and establish the time limit and how to obtain a refund.
There are some other basic steps that you can take to protect yourself. First, try to find out out as much as possible about the course provider and make sure that you at least have an address and landline telephone number that works. “A PO Box or mobile phone number is not enough,” Ms Judd says.
If the course claims to offer a qualification, check that the course is accredited with the relevant body - City & Guilds, for example. Chris Atkin, of Total Electrical Training, the training organisation, suggests that you also request references from previous students or, better still, go along to meet existing students.
Finally, never give bank details until you are convinced that the course is legitimate.
If you think that you have uncovered a scam, report it to your local Citizens Advice bureau, which will look into your claim and, if necessary, report the organisation to the Office of Fair Trading, which has the power to shut down and fine organisations that are operating training scams.
The Department for Work and Pensions, meanwhile, says that it will take action if it discovers that a scam is being advertised in a Jobcentre. It says: “All training providers we work with have to undergo rigorous checks before they can provide training on our behalf, to ensure that they provide a first-class service for our customers. Some Jobcentres have space to display job-related information, including information about training, from other organisations. If any customers have concerns about a programme, they should immediately notify an adviser and we will investigate.”
Before you embark on a course, make sure that it will be worthwhile. Ask potential employers what they think of a course or qualification and whether it will make them more likely to hire you. Alternatively, you can obtain free advice from the government-backed Careers Advice Service. Its telephone helpline (0800 100900) is open seven days a week. The service's website, at careersadvice.direct.gov.uk, also provides useful advice about the financial help available to help you to retrain.
Career Development Loans of between £300 and £8,000 are available to fund up to two years of learning. That is extended to three years if your course includes one year of work experience.
The loans, which are offered by Barclays, the Co-operative Bank and Royal Bank of Scotland, are interest-free while you study. However, a fixed rate of interest is charged from one month after the course ends. The typical rate on a Barclays Career Development Loan is currently 7.4 per cent.
Most of the banks also offer their own specialist loans for retraining. For example, the Professional Trainee Loan from NatWest allows customers studying full-time to borrow up to £20,000 - £25,000 for law courses - at a fixed rate of 7.9 per cent or 3.3 per cent variable. Repayments can be delayed until six months after your course is completed, and you have ten years to repay the debt.
Anyone who is retraining as a social worker, teacher, dentist or doctor may be able to submit an application for a non-repayable bursary from the Government. You have to be studying an approved course to qualify for this type of funding. Your university or college will be able to tell you if your course is eligible.
Other job-related scams
Homeworking - You see an advert claiming that you can “earn £2,000 a month” working from home. The catch is that before starting any work, you have to pay an administration fee. After you have coughed up, you find that there is no work to do or that you will not be paid for work done.
Pyramid schemes - You pay to become a member and are promised large commission earnings if you recruit others to the scheme. If enough new members join, the pyramid grows, possibly making money for some members. But when new members dry up, the pyramid collapses.
http://www.timesonline.co.uk/tol/money/consumer_affairs/article5946123.ece
We explain how to spot the worthless courses and secure funding for the legitimate ones
David Budworth
Victims of Britain's jobs crisis are being duped out of thousands of pounds by dodgy training providers that offer worthless qualifications that carry no weight with employers. Retraining courses that claim to provide the skills and qualifications needed to secure a new job have become big business as unemployment has soared above the two million mark.
But people who are out of work or trying to improve their job prospects are being warned to take care before handing over money, after Citizens Advice reported an alarming rise in scam training courses.
Susan Marks, of Citizens Advice, says: “We have seen cases where people have paid course fees only to discover that the college does not exist, goes bust or cannot be contacted. In other cases, either the course or the qualifications promised failed to materialise. These scams are particularly despicable in the current economic climate, when so many people are being made redundant and are desperate to carve out new careers.”
The scams uncovered by the investigation cover careers as varied as IT, plumbing and healthcare. They appear to be respectable, with internet sites that often mimic those of legitimate training providers. Some have even been advertised in Jobcentres.
Related Links
Unemployment benefits explained
Beware of the debt traps
Alice Judd, of Which?, the consumer organisation, says: “Billions of pounds are lost to scams every year. The fraudsters are very inventive, so it is easy to be duped, especially if you are feeling desperate.”
Not all of the schemes are run by fraudsters who take the money and disappear. Others are simply of poor quality, fail to deliver the qualifications claimed or are mis-sold to people who cannot benefit. But whether they are set up with criminal intent or not, the impact on the innocent victims can be devastating.
One 25-year-old man, who asked not to be named, was persuaded to take out a career development loan to pay the £4,400 fees for a plumbing course. When he embarked on the scheme he found that it was poorly prepared and run and did not provide the skills he needed. By then it was too late to claim a refund. Ms Marks says: “He missed out on the plumbing qualification he was aiming for, is still out of work and bitterly regrets that he did not do more research to ensure that he got on a proper, accredited, course. He has been left with the burden of repaying a large loan with no job prospects in sight.”
In another case, a woman on disability benefits signed up for a two-year internet course on web design. The course promised all sorts of support that never materialised. To make matters worse, the course was cancelled before she had completed it. Though she was offered a refund of £1,200 on course fees of £3,950, she has still been left with a large debt and no qualification.
By the time people realise that they have been misled, they have usually lost the right to a full refund. Most courses demand that the fees are paid upfront, and pressure-selling tactics may be employed to encourage people to hand over their money. Some rogue providers will even turn up at people's houses to seal the deal. They often demand the victim's bank details, opening consumers to the danger of identity fraud.
Although consumers have cancellation rights, Citizens Advice says that these are inadequate and confusing. Courses sold over the phone or internet are covered by the Consumer Protection (Distance Selling) Regulations 2000. The cooling-off period, during which you have the right to cancel for any reason, ends only seven working days after you sign up or when the service starts, if earlier. For doorstep selling, the cooling off period is seven calendar days.
Ms Marks says: “By the time you realise that the course does not exist or that the teaching is not up to standard, it is usually too late.”
Legitimate providers may offer longer cooling-off periods. This should be spelt out in the terms and conditions that accompany the application form. If it is not, contact the provider and establish the time limit and how to obtain a refund.
There are some other basic steps that you can take to protect yourself. First, try to find out out as much as possible about the course provider and make sure that you at least have an address and landline telephone number that works. “A PO Box or mobile phone number is not enough,” Ms Judd says.
If the course claims to offer a qualification, check that the course is accredited with the relevant body - City & Guilds, for example. Chris Atkin, of Total Electrical Training, the training organisation, suggests that you also request references from previous students or, better still, go along to meet existing students.
Finally, never give bank details until you are convinced that the course is legitimate.
If you think that you have uncovered a scam, report it to your local Citizens Advice bureau, which will look into your claim and, if necessary, report the organisation to the Office of Fair Trading, which has the power to shut down and fine organisations that are operating training scams.
The Department for Work and Pensions, meanwhile, says that it will take action if it discovers that a scam is being advertised in a Jobcentre. It says: “All training providers we work with have to undergo rigorous checks before they can provide training on our behalf, to ensure that they provide a first-class service for our customers. Some Jobcentres have space to display job-related information, including information about training, from other organisations. If any customers have concerns about a programme, they should immediately notify an adviser and we will investigate.”
Before you embark on a course, make sure that it will be worthwhile. Ask potential employers what they think of a course or qualification and whether it will make them more likely to hire you. Alternatively, you can obtain free advice from the government-backed Careers Advice Service. Its telephone helpline (0800 100900) is open seven days a week. The service's website, at careersadvice.direct.gov.uk, also provides useful advice about the financial help available to help you to retrain.
Career Development Loans of between £300 and £8,000 are available to fund up to two years of learning. That is extended to three years if your course includes one year of work experience.
The loans, which are offered by Barclays, the Co-operative Bank and Royal Bank of Scotland, are interest-free while you study. However, a fixed rate of interest is charged from one month after the course ends. The typical rate on a Barclays Career Development Loan is currently 7.4 per cent.
Most of the banks also offer their own specialist loans for retraining. For example, the Professional Trainee Loan from NatWest allows customers studying full-time to borrow up to £20,000 - £25,000 for law courses - at a fixed rate of 7.9 per cent or 3.3 per cent variable. Repayments can be delayed until six months after your course is completed, and you have ten years to repay the debt.
Anyone who is retraining as a social worker, teacher, dentist or doctor may be able to submit an application for a non-repayable bursary from the Government. You have to be studying an approved course to qualify for this type of funding. Your university or college will be able to tell you if your course is eligible.
Other job-related scams
Homeworking - You see an advert claiming that you can “earn £2,000 a month” working from home. The catch is that before starting any work, you have to pay an administration fee. After you have coughed up, you find that there is no work to do or that you will not be paid for work done.
Pyramid schemes - You pay to become a member and are promised large commission earnings if you recruit others to the scheme. If enough new members join, the pyramid grows, possibly making money for some members. But when new members dry up, the pyramid collapses.
http://www.timesonline.co.uk/tol/money/consumer_affairs/article5946123.ece
Buffett: A Complete Fool
Buffett: A Complete Fool
By Selena Maranjian March 23, 2009 Comments (0)
Good old Jim Cramer. His provocative ways have brought a lot of eyeballs and ears to his Mad Money show on CNBC, and he draws attention elsewhere, too. Daily Show host Jon Stewart, for example, recently clobbered him in a high-profile fashion. Stewart enjoyed showing clips of Cramer saying some regrettable things. Well, now it's my turn to bring up some of Mr. Cramer's words.
It seems that during a recent appearance on The Today Show, Cramer suggested that Warren Buffett should be "attacked" more than the "little guys" who report on the stock market on TV. He said: "You know, Warren Buffett, I could run tapes [of things he's said] -- he would look like a complete fool."
Of course I sat up at that. Buffett, a Fool? Like us? Why, that would be great! So I went looking for some of Buffett's words to support such a proposition. Here are some I found in Janet Lowe's book, Warren Buffett Speaks:
"[L]ook at stocks as small pieces of the business." Here, Buffett cites value investor Benjamin Graham. This is how we at The Motley Fool have long viewed stocks. While others may simply study stock-price movements and trends, we've focused on the companies behind the stocks, looking for long-term winners.
"You pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values." Several of our approaches thrive on uncertainty. For instance, our Rule Breaker investing approach (meant to help you seek aggressive growth with a portion of your portfolio) actually likes to see stocks that the mainstream considers to be overvalued, in part because that creates uncertainty among the investing public that can mask their true value. Meanwhile, the approach of our Inside Value newsletter team includes companies that are currently scorned due to temporary troubles, such as American Express (NYSE: AXP).
"The three most important words of investing: 'margin of safety.'" When we invest, we like to look for a margin of safety, too. If you buy a company that seems worth $50 per share for $45, it may be a good buy. But if you can buy it for $35 or $40, you'll enjoy a greater margin of safety. Even the entire market is offering a greater margin of safety right now -- to many people, it seems a great time to buy. (Even Buffett himself took to the op-ed page a while back, saying he was buying American stocks.)
"We like stocks that generate high returns on invested capital [ROIC] where there is a strong likelihood that it will continue to do so." We respect ROIC, too. Here are some companies with good returns on invested capital that have also earned the respect of our 130,000-member strong Motley Fool CAPS community, having earned a top rating of five stars:
Company
ROIC
Western Union (NYSE: WU)
27.5%
Noble (NYSE: NE)
20.8%
Accenture (NYSE: ACN)
74%
Cognizant Technology (Nasdaq: CTSH)
18.8%
Colgate-Palmolive (NYSE: CL)
34.1%
Agrium (NYSE: AGU)
24.6%
Sources: Capital IQ, a division of Standard and Poor's; Motley Fool CAPS.
"Never ask the barber if you need a haircut." Our entire company was founded on the premise that we were like Shakespeare's dramatic Fools -- here to tell you the truth, unlike the professionals on Wall Street, who faced conflicts of interest and often profited from your trading.
Teaching and sharing
There are other similarities, too. For one thing, Buffett has spoken admiringly of his mentor Ben Graham's generosity in teaching others about investing, and also about how open he was with his stock ideas. Buffett himself keeps his stock trading as secret as he can (he's obligated by law to make some regular disclosures), but he does actively carry on the Graham tradition of teaching, hosting many groups of students who visit Omaha and also teaching the rest of us through his annual letters to shareholders and appearances in the media.
We at the Fool have similar impulses, having founded our company with the mission "to educate, amuse and enrich." Since our early days, we've aimed to teach our readers (and learn from them, as well), and we've shared our investing ideas.
So there you have it -- Warren Buffett does indeed look like a complete Fool. Of course, he's been delivering his messages since well before the Fool was born. So maybe it's more a matter of us looking rather like Buffett.
Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement. Get the tips you need to turn your retirement savings around in our special report, "How to Make the Most of Your 401(k)" -- just click here for instant free access.
Longtime Fool contributor Selena Maranjian owns shares of American Express. American Express, Accenture, and Western Union are Motley Fool Inside Value selections. The Fool owns shares of American Express.
http://www.fool.com/investing/value/2009/03/23/buffett-a-complete-fool.aspx
By Selena Maranjian March 23, 2009 Comments (0)
Good old Jim Cramer. His provocative ways have brought a lot of eyeballs and ears to his Mad Money show on CNBC, and he draws attention elsewhere, too. Daily Show host Jon Stewart, for example, recently clobbered him in a high-profile fashion. Stewart enjoyed showing clips of Cramer saying some regrettable things. Well, now it's my turn to bring up some of Mr. Cramer's words.
It seems that during a recent appearance on The Today Show, Cramer suggested that Warren Buffett should be "attacked" more than the "little guys" who report on the stock market on TV. He said: "You know, Warren Buffett, I could run tapes [of things he's said] -- he would look like a complete fool."
Of course I sat up at that. Buffett, a Fool? Like us? Why, that would be great! So I went looking for some of Buffett's words to support such a proposition. Here are some I found in Janet Lowe's book, Warren Buffett Speaks:
"[L]ook at stocks as small pieces of the business." Here, Buffett cites value investor Benjamin Graham. This is how we at The Motley Fool have long viewed stocks. While others may simply study stock-price movements and trends, we've focused on the companies behind the stocks, looking for long-term winners.
"You pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values." Several of our approaches thrive on uncertainty. For instance, our Rule Breaker investing approach (meant to help you seek aggressive growth with a portion of your portfolio) actually likes to see stocks that the mainstream considers to be overvalued, in part because that creates uncertainty among the investing public that can mask their true value. Meanwhile, the approach of our Inside Value newsletter team includes companies that are currently scorned due to temporary troubles, such as American Express (NYSE: AXP).
"The three most important words of investing: 'margin of safety.'" When we invest, we like to look for a margin of safety, too. If you buy a company that seems worth $50 per share for $45, it may be a good buy. But if you can buy it for $35 or $40, you'll enjoy a greater margin of safety. Even the entire market is offering a greater margin of safety right now -- to many people, it seems a great time to buy. (Even Buffett himself took to the op-ed page a while back, saying he was buying American stocks.)
"We like stocks that generate high returns on invested capital [ROIC] where there is a strong likelihood that it will continue to do so." We respect ROIC, too. Here are some companies with good returns on invested capital that have also earned the respect of our 130,000-member strong Motley Fool CAPS community, having earned a top rating of five stars:
Company
ROIC
Western Union (NYSE: WU)
27.5%
Noble (NYSE: NE)
20.8%
Accenture (NYSE: ACN)
74%
Cognizant Technology (Nasdaq: CTSH)
18.8%
Colgate-Palmolive (NYSE: CL)
34.1%
Agrium (NYSE: AGU)
24.6%
Sources: Capital IQ, a division of Standard and Poor's; Motley Fool CAPS.
"Never ask the barber if you need a haircut." Our entire company was founded on the premise that we were like Shakespeare's dramatic Fools -- here to tell you the truth, unlike the professionals on Wall Street, who faced conflicts of interest and often profited from your trading.
Teaching and sharing
There are other similarities, too. For one thing, Buffett has spoken admiringly of his mentor Ben Graham's generosity in teaching others about investing, and also about how open he was with his stock ideas. Buffett himself keeps his stock trading as secret as he can (he's obligated by law to make some regular disclosures), but he does actively carry on the Graham tradition of teaching, hosting many groups of students who visit Omaha and also teaching the rest of us through his annual letters to shareholders and appearances in the media.
We at the Fool have similar impulses, having founded our company with the mission "to educate, amuse and enrich." Since our early days, we've aimed to teach our readers (and learn from them, as well), and we've shared our investing ideas.
So there you have it -- Warren Buffett does indeed look like a complete Fool. Of course, he's been delivering his messages since well before the Fool was born. So maybe it's more a matter of us looking rather like Buffett.
Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement. Get the tips you need to turn your retirement savings around in our special report, "How to Make the Most of Your 401(k)" -- just click here for instant free access.
Longtime Fool contributor Selena Maranjian owns shares of American Express. American Express, Accenture, and Western Union are Motley Fool Inside Value selections. The Fool owns shares of American Express.
http://www.fool.com/investing/value/2009/03/23/buffett-a-complete-fool.aspx
The Case Against Stocks
The Case Against Stocks
By Tim Beyers March 23, 2009 Comments (7)
A friend of mine -- an aerospace engineer -- refuses to own stocks. Lately, he also refuses to own actively managed funds. He's asked his 401(k) administrator to move his retirement savings into a "stable value" fund to preserve cash.
A stupid move, you say? A missed opportunity to buy quality businesses such as Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), and Nordstrom (NYSE: JWN) on the cheap? Perhaps.
But I think he's brilliant -- and not just because he's my friend.
Why stocks stink
His reasoning for not owning equities is simple and ironclad. He doesn't know how to value stocks in this market -- and he refuses to buy anything he can't price effectively.
He's nervous about the economy and about U.S. competitiveness compared to China, India, and the rest of the emerging world.
He doesn't see how trillions in stimulus will boost earnings for failing American stalwarts such as Ford (NYSE: F) and General Motors (NYSE: GM). And without increased earnings, my friend argues, there's no reason for stocks to rise.
He's right.
The stimulus, which I believe was necessary, could lead to higher inflation and obscure the real price of risk. That's a huge problem, since a fair assessment of risk is elemental to all stock valuation.
OK then, how about an alternative?
So there are excellent reasons to avoid stocks right now.
You may lack the time to study businesses. Or perhaps you're like my friend and lack the temperament to invest now, when artificial sweeteners such as the stimulus have turned the science of valuation into an art form. Or maybe you're like me and just plain tired of taking losses.
I didn't lose as much as the S&P 500 did last year -- our portfolio was down roughly 32% versus 40% for the broader index -- but that's little consolation. Losses are losses and, in 2009, I'm still taking them. I'm sick of it.
In every case, it's tempting to ask: Shouldn't I just flee to cash?
The answer is no.
Remember my friend's point about inflation? Cash is guaranteed to lose. You want some exposure to stocks so that you'll have a share of the gains when Mr. Market steps back from the ledge. Sooner or later, he will -- you want to be in the market when he does.
A market-matching index fund is the lowest-cost way to keep skin in the game without taking extra time to study and value businesses. Mix in a healthy cash position, and you've got a formula that should preserve wealth as you seek upside.
Um, is there a door number three? But what if you want to do better than matching the market? Let's face it -- matching the market hasn't been so nice lately.
In that case, you'll have to take on the extra risk that comes with buying stocks. But even then, you can limit your downside by betting on managers who've steered their businesses through earlier recessions.
Buffett and Berkshire Hathaway (NYSE: BRK-A) come to mind. So does Costco Wholesale (Nasdaq: COST) chief executive Jim Sinegal, who co-founded the big-box retailer in 1976. Both stocks were market-beaters during 2008, despite being pummeled by the market. And both companies have emerged from earlier recessions stronger than ever.
Recession-tested managers are typically more conservative than their bull-market peers, and they excel at allocating capital. They've seen the destruction excess can wreak, so they avoid it, choosing instead to invest in sustaining competitive advantages built over decades.
Businesses like these are easier to value because they have a history. They're proven, and they've rewarded those who've bet on them for the very long term. They are, in short, the sorts of companies that David and Tom Gardner seek for Motley Fool Stock Advisor -- both Berkshire and Costco are active picks.
My friend is right; you needn't own individual stocks. But if you're like me -- if you must invest because you're passionate about business -- then seek first the recession-busters, businesses that already have a history of rewarding those who held during prior recessions.
Chances are, they'll do it again.
Fool contributor Tim Beyers, like The Motley Fool, owned shares of Berkshire at the time of publication. Berkshire, Costco, and Coca-Cola are Inside Value picks. Berkshire and Costco are Stock Advisor selections. Procter & Gamble is an Income Investor choice.
http://www.fool.com/investing/general/2009/03/23/the-case-against-stocks.aspx
By Tim Beyers March 23, 2009 Comments (7)
A friend of mine -- an aerospace engineer -- refuses to own stocks. Lately, he also refuses to own actively managed funds. He's asked his 401(k) administrator to move his retirement savings into a "stable value" fund to preserve cash.
A stupid move, you say? A missed opportunity to buy quality businesses such as Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), and Nordstrom (NYSE: JWN) on the cheap? Perhaps.
But I think he's brilliant -- and not just because he's my friend.
Why stocks stink
His reasoning for not owning equities is simple and ironclad. He doesn't know how to value stocks in this market -- and he refuses to buy anything he can't price effectively.
He's nervous about the economy and about U.S. competitiveness compared to China, India, and the rest of the emerging world.
He doesn't see how trillions in stimulus will boost earnings for failing American stalwarts such as Ford (NYSE: F) and General Motors (NYSE: GM). And without increased earnings, my friend argues, there's no reason for stocks to rise.
He's right.
The stimulus, which I believe was necessary, could lead to higher inflation and obscure the real price of risk. That's a huge problem, since a fair assessment of risk is elemental to all stock valuation.
OK then, how about an alternative?
So there are excellent reasons to avoid stocks right now.
You may lack the time to study businesses. Or perhaps you're like my friend and lack the temperament to invest now, when artificial sweeteners such as the stimulus have turned the science of valuation into an art form. Or maybe you're like me and just plain tired of taking losses.
I didn't lose as much as the S&P 500 did last year -- our portfolio was down roughly 32% versus 40% for the broader index -- but that's little consolation. Losses are losses and, in 2009, I'm still taking them. I'm sick of it.
In every case, it's tempting to ask: Shouldn't I just flee to cash?
The answer is no.
Remember my friend's point about inflation? Cash is guaranteed to lose. You want some exposure to stocks so that you'll have a share of the gains when Mr. Market steps back from the ledge. Sooner or later, he will -- you want to be in the market when he does.
A market-matching index fund is the lowest-cost way to keep skin in the game without taking extra time to study and value businesses. Mix in a healthy cash position, and you've got a formula that should preserve wealth as you seek upside.
Um, is there a door number three? But what if you want to do better than matching the market? Let's face it -- matching the market hasn't been so nice lately.
In that case, you'll have to take on the extra risk that comes with buying stocks. But even then, you can limit your downside by betting on managers who've steered their businesses through earlier recessions.
Buffett and Berkshire Hathaway (NYSE: BRK-A) come to mind. So does Costco Wholesale (Nasdaq: COST) chief executive Jim Sinegal, who co-founded the big-box retailer in 1976. Both stocks were market-beaters during 2008, despite being pummeled by the market. And both companies have emerged from earlier recessions stronger than ever.
Recession-tested managers are typically more conservative than their bull-market peers, and they excel at allocating capital. They've seen the destruction excess can wreak, so they avoid it, choosing instead to invest in sustaining competitive advantages built over decades.
Businesses like these are easier to value because they have a history. They're proven, and they've rewarded those who've bet on them for the very long term. They are, in short, the sorts of companies that David and Tom Gardner seek for Motley Fool Stock Advisor -- both Berkshire and Costco are active picks.
My friend is right; you needn't own individual stocks. But if you're like me -- if you must invest because you're passionate about business -- then seek first the recession-busters, businesses that already have a history of rewarding those who held during prior recessions.
Chances are, they'll do it again.
Fool contributor Tim Beyers, like The Motley Fool, owned shares of Berkshire at the time of publication. Berkshire, Costco, and Coca-Cola are Inside Value picks. Berkshire and Costco are Stock Advisor selections. Procter & Gamble is an Income Investor choice.
http://www.fool.com/investing/general/2009/03/23/the-case-against-stocks.aspx
U.S. to Help Investors Buy Bank Assets
U.S. to Help Investors Buy Bank Assets
Markets Soar in Response to Public-Private Plan, Which Aims to Shore Up Lenders' Books
By Neil Irwin and David Cho
Washington Post Staff Writers
Tuesday, March 24, 2009; A01
Financial markets roared ahead yesterday as investors reacted with near-euphoria to the Obama administration's new trillion-dollar plan to stabilize banks by relieving them of their troubled assets and risky loans.
But even as markets exulted, conflicting interests among participants in the program -- banks, investors and taxpayers -- were emerging, leaving in doubt the fate of a program meant to revive bank lending and in turn reinvigorate the overall economy.
Some banks are resisting government pressure to sell assets at prices they believe to be too low. And despite the risk of an outcry from Congress, the Treasury this weekend made the program more attractive to private investors, according to industry and some government officials. Treasury officials said the last-minute changes were not intended to sweeten the deal.
In the short run, the rollout of the plan gave a much-needed boost to the administration and beleaguered Treasury Secretary Timothy F. Geithner, as officials on Wall Street and Washington in general spoke favorably of the plan. The Standard & Poor's 500-stock index rose 7.1 percent in the best day for the stock market in five months.
"The policymakers definitely have the right ideas in their head right now, but whether they can execute it I don't know," said Daniel Alpert, managing director of Westwood Capital, a boutique investment bank.
The Obama administration is now preparing its next move, planning this week to send legislation to Congress granting the government new powers to seize troubled non-bank financial companies whose collapse would threaten the broader economy, according to three sources familiar with the matter. Administration officials said the proposed authority, for instance, would have allowed them to seize American International Group last fall and wind down its operations at less cost to taxpayers. Geithner is expected argue for the new powers at a hearing on Capitol Hill today.
The new Public-Private Investment Program, which Geithner announced yesterday, includes programs to buy up real-estate-related loans and securities backed by those loans. It will combine $75 billion to $100 billion in financial rescue funds already approved by Congress with investments from private investors, loan guarantees by the Federal Deposit Insurance Corp., and loans from the Federal Reserve to buy up to $1 trillion in real-estate-related assets.
The idea is that banks are unwilling to lend money in part because they fear further losses on past loans now stuck on their books. Government officials said they hope that introducing new buyers will help set a floor for asset prices and stabilize the broader financial system by removing troubled assets from financial firms.
But the initiative leaves the Treasury's financial rescue fund nearly tapped out, and with a hostile environment in Congress, administration officials are worried that they might be unable to get more money.
If the Treasury uses the full $100 billion, it would leave only $12 billion uncommitted from the $700 billion financial rescue package that Congress approved in early October, according to tabulations by the Committee for a Responsible Federal Budget. In turn, that would leave Geithner with few options to provide emergency capital if a major financial firm finds itself on the verge of failure or the "stress tests" now being conducted on large banks reveal an urgent need.
Geithner's credibility with Congress was at a low ebb after the outcry last week over bonuses paid to executives of American International Group. Congressional leaders still say it would be difficult to pass a law giving the Treasury any further funds for financial rescues.
Yet without those funds, the Treasury was forced to stretch the dollars it already has, crafting a plan that is complex and probably more costly to taxpayers over the long term than if Congress provided help.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, suggested that a successful rollout of the public-private investment fund could change the tenor on Capitol Hill. "What they're trying to do now is avoid a showdown" between the administration and Congress over more bailout money. "If these things are successful, then I think there would be some more funding down the road."
Geithner and his colleagues at the Treasury Department have been trying to design a program that achieves several objectives: giving private investors plenty of incentive to buy the distressed assets, getting banks to willingly sell these assets and protecting taxpayers from unreasonable risk.
Treasury officials made changes to the plan in recent days in a way that makes it more favorable to private investors, according to government and industry sources. For instance, on Saturday, the draft plan called for the Treasury to put in four times as much equity as private investors, which would give taxpayers a greater windfall if the banking system recovers and the investments become profitable. But Treasury officials surrendered some of those potential gains after listening to the concerns of hedge funds and private-equity funds on Sunday, industry officials said.
The Treasury increased private investors' share of potential profits from 20 percent to 50 percent. A senior official at the department said it was not because the Treasury wanted to make the deal better for the investors but because it wanted to send a consistent message that the government would take the same stake as the private sector across all rescue programs. A smaller Treasury stake also means less risk for taxpayers, the official said.
The response from major investors yesterday was strongly supportive. Bill Gross, co-chief investment officer of Pimco, the nation's largest bond investor, said his firm is eager to participate and that the program is a "win-win-win" policy that "should be welcomed enthusiastically."
Some analysts and senior government officials fear that taxpayers may be giving up too much -- including potential double-digit-percentage returns -- to the investors.
"We are giving the private side a certain package that could well be much more than is necessary to get them, in which case the taxpayers are leaving a lot of money on the table," said Lucian Bebchuk, a Harvard Law School professor who was an early advocate of the government's approach.
"If this is profitable, and I think it will be very profitable, you're giving more profit to private investors," added FDIC Chairman Sheila C. Bair.
Another challenge comes from the banks. Many bankers said they believe their loans and securities are worth far more than current market prices would suggest. They say privately that current prices reflect an overly negative prognosis for the economy. Banks are also worried about the losses they would incur if forced to accept short-term prices for loans that are being held until maturity.
Bair said she cannot guarantee that banks will participate in the program, even though regulators may put pressure on them to do so.
Geithner needed the announcement to go well after facing one of the worst weeks in his young tenure as Treasury secretary, largely because of the furor over the AIG bonuses. Treasury officials had considered delaying the announcement of the program until that controversy blew over, sources familiar with the matter said. But they ultimately decided that the toxic-asset program was too important to delay, the sources said.
Then administration officials tried to lower expectations when talking to the media. The announcement its was simplified and pared back, sources said. Originally, for instance, some staffers had urged that the department also provide a public update on the stress test being conducted on banks. This was dropped from the announcement.
Republican members of Congress expressed some skepticism of the bank bailout plan yesterday, though Democratic leaders were more supportive.
Staff writer Binyamin Appelbaum contributed to this report.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/23/AR2009032300572.html
Markets Soar in Response to Public-Private Plan, Which Aims to Shore Up Lenders' Books
By Neil Irwin and David Cho
Washington Post Staff Writers
Tuesday, March 24, 2009; A01
Financial markets roared ahead yesterday as investors reacted with near-euphoria to the Obama administration's new trillion-dollar plan to stabilize banks by relieving them of their troubled assets and risky loans.
But even as markets exulted, conflicting interests among participants in the program -- banks, investors and taxpayers -- were emerging, leaving in doubt the fate of a program meant to revive bank lending and in turn reinvigorate the overall economy.
Some banks are resisting government pressure to sell assets at prices they believe to be too low. And despite the risk of an outcry from Congress, the Treasury this weekend made the program more attractive to private investors, according to industry and some government officials. Treasury officials said the last-minute changes were not intended to sweeten the deal.
In the short run, the rollout of the plan gave a much-needed boost to the administration and beleaguered Treasury Secretary Timothy F. Geithner, as officials on Wall Street and Washington in general spoke favorably of the plan. The Standard & Poor's 500-stock index rose 7.1 percent in the best day for the stock market in five months.
"The policymakers definitely have the right ideas in their head right now, but whether they can execute it I don't know," said Daniel Alpert, managing director of Westwood Capital, a boutique investment bank.
The Obama administration is now preparing its next move, planning this week to send legislation to Congress granting the government new powers to seize troubled non-bank financial companies whose collapse would threaten the broader economy, according to three sources familiar with the matter. Administration officials said the proposed authority, for instance, would have allowed them to seize American International Group last fall and wind down its operations at less cost to taxpayers. Geithner is expected argue for the new powers at a hearing on Capitol Hill today.
The new Public-Private Investment Program, which Geithner announced yesterday, includes programs to buy up real-estate-related loans and securities backed by those loans. It will combine $75 billion to $100 billion in financial rescue funds already approved by Congress with investments from private investors, loan guarantees by the Federal Deposit Insurance Corp., and loans from the Federal Reserve to buy up to $1 trillion in real-estate-related assets.
The idea is that banks are unwilling to lend money in part because they fear further losses on past loans now stuck on their books. Government officials said they hope that introducing new buyers will help set a floor for asset prices and stabilize the broader financial system by removing troubled assets from financial firms.
But the initiative leaves the Treasury's financial rescue fund nearly tapped out, and with a hostile environment in Congress, administration officials are worried that they might be unable to get more money.
If the Treasury uses the full $100 billion, it would leave only $12 billion uncommitted from the $700 billion financial rescue package that Congress approved in early October, according to tabulations by the Committee for a Responsible Federal Budget. In turn, that would leave Geithner with few options to provide emergency capital if a major financial firm finds itself on the verge of failure or the "stress tests" now being conducted on large banks reveal an urgent need.
Geithner's credibility with Congress was at a low ebb after the outcry last week over bonuses paid to executives of American International Group. Congressional leaders still say it would be difficult to pass a law giving the Treasury any further funds for financial rescues.
Yet without those funds, the Treasury was forced to stretch the dollars it already has, crafting a plan that is complex and probably more costly to taxpayers over the long term than if Congress provided help.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, suggested that a successful rollout of the public-private investment fund could change the tenor on Capitol Hill. "What they're trying to do now is avoid a showdown" between the administration and Congress over more bailout money. "If these things are successful, then I think there would be some more funding down the road."
Geithner and his colleagues at the Treasury Department have been trying to design a program that achieves several objectives: giving private investors plenty of incentive to buy the distressed assets, getting banks to willingly sell these assets and protecting taxpayers from unreasonable risk.
Treasury officials made changes to the plan in recent days in a way that makes it more favorable to private investors, according to government and industry sources. For instance, on Saturday, the draft plan called for the Treasury to put in four times as much equity as private investors, which would give taxpayers a greater windfall if the banking system recovers and the investments become profitable. But Treasury officials surrendered some of those potential gains after listening to the concerns of hedge funds and private-equity funds on Sunday, industry officials said.
The Treasury increased private investors' share of potential profits from 20 percent to 50 percent. A senior official at the department said it was not because the Treasury wanted to make the deal better for the investors but because it wanted to send a consistent message that the government would take the same stake as the private sector across all rescue programs. A smaller Treasury stake also means less risk for taxpayers, the official said.
The response from major investors yesterday was strongly supportive. Bill Gross, co-chief investment officer of Pimco, the nation's largest bond investor, said his firm is eager to participate and that the program is a "win-win-win" policy that "should be welcomed enthusiastically."
Some analysts and senior government officials fear that taxpayers may be giving up too much -- including potential double-digit-percentage returns -- to the investors.
"We are giving the private side a certain package that could well be much more than is necessary to get them, in which case the taxpayers are leaving a lot of money on the table," said Lucian Bebchuk, a Harvard Law School professor who was an early advocate of the government's approach.
"If this is profitable, and I think it will be very profitable, you're giving more profit to private investors," added FDIC Chairman Sheila C. Bair.
Another challenge comes from the banks. Many bankers said they believe their loans and securities are worth far more than current market prices would suggest. They say privately that current prices reflect an overly negative prognosis for the economy. Banks are also worried about the losses they would incur if forced to accept short-term prices for loans that are being held until maturity.
Bair said she cannot guarantee that banks will participate in the program, even though regulators may put pressure on them to do so.
Geithner needed the announcement to go well after facing one of the worst weeks in his young tenure as Treasury secretary, largely because of the furor over the AIG bonuses. Treasury officials had considered delaying the announcement of the program until that controversy blew over, sources familiar with the matter said. But they ultimately decided that the toxic-asset program was too important to delay, the sources said.
Then administration officials tried to lower expectations when talking to the media. The announcement its was simplified and pared back, sources said. Originally, for instance, some staffers had urged that the department also provide a public update on the stress test being conducted on banks. This was dropped from the announcement.
Republican members of Congress expressed some skepticism of the bank bailout plan yesterday, though Democratic leaders were more supportive.
Staff writer Binyamin Appelbaum contributed to this report.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/23/AR2009032300572.html
Financial Policy Despair - PAUL KRUGMAN
Op-Ed Columnist
Financial Policy Despair
Financial Policy Despair
PAUL KRUGMAN
Published: March 22, 2009
Published: March 22, 2009
Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Let’s talk for a moment about the economics of the situation.
Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.
As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.
But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.
Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Let’s talk for a moment about the economics of the situation.
Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.
As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.
But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.
And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.
But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.
Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.
When the Economy Really Did ‘Fall Off a Cliff’
Op-Ed Contributor
When the Economy Really Did ‘Fall Off a Cliff’
By JEAN STROUSE
Published: March 22, 2009
IN what may come to be the definitive line about our current economic crisis, Warren Buffett said on the CNBC program “Squawk Box” this month that the United States economy has “fallen off a cliff.”
The most trusted investor in history went on the air to talk, with characteristic candor and humor, about the horrendous truth we pretty much know, possibly in an effort to calm things down and point toward some answers we don’t yet know. He proceeded to give his views on what went wrong (“everybody thought house prices could go nothing but up ... so you had $11 trillion of residential mortgage debt built on this theory ”), on people’s paralyzing fear and confusion (“We are in a very, very vicious negative feedback cycle .... I don’t want this to be the last line of the movie”), and on the absolute necessity of fixing the banks and taking clear, decisive action.
A look back at the handling of another financial crisis a full century ago underlines the point about decisive action. You just don’t want to take the wrong decisive action. Markets today are immeasurably more complex, global, fast-moving and regulated (a lot of good that did) than they were a hundred years ago, but the need for strong leadership has not changed.
In early 1906, the banker Jacob Schiff told a group of colleagues that if the United States did not modernize its banking and currency systems, its economy would, in effect, fall off a cliff — that the country would “have such a panic ... as will make all previous panics look like child’s play.”
Yet the country failed to reform its financial institutions, and conditions deteriorated steadily over the next 20 months. There was a worldwide credit shortage. The American stock market crashed twice. The young Dow Jones industrial average lost half of its value.
In October 1907, when a panic started among trust companies in New York and terrified depositors lined up to get their money out, Schiff’s dire prediction seemed about to come true. The United States had no Federal Reserve, the Treasury secretary did not have much political authority, and the president, Theodore Roosevelt, was off shooting game in Louisiana.
J. Pierpont Morgan, a 70-year-old private banker, quietly took charge of the situation.
In the absence of a central bank, Morgan had for decades been acting as the country’s unofficial lender of last resort, gathering reserves and supplying capital to the markets in periods of crisis. For two harrowing weeks in 1907, with the whole world watching, he operated like a general, deploying three young lieutenants to do leg work and supply him with information, and bringing two other leading bankers, James Stillman of National City Bank and George Baker of the First National Bank, into a senior “trio” to make executive decisions. (First National and National City eventually combined to form what is now Citigroup — are the shades of Baker and Stillman writhing over what has become of their descendant institution?)
The Morgan teams ran “stress tests” on the unregulated trust companies, figuring out which were impossibly overleveraged and should be allowed to fail, and which were basically sound but crippled by the panic. Once they had determined that a trust was essentially healthy, the bankers supplied it with cash, matching their loans dollar-for-dollar with the trust’s collateral assets.
When the New York Stock Exchange nearly closed early one day in October 1907 because financial institutions calling in loans were choking off the market’s money supply, Morgan summoned the presidents of New York’s major commercial banks to his office and came up with $24 million to lend to the exchange. Next, New York City ran out of cash to meet its payroll and interest obligations; Morgan and company conjured up a $30 million loan and prevented default.
At the end of Week 1, President Roosevelt sent a letter to the press congratulating the “substantial businessmen who in this crisis have acted with such wisdom and public spirit.” Shipments of gold were on the way from London to New York, and confidence had returned to the French Bourse, “owing,” reported one paper, “to the belief that the strong men in American finance would succeed in their efforts to check the spirit of the panic.” During a panic, confidence is almost as good as gold.
At the end of Week 2, Morgan called 50 presidents of trust companies to his private library on East 36th Street, locked the doors, and did not let them out until they had signed on to a final $25 million loan. The scholar of Renaissance art Bernard Berenson told his patron Isabella Stewart Gardner that “Morgan should be represented as buttressing up the tottering fabric of finance the way Giotto painted St. Francis holding up the falling church with his shoulder.”
Though Morgan had a large sense of public duty, he had not shouldered the falling church out of pure altruism. His self-interest operated on a national scale. His clients — many of them Europeans who had invested for decades in the emerging American economy through the House of Morgan — had billions of dollars committed in the United States. In watching over their long-term interests, trying to control the excesses of the business cycle and maintain the value of the dollar, Morgan had come to serve as guardian of American credit in international markets.
His power in 1907 derived not from the size of his own fortune but from the trust placed in him by investors, other bankers and international statesman. After Morgan died in 1913, the newspapers reported his net worth as about $80 million — roughly $1.7 billion in today’s dollars. John D. Rockefeller, already worth a billion in 1913 dollars, is said to have read the figure, shaken his head, and remarked, “And to think he wasn’t even a rich man.”
Trust in Morgan was by no means universal. In 1907, some of his critics charged that he had started the panic in order to scoop up assets at fire-sale prices and line his own pockets. In fact, the Morgan banks lost $21 million that year.
The difficulty today of assigning dollar values to “toxic” assets makes Morgan’s job look easy. Yet though the amount of money required for the 1907 bailouts is pocket change compared to the current trillions, at the time, the troubles and the numbers seemed enormous.
No single figure, much less a private banker, could wield the kind of power in today’s gargantuan collapsing markets that Morgan had a hundred years ago. And so far, not even the combined official powers of the Fed and Treasury have been able to stop the cascading disasters. Paul Volcker, the former Federal Reserve chairman, said recently that he couldn’t remember a time “maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.”
Perhaps new economic leadership will emerge during this crisis, under our gifted, charismatic president. It seems likely to consist of people who have the kind of experience, judgment and authority Morgan had — possibly a new “trio” made up of the current Fed chairman, Ben Bernanke; Paul Volcker; and Warren Buffett.
Only Mr. Bernanke is formally in a position to exercise that high authority now, which he is doing — he announced last week that the Fed would inject an extra $1 trillion into the financial system. Mr. Volcker, chairman of the White House Economic Recovery Advisory Board, could easily be promoted to a more dominant role. Mr. Buffett has already stepped up in public, praising the steps the Fed took last fall to insure money markets and commercial paper as “vital in keeping the place going” (if the Fed hadn’t acted, Mr. Buffett told his CNBC interviewer, “we’d be meeting at McDonald’s this morning”).
Moreover, Mr. Buffett said he could “guarantee” that in five years or so “our great economic machine” will be running a lot faster than it is now, with the government playing an enormous role in how quickly it recovers. Last fall he declared that we had just been through an “economic Pearl Harbor.” Last week he said that in order to fight this economic war the country has to unite behind President Obama, the government has to deliver “very, very” clear messages and we all have to focus on three jobs:
Job 1: win the economic war.
Job 2: win the economic war.
Job 3: win the economic war.
Just what Morgan would have said.
Jean Strouse is the author of “Morgan: American Financier” and the director of the Cullman Center for Scholars and Writers at The New York Public Library.
http://www.nytimes.com/2009/03/23/opinion/23strouse.html?em
When the Economy Really Did ‘Fall Off a Cliff’
By JEAN STROUSE
Published: March 22, 2009
IN what may come to be the definitive line about our current economic crisis, Warren Buffett said on the CNBC program “Squawk Box” this month that the United States economy has “fallen off a cliff.”
The most trusted investor in history went on the air to talk, with characteristic candor and humor, about the horrendous truth we pretty much know, possibly in an effort to calm things down and point toward some answers we don’t yet know. He proceeded to give his views on what went wrong (“everybody thought house prices could go nothing but up ... so you had $11 trillion of residential mortgage debt built on this theory ”), on people’s paralyzing fear and confusion (“We are in a very, very vicious negative feedback cycle .... I don’t want this to be the last line of the movie”), and on the absolute necessity of fixing the banks and taking clear, decisive action.
A look back at the handling of another financial crisis a full century ago underlines the point about decisive action. You just don’t want to take the wrong decisive action. Markets today are immeasurably more complex, global, fast-moving and regulated (a lot of good that did) than they were a hundred years ago, but the need for strong leadership has not changed.
In early 1906, the banker Jacob Schiff told a group of colleagues that if the United States did not modernize its banking and currency systems, its economy would, in effect, fall off a cliff — that the country would “have such a panic ... as will make all previous panics look like child’s play.”
Yet the country failed to reform its financial institutions, and conditions deteriorated steadily over the next 20 months. There was a worldwide credit shortage. The American stock market crashed twice. The young Dow Jones industrial average lost half of its value.
In October 1907, when a panic started among trust companies in New York and terrified depositors lined up to get their money out, Schiff’s dire prediction seemed about to come true. The United States had no Federal Reserve, the Treasury secretary did not have much political authority, and the president, Theodore Roosevelt, was off shooting game in Louisiana.
J. Pierpont Morgan, a 70-year-old private banker, quietly took charge of the situation.
In the absence of a central bank, Morgan had for decades been acting as the country’s unofficial lender of last resort, gathering reserves and supplying capital to the markets in periods of crisis. For two harrowing weeks in 1907, with the whole world watching, he operated like a general, deploying three young lieutenants to do leg work and supply him with information, and bringing two other leading bankers, James Stillman of National City Bank and George Baker of the First National Bank, into a senior “trio” to make executive decisions. (First National and National City eventually combined to form what is now Citigroup — are the shades of Baker and Stillman writhing over what has become of their descendant institution?)
The Morgan teams ran “stress tests” on the unregulated trust companies, figuring out which were impossibly overleveraged and should be allowed to fail, and which were basically sound but crippled by the panic. Once they had determined that a trust was essentially healthy, the bankers supplied it with cash, matching their loans dollar-for-dollar with the trust’s collateral assets.
When the New York Stock Exchange nearly closed early one day in October 1907 because financial institutions calling in loans were choking off the market’s money supply, Morgan summoned the presidents of New York’s major commercial banks to his office and came up with $24 million to lend to the exchange. Next, New York City ran out of cash to meet its payroll and interest obligations; Morgan and company conjured up a $30 million loan and prevented default.
At the end of Week 1, President Roosevelt sent a letter to the press congratulating the “substantial businessmen who in this crisis have acted with such wisdom and public spirit.” Shipments of gold were on the way from London to New York, and confidence had returned to the French Bourse, “owing,” reported one paper, “to the belief that the strong men in American finance would succeed in their efforts to check the spirit of the panic.” During a panic, confidence is almost as good as gold.
At the end of Week 2, Morgan called 50 presidents of trust companies to his private library on East 36th Street, locked the doors, and did not let them out until they had signed on to a final $25 million loan. The scholar of Renaissance art Bernard Berenson told his patron Isabella Stewart Gardner that “Morgan should be represented as buttressing up the tottering fabric of finance the way Giotto painted St. Francis holding up the falling church with his shoulder.”
Though Morgan had a large sense of public duty, he had not shouldered the falling church out of pure altruism. His self-interest operated on a national scale. His clients — many of them Europeans who had invested for decades in the emerging American economy through the House of Morgan — had billions of dollars committed in the United States. In watching over their long-term interests, trying to control the excesses of the business cycle and maintain the value of the dollar, Morgan had come to serve as guardian of American credit in international markets.
His power in 1907 derived not from the size of his own fortune but from the trust placed in him by investors, other bankers and international statesman. After Morgan died in 1913, the newspapers reported his net worth as about $80 million — roughly $1.7 billion in today’s dollars. John D. Rockefeller, already worth a billion in 1913 dollars, is said to have read the figure, shaken his head, and remarked, “And to think he wasn’t even a rich man.”
Trust in Morgan was by no means universal. In 1907, some of his critics charged that he had started the panic in order to scoop up assets at fire-sale prices and line his own pockets. In fact, the Morgan banks lost $21 million that year.
The difficulty today of assigning dollar values to “toxic” assets makes Morgan’s job look easy. Yet though the amount of money required for the 1907 bailouts is pocket change compared to the current trillions, at the time, the troubles and the numbers seemed enormous.
No single figure, much less a private banker, could wield the kind of power in today’s gargantuan collapsing markets that Morgan had a hundred years ago. And so far, not even the combined official powers of the Fed and Treasury have been able to stop the cascading disasters. Paul Volcker, the former Federal Reserve chairman, said recently that he couldn’t remember a time “maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.”
Perhaps new economic leadership will emerge during this crisis, under our gifted, charismatic president. It seems likely to consist of people who have the kind of experience, judgment and authority Morgan had — possibly a new “trio” made up of the current Fed chairman, Ben Bernanke; Paul Volcker; and Warren Buffett.
Only Mr. Bernanke is formally in a position to exercise that high authority now, which he is doing — he announced last week that the Fed would inject an extra $1 trillion into the financial system. Mr. Volcker, chairman of the White House Economic Recovery Advisory Board, could easily be promoted to a more dominant role. Mr. Buffett has already stepped up in public, praising the steps the Fed took last fall to insure money markets and commercial paper as “vital in keeping the place going” (if the Fed hadn’t acted, Mr. Buffett told his CNBC interviewer, “we’d be meeting at McDonald’s this morning”).
Moreover, Mr. Buffett said he could “guarantee” that in five years or so “our great economic machine” will be running a lot faster than it is now, with the government playing an enormous role in how quickly it recovers. Last fall he declared that we had just been through an “economic Pearl Harbor.” Last week he said that in order to fight this economic war the country has to unite behind President Obama, the government has to deliver “very, very” clear messages and we all have to focus on three jobs:
Job 1: win the economic war.
Job 2: win the economic war.
Job 3: win the economic war.
Just what Morgan would have said.
Jean Strouse is the author of “Morgan: American Financier” and the director of the Cullman Center for Scholars and Writers at The New York Public Library.
http://www.nytimes.com/2009/03/23/opinion/23strouse.html?em
U.S. Lays Out Plan to Buy Up to $1 Trillion in Risky Assets
U.S. Lays Out Plan to Buy Up to $1 Trillion in Risky Assets
Todd Heisler/The New York Times
President Obama met with his economic team, including the Treasury secretary, Timothy F. Geithner, at the White House on Monday.
Todd Heisler/The New York Times
President Obama met with his economic team, including the Treasury secretary, Timothy F. Geithner, at the White House on Monday.
WASHINGTON — The Obama administration formally presented the latest step in its financial rescue package on Monday, an attempt to draw private investors into partnership with a new federal entity that could eventually buy up to $1 trillion in troubled assets that are weighing down banks and clogging up the credit markets.
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Geithner Pushes Bank Rescue Plan, Part 1
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The Lede: A Boom in the Financial Metaphor Market (March 23, 2009)
Transcript: Treasury Timothy Geithner’s Press Briefing (March 23, 2009)
The Dow Jones industrial average was up sharply in afternoon trading on Monday, gaining more than 270 points. When the Treasury secretary, Timothy F. Geithner, spoke on Feb. 10 of a bank rescue plan without offering much detail, investors took that as a worrying sign and the Dow fell sharply, losing 380 points.
The Treasury secretary did not deny the uncertainties inherent in the new program on Monday but defended it as a practical approach. “There is no doubt the government is taking a risk,” Mr. Geithner said, “the only question is how best to do it.”
“It’s not going to happen overnight,” the president said after meeting with his economic team. “There’s still great fragility in the financial systems. But we think that we are moving in the right direction.”
The success or failure of the plan carries not only enormous stakes for the nation’s recovery but certain political risks for Mr. Geithner as well. At least two Republican lawmakers have called for his resignation. And on Sunday, Senator Richard C. Shelby of Alabama, the ranking Republican on the Banking Committee, told Fox News that “if he keeps going down this road, I think that he won’t last long.”
Initially, a new Public-Private Investment Program will provide financing for $500 billion in purchasing power to buy those troubled or toxic assets — which the government refers to more diplomatically as legacy assets — with the potential of expanding later to as much as $1 trillion, according to a fact sheet issued by the Treasury Department.
At the core of the financing package will be $75 billion to $100 billion in capital from the existing financial bailout known as TARP, the Troubled Assets Relief Program, along with the share provided by private investors, which the government hopes will come to 5 percent or more. By leveraging this program through the Federal Deposit Insurance Corporation and the Federal Reserve, huge amounts of bad loans can be acquired.
On top of that, the F.D.I.C. — tapping its own credit lines with the Treasury — will lend six dollars for each dollar invested by the Treasury and private investors. If the mortgage pool turns bad and runs big losses, the private investors will be able to walk away from their F.D.I.C. loans and leave the government holding the soured mortgages and the bulk of the losses.
An attractive feature of the program is that it will allow the marketplace to establish values for the assets — based, of course, on the auction mechanism that will signal what someone is willing to pay for them — and thus might ease the virtual paralysis that has surrounded those assets up to now.
For a relatively small equity exposure, the private investor thus stands to make a considerable return if prices recover. The government will make a gain as well. In the worst case, the bulk of the risk would fall on the government. The presumption, of course, is that the auction will lead to realistic purchase prices.
The true magnitude of the toxic-asset purchase program could amount to well over $1 trillion. Buried in Mr. Geithner’s announcement was the detail that the Treasury would sharply revise and expand its joint venture with the Federal Reserve, known as the Term Asset-backed Secure Lending Facility, which was originally created to finance consumer lending and some forms of business lending.
Starting soon, that program will be expanded to finance investors who want to buy existing mortgages and mortgage-backed securities, including commercial real estate mortgages. By allowing the so-called TALF program to buy up older assets, as well as new loans, the Treasury and Fed will be putting nearly an additional $1 trillion on the line — on top of all the money being provided through the F.D.I.C. program and the Treasury partnership programs announced on Monday.
The department defined three basic principles underlying the overall program.
- First, by combining government financing, involving the F.D.I.C. and the Federal Reserve, with private sector investment, “substantial purchasing power will be created, making the most of taxpayer resources,” the fact sheet said.
- Second, private investors will share both in the risk and in the potential profits, the Treasury Department said, “with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.”
- The third principle is the use of competitive auctions to help set appropriate prices for the assets. “To reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased,” the department said.
By emphasizing that private investors will share in the risk, the Treasury Department seemed to be seeking to reassure ordinary taxpayers that they will not bear the entire downside burden of yet another $1 trillion program.
At the same time, administration officials strove over the weekend to reassure potential investors that they would not be subjected to the sort of pressures, criticism and public outrage that followed reports of multimillion-dollar bonuses to executives of the American International Group.
The Treasury Department defended its approach as a compromise that would avoid the dangers both of being too gradual an approach and of burdening taxpayers with the entire risk.
“Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience,” the department said. “But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases — along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.”
The plan relies on private investors to team with the government to relieve banks of assets tied to loans and mortgage-linked securities of unknown value. There have been virtually no buyers of these assets because of their uncertain risk.
But some executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.
Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations.
Mr. Geithner made it clear on Monday that no limits on executive compensation would be imposed on companies that invest — unless the companies are already subject to such limitations as recipients of TARP money — because the government does not want to discourage investor participation.
Eric Dash and Rachel L. Swarns contributed reporting from Washington, and Andrew Ross Sorkin from New York.
http://www.nytimes.com/2009/03/24/business/economy/24bailout.html?_r=1&hp
Monday 23 March 2009
The Economics of Stimulus
The Economics of Stimulus
Fiscal mismanagement during the boom years constrains the UK's ability now to spend its way out of recession. Fixing the banking sector must be the priority
With the financial crisis intensifying last autumn, Gordon Brown wrote to EU leaders to urge a “new global financial architecture”. As the host of the G20 summit of advanced and emerging economies next month, Mr Brown has apparently tempered his ambitions for reform of the international order. European leaders - notably Angela Merkel, the German Chancellor, and President Sarkozy of France - have shown a marked lack of enthusasiam to be lectured to.
There is indeed much in Mr Brown's schemes that merits scepticism. But reforms to a dysfunctional international financial system are a direct route to remedying the crisis. The recession was born in the banking sector, through imprudemt lending and a credit bubble. The most immediate way of supporting economic activity is to fix the weaknesses in the financial system by recapitalising the banks and ensuring they have sufficient reserves to resume lending.
On an international scale, it will be important to reconsider the role of the International Monetary Fund, which traditionally acts to provide financial assistance to countries that face a liquidity crisis. The IMF cannot strictly act as a lender of last resort, because unlike a central bank, it cannot create money. The G20 should consider how best the IMF can help countries facing a capital crisis, and also consider the vexed question of reforming the voting weights to reflect the shift of power to the emerging economies.
The case for co-ordinated fiscal stimulus, as advanced by President Obama's Administration and by Mr Brown, has a respectable theoretical pedigree. The aim is for governments to fill the gap left by the collapse of private spending. But there are severe practical difficulties. To be effective, stimulus needs to be co-ordinated. The realities of national politics in the G20 economies make that unlikely. The sheer scale of the Obama fiscal package in the US is an open invitation for sectional interests to appropriate public funds for purposes that may have no lasting economic benefit. The wastefulness of huge public works projects in the 1990s during Japan's long recession is not a model to be copied.
The problem is acute in the UK, because public finances are in a mess. Fiscal management was too loose during the boom years. The use of fiscal policy to boost demand is popularly thought of as a Keynesian approach. But Keynes stressed the use of monetary and fiscal policy to stabilise the economy rather than to stimulate it. That means that budget surpluses should be built up during an expansion, so that there is scope to stimulate the economy during a downturn. Since 2002, Mr Brown as Chancellor and now Prime Minister has abandoned that fiscal discipline.
The result is that public borrowing is now expanding alarmingly. The UK budget deficit for February amounted to £9 billion - eight times the level of a year earlier. This brought public-sector net borrowing to a record £75 billion for the first eleven months of the fiscal year. As the recession continues, tax receipts will fall and public borrowing will expand further. It is crucial to the UK that other countries do follow expansionary policies. There will be pressure on the exchange rate if international investors worry about the sustainability of the public finances.
The CBI believes that scope for fiscal easing is limited. The chief executive of the Audit Commission has publicly worried about an Armageddon scenario in which there will be insufficient lenders to match the scale of public borrowing. Even if the economy recovers in 2010, the scale of the UK's public debt will then require a sharp fiscal contraction. It will have to be paid for in large tax increases and cuts in public spending. It is, to adapt an unfortunate phrase of Mr Brown's, beyond any conventional notion of boom and bust.
http://www.timesonline.co.uk/tol/comment/leading_article/article5956066.ece
Fiscal mismanagement during the boom years constrains the UK's ability now to spend its way out of recession. Fixing the banking sector must be the priority
With the financial crisis intensifying last autumn, Gordon Brown wrote to EU leaders to urge a “new global financial architecture”. As the host of the G20 summit of advanced and emerging economies next month, Mr Brown has apparently tempered his ambitions for reform of the international order. European leaders - notably Angela Merkel, the German Chancellor, and President Sarkozy of France - have shown a marked lack of enthusasiam to be lectured to.
There is indeed much in Mr Brown's schemes that merits scepticism. But reforms to a dysfunctional international financial system are a direct route to remedying the crisis. The recession was born in the banking sector, through imprudemt lending and a credit bubble. The most immediate way of supporting economic activity is to fix the weaknesses in the financial system by recapitalising the banks and ensuring they have sufficient reserves to resume lending.
On an international scale, it will be important to reconsider the role of the International Monetary Fund, which traditionally acts to provide financial assistance to countries that face a liquidity crisis. The IMF cannot strictly act as a lender of last resort, because unlike a central bank, it cannot create money. The G20 should consider how best the IMF can help countries facing a capital crisis, and also consider the vexed question of reforming the voting weights to reflect the shift of power to the emerging economies.
The case for co-ordinated fiscal stimulus, as advanced by President Obama's Administration and by Mr Brown, has a respectable theoretical pedigree. The aim is for governments to fill the gap left by the collapse of private spending. But there are severe practical difficulties. To be effective, stimulus needs to be co-ordinated. The realities of national politics in the G20 economies make that unlikely. The sheer scale of the Obama fiscal package in the US is an open invitation for sectional interests to appropriate public funds for purposes that may have no lasting economic benefit. The wastefulness of huge public works projects in the 1990s during Japan's long recession is not a model to be copied.
The problem is acute in the UK, because public finances are in a mess. Fiscal management was too loose during the boom years. The use of fiscal policy to boost demand is popularly thought of as a Keynesian approach. But Keynes stressed the use of monetary and fiscal policy to stabilise the economy rather than to stimulate it. That means that budget surpluses should be built up during an expansion, so that there is scope to stimulate the economy during a downturn. Since 2002, Mr Brown as Chancellor and now Prime Minister has abandoned that fiscal discipline.
The result is that public borrowing is now expanding alarmingly. The UK budget deficit for February amounted to £9 billion - eight times the level of a year earlier. This brought public-sector net borrowing to a record £75 billion for the first eleven months of the fiscal year. As the recession continues, tax receipts will fall and public borrowing will expand further. It is crucial to the UK that other countries do follow expansionary policies. There will be pressure on the exchange rate if international investors worry about the sustainability of the public finances.
The CBI believes that scope for fiscal easing is limited. The chief executive of the Audit Commission has publicly worried about an Armageddon scenario in which there will be insufficient lenders to match the scale of public borrowing. Even if the economy recovers in 2010, the scale of the UK's public debt will then require a sharp fiscal contraction. It will have to be paid for in large tax increases and cuts in public spending. It is, to adapt an unfortunate phrase of Mr Brown's, beyond any conventional notion of boom and bust.
http://www.timesonline.co.uk/tol/comment/leading_article/article5956066.ece
Is It Time To Abandon Buy And Hold Investing?
ETFguide.com
Is It Time To Abandon Buy And Hold Investing?
Wednesday March 18, 12:15 pm ET
By Simon Maierhofer
Just because you have access to water, sugar and food coloring doesn't mean you know how to make Coca Cola. The right mix is priceless. The right mix of asset classes, also called diversification, used to be considered priceless as well.
Diversification was a popular subject of discussion leading up to the 2007 stock market peak and started to lose its luster early 2008 when commodities began their freefall. Many are led to believe that holding tight will be the only option to make back their money while some die-hard diversification junkies and asset allocation aficionados are still trying to figure out the 'perfect mix.'
How did the 'perfectly allocated buy-and hold portfolio' fair from the October 2007 peak to the March 2009 bottom?
To see how a diversified portfolio stacks up against the broad U.S. equity market, we've put together a hypothetical portfolio with exposure to all main asset classes. Of course, we realize that this cookie cutter portfolio pales in comparison to some tailor-made diversification models. Nevertheless, there are only so many asset classes, all of which (with the exception of certain bonds and gold) were down.
An equal weighted mix of the Vanguard Total Stock Market ETF (NYSEArca: VTI - News), iShares Barclays Aggregate Bond ETF (NYSEArca: AGG - News), iShares Dow Jones US Real Estate ETF (NYSEArca: IYR - News), iShares MSCI EAFE (NYSEArca: EFA - News), iShares MSCI Emerging Markets ETF (NYSEArca: EEM - News) and the iShares S&P GSCI Commodity ETF (NYSEArca: GSG - News) would have lost 48.12% from the market peak (October 9th, 2007) to the March 9th, 2009 lows.
As a point of reference, the S&P 500 (AMEX: SPY - News) lost 55.19% in the same period while the Dow Jones (AMEX: DIA - News) was down 52.32%. Even though a 7% advantage helps, neither result should be acceptable to investors.
Unless a diversified portfolio was disproportionally weighted in either bonds or gold, the results were quite similar. The SPDR Gold Shares (NYSEArca: GLD - News) gained 23.91%, yet the broad iShares S&P GSCI Commodity ETF (NYSEArca: GSG - News), which sports a 10% allocation to gold, lost 47.20%.
The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT - News) saw a gain of 21.90% while the iShares iBoxx High Yield Corporate Bond ETF (NYSEArca: HYG - News) melted by 32.87%.
In the aftermath of the dot.com bubble burst induced bear market, many sectors boomed while others laid dormant. The Financial Select SPDRs (NYSEArca: XLF - News) for example gained 25% in 2000 while the Technology Select Sector SPDRs (NYSEArca: XLK - News) lost 42%. Yes, diversification worked back then.
The ETF Profit Strategy Newsletter was a step ahead already in 2008. Very early on, it identified the bear market as a deflationary depression. The 'red across the board' performance of nearly all asset classes is indicative of a deflationary environment. Whether we find ourselves technically in a depression right now or not is irrelevant. Fact is that we'll end up there.
Of course, the government doesn't set the trend, it follows it. The official statement: 'we are in a recession' wasn't released until after the stock market lost some 40% in December 2008.
Quite to the contrary, the ETF Profit Strategy Newsletter recommended short ETFs until November 2008 and once again in January 2009.
In fact, on December 14th, 2008 we forecasted the following: 'Range-bound trading, as we've seen over the past several weeks, grinds and tests the patience of investors. More importantly, it gives the stock market a chance to calm extreme levels of investors' pessimism. Conversely, optimistic sentiment, which should be more visible above Dow 9,000, gives way to further declines. These should draw the indexes close to or below their November 21st lows of 7,445 for the Dow and 740 for the S&P.'
This was followed up with this statement on February 13th, 2009: 'The best target for a temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600'. On March 9th, the Dow reached an intraday low of 6,440.
Rather than diversification, the newsletter promoted using short ETFs either to hedge long positions or simply as profit centers. Such Short ETFs included the UltraShort Financial ProShares (NYSEArca: SKF - News), UltraShort Real Estate ProShares (NYSEArca: SRS - News) and UltraShort S&P 500 ProShares (NYSEArca: SDS - News). From the January 6th 2009 highs to the March lows, those ETFs gained between 80% - 150%.
This bear market has humbled many investment gurus, stock pickers and asset allocation wizards. Yesterday a peacock, today a feather duster. If you don't want to get your nest egg scrambled, it might be time to take action and review your portfolio. The brand new issue of the ETF Profit Strategy Newsletter includes reliable short, mid and long-term forecasts for the U.S. equity markets along with winning ETF profit strategies. If you keep doing what you're doing, you'll get what you've got. Are you ready for more?
http://biz.yahoo.com/etfguide/090318/209_id.html?&.pf=retirement
Is It Time To Abandon Buy And Hold Investing?
Wednesday March 18, 12:15 pm ET
By Simon Maierhofer
Just because you have access to water, sugar and food coloring doesn't mean you know how to make Coca Cola. The right mix is priceless. The right mix of asset classes, also called diversification, used to be considered priceless as well.
Diversification was a popular subject of discussion leading up to the 2007 stock market peak and started to lose its luster early 2008 when commodities began their freefall. Many are led to believe that holding tight will be the only option to make back their money while some die-hard diversification junkies and asset allocation aficionados are still trying to figure out the 'perfect mix.'
How did the 'perfectly allocated buy-and hold portfolio' fair from the October 2007 peak to the March 2009 bottom?
To see how a diversified portfolio stacks up against the broad U.S. equity market, we've put together a hypothetical portfolio with exposure to all main asset classes. Of course, we realize that this cookie cutter portfolio pales in comparison to some tailor-made diversification models. Nevertheless, there are only so many asset classes, all of which (with the exception of certain bonds and gold) were down.
An equal weighted mix of the Vanguard Total Stock Market ETF (NYSEArca: VTI - News), iShares Barclays Aggregate Bond ETF (NYSEArca: AGG - News), iShares Dow Jones US Real Estate ETF (NYSEArca: IYR - News), iShares MSCI EAFE (NYSEArca: EFA - News), iShares MSCI Emerging Markets ETF (NYSEArca: EEM - News) and the iShares S&P GSCI Commodity ETF (NYSEArca: GSG - News) would have lost 48.12% from the market peak (October 9th, 2007) to the March 9th, 2009 lows.
As a point of reference, the S&P 500 (AMEX: SPY - News) lost 55.19% in the same period while the Dow Jones (AMEX: DIA - News) was down 52.32%. Even though a 7% advantage helps, neither result should be acceptable to investors.
Unless a diversified portfolio was disproportionally weighted in either bonds or gold, the results were quite similar. The SPDR Gold Shares (NYSEArca: GLD - News) gained 23.91%, yet the broad iShares S&P GSCI Commodity ETF (NYSEArca: GSG - News), which sports a 10% allocation to gold, lost 47.20%.
The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT - News) saw a gain of 21.90% while the iShares iBoxx High Yield Corporate Bond ETF (NYSEArca: HYG - News) melted by 32.87%.
In the aftermath of the dot.com bubble burst induced bear market, many sectors boomed while others laid dormant. The Financial Select SPDRs (NYSEArca: XLF - News) for example gained 25% in 2000 while the Technology Select Sector SPDRs (NYSEArca: XLK - News) lost 42%. Yes, diversification worked back then.
The ETF Profit Strategy Newsletter was a step ahead already in 2008. Very early on, it identified the bear market as a deflationary depression. The 'red across the board' performance of nearly all asset classes is indicative of a deflationary environment. Whether we find ourselves technically in a depression right now or not is irrelevant. Fact is that we'll end up there.
Of course, the government doesn't set the trend, it follows it. The official statement: 'we are in a recession' wasn't released until after the stock market lost some 40% in December 2008.
Quite to the contrary, the ETF Profit Strategy Newsletter recommended short ETFs until November 2008 and once again in January 2009.
In fact, on December 14th, 2008 we forecasted the following: 'Range-bound trading, as we've seen over the past several weeks, grinds and tests the patience of investors. More importantly, it gives the stock market a chance to calm extreme levels of investors' pessimism. Conversely, optimistic sentiment, which should be more visible above Dow 9,000, gives way to further declines. These should draw the indexes close to or below their November 21st lows of 7,445 for the Dow and 740 for the S&P.'
This was followed up with this statement on February 13th, 2009: 'The best target for a temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600'. On March 9th, the Dow reached an intraday low of 6,440.
Rather than diversification, the newsletter promoted using short ETFs either to hedge long positions or simply as profit centers. Such Short ETFs included the UltraShort Financial ProShares (NYSEArca: SKF - News), UltraShort Real Estate ProShares (NYSEArca: SRS - News) and UltraShort S&P 500 ProShares (NYSEArca: SDS - News). From the January 6th 2009 highs to the March lows, those ETFs gained between 80% - 150%.
This bear market has humbled many investment gurus, stock pickers and asset allocation wizards. Yesterday a peacock, today a feather duster. If you don't want to get your nest egg scrambled, it might be time to take action and review your portfolio. The brand new issue of the ETF Profit Strategy Newsletter includes reliable short, mid and long-term forecasts for the U.S. equity markets along with winning ETF profit strategies. If you keep doing what you're doing, you'll get what you've got. Are you ready for more?
http://biz.yahoo.com/etfguide/090318/209_id.html?&.pf=retirement
Sunday 22 March 2009
How to pay off your debts
Afghan horsemen play Buzkashi on the outskirts of Kabul. Buzkashi is the national sport of Afghanistan, which literally translated means "goat grabbing". A headless carcass is placed in the centre of a circle and surrounded by players of two opposing teams. The object of the game is to get control of the carcass and bring it to the scoring area
(Rafiq Maqbool/AP)
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From Times Online
January 31, 2008
January 31, 2008
How to pay off your debts
James Charles
James Charles
We would all like to bury our heads in the sand when it comes to debt, but the stark reality is that the longer you leave it, the worse your situation will become, so act now. There are a number of simple steps that you can take to tackle the problem head on and get back in the black.
Prioritise
Work out which debts you need to address first. Some will be more urgent, while others, such as a student loan, can be cleared over a longer period of time. You could divide them into two groups: priority and non-priority. Mortgage repayments, for example, would be considered priority debts because failing to make your repayments could result in you losing your home.
Whether you want to tackle the smallest, largest, most expensive or cheapest debt first, it is vital that you keep up the minimum repayments on all debts. Not doing so can damage your credit score and reduce the chance of obtaining credit in the future.
Work out which debts you need to address first. Some will be more urgent, while others, such as a student loan, can be cleared over a longer period of time. You could divide them into two groups: priority and non-priority. Mortgage repayments, for example, would be considered priority debts because failing to make your repayments could result in you losing your home.
Whether you want to tackle the smallest, largest, most expensive or cheapest debt first, it is vital that you keep up the minimum repayments on all debts. Not doing so can damage your credit score and reduce the chance of obtaining credit in the future.
Background
How to improve your credit rating
How to choose a credit card
How to pay off your debts
IVAs explained
Student loans explained
Related Links
Store card interest 'extortionate'
1.7m households request debt help
Fight back against rising interest rates
How to improve your credit rating
How to choose a credit card
How to pay off your debts
IVAs explained
Student loans explained
Related Links
Store card interest 'extortionate'
1.7m households request debt help
Fight back against rising interest rates
Budget
To help to work out how much spare cash you can devote to repaying debts, it is crucial that you draw up a budget.
You can use a budget calculator online or simply sit down with an old-fashioned pen and paper and list all your income and outgoings. Then try to cut back where you can and keep a lid on costs wherever possible.
To help to work out how much spare cash you can devote to repaying debts, it is crucial that you draw up a budget.
You can use a budget calculator online or simply sit down with an old-fashioned pen and paper and list all your income and outgoings. Then try to cut back where you can and keep a lid on costs wherever possible.
A simple and obvious way to speed the process of clearing your debts is to raise your monthly payments, and there are lots of ways to get the extra money you will need to do it.
The possibilities are almost endless, from renting your driveway to selling your old mobile phone. You could try selling unwanted presents or gadgets on eBay or other auction sites.
It is also worth making sure that you are not due any tax credits or government benefits.
Check that you are on the best deals for your insurance, loans, mortgages and credit cards by using price comparison websites such as Moneyfacts.co.uk or moneysupermarket.com, Also check whether you are paying for loan insurance on your mortgage or other credit and decide whether you really need this cover.
Savings
If you have a pot of savings locked away for emergencies, consider using the money to clear debt. It is likely that the cost of your debts is more than the return on your savings.
If you have a pot of savings locked away for emergencies, consider using the money to clear debt. It is likely that the cost of your debts is more than the return on your savings.
Snowballing
Once you have organised your debts, you may want to look at clearing them through a process of snowballing.
This involves making the minimum payments on your debts but using any extra cash to pay off one of them. Once you have finished clearing this first debt, you should then focus on the second debt, using the same extra cash, plus the money that you were using to make the minimum payment on the first debt. Then simply continue this process until all your debts are cleared.
Once you have organised your debts, you may want to look at clearing them through a process of snowballing.
This involves making the minimum payments on your debts but using any extra cash to pay off one of them. Once you have finished clearing this first debt, you should then focus on the second debt, using the same extra cash, plus the money that you were using to make the minimum payment on the first debt. Then simply continue this process until all your debts are cleared.
If you are overwhelmed by the number of different debts you have, it may be worth consolidating your debts into one large loan.
The most common way of doing this is to move all your credit card balances to a new card with a 0 per cent rate for balance transfers.
But be careful if you decide to take out a consolidation loan. They can be expensive in the long term and may be secured on your home.
Communicate
Having relatively small amounts of debt is now extremely common. The average UK adult owes £29,500, including mortgages, so you are certainly not alone. However, if you are struggling to make repayments, or you are feeling overwhelmed by your situation, seek help from a debt charity.
Also try speaking to your lender. It may be willing to make an agreement over a new repayment timetable. You could also speak to a debt management company. And if you are really stuck, you could consider an individual voluntary agreement or even, as a very last resort, bankruptcy.
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