Part of the deal when you participate in a carnival is that you link to it from your blog. My weekly Carnival of Personal Finance links have been getting less perfunctory lately, to the point where I thought I would try making a proper post of it. It’s an excuse to discuss a lot of personal finance advice from several blogs at once, which certainly fits into the theme of BMA. So here goes.
The carnival is hosted by Suburban Dollar this week with a delightfully kooky theme, the beyond vintage video game Mike Tyson’s Punch Out.
One of four editors picks this week was Happy Rock’s post 16 Year Old Skips The Last Two Years Of High School To Play Proffesional Baseball. The gist of the post is that this is a bad thing. It is about Bryce Harper, a 16 year-old from Nevada recently featured on the cover of Sports Illustrated, who dubbed him the "Chosen One". He plans to skip out on 11th and 12th grades in order to enter next year’s baseball draft. This is a maneuver that will probably net him a sum in the high seven figures.
How could this possibly be a bad idea? I know guys who would pay in the high seven figures to play professional baseball. And some of them would pay extra if they could’ve avoided the second half of high school. Granted, Bryce’s education will suffer. He might, for example, not learn how to spell "professional" or the difference between "to" and "too" or (gulp) "beat" and "beet".
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Last Thursday I ran a post that discussed the grim state of the credit card business. In it I discussed a New York Times article about consumers settling their credit card debt for less than what was owed. I even passed along some simple negotiating tips.
One thing I (and the Times) failed to mention is that if you settle your $3000 credit card debt for $2000, the $1000 that was written off by the credit card company is often considered taxable income. You will get a 1099 on it and come next April 15 you will either have to pay taxes on it or file a special form to explain why you don’t have to pay taxes on it. (This is discussed in detail in a great post at Don’t Mess With Taxes inspired by the same Times article.)
That it may be taxable doesn’t quite seem fair, does it? You’re broke, you manage to convince the card company to be "reasonable" and then Uncle Sam wants a cut. Actually, it’s not completely nuts. You really are up $1000. You got $3000 of stuff (and interest payments) for $2000. And the $1000 reduces the card company’s taxable income, so it seems mildly reasonable it might increase yours.
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There now seems to be a consensus that the collapse of Lehman Brothers last fall was the watershed moment of the Great Recession. What exactly happened and why will be a hot button topic in some circles for many years to come. Books and websites will argue the the government should/shouldn’t/couldn’t have saved it. In a decade or so some professor of economic history will probably write a book about how it wasn’t that important an event after all. And inevitably some cranks will come up with a conspiracy theory linking the whole thing to the Chinese government or orbital mind control lasers.
That’s all in the future. In the here and now the big arguments about the Lehman failure are over the pathetically small morsels of flesh still left on the carcass. In as much as Lehman still exists, it exists as a small band of people with the grim task of liquidating what is left, trying to get the payout to Lehman’s remaining creditors increased to, say, two cents on the dollar from one cent.
Lehman expired owing $200 billion it couldn’t pay. Its brokerage business and real estate (a.k.a. the only big obvious bits worth anything) were sold in a hurry to Barclays a few days after the bankruptcy. Barclays paid $1.54 billion, which may sound like a big check to write under the circumstances, but amongst the assets they got $4 billion in securities and cash. It was thought at the time that along with the assets went matching liabilities, including equipment leases, money owed employees, etc.
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On Monday the New York Times ran a piece that, in a better world, would not have been news. Turns out that credit card companies are often willing to settle delinquent accounts for less than what is owed. Golly.
The article did contain an important tip for those in serious credit card trouble. When the card issuer calls you out of the blue and offers to let you settle the whole thing for 80 cents on the dollar, you should, without hesitation or reflection, say no. Then hang up. They’re not calling because they think you’ll pay them eventually. That 80% is what we Wall Street types call a “first offer”.
The Times piece tells the story of a guy who got a call like this, said no thanks, and then when the company called back a few weeks later, offered them 50%.
It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.
Where I come from, the account rep would be considered very rude. Proper etiquette would have been to put the customer on hold for thirty seconds while pretending to beg a supervisor to okay the deal. At the very least, the rep could have heaved a big sigh and mentioned something about how will probably be fired for this.
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Our elected leaders are currently working up a head of steam to reform healthcare. Good luck with that. The mere fact that they vaguely call the effort "reform" tells you it’s going to be a very steep hill to climb. What nobody wants to say out loud is that the big problem with healthcare is that we spend so much on it, and we can’t spend meaningfully less on it without getting less of it. Like I said, good luck.
In the US, we spend about 12.5% of GDP on healthcare, a higher percentage than any other developed country. However, I think we can all agree we get rather a lot for our money. In contrast, we spend 2.6% of GDP on higher education, also the highest developed world percentage. And of course, we get something for our money here too. I for one am glad our doctors went to medical school. But dollar for dollar I think we’re getting a lot more value from healthcare.
Why do we spend so much on higher education? And why isn’t it considered a crisis worthy of reform? Part of the problem is a cultural attitude that higher education is a kind of higher calling. Attending college is a good thing in an abstract and noble way that doesn’t lend itself to cost benefit analysis. Asking if it is a wise investment in dollar terms just seems tawdry.
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