Author: The Chief

William, the Blog Father, and I met for lunch a couple years ago and both us had our “tin foil hats on” according to the cheerleaders of this disaster of an economy. A ton of issues were discussed but one item I brought up could reign supreme very soon, the topic of the car loan market. More specifically I spoke about the fact that the market was being flooded with subprime auto loans (not standard loans, think the No Income, No Job, No Assets, No Problem loans for homeowners during the meltdown a decade ago).

For a time, my prediction seemed baseless and unsubstantiated. There was nary a word from any media at all, until Wednesday, when CNBC had an article about it. As predicted at our lunch many years ago, its jaw dropping folks. William runs this site and perfection is not asked for, it’s demanded. We stand behind our predictions, and in this case I wish I was issuing a retraction. Here are some brutal highlights from the article:

• 7 million American borrowers are at least 90 days behind on their car loan
• 1 million more than 2010, when we went through the credit crisis
• Total auto loan debt has increased by 584 billion, the highest levels ever recorded by the FED

Link: A record number of Americans are 90 days behind on their car payments

When I digest these numbers, even I myself, the “Nostradamus” of this crisis, am somewhat dumbfounded….aren’t we told that we are in a period of major economic growth and expansion? I am told the stock market is making new highs almost weekly; wage growth should be keeping up as well right? Problem is while most of the above is true, the results say otherwise. We have had economic growth, largely due to low interest rates; this carries over to the stock market increasing to all-time highs. What I am saying is you cannot earn a decent return in a savings account so as a result you invest the money, driving the market up. Corporations, can make loans on the cheap through a bank to finance a large acquisition, like Kuerig buying Dr. Pepper Snapple, or Pinnacle Foods being bought by Conagra. I cannot blame these corporations just like the ones who borrowed money just to juice earnings returns, but back to the car aspect of this blog.

During the last 9 years, banks were able to borrow money from the Federal Reserve Bank for 0% interest. Subsequently, they lent it out at far higher rates of return depending on your credit or FICO score. To sum this up, the bank is taking zero risk, and you the borrower are at their mercy.

So how does this pertain to the above article? Well you walk onto a car lot or dealership because you need a means to get to work. Just like that, you are circled by the vultures posing as car salesman. I say posing because they don’t care about you, they see you as a sale not a person. Don’t believe me then go see for yourself. These dealers will literally hire anyone. Still don’t believe me, these people make money only when they sell, not so much when they are standing around, so when they find a live warm body, you’re dinner! You’re literally their meal ticket because they are on commission and without selling to someone like you, they don’t eat.

Since you need a ride to get to work, they don’t want you to see the affordable compact commuter car. Oh, you have a family then you need that SUV, or crossover, or full size car….think about going to the beach, or snow, or grandma’s house then get our all-wheel drive car over there! You test drive several, and you make a decision. You decided to buy a little more car than you needed but it’s ok because it will pay off in the long run. The sales guy made you feel like a million bucks, sadly, you don’t have said millions so you finance the purchase.

The finance guy (known as “The Closer”) sets up a payment plan…0% APR right? Isn’t that what the ad said? Well not in your case but we can probably do it for 15%. Then he runs your credit. You can’t make the payment over 48 months, so….let’s make it 72 months, and maybe it becomes 29%, but you need to get to work and the payment works so you sign. Congratulations Chief, you are now the proud owner of a new car or used car. It’s a ton of payments but we know you can afford $475 a month. Read the last part again. You got taken but you don’t realize it yet. You whip out the credit card for the down payment, you need the car now but it won’t be ready until tomorrow.

Excitedly, off you go in your new vehicle. Typically you get 45 to 60 days before the first payment is due. The first couple payments are a bit of a struggle but you make them. Eventually a life event happens or other bills just increase as they always do. (Seen what rental prices are doing lately?) All of a sudden a couple years into the loan, you realize you bit off too much but too bad. The car sales guy, he may or may not work there anymore, the finance person, ditto however both got paid up front. Keep in mind there is no fiduciary duty law in this business.

A local car dealership (Paul Blanco) literally runs ads saying we will get you in a car even with bad or no credit…and hence we have this auto loan issue. Frantically you call seeking to work out a payment plan…sorry the car is worth less than you owe, no refinance options exist Chief. Surely your credit union/bank can do something for you, you have been with them for years…negative Ghost Rider. Sadly your car is worth more repossessed even if you keep making payments on it. Surely this is usury or something, there has to be a way out…sorry, no one can help you. By the way, your car will be repo-ed and they will sell it again to another sucker, lather, rinse, repeat.

If you pursue legal action, you have no leg to stand on since you signed the papers. You also will find out the law firm hired by the finance company is Dewey, Skrewem, and Howe…while the in-house finance company hires law firm Howie, Keepum, Kurent. You were took, and are now on the hook, just another statistic in the actuary’s book. The sad cold hard reality is you need a car to get to work, you bought too much car, and got saddled with a high rate loan on a vehicle whose value depreciated tremendously upon leaving the lot. We never learned our lesson from 2008, and we are going to repeat it yet again, in a way that is going to be cataclysmic to the economy and credit markets. As pointed out earlier on this website, you won’t be getting that large tax refund to bring your payments current.

In this case I do wish I was wrong, however I was Really Right.

While conversing with an old college friend the topic of money and debts came up, my degree being in finance I offered to lend a hand. My friend also graduated with a degree in finance from the same college I did. My friend told me she was barely making ends meet. She is single and lives in the Bay Area and makes a decent salary of about 60k a year. She had amassed 35k in credit card debt, and has about $150k in student loan debt; credit card debt notwithstanding this is about normal for a young professional in their 30’s nowadays.

We cannot focus much on the student loan debt, because truth be told, without that degree you cannot even apply for a job at most places. This person is gainfully employed, so they have a paycheck going in their favor. What is the credit card debt about? This was a very painful discussion that initially ended with me saying if you’re not going to be forthcoming, the discussion would move on to another topic.

She began to open up. She revealed that she doesn’t cook so she eats out twice a day. The cardinal sin isn’t so much she is eating out, it’s that she is going to happy hour. Happy hour involves alcohol, and salt filled appetizers at a great teaser rate. I know this too well; you grab a tall one, then order up the wings, egg rolls and chips and salsa for just $11.99. Then upon finishing your appetizer you want another tall beer, then maybe one more, before deciding you probably better order food because its dinner time now…..$15 happy hour just became $70, possibly more with tax and tip……don’t worry just put it on the card! You get up tomorrow morning and need something to cure the hangover so you grab fast food, and spend another $10…lather rinse repeat. Those charges add up.

Reluctantly she went on that she spent quite a bit of money trying to keep up with the Jane’s and Kardashians of the world. I cannot relate to this, I am a guy, and as William can attest I usually have the same shirts, jeans or whatnot until it is ready for Goodwill…but I digress. In addition, I found a premium cable package, gotta watch the soaps every week, and binge watch on weekends. A home phone? ….if you’re under ago 60….lose it ASAP. A brand new iPhone, with a cancellation proof guarantee of a three year contract built in. A gym membership……where she went one time. This friend was in desperate need of help, I was there to advise, but I told her she isn’t going to like what she hears, but it’s got to be done.

The truth of the matter is she doesn’t need a diet, she needs a lifestyle change, and poor decisions have begat more poor decisions. A couple notes prior to me telling the advice that I gave her; she drives an old car and lives in a decent area, by no means high rent district. No car payment, and it’s not my place to tell a girl to live on skid row or somewhere not safe in order to save a buck.

My advice to her was her ditch the gym membership and commit to going for a walk during her break or lunch and park near the back of the parking lot at work. Ditch cable and the home phone. If you don’t think you can live without cable, try Hulu or Netflix or both. The cell phone is problematic however you have agreed to a contract so maybe try to negotiate a lower plan or something, this is the danger of brand new items. Take cooking classes, watch YouTube cooking videos, or I guess if you keep cable watch Food Network. The amount of money you spend eating out daily ads up quickly. What you spend in the course of just one week would likely covered groceries for a month. The key here is McDonald’s dollar menu seems cheap, but the food is loaded with chemicals that make you crave it for lunch, then dinner and a possible late night snack. Your waistline will thank you as well. In addition don’t think eating out for healthy food is the answer either. Salads cost more than $11. Subway may sound good and in some cases can be healthy but costs can add up quickly. The goal here is that we found quite a bit in monthly savings and we could apply this to debt service, starting with the 25% interest rate credit card debt. In her case the student loans were subsidized at 5.5% and honestly the least of her worries.

We found a potential of $800 per month in savings if she can implement the lifestyle changes that we discussed. This doesn’t sound like much but if she remains diligent, it will substantially cut into the credit card debt. Contrary to most people’s opinions, I told her keep the cards, do not cut them up, and in fact keep using them. Dave Ramsey won’t agree, but the way I see it, cash has a way to disappear with no accountability, with a credit card your charges are all itemized out each statement cycle. This is a way of keeping yourself honest, while also paying down the balance.

This plan is a roadmap to achieving a level of financial freedom and other people may have issues with the particulars but if the plan is maintained, it will work. I have to give my friend some kudos, she had her degree, and even found some additional work to provide a little more $$$ on the side. However this is where the kudos end, and cold reality of the world we live in sets in. The plan was not followed….well it was for about 6 months. Reality is a doozy in this case, but well here is the rest of the story as Paul Harvey used to say.

In the case of my friend, she reduced her credit card debt to $17k in just 6 months’ time, everything was going well, then she went back to her old ways. It’s true, you aren’t going to meet anyone to form a relationship with sitting at home eating a can of chicken noodle soup, just like it isn’t true living like a miser will make you happy. However if going out to the bar is recipe for eternal happiness I would rather die alone. Credit card debt maxed out now at 45k and the issuer is having no part of a deal involving reduced payments or more credit extensions. All the while rent in her area has skyrocketed and goes up about $150 a month twice a year, further constraining a budget, now the minimum payment cannot be made! That car…well it’s systematically breaking down and becoming a large money pit, you have no option but to keep sinking money into it. The rent issue? Well you need a roof over your head, so you have to keep paying. The student loans? While you don’t have to pay, you cannot discharge these through bankruptcy. She does not have rent money for next month….adding insult to injury, the complex manager is looking for the last 3 months rent. She is at the end of the treadmill of debt…it’s now over, decisions she made and subsequently have continued to make have finally come home to roost. Even worse rather than seek out help or try something productive, she gambles at the local Indian Casino, and plays the lottery, essentially falling for the lie that the easiest way to double your money is betting it all on black. Suffice it to say, she blames me for telling her to keep the credit card, we no longer have a relationship.

Now I will add some commentary. I prefer using my credit card to track my spending and purchases, maybe it was not a great idea, but ask anyone who is a waiter/bartender/valet, cash tends to disappear quickly and there is no paper trail. While I firmly believe in separating needs and wants, the bigger issue is you can be seduced by a want, and you could convince yourself it’s a need….you need a budget. Make a shopping list wherever you go, grocery stores love it when you insist on going up and down every aisle, it’s easier to trick your mind by those fancy SALE stickers. By the way ever notice those sale prices are not as good as the actual sale prices a week later? Impulse buying perhaps?

When it comes to tackling your debt, pay off largest balance/highest interest rate first. The one that costs you the most needs to be paid down first, then apply additional money to next highest interest rate etc. until paid off in full. Take advantage of local non-profits that are there to help/guide you, ditch that “financial advisor” eager to pitch their latest product to you. Suze Orman and Dave Ramsey are two of the best on the radio, free! They also offer classes for a nominal fee and it is well worth it as blogged about earlier. Additionally, this idea of hording a bunch of money in a savings account, when you have existing debt is ridiculous. Just think about it, your credit card issuer is charging you 30%, your savings is earning 2% at best if you use an internet bank…..William said it best, the house always wins. Having a rainy day fund is ok but deal with your debt.

Playing the lotto and gambling is even worse because the atmosphere is created to make you addicted and play more.

If you need to file bankruptcy and start over, so be it, but understand the difference between dischargeable debt (mortgage, credit card, auto loan) and undischargable debt (student loans). Perhaps worse, she started reading a tax website and decided to start looking into buying a house….get this…..for the mortgage interest deduction. Yes, she thought spending $$$ on a house payment each month and getting a bigger tax refund would get her out of debt. Then worse yet, she joined several dating websites ($$$) looking for a special someone. Again seduced by a child tax deduction and a marriage tax break…news flash the marriage tax break is double that of a single one, however your taxable income will be higher. The goal of marriage is not to share the misery of your past mistakes by expecting someone else to fix them so you can double-down on continuing to make stupid life choices. Truthfully, what guy worth having would willingly enter into a relationship with someone carrying all your financial baggage?

The bottom line is that my friend has no chance anymore, except bankruptcy, and even then the road back will be rough. Good luck living anywhere decent. You won’t be driving a new vehicle for a while and worse your credit will stink for many years. However there is good news, we have some of the most generous bankruptcy laws in the world, so fear not in about 7 years you will get to start all over again! I have a customer who’s family is doing just that, they owned a really nice house in my parents old neighborhood, went into foreclosure, filed bankruptcy, and now they are right back at it 7 years later. Bought a house in that same neighborhood, also near the peak of the market, by the way, bought a huge new boat, 3 new cars, and I’m sure this story will once again end poorly soon, but hey it’s America! By the way didn’t Citibank used to have a catch phrase of “Live Richly?”

I guess I may be missing out?

Today we had a tragedy in San Francisco, no the land was not sold to the Chinese as has been rumored.  A large explosion took place…pandemonium ensued.

• Was this an attack by the Russians ordered by President Trump? 
• Was Leland Yee or “Shrimp Boy” Chow involved? 
• Was this truly the “big one”?
• Did the toxic waste at Hunter’s Point go critical?
• Reports surfaced it was just hot air……. but I don’t recall Aaron or George Park visiting San Francisco to give a speech, so I was dumbfounded. 

I needed answers, I was told London Breed would make a statement soon…. my reaction was London what? Was this a type of dog, new brand of malt liquor, a clothing line for homeless people, a rap singer or something else entirely? What does a breed of anything from London know about an explosion in San Francisco?

Well it turns out that San Francisco voters—documented and otherwise—elected a Mayor named “London Breed”, I’m more of a corgi guy myself.

The explosion was a result of natural gas—in this instance, said gas was not created from the contributions of local homeless people accumulating on public sidewalks—but from a ruptured pipeline belonging to PG&E that caught fire and burned several buildings.  Yeah there’s that company again.

Three-story flames could be seen leaping into the air in television images. Police spokesman Robert Rueca says the fire was reported around 1:10 p.m. and there were no immediate reports of injuries.
KPIX-TV reported that the fire started at a construction site.

The Latest: San Francisco blast, fire ignites 5 buildings

  You hate to see it.  Thankfully no one was hurt or killed, but I can’t help but fault this corporation for their blatant stupidity.  They easily could have torched their headquarters and collected insurance money…I may know a guy btw!  It would have been a real shame if the maintenance records and other documents the Public Utility Commission has been trying to subpoena for the last few months were located in said building, but alas your company couldn’t even blow up the right structure…. SAD!

I don’t even know how this works since technically or I guess “allegedly” you filed bankruptcy a week ago.  So, I guess the “ratepayers” are on the hook for this?  I ask because I haven’t seen a gas leak like this since I ate an “extra loaded bean and cheese burrito” at a certain Mexican joint in Elk Grove!  But really, PG&E, I am asking for a friend, do I pay you this month or do I just pay myself since I guess the ratepayers kind of own you now?  However I am glad you found a way to pay out $130 million in bonuses to your top executives!  I hate the idea of taking food off the table from them!

Sadly, this is just more tone deafness from a corporation surprised that “Paradise Lost” is already a movie…. imagine the revenue that idea could have produced. 

This caps off one heck of a quarter for PG&E, too bad something worthwhile couldn’t have been blown up…like, I don’t know, Berkeley?

The infamous government shutdown has come and gone and in a rare blog, I’m not going to get or be political at all. I want to focus on personal finance and how close most Americans are to financial ruin. Hopefully you will learn something, if not go study Socialism 101 and hopefully Alexandria Ocasio Cortez wins in 2020.

For the rest of us, the core of our financial problem in American is called a “paycheck.” You know, one bestowed upon any hard-working person; received once, twice, weekly, or bi-weekly every month. “A day’s work for a day’s pay”, or as some would call it, “money received for services rendered.” However, we as Americans have overestimated the paycheck. We take it for granted. We no longer see it as wages earned, but as money to spend; or in some cases, as alluded to earlier in a separate blog, money needed to pay past debts.

Really, in most respects we never learned our lesson from the bank/real estate/credit crisis starting in 2006. People lost homes, cars, jobs, and other material investments. Your 401k became a 104k, and we as a country swore, we would learn our lesson. Truth is we never did.

The year is 2019 and we experienced a government shutdown. Federal employees were forced to work without pay or told to stay home and you would not be paid. Additionally, in the case of TSA workers, they staged sick outs to avoid the punishment of actually having to show up to work. The workers rebelled because they were no longer receiving a paycheck. (FYI once it was over, they were all paid retroactively to the beginning of the shutdown.)

Changing our lifestyle is a lesson we should have learned a decade ago. Companies had mass layoffs, banks and investment firms went bankrupt, the government bailed out Wall Street. We never learned our lesson. How many stories, articles, interviews etc. did you see featuring government workers forced to go to a local soup kitchen or fill out food stamp applications, workers claiming they were about to be thrown out of their apartments, houses? They never learned their lesson. While my heart breaks for these workers I find it very hard to believe they spend their entire paycheck on just housing and food, and if they do, we are in way bigger trouble as a country then I have ever imagined.

The truth is, these people are liars. They have 2 car payments, possibly a boat/rec vehicle payment, credit card debts, and likely spend far too much on entertainment or dining. However, that doesn’t make for a great narrative so we must focus on the single mom of three who is being evicted and somehow that is my fault because I’m undertaxed?

Poor financial choices have been harming Americans for decades. We are fiscally illiterate people. The biggest problem is we have stopped seeing the paycheck as a means of income. Instead, we now see it as a way to pay-off last month’s debts.

Madison Avenue marketing in all its forms, encourages us to swipe a piece of plastic because we won’t see the bill for 30 days and can afford the minimum payment… buy now, pay later anyone?

The truth is, if we actually had to reach into our wallets and pull-out cash every time that we made a purchase, we would behave in a much different manner. But because our money is just so many pixels on a computer or cellphone screen, there is a lack of restraint on our behavior. Our paycheck is not “real.” Its is an ethereal, untouchable, intangible thing.

The crux of the shutdown matter is this: “Does the Government work for us or do we work for the government?” Once that question is answered we will be able to chart our future. If you are a federal, state, county, city, union, etc. employee take heed of my words; you are 100% at the mercy of the taxpayer base. We have a tendency to vote with our feet, and at some point, we may get transportation out of said country. You have just received an early warning, next time you may not be so lucky. The day of reckoning is coming; unfunded mandates are not easily curable by simply raising taxes or increasing the employee contribution for new hires. As a famous person once said, “socialism is great until you run out of other people’s money” …I doubt that person was Alexandra Ocasio -Cortez.

While this should be a kick in the pants for all workers, especially the previously untouchable federal workers, it won’t be. The shutdown is over…crisis averted…I guess? Actually, this is temporary, the next one may be very protracted. We as workers must come to grips with a very stark conclusion, we are beholden 100% to our employer. If you work in the private sector—we all know our paychecks are tied to ebbs and flows in company profits, if you work for the government—your wages are tied to union agreements. In either case, it’s a scary place.

My advice is to get your financial house in order ASAP, not next week, not tomorrow, ASAP. Immediately get all debt under control and limit spending based on needs, not wants.

• Limit pleasure trips and forgo trading in your car for a brand new one, equipped with a higher payment.
• Use your cell phone until its obsolete, resist the urge to spend over $1,000 on a new one.
• Cable is awesome, when you watch it…. consider cutting the cord, you may be amazed how little you miss it.
• Stop looking at ads in the mail/paper/or in store, they are designed to make you become an impulse buyer, your freezer is full, your pantry is overflowing, you don’t need another flat screen, let it go.
• That gym membership you signed up for but keep waiting until next week to actually use…. cancel it.

Once you start following these pieces of advice you will find yourself with extra money at the end of each month, resist the urge. This money is not your next payment, it’s found money to save. Extinguish debt, or invest in retirement; however, I prefer starting savings, make a goal of 10% of each paycheck.

Get that savings up to 6-10 months of expenses, now you are your own boss. Something unexpected happens at work, you can take a job you want, as opposed to taking a job for the paycheck to once again, pay off debts. Invest in yourself, learn new skills, and become adaptable, your future you will thank you. Just FYI, calling out sick when you aren’t sick gets you fired in the real world. The fact you drive a basic car, not the latest C class Mercedes will pay off in the future. Have a plan, don’t be the 80-year-old guy or girl working at Home Depot or Walmart because you have too.

While it will not be official until January 29th, Today PG&E announced their intention to file chapter 11 bankruptcy so they can reorganize and become an efficient company again. I say it became official today because PG&E did not pay the interest on a bond obligation due 1/15/19. Even worse the company only has enough cash to cover 4% of their fire related obligations, due to their negligence. Chapter 11 is not liquidation, its reorganization. If you’re a stockholder you will be wiped out, a bondholder, you will see pennies on the dollar for your “investment” and if you’re an employee your paycheck and retirement may be effected slightly. However the company will be lent money by investment banks, so your power and gas will still be operational, and rest assured a monthly bill will still show up.

How did we arrive to this fateful day? Well the fires are the easy answer, and as mentioned in an earlier blog SoCal Edison is not far behind. Utilities as a whole are debt laden companies due to the extensive capital expenditures that are supposed to be occurring every year (more on this later) and are 100% reliant on the Public Utility Commission to allow them to raise rates to cover expenses. The fires occurred, they had no reserves and as a result had no cash to make the payment on the bonds.

What is the fallout going to be from this you may ask? As mentioned above your service will not change or be disrupted. Stockholders are wiped out, bond holders get some scraps from the table, and pensions are likely going to be restructured. CEO Geisha Williams was “axed” the question on Sunday and she chose to resign instead…don’t feel bad for her she gets a nice parting gift of 2.5 million severance. (Had she worked for a governmental agency in Elk Grove, she would have got lifetime medical benefits for being fired, too.) I need to find one of these jobs were apparently incompetence is rewarded.

Geisha spent a whole two years on the job by the way, thank god she wasn’t a teacher, she would have tenure right now and you couldn’t get rid of her if you tried.

What is going to happen during bankruptcy? This is where things get very interesting, as I could see many different scenarios taking place. I think the most likely is a systematic parting out of the company over the course of several years while under state receivership. You could make an argument it should be broken up into a northern, coastal and inland utility. However I can see a big hang up, the infrastructure. A man in my office made a comment that the company owns quite a bit in valuable assets; this is somewhat true but mostly very false. True they own their headquarters in San Francisco, which is obviously worth quite a bit, but they are going to sell it to stave off creditors. As far as other assets, one mentioned by said man in my office was their wire line assets….really? I view those as a massive liability waiting to spark another fire. Ditto for their generators and transformer units, especially with their maintenance history as a company. Simply stated, buyer beware with these “assets” even if I got a sharp discount I wouldn’t touch them with a 100 foot insulated pole.

The aftermath with the bondholders could get very interesting though. CalPERS our state retirement system has not said how much in bonds they hold. Could the state bail them out just to keep CalPERS solvent? Could we see a state owned utility? Stay tuned! This is going to get messy.

Oh, the stock is down to around $6 a share, and don’t worry; they halted trading this morning, so you were unable to sell your shares, but retirement funds, institutional investors and those in the know were still able to bail out.

Happy trails PG&E, I hardly knew ya.